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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 , CORP

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EE-RM-93-801 COMMENT 0E

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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 hearing was 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 

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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

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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 

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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

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1 P-R-O-C-E-E-D-I-N-G-S 

2 9:34 a.m. 

3 PRESIDING OFFICIAL BERLIN: Good morning. 

4 Welcome, everybody. I guess on behalf of the 

5 Department of Energy I'd like to welcome you for 

6 coming here. This is the appliance efficiency program 

7 or appliance conservation program and I'm Barry Berlin 

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 associated with different energy efficiency appliance 

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 externalities came out of several comments we received 

22 on past notices of proposed rulemakings, past Federal 

23 Register notices. And with this Supplemental Advance 

24 Notice and Hearing we're going to just begin the 

25 investigation to see whether there is a sound analytic 

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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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1 basis for determining values that could be used for 

2 evaluating appliance efficiency standards, 

3 externalities, and energy security externalities. 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 certain emissions and oil imports and use those in the 

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 external impacts of appliance standards only if we 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 economically justified. 

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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4218 LENORE LANE, N.w. 

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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.

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1 comment period for this Supplemental Advance Notice 

2 ends February 6, 1995. 

3 Al comments submitted on this Supplemental 

4 Advance Notice will be considered before we establish 

5 a proposed rule on revised energy efficiency standards 

6 for central air conditioners and furnaces. We may not 

7 print in that proposed rule exactly what our intention 

8 is, but we will probably come 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 available for inspection and copying at the Department 

17 of Energy's Freedom of Information Reading Room, 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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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

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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 hearing will be conducted 

5 in accordance with the following procedures. These 

6 are the standard procedures 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 extent possible 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 are making essentially the same points as previous 

18 speakers, we ask you to simply reference the other 

19 speaker's points and not develop them anew. That will 

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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Persons 

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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

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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, scheduled and 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 Questions will be asked only by members of 

10 the panel conducting the hearing. However, I will 

11 allow any interested person an opportunity to question 

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 such question is likely to result in a 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 submi tted should be identified as to who the author of 

23 the question is and to whom the question is being 

24 directed. I'll determine if the question is relevant 

25 and if the question is allowed, I'll be the one to ask 

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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

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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 opportunity will also be afforded 

7 after any rebuttal statements to the extent I 

8 determine such question is likely to result in a more 

9 timely and effective resolution of such issues. 

10 And if you want to make advantage of that 

11 opportunity, you have to submit your request after the 

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. The question should also be identified as 

17 to who is the author and to whom the question is being 

18 directed. I'll determine if the question is 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 Reading Room, 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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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.

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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 Any person sUbmitting information which he 

6 or she believes to be confidential and exempt by law 

7 from public disclosure should submit to 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 appreciate the time and effort you have 

19 taken in preparing 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'm largely responsible for the economic justification 

25 analysis and the environmental analysis that we do. 

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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

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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, and Mark 

6 Friedrichs is from the Office of Energy Demand Policy. 

7 And Eugene Margolis is staff attorney from the Office 

8 of General Counsel and he's been the Program Attorney 

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: My name is Rae Cronmiller 

15 and I'm Environmental Counsel for the National Rural 

16 Electric Cooperative Association 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

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1 Rulemaking which entertains the idea of whether to use 

2 monetized environmental externalities in the 

3 application of certain appliance efficiency standards. 

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 policy perspective and we don't think it's the kind of 

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 1,000 of the nation's not for profit 

15 consumer electric systems. Of these, 62 are 

16 generation and transmission cooperatives, and the 

17 remaining are distribution cooperatives who distribute 

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 units were constructed after enactment of the nation'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

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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 specific focus of this Advanced Notice 

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 environmental externalities, monetizing environmental 

13 externalities in the development of other efficiency 

14 standards and potentially in the development of policy 

15 in other areas of importance, not only to the electric 

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

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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 eval uation 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 evaluate the 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 consider

including 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

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1 of a proposed efficiency standard. Under the Advanced 

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 review of the record, NRECA does not 

11 believe DOE has the administrative discretion under 

12 Section 325 to evaluate appliance efficiency standards 

13 using a highly abstract, highly controversial, highly 

14 ambiguous economic theory of monetizing environmental 

15 externalities. Specifically, the united States 

16 Congress expressly considered and rejected legislation 

17 requiring state public utility commissions to consider 

18 including environmental externality evaluations least19 cost planning process under the Public Utility 

20 Regulatory Policies Act. This direct consideration 

21 and rejection of environmental externalities occurred 

22 during the legislative process which led to the 

23 development of the National Energy Policy Act of 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

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1 as one of many factors to evaluate fuel sources of 

2 electric generation under a least cost planning 

3 process, and not for the development and evaluation of 

4 appliance efficiency standards. Yet, Congress even 

5 directed and considered and rejected this direct 

6 application of externalities. 

7 Stated a little differently, an electrical 

8 appliance cannot distinguish between electricity 

9 generated from a particular fuel source, therefore, 

10 utilizing monetized environmental externalities based 

11 on fuel type for use in appliance efficiency standards 

12 would, at best, be an indirect and obscure application 

13 of the theory of environmental externalities. DOE has 

14 failed to demonstrate it has administrative authority 

15 to inject monetized environmental externality theory 

16 into the evaluation of appliance efficiency standards. 

17 To do so would amount to a very awkward application of 

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 using this 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

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1 for its application. According to the October Advance 

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 regulatory requirements or policies, 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 are heavily regulated under the numerous Clean Air Act 

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

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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 associated with it. Stated differently, we 

10 certainly believe that it is inappropriate for DOE 

11 staff to second-guess united States Congress regarding 

12 the effectiveness of the nation's Clean Air Act in 

13 adequately protecting environment and health concerns 

14 as the statute is clearly constructed to do. Such an 

15 effort by DOE would be political, hardly objective and 

16 not soundly analytical. 

17 Regarding establishing CO2 monetized 

18 externality values, we would point 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

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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 October Advance Notice 

4 specifically recognizes this vast uncertainty. Thus, 

5 any effort to monetize a damage function by DOE would 

6 involve nothing but pure speculation, pure hypothesis 

7 and therefore, pure subjectivity. 

8 Moreover, as the Advance Notice indicates, 

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, and yet 

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 submits that the overall benefits 

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 climate change. An increase in "fertilization II effect 

23 could increase agricultural crop yields as well as 

24 increase timber production for example. Therefore, if 

25 DOE is going to monetize CO2 emissions under a damage 

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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

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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 "cost to 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 and benefits. According 

15 to DOE, once again finding" sound analytic" 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

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1 installed air source heat pumps for manufactured homes 

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 statutory mandates 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 externali ties into what otherwise appears to be an 

15 objective, sound, rational process. 

16 "Residual" damage functions or 

17 "willingness to pay" for emissions reductions or "cost 

18 to control" emissions reductions where no 

19 environmental damage can be documented, as DOE appears 

2 0 to recommend as an al ternati ve for monetiz ing 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 

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into the 

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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.

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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 and based on 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 recognized under the National Environmental Policy Act 

18 that one of the things that happens is there should be 

19 some improvement to the environment from less 

20 electricity generation, from more efficient electrical 

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 in physical 

24 quantities. And that's what we propose to do, should 

25 we not pick up on monetization. 

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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

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1 What is NRECA' s position on our even 

2 trying to take an account of this issue? 

3 MR. CRONMILLER: Well, once again, I mean, 

4 without seeing your specific recommendation, based on 

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 in many 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 energy use, which in effect have an overall beneficial 

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.

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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 increase of electrification, not only in the 

4 rural economy but also throughout the entire economy 

5 and throughout America, can in effect result 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 PRESIDING OFFICIAL BERLIN: Thank you. 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 six of the criteria in the Statute that 

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 security benefits 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. 

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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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1 Contrary to the assertion you made in your 

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 now we have no easy basis 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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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

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1 externalities is that there is no right place to begin 

2 and there is no right place to end. The mere fact 

3 that you would choose carbon monoxide, 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, assuming we cannot discriminate electricity 

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's willingness to pay? That in and of itself 

19 is a subjective decision. You can conduct a national 

20 poll. You can go out and try to find figures, but how 

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 in and of itself is subjective so 

25 it's a circular argument. And there is no answer to it 

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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

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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 should be concerned about, 

12 then you pick carbon dioxide, and you sit there and 

13 you would determine a damage function which you really 

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 nothing wrong with subjective 

18 evaluations, and I understand that you are certainly 

19 required under your statutory mandates to consider 

20 various conservation alternatives, but in that process 

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 as part of our written testimony, that you guys 

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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

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1 really ought 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 are we going to 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, and we 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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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 deve l oped d an other stan ar d ds as we ll .

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

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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 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 

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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

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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 gather your question 

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 that we're very involved with developing 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 them but 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 and we have led the way 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

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1 inject into what you're currently doing. 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 in CO2 , nitrogen oxide and sulfur oxide, 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 the whole would obviously draw the 

12 cost of the appliance up, probably. I mean, it's 

13 going to be more expensive to produce and I mean, that 

14 probably needs to be considered but nonetheless, if 

15 you then extrapolate from that some sort of national 

16 mix of energy and you would have 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 where you're developing a very, or somewhat sub j ecti 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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concerned with.

I mean, in other words, if it's going to

require 10 or 15 percent more in energy use to

construct an appliance to meet the standards, which

you guys want to propose, then you have to consider

that as well and that's the off-set against, you know,

in our opinion the direct decrease that would result

because that particular appliance is more efficient

from the electricity viewpoint.

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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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 and that's the off-set against, you know, 

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 really want to extend our appreciation. We really do 

20 appreciate this opportunity, and gentlemen, I really 

21 appreciated your questions and I will respond as best 

22 as I can and get back with you in time for the written 

23 comments. Thank you. 

24 

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I'd like to call Clifford Porter to the 

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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

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1 podium, please, or the speaker's platform, whatever it 

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-owned utilities, 

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

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1 make it clear this proceeding is being used to develop 

2 general departmental policy regarding monetization of 

3 externalities. We expect the policies developed will 

4 have far-reaching impacts beyond the scope of this 

5 proceeding. We believe that the Department I s 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 legally or as 

17 a matter of solid public 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 would have 

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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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

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1 Congress before regulatory efforts are made to define 

2 and apply them. We think it is particularly 

3 inappropriate for the Secretary to consider a program 

4 for the use of monetized externalities without 

5 explicit Congressional authorization, whether it be in 

6 regard to the setting of standards for appliances or 

7 otherwise. 

8 It is inappropriate to promulgate 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 proceeding under the guise of 

19 developing conservation standards for appliances. ~ 

20 real purpose of this rulemaking is not the development 

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 

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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

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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 generation for example. There is not even the mention 

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 negative externalities would not eliminate the problem 

15 of monetized externalities. Externality values remain 

16 highly speculative in nature. Also, this piecemeal 

17 application of externalities can result in market 

18 distortions. 

19 "Cost of control" should not be used as an 

20 approach for developing externality values. 

21 The Lignite Energy Council agrees with the 

22 position that the "cost of control" approach is 

23 theoretically flawed and not a sound basis for 

24 developing values. The conclusion reached by FERC is 

25 the use of "cost to control" has no underlying 

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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

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1 economic logic. Only by coincidence would control 

2 costs reflect true societal costs of increased 

3 pollution. 

4 No externalities value should be 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 scientifically demonstrated, nor has it been 

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 There is no justification for assigning an 

16 externalities value to CO2 The Secretary cannot 

17 simply assume CO2 to be an environmental hazard 

18 without specific proofs. If CO2 is not harmful, there 

19 is no need for an externality value. 

20 The supplemental notice acknowledges that 

21 there does not now exist a sufficient basis for 

22 developing estimates of the marginal 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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"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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1 "willingness to pay" is at or near zero when federal 

2 policy is considered. Notwithstanding this, the notice 

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 valid approach. An average derived from 

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 the values were adopted based 

14 on the conclusion that CO2 is an environmental hazard. 

15 For example, Wisconsin adopted externalities values 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 diversity and penalizes those states with good records 

24 of environmental compliance. 

25 North Dakota generates significant amounts 

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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

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1 of electricity from Lignite and is a major exporter of 

2 electricity to other states. North Dakota generates 

3 approximately 27 million megawatt hours per year. It 

4 consumes approximately 7 million. It exports 

5 approximately 70 percent of the energy that it 

6 produces. Environmental impacts from the criteria air 

7 pollutants are highly site specific. They are not 

8 problems in North Dakota. North Dakota is one of only 

9 six states that meets all Clean Air standards in the 

10 united States. 

11 The primary reason North Dakota is 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 steam electric power 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 state with an estimated 35 billion tons. It 

23 has enough lignite to last more than 1,000 years at 

24 it's present rate of production. Nearly 92 percent of 

25 all the coal mined in North Dakota is consumed in 

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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.

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1 energy conversion facilities located in North 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 industry has a direct economic impact on the states of 

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 any major industry group in the state. 

16 In 1993 the industry paid over $81 million 

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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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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1 Air emissions on which externality values 

2 have typically been placed are not environmental 

3 problems in North Dakota. The application of 

4 nationally determined externalities values for 

5 consumer products would unjustly and unfairly penalize 

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 and benefits. Monetized externality values 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 thank you for the opportunity to present 

15 our testimony. 

16 PRESIDING OFFICIAL BERLIN: Thank you. As 

17 I asked the first speaker, if we were to back off from 

18 monetizing the trying to put monetary values on the 

19 externalities but continued to use the physical 

20 quantity emission reductions and maybe reductions in 

21 oil imports in the setting of standards, how would you 

22 respond to that, trying to use the physical quantities 

23 for the setting of appliance standards? 

24 MR. PORTER: I think we would be more 

25 receptive to that. We'd certainly have 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

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1 close look at what you had in mind when you voice 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 restricted to those states that have monetized values 

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 with national averaging. And it would help us 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

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1 averaglng and the problems related to it for purposes 

2 of environmental impacts that might be looked at under 

3 criteria six, and the national averaging that I think 

4 is already done in the 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 electricity rate that is used in that calculation that 

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.

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1 North Dakota. You have to consider that North Dakota 

2 is a very rural community. In the 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's certainly -- agriculture is close behind. 

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 in North 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. 

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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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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, but we'll be glad to 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 attorney who currently is engaged in 

20 very costly and regrettably a very extensive debate in 

21 the State of Minnesota, I would submit to you that 

22 this panel discussion today, along with your continued 

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

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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 on what we have in North Dakota, 

4 the Public Service Commissions, has begun this process 

5 of looking at externality values, trying to assign 

6 externality values when they're establishing long term 

7 projections for rates, long term analysis of what kind 

8 of energy source is going to be provided to the public 

9 to provide growth in their economy as well as meet 

10 consumer energy needs. All of those proceedings, to my 

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 Clifford has 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 very proud of our environmental record and one of 

23 the things that is most disturbing to me, as someone 

24 who has spent some time in the Environmental 

25 Protection Agency, a year in Washington, 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

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1 the process of trying to monetize these values, has in 

2 fact put a very serious chilling effect on what we 

3 hope will be a path that we need to take in the 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 that we have a solid market in the form of delivery of 

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 explain to you maybe what might 

15 be fairly unique, the role of the Attorney General in 

16 North Dakota. It f S 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 Industrial Commission, we oversee the Lignite Research 

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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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

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1 task, as public servants for the State of North 

2 Dakota, is to enhance our market opportunities for the 

3 energy industry. So not only do 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 obligation to 

8 pursue markets and to pursue fair treatment for our 

9 lignite industry. It's in both contexts 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 opportuni ty 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, the whole concern about the 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 submit to you that from the standpoint 

22 of someone who represents the people and is elected by 

23 the people, that I think we are currently in a 

24 regulatory climate and a political climate that would 

25 not look favorably upon looking at externalities or 

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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.

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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 and foremost to look at the process under which you'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 whether we think you should have 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 basically to 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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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

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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 Clifford has 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 engaging in, the legal background 

14 for that process, and I know we have had some 

15 discussion this morning about section six, and I'm not 

16 sure what the exact cite would be but it appears to me 

17 that the overall goal of promoting conservation would 

18 not to the people of the American public scream for or 

19 scream that they would demand looking at that point 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 and that you leave 

25 this concept behind for Congress to adopt in a more 

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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

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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 of Massachusetts has recently rejected in the Supreme 

6 Court of Massachusetts has rejected their externality 

7 proceedings, sent it back to their Public Utilities 

8 Commission. The city of Chicago in the State of 

9 Illinois has had a similar experience and North Dakota 

10 hopes that Minnesota will have a similar experience 

11 corne this summer and will also reject the application 

12 of this theory. 

13 And my written comments are on file. They 

14 contain a great deal more information about the State 

15 of North Dakota which I am not sure is exactly germane 

16 but I think sometimes when you're in Washington, 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 budget in buying their appliances. Sometimes that 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.

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1 help in setting a perspective in what we do as public 

2 servants. 

3 Thank you very much for this opportunity. 

4 PRESIDING OFFICIAL BERLIN: Thank you. 

5 You've raised a number of issues about the difficulty 

6 all of this raises, which is why we sort of waded into 

7 this in a very tentative way. We recognize that there 

8 is a quagmire of problems with this, and from the 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 could mean to our schedule for other rulemakings 

14 and getting out the appliance efficiency standards 

15 that we do have to get out in a reasonable time table. 

16 And I thank you for your testimony. 

17 MS. HEITKAMP: Mr. Berlin, I think you can 

18 expect, if this goes further, a very vigorous debate 

19 an extensive debate, as you can see from just even the 

20 audience that you have here today. 

21 PRESIDING OFFICIAL BERLIN: Right. And 

22 we've seen a lot of the written record already and we 

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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MR. FRIEDRICHS: I'd like you to address

this problem which I had raised earlier and perhaps

more directly in relationship to climate change, and

CO2 emissions. As I indicated, we consider ourselves

mandated by statute and we have traditionally

considered the expected environmental impacts of

appliance efficiency standards. In the development of

standards we've estimated environmental impacts

including the effect on CO2 emissions.

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.

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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 appliance efficiency standards. In the development of 

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 motivated by concerns regarding climate change. 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 The problem is how should one subjectively 

20 consider this issue? If one subjectively considers 

21 this impact, there is at least as much probability 

22 that the decision maker will put greater weight on the 

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. 

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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

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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 because that factor is already considered subjectively 

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 going to be testifying here, scoured the statutes that 

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 

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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.

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1 were considered by Congress. 

2 I'd like and I don' t mean to demean people 

3 who are concerned about global warming. I think that 

4 there is a great deal of discussion, some of which has 

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 concerned that the product will 

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 the environment, it is best left to the 

16 scientists. It's best left to the Congress 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 let me confirm, you 

21 don't believe we 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. 

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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

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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 Air Act. The Clean Air Act 

12 was a large point of controversy. Global warming was 

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 to the industry and it 

17 seems to maybe perhaps ordinary citizens, why is it 

18 that environmental concerns are being considered after 

19 the regulation by rate makers, by people who would 

20 establish standards on appliances? It seems to be too 

21 far-reaching. And so again, I caution you not just on 

22 the CO, which obviously is my largest area of 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.

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1 people what their concern would be on storage of spent 

2 fuel, there may be a great deal of concern that the 

3 people have, in fact more concern than they have right 

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, maybe we'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 when we don't see other known pollutants in the list. 

21 MR. FRIEDRICHS: ,Right. 

22 

23 

24 

25 Berlin. 

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MR. MARGOLIS: No questions. 

MR. GRUENSPECHT: No questions. 

MS. HEITKAMP: Again, thank you, Mr. 

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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

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1 PRESIDING OFFICIAL BERLIN: Burt Kalish, 

2 please? 

3 MR. REID: Good morning. The current form 

4 of the agenda lists me and not Burt Kalish as the 

5 presenter this morning. Allow me to introduce myself. 

6 My name is Edward A. Reid, Jr. I am Vice President of 

7 Marketing for the Columbia Gas 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 million customers, or more than 56 percent of the U. S. 

21 energy market. Ninety percent of the U. 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 be

achieved when pursued comprehensively using marketbased approaches to maximize flexibility, encourage

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1 utility companies serving major portions of the states 

2 of Ohio, Pennsylvania, virginia, Kentucky and Maryland 

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 combustion technology and post-combustion exhaust 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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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 those l ower emissions .

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

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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 utili ties 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 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 could be 

25 set in a market based approach, at the common level 

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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.

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1 for all fuels required to achieve the desired 

2 efficiency improvement and emissions reductions 

3 resul ts for our society with trading available between 

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 efficiency or emissions credit, from one competitor in 

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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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.

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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 They are based on the inherent limitations of electric 

15 resistance technology in the case of electric 

16 furnaces. The pay back 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, the minimum performance requirements are 

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. 

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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

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1 To be even more specific, I believe that 

2 the tone of this hearing today would be somewhat 

3 different were there a major manufacturer involved in 

4 major production of a 50 percent efficient coal-fired 

5 residential space heating device burning 3 1/2 percent 

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 percent efficient coal-fired residential space heating 

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 only difference is the emissions from 

14 that coal-fired space heating device do not occur on 

15 my street. They occur predominantly in the Ohio River 

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 which would permit meeting the national efficiency and 

22 emissions goals. If we assume, for example, that the 

23 current residential space heating market is served 

24 approximately 60 percent by gas furnaces and boilers, 

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

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1 electric resistance furnaces, and this is merely an 

2 example, the current fuel cycle average resource 

3 efficiency for this scenario would be approximately 60 

4 percent. 

5 If the minimum 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, increasing minimum electric heat 

11 pump, HSPF to 11.5 BTUs per watt hour from the current 

12 6.8 would permit achieving the national goals on an 

13 energy efficiency standpoint. If this were judged to 

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.

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1 efficiency requirements established for automobile 

2 manufacturers in today's society. 

3 This market based approach to energy 

4 efficiency improvement and emissions reductions could 

5 permit accomplishing national efficiency and emissions 

6 goals at the lowest total economic cost for all 

7 participants in the chain of energy supply involved in 

8 the decision. 

9 I'd also like to make reference to a point 

10 that was made earlier regarding the issue of residual 

11 damage functions. It can be argued that it is very 

12 difficul t 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 made by the u. S. automobile manufacturers in the early 

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 reflecting on the period 

24 of time since the early 1960s would suggest that would 

25 have been an extremely poor assumption. 

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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

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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 Distribution companies will be filing written comments 

5 by the closing date of the procedure. 

6 Thank you very much. 

7 PRESIDING OFFICIAL BERLIN: I believe Gene 

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 specific calculations and that's one of the reasons 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 Rulemaking procedure under NAECA for gas and electric 

16 water heaters where in fact DOE has proposed through 

17 an ANOPR and in following that through ANOPR 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 required for gas water heaters under the current Phase 

22 1 standards for NAECA. 

23 PRESIDING OFFICIAL BERLIN: Well, the 

24 other point about Cafe standards as you may know, 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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1 Conservation Act that set up the automobile standards 

2 and the Cafe standards in a different part of the law. 

3 When they got around to this particular aspect of the 

4 law, they specifically excluded the Cafe standards for 

5 consideration. This is something we've wrestled with 

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 allowed to impose such standards but we 

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

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1 sulfur dioxide, were not given allowances to start out 

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, whether or not that approach 

9 represents an unjust taking under the terms of the 

10 Fifth Amendment of the united States Constitution from 

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 sayan electric resistance furnace 

23 and a minimum efficiency natural gas furnace under the 

24 current Phase 1 NAECA regulations, the amount of 

25 sulfur dioxide emitted to fuel that electric heat pump 

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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

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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 that John Holt will be replacing Duane Bye as speaker, 

18 the next speaker. 

19 MR. HOLT: Good morning. My name is John 

20 Holt. I'm manager of fuels and transportation for the 

21 National Rural Electric Cooperative Association, and 

22 I thought I had gotten off easy today. I got ready to 

23 give my talk for you earlier but Duane Bye, who is 

24 here, has corne down with a cold and 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

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1 me that if you have questions, he would like to 

2 respond to you in writing 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 is manager of Member Services for Basin Electric Power 

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 opportunity to 

9 be heard on what we 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 and businesses, 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's member 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

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1 dollars to make Basin Electric's coal-fired generating 

2 plants some of the cleanest in the nation. 

3 While the generating plants are ranked at 

4 the very top in low cost energy production, the 

5 inherently higher cost of serving sparsely populated 

6 areas results in power rates to the consumers that are 

7 somewhat higher than in urban areas. 

8 Basin Electric and its members 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 it brings 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 bring down the wholesale 

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 

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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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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 opposed to the principles and methodology contained in 

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

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1 specific authorization in developing these monetized 

2 values. There is no direct statutory language to 

3 warrant such an extreme approach in developing energy 

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. A speculative theory 

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 billion that studied the 

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 to the Clean Air Act were passed. 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

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1 we have a federal agency trying to 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 scientific basis for not imposing monetary 

7 externality values for sulfur dioxide and nitrogen 

8 oxides? They believe so. 

9 Carbon dioxide is the third emission for 

10 which a monetary value is proposed, apparently in the 

11 belief that CO2 emissions are threatening global 

12 climate change. Basin strongly disputes that theory 

13 because all predictions of catastrophic global warming 

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 economic basis. This has been illustrated by 

19 state proposals that vary wildly 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.

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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 The quote is, .. The city presented no credible evidence 

5 that the cost of controlling any pollutant is either 

6 a reasonable proxy for the environmental damage 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 externalities monetization) provides no 

11 rational economic basis for selection among resource 

12 alternatives." 

13 If DOE is to consider secondary 

14 consequences, externalities, we think it only fair 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 three

externalities 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

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1 The point is that proposed rule is aimed only at three 

2 externalities that happen to be associated with coal3 fired electricity. This seems arbitrary and unfair. 

4 I would also like to emphasize one of the 

5 items on the 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 to discourage 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 CO2 emissions 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, there is no economic justification 

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 

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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

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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 proceed with 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, they believe 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

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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 indicate that that's not true, that we do quantify the 

10 emission effects of appliance efficiency standards on 

11 emissions of NOxf S02 and CO2 at 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.

Hearing records available to the

Department from various state regulatory proceedings

where the issue has been fully adjudicated are

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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 it were, represents sort of the tip of the 

6 iceberg of what you're seeing corne in as written 

7 comments, and I guess in that context my 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 establish monetary 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 proving to be 

18 a distasteful hash of bad science, misdirected public 

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 

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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

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1 testimony to that fact. The Colorado Public utilities 

2 Commission said it most succinctly in their December, 

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, it would be premature to mandate utilities 

9 to monetize externalities ... " (Decision No. C92-1646) 

10 Two years later there has been no 

11 fundamental change in the state of knowledge on this 

12 issue unless one begins to tally what's been happening 

13 in the states where monetized environmental 

14 externalities have been considered. 

15 A collaborative process in New Mexico 

16 recommended that the Public utilities Commission there 

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 guesswork base of un-enacted environmental regulation 

25 could result in a seriously faulted resource 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

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1 driven by speculative environmental quality 

2 constraints. Misplaced regulatory action of this kind 

3 would work 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 Massachusetts I 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 Department of Public utilities 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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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

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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 That itself is a disputable statement, given methane's 

8 global warming equivalency potential and the 

9 overwhelming importance of water vapor in the 

10 greenhouse effect. Let's be candid on this. 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, when one considers that much of the II cost II 

17 of oxides of nitrogen and sulfur dioxide is 

18 internalized already by the existence of national caps 

19 on their emissions under the Clean Air 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 It will not be sufficient for 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

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1 Rulemaking, the writings of Vice President Gore or 

2 statements by President Clinton concerning the 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 simulations that have been demonstrated to be 

10 inaccurate. Whether you call them scenarios, 

11 predictions or forecasts, they do not square with real 

12 world observation. Global temperature increases 

13 experienced in this century cannot have been caused by 

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 And even if the temperature increases that 

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. 

(202) 797-2525 

This warming also appears to result in 

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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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1 increased cloudiness, further undermining predictions 

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 computer models is 

7 supported by observable, 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 already headed in the right direction 

15 in your search for a solution. You don' t need to 

16 incorporate monetized environmental externalities in 

17 appliance efficiency ratings. 

18 Western Fuels Association, Edison Electric 

19 Institute and the Electric Power Research Institute, 

20 among others, have been paying 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 Despite rapidly rising coal use to 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

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1 electric and economic growth, total U. 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 association of reduced CO2 emissions/$GNP 

5 and increasing coal consumption is not coincidental, 

6 but causal. Reduced CO2 emissions are a primary 

7 consequence of improved overall 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 preliminary work 

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 putting downward, not upward, pressure on the nation's 

20 electric rates. 

21 For our purposes here today, WFA will 

22 assume that DOE hopes the current 440 million kilowatt 

23 hour demand from residential heating and cooling can 

24 be reduced by 20 percent using whatever energy 

25 efficiency criteria flows from this notice (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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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 increased use 

8 of electrotechnologies would eliminate (net of power 

9 plant) about 300 million tons per year CO2 compared to 

10 the 60 million tons alluded to above. 

11 In summary then, we think that monetizing 

12 environmental externalities is a bad idea. Setting of 

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 PRESIDING OFFICIAL BERLIN: Mark, you have 

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

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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 congratulate Madam Attorney General, 

24 Heidi Heitkamp from North Dakota who did exactly that. 

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

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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 giving this 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 very much for 

15 your testimony. At several points in your testimony 

16 the statement discussed the price of electricity, a 

17 proceeding which we are a part of today does not have 

18 that much to do with the price of electricity. It has 

19 to do with appliance efficiency standards so it really 

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, but to what extent does that concern relate, 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

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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 to the way in which appliance efficiency standards are 

11 made? 

12 I think as Dr. Berlin and Mark Friedrichs 

13 have already indicated, there's already a process that 

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, how much of it is the precedential effect and how 

22 much of it really relates to appliance efficiency 

23 standards? 

24 MR. LEONARD: I'm going to try to respond 

25 to that as best I can. I think the concern that we'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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1 expressing here is less for the mechanics of how the 

2 environmental externalities standards you are thinking 

3 about using will work up front on the appliance, but 

4 if it's going to have any goal or objective, it 

5 somehow has to work back through 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 understand the answer. 

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 information about tons of this or that pollutant which 

24 may go beyond the pollutants, typically. I think that 

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

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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, it may be an inelegant 

6 way for them to 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 big concern. 

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

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1 trying to find an easier way for the policy makers to 

2 make the decision and synthesize the information, we 

3 think environmental externalities, as I said, just add 

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 proposed rulemaking. And I'm accompanied by our 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 

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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

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1 consultant who will provide testimony in our behalf 

2 from an economist's perspective. So the next 

3 scheduled speaker, David Montgomery, 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 appliance efficiency standards for three main reasons. 

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 rejected by Congress. So our first point is that DOE 

19 lacks the legal authority. 

20 Second point 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 And our third point, we believe that there 

25 is insufficient policy 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.

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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 circumscribed by 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 argument requires some quotation from EPCA. The scope 

18 of the standards program is evident from the title of 

19 EPCA, namely Energy Conservation Program for Consumer 

20 Products other than automobiles. Now, in this portion 

21 of EPCA Congress directed a program for 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. 

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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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1 So we're talking about energy conservation 

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 which prescribe 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 restrained by those foregoing arguments. 

17 Thus, DOE has consistently rejected 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 "Energy use measures the quantity consumed 

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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

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1 at the point of use. Thereby avoiding the 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 point by again stating, "the Act defines energy use as 

8 the quantity of energy directly consumed by a 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 saying that 

14 it cannot use such factors ·that are even more 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 justification of 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

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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 beyond the scope of DOE's regulatory 

11 authority under 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 stated many 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 read just a couple quotes which 

25 we feel are very illuminating to our second point here 

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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.

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1 regarding the controversy of this. 

2 OTA in this report, it's entitled "The 

3 Studies of Environmental Cost of Electricity. 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 lead to unnecessary controversy and that in essence is 

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

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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 have been the focus 

10 of contentious debate in the analytical and policy 

11 communities. While changing a study's assumptions can 

12 profoundly affects its results, there is currently no 

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.

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1 surveys are based on 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 "reliable energy related health and ecological impacts 

7 and associated costs and benefits can only be derived 

8 on a site-specific basis. 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 setting appliance 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 conditioning markets because of the costs imposed on 

17 our domestic manufacturers. This could result in the 

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 severely distort the appliance market 

24 place. Some of the products covered by this proposed 

25 rulemaking can use either electricity or natural gas. 

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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

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1 Uncertain externality values could result in policies 

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, in view of all that I've 

7 just said, again I just want to re-emphasize the 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 original ANOPR that was published back 

17 in September of 1993, AIR indicated that we'd keep 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 is by far the most important issue facing our members. 

24 

25 Evaluation 

(202) 797-2525 

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Program, AREP, several 

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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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1 refrigerants to R-22 have been identified but 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 reliability problems. 

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 ask DOE to wait 

12 until the manufacturers have the proper data 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 going to be the predominant 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 Manufacturers cannot afford to undergo two 

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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're

taking 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

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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'd be happy 

8 to address any questions you might have. 

9 PRESIDING OFFICIAL BERLIN: I have no 

10 questions. Mark? MR. FRIEDRICHS: Yes. I have two 

11 questions. One, am I interpreting your comments 

12 correctly, do you believe that there is no legal basis 

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, you may 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 monetized or not. There has been some discussion from 

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 

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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

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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. 

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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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1 energy conservation statute, and so therefore f if 

2 there were lines -- I don' t see this as providing 

3 certainly any discretionary or certainly not a mandate 

4 to consider in environmental externalities or 

5 externalities of any kind at all, but we 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 say that there is no discretion in this at all 

10 because we have to take a look at these criteria first 

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 that they cannot override the very specific directions 

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 talked about the potential 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

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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 the few major appliance industries that 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 raising the standards which would make it much 

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 position in a world competitive market place, 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.

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1 a rather substantial increase in the 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 can continue to improve our manufacturing processes 

13 to that degree. 

14 MR. McCABE: As far as you know, there is 

15 no measurable -- there has been no measurable impact 

16 of the existing standards on the industry' s ability to 

17 compete in the international market? 

18 MR. WETHJE: Well, I haven't been involved 

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 significant burden on the manufacturers to be able to 

25 achieve, you know, high levels. 

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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

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1 MR. McCABE: Thank you. 

2 PRESIDING OFFICIAL BERLIN: The next 

3 speaker is David Montgomery, please. 

4 DR. MONTGOMERY: Good morning. I am David 

5 Montgomery. For the record, I am vice president of 

6 Charles River Associates, an economic consulting firm. 

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 the opportunity to discuss Jehe issue of using monetary 

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 probably read some of them but I assure that when I do 

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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

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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 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 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 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 

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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

consumers of energy.

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1 energy or indeed to consider emissions in any way in 

2 setting those efficiency standards. And I will try to 

3 develop those points. 

4 The first reason I reach this conclusion 

5 is that the best place to regulate emissions is at the 

6 source. And those regulations and incentives are 

7 already in place for the recognized form of 

8 pollutants. using externalities values to set end use 

9 efficiency standards injects those values at the wrong 

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 in a way that provides the proper incentives, 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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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

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1 Adding the cost of pollution a second time 

2 in energy costs in setting end use regulations would 

3 seem to be double-counting. Costs of controlling 

4 pollution from electric power generation particularly 

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 count these externality values a second time 

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 irrelevant to setting efficiency standards. The place 

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, these considerations clearly apply to 

21 sulfur oxides and to nitrogen oxides, which are 

22 already specifically regulated under the Clean Air Act 

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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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 compared to dealing 

8 with these same emissions at the source, or compared 

9 to dealing with end uses of energy in a comprehensive 

10 set of economic incentives. 

11 The two import.ant reasons are that the 

12 standards which apply only to new equipment design are 

13 inefficient compared to broader economic incentives 

14 and national standards cannot deal efficiency with 

15 local pollution problems. These are both points that 

16 are brought up in the ANOPR. 

17 Command and control regulations directed 

18 exclusively at new products cause behavioral responses 

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

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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 made up of less efficient models that were 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 externalities through the indirect route of regulating 

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 electric power pla.nt or what type of fuel or what 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

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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 widely varying local problems by tightening a 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 some parts of the country are compensated by 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 The points I've made 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

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1 to go about getting those reductions in the use of 

2 energy. 

3 That does leave, though I the issue of what 

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 existing emission cap and trading point on sulfur 

13 oxide emissions, nothing that is done in the area of 

14 appliance efficiency standards will change the amount 

15 of sulfur oxides that are generated and therefore, 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 of whether or not reducing nitrogen 

21 oxides helps to reduce smog and there are standards 

22 already in effect under states under the Clean Air Act 

23 for dealing with this, especially to the extent that 

24 these emerging NOx programs use emission trading. 

25 There is again, no additional externality value that 

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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

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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 in preference to low carbon fuels and therefore I 

8 are inefficient relative to dealing with emissions at 

9 the source. 

10 Also, the mind boggles at trying to 

11 achieve the kind of comprehensive goals that have been 

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 whenever there are existing regulatory programs at the 

25 source, because those are already imposing costs which 

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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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1 find their way through in the price of energy and that 

2 it's double counting to add anything more in the 

3 setting of end use efficiency standards. 

4 I didn't use the phrase residual emissions 

5 in my testimony but it carne up and I want to point out 

6 that my comments, I think apply to that concept as 

7 they stand. The idea of adding some form of incentive 

8 to existing regulations on sources of emissions is 

9 based on the recognition of some regulatory gaps, 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 costs of pollution in considering programs that 

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.

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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 should be addressed not here, but in thinking 

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 would be avoided by reducing carbon dioxide 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

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1 There is a long train of rea.soning that has to be gone 

2 through from estimating what happens to concentrations 

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, what that means for ecosystems, what that means 

8 for human acti vi ty f what kind of adaptation might 

9 occur -- a long, long chain of reasoning. 

10 Science is back at the stage of not really 

11 being able to get the regional temperature patterns 

12 right. There is a long, long way to go before any of 

13 these calculations, I think can be made for carbon 

14 dioxide. 

15 Similarly, looking at estimates of health 

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 in terms 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 range to try to make any choice within that's not 

24 arbitrary. 

25 

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This testimony makes three points. I'll 

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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

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1 just make this my co:r..cl usion" First, externality 

2 values should be used at the appropriate regulatory 

3 level. And end use regulations is not the 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 at the 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'll be 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.

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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 are not appropriate applied to consideration of 

10 the physical emissions themselves. If it's dealt with 

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 say the cost impacts of the standards 

24 to reflect the marginal benefits associated with S02 

25 control. 

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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.

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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 utili ties on the 

7 margin but not fully reflected in average rates. 80 

8 there is some discrepancy between the marginal effects 

9 of appliance standards and what 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 capability to deal with 

19 in this proceeding because it's not clear it's within 

20 anybody's capability of dealing with it under the 

21 trading system. The trading system was set up to deal 

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. 

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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

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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 effective way, 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 electricity because it's not 

9 burning coal. That emission credit would be bought by 

10 someone and that someone will bring their emissions of 

11 sulfur dioxides back up. So I cannot see a way in 

12 which you reduce the emissions because of anything you 

13 do. MR. FRIEDRICHS: No, there wouldn' 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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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

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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 question you raised in the ANOPR, 

13 what is the right price of electricity? 

14 MR. FRIEDRICHS: Right. 

15 DR. MONTGOMERY: And -there as you pointed 

16 out, it may be that right now the 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 balance the average cost sold to conSUIT.ers exceeds the 

23 marginal cost of generation because of everything from 

24 advertising, high cost power plants, and stranded 

25 assets, to existing costs of DSM and environmental and 

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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.

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1 alternative fuels programs that have been levied by 

2 local regulators, if that average price is higher than 

3 the cost of generating the marginal cost of 

4 generation, then a negative adder is appropriate. 

5 I think there is some pretty good evidence 

6 that that's the case. For one thing, if we look at 

7 forecasts of the increase in the price of electricity, 

8 EIA' s forecast have been for a very long time for very 

9 little increase in the price of electricity. That 

10 suggests that marginal 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 economic benefits and costs vary because utility rates 

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. 

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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

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1 How do you think we should handle the 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 see any vi.rtue in 

7 trying to come up with a regionalized set of 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 environmental programs / pollution control programs can 

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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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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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 think you'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 and they don't won'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, 

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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.

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1 MR. PERLIS: Good morning. My name is 

2 Mark Perlis. I'm counsel to the National Electrical 

3 Manufacturers Association, and I'm here today to 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 as sociations 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 probably bring out the major impediments or defects in 

19 the proposed monetization of externalities. 

20 Let me start with what has, 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. 

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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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1 I don't mean to disavow the arguments that 

2 I think were ably presented by ARI and ARI's counsel 

3 previously to the effect that DOE's own prior position 

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 associated with levels of electricity consumption. 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 has been previously referred to. 

17 I would suggest that even if that has 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 think there are two major reasons why there 

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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1 believe that in any of your prior rule makings the 

2 Department has relied upon as a determinative fact the 

3 level of emissions associated with the electricity 

4 consumption. I would, at least in my reading of those 

5 technical support documents and proposed regulations, 

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 and benefits would be to the consumers 

17 from the adoption of those standards. I'm not aware 

18 of any proceeding in which the fact that X tons 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 to measure, 

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

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1 developed for is to me strong evidence that it is a, 

2 at most, a subjective factor rather than an objective 

3 one. 

4 And I might add that the whole purpose of 

5 monetizing externalities is to try to present the 

6 costs or benefits of reducing pollution into the price 

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 justified by Paragraph 6 in the 

11 statute. That the needs for energy conservation, a 

12 vague general standard, doesn't necessarily justify 

13 the Department factoring in a monetized price of those 

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 and whether or not it's economically 

20 justified. 

21 And I think that's really the fundamental 

22 flaw in the proposed regulation, if I can characterize 

23 the ANOPR as a proposed regulation. That the proposed 

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

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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 that has been prevalent under the appliance efficiency 

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 whose recent experience with externalities has been in 

13 large part influenced by one of the current holders of 

14 an assistant secretary position in your department. 

15 The state of Massachusetts attempted to monetize 

16 externalities at the source of electricity generation 

17 where Doctor Montgomery has ably demonstrated 

18 monetization of externalities should properly be 

19 performed in the 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 Massachusetts just last month struck down the proposed 

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

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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 in Massachusetts, is very different from the 

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 clear that the statutory authority that the 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

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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 determining what the 

7 efficiency standards or what the energy costs ought to 

8 be deemed to be for one or a few selective uses of 

9 electricity. 

10 And it's not so much a question of whether 

11 there's a clear prohibition here. Lawyers can argue 

12 both ways on this point. But I think that 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, and then 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 so inherently uncertain as to be both 

21 arbitrary and wholly inappropriate to be incorporated 

22 into the appliance efficiency program. It might be 

23 appropriate for other regulatory purposes, for either 

24 this department or other federal agencies such as the 

25 Environmental Protection Agency. 

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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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1 inappropriate for the appliance efficiency program. 

2 And for this reason. 

3 The appliance efficiency program sets 

4 mandatory manufacturer's standards. And it prescribes 

5 your own test procedure regulations just as one 

6 example, as well as all the technical support analysis 

7 that has been performed for you by your outside 

8 contractors, have always looked at very low tolerances 

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 it would 

13 be highly inappropriate for the Department to now take 

14 a count of a significant factor, the monetization 

15 value of externalities, which everyone would 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 And that's really the principal reason why 

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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

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1 Section 6 of your statute doesn't really give you 

2 sufficient authority to monetize externalities in the 

3 appliance efficiency program. The other provisions of 

4 the program, the technological feasibility, the 

5 economic justification, the cost on manufacturers, the 

6 benefit to consumers, the pay back 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 really the central flaw in any 

16 proposal to monetize externalities as part of the 

17 appliance efficiency programs. I suggest it would not 

18 pass the statutory, the judicial review standard of 

19 NRDC v. Harrington. Admittedly, it's not an issue 

20 that was before the court in that case but I think you 

21 would have sUbstantial doubt as -- there ought to be 

22 substantial doubt as to the likelihood that you would 

23 be able to sustain any determination, any monetization 

24 of externalities, that you could in fact demonstrate 

25 that there is substantial evidence for any particular 

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value or range of values that you might select.

Let me just cover one other point that Mr.

Frederichs raised in the question of Doctor

Montgomery. And that was that you suggested that --

some have suggested that although SO2 emissions are

capped under the current statutory regime, that

establishing appliance efficiency standards might

reduce the electricity consumption freeing up credits

that have a marginal cost or marginal benefit. And

that it would be appropriate to take that into

account. I'd make two points.

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

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1 value or range of values that you might select. 

2 Let me just cover one other point that Mr. 

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 freeing up 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 step between saying that 

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, electricity consumption, from all 

18 the regulated covered products by 50 percent, that you 

19 still wouldn't be affecting enough electricity 

20 consumption that you would affect the number of 

21 credits that would be tradeable on the market. That' s 

22 an empirical point. I haven' t researched it yet. But 

23 I suggest that even if you cut 50 percent from all 

24 your products, you probably wouldn't affect the level 

25 of credits that are sold on the market. And therefore 

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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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1 it's not -- perhaps wouldn't be appropriate to assign 

2 any marginal cost. 

3 But even if it were 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. And the appliance efficiency program doesn't 

8 work off of marginal costs and marginal benefits. 

9 Appropriate regulation of externalities and if 

10 pollution does work off of marginal costs and marginal 

11 benefits, that's why monetization of externalities is 

12 as appropriately done at the source of the pollution 

13 where it can be factored in to the market and economic 

14 decisions that are undertaken. And the monetization 

15 value can be reflected in prices and affects resource 

16 allocation in the most efficient manner. 

17 But the appliance efficiency program 

18 simply takes an average price of electricity and makes 

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

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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's simply this fundamental difference 

10 that I think is totally lost if you proceed. 

11 I would like to end with one final point. 

12 Mike McCabe I'm sure has heard this from me before. 

13 I think Gene has as well. 

14 I believe that, and NEMA believes, that it 

15 is highly inappropriate for this Department to 

16 consider the monetization of externalities as part of 

17 a pending rulemaking 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 should recognize 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

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1 of monetization of externalities should be established 

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 of putting out an ANOPR, 

9 of hiring independent contractors to do complex 

10 studies in private, then publishing those 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 it proceeds, which we of course would 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 hired to perform a study over a one or two year period 

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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

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1 entirely in secret. 

2 That instead you provide for a series of 

3 scheduled public meetings. That you allow all 

4 interested parties 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 rulemaking process are you 

9 going to avoid highly protracted and highly 

10 unnecessary litigation over whatever values you choose 

11 to prescribe at some future date. 

12 That would conclude my remarks. 

13 Gene, they were not my prepared remarks. 

14 And I'd be happy to answer any questions 

15 that any of you may have. 

16 PRESIDING OFFICIAL BERLIN: Thank you for 

17 a very well 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, you were saying that 

25 the externalities should be looked at where the 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.

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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 look at furnaces, gas furnaces 

5 or, say, oil furnaces. In our rulemaking for 

6 furnaces, we break out, say, gas, electric, oil. 

7 Would it be proper, then, to look at 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 uncomfortable position in responding to it. But as an 

16 individual, let me say that most of my remarks and 

17 moist of the remarks presented today are presented in 

18 the context of monetizing externalities as part of the 

19 price of electricity, not as a -- as the relative 

20 prices of oil -- of fuels, oil versus gas. And I've 

21 not thought through the issues as to whether or not 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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But it is clear to me that for the

products that NEMA manufacturers manufacture, which

are fluorescent lamp ballasts, electric lamps, and

electric motors, the only issue is whether or not

monetization of externalities is appropriate in the

price of electricity. And the case that I've tried to

make to you today is that it is wholly inappropriate

to be incorporated into the analysis that this

Department has always applied when met -- when

determining and using the price of electricity for

purposes of performing the cost benefit analysis which

it undertakes. And that should remain the focus of

the Department's rulemaking in setting -- in amending

efficiency standards and the proposed consideration of

monetizing externalities is irrelevant. And the

various other reasons that I've presented in

remarks to you this morning I think suggest that --

should give you reason to believe that you don't even

have legal authority or if you have hypothetical legal

authority, you should exercise discretion and not

choose to expand a questionable statutory provision

into so far reaching a technical and scientific

undertaking as monetizing externalities.

And that's really the fundamental flaw

with the proposal and would be the source, I believe,

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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 price of electricity. And the case that I've tried to 

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 purposes of performing the cost benefit analysis which 

12 it undertakes. And that should remain the focus of 

13 the Department's rulemaking in setting -- in amending 

14 efficiency standards and the proposed consideration of 

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 authority or if you have hypothetical 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 and would be 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

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1 of endless litigation. And I think the result would 

2 be the same as in Massachusetts where the courts would 

3 strike down that Congress ever intended the Department 

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 both the Federal Energy Regulatory Commission and 

12 the Department of Energy in considering whether or not 

13 under the PERPA statute passed in 1978 it is feasible 

14 to determine with any tolerable accuracy the long run 

15 avoided costs of producing electricity. That whole 

16 exercise which was mandated quite clearly under a 

17 federal statute and it has been the subject of endless 

18 litigation that will continue to go on for some time 

19 even if Congress completely remakes the electricity 

20 markets. Concerned the measurement of tangible costs 

21 of generating electricity and the comparison of 

22 alternative means of generation that electricity. 

23 The monetization of externalities focuses 

24 on a highly intangible cost of generating electricity. 

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

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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 system that 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 authority to 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 interesting issue. 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 in pointing out that the externalities 

24 or the economic theory of externalities coming out of, 

25 I guess, PAGU, is sort of a marginal concept as you 

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point out.

MR. PERLIS: It's a marginal concept to

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

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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 efficiency of resource allocation of how much of those 

8 goods and bads are produced and in what manner they'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 While in the case of sulphur dioxide, they 

13 imposed a cap on limitations, the fundamental 

14 objective was to create economic incentives to 

15 internalize into market decisions the values at stake 

16 from sulphur dioxide emissions. It was 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 actually made. So utilities now have to 

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 associated with emission allowances that traded on the 

25 market, whether they're freed up or not, is a signal 

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to that resource allocation decision.

The appliance efficiency program works

exactly the other way. It is an old fashioned command

and control program which is not at all suited for, or

and it would be highly ironic actually for this

department for the first time monetize externalities,

not in a market oriented program like at the SO2, but

in a command and control program. A command and

control program that makes no effort whatsoever to

ever measure marginal costs or to factor it into

decisions by anyone, consumers , manufacturers, or the

producers of electricity and the producers of the bad.

And where all the analysis is performed at the level

of average cost.

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

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1 to that resource allocation decision. 

2 The appliance efficiency program works 

3 exactly the other way. It is an old fashioned command 

4 and control program which is not at all suited for, or 

5 and it would be highly ironic actually for this 

6 department for the first time monetize externalities, 

7 not in a market oriented program 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, or the 

12 producers of electricity and the producers of the bad. 

13 And where all the analysis is performed at the level 

14 of average cost. 

15 And as to the question that was 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 getting to the point in this 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. 

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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.

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12:47 p.m. to reconvene at 1:50 p.m. this same day.)

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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 really the 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're almost on 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 

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22 

23 

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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

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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 

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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

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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 "three products" 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 And we would note that the Climate Change 

10 Action Plan does not give DOE any new legal authority. 

11 DOE is still an energy conservation agency. It is not 

12 an environmental protection agency. Some of the 

13 speakers this morning made the point that DOE lacks 

14 legal authority to consider externalities in appliance 

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 environmental benefits of standards at all. 

21 PRESIDING OFFICIAL BERLIN: Can you hold 

22 on one sec. 

23 MR. MATTINGLY: As some of us have written 

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

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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've made 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 regulation of appliance energy use, not emissions. 

8 And energy use at the point of end use. 

9 It was sort of a relief to hear that your 

10 presumed authority is actually this 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 also make a point -- we give an example 

22 in our comments that if you attempt to convert EPCA 

23 into an environmental protection statute, you're going 

24 to raise novel questions about other applications of 

25 the statute that you may not have considered, such as 

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federal preemption provisions.

The last point is that you all have had a

great deal of difficulty keeping up with your NAECA

standards schedule. And it is a complex job. We

realize it's a tough job. And factoring -- trying to

factor externalities is going to make it impossibly

difficult. You ought to be looking for ways to add

precision to your analysis. And this would be a step

in the wrong direction.

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

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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 would be 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 any consensus right now on the 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 One question that I have with respect to--

24 it touches on the comments that most of you 

25 everybody has offered as to whether or not we have the 

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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

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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 all what that might be but I think whatever 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 should do it on 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 authority to do that. So your statute hamstrings you 

19 in that respect. 

20 MR. McCABE: There are other guiding 

21 statutes, however, are there not, such as the National 

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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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

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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 eastern Pennsylvania and 

15 I'm here to discuss the issue of externalities on the 

16 several pieces of equipment as denoted in your ANOPR. 

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 

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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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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 introducing significant price distortions and imposing 

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 it may 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 could be New York state working 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

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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 some of the correspondence I've seen from 

23 DOE reinforces that, that the externalities are a very 

24 complex issue to deal with. And to move to monetizing 

25 externalities in theory is extremely difficult. In 

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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.

Six, identifying environmental damages and

appropriate externality values is an extremely complex

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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 changed their requirements 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 situation that we have with certain regulations on 

9 sources and certain standards on appliances, end use 

10 appliances, and then the equation changes, do you then 

11 revisit the whole situation and restate or revise the 

12 standards? Do you continue to do that on an ongoing 

13 basis? It would seem to be an impossible situation to 

14 try to accommodate. 

15 A fourth, incorrect externality values 

16 would distort appliance efficiency standards and 

17 impose unfair costs on many consumers, particularly in 

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 could be used in, to use an 

22 average or end use national values would seem to be, 

23 again, impractical or impossible. 

24 Six, identifying environmental damages and 

25 appropriate externality values is an extremely complex 

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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

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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: You made -- your comment with 

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 am digressing from the subject of today' shearing, but 

23 going into one that has been raised on many 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 

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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

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1 regional values, marginal values, looking at variables 

2 where usage might be lower, energy prices might be 

3 varied by 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 that tries to divide the country into 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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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

22 removed from the agenda.

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

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1 issues should be looked at just looking at that small 

2 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 

22 removed from the agenda. 

23 

24 

25 

PRESIDING OFFICIAL BERLIN: David Lewis. 

MR. LEWI S : We'd like to thank you 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

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1 International is a company that owns both Lennox 

2 Industries and Armstrong. They are both producers of 

3 heating and air conditioning product that are directly 

4 affected by this rulemaking. We have manufacturing 

5 facilities located in the U.S., Canada, and Europe. 

6 And we basically, from a marketing standpoint or sales 

7 standpoint sell product that is virtually covers the 

8 globe. 

9 The comments already made by ARI and GAMA, 

10 and the expert witness, Doctor David Montgomery, all 

11 basically cover the specific 18 points that were 

12 addressed in the supplemental ANOPR. So we would just 

13 like to underscore a few items that we feel are very 

14 important. The major issue here that we would like to 

15 stress is we believe that the direction that DOE may 

16 be intending on going for considering environmental 

17 security and externalities would be inappropriate. We 

18 do not believe that there is a foundation for you to 

19 pursue in this direction. And we believe that 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 concerned with 

24 is we feel like the regulations for environmental 

25 areas are already adequately covered. 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

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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 air by the year 2000. It's very clear that that 

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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

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1 is in process. To now come back and say well, because 

2 an American homeowner heats their home with 

3 electricity or gas that there will be an additional 

4 tax applied to them through 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 saying that a 

10 homeowner heating their home or cooling their home is 

11 a national security risk. And yet that is the 

12 conclusion that would have to be drawn by the American 

13 homeowner who would be forced to purchase product that 

14 would be more expensive than what their geographical 

15 area would appropriately allow for 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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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

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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 cogen would not be 

5 a national security risk. Natural gas and coal are 

6 prevalent wi thin the U. s. and North America. 

7 Therefore, they wouldn't represent a national security 

8 risk. It would come down to oil burning plants. And 

9 if that were to be isolated, one would have 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 peaking or 

15 basic load plants and take into consideration the 

16 amount of foreign oil contribution. And that would 

17 have to be discounted from overall energy component of 

18 that particular energy need. And when the analysis is 

19 completed, one would still have to conclude that 

20 purchasing foreign 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 in plant location raw energy 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,

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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 that is, if you would look at the 1993 

7 national reliability council, or NERP report, which 

8 provides a composite picture of power generation in 

9 the U.S., we took that particular report and produced 

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 at the subregions there is also significant variation. 

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 with such dynamic national diversity, 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 supplied by non-oil plants, 

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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

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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 could be 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 believe that the plain language within 

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

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1 of energy conservation standard and that definition 

2 and the cite is called out in the report. "A 

3 performance standard which prescribes a minimum level 

4 of energy efficiency or a maximum quantity of energy 

5 use by the covered product." Clearly there I s no 

6 evidence there of power plant considerations. 

7 Next, the definition of 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 And then finally, energy use is defined as 

13 "the quantity of energy directly consumed by a 

14 consumer product at the point 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 

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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

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1 statutes. 

2 The analysis is further supported by seven 

3 criteria for DOE to prescribe new and amended 

4 standards under NAECA. In fact, the third criteria of 

5 determining whether a standard is economically 

6 justified is "the total projected amount of energy 

7 savings likely to result directly from the imposition 

8 of the standard." 

9 The seventh criteria is that other factors 

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 intended NAECA to establish appliance energy standards 

19 directly related to covered product and the energy 

20 directly consumed by those products at their point 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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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

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1 that the focus needs to be the product and its use 

2 where it's installed. Not some distance away at a 

3 power plant. Once again, the earlier point we 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 that was underscored by GAMA in that we 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 at NAECA to take care of the issues 

18 that this current administration is requesting to be 

19 solved would be inappropriate. And in fact, would be 

20 looking at the formulation of policy based on the 

21 current wind that would be existing on 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

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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 the world realizes the effect 

7 that is going on today because of the Montreal 

8 protocol. Our industry is investing millions of 

9 dollars to transition out of the current refrigerants. 

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 already made 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 consideration the product that will exist in 

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

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1 American jobs but specific loss in international trade 

2 because our product will not be able to be sold at the 

3 levels that DOE we understand is considering. We feel 

4 like the most appropriate process right now for DOE to 

5 take is to on the heating -- on the HVAC product, 

6 heating/air conditioning product, that's under 

7 consideration, covered product under NAECA, that that 

8 particular product would be place don hold until the 

9 new product is available in the market place. At that 

10 time, our industry would like to cooperate with DOE in 

11 making sure that the right standard is set for that 

12 product that consumers would be buying beyond the year 

13 2000. 

14 We would hope that a leadership position 

15 would be established by 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 There was a comment that was earlier asked 

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

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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 these mini split systems. Those products 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 product internationally that's sold in the mini splits 

20 aren't sold here in the U.S. because they don't meet 

21 the national standards that the U. 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

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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 think there might 

19 have been a demand in North America even some time in 

20 the early '80s? 

21 MR. LEWIS: We think there would have been 

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.

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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 capability of manufacturing has really 

13 grown tremendously. 

14 And the way that you're able to compete in 

15 a global market is mass 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 pink Model T, Ford just didn't 

19 produce it. Consequently today it's the same way. In 

20 manufacturing you cannot afford to have multiple, very 

21 unique, separate designs of product. You have to 

22 produce a product that you can mass sell throughout 

23 the market 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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So we feel like the major issue before us

is the issue of the transition that's occurring. We

think the timing of the standards need to take that

into consideration. And for sure, not get tied up in

environmental externalities that really would -- are

not appropriate, either from the legal standpoint or

from the practical standpoint of just being logical.

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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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 

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MR. FRIEDRICHS: Right. 

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would have no 

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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.

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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 covered product." That has nothing to 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 question was, 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 wi thin 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 or not it' s site or source, you don' t think we 

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 do with the 

25 energy use of the products where its installed. 

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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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1 PRESIDING OFFICIAL BERLIN: There are some 

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 strongly that the energy use of the product, 

13 the intention of that, is that directly related to 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, if we were talking about 

20 the Clean Air Act, I would have agreement with you. 

21 And if this was the South Coast Air Quality Management 

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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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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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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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-entitled matter was concluded, to reconvene 

8 at 9:30 a.m. the following day.) 

9 

10 

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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.

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CERTIFICATE 

This is to certify that the foregoing transcript in 

the matter of: 

Before: 

Date: 

Place: 

Public Hearing: Energy Conservation 

Program for Consumer Products, 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 

SAG,CORP 

4218 LENORE LANE, N.W. 

WASHINGTON, D.C. 20008 

" 

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