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





   NEGAWATTS: THE ROLE OF EFFICIENCY POLICIES IN CLIMATE LEGISLATION

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

                                HEARING

                               before the
                          SELECT COMMITTEE ON
                          ENERGY INDEPENDENCE
                           AND GLOBAL WARMING
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 8, 2008

                               __________

                           Serial No. 110-36




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                 Energy Independence and Global Warming

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                SELECT COMMITTEE ON ENERGY INDEPENDENCE
                           AND GLOBAL WARMING

               EDWARD J. MARKEY, Massachusetts, Chairman
EARL BLUMENAUER, Oregon              F. JAMES SENSENBRENNER, Jr., 
JAY INSLEE, Washington                   Wisconsin
JOHN B. LARSON, Connecticut            Ranking Member
HILDA L. SOLIS, California           JOHN B. SHADEGG, Arizona
STEPHANIE HERSETH SANDLIN,           GREG WALDEN, Oregon
  South Dakota                       CANDICE S. MILLER, Michigan
EMANUEL CLEAVER, Missouri            JOHN SULLIVAN, Oklahoma
JOHN J. HALL, New York               MARSHA BLACKBURN, Tennessee
JERRY McNERNEY, California
                                 ------                                

                           Professional Staff

                   Gerald J. Waldron, Staff Director
                       Aliya Brodsky, Chief Clerk
                 Thomas Weimer, Minority Staff Director









                            C O N T E N T S

                              ----------                              
                                                                   Page
Hon. Edward J. Markey, a Representative in Congress from the 
  Commonwealth of Massachusetts, opening statement...............     1
    Prepared Statement...........................................     3
Hon. F. James Sensenbrenner, Jr., a Representative in Congress 
  from the State of Wisconsin, opening statement.................     5
Hon. John Hall, a Representative in Congress from the State of 
  New York, opening statement....................................     6
Hon. Emanuel Cleaver II, a Representative in Congress from the 
  State of Missouri, Prepared Statement..........................     7

                               Witnesses

Hon. Paul A. DeCotis, Deputy Secretary of Energy, New York State.     8
    Prepared Statement...........................................    10
    Answers to Submitted Questions...............................    75
Hon. Dian Grueneich, Commissioner, California Public Utilities 
  Commission.....................................................    16
    Prepared Statement...........................................    18
Mr. George Sakellaris, President and CEO, Ameresco, Inc..........    23
    Prepared Statement...........................................    25
Mr. Steven Kline, Vice President, Environment and Federal 
  Affairs, Pacific Gas and Electric Corporation..................    33
    Prepared Statement...........................................    35
    Answers to Submitted Question................................    82
Mr. Robert Cowart, Director, Regulatory Assistance Project.......    43
    Prepared Statement...........................................    45

                          Submitted Materials

Hon. Edward J. Markey letter of October 10, 2008 from Mr. Steven 
  Kline..........................................................    88
U.S. Climate Action Partnership Energy Efficiency & Buildings 
  Legislative Recommendations, June 8, 2007......................    89

 
   NEGAWATTS: THE ROLE OF EFFICIENCY POLICIES IN CLIMATE LEGISLATION
_______________________________________________________________________


                         THURSDAY, MAY 8, 2008

                  House of Representatives,
            Select Committee on Energy Independence
                                        and Global Warming,
                                                    Washington, DC.
    The committee met, pursuant to call, at 10:10 a.m. in room 
210, Cannon House Office Building, Hon. Edward J. Markey 
(chairman of the committee) presiding.
    Present: Representatives Markey, Hall and McNerney.
    Staff Present: Joel Beauvais, Jonathan Phillips.
    The Chairman. Good morning, ladies and gentlemen. Welcome 
to the Select Committee on Energy Independence and Global 
Warming and our very important hearing today.
    When we look into the energy and climate solutions toolbox, 
we usually focus on exciting new technologies like high-powered 
wind turbines, thin-film solar cells, or carbon capture and 
sequestration. Today's hearing, however, is about the less eye-
catching, but equally important solutions that improve energy 
efficiency, demand-side management, better building and 
appliance standards, lighting retrofits, and the host of other 
technologies and policies that enable us to use electricity 
more intelligently.
    The Department of Energy projects that U.S. electricity 
demand will grow by 30 percent by 2030. There are two ways to 
meet this rising demand, megawatts and negawatts. The first 
approach is the one we are familiar with, simply building more 
and more power plants. The second uses efficiency measures to 
do more with less. It is based on the reality that the cheapest 
and the cleanest power plant is the one that we never have to 
build.
    A recent study by McKinsey & Company concluded that in 
2030, efficiency measures can cut U.S. global warming pollution 
by nearly 15 percent of current levels at a profit. The 10 
Northeastern States participating in the RGGI cap, auction, and 
trade system have found that by auctioning 100 percent of the 
pollution allowances and investing the proceeds in efficiency 
measures, they can achieve their climate goals at virtually no 
additional cost to consumers.
    Cap, auction and trade provides the resources to make 
efficiency policies work, while efficiency cuts pollution at 
the lowest possible cost. These solutions help us to work 
smarter and not harder. Investing in efficiency is not just a 
cost-effective energy and climate solution, it will also pay 
major dividends in new jobs and economic growth.
    America's efficiency industry already produces close to a 
trillion dollars in annual revenues. One recent study found 
that aggressive investment in efficiency policies could result 
in the creation of 32 million new jobs and nearly $4 trillion 
in revenue by 2030.
    By putting America in the vanguard of an efficiency 
revolution, we can create high-quality, green jobs at home 
while exporting high-quality, green technology in the world. 
Unfortunately increasing America's energy efficiency is not as 
straightforward as it may seem. As we will hear from our 
witnesses, many efficiency improvements can already be achieved 
today at a profit, but are not being implemented because of 
market barriers. For this reason, simply putting a price on 
carbon is not enough. Focused policies must be used to reward 
efficiency and to eliminate perverse incentives like those that 
couple utilities' profits with the amount of electricity which 
they sell.
    Progressive States like California and New York, along with 
the innovative companies like PG&E and Ameresco, and 
organizations like the Regulatory Assistance Project have taken 
the lead in tackling these challenges. We are grateful to have 
representatives of these government, business and nonprofit 
leaders on our witness panel today. They can help show us the 
way forward.
    As Congress considers cap, auction and trade legislation to 
combat global warming, it will be critical to include policies 
that support efficiency. We have already taken an important 
step by enacting new vehicle and appliance efficiency standards 
under the Energy Independence and Security Act, but there is 
more that we can do, and we must do if we are to cut global 
warming pollution as quickly and as deeply as the science says 
we must. It is imperative that climate legislation be designed 
to capture efficiency gains immediately. By making the 
potential of energy efficiency a reality, we can save the 
planet while simultaneously saving consumers money, and 
spurring job growth, and meeting our Nation's rising energy 
demands at the lowest possible cost.
    NBA coach Pat Riley once said a particular shot, a way of 
moving the ball, can be a player's personal signature, but 
efficiency of performance is what wins the game for the team. 
If we are going to beat this energy, climate and economic 
challenge, aggressively increasing America's energy efficiency 
must be at the center of our game plan.
    So with that, the opening statement of the Chair is 
concluded, and I recognize the gentleman from Wisconsin, the 
Ranking Member of the committee, Mr. Sensenbrenner.
    [The prepared statement of Mr. Markey follows:]

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    Mr. Sensenbrenner. Thank you very much, Mr. Chairman. At 
the outset let me say that we are due for a string of five 
votes, and I have another meeting that will be about 11:30, so 
I kind of apologize for not coming back when the hearing 
resumes, but we have no control over what goes on across the 
street.
    Improving energy efficiency is one of the most important 
steps that can be taken to confront climate change, and I am 
pleased that the Chairman has scheduled this meeting. As we all 
know, reducing CO2 emissions while protecting the 
health of the economy is a formidable challenge. Some may think 
this goal is not achievable, but I think that through 
significant advances in technology, we can make significant 
reductions in greenhouse gases while still growing the economy.
    Some of this technology is not yet available. The good 
example of this is carbon capture and sequestration, which is 
still on the drawing board, but has the potential to make 
tremendous reductions in greenhouse gas emissions in the 
future. And some advances are needed in renewable technologies 
to make them more cost-competitive.
    Another potent technology is nuclear power, which is ready 
now and can generate power without any greenhouse gas emissions 
whatsoever. Both of these technologies have the potential to 
reduce emissions in the long term; however, it is energy 
efficiency that gives us the best chance to produce emissions 
reductions in the short term.
    Studies shows that even simple improvements in energy 
efficiency standards create significant reductions in 
greenhouse gas emissions. Not only that, but increased energy 
efficiency also stands to create significant reductions in the 
power bill.
    Whether you are a big industry, a small business, a 
homeowner or even a renter, improvements in efficiency will 
help the bottom line. The cost of power is rising, and because 
of this there is clearly free-market pressure to adopt energy 
efficiency. In fact, the rising cost of power is without doubt 
the best possible argument for improving energy efficiency.
    I also believe that in some cases government can encourage 
efficiency through support of research and development and 
through certain tax credits. Industry standard setting is also 
useful.
    I do not support the government artificially imposing 
improved efficiency through mandates, regulations and rules. If 
the government tries to mandate or regulate efficiency, to most 
it will become a tax, and that will hold down economic growth. 
In fact, one study that forecasts enormous reductions in 
emissions also comes with an enormous price tag that raises 
questions as to whether reductions are even worth it.
    While I am glad the select committee is talking about 
energy efficiency, it seems that most of the testimony we 
expect to hear today will be nothing more than a call for more 
regulation. That is a mistake. We all may agree that improved 
efficiency holds tremendous promise, and there appears to be 
great differences in our beliefs and how to get there. I think 
that the pressure of energy prices will lead people to adopt 
energy efficiency on their own accord, which would result in 
cheaper energy prices. And cheaper energy is something all of 
us can support. Thank you.
    The Chairman. The Chair now recognizes the gentleman from 
New York State Mr. Hall.
    Mr. Hall. Thank you, Mr. Chairman and Ranking Member 
Sensenbrenner. Good morning and welcome to our witness.
    I find it appropriate that as we enter the summer driving 
and home-cooling season, we are here today to discuss the 
positive impacts that energy efficiency can have on our economy 
and our environment.
    There is rightly much attention being paid right now to gas 
prices, but home electricity costs eat into family budgets, 
too. As the temperature rises, so does the power bill for 
families trying to keep their homes at a reasonable 
temperature. The Energy Star program has labeled appliances and 
empowered consumers to take the edge off their power demand.
    Earlier this year the Congress passed groundbreaking 
legislation to further this effort; however, the macro benefits 
of sweeping energy efficiency measures require that we go 
further. Quite simply, widespread efficiency in every sector of 
the economy is the fastest, simplest and most immediately 
achievable way to reduce demand, save money and cut greenhouse 
gas emissions. And more than that, I would say that energy 
savings by efficiency are the only truly impact-free form of 
generating or recovering a kilowatt or a calorie of energy, 
whatever unit you choose.
    By simply being smarter about the appliances we use, the 
materials we use in construction, and making slight adjustments 
to our patterns of use, we can make an impact which has a 
ripple effect that is orders of magnitude larger than the 
individual actions we take to conserve energy without forcing 
major changes to our way of life. By taking one action and 
implementing aggressive streamlining measures, we can forego 
billions of tons of greenhouse gas emissions, generate billions 
of dollars in economic opportunity, and create a stimulating 
effect that will lead to job growth and economic resurrection. 
That is truly efficient indeed.
    I am proud that my State of New York, a leader on this 
issue, is represented by Deputy Secretary DeCotis, and I look 
forward to his testimony as well as the rest of the panel's 
views.
    I yield back.
    The Chairman. The gentleman's time has expired.
    There are going to be a series of roll calls on the floor 
of the House. The bells announcing that can be heard in the 
background as I make that statement. We probably have the time 
to hear the opening statements of two of our witnesses, so I 
would recommend that we proceed in that fashion. Then we will 
recess and come back and hear from the rest of our witnesses 
and questions from the panel.
    [The prepared statement of Mr. Cleaver follows:]

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    The Chairman. So we will begin with our first witness, Mr. 
Paul DeCotis. He is the Deputy Secretary of Energy for the 
State of New York, where he heads up the State's efforts to 
advance renewable energy and energy efficiency programs. We 
welcome you, sir.

STATEMENT OF PAUL A. DeCOTIS, DEPUTY SECRETARY OF ENERGY, STATE 
                          OF NEW YORK

    Mr. DeCotis. Thank you. Good morning, Chairman Markey, 
Ranking Member Sensenbrenner and members of the committee. On 
behalf of Governor Paterson, I welcome the opportunity to 
present this testimony to this Select Committee on Energy 
Independence and Global Warming and look forward to working 
with the committee to ensure development of leading and 
effective climate policy.
    It is now widely accepted that energy efficiency is one of 
the lowest-cost options available for reducing greenhouse gas 
emissions. Many States throughout the country now have had 
almost 30 years of experience administering energy efficiency 
programs, all with similar results, providing conclusive 
evidence of the low cost of energy efficiency relative to new 
power generation, and of the economic and environmental 
benefits associated with reducing electricity use through 
energy efficiency improvements.
    So the question is not should we be supporting and 
investing in energy efficiency, it is instead to determine how 
we can do this most effectively with rapid penetration of 
existing commercially available technologies in the near term, 
and steady and continued development of better, more adaptable 
and cheaper technologies over the longer term. We need both an 
energy efficiency and a carbon reduction policy.
    A portfolio of low-carbon options on the demand side and 
the supply side will most definitely be necessary, as well as 
policies that address sectors beyond electricity.
    New York has a longstanding history of supporting energy 
efficiency that dates back nearly four decades. New York's 
energy efficiency efforts began in the late 1970s with Federal 
funding provided to the States through the Energy Policy and 
Conservation Act of 1975 and the State Energy Conservation 
Program administered by the U.S. Department of Energy.
    While the funding was small relative to need, New York was 
able to develop a diverse portfolio of programs serving 
residential business and governmental customers. New York's 
energy efficiency programs directed at the electric utility 
sector began in earnest in 1984. At the time demand-side 
management programs were viewed by the State's public service 
commission as potential alternatives to continued investment in 
new central station power generation.
    By the late 1980s, utilities in New York were reporting 
significant peak demand and electric energy reductions. By 
1993, DSM spending by investor-owned utilities reached $280 
million, which is equivalent to about $400 million today, a 
dramatic increase from the $25 million spent in 1984. 
Additional demand-side management spending by the State's 
energy authorities raised the State's annual investment in 
energy efficiency in 1993 to about $330 million, which is about 
$470 million in today's dollars.
    With the transition to wholesale electric market 
competition in 1996, the responsibilities for administering 
energy efficiency programs in New York was transferred to the 
New York State Energy Research and Development Authority, or 
NYSERDA, and NYSERDA has been administering efficiency programs 
along with research and development programs in cooperation 
with the New York Power Authority and Long Island Power 
Authority since 1998.
    Under the System Benefits Charge program, the level of 
annual energy bill savings has grown to almost half a billion 
dollars annually. The program is saving approximately 3,100 
gigawatt hours of electricity, and the level of annual 
greenhouse gas reduction is equivalent to removing 400,000 cars 
from New York's roadways. That is about 2 million tons 
annually. For every $1 invested in efficiency in New York, the 
program saved $2 and avoided energy costs.
    Last year New York embarked on its 15 by 15 Initiative, the 
goal of which is to reduce statewide electricity use by 15 
percent from forecast levels for the year 2015. 15 by 15 
represents a dramatic acceleration of New York's energy 
efficiency commitment and results in more than offsetting 
annual electricity load growth in the State.
    In 2009, the State's energy authorities alone have budgeted 
close to half a billion dollars for energy efficiency. The 
investor-owned utilities and new funding from the 15 by 15 
Initiative could easily add an additional 400 million, bringing 
the total annual funding close to a billion dollars.
    New York's energy efficiency policies have been framed, 
justified and developed with full recognition that energy 
efficiency is one of the lowest----
    The Chairman. If you could summarize, please.
    Mr. DeCotis. Sure.
    Regarding the cap-and-trade programs, which is one of the 
questions that was asked, New York is actively participating in 
leading in the Regional Greenhouse Gas Initiative. The proceeds 
from the sale of the auctions will be used for low-cost carbon 
abatement technologies, including energy efficiency, but it 
will also extend to other sectors of the economy, including 
transportation efficiencies, carbon capture and sequestration 
technologies, et cetera. So the funding will not be limited to 
simply electric energy efficiency.
    The Chairman. Thank you, sir.
    [The statement of Mr. DeCotis follows:]

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    The Chairman. Our next witness is Commissioner Dian 
Grueneich, who was appointed to the California Public Utility 
Commission by Governor Schwarzenegger in 2005. We welcome you.

 STATEMENT OF DIAN GRUENEICH, COMMISSIONER, CALIFORNIA PUBLIC 
                      UTILITIES COMMISSION

    Ms. Grueneich. Thank you. I very much appreciate the 
opportunity to testify today.
    I am the assigned commissioner in California at the 
California Public Utilities Commission overseeing the energy 
efficiency programs. We believe that the California program, 
which is currently funded at $1 billion annually, is the 
world's largest energy efficiency program. I was happy to hear 
from my colleague that we may be in close competition now with 
New York, that we welcome, on expanding our programs.
    I am going to quickly cover today three items: first, an 
overview of what are the programs in California; second, some 
discussion of how we are trying to integrate our energy 
efficiency efforts into California's global warming law; and 
third, to offer my thoughts on what could be done in terms of 
bringing together energy efficiency and Federal climate change 
legislation.
    If I could have the first slide very quickly.
    This is just an overview that California has adopted as a 
formal policy in California, what we call a loading order, and 
this loading order places energy efficiency as the top 
priority. It requires that there be investment in all cost-
effective energy efficiency as the resource of first choice. We 
have come to this policy as a result of 30 years of 
investments, both through our utilities, as well as building 
standards and appliance standards.
    Next slide, please.
    This is a slide that tries to graphically show what has 
been our experience in California on energy efficiency. You can 
see before 1970 we were similar to the rest of the Nation, 
dramatic increases in electricity. In the early 1970s, that is 
when we began our programs, and you can see that we have been 
successful in keeping our per capita consumption constant while 
the rest of the country has grown very significantly.
    But let me tell you the economic story, which is what is 
very, very important. In looking at our State's gross State 
product, we generate nearly twice as much gross State product 
per kilowatt hour than the U.S. average, and we have tripled 
our gross State product in the last 30 years. So we believe 
that this emphatically demonstrates that you do not need to 
sacrifice economic growth and development when you undertake 
energy efficiency.
    Next slide, please.
    This is another way that we are demonstrating how we are 
getting the energy savings. That is the question that we are 
often asked, where does it come from? In California there are 
three principle areas. Down on the bottom you will see the 
savings over the 30-year history from our appliance standards.
    The second area in green is the savings over the same 30-
year period from our building standards. And then the top, 
which you can see is very significant, are the efforts that my 
agency oversees with regard to utility programs. These 
combination of codes and standards and utility programs supply 
approximately 15 percent of California's total electricity 
supply. It is a very significant, a very successful way of 
meeting our electricity needs. Moreover we have a very 
aggressive program to be measuring and verifying to make sure 
that we are obtaining these savings because we use them in lieu 
of building power plants and transmission lines, and that is an 
absolutely necessary component of the programs.
    Next slide.
    This is what we are doing right now. For the period of 2004 
through 2013, the programs that my agency is overseeing. 
Relying upon the utilities in the State, we are going to be 
eliminating the need for 10 new power plants. We are 
eliminating 9 million tons of carbon dioxide emissions. And 
then very importantly we are looking at $10 billion in net 
savings. You heard from New York that you get an 
approximately--for a dollar you spend on energy efficiency, you 
are saving $2. Energy efficiency is one of the most important, 
if not the most important, economic development programs we 
have in California.
    Let me turn quickly to how we are looking at integrating AB 
32, energy efficiency in AB 32. We have all of our State 
agencies, energy agencies, in California issued a decision 
earlier this year in which we have now made a unanimous 
recommendation that energy efficiency be the foundation upon 
which we rely for meeting our global warming efforts in 
California.
    We have made the recommendation that the ARB requires that 
there be a statewide mandate to pursue all cost-effective 
energy efficiency in California. We are looking at approaching 
this in three ways. The first is our current approach to energy 
efficiency, that is providing tremendous savings, but we are 
looking at expanding it beyond that; and then with that 
layering on top of it, our cap-and-trade program.
    The Chairman. I apologize, but your time has expired.
    Ms. Grueneich. Thank you.
    [The statement of Ms. Grueneich follows:]

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    The Chairman. You will get an opportunity in the question-
and-answer period.
    Again, as I announced earlier, there are a series of roll 
calls on the House floor. At this point the committee will have 
to take a brief recess, and after the roll calls we will 
return. Thank you.
    [Recess.]
    The Chairman. We will reconvene our hearing. We apologize 
to our witnesses and the audience, but I think we can conclude 
the hearing now, hopefully, without any further interruptions.
    Our next witness is George Sakellaris, who is from my home 
State of Massachusetts. He is the president and chief executive 
officer of Framingham-based Ameresco, the largest independent 
energy services company in the country. We welcome you, sir. 
Whenever you are ready.

 STATEMENT OF GEORGE SAKELLARIS, PRESIDENT AND CEO, AMERESCO, 
                              INC.

    Mr. Sakellaris. Thank you, Mr. Chairman, distinguished 
members of the committee. Thank you for providing me this 
opportunity to testify before you this morning on the role of 
efficiency policies and climate legislation. I also want to 
commend you, Chairman Markey, for your leadership role in 
energy efficiency and energy independence. No one in Congress 
has taken a more active role on this critical issue than you, 
Mr. Chairman.
    As background, I am George Sakellaris, founder, president 
and chief executive officer of Ameresco in Framingham, 
Massachusetts. Ameresco presently is the largest privately 
held, independent energy services company providing energy 
savings through what is known in the industry as performance 
contracting services in North America, with over 500 employees 
in 52 offices located throughout the U.S. and Canada.
    Ameresco provides a full array of services for our clients, 
which include energy conservation and renewables, including 
landfill gas, biomass, wind and solar.
    Mr. Chairman, that is a brief description of Ameresco, and 
now I will directly address some of the questions posed in 
front of us today.
    The opportunity for energy efficiency savings in the United 
States is enormous. The United States is presently using 
approximately 47 million barrels of oil equivalent per day, or 
17 billion barrels of oil equivalent per year. Based on our 
experience we have found that we as a Nation can save as least 
20 percent of that energy and possibly 30 percent of our usage. 
And we say that because for the last 30 years that we have been 
in this business, we have achieved that result for each and 
every facility that we have implemented an energy savings 
program, and in many cases much more than that.
    If then we assume, and to be conservative, that we can only 
save 20 percent, then the total U.S. productivity improvement 
is equal to over 9 million barrels per day, or the equivalent 
of 3.4 billion barrels per year. Now, if we assume at the cost 
of $100 per barrel, which is the price of oil, and today 
somebody can argue it is considerably higher than that, then 
the resulting annual savings are $340 billion per year.
    Now, if we assume that we have a simple payback of 7 years, 
then an investment of $2.4 trillion would be required in order 
to achieve the savings. Then if we take it one step further and 
assume a 15-year plan for the implementation, is required $160 
billion of investment each year, and that will create over 3.2 
million jobs per year to 5 million jobs per year.
    Now, when we achieve these energy savings, of course, we 
will reduce greenhouse gas emissions by the corresponding 20 
percent. In other words, for 5.9 billion metric tons of 
CO2 today that we have at 20 percent reduction would 
be 1.2 billion metric tons per year.
    So therefore, as we move forward in our national energy 
policies, we believe that it is extremely important that 
Congress should include energy efficiency as an integral and as 
the most important aspect of any climate change legislation. 
And the reason behind it is because it is the most economic, 
and it has the most immediate impact in our society.
    The legislation should further include energy efficiency 
renewable centers that include quantitative end use savings 
targets, specific targets for each and every year. This will 
accelerate the implementation of energy efficiency equipment. 
And the Federal Government should require all retail sellers--
electrical utilities, gas utilities, oil dealers, et cetera--to 
make investments such as 1.6 percent per year reduction in 
their energy use. And I use the 1.6 per year so that by the 
year 2020, we will have achieved the 20 percent reduction in 
energy use and the corresponding 20 percent reduction in 
emissions.
    In addition, emission allowances should be held in trust 
for the public good. We are opposed to the grandfathering of 
emissions allowances to firms based on historical emissions. 
The allowances should be sold through what we call public 
auctions. Then Congress should describe exactly how the 
proceeds from these auctions will be distributed. We recommend 
that at least 50 percent of the proceeds be dedicated to energy 
efficiency investments.
    If we make this national commitment to energy efficiency, 
we can accelerate the realization of energy savings by buying 
down projects, let's say, from 10 years to 7 years and then 
expand the opportunity and hopefully get from the 20 percent 
level to the 30 percent level.
    Also, by investing in energy efficiency, the Congress can 
reduce overall energy costs for individual customers, business 
and institutions. This investment will also reduce energy 
demand, and, as I pointed out emissions, and substantially 
mitigate the overall cap-and-trade program costs. So you are 
using the energy efficiency in order to mitigate the cap-and-
trade cost.
    Of course, associated with all of this, you will reduce 
substantially the foreign--dependence on the foreign oil, and 
the trade deficit, it will take it down by 20 percent.
    So, Mr. Chairman, again, thank you for allowing me the 
opportunity to come before you and the distinguished committee, 
and I will be glad to answer any questions that you may have. 
Thank you.
    The Chairman. Thank you very much.
    [The statement of Mr. Sakellaris follows:]

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    The Chairman. Our next witness is Steven Kline, who is the 
vice president of corporate environmental and Federal affairs 
for the PG&E Corporation. Welcome, sir.

  STATEMENT OF STEVEN KLINE, VICE PRESIDENT, ENVIRONMENT AND 
     FEDERAL AFFAIRS, PACIFIC GAS AND ELECTRIC CORPORATION

    Mr. Kline. Thank you, Chairman Markey, Ranking Member 
Sensenbrenner and members of the Select Committee. I am honored 
to be here on behalf of PG&E Corporation to share our 
experience and perspective on the role of energy efficiency 
policies and climate legislation.
    When we look at the options for addressing climate change, 
it is clear to us that energy efficiency has to be a front-line 
response. The potential greenhouse gas reductions from energy 
efficiency are substantial. The technology is in almost all 
cases available today, and the investments are highly cost-
effective, especially relative to supply-side options. In 
addition, customers like it. The highest marks we get from our 
customers are relative to our interactions with them around 
energy efficiency programs and procedures. In fact, 
aggressively pursuing energy efficiency could increase overall 
economic productivity.
    I am not going to go into details on the McKinsey study, 
which others have mentioned, that are in my written testimony, 
but move to a few comments on the strategic levers that we 
found in California which may be hopefully helpful. One is that 
using financial and regulatory mechanisms to align energy 
efficiency with utility business interest is critical. This 
includes eliminating the traditional link between earnings in 
energy sales, and it removes the disincentive to promote energy 
efficiency.
    By also establishing multiyear program periods with 
aggressive goals, combined with the financial incentives for 
achieving energy efficiency savings, regulators can drive 
utilities to aggressively pursue savings and partnership with 
their customers.
    Another important strategic lever is establishing building 
codes and appliance standards. These provide the foundation for 
all other energy efficiency efforts and serve as a catalyst for 
new technologies, programs and practices.
    Another strategy is providing incentives and reforming tax 
policies to facilitate deployment of new highly efficient, 
smart technologies in distributed generation. The utility 
industry is poised to make approximately $900 billion in 
transmission and distribution infrastructure investments over 
the next 20 years. We should look to ensure that these 
investments are channeled to help build the good of the future, 
one that is itself efficient, and that also facilitates utility 
customers being more efficient.
    Comprehensive climate change legislation can also use 
allowance allocation and auction revenues to advance energy 
efficiency and dismantle market and regulatory barriers. For 
example, the Lieberman-Warner bill uses allowances and auction 
revenues in this manner. The bill includes numerous incentives 
for States, utilities, manufacturers and consumers to 
aggressively pursue energy efficiency. Examples include 
targeting of auction revenues to buy down costs of new 
efficient end use technologies, and providing allowances to 
serve load-serving entities for the amount of electricity their 
customers save.
    The bottom line is that energy efficiency is the deepest 
untapped reservoir of cost savings, avoided air emissions and 
greenhouse gas reductions available in our Nation today. Any 
prudent climate strategy must look to fully harvest this 
resource as quickly as possible.
    Thank you again for the opportunity to be here today.
    The Chairman. Thank you, Mr. Kline, very much.
    [The statement of Mr. Kline follows:]

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    The Chairman. And our final witness is Mr. Richard Cowart, 
who is the director of the Regulatory Assistance Project, which 
is a nonprofit organization that provides research analysis and 
educational assistance to public officials on public electric 
utility regulation.
    We welcome you, Mr. Cowart. Please go ahead.

  STATEMENT OF ROBERT COWART, DIRECTOR, REGULATORY ASSISTANCE 
                            PROJECT

    Mr. Cowart. Thank you. Chairman Markey, I appreciate the 
opportunity to speak with you today about the critical role 
that end use energy efficiency can play to reduce greenhouse 
gas emissions, contain the cost of climate legislation and to 
protect the environment.
    The most important message I can deliver today is that 
national climate legislation absolutely must be designed to 
call forth to the greatest degree possible low-cost end use 
efficiency investments, a message you have heard now from, I 
think, all of us today. The good news is that this actually can 
be done. The challenging news is that most climate legislation, 
including most cap-and-trade legislation, is badly designed to 
deliver efficiency.
    We have seen great attention to delivering price signals 
and on supply-side investments, but much less attention to cost 
containment through efficiency. So one of the key questions 
facing Congress is going to be, how can cap-and-trade systems 
be designed to accelerate investments in energy efficiency?
    My written testimony addresses four points which I will 
touch on here. First, echoing the comments of the other 
panelists, energy efficiency is the low-cost equivalent of the 
carbon scrubber for the electric power sector and the most 
important resource we need to look to as the bridge fuel to a 
low-carbon power sector in the coming decades.
    Secondly, the cap-and-trade architecture used in the Acid 
Rain program and copied in other systems like the European 
carbon trading system, is frankly not optimal for carbon 
management. It focuses on smokestacks, and by awarding carbon 
allowances to emitters on the basis of historic pollution, they 
cost consumers more than they should, and they miss crucial 
opportunities to enhance end use efficiency.
    I work with air regulators quite a lot, and I often ask 
them what did the Acid Rain program do to advance energy 
efficiency? And most of the time they just sort of look at me 
quizzically. And then they say, well, it didn't do anything for 
energy efficiency. Cap and trade wasn't designed to deliver 
energy efficiency in customer locations. It was designed to 
change behavior at power plants.
    But energy efficiency happens at customer locations. So if 
we are going to use cap and trade for carbon, we are going to 
have to change the architecture of cap and trade to do a much 
better job for efficiency.
    My third point is about prices, sure a timely topic in 
today's economy. And as the others have said, efficiency is the 
best cost-containment strategy we can think of as part of cap 
and trade. Now, adding a carbon price signal to the price of 
electricity is directionally correct, but trying to reduce 
emissions through price alone is going to be much more costly, 
and it will actually save less carbon than a cap-and-trade 
program that builds efficiency through its architecture and 
relies less on price pressure. This is a point that is often 
overlooked by regulatory economists, but I can tell you, Mr. 
Chairman, that it has not been overlooked by the Governors and 
legislators in the 10 RGGI States that actually studied the 
issue and tried to design a cap-and-trade program.
    People are often surprised to learn how hard it is to 
reduce power-sector carbon through price signals, whether 
delivered through carbon taxes or through auctions. At the 
consumer level demand, as we know, is highly inelastic, and 
higher power prices alone are not going to reduce demand enough 
to meet our carbon goals.
    We have the same problem for different reasons at the 
generator level. It requires a very high carbon price to make a 
meaningful change in greenhouse gas emissions through the 
redispatch of the existing U.S. generation fleet. This is true 
in coal regions and in gas regions. An EPRI study in the Upper 
Midwest found that carbon prices would be high enough to double 
the wholesale price of power. It would lower emission by only 4 
percent. Studies in California right now are finding that even 
at $90 a ton, carbon prices cause very little change in 
California's dispatch.
    Fortunately there is a way out of this high-cost approach. 
A crucial design, a crucial fact is that the same dollar cost 
in rates, efficiency programs will save five to seven times 
more carbon than would result from carbon taxes or credit 
markets alone. We need to integrate that kind of thinking into 
the design of cap-and-trade programs.
    How can we do this? Two suggestions. The experience of the 
RGGI States provides a great lesson for us. After studying this 
issue extensively, the RGGI States realized that the best 
results for consumers and the environment would be to auction 
allowances and invest the money in energy efficiency.
    The Chairman. If you could summarize, please.
    Mr. Cowart. I have one sentence.
    Congress has the opportunity to build on this experience 
through a national performance-based efficiency allocation in 
which a significant fraction of national allowances would be 
awarded to States or entities appointed by States on the basis 
of their performance over time in reducing emissions from their 
own historic baselines.
    Thank you very much.
    The Chairman. I thank you.
    [The statement of Mr. Cowart follows:]

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    The Chairman. Again, I apologize to you.
    While you were testifying, three more votes were called out 
on the House floor, and while we were out there on the floor 
for those last series of votes, Senator Obama came out on to 
the House floor, which created a little bit of a delay in the 
operation of the House floor. Again, I apologize to you.
    I have time for one question right now, and then we will 
have to recess and come back again. Logistically this is going 
to be a very difficult day. That is all I can tell you.
    I will tell you what I have to do. I think it is better 
right now if we take another recess, and we will reconvene as 
soon as these roll calls have been called.
    [Recess.]
    The Chairman. Well, the hearing is reconvened. And again, I 
apologize to our witnesses. And hopefully we will get a little 
bit of a break right now.
    Let me ask of all of our witnesses, if Congress were to use 
emission allowances or auction revenues under a cap auction and 
trade program to promote efficiency measures, would it be 
better to channel allowances or funds through the States or 
directly to the utilities? Mr. Sakellaris.
    Mr. Sakellaris. As I indicated in my testimony, I thought 
that it might be best for the Federal Government to set up a 
program and administer the distribution of those funds. But if 
I were to choose, though, between the States or the utilities, 
I would probably go with a State route.
    The Chairman. With the States. Mr. Cowart.
    Mr. Cowart. As I said in my statement, I think there should 
be a large performance-based allocation to States. And the 
method of distribution has to be carefully managed, frankly, 
because we really do want to see the funds spent on investments 
in energy efficiency.
    The Chairman. States or utilities?
    Mr. Cowart. I am saying States or load-serving entities or 
other consumer trustees appointed by States.
    The Chairman. Okay. Mr. Kline.
    Mr. Kline. I would say load-serving entities under the 
direction and supervision of the State bodies.
    The Chairman. Ms. Grueneich.
    Ms. Grueneich. I would say either the State or the 
utilities load-serving entities under the supervision of the 
State.
    The Chairman. Mr. DeCotis.
    Mr. DeCotis. Yes. I would recommend that the funding be 
provided directly to the States to ensure proper oversight, and 
they can use their discretion to appropriate portions of the 
funding to the utilities.
    The Chairman. What is the risk that allowances or funds 
sent to the States for efficiency measures would get tied up in 
the State appropriations process? Mr. Cowart.
    Mr. Cowart. I think there is a great risk. I say this as a 
former State official. And that is the reason why I think 
crafting this carefully is important, number one. Number two, I 
believe the allocation should be performance-based so that the 
States are confronted constantly with the reality that if they 
siphon the money off for other purposes, then next year's 
allocation is going to be affected.
    The Chairman. Mr. Sakellaris.
    Mr. Sakellaris. I like that idea, if it is performance-
based, then they have an incentive to make sure that the money 
goes directly to the three projects.
    The Chairman. And in that way, the appropriations process 
and the State legislature can't control it?
    Mr. Sakellaris. That is why the Federal Government somehow 
has to be involved in order to make sure that they do not get 
involved, yes.
    The Chairman. I see. Mr. Kline.
    Mr. Kline. I think I would favor the Public Service 
Commissions or Public Utilities Commissions, simply because I 
think they are one step removed from the budget discussions 
that occur at State levels.
    The Chairman. Ms. Grueneich.
    Ms. Grueneich. We certainly would be happy to accept the 
money. I would say--I would require at least two prerequisites 
for the State, whoever it is, or the utilities to get the 
money. The first is that the State itself on some level--and it 
could be decided who it is, whether it is Public Service 
Commission or the State Energy Office or the Governor--but that 
there is an actual plan that the State has not just for 
spending the money that year, but a longer-term strategic plan 
on where they are moving with energy efficiency.
    And then the second requirement that I would have is that 
there is some program with some confidence for measuring and 
verifying that you are actually getting the savings in energy 
efficiency. I am a State. We love to get money. But if we are 
really going to get energy efficiency, we want it to be 
successful, and I think those two are required.
    The Chairman. Mr. DeCotis.
    Mr. DeCotis. I would agree with both of those conditions, 
and add further that I think that the risk of misappropriating 
the funds is less now than it might have been in the past. And 
I think that is because the ground swell support for efficiency 
and for investments in clean energy technology is at a 
precipice that it has never been at before, and I think the 
public would just not allow it.
    The Chairman. That is absolutely not accurate. All the 
tobacco awards that went to the States, the States just use it 
as a big piggy-bank and they essentially wind up not actually 
spending the money on prevention, which it is supposed to, 
targeting children so that they don't get into it.
    Now, who doesn't want to stop children from smoking? 
Everybody. The public would demand it, except all this money 
gets looted so it gets drained down to a shadow of what it is. 
And that would be one of the concerns that is obviously, 
analogously, with energy efficiency renewables, et cetera. You 
have to be realistic in terms of the safeguards you put into 
place. And I would say that in both instances it is kind of 
dealing with prevention, you know, it is something that--there 
is no trophy on the wall. It is stuff that never happens 
because you were smart, you know, kid doesn't smoke, energy is 
not consumed. It is hard to build a big groundswell around it, 
as you can tell from the size of the audience at this hearing.
    So if this was on the future of nuclear power, which is 
only going to be 1/1,000 role of this, the room would be packed 
and people would be hanging from the chandeliers. So 
politically, realistically, you know, we just have to deal with 
that.
    So let me now turn and recognize the gentleman from 
California, Mr. McNerney, for a round of questions.
    Mr. McNerney. Thank you, Mr. Chairman. First of all, I want 
to say, prior to what I ask questions on, since I missed the 
testimony, I hope I don't ask questions that have already been 
answered. And if I do, please show a little patience.
    My underlying question here is, how quickly can we scale 
back fossil fuel consumption and CO2 emissions with 
efficiency measures? One of the ways to measure that would be 
if we could offset the rising costs of energy by implementing 
efficiency standards or implementing efficiency measures in our 
State. And I would like to know if anyone thinks that that is 
possible, starting with Ms. Grueneich from my home State of 
California.
    Ms. Grueneich. It is possible. The great thing about energy 
efficiency is we have the technologies, we have the knowledge. 
This is not an R&D program that we are going to get the results 
5, 10 years from now. I just returned from a trip to China last 
month on energy efficiency. And China is very interested in 
energy efficiency, and they are ramping up very quickly at the 
provincial level to do it. It is a matter of thinking it 
through, making sure that you have got, you know, it set up in 
a way that you are delivering it. But energy efficiency, once I 
believe there is the policy, the leadership, and the funding, 
you can get programs ramped up very quickly.
    Mr. McNerney. Anyone else care to take a stab? Mr. 
Sakellaris?
    Mr. Sakellaris. Based on the experience that we have, I 
think you can do about 1 on the low end side to 2 percent of 
the annual consumption. Right now I would say in the United 
States, we are probably reducing the demand by maybe a quarter 
to a half a percentage point. So if we get a little bit serious 
about this and get the Federal and the State governments behind 
it with taking some of the money back to the consumer, I think 
we can get up to 1 to 2 percent of annual consumption. That is 
why in my testimony I have said that we establish a target of 
1.6 percent per year.
    Mr. McNerney. Per year.
    Mr. Sakellaris. By year 2020, we will be at 20 percent 
reduction of the energy consumed in the United States.
    Mr. McNerney. And that is the entire spectrum of energy 
consumed.
    Mr. Sakellaris. Correct. And there will be some cases--for 
example, if you take some of the housing infrastructure, et 
cetera, that you will save as much as 30 percent. But there are 
some other sectors that you will save only 10 percent. But the 
aggregate, based on the experience we have, you can achieve 1 
to 2 percent annual reduction of the energy consumption.
    Mr. McNerney. So where do you see the sort of low-hanging 
fruit? Is that with utility production of energy or 
automobiles? Where do you see the easiest----
    Mr. Sakellaris. I think it is with the end users. The 
residential sector has tremendous, tremendous potential for 
energy savings where you can reduce the consumption by 30 to 40 
percent.
    Mr. McNerney. But that is going to require subsidies or 
some sort of government intervention, isn't it?
    Mr. Sakellaris. Not that many. You buy back the projects 
from a 7-year project down to a simple 5-year payback. In the 
industrial sector, tremendous potential for energy savings, as 
much as 30-percent. And then you have the commercial, the 
industrial, the institutional sector. The Federal Government, 
for example, tremendous potential. In each and every facility 
we go, we save 30 to 40 percent. If I take 1 minute, we were in 
Elmendorf Air Force Base. We invested in a $50 million project 
and we did a complete energy savings retrofit. We estimated we 
will save them 30 percent. The project is up and running for 
the last 3 years, and we have saved them over 40 percent of the 
energy savings. So there is tremendous potential on the 
institutional sector for energy savings. So it can happen.
    Mr. McNerney. Well, one of the things that I have been 
hearing and I understand to be true, is that the buildings 
produce more than 50 percent of our Nation's greenhouse gases. 
Where is the majority of that energy coming from? Is that to 
heat and HVAC, or is it building materials or where does that 
energy go?
    Mr. Sakellaris. A substantial amount in on the heating, 
ventilating and air conditioning. But even though, if you took 
the light and retrofit alone in the United States, if you go 
from the incandescents to florescents, they say it is as much 
as $10 to $15 billion investment a year. And that is less than 
a simple 1-year payback. So just that conservation measured 
alone----
    Mr. McNerney. So that is going to take a substantial--I 
mean, realistically to get building owners, including 
homeowners, to get invested in this, they are going to have to 
have some incentive.
    Mr. Sakellaris. That is correct. And that is why we say 
some of this money goes back into the States or whichever 
administrative body has control, and simply buy back the 
paybacks.
    Mr. McNerney. Yes, Mr. Kline.
    Mr. Kline. Congressman, that is the way we structure 
programs in California where basically the utility designs 
programs. We have about 85 separate programs that are designed 
to do exactly what you described, to pay down the cost of some 
of these investments, facilitate a faster payback and to get 
over some first-time hurdles.
    For example, a lot of commercial buildings are built by 
people who are just going to flip them and not own them or who 
won't pay the HVAC costs because those are charged to the 
tenants. So tying to get--as those buildings are built, get 
them built to high standards of energy efficiency means that 
you know you are going to have a higher comfort level and you 
are also going to have a much cheaper, better building.
    Mr. McNerney. Do you see any opportunity with leads to 
create a tax incentive for building efficiency? Mr. DeCotis?
    Mr. DeCotis. Yes. We have a tax incentive in New York for 
lead-certified buildings. And it has been very effective. I 
would like to add also that I would concur that I think 
electric and gas efficiency programs could save on the order of 
at least a half to 1 \1/2\ percent per year. I also believe--I 
believe this is the experience in California, and I know it is 
in New York because we have been offering efficiency programs 
for nearly 3 decades now. There is an industry that has been 
developed that is poised and ready and waiting to take on a 
competitive market for energy efficiency. And it is really 
quite a robust market. It is disparate in different States, but 
I have seen the industry grown from infancy to what it is 
today. And it is quite a robust market.
    Mr. McNerney. Am I imposing on my time, Mr. Chairman?
    The Chairman. I wouldn't use the word ``imposing.'' You 
have exceeded your time. With the brilliance of your questions, 
I would not allow the word ``imposition'' to be used.
    But if you don't mind, perhaps your time could expire right 
now. I will ask some questions.
    Mr. McNerney. I will yield.
    The Chairman. And come right back to you again.
    Mr. McNerney. Great.
    The Chairman. And by the way, the gentleman from California 
actually founded a renewables company out in California. So he 
has got some background in it as well.
    Let me go to you quickly, Mr. Sakellaris. You said that we 
consume in the United States the equivalent of 47 million 
barrels of oil a day; is that correct?
    Mr. Sakellaris. That is correct.
    The Chairman. So 21 million barrels of the 47 million is 
oil.
    Mr. Sakellaris. That is correct.
    The Chairman. Approximately 10 million would be coal, about 
10 million would be natural gas. Is that basically in the 
ballpark?
    Mr. Sakellaris. Correct.
    The Chairman. So that is about 41 million of the 47 
million. And then the remainder in equivalence of oil would be 
nuclear power----
    Mr. Sakellaris. It is others.
    The Chairman. Hydropower, solar, whatever, the smaller 
sources; is that correct?
    Mr. Sakellaris. That is correct.
    The Chairman. So as you are breaking down the 47 million, 
including where it goes in the transportation sector, the 
building sector, you know, commercial, industrial and home, 
where do you see the biggest potential gains? That is, out of 
the 47 million barrels of oil equivalent, which one of those 
categories is where the biggest gains can be reached and which 
is the smallest?
    Mr. Sakellaris. I think the fastest one, it will be the 
residential sector followed by the industrial sector.
    The Chairman. Okay. And what can happen in the residential 
sector?
    Mr. Sakellaris. Changing out the lightbulbs, changing out 
the heating ventilating, air conditioning.
    The Chairman. Of the 47 million barrels of oil equivalent, 
how much of that is in the residential sector?
    Mr. Sakellaris. It is about 20 percent.
    The Chairman. So about--you are saying about 11 million? 
Well, no, about 10 million.
    Mr. Sakellaris. About 10.
    The Chairman. About 10 million. And in that sector of 10 
million in the residential sector, you think that you can 
reduce it down to 8 million?
    Mr. Sakellaris. That is correct. And probably--actually, I 
think it is a little bit higher. It is somewhere between 20 to 
30 percent of the residential sector.
    The Chairman. So you think 2 to 3 million you think could 
be----
    Mr. Sakellaris. I would say so.
    The Chairman. And you said the total reduction could be 9 
million that could be reached. So let's go to the next sector. 
In the industrial sector, how many millions of barrels of oil?
    Mr. Sakellaris. Over 30 percent. Somewhere between 30 and 
40 percent.
    The Chairman. So another 2 to 3 million barrels a day?
    Mr. Sakellaris. Uh-huh.
    The Chairman. How about in the transportation sector?
    Mr. Sakellaris. That is one of the soft numbers that we 
have in our analysis.
    The Chairman. You say it is one of the soft numbers?
    Mr. Sakellaris. Soft numbers, because how much mileage 
improvement we can get per car and so on?
    The Chairman. Okay. So when my amendment was adopted and 
signed into law by the President----
    Mr. Sakellaris. And that is the one, by the way, that we 
used to estimate what potential would come from that sector.
    The Chairman. Your company used my amendment and its 
results in your company's analysis?
    Mr. Sakellaris. We used some of----
    The Chairman. What a great honor for me. Thank you. Thank 
you.
    So when you factor in that by law now, the fuel economy 
standards have to go from 25 to 35 miles per gallon, how many 
barrels of oil does that save per day, do you----
    Mr. Sakellaris. I don't recall right now the exact number.
    The Chairman. The answer is 2 million. You can build that 
into your report. And you are saying--and the remaining couple 
of million barrels comes from everything else that we do in 
society, to get it up to 9 million?
    Mr. Sakellaris. The rest of it is Federal Government 
buildings and some of the other institutional markets.
    The Chairman. I see. Let me ask this:
    We bring in all the good students. So you are all sitting 
down here. And we are all giving you gold stars today for the 
excellent work, which you are already doing. And we are trying 
to hold you up as an example to all of the States and all of 
the utilities, other companies that aren't quite meeting the 
same standards that you are right now, huh?
    And so the first question is--well, I guess the most 
important question is, we really don't have to give you any 
more incentives. They are like the kids at Brown University 
that they don't even give exams to. You are just doing it. But 
a lot of people need exams just so they can do the work, they 
can study, they buy the textbook like 2 days before the exam. 
But at least they know there is an exam coming up.
    So there are many States, many utilities, that really 
aren't doing any of this in a significant way. So what do we 
have to do in order to get other States to adopt the policies 
that are existing in the States that we see here? What do we 
have to do about 
decoupling? What do we have to do--how do we create this 
dynamic whereby these other States and other utilities adopt 
the policies in New York, in Massachusetts, in California? We 
will begin with you, Mr. Cowart.
    Mr. Cowart. Well, I will just emphasize what I said in my 
opening testimony. I will make two points. The first is that if 
carbon legislation, climate change legislation enacted by 
Congress is going to--has the potential to cause significant 
price increases that we hope we can avoid by better design, 
that is the first part of the answer. So even----
    The Chairman. What I am saying to you is, a lot of utility 
executives already know that, but they are still not doing it. 
So what do we do to them? Just get down to the answer. We know 
the problem. What do we have to do?
    Mr. Cowart. Well, I think we have to create a performance-
based allocation of a significant fraction of carbon credits 
that would be available to every State and would be available 
to States in proportion to the degree to which they meet their 
own State's baseline. So Indiana isn't competing with 
California. Indiana, in order to earn allowances under a 
performance-based system, has to beat Indiana's past 
performance.
    The Chairman. Okay. Mr. Sakellaris.
    Mr. Sakellaris. Part of that might be the carrot and the 
stick-type of an approach, you know, if we have all this 
allowance money, how we send it back to the State, provided 
that they are doing something in energy efficiency. But if we 
press progressive commissions around the country, like 
California or New York or the State of Massachusetts, for 
example, that they promote energy efficiency projects, and then 
maybe take it down to the level with the utilities where we 
have incentives in the rate-based making and how will they earn 
back their--let's say the allowable rate of return is 8 
percent. If they do energy efficiency projects, they get, say, 
9 percent of an incentive rate of return. But if they don't, 
they get maybe 7 percent. But they have some kind of incentive 
on the rate making.
    The Chairman. Okay. Mr. Kline.
    Mr. Kline. I agree with that. I think decoupling is 
critical--mandate, or bribe States to do it. Because if you 
don't accomplish that, then fundamentally you are not going to 
change the mindset of utilities. It is the first step, and then 
the second step, as my colleague has just stated, is to build 
in incentives in a performance based way that will encourage 
and create metrics that will allow you to judge whether it is 
happening.
    The Chairman. So here we are, we are in California and New 
York, Massachusetts. People do it because they say, hey, we are 
going to make money. And then you are using the phrase bribe. I 
mean, it is in parenthesis for anyone that is watching. They 
don't really mean it. They are just talking about what kind of 
incentives do we have to give to a State for them to figure out 
that it is in their interest anyway to move in this direction? 
So why do we have to do that?
    Can you explain that, Mr. Kline, so we can just get your 
perception of what is it about these other States that don't 
move in this direction, that we have to figure out a way, 
quote-unquote, to bribe them to do what is in their best 
interest?
    Mr. Kline. I apologize for that poor choice of words.
    The Chairman. That is okay. I have already explained it to 
the listening public that you don't mean it.
    Mr. Kline. If you think about a mindset of an industry that 
for over 100 years has made money by selling more, and all of a 
sudden you are coming to them and saying, we are going to flip 
this on its head----
    The Chairman. I know what you are saying, Mr. Kline. But it 
is not 1968 anymore. It is 2008, you know? And why don't 
these--you know, California started in the seventies, 
Massachusetts, New York, Minnesota other States have already 
moved. What is holding these people back? Is it just the power 
of these local utilities and they don't want a change at all? 
Because they must obviously know that this is working for you. 
Why don't they move in that direction?
    Mr. Kline. I think, honestly, because many of them make a 
lot more money selling more.
    The Chairman. Okay. But couldn't they make just as much 
money by selling less?
    Mr. Kline. Potentially.
    The Chairman. Potentially.
    Mr. Kline. But not in the short term, probably.
    The Chairman. Okay. Ms. Grueneich.
    Ms. Grueneich. Let me just quickly--what you have just 
said. I was just at a National Governors Association meeting in 
Kansas City this week, talking with a number of utility 
executives. And, you know, they know if they can still--if it 
is still legal in the United States or in their State to build 
a conventional coal plant, and they can put it in the rate 
base, they will make a profit. And there are great 
uncertainties still. So they know they can get that coal plant 
in, they can make a profit. They know how to build coal plants. 
There is still great unfamiliarity with how to run energy 
efficiency programs on the scale of an equivalent of a power 
plant.
    The Chairman. So in telecom law, everything just kept going 
along, never changed. And then we put price caps in. And all of 
a sudden, huh, you a saw a huge change in utilities across the 
country. They realized they had to start modernizing, right?
    Ms. Grueneich. Yes.
    The Chairman. So that is the equivalent here with 
decoupling. You have to find a way here of just changing the 
mindset legally so that they are forced in the same way price 
caps did it in--and so even a cap-and-trade system here is kind 
of the equivalent of the--once you set the cap, then all of a 
sudden new thinking has to occur.
    Ms. Grueneich. And I think the challenge is, is that there 
isn't going to be one item that Congress can do in terms of 
here is one line in the bill that is going to get energy 
efficiency at the level we need to have it. If we are going to 
deal with it, it is going to be a series of fairly complex 
different things to think through.
    I mean, I would say in addition to everything else I have 
heard, a statement in whether it is another law on energy or in 
the climate change that literally does say energy efficiency is 
the number one top priority policy, or among them, that we are 
going to pursue in that sort of clear statement.
    The Chairman. My time has expired. Let me turn back to Mr. 
McNerney and recognize him again.
    Mr. McNerney. Thank you, Mr. Chairman. And I feel like I 
neglected in my manners to thank the panel for coming, 
especially Mr. Kline from PG&E, which is my home district. In 
my home I use PG&E power and gas. So thank you for coming, all 
the Members, and for Commissioner Grueneich for coming today.
    One of the things that excites me the most about global 
warming is the opportunity for us to create jobs and prosperity 
in our own country if we follow a sensible path. And Ms. 
Grueneich mentioned that I think in China--I think you were the 
one who mentioned it--you were there, and they are very excited 
about energy efficiency. Where do you think we are with regard 
to technology that we could export to China or other countries 
of the world, creating jobs here in this country vis-a-vis 
where they would be able to create industries that would take 
those jobs away from us? Mr. Sakellaris, could you take a stab 
at that?
    Mr. Sakellaris. We have the intellectual capital in order 
to help them substantially. As a matter of fact, our company, 
we get at least once a month an invitation to a partnership 
with some Chinese company. They are looking for--I think we 
can--especially with the product where we finance the projects, 
because that is one of the products that we have where we 
finance the particular energy savings project, and then we 
guarantee that the savings will be there. And they are looking 
for help to see how we can do this project.
    So we could create some jobs in the United States by 
promoting energy efficiency. Because in China when a per 
capita--on per unit of economic output, they use more than 
twice the energy that we are using. So the potential for them 
for energy efficiency is substantially more than us.
    Mr. McNerney. Yes, Mr. Cowart.
    Mr. Cowart. Well just speaking to the jobs question, I 
think there are an enormous number of jobs to be had by 
accelerating energy efficiency in the United States. Most of 
them will be jobs deploying energy efficiency in the United 
States as opposed to producing products that we will ship to 
the rest of the world. I just didn't want to overlook the fact 
that this is a very big potential area of job growth economy-
wide, to implement all the measures that my colleagues here 
have been talking about.
    Mr. McNerney. Well, the hope is that we have technology we 
can ship overseas that would help them make their buildings 
more efficient or--but especially what I want to avoid is 
having them do the reverse to us.
    Mr. Cowart. Of course.
    Mr. McNerney. So we must have manufacturers or technology 
that is on this edge.
    Mr. Sakellaris. We do have technology. But implementing 
energy efficiency in the United States for what we are talking 
about, the numbers earlier, will create between 3 to 5 million 
jobs per year anyway here, because most of those jobs, over 50 
percent, it is labor. You need the electricians, you need 
mechanical contractors and so on besides the engineers and 
construction managers and the financiers. So the jobs will be 
created here.
    Ms. Grueneich. Let me give you--again, I am going to--we 
can boast together about California, that some of the most 
exciting innovations in technology on energy efficiency, 
frankly, are happening in California.
    I had the opportunity to do a tour of Silicon Valley about 
6 weeks ago. And there is a company that is starting up making, 
for example, zero net-energy cement. They took the brightest of 
the brains and said, Here is what we are going to do. Here are 
the parameters. We want to have a product that has as close to 
zero net carbon emissions as possible. We want to have a 
product that performs as well or better in terms of quality. We 
want to have a product that, right out of the box, it is as 
cheap as what is the existing product on the market. And we 
want to have it scalable because we know we need to be using it 
throughout the world. They have been able to literally now 
develop a process that is close to zero net energy production 
for cement.
    Another company is working on drywall that you put in the 
buildings. So we are really seeing--and these are also setting 
up some factories in California to produce the products. So I 
think it is another example of--we can be creating the jobs, 
and we can be creating the industry. And we in the United 
States have the opportunity to be the world leaders in doing 
this.
    Mr. McNerney. All right.
    Mr. DeCotis. Can I add to that briefly?
    Mr. McNerney. Sure.
    Mr. DeCotis. We have a green collar workforce training 
program in New York that is fairly well-funded in partnership 
with the colleges and universities in New York to train the 
next generation of worker in green energy technology and 
efficiency----
    Mr. McNerney. Is that focused on community colleges?
    Mr. DeCotis. Yes it is. It is. And it is growing in its 
recognition and its certification of employees. And we coupled 
that with a research and development program that New York runs 
which is developing and working with industry in New York to 
create that technology that they are then trained on. And as 
the technology is developed and we have workforce training and 
certification, we then deploy those technologies through our 
energy efficiency programs with exactly the point in mind that 
you made: That we need to be the State or we need to be the 
country that exports the technology. We don't want to be 
importing it.
    Mr. McNerney. Mr. Chairman, I have one more question. But I 
will defer to you at this point.
    The Chairman. And I am going to in turn defer back to you 
so you can ask your question.
    Mr. McNerney. Okay. This one is for Mr. Kline. I have 
noticed with PG&E that the company is fairly receptive to 
energy efficiency measures which will reduce the need to put in 
new power plants. And I think that is basically the business 
model, if you can avoid putting in new power plants, you are 
going to make more money in a sense. So how effective a message 
is that to other utilities to get them onboard with that? I 
mean it seems like ultimately if you give up all the power the 
energy supply needs, that you are going to be a distribution 
company and a transmission company rather than a generation 
company. Is that----
    Mr. Kline. I think you described the model correctly. With 
the addition that if we can avoid transmission, there is a 
financial benefit to customers there also. I think that there 
is a set of companies in the Edison Institute, which is the 
trade organization for the electric utility industry, has 
created a new Institute for Energy Efficiencies. So I think 
there is increasing interest in wanting to know more. I think 
that one of the issues you identified is that if companies 
extrapolate, and it means that they never build generation, 
then they don't want to shrink necessarily. So there needs to 
be a mechanism to assure that that doesn't happen. And part of 
it may be simply that there is enough customer growth and 
distribution, smart-grid kinds of additions to rate base that 
make that not a problem.
    Mr. McNerney. Is there a concern about competitiveness? If 
you continue this business model with neighboring utilities, it 
might offer communities an alternative to your business?
    Mr. Kline. I think it has been an issue in some cases where 
we compete for customers with irrigation districts, for 
example, who aren't under the same requirements and don't 
provide the same services. But on the whole, I would say it is 
not a big problem.
    Mr. McNerney. Thank you. With that, I yield back.
    The Chairman. I thank the gentleman. And the gentleman's 
time has expired.
    What I am going to do right now is ask each one of you to 
give us the 1 minute, 1 minute that you want to be on the 
record for eternity as we look back in history and they come to 
this hearing and they say, there, it was there in that 1 minute 
that those five people in their 1 minute summarized all you 
needed to know about the future, about energy efficiency, about 
economic growth, about saving the planet from catastrophic 
climate change. And they, they in their 1 minutes, explained 
how we can do it.
    And we are going to go in reverse order. And you, Mr. 
Cowart, will have the first opportunity to give us your 1 
minute on that.
    Mr. Cowart. All right. Well, thanks for the opportunity. 
And thank you for hosting this hearing.
    Energy efficiency is the low-cost carbon scrubber and it is 
going to be the essential cornerstone of our Nation's climate 
strategy. It must be. And the Congress has to think about the 
ways to build energy efficiency attainment into any carbon 
program, including a cap-and-trade program, that Congress 
enacts. And that requires thinking creatively about what it 
takes to motivate the delivery of energy efficiency, which is 
different from the architecture that we have historically used 
for carbon cap-and-trade.
    The Chairman. Thank you. Mr. Sakellaris.
    Mr. Sakellaris. I will be very specific; 20 percent 
savings, 3.4 billion barrels of oil savings per year. 
Corresponding, 1.2 billion metric tons a year of emissions 
reductions, creation of 3 to 5 million jobs per year, and we 
need the trade allowances to be auctioned. Thank you.
    The Chairman. Thank you. Mr. Kline.
    Mr. Kline. I would start by referring folks to the supply 
curve that the McKinsey Global Institute put together for 
greenhouse gas abatement in the U.S. I think it is very 
instructive about what we can do today, what we can do at--in 
many cases, negative cost. To the extent that the Federal 
Government can start by putting building standards in place, 
minimum standards that States can rise above, I think that 
would be an amazing start because we continue to be building 
buildings that, for the life of the facility, are going to be 
drags on our efficiency and are much more expensive to 
retrofit.
    The Chairman. Ms. Grueneich.
    Ms. Grueneich. Two things. First the two-to-one rule. For 
every $1 you invest in energy efficiency, you are saving $2. 
You accelerate that up. In California $1 billion a year in 
energy efficiency. That is $10 billion over 10 years. We are 
saving $10 billion. That is going into California's economy. It 
is not going overseas at all. It is growing our economy. That 
is the message I think that wins.
    Secondly, please act. Buildings are going up, appliances 
are being bought, and that just makes it more difficult to go 
back and fix things.
    The Chairman. Thank you. And Mr. DeCotis.
    Mr. DeCotis. Yes. Thank you. And I would echo that in terms 
of taking action. I think if anything came out of this session 
today, it is that there is a need for leadership at the Federal 
level to bring the States together toward clean energy policy. 
And I think it is important to create what we call in New York 
an energy efficiency ethic so when people make decisions, 
purchase decisions, we could change the way they think, we 
could change the way they live, we could change the way they 
work, and we change the way they play, while working within 
private markets to create a profit potential for clean energy 
technology.
    The Chairman. Thank you, Mr. DeCotis, very much. And we 
thank all of you for your testimony. Absolutely fascinating and 
central. This is the most exciting, least glamorous hearing 
that is going to be conducted in the Congress this year. But 
like many other nonglamorous subjects, herein lies the truth 
that will create the path to saving the planet and reducing 
dramatically the amount of energy.
    And again, we turn to California for the formula. You know, 
back in 1962 the Beach Boys and Surf City. They had a two-for-
one formula too. Which is at Surf City, there were two girls 
for every boy. And that to someone in a blue collar down in 
Malden, Massachusetts, that was a dream--California--that 
almost seemed too good to be true. And it turns out it was too 
good to be true. It never did exist there or anyplace else.
    However, here the new two-for-one rule coming out of 
California and Massachusetts and out of New York, for every 
dollar you invest in energy efficiency, you get back two 
additional dollars. Kind of a miracle, huh? No, not a miracle. 
Just how my mother used to say, my mother used to say, Eddy, 
always try to work smarter, not harder. She would say that 
immediately, immediately before she said, Eddy, I am donating 
your brain to Harvard Medical School as a completely unused 
human organ. And that was because I wasn't thinking smarter.
    Now we have many utilities and many States whose brains 
collectively should be donated to Harvard Medical School 
because this is obviously the way to go. It is proven. It is a 
money maker. And yet people still resist it. Why? Because it is 
not the way they have done business in the past. And so this is 
a tremendous opportunity for us. We saw in the 
telecommunications revolution from the 1996 Telecommunications 
Act where not one single home had broadband, not one home in 
America, 1996. But once we got that policy right on the 
national level, we move to a point where now 11 years later, 12 
years later, broadband is almost ubiquitous in its deployment. 
Companies like Amazon, Google, YouTube didn't even exist 3 
years ago, but are only possible because we got the policy 
right, revolutionizing these issues.
    And so that same kind of technological revolution is 
possible here in the energy sector as well. It is all there. As 
Mr. Kline said, the technologies are already there. They are 
ready to go. But we need the will and political policies put in 
place so that we unleash this revolution in a way that isn't 
just isolated to individual utilities, individual States; but 
that the United States is the leader, looking over its shoulder 
at number two and three and four and the world as we export 
these products, export these ideas all around the planet. And 
so that is what this hearing really represents to me. Because 
in a lot of ways, efficiency is the whole key to solving the 
problem of global warming, to reducing our energy dependence. 
And--and this is hard to believe--creating the new major 
economic driver in our whole society. The job creator. The way 
in which we kind of revolutionize the way in which we look at 
these issues.
    Now, it was hard for the telephone companies to change. You 
know, AT&T had 1.2 million employees. We all still had our 
black rotary dial phone. Why would you want to change? It is 
working out great. Each one of you is renting for $3 a month 
every single month for your whole life a black rotary 
telephone. That is a good business, and the utilities, you 
know, loved it. And the regulators let them get away with it.
    My mother paid $1,200 for renting it for 40 years, a black 
rotary dial phone. But no innovation, no new phones, no new 
devices, no Google, no Amazon, no YouTube. But yet you could 
always dial that phone, huh? Well, that is what we are still 
doing in energy, huh? That is what we are still doing. We are 
still relying on old ways of generating electricity.
    So who would have thought that in the old days when you got 
on the phone and somebody called from another State, you know, 
your grandmother was calling in, they would hand around the 
phone saying, you have got to talk fast, it is long distance. 
Because it was going to be so expensive, huh? And AT&T made so 
much money on the long distance call.
    Now you talk long distance like you are talking across the 
street because through new technology and new ways of looking 
at the issue, we have lowered the price dramatically. All that 
happened in one technological generation. We are going to be 
able to do the same thing here in energy efficiency. And it is 
going to become the new source--the major engine for economic 
growth in the United States in the next generation. Millions of 
jobs, economic growth, export opportunities for us.
    Your insights are valuable. We need to get you more allies 
in this fight. But I think ultimately the truth of your 
testimony will set the Congress free. And we will be able to 
pass the legislation before Copenhagen in December of 2009 that 
will make it possible for us to see this revolution in all of 
its full flower. We thank you for the leadership you have 
shown. This hearing is adjourned.
    [Whereupon, at 1:13 p.m., the committee was adjourned.]

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