[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]


 
                      DISCUSSION DRAFTS CONCERNING
                        ENERGY EFFICIENCY, SMART
      ELECTRICITY GRID, ENERGY POLICY ACT OF 2005 TITLE XVII LOAN
                     GUARANTEES, AND STANDBY LOANS
                      FOR COAL-TO-LIQUIDS PROJECTS

=======================================================================

                                HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON ENERGY AND AIR QUALITY

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 24, 2007

                               __________

                           Serial No. 110-50


      Printed for the use of the Committee on Energy and Commerce

                        energycommerce.house.gov


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                    COMMITTEE ON ENERGY AND COMMERCE

                  JOHN D. DINGELL, Michigan, Chairman

HENRY A. WAXMAN, California          JOE BARTON, Texas
EDWARD J. MARKEY, Massachusetts          Ranking Member
RICK BOUCHER, Virginia               RALPH M. HALL, Texas
EDOLPHUS TOWNS, New York             J. DENNIS HASTERT, Illinois
FRANK PALLONE, Jr., New Jersey       FRED UPTON, Michigan
BART GORDON, Tennessee               CLIFF STEARNS, Florida
BOBBY L. RUSH, Illinois              NATHAN DEAL, Georgia
ANNA G. ESHOO, California            ED WHITFIELD, Kentucky
BART STUPAK, Michigan                BARBARA CUBIN, Wyoming
ELIOT L. ENGEL, New York             JOHN SHIMKUS, Illinois
ALBERT R. WYNN, Maryland             HEATHER WILSON, New Mexico
GENE GREEN, Texas                    JOHN B. SHADEGG, Arizona
DIANA DeGETTE, Colorado              CHARLES W. ``CHIP'' PICKERING, 
    Vice Chairman                    Mississippi
LOIS CAPPS, California               VITO FOSSELLA, New York
MIKE DOYLE, Pennsylvania             STEVE BUYER, Indiana
JANE HARMAN, California              GEORGE RADANOVICH, California
TOM ALLEN, Maine                     JOSEPH R. PITTS, Pennsylvania
JAN SCHAKOWSKY, Illinois             MARY BONO, California
HILDA L. SOLIS, California           GREG WALDEN, Oregon
CHARLES A. GONZALEZ, Texas           LEE TERRY, Nebraska
JAY INSLEE, Washington               MIKE FERGUSON, New Jersey
TAMMY BALDWIN, Wisconsin             MIKE ROGERS, Michigan
MIKE ROSS, Arkansas                  SUE WILKINS MYRICK, North Carolina
DARLENE HOOLEY, Oregon               JOHN SULLIVAN, Oklahoma
ANTHONY D. WEINER, New York          TIM MURPHY, Pennsylvania
JIM MATHESON, Utah                   MICHAEL C. BURGESS, Texas
G.K. BUTTERFIELD, North Carolina     MARSHA BLACKBURN, Tennessee
CHARLIE MELANCON, Louisiana
JOHN BARROW, Georgia
BARON P. HILL, Indiana

                                 ______

                           Professional Staff

                 Dennis B. Fitzgibbons, Chief of Staff

                   Gregg A. Rothschild, Chief Counsel

                      Sharon E. Davis, Chief Clerk

                 Bud Albright, Minority Staff Director

                                  (ii)
                 Subcommittee on Energy and Air Quality

                    RICK BOUCHER, Virginia, Chairman
G.K. BUTTERFIELD, North Carolina,    J. DENNIS HASTERT, Illinois,
    Vice Chairman                         Ranking Member
CHARLIE MELANCON, Louisiana          RALPH M. HALL, Texas
JOHN BARROW, Georgia                 FRED UPTON, Michigan
HENRY A. WAXMAN, California          ED WHITFIELD, Kentucky
EDWARD J. MARKEY, Massachusetts      JOHN SHIMKUS, Illinois
ALBERT R. WYNN, Maryland             JOHN B. SHADEGG, Arizona
MIKE DOYLE, Pennsylvania             CHARLES W. ``CHIP'' PICKERING, 
JANE HARMAN, California                  Mississippi
TOM ALLEN, Maine                     STEVE BUYER, Indiana
CHARLES A. GONZALEZ, Texas           MARY BONO, California
JAY INSLEE, Washington               GREG WALDEN, Oregon
TAMMY BALDWIN, Wisconsin             MIKE ROGERS, Michigan
MIKE ROSS, Arkansas                  SUE WILKINS MYRICK, North Carolina
DARLENE HOOLEY, Oregon               JOHN SULLIVAN, Oklahoma
ANTHONY D. WEINER, New York          MICHAEL C. BURGESS, Texas
JIM MATHESON, Utah                   JOE BARTON, Texas (ex officio)
JOHN D. DINGELL, Michigan (ex 
    officio)
                                 ------                                

                           Professional Staff

                    Sue D. Sheridan, Senior Counsel
                        John W. Jimison, Counsel
                   Rachel Bleshman, Legislative Clerk
                    David McCarthy, Minority Counsel
  
                             C O N T E N T S

                              ----------                              
                                                                   Page
 Hon. Rick Boucher, a Representative in Congress from the 
  Commonwealth of Virginia, opening statement....................     1
Hon. John Shimkus, a Representative in Congress from the State of 
  Illinois, opening statement....................................     3
Hon. Edward J. Markey, a Representative in Congress from the 
  Commonwealth of Massachusetts, opening statement...............     4
Hon. Mike Rogers, a Representative in Congress from the State of 
  Michigan, opening statement....................................     5
Hon. Mike Doyle, a Representative in Congress from the 
  Commonwealth of Pennsylvania, opening statement................     6
Hon. Joe Barton, a Representative in Congress from the State of 
  Texas, opening statement.......................................     7
Hon. John D. Dingell, a Representative in Congress from the State 
  of Michigan, opening statement.................................     8
 Hon. J. Dennis Hastert, a Representative in Congress from the 
  State of Illinois, opening statement...........................     9
Hon. Jane Harman, a Representative in Congress from the State of 
  California, opening statement..................................    10
Hon. Tom Allen, a Representative in Congress from the State of 
  Maine, opening statement.......................................    11
Hon. Jay Inslee, a Representative in Congress from the State of 
  Washington, opening statement..................................    12
Hon. Tammy Baldwin, a Representative in Congress from the State 
  of Wisconsin, opening statement................................    13
Hon. Albert R. Wynn, a Representative in Congress from the State 
  of Maryland, opening statement.................................    14
Hon. Mike Ross, a Representative in Congress from the State of 
  Arkansas, opening statement....................................    15

                               Witnesses

David Rodgers, Deputy Assistant Secretary, Energy Efficiency, 
  U.S. Department of Energy......................................    16
    Prepared statement...........................................    19
Kateri Callahan, president, Alliance to Save Energy..............    28
    Prepared statement...........................................    30
Jay Birnbaum, vice president and general counsel, Current Group, 
  LLC............................................................    41
    Prepared statement...........................................    44
    Submitted material...........................................   113
Katharine A. Fredriksen, Principal Deputy Assistant Secretary, 
  Policy and International Affairs, U.S. Department of Energy....    73
    Prepared statement...........................................    76
Dan Maley, vice president, Leucadia International Corporation....    81
    Prepared statement...........................................    82
Daniel A. Lashof, science director, Climate Center, National 
  Resources Defense Council......................................    96
    Prepared statement...........................................    98


DISCUSSION DRAFTS CONCERNING ENERGY EFFICIENCY, SMART ELECTRICITY GRID, 
ENERGY POLICY ACT OF 2005 TITLE XVII LOAN GUARANTEES, AND STANDBY LOANS 
                      FOR COAL-TO-LIQUIDS PROJECTS

                              ----------                              


                         THURSDAY, MAY 24, 2007

                  House of Representatives,
            Subcommittee on Energy and Air Quality,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10:10 a.m., in 
room 2123 of the Rayburn House Office Building, Hon. Rick 
Boucher (chairman) presiding.
    Members present: Representatives Butterfield, Barrow, 
Markey, Wynn, Doyle, Harman, Allen, Gonzalez, Inslee, Baldwin, 
Ross, Weiner, Matheson, Dingell, Hastert, Hall, Upton, 
Whitfield, Shimkus, Shadegg, Pickering, Buyer, Bono, Rogers, 
Burgess, and Barton.
    Staff present: Sue Sheridan, John Jimison, Chris Treanor, 
Laura Vaught, Margaret Horn, David McCarthy, Kurt Bilas, and 
Matt Johnson.

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

    Mr. Boucher. Earlier this year, the Speaker announced that 
in July the House will debate a comprehensive measure to reduce 
U.S. reliance on petroleum, 60 percent of which is imported. 
That importation comes from some of the world's least 
politically stable nations. To enhance our economic health and 
our national security simultaneously, there is a broad 
consensus that we should develop domestically produced 
alternatives to petroleum in order to power transportation and 
reduce energy consumption broadly across our economy for water, 
energy, efficiency, and conservation measures.
    A number of House committees are currently developing 
legislation for the July energy independence measure, and this 
committee is making a major contribution to that effort. This 
morning the subcommittee is conducting a legislative hearing on 
four titles that will be a portion of our contribution to the 
Speaker's energy independence July agenda. In June, we will 
conduct a second legislative hearing on additional titles that 
are presently being constructed. For purposes of subcommittee 
mark-up, we will combine the subject matter from today's 
hearing with the additional titles so that our entire 
contribution to the Speaker's Energy Independence Measure will 
be subject to a single mark-up in subcommittee and then will be 
marked up in the full Committee on Energy and Commerce.
    The titles that we are discussing this morning address four 
objectives. We propose to reduce energy consumption through the 
adoption of 29 separate new energy efficiency measures. They 
range from new consensus appliance standards to requirements 
for improvements in lighting efficiency, green building 
provisions, industrial waste energy recovery, and new processes 
under which DOE will expedite the approval of future energy 
efficiency standards.
    A second title will promote the development of a smart 
electricity grid so that consumers can elect to save money by 
shifting electricity consumption to off-peak hours, a step that 
will help maximize the capacity of power-generating stations. 
Many exciting uses for the smart grid lie ahead, including 
using plug-in vehicles as storage units for electricity 
generated by utilities during non-peak hours which then can be 
drawn back from the vehicle batteries during times of higher 
electricity demand. Our provisions that are contained in the 
second title will help to promote the deployment of that smart 
grid.
    Our other two titles are designed to promote domestic 
alternatives to petroleum. In EPACT 2005, we enacted loan 
guarantee authority for DOE to help bring innovative 
technologies and biofuels to the commercial market. To date, 
loan guarantees have not been awarded, and DOE has misconstrued 
congressional intent by refusing to offer guarantees equal to 
the full 80 percent of the project cost that the statute 
contemplates. Consequently, commercial scale cellulosic ethanol 
production in the United States has been held back. Our loan 
guarantee language corrects that misinterpretation and upon its 
passage and the award of guarantees, we can expect commercial 
scale ethanol production from cellulose to commence in at least 
one site in the United States and future plants in other States 
are also now under consideration also pending the award of DOE 
granted loan guarantees.
    The final title will offer a Federal price guarantee for 
six coal-to-liquids facilities resolving uncertainties in the 
long-term outlook for world oil prices that have inhibited the 
flow of private capital into coal-to-liquids facilities.
    If we truly want to substantially lessen our reliance on 
petroleum, cellulosic ethanol from biomass and coal-to-liquids 
from our single, most-abundant resource which is coal offer the 
promise for success. The developers of these new liquid fuel 
resources have signaled a willingness to construct plants if 
our provisions become law.
    Finally, in this opening statement, let me re-emphasize 
that the primary purpose of the legislation that we are 
developing for the Speaker's July floor action is energy 
independence. That is in accordance with the Speaker's 
direction to various committees that are currently constructing 
legislation that will contribute to that energy independence 
agenda. The primary purpose of our action that we are 
considering today and will consider in the legislative hearing 
to follow this one in June is not greenhouse gas controls. We 
have adopted a ``do no harm'' principle for this legislation 
and what we will consider in our next legislative hearing with 
regard to greenhouse gas emissions. Nothing that we are doing 
here will worsen greenhouse gas emissions. But the primary 
purpose of the legislation we are processing in this timeframe, 
hearing today and also hearing in June and then marking up in 
June, in this subcommittee and on the full committee, will be 
achieving a greater American energy self-sufficiency.
    In September, this subcommittee and the full Energy and 
Commerce Committee will process a mandatory greenhouse gas 
measure, and I want to stress again that that will happen in 
the fall of this year. We will be processing a mandatory 
greenhouse gas control measure through this subcommittee and 
full committee. We have conducted 10 days of hearings in this 
subcommittee this year on the subject of climate change, and 
immediately following the July passage of the energy 
independence bill that we are now processing, we will return 
our attention in this subcommittee to climate change and the 
construction if our mandatory legislation for consideration in 
this subcommittee and the full committee during September.
    I want to thank all of the members of the subcommittee who 
have shared their suggestions with us for the measure that we 
are having our hearing regarding today and for the legislation 
we will be considering in a second legislative hearing in June. 
Members have shared ideas with regard to alternative fuels and 
energy efficiency, and many of the Members' recommendations are 
reflected in the legislation that is before the subcommittee at 
the present time.
    This has been a broad, bipartisan process, and I want to 
say thank you to Members on both sides of the aisle for their 
participation and for sharing ideas and recommendations with 
us. That concludes my opening statement.
     I am pleased at this time to recognize the gentleman from 
Michigan, Mr. Upton, for 5 minutes.
    Mr. Upton. I am going to defer my time, the 3 minutes. But 
I might ask unanimous consent to put in Mr. Hastert's opening 
statement as I know he is on his way.
    Mr. Boucher. Without objection, opening statements 
submitted by all Members will be made part of the record. And 
the Chair would note that pursuant to the rules of the 
committee, any Member who waives an opening statement will have 
the time allotted for that statement and to that Member's 
question period for the first panel of witnesses.
     The gentleman from Illinois, Mr. Shimkus.

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

    Mr. Shimkus. Thank you, Mr. Chairman. I will be brief. I 
want to commend you on the movement on energy security 
legislation. I think it builds on what we did in EPACT 2005, 
and the basic efficiency, smart grid, loan guarantees, CTL, I 
can't think for all my colleagues on this side but I do think 
you are going to have a lot of support on this provision, and 
you can count me as an ally as we move this piece of 
legislation forward.
    The best thing we can do on energy security and high prices 
is have more supply. We started that with EPACT 2005 with the 
renewable fuel standard. We are going to do that in this bill 
with using a great resource of coal. And when you have more 
supply, especially internally, the coal-to-liquid applications, 
you not only have the commodity product, but you will build 
refineries. I mean, that is what we are missing. We are missing 
the commodity product and we are missing refinery capacity, and 
with this we can get both. And everybody is worried about high 
prices, but the best thing you can do is get more competitive 
fuels into the mix. So I really applaud you on that. Thanks for 
working with me, and I yield back my time.
    Mr. Boucher. Thank you very much, Mr. Shimkus. The 
gentleman from Massachusetts, Mr. Markey, is recognized for 3 
minutes.

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

    Mr. Markey. Thank you, Mr. Chairman. Thank you for the 
excellent series of oversight hearings which you have had on 
this legislation of the energy efficiency and smart grid drafts 
inside of your proposal. Both move in the right direction, and 
I commend you and your staff for all the work that went into 
these provisions. On appliance efficiency, you have built on 
the foundation laid out by the committee in 1987, 1992, and 
2005 when we gave to you the power to issue National Appliance 
Efficiency Standards and then expand those powers. You have 
responded to some of the concerns raised by efficiency 
advocates, about problems with DOE's management of this 
program. And I look forward to working with you and the 
committee members on additional ideas to strengthening these 
provisions.
    For example, today I will be introducing companion 
legislation to Senator Pryor's bill to strengthen the Federal 
Government's Energy Efficient Buildings Program and the Federal 
Government's ability to use energy savings performance 
contracts.
    At the same time, I do have some real concerns about the 
coal-to-liquids bill before us today. At the subcommittee 
hearing 2 weeks ago on alternative fuels, EPA confirmed that 
without sequestration, coal-to-liquids would increase carbon 
dioxide pollution by 118 percent compared to diesel fuel made 
from petroleum. EPA also said they were only assuming only 85 
percent capture in the sequestration models, meaning that there 
would be a 15 percent leakage in their estimates for carbon 
capture and sequestration systems. Rather than subsidize 
transportation fuel that at best fails to reduce carbon 
emissions, and at worst increases carbon pollution 
substantially, it seems to me that a much better way for coal 
as well as the rest of the electric power sector, is to get 
into the business of providing electricity for the 
transportation sector that not would be to accelerate efforts 
to develop plug-in electric hybrid vehicles. And for coal, we 
should accelerate efforts to demonstrate carbon capture and 
sequestration on a commercial scale.
    The discussion draft before us does however omit the most 
important and easy step we can take to reduce our dependence on 
foreign oil and that is a CAFE standard, an increase in the 
fuel economy by 4 percent per year, up to 35 miles per gallon. 
The draft also omits an energy efficiency resource standard. 
Today I am introducing a bill which would call for a 10 percent 
improvement in electric utility efficiency, and a 5 percent 
improvement in natural gas utility efficiency by 2020. Then I 
might also add that the legislation also does not include a 
renewable energy standard, renewable portfolio standard, which 
is the single most important thing which would drive green, 
renewable energy generation standards. And I think as we move 
forward, it would be important for us to find ways to include 
all of these in any final legislation.
    I thank the chairman for all of his great work, and I yield 
back the balance of my time.
    Mr. Boucher. Thank you very much, Mr. Markey. The gentleman 
from Indiana, Mr. Buyer, is recognized for 3 minutes.
    Mr. Buyer. I will waive.
    Mr. Boucher. The gentleman waives an opening statement. The 
gentleman from Michigan, Mr. Rogers is recognized for 3 
minutes.

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

    Mr. Rogers of Michigan. Thank you. Mr. Chairman, I 
appreciate your efforts here and look forward to working with 
you for a successful conclusion here. And I want to highlight 
just the loan guarantee section of the bill, and I agree with 
Mr. Markey. We need to do something. But I think there is a 
better way we can get there, and I hope to use the section that 
maybe we can come up with a proposal that rewards innovation 
and rewards our Big 3 for unleashing intellectual capital on 
the problem of alternative fuel vehicles.
    A great example is General Motors announced the Volt at the 
last auto show which gets 540 miles to the tank. It is a 
gasoline engine that recharges lithium ion batteries, but after 
several million dollars, it is not quite ready to go yet. They 
still have some technical difficulties that will cost a lot of 
money. If we just allow them to have access to capital, 
specifically for research and development on these vehicles, 
they are going to get us to where we want to go, and I think 
there is some room here to work together so that we can find an 
alternative. Rather than a big, heavy regulatory scheme, let us 
let them unleash this lithium ion battery or maybe it is a more 
efficient ethanol engine or maybe it is a more efficient 
biodiesel fill-in-the blank. I think there are places that we 
can go where we all can agree that meets the chairman's 
understanding of how we do better at domestic alternatives to 
petroleum, as he says.
    I look forward to working with the committee. Hopefully we 
can talk about this section, and I really applaud the 
chairman's efforts on the bill. I yield back my time.
    Mr. Boucher. The gentleman from Pennsylvania, Mr. Doyle, is 
recognized for 3 minutes.

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

    Mr. Doyle. Mr. Chairman, I am pleased to be here today as 
we take these first critical steps toward making America more 
energy secure while also beginning our fight against global 
warming. It is a testament to you and this committee that the 
bill before us achieves both of these critical goals.
    As we all know, our Nation's dependence on foreign oil not 
only results in hard times at home when we fill our tanks, but 
it leads to difficult foreign policy decisions as we pursue our 
national interests within the world community. It is simply not 
strategically acceptable for the United States to be in a 
position where we import more than 60 percent of the crude oil 
our citizens consume. However, while we achieve the goal of 
energy independence, it is critical that it is attained in a 
manner consistent with our dual goal of combating global 
warming. The bill achieves this balance. As we work to meet 
these challenges, it is important to remember there is no 
silver bullet that will solve them. It will take an economy-
wide balanced approach that sets a clear path that is both 
ambitious and attainable. This path must recognize the 
situation on the ground and set goals that can be advanced 
through the development of new and innovative technologies as 
well as improvements in production and efficiency. We must look 
toward all fuel sources and find ways to create new forms of 
power while further developing a means to use the current fuels 
in a more environmentally supportive way.
    I have never seen a time during my years in Congress where 
we have such a real opportunity to work together from the 
environmental community to our industrial base, from our home 
towns to distant shores, and from Democrat to Republican to 
make tremendous advances on both our critical goals. The 
question is no longer if we will act, the question is how long 
will it take. I stand ready to work with every option on the 
table to find a solution that will not only move us forward in 
the near term but will achiever our mutual goals in the long 
term. After all, there isn't anybody on this planet that 
believes that the question of global warming, or for that 
matter energy independence, is just a 5-year problem. This is a 
50-year-plus goal, a goal that we are putting our Nation on a 
path to achieve. The question is not if we are going to reduce 
our emissions by 80 percent, it is how we are going to do this 
and how long it takes. Today is the first step. I hope my 
colleagues and all stakeholders on each side of this debate 
will join me on this step. While this bill does not have 
everything every member of this committee would like to see in 
it, I think this bill is our Nation's first down payment toward 
achieving energy independence and fighting global warming. I 
look forward to working with you, Mr. Chairman, and the members 
of this committee and all the various stakeholders to ensure 
that we are successful at meeting these critical national 
goals. I thank you, and I yield back the balance of my time.
    Mr. Boucher. The gentleman from Texas, Mr. Barton, the 
ranking member of the full Energy and Commerce Committee, is 
recognized for 5 minutes.

   OPENING STATEMENT OF HON. JOE BARTON, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF TEXAS

    Mr. Barton. Well, thank you, Mr. Chairman. I want to 
compliment you for the number of hearings that you have held. 
The fact that you have actually circulated a discussion draft 
and have held a legislative hearing on it, accepting comments 
from us on the minority side. We may surprise you. We may have 
a few suggestions for improvement. It is good to know that 
there is at least one subcommittee that is actually trying to 
use the process, so I am extremely pleased. And I must say, in 
looking through the draft, the staff briefing on it yesterday, 
there are quite a few items in it that I think we can work 
together on. So I am very pleased that we are in the process 
that you are using and hope that we will have an outcome later 
this summer that results in legislation that might actually 
make it to the President's desk. So I am extremely positive 
about what you are undertaking.
    I do think there are some priorities as we go through this 
process that we ought to keep in mind. First, let us make sure 
that we keep the lights on in America. Let us make sure we keep 
our cars and trucks on the road, and with a choice of fuels 
that are affordable, and let us try to do no harm to the 
economy. Let us try in whatever we do make sure that we keep 
the economy going as strongly as possible.
    There are a number of things that are before us today in 
your discussion draft that I believe could be helpful in 
meeting those goals. Your energy efficiency title and your 
smart grid technology certainly should be able to help keep our 
electricity grid strong and help keep the lights on. If we 
reduce the need to build additional power plants, that is 
obviously something that is a positive thing; and we may be 
able to utilize some of the promises of some of the new 
technologies that are coming down the road.
    There are some things that give me pause. You have a number 
of mandates in the discussion draft. It would seem to me that 
before we begin to mandate various actions, no matter how 
beneficial they may appear on the surface, we should give those 
potential mandates special attention. I know it is tempting to 
direct that there be a beneficial outcome and just close our 
eyes and close off our ears that no bad things will happen, but 
I think we need to really look at the cost and the benefits on 
the mandates. As the FTC economist said yesterday, the test 
should be put to every proposal. Does it increase supply or 
decrease demand? Because that is the only way to truly lower 
energy prices. I hope that we will buy some insurance against 
unintended consequences by sunsetting any mandates that we 
decide should be attempted. We should recognize the technology 
involving technology that is developed in the marketplace 
oftentimes provides more efficient solutions than statutory 
mandates.
    On your smart grid proposal, I am very positive about that. 
I do believe, though, that we ought to be careful that we don't 
end up bureaucratizing the deployment of it so that it actually 
slows it down. I am very interested in working with you and 
others in doing things that speed it up as opposed to just 
bogging it down in bureaucratic timetables and things like 
that.
    I am very pleased with the discussion draft provision on 
the loan guarantee program that was established under title 
XVII of the Energy Policy Act of 2005. This is a program that 
needs to get up and running as soon as possible. It is an 
amazement to me that plain language, 80 percent, has somehow 
been interpreted by the Department of Energy and the Office of 
Management and Budget to be 80 percent of 80 percent or 72 or 
90 percent or whatever their latest definition is. It is also a 
puzzlement to me that Internal Counsel's Office in the 
Department of Energy has been put in charge of that program. 
That makes absolutely no sense to me.
    Your coal-to-liquid proposal is worthy of serious 
consideration. As we all know, coal is our most abundant 
natural resource in the United States, and in spite of some of 
the ads that have been popping up around Capitol Hill in some 
various periodicals, I do believe that we can work with the 
technologies and that resource to find a way to make that a 
reality.
    So Mr. Chairman, in closing, let me simply say that it is 
very refreshing to have a discussion draft circulating. It is 
very positive you are holding a legislative hearing, and it is 
very commendable of you that you are willing to take 
suggestions from both sides of the aisle on how to improve it. 
With that, Mr. Chairman, I yield back.
    Mr. Boucher. Well, thank you very much, Mr. Barton, and we 
very much look forward to working with you as we take further 
steps on this measure. The gentleman from Michigan, Mr. 
Dingell, chairman of the full committee, is recognized for 5 
minutes.

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

    Chairman Dingell. Mr. Chairman, I thank you, and I commend 
you for your diligence and for the extremely competent way in 
which you have been pursuing energy legislation and bringing 
this subcommittee to this point in the legislative process.
    Over the years, energy legislation has been a major concern 
of this committee but remains a continuing focus and challenge. 
Less than 2 years ago, Congress enacted the Energy Policy Act 
of 2005 which touched on matters ranging from electricity 
markets to oil and gas policy to renewable energy. Today, the 
committee proposes and prepares to take the next by holding 
legislative hearings on our discussion draft as circulated by 
you last week.
    I commend you, Mr. Chairman, for your efforts in 
identifying areas that will improve our Nation's energy policy, 
help consumers, and buffer our country from market instability. 
Today's hearing will receive testimony from witnesses on the 
substance of the discussion drafts that address several of the 
areas in the committee's jurisdiction.
    The Speaker has asked the committees with energy-related 
jurisdiction to report legislation before the Independence Day 
district work period. These four discussion drafts represent a 
solid beginning and as you, Mr. Chairman, have indicated, will 
be followed by drafts on other significant matters. Today's 
hearing will help Members define areas of concern and areas of 
potential agreement regarding energy efficiency, smart 
electricity grid, DOE loan guarantees, and coal-to-liquids 
programs. This will take us one step closer toward reporting 
legislation which will build upon our past work and which will 
we hope benefit our Nation's future.
    I look forward, Mr. Chairman, working with you and all 
members of this subcommittee and the committee in the coming 
weeks and to the testimony of today's witnesses. Thank you, Mr. 
Chairman.
    Mr. Boucher. Thank you very much, Chairman Dingell. The 
ranking member of this subcommittee, the gentleman from 
Illinois, Mr. Hastert, is recognized for 5 minutes.

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

    Mr. Hastert. I thank you, Mr. Chairman, for holding this 
hearing on draft legislation for energy efficiency, smart grid, 
the Title XVII Loan Guarantee Program under the Department of 
Energy and coal-to-liquids. I also want to thank the witnesses 
for being here today. We have already held hearings on many of 
these topics, so we have some background to help us and to 
evaluate the discussion drafts. Some of it is new and may lead 
to added questions. I hope our witnesses will be able to 
provide us with the background we need.
    I look forward to working on this legislation as it moves 
through the regular order in the committee process. The draft 
legislation includes a section on lighting, a topic that I am 
very interested in. I understand that the industry and 
efficiency advocates are working on consensus language 
regarding incandescent bulbs. They have been working at this 
for a while, and hopefully their efforts will come to a 
fruition.
    I would like to be able to include language that has been 
arrived at a consensus rather than dictating a result. Advances 
in lighting technology will help the United States reduce 
significantly the amount of energy it uses. I support that, and 
I also support good, low-energy use lighting that is also green 
without the use of mercury, and we need to continue to look at 
that as well.
    The draft legislation also includes a fix for the Title 
XVII Loan Guarantee Program that was established by the Energy 
Policy Act of 2005. It is unfortunate that we even have this 
piece of legislation because I think the language in title XVII 
is clear. However, if this draft language gets the loan 
guarantee program moving now, then I support it. We need these 
loan guarantees to help finance the next generation of nuclear 
power plants and alternative fuel facilities like cellulosic 
ethanol and coal-to-liquid. The discussion draft also contains 
a title to provide support for six coal-to-liquid projects. I 
wholeheartedly support coal-to-liquids. The U.S. has more coal 
than anyone else in the world, and hence, we have the ability 
to have more energy than anybody else in the world. We should 
use those abundant coal resources to increase our energy 
security and reduce our reliance on imported oil by using coal 
to make transportation fuel. The technology exists, we just 
need to be able to economically deploy them in the United 
States, and we should all work toward that goal.
    This is the first step in getting this legislation ready 
for the floor. I understand that other parts of potential 
legislation dealing with alternative fuels and infrastructure 
is still under development. Those sections may be 
controversial. I will judge the proposed legislation on the 
full package, not just on individual pieces. It is the full 
package that will be voted on eventually. That is what must be 
evaluated in this committee.
    I look forward to working with the members of this 
committee and the full committee as the full legislative 
package goes through regular order. Mr. Chairman, again I thank 
you, and I look forward to today's testimony.
    Mr. Boucher. Thank you very much, Mr. Hastert. The 
gentlelady from California, Ms. Harman, is recognized for 3 
minutes.

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

    Ms. Harman. Thank you, Mr. Chairman. As is evidenced, our 
districts are very diverse. Yours obviously is a coal-dependent 
district, and I think that coal is part of our future; but like 
Mr. Markey, I would much prefer to stress carbon capture and 
sequestration than coal-to-liquid. Some come from Michigan, the 
home of the Big 3. I would point out that my district is home 
to Toyota and Honda, and Toyota is now No. 1 at least in terms 
of sales in the United States and has been highly innovative 
with respect to hybrid vehicles. My district also has an 
enormous amount of energy efficiency technologies, and each of 
us can tell a different story. You have a hard job to put all 
of this in a bill that moves us forward and does what Al Gore 
told us to do, which is to expand the limits of what is 
possible. And I just want you to know that I will try to do my 
part.
    I want to thank you specifically for including my light 
bulb bill in this draft as a placeholder. As you well know, I 
am working with Mr. Upton to see if we can find standards that 
are mutually agreeable, and I appreciate the comments that Mr. 
Hastert just made about light bulb efficiency. We need to push 
the industry and recognize that many parts of the country and 
the world are banning the incandescent bulb because it is 
inefficient. That is not what my bill would do. My bill would 
push it to meet standards that fluorescent bulbs can already 
meet by 2012. So I think that at least is a good starting 
place.
    I also want to commend you for the smart grid title of the 
bill. I think it is very important. An issue there that 
interests me a lot is adding some language on technology or 
demonstration projects for plug-in technology. As we heard from 
a witness a few weeks ago, at least in a State like California, 
there is the possibility that 70 percent of our cards could be 
retrofitted with plug-in hybrid technology. And that could use 
excess power from the grid at night, and a smart grid format 
could make that possible.
    So there are many exciting options. Your bill is beginning 
to capture some of them, and as one member of your team, I hope 
we will all be successful and feel good about the result. Thank 
you, Mr. Chairman.
    Mr. Boucher. Thank you very much, Ms. Harman. The gentleman 
from Texas, Mr. Hall, is recognized for 3 minutes. The 
gentleman from Texas waives his opening statement, and the 
gentleman from Maine, Mr. Allen is recognized.

   OPENING STATEMENT OF HON. TOM ALLEN, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF MAINE

    Mr. Allen. Mr. Chairman, thank you for holding this hearing 
and for your work on the legislation before us. I welcome the 
witnesses today. I am pleased that the draft legislation 
increases energy efficiency standards for appliances, 
buildings, and lighting, the proposals for which I have long 
advocated. I strongly support the portion of the proposal that 
would encourage the deployment of smart grid technology. Smart 
grid systems will make our electricity transmission network 
more energy efficient and allow consumers greater control of 
their energy use.
    I also support the section of the draft that improves the 
Title XVII Loan Guarantee Program. This language has been 
worked out on a bipartisan basis and will significantly improve 
the program. However, I do have grave concerns about providing 
Federal support for the construction of coal-to-liquid plants. 
Making liquid fuel from coal is the least efficient way to 
utilize coal as an energy resource. Under the best case 
scenario, coal-to-liquid plants would be carbon neutral. At the 
worst case, coal-to-liquid plants would increase carbon 
emissions. Under no circumstances will we achieve rapid 
reductions. But there are to my knowledge no significant 
reductions in carbon emissions from vehicles that use fuel from 
coal.
    I have another concern. Subsidizing coal-to-liquid plants 
may well undermine the development of biofuel technologies. We 
need to investigate whether or not the low cost of coal will 
cripple the development of a vibrant market for cellulosic 
ethanol which can reduce our use of oil and significantly 
reduce carbon dioxide emissions at the same time. The 
development of a global coal-to-liquids industry is truly 
troubling for the future of carbon emissions. I prefer plug-in 
hybrids. I think if we encourage plug-in hybrids, together with 
coal plants that deploy the latest technology for carbon 
capture and sequestration, plus state-of-the art technology to 
scrub the stacks with SOx, NOx, and mercury. We could achieve 
cleaner air, carbon dioxide reductions, and energy independence 
all at once. Coal-to-liquids takes us in the wrong direction. 
Further, any true energy independence factors should contain a 
renewable energy standard as well as language similar to Mr. 
Markey's CAFE proposal so we can get serious about making our 
automobiles more efficient.
    Finally, Mr. Chairman, cleaner air and a comprehensive 
strategy to combat global climate change go hand in hand with 
energy independence but in my opinion must be part of this 
subcommittee's long-term strategy. I look forward to working 
with you to achieve this goal, and I yield back the balance of 
my time.
    Mr. Boucher. Thank you very much, Mr. Allen. The gentleman 
from Kentucky, Mr. Whitfield is recognized for 3 minutes.
    Mr. Whitfield. Mr. Chairman, I waive my opening statement.
    Mr. Boucher. Thank you very much, Mr. Whitfield. The 
gentleman from Texas, Mr. Burgess, is recognized for 3 minutes. 
Mr. Burgess is not here at the moment. The gentleman from 
Texas, Mr. Gonzalez, is recognized for 3 minutes.
    Mr. Gonzalez. I waive.
    Mr. Boucher. Mr. Gonzalez waives his opening statement. The 
gentleman from Washington State, Mr. Inslee, is recognized for 
3 minutes.
    Mr. Inslee. Wait.
    Mr. Boucher. The gentleman waives his opening statement.
    Mr. Inslee. I will be there in just a moment.
    Mr. Boucher. He is sending me an e-mail.

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

    Mr. Inslee. Actually, what I was trying to do is first I 
wanted to express my appreciation to the Chair's handling of 
this in such an open and comprehensive manner, and I really do 
appreciate it.
    What I was looking for is a release from Speaker Pelosi, 
who is addressing sort of our charge to our committee for this 
summer, and I want to make clear that it is my understanding 
our charge is to produce bills this summer that address not 
only energy independence for the United States but also global 
warming. And as soon as I get my BlackBerry in the right file, 
I can read that.
    She made it very clear to us that we have a twin charge 
this summer, is to address the twin challenges of energy 
independence and global warming. And I think it is very 
important for us to make that point now because we cannot solve 
either unless we solve both.
    I am just reading her language. She says, ``Our committees 
are already working hard on hearings of legislation designed to 
meet our June timetable in taking crucial legislative steps to 
achieve energy independence and reduce activities that 
contribute to global warming.'' It would be a huge mistake for 
us to take a policy this summer that would harm or retard the 
ability to solve either one of those challenges. Many folks 
have talked about the coal-to-liquid issue. I want to suggest 
that despite the considered efforts to draft this bill to not 
shoot ourselves in the foot. In fact, coal-to-liquid would 
inevitably harm our ability to move forward on global warming. 
And the reason I think was made even clearer to me when I was 
talking to a gentleman who is involved in efforts to develop a 
cellulosic ethanol industry in the United States which would 
reduce CO\2\ by over 50 percent compared to gasoline. Why would 
we ever establish an industry that would at best be equivalent 
to gasoline and essentially retard the development of an 
industry that can reduce CO\2\ emissions by 50 percent? That is 
cellulosic ethanol.
    And I want to address my colleagues from the farm community 
States that have a tremendous potential with cellulosic 
ethanol. My colleagues who want to develop the farm industry 
are going to be hurt if they get on this train of coal-to-
liquid because coal-to-liquid would be a direct competitor to 
cellulosic ethanol. And those who want to see a future for 
rural America with biofuels are going to have to make a 
decision whether they want to shoot themselves in the foot and 
to develop that by trying to support these coal-to-liquids 
which is never going to be a significant reduction in CO\2\. I 
think that is important.
    With that being said, I hope Mr. Chairman that we will 
address this summer some of the other issues that will address 
global warming including a renewable portfolio standard, an 
advanced low-carbon fuel standard, incentives for plug-in 
hybrids, additional incentives for the solar to wave energy 
industry, healthcare for hybrids, and our green building 
standards which should include green building standards for 
residences as well as commercial construction.
    So I will look forward to dealing with two problems this 
summer, not just one, Mr. Chairman. Thank you.
    Mr. Boucher. Thank you, Mr. Inslee. And let me just note 
that the Speaker's office indicated some time ago that, to use 
the phrase of the Speaker's office, cap and trade would not be 
a part of the July agenda, meaning that a comprehensive 
greenhouse gas control program would be considered later, and 
we intend to take that charge seriously and produce it later 
this year in this committee.
    The gentlelady from Wisconsin, Ms. Baldwin is recognized 
for 3 minutes.

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

    Ms. Baldwin. Thank you, Mr. Chairman. I want to begin by 
thanking you for your dedication and your efforts in drafting 
the legislation that we have before us. There are many 
provisions in this text that will take significant steps 
towards reducing our Nation's energy consumption and putting us 
on a path to energy independence. For instance, I am excited 
about the potential provisions in the energy efficiency title 
that would require EPA to survey the quantity and quality of 
industrial waste energy, heat, from major industrial combustion 
sources. Estimates reveal that there is potentially as much as 
60 to 90 gigawatts of heat that are currently wasted from 
industrial sources. This is heat that can be converted into 
energy, reducing the need for the equivalent of 60 to 90 
nuclear power plants.
    I understand that there are concerns about particular 
provisions in the industrial energy subtitle. I hope through 
continued discussions we can reach a satisfactory outcome that 
enables us to prevent waste, increase efficiency, and improve 
grid reliability.
    I am also pleased that this bill takes significant steps 
towards facilitating smart grid technologies. Smart grid is 
technology of the future. It is the ability to manage peak 
loads and mitigate peak prices, and it provides consumers with 
the knowledge and the means to make sound energy choices. But 
for a smart grid to succeed, substantial investment is required 
to trigger nationwide deployment, and this bill provides the 
incentives to jumpstart such an investment.
    Mr. Chairman, while I have expressed my pleasure with 
certain sections of the bill, in my opinion, it is not perfect. 
As mentioned in earlier hearings, I have a strong concern about 
coal-to-liquid projects. As we embrace the challenge of making 
our Nation energy independent, I believe we must do so in a 
manner that reduces our greenhouse gas emissions, in other 
words, a more ambitious standard than do no harm in this bill. 
And coal-to-liquid, while it may be a domestic fuel source, has 
greenhouse gas emissions that could be as much as twice as high 
as petroleum-based fuels.
    I am hopeful that you will be open to working with Members 
so that this committee can pass legislation that addresses our 
concern about increasing energy independence while reducing 
greenhouse gas emissions.
    Finally, Mr. Chairman, I want to highlight negotiations 
that are ongoing between industry and advocates. On the issue 
of stand-by power, each and every one of us has electronic 
equipment in our homes operating in standby mode, our 
televisions, or modems, battery chargers, any device with a 
continuous digital display. The problem is that for many of 
these devices, they draw as much energy in standby mode as they 
do when they are turned on. Recent estimates of standby use 
reveal that it accounts for as much as 10 percent of household 
power consumption. I will continue to work with energy 
efficiency advocates in affected industries on language to 
reduce standby power consumption, and I am hopeful that we will 
reach consensus that can be inserted into this bill. Thank you, 
Mr. Chairman.
    Mr. Boucher. The gentleman from Utah, Mr. Matheson, is 
recognized for 3 minutes. The gentleman from Utah waives his 
statement. The gentleman from Maryland, Mr. Wynn, is recognized 
for 3 minutes.

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

    Mr. Wynn. Thank you very much, Mr. Chairman. I want to join 
my colleagues in expressing my appreciation for the work that 
you have done. You have worked very hard on this issue, and you 
have also been very thorough and comprehensive in holding a 
lengthy series of hearings.
    I am generally pleased with the draft bill before us on a 
number of fronts. First in terms of energy efficiency, I think 
it is very important that we address this issue. It is pretty 
well-recognized that our footprint here in America in terms of 
energy consumption is much greater than that of Europe and 
suggest we can do better, and the provisions relating to 
appliances and lighting and better standards and more efficient 
standards I think make perfect sense. A lot of people have been 
saying we can't do better.
    I want to note that in one of our hearings we heard from 
the National Conference of Mayors that this is not just a 
Federal responsibility, it is also a local responsibility and 
in keeping with their suggestions, I introduced a bill for 
energy independence, energy efficiency block grants which is 
basically Federal funds sent to the local level for projects at 
the local level to address energy efficiency, and I hope we can 
consider this as we move forward.
    Second, I would note that the smart grid provisions are 
also very significant. A lot of people, quite frankly, have 
been waiting for us to get smart. This bill begins that 
process, particularly with respect to providing for matching 
grants for the investment costs associated with the initial 
smart grid cost. I think this is what we have to do, shift 
financial resources to areas that we want to promote. I think 
this makes perfect sense, also the promotion of demand response 
by consumers involving the American public in this process. 
Like many of my colleagues, I also support the title XVII 
adjustment that would provide for full costs or loan guarantees 
for the full cost of new technologies. It provides a 
clarification that many people have been seeking with respect 
how we can financially support new technologies such as 
sequestration, such as hydrogen fuel cells. So I think that 
makes sense.
    I would say in closing that I have concern as do many of my 
colleagues about coal-to-liquid, but if we can utilize 
sequestration to address this concern, it must be in the 
context of lowering emission levels below that which would come 
from burning petroleum. So I know that there has been 
discussion with do no harm, but I think we have to try to do 
better than do no harm with respect to coal if we are to 
consider coal-to-liquid in this plan. But ultimately, we have 
got a long way to go but I think we have made a good start; and 
I appreciate your leadership. Thank you.
    Mr. Boucher. Thank you very much, Mr. Wynn. The gentleman 
from Arkansas, Mr. Ross, is recognized for 3 minutes.

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

    Mr. Ross. Thank you, Chairman Boucher, for holding today's 
hearing and all the witnesses who have come before the 
subcommittee to testify. I want to first commend our chairman 
and subcommittee for all their hard work on these drafts. I 
especially want to thank the staff.
    This legislation is a step in the right direction for 
increased energy efficiency and security for our Nation. I am 
particularly glad to see a title that addresses the Energy 
Policy Act of 2005 Loan Guarantee Program. This program can 
help finance projects involving, among other things, cellulosic 
ethanol, nuclear energy facilities and clean coal projects. I 
represent part of the delta region of this country, one of the 
poorest in America; and I believe we can see an economic 
revival in the delta as a result of investing in cellulosic 
ethanol.
    Alternative and renewable fuels like cellulosic ethanol, 
biodiesel, and nuclear energy must be part of our Nation's 
comprehensive plan to combat climate change and increase our 
energy security. I believe that the loan guarantee programs in 
the 2005 EPACT can and should aid in that process. However, 
there have been numerous concerns about the DOE guidelines that 
cap loan guarantees at 80 percent for an eligible project, and 
I am pleased to see that this legislation addresses those 
concerns.
    I am also pleased to see titles in this draft that would 
help to modernize America's electric transmission through a 
smart grid and a provision to assist coal-to-liquid projects. 
Let me be clear. We have over a 200-year supply of coal here in 
this country that can help us reduce our dependence on foreign 
oil. This is not the 1950s or 1960s. We can utilize 21st 
century technology and use this valuable natural resource to 
lessen our reliance on foreign oil, and we can do it utilizing 
21st century technology in an environmentally friendly manner.
    These sections I believe are extremely important components 
to putting our Nation on the path to energy independence. I am 
happy to see their inclusion in this draft.
    Finally, I am pleased to see a strong energy efficiency 
section of the bill that addresses building and appliance 
efficiency standards in the section that reauthorizes funds 
through 2012 for LIHEAP, the Weatherization Assistance Program, 
and the State energy program. With energy and electricity use 
projected to grow over the next 20 years, enacting legislation 
that promotes energy efficiency in buildings and appliances is 
crucial to our country's energy independence and security. The 
future energy needs in this country must be met by a number of 
ways including nuclear, clean coal technology, coal-to-liquid 
technology, cellulosic ethanol, and other forms of alternative 
and renewable fuels.
    Once again, I want to thank the chairman for his work on 
this legislation, and I look forward to hearing today's 
testimony and the benefits of this bill as well as possible 
ways to improve on these drafts, and I yield back the balance 
of my time.
    Mr. Boucher. Well, thank you very much, Mr. Ross, and that 
completes the opening statements from members of the 
subcommittee, and I want to say welcome to our panel of 
witnesses who will address the first set of subjects that we 
are conducting our hearing regarding today, and I want to thank 
you for your patience. We have spent about an hour talking to 
you, and now we would like to give you an opportunity to talk 
to us.
    Our first witness is Mr. David Rodgers, the Deputy 
Assistant Secretary for Energy Efficiency at the U.S. 
Department of Energy. Ms. Kateri Callahan is president of the 
Alliance to Save Energy, and Mr. Jay Birnbaum is the vice 
president and general counsel of the CURRENT Group which is 
deploying broadband over power line in a variety of locations 
around the Nation. And we welcome each of our witnesses on the 
first panel. Without objection, your prepared opening statement 
will be made a part of the record, and we would welcome your 
oral summary and would ask that you keep that to approximately 
5 minutes.
    Mr. Rodgers, we will be happy to hear first from you.

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

    Mr. Rodgers. Thank you, Mr. Chairman, members of the 
committee. Thank you for the opportunity to testify before you 
today on the energy efficiency discussion draft that was 
circulated for comment. While the administration has not had 
sufficient time to coordinate interagency views of the draft 
legislation, I am pleased to offer some preliminary comments. 
This means the administration has no formal position on the 
bill and may take a position at a later date based on the 
entirety of the legislative package.
    In addition I would note the administration looks forward 
to working with this committee to craft an ambitious 
alternative fuel standard for the President's signature before 
the end of the summer driving season.
    Discussion draft title I addresses a fundamental question: 
how can the United States find more ways to successfully 
promote energy efficiency? The draft legislation makes valuable 
contributions to our national discussion on energy efficiency 
addressing key areas of energy consumption, energy waste, 
energy training, and the residential, commercial, industrial, 
and public sectors. While there are many elements of the draft 
that appear consistent with the administration's energy policy 
objectives, some sections could benefit from further review, 
discussion, and modification. The Department looks forward to 
working with the committee to fine tune these proposals.
    The discussion draft begins with the important area of 
energy conservation standards for appliances and equipment. 
Assistant Secretary Karsner testified earlier this month before 
this committee and discussed the schedule by which the 
Department has committed to clearing backlog of standards 
rulemaking and strategies for expediting the rulemaking 
process. This draft would augment the schedule and the process, 
and the Department supports many of the sections presented 
today and the tools they employ.
    Secretary Bodman sent legislation to Congress in February 
requesting authorization that would significantly speed up the 
standards process and ultimately bring more efficient products 
to the market sooner. Our fast-track legislative proposal would 
streamline the rulemaking process, allow the Department to go 
to a direct final rule for certain products when a clear 
consensus for a standard exists among manufacturers, efficiency 
advocates, the Government, and other stakeholders. This process 
could shorten the time to a completed standard by nearly one-
third. The Department looks forward to working with this 
committee to have that language included in this legislation.
    Section 109 of the discussion draft would require DOE to 
periodically review and update all standards, an objective the 
DOE can support. However, the draft sets a schedule for the 
Department to evaluate the need for further updates to 
standards that would require rulemakings for some products to 
begin before the effective date of the existing standard. In 
those circumstances, DOE would not have updated information on 
the cost and other attributes of the energy efficient 
improvement options. We have similar concerns regarding the 
maximum 3-year delay between DOE issuance of a new standard and 
its effective date, and concerns about the immediate lifting of 
Federal preemption of State standards if one of the statutory 
deadlines was missed, regardless of cost. The end result of 
some of these provisions is likely to be a substantial increase 
and a burden on manufacturers and consumers.
    The Department supports improving energy-efficient 
practices government-wide including in the construction, 
renovation, routine maintenance of Federal facilities. The 
discussion draft would direct the installation of energy 
efficient lighting fixtures and bulbs in GSA facilities. We are 
prepared to assist GSA and all Federal agencies with the latest 
developments in lighting technologies practices including 
providing energy cost-saving data. Our Federal Energy 
Management Program provides direct technical assistance and 
training to Federal agencies on lighting and other efficient 
technologies. Lighting improvements at Federal agencies are 
frequently performed as part of the Comprehensive Energy Audit 
and retrofit utilizing an energy saving performance contract or 
utility energy services contract as appropriate, allowing them 
to maximize energy savings at little or not cost to the 
government.
    Moving on to the area of building codes, the framework and 
basic objectives of this subtitle in the discussion draft 
appear to be consistent with the goals of our building 
technology program. We have supported the building code and 
standards activity of ASHRAE and the IECC, the major voluntary 
code bodies. However, the Department has several specific 
concerns related to the flexibility and implementation and 
looks forward to further discussion with the committee.
    Subtitle F would expand the types of projects that can be 
funded by Energy Saving Performance Contracts. Broadening the 
scope of this provision may serve as a significant incentive 
for Federal agencies to implement more diverse projects, 
demonstrate the significant role that private financing can 
play in Federal energy management projects. In addition, the 
Department supports permanent authorization of Energy Saving 
Performance Contracts which is not included in this discussion 
draft.
    An essential complement to increased energy efficiency in 
industry, manufacturing, and the built environment is a 
national effort to reduce petroleum use, especially in the 
transportation sector. In his 2007 State of the Union Address, 
the President challenged our country to reduce gasoline 
consumption by 20 percent in 10 years, the Twenty in Ten plan. 
The President called for a robust alternative fuel standard 
requiring the equivalent of 35 billion gallons of renewable and 
alternative fuel in 2015. The Twenty in Ten plan holds a 
promise of diversifying the sources and the volumes of fuels we 
use, while reducing our vulnerabilities and dependence on oil. 
The administration looks forward to working with Congress on 
these initiatives.
    Mr. Chairman, this concludes my prepared remarks. I will be 
pleased to answer any questions the committee members may have.
    [The prepared statement of Mr. Rodgers follows:]

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    Mr. Boucher. Thank you very much, Mr. Rodgers. Ms. 
Callahan, we will be happy to hear from you.

   STATEMENT OF KATERI CALLAHAN, PRESIDENT, ALLIANCE TO SAVE 
                     ENERGY, WASHINGTON, DC

    Ms. Callahan. Thank you, Mr. Chairman, and I thank the 
members of the committee for the opportunity to appear before 
you today to discuss the energy efficiency provisions of the 
draft legislation.
    As an organization that has dedicated itself over the last 
three decades to advancing energy efficiency, to tackle the 
country's linked problems of growing energy demand, increasing 
prices and volatility, and global warming, we think that what 
you are undertaking here today is very important. We stand 
ready to support your efforts in any way that we can.
    I also would like to thank two of the members of the 
subcommittee in particular for their leadership on energy 
efficiency and their service as Alliance board members, and 
that is Mr. Hall from Texas and Mr. Markey from Massachusetts, 
and we have enjoyed their support.
    Energy efficiency has proven to be our country's greatest 
energy resource over the past 30 years, and that has happened 
from good, strong public policies like you are looking at 
today, appliance standards, building codes, better Federal 
energy management. Energy efficiency is currently contributing 
more to meeting our country's energy demand than, pardon me, 
Mr. Chairman, but even than King Coal. Our studies at the 
Alliance indicate that if we hadn't taken all the efficiency 
measures that we have over the past 30 years, we would need 40 
percent more energy today to power our economy than we are 
currently using. So we have made good progress and we all 
should be proud of that. However, there is much more to do.
    The committee's draft continues this important tradition, 
and while we support the efficiency provisions that are in the 
draft currently, we also urge the committee to consider 
including additional measure that can deliver even greater 
energy savings. I am only going to highlight a couple of the 
key provisions because as the chairman indicated, there are 29 
efficiency provisions. So I will highlight a couple that we 
consider most important and suggest a few additions. All of 
these, along with a number of others, are included in detail in 
my written testimony.
    First, we support the many strong provisions on appliance 
standards in the bill. Appliance standards has proven to be one 
of the most effective efficiency programs this country has 
undertaken. Through the appliance standards we have in place 
today, by the year 2010, we estimate that we will save 7 
percent of U.S. electricity use, and greenhouse gas emissions 
will be 65 million metric tons lower. And that also translates 
into savings for American consumers of $234 billion in avoided 
energy costs. New performance standards for general service 
light bulbs that many of the Members have mentioned today could 
be the single most important energy savings measure in the 
bill. We estimate that these technology-neutral standards could 
save as much as 65 billion kilowatt hours of electricity. That 
is the equivalent output of 80 coal-fired power plants. It 
represents $18 billion in avoided energy costs and 158 million 
tons of avoided CO\2\ emissions annually.
    Mr. Chairman, many have mentioned that there is a coalition 
working on negotiating consensus standards. The Alliance is 
pleased to be hosting those, and I am actually leaving here 
today to conclude we hope successfully the standards. We would 
suggest and ask that the committee consider these negotiated 
standards if we are able to deliver them as a substitute for 
the language that is currently in the draft.
    Second, we strongly support the innovative building code 
provisions that are included in the draft. About 40 percent of 
all the energy we consume in the United States and two-thirds 
of the electricity is gobbled up by the building sector, and 
the potential for energy savings here is enormous. Making 
efficiency improvements at the time of construction is by far 
the most cost-effective way to lock in energy savings for the 
30 to 50 to even longer life buildings. Progressive building 
efficiency codes like you have articulated in this draft ensure 
that these efficiency measures are taken. And third, while we 
strongly support the provisions of the bill designed to reduce 
energy use by the Federal Government, we ask the committee to 
consider additional provisions that will create a new paradigm 
and a new structure to ensure that Federal agencies are 
aggressive in pursuing efficiency upgrades. The bill that was 
mentioned by Mr. Markey that he is going to introduce today and 
was introduced in the Senate by our chairman, Senator Mark 
Pryor from Arkansas, is one that we would commend to this 
committee to consider including in the bill.
    And finally, we ask the committee to consider including 
provisions that foster utility efficiency programs which are a 
proven and cost-effective means of delivering energy 
efficiency. The Senate energy efficiency bill requires State 
utility commissions to at least consider energy efficiency as a 
resource and to look at structuring rates as to not encourage 
greater sales of electricity. We support these provisions and 
ask the committee to consider them. We also support creation of 
a Federal energy efficiency resource standard that would 
require utilities to implement programs that result in a 
specified amount of electricity or natural gas savings. Like a 
renewable portfolio standard, energy efficiency resource 
standard, or EERS as they are called, represent a flexible or 
performance-based and market-based regulatory mechanism that 
can ensure that energy efficiency is treated by utilities as 
other fuel supply resources.
    In conclusion, I reiterate our offer to work with the 
committee as you develop this important legislation that will 
reduce energy waste and price volatility and will address 
global warming in a meaningful way. Through energy efficiency, 
we believe that you can transform our current energy crisis 
into economic opportunities and a win-win for both Americans 
and our environment.
    [The prepared statement of Ms. Callahan follows:]

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    Mr. Boucher. Thank you very much, Ms. Callahan. Mr. 
Birnbaum.

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

    Mr. Birnbaum. Thank you, Mr. Chairman. Good morning. Good 
to see you again. I would like to thank the committee for the 
opportunity to speak this morning about the smart grid 
initiatives. I would like to commend the subcommittee for 
actually elevating smart grid to the national debate. CURRENT 
has been doing this with electric utilities for several years 
now. We believe that the development of a smart grid is vital 
for national security, economic stability and development, as 
well as energy policy in general.
    The draft appropriately focuses on utilities using advanced 
technologies to improve reliability, security, and efficiency 
of their local distribution grids. And we would submit that it 
actually is a Federal responsibility to improve the reliability 
and security of the grids given the potential impact on 
homeland security and our economy. We support a number of the 
provisions in the bill which I will discuss.
    Although well-intended, I do believe there are some 
provisions that actually would have the unintended consequence 
of delaying smart grid deployments, and I would like to discuss 
those as well.
    I think it is first important to understand that smart grid 
exists today. This is a technology that we are deploying 
presently in the State of Texas as well as elsewhere. Mr. 
Chairman, I know you have been to our facility we have just 
outside the Capital Beltway where we demonstrate the smart grid 
capabilities. What we are doing in Texas will be a deployment 
covering 2 million homes and businesses with full smart grid 
functionality. So this is not a technology of tomorrow that 
needs study or demonstration projects. We can actually 
demonstrate whether it is hybrid powered vehicles or any other 
applications, on a system we are building today.
    What is needed is to remove the regulatory constraints that 
utility companies have and the disincentives they have for 
deploying smart grid technologies and to create some 
affirmative incentives, which the bill does address, for rapid 
action.
    First I would like to just clarify what we mean at CURRENT 
by smart grid. We are referring to a high-speed, two-way 
communication system that has sensors that provide real-time 
monitoring, diagnostics, and control for electric distribution 
companies so they can manage and monitor their substations, 
transformers, all the crucial points between the substation and 
our homes and businesses. Right now utility companies for the 
most part are deaf, dumb, and blind as to what is going on 
inside our distribution grid. Hence, we have brownouts, we have 
storm-related power outages that take many days and sometimes 
longer to fully restore. A smart grid enables electric 
utilities to maintain stable, self-healing networks pursuant to 
which operators can immediately address problems, often before 
they result in noticeable problems to consumers such as 
outages, and often take automated corrective action.
    Unfortunately, significant Federal guidelines intervention 
are required. As I mentioned, CURRENT has been working with 
utilities to develop smart grids for several years now. We have 
found that utilities generally are reluctant to make 
discretionary technology investments, and we find several 
reasons for that. Their concern that regulatory rate recovery 
will be denied after they spend their money on new 
infrastructure. They have other investment opportunities that 
bear larger returns, such as generation and transmission 
facilities. And utilities actually have a disincentive to spend 
on an initiative that would reduce consumption or that would 
improve their own efficiencies since they would reduce their 
profits for any increase in efficiencies have to be passed onto 
the rate payer.
    Some of the problems in the draft bill do address these 
provisions. Providing for certainty that utility companies 
would have with respect to cost recovery on a smart grid, any 
intrastructure deployments we think that is an important 
Federal guideline. Similarly, utility companies should be able 
to continue to recover costs during any depreciable life on 
equipment that is rendered obsolete by smart grid investments. 
The utility companies have, unfortunately, an incentive to use 
inefficient equipment out on the wires as long as it is working 
a little bit. A totally full, depreciable life is eliminated.
    Some of the things we would urge the subcommittee to 
consider actually are enhanced returns. Because of the 
competing investment opportunities utilities have and 
restraints on capital, having an enhanced return for capital 
investments on smart grid initiatives including potential 
returns on operating and maintenance expenses for smart grid 
investments is something that could induce utilities to deploy 
smart grids, and we would urge the subcommittee to consider.
    As an alternative to a return on operating expenses, 
utilities when they create savings in their network create 
efficiency, they are expected to pass those savingsonto their 
rate payers. Utilities could instead be permitted to retain a 
proportion of those savings as a result. Getting a return on 
efficiency spending without actually having to build structure 
actually results in a less expensive way of developing a smart 
grid, and the bill does reflect some of these provisions in the 
proposed Federal guideline for becoming, which several States 
have started to employ.
    We think that regulatory reform is important at the State 
level. States need to be prohibited from impeding utilities' 
ability to deploy smart grid, whether directly or 
inadvertently. The draft bill does have a policy statement to 
this effect, and we would actually recommend that the 
subcommittee consider turning that into a Federal guideline an 
actual statutory requirement.
    Finally, Mr. Chairman, there are some provisions of the 
bill that I think, although well-intended, might actually have 
the effect of delaying smart grid deployments. As I mentioned, 
we are doing this today with several utilities. There are other 
technology companies out there that have developed smart grid 
components. Utility companies have the capability to do so 
today. They understand what the effects are on making them more 
reliable and how to do so. As a result, creating additional 
commissions and further development studies or demonstration 
programs, although more useful for untested and underdeveloped 
technologies actually in this case would probably serve to 
delay deployments since utility companies would more likely 
wait for the outcome of those studies and not deploy in the 
immediate future. With the strain and the vulnerabilities in 
the electric grids today, we would want to see smart grid 
deployments expedited rather than having a sort of wait and see 
approach for Federal studies. Thank you.
    [The prepared statement of Mr. Birnbaum follows:]

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    Mr. Boucher. Thank you very much, Mr. Birnbaum, and thanks 
to each of our witnesses for sharing your thoughts with us this 
morning.
    Ms. Callahan, let me compliment you on the work that the 
Alliance to Save Energy is doing under your leadership in order 
to develop a consensus among a variety of interested parties on 
performance standards for lighting. I think we all appreciate 
the work that you have undertaken.
    You indicated that even today you have a meeting following 
this hearing among those stakeholders and that you are 
optimistic about a consensus on those standards being not 
developed by those conversations. We would welcome that, and we 
hope that you can come forward with it. You understand, of 
course, that we are operating on a pretty short timeframe.
    Ms. Callahan. Right.
    Mr. Boucher. And we will be having markups in June on this 
subcommittee on the energy efficiency title as well as the 
other three titles and other material that will be forthcoming 
shortly, all of which will be marked up together. And that 
doesn't leave us a lot of time. So my question to you is how 
quickly do you really think that you are going to be able to 
develop this consensus and present it to us?
    Ms. Callahan. Thank you, Mr. Chairman. You are asking me to 
look into a crystal ball, but I will for whatever that is 
worth. First of all, let me say that I think the energy behind 
the negotiations is really coming in trying to meet your 
timeframe. Everyone is very aware of that, as well as the 
Senate, so we are working very hard. It is a face-to-face 
meeting today between manufacturers. People actually changed 
their plans and are flying into town from literally all across 
the United States to do this. We met last week face to face as 
well. I am optimistic. I think we will get there. There are 
significant challenges, effective dates, what the standards 
need to look like, what preemption is going to look like at the 
Federal level. These are tough issues to tackle. We are 
committed to staying late tonight. People are changing their 
Memorial Day weekend plans. We have committed to go through 
tomorrow. I am hopeful that we will deliver something to you 
all by early next week. I can't guarantee it, but that is our 
goal.
    Mr. Boucher. Just lock them in the room until they come to 
an agreement. Well, thank you. We all appreciate the work that 
you are doing on that.
    Mr. Birnbaum, let me compliment you personally and CURRENT 
Technologies for setting forth in such broad and eloquent terms 
the vision for what a smart grid can accomplish. The leadership 
you have demonstrated and your company has over the years is 
much appreciated. We have tried to respond as best we can to 
the effort to deploy the smart grid through the provisions in 
that title of this bill. Understanding that the regulatory 
authority over retail electricity rates resides at the State 
level, and most of these issues really fall within the advent 
of retail electricity regulation. We are necessarily somewhat 
limited with what we can do from the Federal standpoint in 
order to facilitate smart grid deployment. So given that 
inherent limitation, beyond the provisions that you have 
discussed that we have in our draft legislation, do you have 
recommendations for us on other steps that we could be taking 
on this subcommittee or perhaps through regulatory action at 
one of the agencies or through grant or loan programs of some 
kind that would aid in the effort to deploy smart grid?
    Mr. Birnbaum. Thank you, Mr. Chairman. With respect to the 
last part, being the loan or grant programs, they would 
probably be most useful in the rural areas or the other 
underserved, more difficult to serve areas where the electric 
distribution network tends to get technology and developments 
last and usually you are not served by investment from 
utilities and as a result they have a more difficult time 
raising capital to make those investments. The concern we have 
with those types of programs vis-a-vie industrial utilities, 
large municipal utilities, is generally the capital is 
available. The utility understands what is necessary to make 
the grid more reliable, but because of the limitations in the 
State regulatory environment, as you point out, they tend to 
have disincentives to do things the way they did the day before 
as opposed to what we want them to do tomorrow. Providing for 
some of these initiatives, and I understand you can't do rate 
making at the Federal level for each State utility, but 
providing guidelines at the Federal level for how State 
commissions should regulate for the provision or the deployment 
of smart grids we think is something that is similar to what 
Congress has done in other industries as well as industry 
including in 2005.
    Mr. Boucher. So some sort of model guideline is what you 
are suggesting?
    Mr. Birnbaum. Yes.
    Mr. Boucher. Where would you suggest that that guideline be 
developed?
    Mr. Birnbaum. As opposed to this subcommittee?
    Mr. Boucher. Well, should it be in a statutory form? That 
would be somewhat unusual I would think. Generally this is 
something that an agency would put forward. Have you had any 
discussions with the DOE about the possibility of DOE 
undertaking that kind of mission?
    Mr. Birnbaum. We have begun to have the conversation with 
the Department of Energy.
    Mr. Boucher. Let me ask this. Do you think DOE needs a 
statutory directive to do something like that?
    Mr. Birnbaum. I would defer to DOE on whether they think 
they need that, Mr. Chairman.
    Mr. Boucher. Mr. Rogers, do you have any comment on that?
    Mr. Rodgers. Thank you, Mr. Chairman. I am not in a 
position to comment on our statutory authorities in the area of 
electricity, but I would be happy to submit for the record in 
coordination with the Office of Electricity Delivery.
    Mr. Boucher. OK. Well, the question precisely stated as I 
comprehend Mr. Birnbaum is would you have sufficient authority 
under existing law to develop a model of State regulatory 
program that would be in aid of deploying the smart grid, and I 
presume that would include, and Mr. Birnbaum, you can 
supplement this if you like, but I presume that would include 
things such as time of use pricing and also a regime for smart 
meter deployment. Mr. Birnbaum, what else?
    Mr. Birnbaum. Those are important aspects of a smart grid, 
Mr. Chairman, but we would also provide for automation of the 
network so utilities can do remote outage management, outage 
prevention. A lot of the technology that we deploy along the 
electricity grid tells the utility company before something is 
so wrong that it results in an outage. It provides for higher 
efficiency, roughly 10 to 20 percent of electricity is actually 
lost before it ever reaches the end user. So by making the 
networks more efficient, we can actually do more than just 
smart----
    Mr. Boucher. So in the interest of time, let me ask you 
this. First, Mr. Birnbaum, why don't you submit to us your 
proposal for what that model for regulatory program at the 
State level should look like, and then we are going to send it 
to you, Mr. Rogers; and once you have seen that, perhaps you 
can comment to us on what additional statutory authority you 
might need in order to adopt a program that roughly has those 
characteristics.
    Mr. Rodgers. We look forward to that work with the 
committee.
    Mr. Boucher. And we are going to need to do this pretty 
quickly. So Mr. Birnbaum, by next week perhaps?
    Mr. Birnbaum. Yes, we will do that.
    Mr. Boucher. That is great. Thank you to each of these 
witnesses, and I am pleased to recognize the gentleman from 
Illinois, Mr. Hastert for 5 minutes.
    Mr. Hastert. Thank you, Mr. Chairman. Mr. Rogers, Section 
104 provides for regional variations for heating and cooling 
equipment. Common sense says cooling, air-conditioning 
equipment across southern California and Arizona is different 
from the cooling equipment that you would find in Georgia 
because of humidity you have coolers instead of air-
conditioners, dehumidifiers. And up in the north it is a 
different situation. They probably only use maybe 400 hours a 
year as opposed to maybe 4,000 hours. I am pulling numbers off 
the top of my head but you understand. I think it is a common-
sense thing to do, but for your regulation, can you do this?
    Mr. Rodgers. Thank you for the question. Under the current 
statutory authority, the Department is limited to one national 
standard for each product.
    Mr. Hastert. So what if we change the standard or we change 
the authority?
    Mr. Rodgers. A change of authority would be required for 
regional standards. We have a strong preference for national 
standards, but there are some products for which regional 
variations may allow additional energy savings.
    Mr. Hastert. So let me re-ask this question. Can you do 
this common-sense thing because there are products such as air-
conditioners and coolers that have different geographical needs 
so thus geographical standards across the country. Can you do 
it without us changing your authorization?
    Mr. Rodgers. Without changes to the authorization, the only 
way that we can allow States to use standards other than the 
national standards is through the statutorily approved waiver 
process where the States submit an application to adopt a 
different standard.
    Mr. Hastert. Would you provide to this committee the 
authorization changes that you think need to be done in order 
for you to do this on a regional basis?
    Mr. Rodgers. We would look forward to working with the 
committee on what might be needed in order to do this.
    Mr. Hastert. Thank you. Mr. Birnbaum, you said something at 
the very end of your discussion, your statement. You said the 
discussion draft would delay the implementation of the smart 
grid as it is now. Why?
    Mr. Birnbaum. Utility companies tend to take a wait-and-see 
attitude. They are economically conservative, they are very, 
very risk adverse, and that is the regulatory environment in 
which they have existed for decades. So we believe that 
demonstration programs in addition to being unnecessary since 
technology is already here and being built would simply give 
utility companies an opportunity to test on a very small basis, 
test the technology and then all the other utilities would wait 
around and see how that test comes out, rather than actually 
going to deploy themselves. And having worked with utility 
companies now for several years, we have seen that one thing 
they will do is they will do pilot upon pilot upon pilot before 
actually implementing the technology, and usually these are the 
economic and regulatory disincentives I mentioned earlier that 
are a cause for their delay.
    Mr. Hastert. Mr. Birnbaum, in your work obviously, can you 
demonstrate to utility companies that through use of your 
programs that there is not only an efficiency of moving 
generation product through their grid, but also across the 
country so it is an economic-driver?
    Mr. Birnbaum. Absolutely. The utility companies operate 
networks that they have no idea what is going on inside their 
networks. So when there are outages, they spend many more times 
than they should have to spend to detect where those outages 
occur to figure out what the cause is and how to repair that. A 
fully automated system, for instance which is one of the things 
a smart grid provides, the utility company can avoid lots of 
outages by detecting any irregularities in the network and as a 
result not have to spend time----
    Mr. Hastert. Well, let me follow up then. Because most 
utilities are regulated by a State public utility corporation, 
PUC's, commissions, they are given a rate of return on 
investments, correct?
    Mr. Birnbaum. Yes.
    Mr. Hastert. And that is how they get their income 
basically?
    Mr. Birnbaum. Yes.
    Mr. Hastert. So cost efficiency then isn't necessarily the 
goal?
    Mr. Birnbaum. That is correct. That is one of the problems 
the utilities have. The more efficient they get, the more they 
either make less profit or no more profit, so they have a 
disincentive to take risk on efficiency spending because if it 
doesn't result in----
    Mr. Hastert. Mr. Chairman, I am going to ask your 
indulgence. I want to ask him one question. I went on a little 
bit, but in your estimate, in your opinion, what do we have to 
do, do you have something that is a guideline to State 
utilities or is there some type of economic incentive that we 
can write into this bill? How do you get public utilities to 
adapt to this type of change?
    Mr. Birnbaum. I think it would be Federal guidelines that 
tell the utilities themselves that they can--smart grid 
technologies. These are infrastructure projects and as a result 
that they are rate making regulatory bodies cannot deny them 
the recovery for those expenses.
    Mr. Boucher. Thank you very much, Mr. Hastert. The 
gentleman from Massachusetts, Mr. Markey, will be recognized 
for 3 minutes.
    Mr. Markey. Thank you, Mr. Chairman. Ms. Callahan, on page 
5 of your testimony, you recommend that we make it clear that 
Federal law doesn't preempt the State appliance efficiency 
standards if the Energy Department fails to actually exercise 
the authority that Congress had granted it by failing to issue 
any standard or by issuing a no standard. Now, the Department 
of Energy was forced to sign a consent decree last year in 
which they pledged to meet the deadlines set forth in the 
report submitted to Congress in response to the Markey 
amendment to the 2005 Energy Policy Act. If DOE misses any of 
these deadlines, should we clarify in the law that the States 
would no longer be preempted?
    Ms. Callahan. I think that, yes. If you look at the other 
provisions then that require periodic review or the appliance 
standards that are there and updating, one of the things that 
is included currently is that if that effort isn't undertaken, 
then a preemption would lift and States could take action. I 
think it is very important if the Federal Government does not 
take action or takes action to establish what is in essence a 
no standard, States should not have their hands tied to that. 
California, New York, places that want to go forward should be 
allowed to.
    Mr. Markey. OK. I thank you. Disgracefully, the Bush 
administration's Department of Energy has missed 34 consecutive 
mandated deadlines for appliance efficiency standards, and it 
is about as great a disgrace as I have ever seen agency or 
given the greenhouse gas threat and energy dependency. Mr. 
Rogers, if DOE fails to meet these deadlines, should the States 
be able to step in and act?
    Mr. Rodgers. Thank you. It is a very complicated question. 
Federal preemption goes to the heart of the standards program 
that Congress has established, and I think the number of 
deadlines that we face, we do not plan to miss any deadlines as 
you have seen from the plans that we have been submitted.
    Mr. Markey. I know but you have missed 34 in a row, so as 
my mother says, no, you missed 34 times in a row, and you say, 
I have plans to meet it from now on. So what should we do if 
you don't meet the standards, if you don't meet the deadlines?
    Mr. Rodgers. I think we feel that the Federal preemption is 
a critical part of the program that Congress has established, 
and it should only be changed with very careful clarification.
    Mr. Markey. OK. I am not inclined to give you that 
latitude. I think it has been just absolutely disgraceful.
    Ms. Callahan, in your testimony you also call for some 
reforms in the laws relating to energy service performance 
contracts. First, you say the authorization for Federal 
agencies to enter into ESPC's should be permanently extended. 
Why is that so important?
    Ms. Callahan. Well, the extensions were allowed to lapse 
and were then put back in place in the Energy Policy Act, and 
when that happened, the agencies became reluctant, even though 
they were reinstated to go forward and enter into those 
contracts. And so you have companies, energy savings companies, 
that are out there that are working to provide energy 
efficiency upgrades at no upfront cost to the Federal 
Government, and they have to have certainty that that business 
is going to continue. We can't let it just continue to lapse 
and wane as it did before EPACT 2005.
    Mr. Markey. But you say that Congress should end any self-
imposed agency caps on the duration of the ESPC's. There is 
statutory limit of 25 years and on total obligations under 
ESPC's, what are the self-imposed agency caps that you are 
referring to, and what can we do to fix them?
    Ms. Callahan. Well, we understand some agencies are 
effectively saying they are not going to use more than a 
certain threshold dollar amount on ESPC's but again, we don't 
see the rationale behind that because there are no upfront cost 
to the Federal Government. The efficiency upgrades are made and 
then there is guaranteed energy savings that are used to pay 
for those over a period of time. Part of the savings revert to 
the agency and then the other to the ESCO until the efficiency 
upgrade is completely paid for. Then all the savings revert.
    Mr. Markey. Finally, Mr. Rogers, Ms. Callahan's prepared 
testimony calls for an adoption of an energy efficiency 
resource standard. Does the DOE support that legislation?
    Mr. Rodgers. I am not familiar with the specific proposal, 
and I would like some time to analyze it but we do agree in 
spirit that energy efficiency is our lowest cost, most 
accessible access to energy savings.
    Mr. Markey. I think you may believe it but you haven't 
acted on it. That is why obviously this committee is extremely, 
extremely dubious about the commitment that your agency has had 
to that. Thank you, Mr. Chairman.
    Mr. Boucher. Well, thank you very much, Mr. Markey, and let 
me just note that I share the gentleman from Massachusetts' 
dismay that the Department of Energy has missed so many 
deadlines for issuing these applied standards going back 
several decades. However, under Assistant Secretary Karsner I 
am personally very encouraged with the progress that is being 
made, and I wouldn't want to leave Mr. Rogers with the 
impression that we are not appreciative of the current efforts 
that are now being made in order to correct those very serious 
problems from the past.
    The gentleman from Michigan, Mr. Upton, is recognized for 5 
minutes.
    Mr. Upton. Thank you, Mr. Chairman. I appreciate this 
hearing, and I also want to say I appreciate your very good 
bipartisan spirit as we look to put together a very strong bill 
which the American public is going to support, and I am 
convinced frankly that at the end of the year and also the end 
of this Congress that the legislation that we move out of this 
committee will be looked at as one of the very top issues that 
the 110th Congress deals with. And it is obviously certainly 
appropriate as we look at these high energy costs today.
    Ms. Callahan, I certainly welcome your appearance here and 
appreciate your hard work as we work to put legislation 
together as it relates to energy savings with light bulbs and 
efficiencies across the country. And I know that as you work 
through this weekend knowing that we are going to pick up the 
baton very quickly when we return after Memorial Day, we have 
been working hard at trying to find out where different players 
in the private sector may be on the standard for light bulbs. 
And we are a little frustrated in terms of looking and seeing 
what signals we can get from outside sources.
    I want to compliment Mrs. Harman for her good work, and the 
two of us, along with Mr. Hastert and a few others have been 
sitting down looking for legislative language, and I just would 
like to suggest that if you are unable to reach some type of 
agreement over the next week knowing that we come back on 
Tuesday the 5th, that we may see your, you may share with us 
the last offers by the different parties so that we can, in 
fact, make a decision, knowing full well that at least under 
Mr. Boucher we have a placeholder that is there, but we know 
that we can do better in terms of where we are at.
    Ms. Callahan. Mr. Upton, I certainly will take that back to 
the manufacturers and the advocates, and we will see if they, 
if we can't reach agreement, which we are hopeful that we can, 
if we can give you the last round of negotiations. I can't 
commit to that without checking with all the others, though.
    Mr. Upton. Because we are absolutely committed to having a 
title on this bill that is going to include some of those 
provisions, and we are working with the Senate to try and see 
that done.
    One of the things that you indicated in your testimony, I 
just want to get the timeframe and knowing that you are limited 
on your time, you said that you expected 65 billion kilowatt 
hour savings, and is that per year or over 5 years?
    Ms. Callahan. Per year.
    Mr. Upton. And that is the equivalent of the 80 coal fire 
plants per year?
    Ms. Callahan. Yes. The output from the coal-fired power 
plants or 30 nuclear plants if you want to take it nuclear.
    Mr. Upton. Wow. Thank you. I appreciate those numbers.
    Mr. Rogers, where is the Department of Energy in terms of 
looking at where we might go on light bulb standards and new 
efficiencies? Have you all looked at anything?
    Mr. Rodgers. Yes, sir. We are currently conducting rural 
maintenance on lighting as required by the Congress, and as the 
consensus process moves forward with the stakeholders, we will 
make sure that they know that the full resources of the 
Department and our national laboratories are available to them 
if there is any technical assistance that we can provide as we 
have done so in the past with home appliances.
    Mr. Upton. And are you ahead of schedule or behind schedule 
in terms of where you wanted to be at this point?
    Mr. Rodgers. Since the publishing of the 5-year plan 
submitted to Congress in January 2006, we are, have met all the 
deadlines for all of our appliance standards.
    Mr. Upton. And that includes lighting?
    Mr. Rodgers. Includes lighting. Yes, sir.
    Mr. Upton. OK. One of the things that I just might note is 
that one of the things that Mrs. Harman and I are working on, 
and I think we are very close to having legislative language on 
is an amendment that we will be putting on each of the 
appropriation bills as they pass the House, indicating that the 
Federal Government itself will be buying these new energy 
equivalent light bulbs beginning in the next fiscal year, 
fiscal year 2008, as we feel that that will help generate a 
market, where, in fact, to encourage the manufacturers to know 
that, in fact, there is going to be a buyer out there. So not 
only will the Federal Government give tremendous amounts of 
money from the energy that it uses with the new bulbs as we 
replace the ones that they built, that they burnt out, but 
obviously provide the basis that individual consumers, both 
business and private sector families will be able to purchase 
as well.
    Do you have any comment on that, proposal of that 
magnitude, Mr. Rogers?
    Mr. Rodgers. Thank you. It is an excellent question, and I 
would be happy to share with the committee current requirements 
placed on the Federal agencies by statute and through executive 
order that encourage all agencies to purchase very efficient 
fixtures and lighting, including Energy Star products. And I 
can, would be happy to submit that information.
    Mr. Upton. Great.
    Ms. Callahan.
    Ms. Callahan. We are very, very supportive of having not 
just GSA but all Federal buildings move toward and purchase 
only those Energy Star labeled and efficient lighting.
    Mr. Upton. You know what we might do is, we might share 
with you the language. I don't have it with me this moment, but 
in the next week maybe we will get the language to you. Maybe 
if you can write a letter of support that we can use during the 
debate on the House floor, it will come at the end of each one 
of these appropriation bills. No funds shall be used to 
purchase the old stuff and be able to get the--but a support 
letter might help us, particularly as we approach the leaders 
on the Appropriation Committees to get that done.
    Ms. Callahan. We would be happy to do that, sir.
    Mr. Upton. Mr. Rogers. Same thing?
    Mr. Rodgers. We look forward to working with the committee 
as it moves forward on this provision.
    Mr. Upton. Great, and I appreciate that.
    Mr. Rogers, I have a question as it relates to the regional 
efficiency standards, and I just want to know what your sense 
is. We have talked about enforcement and how easy is it for the 
manufacturers and the retailers to comply with a regional 
efficiency standard and specific comments on that issue.
    Mr. Rodgers. It is an excellent question. I think 
enforcement gets to the heart of the issue concerning regional 
standards. Under the current program we have one national 
standards, and that is enforced upon the manufacturers. If 
regional standards are produced, manufacturers would be 
responsible in some way, but it is unclear how they could in 
all cases enforce their supplier, the chain retailers if those 
different products were marketed in different areas of the 
country. That would be an area we would look forward to working 
with the committee to better understand how regional variations 
could be enforced.
    Mr. Upton. Thank you. Mr. Chairman, I yield back.
    Mr. Boucher. Thank you very much, Mr. Upton.
    The gentleman from Pennsylvania, Mr. Doyle, is recognized 
for 5 minutes.
    Mr. Doyle. Thank you, Mr. Chairman.
    Mr. Rogers, the draft legislation calls for creation of a 
new commission which has the role, amongst other things, to 
encourage progress on smart grid protocols in the development 
of the smart grid. Is the creation of another entity the most 
expedient means to accomplish this task, given that when 
Congress passed PURPA and the Energy Policy Acts of 1992, and 
2005, the Congress set forth the national policy, and then 
directed the States, Federal entities with jurisdiction and the 
industry itself to meet those goals. Could we follow this model 
rather than create a new commission?
    Mr. Rodgers. I really appreciate the question. We have only 
begun our analysis of the discussion draft, and I don't, I am 
not in a position to comment on specific provisions. Let me 
just say that we know that smart grid technologies are 
fundamental to the, increasing the market uptake the energy 
efficient technologies and maximizing energy savings.
    Mr. Doyle. I would be interested when you do get time if 
you could tell us whether you think we need a new commission or 
whether we can do this as we have in the past.
    Also, the draft reflects there is a need for the creation 
of national protocols to assure that there is two-way 
communication needed all along the grid, from appliances in the 
home to the large generating plant. And since this is a 
standard setting exercise, should we consider the existing 
agencies such as NIST to be charged with this task rather than 
creating another commission?
    Mr. Rodgers. That is a very good question, and, again, I 
would like to work with the committee on the specific details 
of those provisions.
    Mr. Doyle. And finally, just one last question, and I will 
close. The draft requires the development of specific data that 
consumers are entitled to, but that only seems to encourage 
progress on the development of technology and regulatory 
reforms needed to insure that the information can be 
realistically provided to consumers. There seems to me to be a 
disconnect between the information requirements and the steps 
needed to insure that real time information can be timely 
provided.
    If the draft were adopted, how could we be assured that the 
infrastructure is in place to insure that the information which 
the legislation says consumers are entitled to can actually be 
provided?
    Mr. Rodgers. The, again, we have just begun our review of 
the draft. I would like some additional time to get back to you 
on that. I do think that consumers have a growing body of 
information available to them, that that is one of the most 
critical parts. And I do hope that in the next panel there will 
be some additional opportunities to, for the DOE witnesses to 
talk about these issues, including the smart grid.
    Mr. Doyle. Thanks. Just one more question. The legislation 
also provides training for State and local officials to 
implement energy codes, and it also provides for training for 
Federal contracting officers for energy performance contracts 
and related energy efficiency services associated with those 
agreements.
    Now, the effective way to make sure these codes and 
performance contracts are successful, I think is to make sure 
we have a skilled workforce to assist us in implementing these 
programs. Shouldn't worker training be a part of any 
comprehensive approach to making America an energy-efficient 
Nation?
    Mr. Rodgers. That is a very good question. I don't think in 
my position at the Department of Energy I can speak to the 
issue of worker training. I would say that the Department's 
existing program in the area of building codes we find 
education training of code officials to be extremely beneficial 
and important, and the materials that we provide in that area 
are very, very popular.
    Mr. Doyle. In your opinion do you think it would be 
appropriate to have training funds in this legislation to make 
sure that workers are properly trained to meet the legislative 
objections of this bill?
    Mr. Rodgers. I would like to work with the committee on 
whether or not we need additional authorizations. Our current 
billing codes program as renewed under the Energy Policy Act 
gives us tremendous flexibility to work with the State and 
local code officials in that area.
    Mr. Doyle. Thank you, Mr. Rogers.
    Mr. Chairman, thank you. I yield back.
    Mr. Boucher. Thank you very much, Mr. Doyle.
    The gentleman from Illinois, Mr. Shimkus, is recognized for 
5 minutes.
    Mr. Shimkus. Thank you, Mr. Chairman. I also want to 
highlight the frustration that the committee has when agencies 
don't meet guidelines, and of course, when it is the Republican 
administration and they can attack the DOE for that. It, as 
Republican I take great offense. So these two questions deal 
with some of the draft.
    Section 109 requires a precise schedule for DOE to update 
its rulemaking and findings. Can DOE make the schedule in this 
section, or is it likely that DOE standards will sunset because 
dates were not met?
    Mr. Rodgers. We have just begun our analysis of section 
109, but I would say that we would like to work with the 
committee, because I am concerned that some of the deadlines 
are, and the durations are so close together that it might 
impair our ability.
    Mr. Shimkus. My follow-up was going to be: can you give us 
some information how we can modify that? Because we want to set 
attainable standards, but we don't want to delay it. I mean, we 
would rather set standards that you can reach versus 
unreachable standards and then have delays and all this 
frustration, and I, if you would work with us, I think we would 
have some receptivity, as long as it is not an issue of delay.
    What about the, do you have the resources to accomplish the 
standards updated in section 131? I know, you are going to work 
with the committee, and we will receive great information and 
help and assistance from you to look at those provisions.
    Mr. Rodgers. I would, well, I couldn't have said it better 
myself.
    Mr. Shimkus. You have. A couple times.
    Mr. Rodgers. I would say that we believe very strongly in 
building codes and have moves forward on that aggressively 
since the Energy Policy Act of 2005, and in 2007, under the 
continuing resolution we were able to allocate additional 
resources to the building codes effort. The section language in 
the discussion graft does set a new bar, very high, and we 
would look forward to working with the committee on what it 
might take to implement that section.
    Mr. Shimkus. Great. As you know the committee's going to 
move rapidly, so we are going to need pretty quick movement 
from the Department.
    Mr. Birnbaum, quickly if you could comment on the DOE study 
on homeland security benefits of the smart grid.
    Mr. Birnbaum. Congressman, the problem with Department 
studies is they tend to serve further delay. The homeland 
security implications of having wide-scale power outages in Los 
Angeles and New York, other large cities in small areas, so we 
don't necessarily see a large need for further study, rather 
trying to incent the utilities to deploy smart grid where they 
think the focus should be.
    Mr. Shimkus. And let me follow up with the issue of is a 
smart meter and a smart grid, are they complimentary, or could 
they be, can you promote one over the other and that whole 
debate?
    Mr. Birnbaum. They are different. A smart grid would 
include smart meters and load control devices in consumer 
homes, but it is much more than just smart metering. It is, 
again, a fully-automated distribution network, so the utilities 
can do real-time monitoring and maintenance and preventive 
maintenance on its network, just the way the total medications 
network works today.
    Mr. Shimkus. But the smart metering would have some energy, 
I mean, cost benefit analysis as you look at cost and 
deployment and time, smart metering is probably a way to be 
very successful.
    Mr. Birnbaum. Smart metering is part of the solution. Yes.
    Mr. Shimkus. And finally, Ms. Callahan, the, we know that 
when the automobile came, the people who made the buggy whips 
went out of business.
    Ms. Callahan. Yes.
    Mr. Shimkus. We know that when the first light bulbs 
arrived, the candle makers were, had a great loss of jobs. Will 
there be any job losses in the lighting industry associated 
with phasing out or banning incandescent light bulbs? How many, 
and which States?
    Ms. Callahan. That is, I appreciate the question. I am not 
sure I can give you a detailed answer, but we will provide it. 
There are, from what I understand from the manufacturers, there 
are maybe, and this is just a ballpark figure, maybe 3,000 jobs 
by two different manufacturers in the United States making 
light bulbs and derivative products to use in the assembly of 
the light bulbs. Whether or not those jobs are lost I think is 
a question that will get answered over time, because we are not 
going to stop making light bulbs. We are only going to stop 
making the inefficient junk that is on the market. So they are 
going to be made, and right now CFLs are largely manufactured 
outside the United States. You probably know that.
    Mr. Shimkus. Yes.
    Ms. Callahan. But we are looking at LED lighting and 
efficient halogen lighting, and those are going to need to be 
made somewhere. So the hope would be that we can work with 
manufacturers and try to keep those jobs in the United States.
    Mr. Shimkus. Yes, and I hope that you do that, and just my 
final comment because my time has expired, is that there is 
concern that you can't retrofit these old plants.
    Ms. Callahan. Right.
    Mr. Shimkus. And there will be job loss, and that whole 
debate of capital formation, taking assumption of the risk, 
what happens to these jobs. I think the job training issue was 
part of this whole debate, too, and that is why I want to throw 
that in the arena for discussion.
    Ms. Callahan. If I could just also say that when you look 
at deploying energy efficiency, there is investment into the 
economy, and there are new jobs created from that. So if you 
look at the Energy Star, for example, for every dollar we 
invest in Energy Star, the savings show that that results in 
about $20 of energy savings for consumers, but it also sparks 
investment of about $15 into the economy.
    Mr. Shimkus. You said that right when Inslee was walking 
in, too, and I bet you he appreciated that, because that is 
kind of what he says all the time.
    I yield back my time.
    Mr. Boucher. Thank you very much, Mr. Shimkus.
    The gentleman from Washington State, Mr. Inslee, is 
recognized for 5 minutes.
    Mr. Inslee. Well, I appreciate that because some people 
haven't listened. Maybe they will now when someone else said 
it. I don't know.
    I was unable to hear your testimony. I am sorry. I was in 
another committee, so if I repeat this, my apologies. I want to 
ask you in the discussion draft there is a proposal to 
essentially create a price mechanism for coal to liquids that 
would give presumably investors confidence that there will be a 
price that will be worthy of their investment and therefore, 
spur development of that technology. And I don't want to argue 
that issue whether it is good or bad at the moment, but if, is 
that idea, should it be equally applicable to other emerging 
technologies? In other words, if we are going to create price 
supports for emerging technologies, would it make sense to also 
do it for emerging solar thermal plants, which have new methods 
of heating liquids to 1,100 degrees and running steam turbines 
to new thin cell photo technology that perhaps a grid-based 
electricity in a few years, to wave power generation that we 
now have the first buoy going off the west coast of the United 
States, going to create electricity, to advanced forms of 
cellulosic ethanol, which I personally think has a bright 
future but has some technological advancements, and of course, 
we want to see. I guess the question is if we are going to have 
a price guarantee signal for one fuel, doesn't it make sense to 
have it for several of these emerging technologies? And all of 
the ones that I just listed have the added benefit of at least 
50 percent reduction of CO\2\ compared to their competitor, 
fossil fuels. Would that make sense?
    Mr. Rodgers. That is a very good question, sir, and I 
believe that the second panel will get more into the details of 
the coal-to-liquids issue and the price and the signals that 
you are talking about. As a manager of our technology 
development programs I can tell you research and development 
can deliver breakthroughs in technology, but those technologies 
then need to be adopted in significant quantities in the 
marketplace. And as Congress considers who to move forward on 
these important issues, I think you will have to look at all of 
those issues.
    Mr. Inslee. Obviously we need to commercialize these 
technologies.
    My review of these various technologies that I just listed, 
I think all of them are very promising, and I think have in my 
view probabilities of commercial application and commercial 
success. Can you make any comments about that relative to coal 
to liquid, coal to liquid has some challenges. You got to 
figure out how to sequester the CO\2\ in the production 
process.
    If you were going to compare this emerging solar thermal, 
thin cell, photo tag, wind energy technology, cellulosic 
ethanol, and plug-in hybrids, I just drove the first car that 
gets 150 miles a gallon, I think those technologies are at 
least as well developed and at least as promising as coal to 
liquid.
    Do you have any comments on that?
    Ms. Callahan. It is not my area of expertise.
    Mr. Birnbaum. Same here, Congressman.
    Mr. Rodgers. Well, I will tell you. I am a big fan of all 
the energy efficiency and alternate fuel technologies. I think 
we need a balanced portfolio. I believe the next panel will get 
into some of the issues related to coal to liquids, and I would 
say any time we introduce a new, higher-performing technology 
that delivers national security, energy security, environmental 
and economic benefits, we also have to address how those 
technologies are brought to the marketplace and provide it at 
reasonable costs to the consumers.
    Mr. Inslee. Now, you may have heard some discussion about 
what we are going to try to do this summer and what we are 
going to try to do later in the year. Later in the year this 
committee is going to have under the great leadership of our 
Chair a discussion of how to develop a carbon system to have a 
price on carbon dioxide, which will help in the 
commercialization of these technologies because it would make 
them economically competitive. But some of us believe there are 
many, many things we need to do in addition to that to help 
these emerging technologies, solar, wave, several others. Along 
the lines potentially of this price signal that has bound with 
discussion draft about coal to liquids, along the lines of 
renewable portfolio standards, along the lines of low carbon 
fuels standards, along the lines of incentives for consumers 
and producers.
    I am just going to ask you for any comment about that, 
whether it makes sense to consider those now, even 
independently of a cap and trade system. I guess the question 
is do those ideas make sense even independent of a cap and 
trade system?
    Ms. Callahan. I will make a comment from the perspective of 
energy efficiency. It is, in my mind that is a no-regrets 
policy. So all of the provisions, the 29 or so provisions that 
are in here, are going to have a significant impact on 
greenhouse gas emissions, and we need to go forward and take 
those actions.
    With respect to, because that gets us down the road and 
gets us toward the goal that we all want to see. With respect 
to a cap and trade program, it is not necessarily going to 
drive energy efficiency particularly in the end-use sector. 
There are going to need to be complementary policies or you are 
going to need to look at how you best advantage both energy 
efficiency and I would argue renewable energy, too.
    Mr. Inslee. And I was very pleased that the Chair had 
commercial building standards, rebuilding standards we are 
going to hold to to include residential standards as well.
    Thank you.
    Mr. Boucher. Thank you very much, Mr. Inslee.
    The gentleman from Mississippi, Mr. Pickering, is 
recognized for 5 minutes.
    Mr. Pickering. Thank you, Mr. Chairman. I appreciate this 
hearing and the panel.
    Let me ask Mr. Birnbaum first. As we heard from Ms. 
Callahan that the context of the savings if we adopted more 
efficient standards on light bulbs, what that would mean from 
an energy capacity and efficiency, what savings do you see with 
smart grid and smart technology, smart metering technologies? 
What is the equivalent if we were to broadly adopt these 
technologies from saved production of energy and cleaner 
consequences?
    Mr. Birnbaum. Several fold, Congressman. As far as the 
distribution facilities themselves, cannot be officially 
managed today if the utility company doesn't have any insight 
as to how well everything is performing. So the fact that the 
utility company can then measure every device in its network 
and replace them only when necessary----
    Mr. Pickering. Has there been any study of how much we are 
talking about as far as more efficient energy production? Like 
the equivalent of 80 coal-fired plants, I guess is what I am 
asking.
    Mr. Birnbaum. I don't think there were such specific 
studies. We do know that energy of roughly 10 to 20 percent of 
energy is lost before it ever even gets to the end user. You 
have had testimony before the committee previously of over $100 
billion in financial loss in the country due to averages each 
year.
    So these are the things that smart----
    Mr. Pickering. That you can quantify.
    Mr. Birnbaum. Yes.
    Mr. Pickering. The language has, of our current draft, has, 
the issue that you addressed as far as making sure that our 
States allow the recoverable costs for these investments. Do 
you support that language? Is it sufficient? Do you need to 
strengthen it, modify it?
    Mr. Birnbaum. We do support it. I had made some suggestions 
earlier about strengthening the language to try to provide for 
either added incentives or increased returns for utility 
companies or returns on other types of expenditures as well.
    Mr. Pickering. Are there other things that we can do that 
may not be under this committee's jurisdiction would be 
accelerated depreciation? We discovered in Mississippi after 
Katrina that if we accelerate depreciation, it will allow the 
doubling of expensing. This serves as a tremendous incentive 
for that capital investment. Would that also be something that 
you would support?
    Mr. Birnbaum. Absolutely, Congressman.
    Mr. Pickering. Mr. Rogers, do you believe that incentives 
work, whether it is grants, long guarantees, accelerated 
depreciation, monetary incentives, would help us adopt these 
new technologies and efficiencies?
    Mr. Rodgers. It is an excellent question. I think evidence 
is in that in many cases consumers, industrial purchasers do 
not always see the life-cycle cost benefits of adopting energy 
efficiency technologies and best practices. And so we have seen 
in many cases where in the Energy Policy Act of 2005, or at the 
State level or at the utility level, that incentives can help 
consumers and businesses overcome those first thoughts and 
yielding net savings to the economy from the adoption of the 
energy efficiency.
    Mr. Pickering. Do you think incentives can help the 
Department of Energy meet its deadlines if we were to adopt a 
number of deadlines in this? And by that, for example, I know 
each agency has bonus performance payments that we give from 
Senior Executive Service all the way through the lower ranks. 
What are the bonuses at the Department of Energy? Do you know? 
Can you quantify what the bonuses are?
    Mr. Rodgers. I am not in a position to respond to those 
questions which are primarily in the personnel department, but 
on the subject of bonuses, I have already said this before, I 
really want to work with the committee on this subject for 
Federal employees.
    Mr. Pickering. But, Mr. Rogers, what we like to do, I don't 
always agree with Mr. Markey. Many times we disagree, but I 
think it is a legitimate issue that there are 34 deadlines that 
have come and gone without being met, and to be honest, we are 
seeing this across bureaucracies across the Government. And 
maybe it is time for this committee to say that bonuses will be 
tied to the compliance with congressional deadlines of doing 
their work, because maybe if incentives work for the private 
sector, I think incentives as part of human nature, it works in 
the Government sector as well.
    And, Mr. Chairman, I would like to work with you to 
possibly tie bonus performances to comply with congressional 
deadlines. That is one way to make sure that all of us do our 
job.
    And in closing, Mr. Birnbaum, would you want any definition 
in this legislation of what a smart grid would be?
    Mr. Birnbaum. Yes, Congressman. We think that the 
definition should be broader than just smart metering or low-
control devices, but a fully-automated network. As I mentioned 
during my testimony a full, two-way, high-speed communications 
network through which the utility can monitor and manage the 
devices all along the grid.
    Mr. Pickering. And would you want that to be competitively 
and technologically neutral?
    Mr. Birnbaum. Yes.
    Mr. Pickering. Thank you very much.
    Mr. Boucher. Thank you very much, Mr. Pickering.
    The gentlewoman from Wisconsin, Ms. Baldwin, is recognized 
for 5 minutes.
    Ms. Baldwin. Thank you, Mr. Chairman.
    I am going to start on the provisions in the draft on 
industrial energy efficiency, waste energy. Ms. Callahan, in 
your written testimony you commend the committee on its draft 
provisions on industrial energy efficiency. You don't go into a 
lot of detail, and so I am wondering if we can get you to 
elaborate a little bit on the benefits of creating a database 
that quantifies the industrial waste energy for major 
industrial combustion services, and also we ware aware that 
concerns have been raised about language in the sub-section 
that would allow industrial sites to sell their excess power.
    Ms. Callahan. Yes.
    Ms. Baldwin. And so I am wondering if the Alliance to Save 
Energy supports the language as it currently stands, or if you 
have suggestions for the committee of any alternative ways we 
can provide a use for the excess power, make sure that it is 
not wasted, and address the concerns that have been raised.
    Ms. Callahan. We haven't taken a position yet as an 
organization on what to do with the excess power. It is just 
not something that has been raised or considered. We have on 
our board of directors competing interests that do have great 
concerns; utility representatives as well as environmental 
representatives. So it is something that we will need to take 
to them and work with.
    With respect to a database, though, one of the things that 
we have found is information is key to getting people to take 
action on energy efficiency, so the more that is there, the 
more readily available it is, the more action that will be 
taken. And what we are seeing particularly on the industrial 
side when you have leaders like Dow Chemical, and you have Wal-
Mart and others taking action, other businesses take notice, 
and then they in turn, that leadership engenders more activity.
    So the database, I think, is a very important tool for 
making sure that the information is made available.
    Ms. Baldwin. Mr. Rogers, you note in your written testimony 
that the discussion draft only covers a small part of a wider 
industrial energy efficiency need and opportunity. And I wonder 
if you could elaborate on some of the things we haven't 
addressed that are opportunities out there.
    Mr. Rodgers. I very much appreciate the question. As a 
former manager of our industrial technologies program, it is 
easy to sometimes be ignored because buildings are everywhere, 
everyone lives in a building, everyone drives a car, not 
everyone operates a steel facility or another facility, but it 
provides currently 30 percent of our energy consumption, equal 
share of our greenhouse gas emissions. There are significant 
opportunities to apply energy-saving technologies and best 
practices. We continue to invest heavily in research and 
development on new energy technologies, and I would be very 
welcome to work with the committee and brief you on some of our 
existing activities such as the Save Energy Now audits that 
found more than 10 percent savings on 200 industrial facilities 
in the last year, our industrial assessment centers, and our 
existing regional assessment centers that promote combined heat 
and power.
    Ms. Baldwin. On the issue, I raised the issue in my opening 
statement of standby power and estimates that it accounts for 
as much as 10 percent of our household power consumption. We 
had a hearing earlier on the appliance efficiency standards, 
and at that hearing the Consumer Electronics Association 
testified that they supported an expedited process for creating 
standby standards for external power supplies.
    And so the first question is do you agree that it is 
possible to expedite the standard? I place that question to Ms. 
Callahan.
    Ms. Callahan. We would hope that the standard would go as 
quickly as possible. I mean, whether or not it is expedited 
through DOE is really a question for Mr. Rogers, but we would 
work on that, and I just note, it is 10 percent, but it also is 
a growing share.
    Ms. Baldwin. Right.
    Ms. Callahan. So we really need to tackle it.
    Ms. Baldwin. Mr. Rogers, any comment?
    Mr. Rodgers. I agree that the standby power, consumer 
electronics, very important and growing part of our energy 
consumption--mandated under the statute and the administrative 
procedures, it could be awhile, and we would urge consideration 
of the Secretary's fast-track legislative proposal for 
consensus rulemakings, and we would look forward to working 
with all the stakeholders to see if the consensus approach 
might work for those type of products.
    Ms. Baldwin. Then I just want to end with standby power 
crosses certainly hundreds of, if not thousands, of appliances 
and not just those with external power supplies. So it is 
difficult to keep a list of all appliances using standby power 
up to date.
    And I wonder if, Ms. Callahan, would you support an across-
the-board standard, for instance, a 1 watt standard that 
includes exceptions for certain products where it is not 
feasible to reduce the standby power consumption, for instance, 
medical devices?
    Mr. Callahan. I am sorry, but I am not prepared to answer 
that today. We need to look at it, and I apologize for that, 
but we certainly will get back to you. In general, we support 
all standards that are shown to be cost effective and are 
technically doable. I don't see a real problem with it, but I 
would want to ask our experts in-house as to exactly what the 
proposal is and whether or not we can endorse it.
    Ms. Baldwin. Thank you.
    Mr. Boucher. Thank you very much, Ms. Baldwin.
    The gentleman from Arizona, Mr. Shadegg, is recognized for 
5 minutes.
    Mr. Shadegg. Thank you, Mr. Chairman, and I want to thank 
you for this entire series of hearings. I think they have been 
very educational, I think the witnesses have been superb. I 
certainly have learned a great deal. I want to thank our 
witnesses today.
    I believe there is a lot of good, reasonable, and sound 
proposals in the draft, discussion drafts and I am encouraged 
by the fact that I think we can do some good things. I would 
hope that at some point we can look at the issue of 
transmission line siting which is one of the issues that was 
raised here with discussion about windmill energy being able to 
be produced in Texas but not being able to get it to market. 
And I would hope we could also at least consider the issue of 
new source review, because new source review was cited as 
another example of where we might make energy production more 
efficient but for reasons of, I guess, bureaucratic fear or 
regulatory fear, we aren't going to do that. So I hope those 
will be on the table in the future.
    Mr. Rodgers and Ms. Callahan, I would like to ask you each 
in pursuing my education on energy and energy efficiency, I 
commented to a paper home in Arizona, you show me a politician 
that is not interested in efficiency, and I will show you a 
politician that is not interested in staying in office very 
long. So I commend you for your efforts.
    One of those discussions or a number of those discussions 
have led me back home to a kind of an inconsistency, and that 
is most of the large buildings built in America are built and 
owned by one entity.
    Ms. Callahan. Yes.
    Mr. Shadegg. Operated by a second entity.
    Ms. Callahan. Right.
    Mr. Shadegg. And builders seem or builders/owners seem not 
to have that incentive to care about the efficiency of the 
building.
    Ms. Callahan. Right.
    Mr. Shadegg. Somebody else is operating it, they pass the 
costs onto the tenants, the tenants eat the cost, and pass them 
onto their customers. Now, obviously, one way and Mr. Rogers, I 
apologize for missing part of your testimony and being late but 
I had other things going on, one of the options for that, of 
course, is building codes, looking at the future building codes 
which might make these buildings more efficient. That I think 
is at least one option, though sometimes I worry about 
political agendas being advanced in building codes.
    I guess my question of you, for you is No. 1, do you agree 
that that is an issue, kind of the advertence between the 
incentives, between the tenants and operator using a building 
and the builders who build the building, and second, have you 
looked at other incentives that this Congress might be 
including in this legislation which would incentivise builders 
both to produce efficient buildings in the future but also to 
retrofit the buildings we have at the moment?
    Mr. Rodgers. That is a very good question, sir, and our 
laboratories and scientists even have a name for the problem. 
It is the problem of agency, in that the owner and the operator 
are different from the builder. Certainly the Energy Policy Act 
of 2005, and the incentives provided to the commercial builders 
for adopting energy efficiency have made a dramatic impact. We 
also believe that the current promotional efforts by many to 
adopt green building standards such as the U.S. Green Building 
Council, are having a demonstrable affect. Energy Star 
Program--those programs, as well as codes, are going to be 
critical to address the problem that you have identified.
    Mr. Shadegg. Have you looked at----
    Ms. Callahan. Can I do to----
    Mr. Shadegg. Sure.
    Ms. Callahan. We call it split incentives, and it is a 
critical concern, and there are two ways at least that you can 
attack it. One is building codes. We are very supportive of the 
progressive or advanced building code that is in this bill that 
would require the code setting bodies to improve the building 
codes for both house and commercial buildings by 30 percent by 
2010, and 50 percent by I think it is 2030. I am not familiar 
with that.
    The second way is to provide incentives for the builders to 
build the buildings correctly the first go around, and EPACT 
2005, has a set of very important incentives for both 
commercial buildings that give $1.80 a square foot for 
efficiency improvements. That is for new construction and for 
existing buildings, and then there are an additional set of 
incentives for new homes and then for existing homeowners. We 
are hopeful, it is outside the jurisdiction of this committee, 
but we are working with the Ways and Means Committee to both 
extend those and expand those tax incentives, because I think 
it is going to take both. You need the building codes to 
continue to improve, but you also need to provide the 
incentives to get people to go beyond that threshold.
    Mr. Shadegg. I would certainly encourage that.
    In the time I have left I want to go to you, Mr. Birnbaum. 
I had a load controller on my house in Phoenix, Arizona. We 
face a heat problem. It occurs late in the day, and say 8 years 
ago, maybe 15, 10 years ago, our local utility pushed very 
aggressively load controllers, and it makes a lot of sense. If 
you look at Phoenix, Arizona, and we have a huge peak demand at 
3:00, 4:00, 5:00, 6:00, 7:00 p.m. before it begins to cool off 
in the evening, you do not want to be doing your laundry or 
running a dryer, clothes dryer, and other multiple appliances 
at the same point in time.
    Well, regrettably, that has literally disappeared. At the 
home that I lived in at the time it got to where nobody 
bothered to adjust their load controllers anymore. They did not 
seem to produce savings, and there are thousands, I think, of 
load controllers in Arizona on homes that may not be used. And 
I guess I am curious why that is, and have you examined that, 
because it seems to make a lot of sense to me to encourage that 
kind of the intelligent use of electricity through the day, so 
that we don't have to build to the highest possible peak and so 
that people use electricity or energy wisely.
    Mr. Birnbaum. Yes, Congressman, that is actually a common 
problem. I had the same thing 20 years ago. I was living in 
Washington, DC. The problem is twofold.
    One, most of us don't have the time to really go program 
those devices. Two, what you need is a network, a smart grid if 
you will, that can communicate with those devices, therefore, 
all we have to do on one day is assign it to a program that 
says when the peak pricing gets this much or if load 
constraints hit this level, I give you authority to turn off my 
air conditioner or my pool pump or my dishwasher, whatever the 
case may be, for this amount of time or during these hours of 
the day. And as a result now a utility, rather than you and I 
trying to do it one device at a time, one home at a time, when 
we are not home, the utility now can do that by hundreds of 
thousands or millions of devices in homes. And that is the most 
effective way to use load controllers. That is why we think the 
smart grid is so important.
    Mr. Shadegg. My time has expired, but the chairman is busy 
with another conversation, so let me ask you a question.
    What happens if they try to turn, let us say they decide, 
OK. I am going to turn off your air conditioning, but it just 
so happens that is the day you invited people over for a party.
    Mr. Birnbaum. Absolutely.
    Mr. Shadegg. Does the smart grid allow you to override that 
as the consumer?
    Mr. Birnbaum. Yes, it would. I mean, obviously the smart 
grid wouldn't know you were having a party, but you would have 
effectively an override button, and you have a consumer control 
device, a display or LED in your house where you can control 
all of those appliances.
    Mr. Shadegg. I think we need to stop this conversation. 
Thank you.
    Mr. Boucher. Thank you very much, Mr. Shadegg, for your 
thoughtful and extensive questions.
    The gentleman from Utah, Mr. Matheson, is recognized for 8 
minutes.
    Mr. Matheson. Well, thank you, Mr. Chairman, and since I 
waived my opening statement, I do want to acknowledge your work 
and the process as well. It has been substantive, and it has 
been orderly, and as a new member of the committee, I really 
appreciate the fact that we are moving through this legislation 
the way we have with the discussion draft and a lot of input 
from other people. So I want to acknowledge that and your 
efforts in that regard.
    Mr. Rogers, I had, want to ask you a question about 
commercial buildings and efficiency. It is my understanding 
that within DOE currently it is a rather limited R&D program 
right now for commercial buildings. What do you think would be 
the reaction of DOE to a proposal for public, private 
partnership that would be designed to measure energy 
performance of commercial buildings to assemble new ideas, the 
solutions, packages that could help address that? You know, 
examples would be big bucks retail, different climate regions.
    How do you think DOE would respond to that type of 
proposal?
    Mr. Rodgers. I appreciate the question very much, and not 
knowing the details of the specific proposal, I would just like 
to share with you that we are extremely supportive of public, 
private partnerships, and we see them as vital to allowing us 
to deliver an energy efficient technologies especially in the 
commercial sector which is so diverse. We have had partnerships 
with Wal-Mart, Home Depot, Lowe's, Petco, and other companies 
as they try to understand how to better apply energy efficient 
technologies. And I can't imagine us proceeding without public, 
private partnerships.
    Mr. Matheson. And one of the characteristics I just want to 
emphasize would be it would include creating abilities, it is 
the old thing I learned at business school. If you can't 
measure it, you can't monitor it, and right now I think that 
there is a real lack of the ability to measure energy use in 
the commercial building sector. The industrials have a big 
enough economic interest there doing it, but I don't know that 
it is happening in commercial.
    So that would kind of be a component of this. It is 
creating a way to really be, upgrade our ability to measure 
energy use. Once we can measure it, more rational decisions 
could be made, and I think that is, I assumed DOE would be 
comfortable.
    Mr. Rodgers. If I understand where you are headed, I think 
so. I would just point out that energy service companies do a 
big, big business in the commercial buildings already, and they 
know what they are doing, and capital is available, and I think 
a part of what we are seeing is that we need to get building 
owners, operators, and developers aware of everything that is 
on the table that they can adopt to improve energy efficiency.
    Mr. Matheson. Right. Ms. Callahan, do you have any reaction 
to that type of proposal?
    Ms. Callahan. We have put together a proposal for a public, 
private partnership. We call it the Commercial Building 
Initiative and would love to come talk to you about it. We have 
been talking to the Department of Energy. It is actually 
included in the Senate version of the bill, and I think we may 
have gotten some appropriations yesterday in the House. So, we 
are very supportive of it.
    Mr. Matheson. OK. I appreciate that.
    Mr. Rogers, one other question I wanted to ask you. In your 
testimony you mentioned DOE opposition to the removal of 
advanced rulemaking notices because these notices sometimes 
lead to better or faster rulemakings. Do you think, are there 
examples where the applied standards for that has resulted in 
faster rulemaking?
    Mr. Rodgers. If I understand the question, we are not 
opposed to having the flexibility to skip the advanced notice.
    Mr. Matheson. OK.
    Mr. Rodgers. What, one concern that can arise is during the 
advanced notice phase is where a significant amount of 
technical analysis is presented to the stakeholders to the 
public process. One issue that we want to make sure that we 
deal with appropriately and we look forward to working with the 
committee, is how can we continue to make that technical 
analysis available to the public even as we try to accelerate 
our rulemaking through the elimination of the steps.
    Mr. Matheson. OK. I appreciate the clarification on that.
    Mr. Chairman, I yield back.
    Mr. Boucher. Well, thank you very much, Mr. Matheson. That 
completes questions to this panel by all of the members of the 
subcommittee, and I, again, want to thank you for sharing your 
information with us today.
    We will, as indicated, these questions have follow-up 
questions on several matters and would appreciate your prompt 
response to those.
    And without objection there will be included in the record 
statements that have been submitted to the subcommittee by 
several organizations on the topics that have been addressed 
here today.
    With that this panel is excused, and we thank you very much 
for your participation.
    Mr. Birnbaum. Thank you, Mr. Chairman.
    Mr. Boucher. And we welcome now the second panel to testify 
before the subcommittee this afternoon, and that is comprised 
of three witnesses: Ms. Katherine Fredriksen is the Principal 
Deputy Assistant Secretary for Policy and International Affairs 
at the U.S. Department of Energy, Mr. Don Maley is the vice 
president of Leucadia International Corporation, and Mr. Daniel 
Lashof is the science director at the Climate Center of the 
National Resources Defense Council. We welcome each of our 
witnesses. Without objection your prepared written statements 
will be made a part of the record, and we would ask that your 
oral summaries be kept to approximately 5 minutes.
    And I am just looking at who is ready. Ms. Fredriksen, are 
you prepared to deliver your statement to us?
    Ms. Fredriksen. Yes, sir.
    Mr. Boucher. We will be happy to begin with you.

    STATEMENT OF KATHARINE A. FREDRIKSEN, PRINCIPAL DEPUTY 
  ASSISTANT SECRETARY, POLICY AND INTERNATIONAL AFFAIRS, U.S. 
              DEPARTMENT OF ENERGY, WASHINGTON, DC

    Ms. Fredriksen. Thank you, Mr. Chairman and members of the 
committee for the opportunity to appear before you today to 
comment on the discussion drafts that you asked for us to look, 
to examine.
    While we have not had sufficient time to coordinate our 
agency views on the legislation, I am prepared to offer some 
preliminary comments today.
    Most of my remarks today will focus on the discussion 
drafts that are related to the Energy Policy Act of 2005, the 
title XVII loan guarantees, and a standby loan for coal to 
liquid projects.
    First I am going to focus on the discussion draft to amend 
title XVII of EPACT, which contains a provision that would 
direct DOE to guarantee a loan amount that would likely attract 
non-guaranteed investments that are adequate to capitalize a 
project.
    It further states that DOE may guarantee up to 100 percent 
of any loan or debt obligation for an eligible project and 
prevents DOE from issuing a rule or regulation of establishing 
a lower percentage limit.
    The Department does oppose these requirements for several 
reasons. First, the provision which would direct DOE to 
establish a guarantee likely to attract non-guaranteed 
investments is vague and difficult to implement for the agency. 
The borrower working with its lenders we believe is in a better 
position to determinate the amount for which a guarantee is to 
be sought consistent with its business plan, its credit and 
capitalization requirements.
    Second, the Department likewise opposes a limitation on its 
authority for rulemaking set forth in the provision. As 
reflected in our proposed rule published in the Federal 
Register on May 16, 2007, the Department believes that it 
should guarantee no more than 90 percent of any debt instrument 
in order to limit the risk being borne by taxpayers. We believe 
this is a found prudent in addition to require the parties 
responsible for taking the financing to relieve some of the 
risk for the success of the project.
    Federal credit policy states that the level of guarantee 
should be no greater than that required to achieve the policy 
goals. I note that some of the pre-applications we received in 
response to our first title XVII solicitation requested 
guarantees of less than 80 percent. The Department also notes 
that the greater the guarantee percentage for that instrument, 
the greater the subsidy costs that must be paid by the borrower 
up front to secure a title XVII guarantee.
    Next, I will turn to the discussion draft on standby loans 
for qualifying coal to liquid projects. We believe it makes 
valuable contributions to our national discussion to reduce 
consumption of petroleum and increase the availability of 
alternative fuels. A domestic coal-to-liquid industry would 
provide strategic and potential economic benefits to the United 
States.
    CTL production using best available emission control 
technology would diversify our transportation fuel sources, 
reduce U.S. dependence on imported petroleum, and provide fuel 
with other benefits including potential easier control of 
nitrous oxide and particular emissions from vehicles that use 
those fuels.
    Coal-derived liquid contains essentially zero sulfur and 
requires minimal upgrading to produce commercial grade premium 
fuels. They are also fungible with petroleum products. They can 
be distributed through existing fuel infrastructure.
    Some recent studies have concluded that a commercially-
mature coal-to-liquid plant could be competitive at today's 
high-world oil prices. CTL facilities would produce emissions 
comparable to modern, state-of-the-art coal gasification plants 
and could be configured to cost effectively capture carbon 
dioxide emissions, which if further sequestered would help 
address climate change concerns evaluations at the plant.
    At the same time CTL can provide an added source of 
domestic supplies of liquid fuels to mitigate our country's 
dependence on foreign oil imports. Some of the captured CO\2\ 
could potentially be used to enhance oil recovery fields, thus 
increasing our domestic fuel supply.
    The Department's portfolio of research and development on 
CTL, biofuels, and other advanced technologies supports the 
prominence alternative fuel standard that will replace 15 
percent of the projected gasoline use by 2017. This is an 
important element of the President's 20 in 10 Program to reduce 
gasoline use by 20 percent in 10 years.
    The Department's efforts are focused on overcoming the 
barriers to adopting biofuels and other advanced fuels such as 
CTL through forging strategic, cost-shared benefits with 
private industry and collaborating with other agencies and 
State and local Governments. Combined with the financial tools 
already in place in the Energy Policy Act of 2005, we believe 
that this is a multi-pronged effort to help expand 
domestically-produced alternative fuels.
    While we know that CTL plants have not been built today in 
the United States because of high volatility of world oil 
prices, high capital costs, and long lead time to associate 
with permitting and construction, we nonetheless believe that 
CTL has a viable role in our Nation's fuel infrastructure, and 
we have worked to bring those financial incentives, to bring 
down those technology costs and risks.
    Regarding the proposed standby loans for CTL, the 
Department does believe that the Title XVII Loan Guarantee 
Program is a more cost-effective means of encouraging the 
development of CTL projects. The provisions included in the 
discussion draft provide a price floor for the producers, which 
could potentially provide enormous liability for taxpayers and 
cause unwarranted distortions in the marketplace.
    While we have significant concerns with the draft 
provisions, we would like to work with the committee to see 
incentives to support the domestic CTL industry. We believe the 
discussion drafts are a very good starting point and that all 
could benefit from further review and discussion and 
collaboration.
    Mr. Chairman, I reiterate this was only a preliminary view, 
and we look forward to working with you to fine tune the 
proposed legislation to build on the success of EPAC 2005.
    This will conclude my prepared remarks, and I will be happy 
to answer any questions.
    [The prepared statement of Ms. Fredriksen follows:]

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    Mr. Boucher. Thank you very much, Ms. Fredriksen.
    Mr. Maley.

STATEMENT OF DON MALEY, VICE PRESIDENT, LEUCADIA INTERNATIONAL 
                   CORPORATION, NEW YORK, NY

    Mr. Maley. Thank you very much, Mr. Chairman. I appreciate 
the opportunity to come and talk to you today about your coal-
to-liquids legislation. I consider it a bold and responsible 
plan to help kick start the development of a coal-to-liquids 
industry in the United States.
    When we look at the specifics of the legislation, as I have 
testified before, we believe the floor price mechanism will 
provide the required assurance that the investment community 
will need in order to develop and invest in these projects. We 
look at the repayment mechanisms in the package as an 
appropriate measure to mitigate the cost of the program and 
ultimately to have no costs of the program for the Federal 
Government because the project will pay the upfront Government 
costs.
    With respect to the CO\2\ sequestration plan, which is 
prominent on everybody's mind today, we view the plan as a 
significant challenge for the industry but one that we are 
prepared to commit to and one that we are prepared to implement 
as part of any investment that we might make to the program.
    One point that I would like to make in that regard is that 
there seems to be a broad interest in the development of 
sequestration technology, and one of the prerequisites for 
implementing a sequestration technology is the actual capture 
of CO\2\. The only plant that I am aware of today in the United 
States that actually captures its CO\2\ in a pure form is the 
North Dakota Gasification Project that sells its CO\2\ quite 
profitably for enhanced oil recovery. If we are going to 
advance the whole question of sequestration, we need to 
actually build some projects that capture CO\2\ and that allow 
us to then take that CO\2\ and implement it in the 
sequestration plan.
    The projects that Leucadia is developing in this area, all 
have a sequestration plan as part of the conception, and we 
will be actively developing that as part of our overall 
development of the project.
    The other thing specific to the coal-to-liquids technology 
is that it does have environmental benefits with regards to the 
emissions of criteria pollutants. We are developing a project 
in Illinois and working with the city of Chicago, that has zero 
sulfur emissions and the lower particulate emissions which have 
an immediate health benefit to that market. Chicago is a 
serious non-attainment market, and they see the introduction of 
coal-to-liquids project manufacturing transportation fuels as 
an immediate benefit to their local community. The city of 
Chicago is actively encouraging the development of our project.
    [The prepared statement of Mr. Mr. Maley follows:]

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    Mr. Boucher. Thank you very much, Mr. Maley.
    Dr. Lashof.

   STATEMENT OF DANIEL A. LASHOF, SCIENCE DIRECTOR, CLIMATE 
   CENTER, NATIONAL RESOURCES DEFENSE COUNCIL, WASHINGTON, DC

    Mr. Lashof. Thank you, Mr. Chairman. It is a privilege to 
appear before the committee again.
    As you know, Speaker Pelosi has committed to passing 
groundbreaking legislation that addresses global warning and 
energy independence in this Congress, and while I recognize as 
you stated earlier that the primary goal of the legislation we 
are hearing today is the energy security component of that. I 
believe that it is nonetheless essential to evaluate the 
proposals we are considering in light of this longer-term 
objective.
    In particular the U.S. Climate Partnership, which as you 
know, is a broad diverse group of leading companies, 
environment, and other public interest organizations has called 
on the Congress to pass legislation as quickly as possible and 
reducing emissions of greenhouse gases by 60 to 80 percent by 
2050.
    Any energy legislation enacted in this Congress should in 
my view at a minimum be consistent with and make a down payment 
on achieving that goal, even if its primary purpose is to 
reduce dependence on petroleum.
    Before turning to the primary subject of this panel on the 
coal-to-liquids legislation, I would just like to echo the 
comments of Ms. Callahan in the previous panel. NRDC strongly 
supports the work they are doing on energy efficiency and 
particularly the energy efficiency standards, and I would just 
note that in particular the forcing function to insure that DOE 
meets its statutory deadlines is particularly important given 
their shameful record in missing deadlines as has been brought 
out previously in this hearing.
    Unfortunately, I can't say the same thing about the coal-
to-liquids provisions as you know. I would like to call your 
attention to two recent studies that have concluded that even 
if coal-to-liquids plans fully employed carbon capture storage, 
full lifecycle greenhouse gas emissions from using the fuels 
will still be worse than conventional diesel fuel, in 
particular Michael Wang of Argonne National Laboratory is the 
developer of the model that has been used by EPA and others to 
analyze different fuels on a consistent basis. He presented his 
findings to the Society of Automotive Engineers this week, and 
his study shows that without carbon capture the emissions could 
be as much as two and a half times as much as diesel fuel, but 
even assuming a high efficiency conversion process and carbon 
capture and storage, lifecycle greenhouse gas emissions from 
coal-to-liquid would still be 19 percent higher than using 
conventional diesel fuel.
    Given that result it is not surprising that another recent 
study by Battelle found that a significant coal-to-liquids 
industry is simply not a good investment in the context of a 
program that is limiting greenhouse gas emissions to prevent 
the concentration from rising above twice pre-industrial levels 
or to a lower level, which I believe is needed.
    Battelle found that, in fact, if there were no constraints 
on greenhouse gas emissions, a significant coal-to-liquids 
industry would make sense and would grow to replace 
conventional oil during the next several decades. But in the 
context of the need to significantly reduce greenhouse gases in 
their economic models coal-to-liquids does not develop, and 
instead, we would need to rely much more heavily on biofuels 
and efficiency to meet our transportation needs.
    There has been some discussion on plug-in hybrid vehicles 
today. I just would reiterate my view that to use coal in the 
transportation sector the best pathway is through making 
electricity to go into plug-in hybrids. There is a huge 
potential there, and in fact, a ton of coal used for that, in 
that way could displace twice as much oil as using a ton of 
coal to produce liquid fuel. And the emissions on a graduate 
mile basis could be one-tenth as much as with liquid fuels.
    As you know, Mr. Chairman, and I know you were none too 
pleased to receive a letter from NRDC and nine other 
environmental organizations opposing the provisions we are 
looking at today, we noted a number of things. I would 
highlight that in addition to reducing oil use, renewable fuels 
on the market today generate on average 20 percent lower 
greenhouse gas emissions than conventional fuels. And we urge 
that Congress adopt fuel alternatives that should be held to at 
least that standard.
    Let me comment a little bit on the specifics of the 
legislative proposal you have out. I appreciate the fact that 
you put in the greenhouse gas performance standard.
    Mr. Boucher. Well, Dr. Lashof, your time is almost expired, 
and we have votes pending on the floor, which will require our 
going over there. So could you wrap up in maybe 15 or 20 
seconds, please?
    Mr. Lashof. I will do that. You authorized the use of 
CO\2\. We have no objection to using CO\2\, but an 
environmental benefit should only be assigned if CO\2\ is 
demonstrated to be permanently stored and kept out of the 
atmosphere.
    The other point I would like to make is that your 
legislation calls on plants to have a plan certified by EPA. We 
believe it is essential to insure that the plan is actually 
carried out and that plants actually implement carbon capture 
and store it to be eligible for any program.
    I will conclude there. Thank you.
    [The prepared statement of Mr. Lashof follows:]

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    Mr. Boucher. Thank you very much, Dr. Lashof, and thanks to 
each of our witnesses.
    We have 7 minutes remaining to respond to the roll call 
votes on the floor, and there are four votes pending. 
Experience tells us that it will take approximately 45 minutes 
to complete these votes, and so I am going to declare a recess 
in these proceedings until we have finished. And we would 
appreciate your patience in remaining here until we can 
pronounce some questions to you.
    So the subcommittee stands in recess for 45 minutes or 
until about 5 minutes after the last roll call vote is 
completed.
    [Recess.]
    Mr. Butterfield [presiding]. The committee will reconvene.
    It is now time for each one of the committee members to ask 
questions of the witnesses. We are going to ask each of the 
Members to hold their questions and answers to no more than 5 
minutes.
    I was not here during the testimony, and I regret that I 
was not in place, but we were multi-tasking this morning, and I 
am sure all of you have an appreciation for that. We can solve 
a lot of problems on Capitol Hill, but one thing we cannot do 
is to be in two places at one time. So I apologize for my 
absence, but the staff has summarized your testimony, Mr. 
Maley, and I want to thank you very much for the preparation 
that you made, and thank you for coming forward today for this 
purpose.
    Before I recognize Shimkus I want to simply ask two 
questions, and the first one will be to Mr. Maley. I believe in 
your testimony you mentioned price guarantees, and I guess my 
question to you is why would a price guarantee for coal-to-
liquids be preferable to the traditional loan guarantees?
    Mr. Maley. What we like about this legislation is that we 
believe it puts the proper incentives on the owner and the 
investment community to make the project perform properly. A 
loan guarantee tied together with a tax incentive package for 
the equity investor to induce people to invest basically puts a 
project structure in place where the lender really has no risk 
whether or not the project ever works and even the equity 
investor really has no risks whether or not the project ever 
works because if it doesn't work, he has gotten his tax 
incentives and can recover his investment that way.
    In this program with the cap and the ceiling, the ultimate 
performance of the plant, whether it actually generates the 
barrels that it is projected to produce and does it at a cost 
that works with the economics, really resides with the investor 
and the financial community. So we think it keeps the proper 
incentives and keeps the parties aligned to make the project a 
long-term success.
    Mr. Butterfield. We have worked very hard on this 
legislation. Hopefully we are going to get it out in pretty 
short order, and if that happens will Leucadia be willing to 
build a coal-to-liquids facility if the bill passes?
    Mr. Maley. Yes, we will. We think this is the legislation 
that we would need. We have been actively developing a coal-to-
liquids project in Illinois. It has been on a relatively low-
scale effort at this point, but we are quite ready to 
accelerate that effort and commit very significant dollars to 
the development of one of these projects.
    Mr. Butterfield. Thank you very much.
    The Chair recognizes the gentleman from Illinois, Mr. 
Shimkus.
    Mr. Shimkus. Thank you, Mr. Chairman. This is one of the 
charts that I brought out about 2 years ago when we first drew 
up the legislation, and I think it is important to just 
highlight the benefits based upon some of the debate.
    You have U.S. coal underground, not in the Gulf Coast 
areas, which are highly at risk for hurricanes as we know. You 
build a plant hopefully somewhere in the Midwest, in the coal 
fields of the Midwest. You have a pipeline facility already 
established, centralized in the Midwest to be able to do a lot 
of things. To be able to fund our fighter planes in the 
military, to create cleaner fuel than currently is available 
for diesel engines today.
    And I have, we had a chart in one of our hearings that 
talked about low diesel fuel, and everybody agrees that is a 
great advancement. When you compare to what this technology can 
do on SOx, NOx, particular matter with respect to low diesel 
fuel, it is incomprehensible why the environmental community 
will not work with us to try to make this happen. And we are 
going to keep fighting for these provisions for national 
security.
    And I want to keep highlighting the aviation fuel aspect 
and the diesel fuel aspect because you are going to have folks 
talk about, as my friend talked about cellulosic debated 
ethanol and no one can out ethanol me I don't think on this 
committee, but that is gasoline. That is for automobiles, and 
we are talking about liquid fuel competition across the board. 
So I just wanted to highlight that.
    The last is a thousand jobs, in fact, in the first hearing 
we had a lot of, I saw a lot of my friends from Morgan Heights. 
They were building trades, good building trade jobs to create 
these refineries, these pipelines, a lot of construction jobs, 
15 million tons of coal per year and up to 500 coal mining 
jobs. That is why I am obviously very excited for all those 
reasons.
    So my follow-up questions deal with this as I am sure no 
one would be surprised. First, Kathy, if you would talk about 
the recently released feasibility study that DOE just a couple 
days ago, and it talked about a barrel of oil, $60, a 20 
percent return on that investment. So essentially this study 
the plant is breaking even at $48 per barrel, and really the 
question is does this include investment in CCS?
    Ms. Fredriksen. You are referring to the NETK study that we 
just released on May 21, and it looked at the feasibility of a 
commercial, 50,000 barrel per day coal-to-liquids facility in 
the Illinois coal basin. Based on its use of approximately 
24,000 ton per day of coal we got an output of around 28,000 
barrels per day of diesel fuel, 22,000 barrels per day of 
naphtha, and 124 megawatts of net electricity that could be 
returned to the grid after the production was used for the 
generation of the plant itself.
    It did incorporate our recapture. It used carbon capture. 
It accounted for the carbon capture and then actual compression 
into a pipeline, so if you injected, there would be a little 
different configuration, but it did look at commercial reuse or 
sale of CO\2\. And that feasibility study, as you pointed out, 
showed a 20 percent return on investment, oil being at around 
$60 a barrel, with a net present value of $1.5 billion and a 
payback period of 5 years. That did not incorporate any loan 
guarantee from the Federal Government.
    If you do put a Federal loan guarantee into the mix, you 
could raise your return to almost 30 percent, which is a pretty 
hefty return on investment for an investor.
    Mr. Shimkus. And I think our proposal is obviously if they 
apply to this price provision, they are not going to be 
applicable for other loan guarantee provisions. But it is a 
good point well taken.
    Now, we have Mr. Maley from Leucadia. I appreciate all the 
work you are doing. We have been following to date. I know your 
excitement in the process.
    We know CCS, and we have talked about that, but can you 
talk to me about the use of biomass and how that can be 
involved in having refinery emissions that are in essence equal 
to or less than regular petroleum refinery locations today?
    Mr. Maley. I am not an engineer or an expert in that area, 
but just in discussions with some of the technology firms, 
there has been discussion about biomass either as an add on to 
a coal-to-liquids project or as a blend. Using biomass as part 
of that process helps achieve very significant reductions.
    Mr. Shimkus. And Mr. Chairman, if I just may end on this 
line, equal-opportunity questioner here, for my friends at the 
NRDC, you came before the committee before when we were kind of 
talking about this proposal, and your testimony, I don't have 
it in front of me, but we were very optimistic or at least 
presently kind of excited about your support that if CCS was 
used, again, this is a statement that is in the record if I 
wanted to get the quote, but it made it a little bit more 
doable than if it wasn't. And it was qualified, I think. I 
think Chairman Boucher would agree, qualified at least, I can't 
say the word support, but you are less adamant in opposition if 
CCS were used. Is that still your position?
    And then in the follow up because I am running over time 
would just be the whole issue of, and I asked this in the last 
time you all came before us, the ability to, do you believe 
that there is an ability to sequester now, and would you be 
involved in any litigation to deny the ability to a long-term 
geological store? Have you in the past and do you foresee the 
ability of your organization to take this issue to the Courts?
    Mr. Lashof. Thank you, Mr. Shimkus. Fewer emissions are 
better than more emissions, so to the extent that carbon is 
being captured and instead of going into the atmosphere, that 
is better. I think what I suggested in today's testimony and 
what I think some other members of the subcommittee suggested 
is we need to be looking at how this might or might not fit 
into a long-term reduction in global warming emissions.
    And the conclusion I reach is that it doesn't fit into that 
strategy. If you compare it to some of the other alternatives, 
yes, ethanol is more applicable to a light-duty market but 
biodiesel obviously is applicable, and that part of the EPA's 
analysis produces about a 60 percent, 66 percent reduction in 
lifecycle greenhouse gas emissions compared with conventional 
diesel.
    We believe that fundamentally, I would like to see the 
committee move away from focusing on any particular feedstock 
or technology and focus instead on our goals, which I think we 
share, which is reducing global warming emissions and reducing 
oil consumption. I think if we can work in that way we may be 
able to cut through some of this controversy.
    And to your last point just quickly, we are not as far as I 
know involved in any litigation related to carbon capture and 
storage. We actually are urging EPA to move quickly to set 
regulations so that everybody would have an understanding of 
what is required to license and operate a carbon capture 
project.
    Mr. Shimkus. Thank you. Mr. Chairman, just, I know it will 
be just a short response.
    Mr. Butterfield. Certainly.
    Mr. Shimkus. I appreciate my friend's waiting.
    Do you, back to Mr. Lashof, do you agree that at least the 
analysis of the technology on coal-to-liquids refineries has 
less emissions than a conventional petroleum refinery? Do you, 
if they are CCS? I mean, CCS is greenhouse gas. I am talking 
about the NOx and the SOx and the particular matter. Do you 
agree with those analysis?
    Mr. Lashof. Fisher Tropes fuel regardless of the feedstock 
at end use does provide some benefits in terms of NOx, SOx. 
Yes. I reviewed analysis, and I agree with that.
    Mr. Shimkus. Thank you very much. Thank you, Mr. Chairman.
    Mr. Butterfield. Thank you, Mr. Shimkus.
    The gentleman from Utah. Looks like we are going to have a 
vote in about 10 minutes.
    Mr. Matheson. OK.
    Mr. Butterfield. Yes.
    Mr. Matheson. Well, I don't think I will take 10 minutes.
    I just want to, Mr. Shimkus mentioned hoping the plant 
would be built in the Midwest. I want to remind him there is 
some coal further out west, too.
    Mr. Shimkus. Real coal?
    Mr. Matheson. Just a little bit. Yes.
    Ms. Fredriksen, just to follow up, you mentioned that with 
the study that was just issued in the last couple of days and 
the 20 percent return and you said if you assume a loan 
guarantee that bumps up the return to 30 percent. Is that, I 
think this is straightforward, but is that based on the loan 
guarantee will provide cheaper financing costs through lower 
interest rates?
    Ms. Fredriksen. Yes, which is the goal of the Loan 
Guarantee Program as you----
    Mr. Matheson. I want to make sure people understood that. I 
think that in Mr. Maley's testimony I just think the committee 
ought to note that you went through a discussion of the 
strengths and weaknesses of loan guarantee and the price 
guarantee where you said it is a price band so the price moves 
inside or outside of a range. It affects it different ways. And 
also the strengths and weaknesses of just the production 
payment, if you will, a sense, pre-allen type payment, and I 
think that that reflected a good discussion how I think this 
legislation has thought that through a little more carefully 
than past Government programs on price support and loan 
guarantee. I just want to acknowledge that, because I think 
that was a helpful discussion in your testimony to go through 
that.
    One question I, change the topic now for Ms. Fredriksen, I 
noted that DOE is supportive of the coal-to-liquid provisions 
included in the discussion draft. Does, has DOE looked at how 
comparable provisions might work relative to a different 
resource? In this case it would be the oil shell or tar sands 
would fit into this type of model. Do you know where the 
administration is on that?
    Ms. Fredriksen. We have looked at that, sir. We still 
believe that a title XVII program is going to help defray a lot 
of that new technology. I mean, that is what we are 
fundamentally getting to here is not off-the-shelf technology. 
It is very new, it is very unproven, and that is what the 
investors are a little afraid of. And so we are trying to help 
buy down that technology risk with a loan guarantee program. We 
did, however, look at other options and explored other options 
in an analysis of whether or not this collar approach would 
work. We have considered things such as a variable production 
tax credit that does float with a price index but is sort of 
term limited to a production capacity to get production where 
you need it to be, and then you can get out, the Government can 
get out of the way and let the market take over.
    Mr. Matheson. Right.
    Ms. Fredriksen. So there are a lot of options that we can 
consider, and I think they would be applicable to all 
technologies.
    Mr. Matheson. So other fuel stocks as well that I mentioned 
there?
    Ms. Fredriksen. Yes.
    Mr. Matheson. OK. That is all I got, Mr. Chairman. Thanks. 
I yield back.
    Mr. Butterfield. Thank you very much.
    All right. Do we need a second round? Do you have any other 
questions?
    Mr. Shimkus. No, sir.
    Mr. Matheson. No, sir.
    Mr. Butterfield. All right. Do you have any other 
questions? All right. Thank you once again for your testimony. 
I apologize for the disruption in our schedule, but I am 
certain all of you understand.
    The hearing is concluded. Thank you.
    [Whereupon, at 2:00 p.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]

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