[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
HEARING TO REVIEW H.R. 4785, THE RURAL ENERGY SAVINGS PROGRAM ACT
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HEARING
BEFORE THE
SUBCOMMITTEE ON CONSERVATION, CREDIT,
ENERGY, AND RESEARCH
OF THE
COMMITTEE ON AGRICULTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
__________
MAY 12, 2010
__________
Serial No. 111-50
Printed for the use of the Committee on Agriculture
agriculture.house.gov
?
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56-973 WASHINGTON : 2010
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COMMITTEE ON AGRICULTURE
COLLIN C. PETERSON, Minnesota, Chairman
TIM HOLDEN, Pennsylvania, FRANK D. LUCAS, Oklahoma, Ranking
Vice Chairman Minority Member
MIKE McINTYRE, North Carolina BOB GOODLATTE, Virginia
LEONARD L. BOSWELL, Iowa JERRY MORAN, Kansas
JOE BACA, California TIMOTHY V. JOHNSON, Illinois
DENNIS A. CARDOZA, California SAM GRAVES, Missouri
DAVID SCOTT, Georgia MIKE ROGERS, Alabama
JIM MARSHALL, Georgia STEVE KING, Iowa
STEPHANIE HERSETH SANDLIN, South RANDY NEUGEBAUER, Texas
Dakota K. MICHAEL CONAWAY, Texas
HENRY CUELLAR, Texas JEFF FORTENBERRY, Nebraska
JIM COSTA, California JEAN SCHMIDT, Ohio
BRAD ELLSWORTH, Indiana ADRIAN SMITH, Nebraska
TIMOTHY J. WALZ, Minnesota DAVID P. ROE, Tennessee
STEVE KAGEN, Wisconsin BLAINE LUETKEMEYER, Missouri
KURT SCHRADER, Oregon GLENN THOMPSON, Pennsylvania
DEBORAH L. HALVORSON, Illinois BILL CASSIDY, Louisiana
KATHLEEN A. DAHLKEMPER, CYNTHIA M. LUMMIS, Wyoming
Pennsylvania ------
BOBBY BRIGHT, Alabama
BETSY MARKEY, Colorado
FRANK KRATOVIL, Jr., Maryland
MARK H. SCHAUER, Michigan
LARRY KISSELL, North Carolina
JOHN A. BOCCIERI, Ohio
SCOTT MURPHY, New York
WILLIAM L. OWENS, New York
EARL POMEROY, North Dakota
TRAVIS W. CHILDERS, Mississippi
WALT MINNICK, Idaho
______
Professional Staff
Robert L. Larew, Chief of Staff
Andrew W. Baker, Chief Counsel
April Slayton, Communications Director
Nicole Scott, Minority Staff Director
(ii)
?
Subcommittee on Conservation, Credit, Energy, and Research
TIM HOLDEN, Pennsylvania, Chairman
STEPHANIE HERSETH SANDLIN, South BOB GOODLATTE, Virginia, Ranking
Dakota Minority Member
DEBORAH L. HALVORSON, Illinois JERRY MORAN, Kansas
KATHLEEN A. DAHLKEMPER, SAM GRAVES, Missouri
Pennsylvania MIKE ROGERS, Alabama
BETSY MARKEY, Colorado STEVE KING, Iowa
MARK H. SCHAUER, Michigan RANDY NEUGEBAUER, Texas
LARRY KISSELL, North Carolina JEAN SCHMIDT, Ohio
JOHN A. BOCCIERI, Ohio ADRIAN SMITH, Nebraska
MIKE McINTYRE, North Carolina BLAINE LUETKEMEYER, Missouri
JIM COSTA, California GLENN THOMPSON, Pennsylvania
BRAD ELLSWORTH, Indiana BILL CASSIDY, Louisiana
TIMOTHY J. WALZ, Minnesota ------
BOBBY BRIGHT, Alabama
FRANK KRATOVIL, Jr., Maryland
SCOTT MURPHY, New York
WALT MINNICK, Idaho
EARL POMEROY, North Dakota
----
Nona Darrell, Subcommittee Staff Director
(iii)
C O N T E N T S
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Page
Clyburn, Hon. James E., a Representative in Congress from South
Carolina....................................................... 4
Prepared statement........................................... 5
Goodlatte, Hon. Bob, a Representative in Congress from Virginia,
opening statement.............................................. 2
Holden, Hon. Tim, a Representative in Congress from Pennsylvania,
opening statement.............................................. 1
Prepared statement........................................... 2
Perriello, Hon. Thomas S.P., a Representative in Congress from
Virginia....................................................... 8
Peterson, Hon. Collin C., a Representative in Congress from
Minnesota, opening statement................................... 9
Prepared statement........................................... 3
Smith, Hon. Adrian, a Representative in Congress from Nebraska,
prepared statement............................................. 3
Whitfield, Hon. Ed, a Representative in Congress from Kentucky... 7
Witnesses
Elgohary, Nivin, Acting Assistant Administrator, Rural Utilities
Service, U.S. Department of Agriculture, Washington, D.C....... 10
Prepared statement........................................... 11
English, Hon. Glenn, CEO, National Rural Electric Cooperative
Association, Arlington, VA..................................... 25
Prepared statement........................................... 27
Adams, Charles, Chief Engineer and Director of Government
Affairs, A.O. Smith Corporation, Milwaukee, WI................. 31
Prepared statement........................................... 32
Supplementary material....................................... 60
Bates, Scott D., Corporate Vice President, General Counsel, and
Secretary, Rheem Manufacturing Company, Atlanta, GA............ 35
Prepared statement........................................... 36
Bony, Paul S., Director of Residential Market Development,
ClimateMaster, Oklahoma City, OK............................... 39
Prepared statement........................................... 41
Cowan, Jonathon, President, Third Way, Washington, D.C........... 42
Prepared statement........................................... 43
Submitted Material
National Association of REALTORS', submitted statement 58
Spratt, Jr., Hon. John M., a Representative in Congress from
South Carolina, submitted letter............................... 55
HEARING TO REVIEW H.R. 4785, THE RURAL ENERGY SAVINGS PROGRAM ACT
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WEDNESDAY, MAY 12, 2010
House of Representatives,
Subcommittee on Conservation, Credit, Energy, and
Research,
Committee on Agriculture,
Washington, D.C.
The Subcommittee met, pursuant to call, at 10:08 a.m., in
Room 1334 of the Longworth House Office Building, Hon. Tim
Holden [Chairman of the Subcommittee] presiding.
Members present: Representatives Holden, Herseth Sandlin,
Dahlkemper, Markey, Schauer, Kissell, Boccieri, Bright, Murphy,
Peterson (ex officio), Pomeroy, Minnick, Goodlatte, Moran,
Smith, Luetkemeyer, Thompson, Cassidy, and Roe.
Staff present: Claiborn Crain, Nona Darrell, Tony Jackson,
Clark Ogilvie, Anne Simmons, Debbie Smith, Rebekah Solem,
Patricia Barr, Josh Maxwell, and Sangina Wright.
OPENING STATEMENT OF HON. TIM HOLDEN, A REPRESENTATIVE IN
CONGRESS FROM PENNSYLVANIA
The Chairman. This hearing of the Subcommittee on
Conservation, Credit, Energy, and Research to review H.R. 4785,
the Rural Energy Savings Program Act will come to order. I
would like to welcome our witnesses and guests to today's
hearing to review H.R. 4785, the Rural Energy Savings Program.
This Subcommittee, and the House Agriculture Committee as a
whole, has worked to expand renewable and alternative sources
of power and discover new technologies to improve the
efficiency and sustainability of existing power generation
across rural America. I am encouraged by the efforts of
Congressman Clyburn, a long time friend of rural America, to
assist consumers in rural communities to further improve energy
efficiency and generate a significant number of new jobs.
Yesterday marked the 75th anniversary of the creation of
the Rural Electrification Administration. On May 5, 1935,
President Franklin D. Roosevelt signed an Executive Order to
create the REA and paved the way for electric cooperatives to
transform the way rural America works and lives. Today's rural
electric cooperatives are innovative leaders in improving our
nation's energy infrastructure. It is important that we use
every resource available to help encourage their work in
advancing energy efficiency and renewable energy technology. I
look forward to today's expert testimony and the opportunity to
listen, learn, and question those on the forefront of this
issue.
[The prepared statement of Mr. Holden follows:]
Prepared Statement of Hon. Tim Holden, a Representative in Congress
from Pennsylvania
I would like to welcome our witnesses and guests to today's hearing
to review H.R. 4785, the Rural Energy Savings Program Act.
This Subcommittee, and the House Agriculture Committee as a whole,
has worked to expand renewable and alternative sources of power and
discover new technologies to improve the efficiency and sustainability
of existing power generation across rural America.
I am encouraged by the efforts of Congressman Clyburn, a longtime
friend of rural America, to assist consumers in rural communities to
further improve energy efficiency and generate a significant number of
new jobs.
Yesterday marked the 75th anniversary of the creation of the Rural
Electrification Administration (REA). On May 11, 1935, President
Franklin D. Roosevelt signed an Executive Order to create the REA and
paved the way for electric cooperatives to transform the way rural
America works and lives.
Today's rural electric cooperatives are innovative leaders in
improving our nation's energy infrastructure. It is important that we
use every resource available to help encourage their work advancing
energy efficiency and renewable energy technology.
I look forward to today's expert testimony and the opportunity to
listen, learn and question those on the forefront of this issue.
The Chairman. The chair now recognizes the Ranking Member,
Mr. Goodlatte, from Virginia.
OPENING STATEMENT OF HON. BOB GOODLATTE, A REPRESENTATIVE IN
CONGRESS FROM VIRGINIA
Mr. Goodlatte. Thank you, Mr. Chairman. I appreciate you
holding this hearing today on H.R. 4785, the Rural Energy
Savings Program Act. We should all be conscious of our energy
use and look for new ways to conserve. Energy efficiency is an
important step in an overall energy plan, and it must be
combined with an overall energy policy that will meet
increasing demand, reduce energy prices, and be environmentally
responsible. Congress will hopefully continue to look at
policies that will harness our domestic energy resources to
meet increased demand such as clean coal technologies, clean
burning natural gas, oil, and nuclear energy. The bill we are
reviewing today addresses a piece of the energy efficiency
puzzle by offering low interest loans through rural electric
cooperatives to its customers for energy efficiency upgrades to
their homes.
This may be a workable approach. However, I am very
concerned about supporting any legislation with a billion
dollar authorization without determining how the bill will be
paid for. Within that funding, I would also like to examine
where these dollars will be spent. Rural electric cooperatives
and the RUS have had a successful relationship with lending
programs, but we have added additional lending to a customer
with a potentially higher credit risk. I must also note that
close to \1/4\ of the funding in this bill will be used toward
grants.
I appreciate the opportunity to review this legislation so
we may gain a better understanding of how this program would
operate. Our rural electric cooperatives serve a growing number
of customers and face numerous challenges in serving their
energy needs. Electric cooperatives have had a successful
relationship with the RUS and the electric lending program
allowing for the construction and operation of electric
generation plants, electric transmission lines and energy
conservation measures. Unfortunately, in the past few years our
Democratic leadership in the House and our current
Administration have chosen a path to deny the tools our co-ops
needs to meet the energy needs of rural America.
The 2008 Farm Bill included a provision that would have
allowed lending for new base load generation projects. This
provision was stripped by Speaker Pelosi. As a result, rural
electric cooperatives are prevented from accessing Rural
Utilities Service financing for any type of base load electric
generation. In other words, base load generation from the
following sources, nuclear, natural gas, and clean coal
technologies are difficult if not impossible to finance through
the program. Additionally, President Obama's recent proposal
calls for a $2.5 billion cut to the electric loan program as
well as restricting any lending for improving or expanding
natural gas plans.
These energy policies will make it increasingly more
difficult to provide homes, schools, businesses, and farms
across rural America with affordable electricity. Mr. Chairman,
again, I thank you for holding today's hearing and I look
forward to hearing from our witnesses.
The Chairman. The chair thanks the Ranking Member, and asks
all other Members of the Subcommittee to submit any opening
statements for the record.
[The prepared statements of Mr. Peterson and Mr. Smith
follow:]
Prepared Statement of Hon. Collin C. Peterson, a Representative in
Congress from Minnesota
Thank you Chairman Holden, for holding this hearing to take a look
at the Rural Energy Savings Program Act. Congressman Clyburn is a
strong supporter of rural communities, and I appreciate his interest in
developing policies that will help consumers in rural communities with
projects to improve energy efficiency. Many of the industries found in
rural areas, including agriculture, are energy intensive. So, it is
important to identify and promote programs that can encourage energy
efficiency and renewable energy technology, particularly in rural
areas.
This Committee has been very involved in developing opportunities
for rural America to lead the way on energy independence and
efficiency. I am interested to hear from our witnesses today on how
H.R. 4785, the Rural Energy Savings Program Act, would work in practice
to encourage energy efficiency in rural America and how it compares to
existing programs.
Meeting the needs of underserved rural communities is an ongoing
challenge and an important priority of this Committee. We have
authorized some useful programs that are making a difference, and we
are also interested in considering new ideas.
Again, I thank the Chairman for calling today's hearing and I look
forward to asking a few questions.
______
Prepared Statement of Hon. Adrian Smith, a Representative in Congress
from Nebraska
Thank you, Mr. Chairman:
As a Member of this Subcommittee, I am committed to promoting
sustainable energy policies which will ensure access to affordable
power, and facilitate meeting our nation's energy efficiency goals.
Moving forward, it is imperative we not allow misguided energy
proposals such as cap-and-trade, which tax producers and consumers
based on their carbon emissions, progress. Instead we should focus on
enhancing energy policy to reflect upgrades in technology to lower
costs and increase consumer choice.
Responsible and reliable energy development will continue to be an
important part of the Congressional agenda, and I look forward to
working with my colleagues in Congress as well as industry officials
and consumers to address America's mounting energy needs.
I appreciate the Subcommittee holding this hearing to review the
Rural Energy Savings Program Act, and I look forward to hearing the
observations and recommendations of our witnesses.
Thank you. I yield back.
The Chairman. We would like to welcome our first panel, the
Honorable James Clyburn, Member of Congress, 6th District of
South Carolina, the Honorable Ed Whitfield, Member of Congress,
from the 1st District of Kentucky, the Honorable Thomas
Perriello, Member of Congress, from the 5th District of
Virginia. Mr. Clyburn, you may begin when you are ready.
STATEMENT OF HON. JAMES E. CLYBURN, A REPRESENTATIVE IN
CONGRESS FROM SOUTH CAROLINA
Mr. Clyburn. Thank you very much, Mr. Chairman, Ranking
Member Goodlatte, Members of the Subcommittee. I appreciate the
opportunity to testify in support of H.R. 4785, the Rural
Energy Savings Program Act. Thank you so much for extending the
courtesy, and I request permission to submit my full testimony
for the record.
The Chairman. Without objection.
Mr. Clyburn. Thank you. I particularly want to thank my
partner in this project, the distinguished gentleman from
Kentucky, and a good friend, Ed Whitfield. The Rural Energy
Savings Program, which some have dubbed as RESPA, will put
Americans back to work and help financially strapped families
save money on their energy bills. The legislation is first and
foremost a jobs bill, and it is based on common sense ideas
that can be done in a fiscally responsible manner that will
protect taxpayers and the Treasury. I take a great deal of
pride in this legislation as it is a home-grown idea from South
Carolina. It represents the best of our country's democratic
traditions and engaged citizenry working across party lines to
help their neighbors and make their communities better.
The genius of this idea lies in its simplicity. This is a
loan program, not a grant or rebate. The bill would provide
loan authority to the USDA's Rural Utilities Service so that
rural electric co-ops can make loans to families and small
businesses to implement energy savings improvements that meet
RUS energy saving standards. Participating consumers will repay
the co-ops for the installation and material cost through a
charge on their utility bills over a 5 to 10 year window. The
resultant energy savings from the upgrades will cover most, if
not all, of the loan's cost, and after the loan is repaid
consumers will save hundreds of dollars on their energy bills
annually.
In my home State of South Carolina, 12 counties qualify.
Now we only have 46 counties, 12, more than 25 percent, qualify
as persistent poverty counties where according to the Economic
Research Service of the USDA 20 percent or more of residents
are poor as measured by each of the last four Censuses since
1970. National studies have shown that in households earning
less than $10,000 per year 70 percent of their after tax income
goes toward energy expenses. Mr. Chairman, Members of this
Subcommittee, I would beg your indulgence. I have a short 3
minute video that I would like for you to see. It is a video of
one of my constituents. Thank you so much.
[Video.] *
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* The video referred to is retained in Committee files, and is
available to be viewed at
http://www.youtube.com/watch?v=7fxDfDujKmQ.
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Mr. Clyburn. Thank you very much, Mr. Chairman. Mr.
Chairman, South Carolina's unemployment rate hovers around 12
percent. We have been, for the last 2 years or more, in the top
five in the country. Among South Carolina's rural electric co-
op customers over 12 percent of their customers live below the
poverty level, and over 24 percent of their customers live in
trailers. Last autumn, I learned of efforts by rural electric
cooperatives in South Carolina to address energy issues to
create jobs in our state while helping their customers who are
struggling with their energy bills. For several years now,
South Carolina cooperatives have tried to help their customers
reduce their energy consumption and save money by conducting
energy audits of their homes. However, very few of these
customers have the up front savings or the financial credit
strength to afford purchasing or installing the energy
efficiency measures recommended.
Even if a partial rebate were provided, most energy
efficiency retrofits that yield significant energy savings are
still too cost prohibitive for these rural families. Electric
co-ops are owned by their customers and are active in the
communities they serve. This ensures that they are highly
accountable to their members. Today, there are more than 900
electric cooperatives providing utility service to 42 million
Americans in 47 states. Now most co-ops have the necessary
experience, infrastructure, and incentive to implement this
program and a few are leading the way.
At the planning level, South Carolina has a fully developed
program concept that is ready to go as soon as it gets funding
while other states are very close. I want to thank you for
allowing me to submit the rest of this testimony. I don't want
to test your patience here today, so let me conclude by saying
that this bill provides job creation, energy conservation, and
cost effective leverage that will save real people real money
on their energy bills. There is broad-based bipartisan support
for this initiative. It is a win-win-win proposition, and I
urge the Subcommittee and the full Agriculture Committee to
take the first step forward to help families in rural America
and pass H.R. 4785. Thank you.
[The prepared statement of Mr. Clyburn follows:]
Prepared Statement of Hon. James E. Clyburn, a Representative in
Congress from South Carolina
Chairman Holden, Ranking Member Goodlatte, and members of the
Subcommittee, I appreciate the opportunity to testify today in support
of H.R. 4785, The Rural Energy Savings Program Act. Thank you for your
courtesy.
We continue to face an uphill battle as our country climbs out of
the worst recession since the Great Depression. Congress must act to
empower individuals and communities to get back on their feet, and the
bill before us today is an excellent vehicle that will do just that.
The Rural Energy Savings Program, which some have dubbed as ``Rural
Star'', will put Americans back to work and help financially-strapped
families save money on their energy bills. The legislation is first and
foremost a jobs bill, and it is based on common-sense ideas that can be
done in a fiscally responsible manner that will protect taxpayers and
the Treasury.
I have a great deal of pride in this legislation, as it is a
homegrown idea from South Carolina. It represents the best of our
country's democratic traditions: an engaged citizenry, working across
party lines, to help their neighbors and make their communities better.
I am proud to be associated with this effort and I particularly want to
thank my partner in this project, the distinguished gentlemen from
Kentucky, my good friend, Ed Whitfield.
The genius of this idea lies in its simplicity. This is a loan
program, not a grant or rebate, and the loans are paid back to the
federal treasury. The bill will provide loan authority to USDA's Rural
Utilities Service (RUS) so that rural electric cooperatives can make
loans to families and small businesses to implement energy efficiency
improvements that meet RUS energy savings standards. Participating
consumers will repay the co-ops for the installation and material costs
through a charge on their utility bills over a 5 to 10 year window. The
resultant energy savings from the upgrades will cover most, if not all,
of the loan's cost; and after the loan is repaid, consumers will save
hundreds of dollars on their energy bills annually.
Today, the unemployment rate in South Carolina hovers around 12
percent, and in many parts of my district, the rate is twice that
number. Among South Carolina rural electric cooperative customers, 12.5
percent of families live below the poverty level, and 24 percent live
in mobile homes or trailers, which are notorious energy sieves.
Twelve counties in South Carolina qualify as Persistent Poverty
Counties, where, according to the Economic Research Service of the
USDA, 20 percent or more of residents are poor, as measured by each of
the last four Censuses since 1970. As national studies have shown, for
the poorest households, earning less than $10,000 per year, 70 percent
of their after-tax income goes toward energy expenses.
In my district, I've talked with individuals and families, from
young high school graduates to senior citizens living on a fixed
income, many of whom have lost their jobs and who are forced to make
hard choices every month between paying their electric bills and
putting food on the table or buying medications they need to stay
healthy. These are folks like Alicia Smith from Orangeburg County in my
district. Alicia lives in a double-wide mobile home and, as a result of
inefficient and obsolete utility systems in her home, her energy bill
averages more than $400 per month. I would like to show you a short
video about Alicia and how the Tri-County co-op helped her make her
home much more energy efficient.*
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* The video referred to is retained in Committee files, and is
available to be viewed at
http://www.youtube.com/watch?v=7fxDfDujKmQ.
---------------------------------------------------------------------------
That video really shows you what a great program we are talking
about: loans, not rebates or handouts; putting contractors back to
work. Moving products--insulation, HVACs, doors--off of shelves and
getting our manufacturing sector back to work. And most importantly,
making a difference for real people and saving them money.
Last autumn, I learned of efforts by rural electric cooperatives in
South Carolina to address these issues--to create jobs in our state
while helping their customers who are struggling with high energy
bills.
For several years now, South Carolina cooperatives have tried to
help their customers reduce their energy consumption and save money by
conducting energy audits of their homes. However, very few of these of
customers have the up-front savings or the financial credit strength to
afford purchasing or installing the energy efficiency measures
recommended. Even if a partial rebate was provided, most energy
efficiency retrofits that yield significant energy savings are still
too cost-prohibitive for these rural families.
And so South Carolina cooperatives determined what was necessary,
and what would help them be most responsive to their customers' needs:
to make available low-cost loans for high impact energy efficiency
improvements--loans that could be repaid over time on the customer's
utility bill.
For those unfamiliar with concept of cooperatives, I'll provide a
little background. Electric co-ops are the independent, not-for-profit
electric utilities established in the New Deal to bring electricity to
rural America. They are owned by their consumers and active in the
communities they serve, ensuring that they are highly accountable to
their members. Today, there are more than 900 electric cooperatives
providing utility service to 42 million Americans in 47 states,
operating under a consumer-focused approach to business unique in the
utility sector.
As this Subcommittee well knows, for 75 years USDA has been working
with rural cooperatives to maintain and expand their infrastructure and
establish new and vital services, resulting in billions of dollars in
rural development and hundreds of thousands of jobs in rural America.
Since their inception, co-ops also have borrowed extensively from the
Federal government to finance electric distribution, generation and
transmission investments. The default rate on these loans has been so
small in the past 20 years that USDA has actually made money on them.
Moreover, most co-ops have the necessary experience, infrastructure
and incentive to implement this program. A few, however, are leading
the way. The Rural Energy Savings Program was modeled in part on an
operational program developed by Midwest Energy in Hays, Kansas, known
as How$martTM. At the planning level, South Carolina has a
fully developed program concept that is ready to go as soon as it gets
funding, while other states are close. Because low-cost funding has not
been available to this point, co-ops have not been able to implement a
large-scale, comprehensive energy efficiency improvement program.
As an example, New Hampshire's electric cooperative currently runs
an energy efficiency on-bill financing program for small-businesses,
which functions exactly the way co-op programs would under this
proposal. New Hampshire wants to expand its program to residences, but
access to capital at reasonable rates has prevented the co-ops from
doing so. This proposal would make available that up-front capital.
Just as important as the energy savings to rural customers is the
positive impact on the economy. South Carolina cooperatives have
estimated that in South Carolina alone the bill would create 2,539 new
jobs in the first year, 4,618 by 2020, and 7,113 by 2030. These include
direct jobs at the cooperatives and for contractors associated with
performing energy audits and retrofitting homes, as well as indirect
jobs generated by suppliers and support services. Nationally, the bill
would create 20,000 to 40,000 new jobs every year.
Importantly, these will be good jobs at good wages that don't
require a 4 year college degree. Community colleges and technical
schools will be critical partners in helping to train the workers
needed to implement the program. Already in South Carolina the
Technical Education System has created BPI certification programs to
train the types of professionals who would conduct energy efficiency
audits under the RESP.
The Rural Energy Savings Program is a real opportunity to
positively impact the lives of rural, low-income communities across the
country--to improve their quality of life, provide them with the
training necessary to gain good-paying jobs that can't be shipped
overseas, and to allow people to help their neighbors and improve their
communities.
In conclusion, Mr. Chairman, this bill provides for job creation,
energy conservation and cost-effective upgrades that will save real
people money on their energy bills. There is such broad bipartisan
support for this initiative because it is a win-win-win proposition. I
would note that the bill currently has 41 cosponsors, including nine
Republicans and several Members of this Committee. I urge the
Subcommittee, and the full Agriculture Committee, to take the first
step forward to help families in rural American and pass H.R. 4785
expeditiously.
Thank you for your time, and I would be happy to answer any of your
questions.
The Chairman. Thank you, Mr. Clyburn. Mr. Whitfield.
STATEMENT OF HON. ED WHITFIELD, A REPRESENTATIVE IN CONGRESS
FROM KENTUCKY
Mr. Whitfield. Chairman Holden, Ranking Member Goodlatte,
and Members of the Committee, thank you very much for this
opportunity to testify on H.R. 4785, the Rural Energy Savings
Program Act. I am delighted to have the opportunity to work
with the distinguished Majority Whip, Mr. Clyburn, on this
legislation. The main reason I cosponsored this legislation is
because in Kentucky, and across the nation, the amount of
electricity generated today barely meets the electricity demand
and we know that demand is expected to increase dramatically
over the next several years. The Energy Information
Administration estimates demand for electricity will grow 30
percent by 2030 providing for a total of 264,000 new megawatts
unless extraordinary efficiency measures are adopted we will
not meet this demand.
Now this magnitude of increase is equivalent to adding four
Californias or 13 Kentuckies to the demand for electricity.
Among electric cooperative consumers demand growth is projected
at about double the national average because co-ops serve
energy intensive agricultural sites. A study by the North
American Electric Reliability Council found U.S. electricity
usage is projected to grow twice as fast as our committed
resources. In some regions, demand will soon outstrip capacity
unless new generation and transmission are added. The reality
is that we require more electricity generation, and that is
compounded by the fact that right now it is extremely difficult
to bring online more nuclear or coal generation plants.
And I can tell you wind power and solar power simply cannot
come close to meeting our energy demands. Although energy
efficiency will not get us all the way there to meet our
electricity demand, investments in efficiency can help take the
place of generation capacity that is unable to come online
right now. Because of that, I am pleased to be here today to
advocate on behalf of the Rural Energy Savings Program which
simply creates a loan program administered by the U.S.
Department of Agriculture's Rural Utilities Service and
provides loans to electric cooperatives to lend money to
consumers for the purpose of energy saving retrofitting. The
bill allocates $4.9 billion over the next 10 years to be loaned
out to improve energy efficiency in private homes and
businesses, and as a result lower electricity costs for
consumers but also reduce electricity demand.
Now I know I feel the way many of you do who are concerned
about the $4.9 billion number, but it is important to note that
this money will be repaid. So, the actual cost of this
legislation will be the amount of any interest cost not
recovered, and we will have to see what CBO says about that.
But I look forward to working with all of you. I know we are
all concerned about our debt in this country. I look forward to
working with all of you on identifying a pay-for to offset any
potential cost that may be identified. Thank you very much for
your interest in this important legislation, and I want to
thank Mr. Clyburn again for his leadership on this effort, and
I yield back the balance of my time.
The Chairman. Thank you, Mr. Whitfield. Mr. Perriello.
STATEMENT OF HON. THOMAS S.P. PERRIELLO, A REPRESENTATIVE IN
CONGRESS FROM VIRGINIA
Mr. Perriello. Thank you, Chairman Holden, and, thank you,
Ranking Member Goodlatte, a neighbor from the Commonwealth, and
all the respected Members of the Subcommittee, thank you for
today's hearing on H.R. 4785, the Rural Energy Savings Program
Act. I would also like to thank Mr. Whitfield for his
leadership and Majority Whip Clyburn as we have been working
together closely on both rural electric issues and nuclear
issues over recent months, and hope to continue to have
victories in those areas. I believe this Rural Star Program can
unleash investments in energy efficiency throughout our rural
communities, put Americans back to work often using products
produced here in America, and create a lasting legacy of lower
energy consumption and lower carbon emissions.
The bill is a win for our economy, for our environment, and
for our budget. Working through the USDA's Rural Utilities
Service to provide support to rural electric co-ops is a
fiscally responsible proposal to expand energy efficiency, and
the rural electric co-ops are a reliable and trusted partner
for leveraging public dollars. These loans are not grants or
giveaways and will be paid back. Rural electric co-ops have the
history to show that they can and will utilize our public
dollars to produce great impact. There is a great need for
improving energy efficiency in our rural communities especially
in the Southeast. A recently released study by a team from the
Georgia Institute of Technology and Duke University's Nicholas
Institute titled Energy Efficiency in the South found that the
southeastern states could lower their electric bills by a
cumulative $41 billion a year and create 380,000 new jobs by
2020 simply by focusing on energy efficiency.
The report, in fact, shows that the South has the potential
to become the ``Saudi Arabia of energy efficiency'' because of
the huge potential gains. With so much potential, why does the
Southeast lag behind other regions of the country in energy
efficiency? In many ways it is the same reasons that almost 80
years ago meant that most rural communities lacked
electrification. Our nation's energy system at the time left
behind rural communities that didn't have the capital to invest
up front on electrification. Without dependable sources of
electricity, rural America had no chance at competing on a
level playing field with other parts of the country for jobs or
quality of life. Eighty years ago we created the Rural
Electrification Administration to electrify our rural
communities through these co-ops.
Many said it wouldn't work but they were wrong. Eighty
years later these co-ops are still a success, and are still
serving their local communities by providing affordable and
dependable electricity. So today we risk leaving our rural
communities behind again. In my district, Dominion Power is
working with the City of Charlottesville and the County of
Albemarle on the more affluent end of my district to forward
fund energy efficiency improvements to homes that will be paid
back on their electric bills, much like this bill would do for
rural electric co-ops. Unlike wealthier areas where localities
can help provide matching funding, our rural communities are
already stretched thin. This economic crisis has already forced
our rural communities to cut funding in many vital services.
We have the opportunity to fill the gap by expanding RUS's
loan authority and working with rural electric co-ops to
deliver real results to our rural households with lower energy
bills through energy efficiency improvements to their homes.
This legislation will do for our rural communities today part
of what rural electrification did for them during the Great
Depression. I thank the Chairman and the Ranking Member for
their consideration of this bill and urge the Subcommittee to
support this timely bipartisan legislation. With that, I yield
back and say thanks.
The Chairman. Thank you, Mr. Perriello. The chair now
recognizes the Chairman of the full Committee, Mr. Peterson.
OPENING STATEMENT OF HON. COLLIN C. PETERSON, A REPRESENTATIVE
IN CONGRESS FROM MINNESOTA
Mr. Peterson. I thank the Chairman and commend him and the
Ranking Member for this hearing, and I just want to comment Mr.
Clyburn, the NRECA and the rural electric co-ops for their
foresightedness and leadership on this issue. I think
conservation is probably the easiest lowest hanging fruit we
have out there in terms of getting energy independent, and this
is a great bill, great idea, so I am all behind you, and thank
you for your leadership. You have not only been a leader on
this, Mr. Perriello, but on all of the rural development issues
and have been a great supporter of this Committee and the farm
bill and the work we did there. So, we appreciate your
leadership and look forward to making this bill become law.
Thank you.
The Chairman. Thank you. The chair thanks the Chairman, and
would like to thank our witnesses for their testimony today. In
consultation with Mr. Goodlatte, we traditionally don't ask
questions of Members so unless anybody has a burning desire to
ask any questions, we will thank our panelists for their
testimony. Thank you. We now would like to have panel two, Ms.
Nivin Elgohary, Acting Assistant Administrator, Rural Utilities
Service, United States Department of Agriculture. Ms. Elgohary,
when you are ready, you may proceed.
STATEMENT OF NIVIN ELGOHARY, ACTING ASSISTANT
ADMINISTRATOR, RURAL UTILITIES SERVICE, U.S.
DEPARTMENT OF AGRICULTURE, WASHINGTON, D.C.
Ms. Elgohary. Good morning. Mr. Chairman, Ranking Member
Goodlatte, and Members of the Committee, I want to thank you
for the opportunity to discuss energy efficiency solutions
through the U.S. Department of Agriculture Rural Development
Rural Utilities Service Electric Program. The Rural Utilities
Service, RUS, Electric Program is a successor to the Rural
Electrification Administration that was established in 1935.
Today, RUS has over 650 borrowers with an outstanding portfolio
of approximately $42 billion and a delinquency rate of less
than \1/2\ of 1 percent. RUS is authorized to provide loans for
construction and operation of generating plants and electric
and transmission distribution lines. RUS is also authorized to
provide loans to furnish or improve electric service including
demand side management and energy conservation.
The RUS is also authorized to defer borrowers' principal or
interest payments on RUS direct debt as opposed to guaranteed
Federal financing bank debt. The ERC, or Energy Resource
Conservation program, allows the borrowers to defer principal
payments and reamortize the deferment over a 7 year period.
Borrowers in turn may use these deferments to make funds
available for energy efficiency and conservation measures. The
first ERC agreement was signed with a borrower in 1981. To
date, we have 43 agreements for a total of $64 million in
deferments. Although the ERC program has been available for
approximately 30 years the eligible loans that are available
for deferments are declining.
Only RUS direct loans may be deferred. RUS has not had
direct funding appropriated since 2007. Recently, Section 6101
of the farm bill amended Sections 2 and 4 of the Rural
Electrification Act to explicitly authorize loans to borrowers
for energy efficiency. The amendment codified a longstanding
USDA policy. We are currently working on regulations to
implement the farm bill provisions. H.R. 4785 is an energy
savings loan program for rural areas. It provides for a $4.9
billion loan program at a cost of $755 million. These funds
would be available for 5 years or until the funds are fully
obligated. H.R. 4785 also includes a grant identified as a jump
start grant for each loan not to exceed four percent of the
loan amount. If enacted, eligible applicants would be able to
borrow the funds from RUS and relend these funds to their
consumers for energy efficiency measures.
The grant funds may be used to defray the cost of
implementing the energy efficiency relending program. The
eligible applicant will submit to RUS an energy efficiency plan
and request for a loan. RUS will approve the loan request upon
receipt and review of the applicant's plan along with any
existing application requirements and lending policy. Once the
loan is approved the borrower will receive a zero interest loan
for up to 10 years. The borrower will use the loan proceeds to
provide low interest loans to their members for energy
efficiency measures. The consumers' loan may carry an interest
rate of no higher than three percent.
The consumers' energy savings as a result of the efficiency
measures will be reflected on the electricity bill. The savings
will be used to pay back the energy efficiency measures over a
10 year period. The cost of this rural energy savings loan
program as suggested in H.R. 4785 is $993 million. This cost
includes the $755 million as a cost of the direct loan program
and an additional $238 million for grants, technical
assistance, and administrative expenses for RUS to implement
the program. Mr. Chairman, I want to thank you for the
opportunity to discuss energy efficiency efforts at RUS and to
provide expert testimony on H.R. 4785. I will be glad to answer
any questions that the Members of the Subcommittee may have.
[The prepared statement of Ms. Elgohary follows:]
Prepared Statement of Nivin Elgohary, Acting Assistant Administrator,
Rural Utilities Service, U.S. Department of Agriculture, Washington,
D.C.
Mr. Chairman, Ranking Member Goodlatte, and Members of the
Committee, thank you for inviting me to discuss energy efficiency
solutions through the United States Department of Agriculture Rural
Development Electric Program administered by the Rural Utilities
Service.
The Rural Utilities Service (RUS), one of three agencies within
USDA's Rural Development Mission Area, assists rural communities in
providing essential electric, telecommunications, and water
infrastructure. Today's RUS Electric Program is the successor to the
Rural Electrification Administration, established in 1935. The RUS
Electric Program portfolio has over 650 borrowers with an outstanding
balance of over $42 billion, it has performed in exemplary fashion,
with a delinquency rate of less than \1/2\ of 1 percent. RUS loan funds
may be used to finance the construction and operation of generating
plants, electric transmission and distribution lines or systems for
furnishing or improving electric service. The RUS is also authorized to
make loans to implement demand side management and energy conservation
programs, both on-grid and off-grid.
Section 6101 of the 2008 Farm Bill amended Sections 2 and 4 of the
Rural Electrification Act to explicitly authorize loans to electric
borrowers to implement energy efficiency programs. These amendments
codified a long-standing USDA policy. USDA now is developing
regulations to implement an effective energy efficiency program. Our
goal is to provide borrowers an opportunity to submit loans for energy
efficiency programs, and the new regulations now under development will
establish the rules that apply to this type of investment.
RUS also has decades of experience in funding energy efficiency.
Our borrowers have had an option to offer energy efficiency and
conservation programs via the Energy Resource Conservation (ERC)
program. The law authorized the Secretary to permit the extension of
loan principal or interest for up to 5 years. The regulation extends
the authority to allow borrowers a deferment of principal, re-amortized
over 7 years, to make funds available for caulking, weather-stripping,
heat pumps systems, water heaters, central heating and air conditioning
system replacements, ceiling/flooring/duct insulation, and storm and
thermal windows.
Under the ERC program, there have been 43 agreements with
approximately $64 million deferred since the first agreement in 1981.
Although this program has long been available for energy efficiency
efforts, the pool of loans eligible for deferments is declining.
The 2008 Farm Bill also amended Section 12 of the Rural
Electrification Act to allow deferment of principal and interest,
rather than just principal, for the purposes of energy efficiency,
improved energy efficiency and demand reductions, and energy audits.
H.R. 4785 is an energy savings loan program for rural areas. It
provides for a $4.9 billion loan level available, assuming a cost of
$755 million for 5 years or until the funds are fully obligated. We are
uncertain whether or not this is a realistic assumption. An additional
$238 million is authorized for grants, technical assistance, and
administrative expenses for RUS to implement the program. Individual
co-ops or state-based groups of co-ops apply for a loan to fund energy
efficiency programs for their members. This program would allow the RUS
borrower to re-lend the funds to their consumers for energy efficiency
measures. These measures include projects such as sealing, insulation,
HVAC systems, boilers, roofs and other structural improvements and
investments that the utility has demonstrated to RUS will produce
sufficient savings. Energy efficient appliances are not eligible for
this program.
Under H.R. 4785, RUS will receive and review the borrowers' energy
efficiency plan. The plan must include: the type of energy efficiency
measures, the savings associated with the measures, and how they will
implement the plan. Trained auditors and contractors will conduct
individual consumer energy audits to determine what sorts of energy
efficiency improvements are warranted. The loan will be supported by
the implementation plan and will include a system-wide energy savings.
The RUS borrower will receive a zero-interest loan to provide low-
interest consumer loans to its members. The consumer loans will carry
an interest rate no higher than 3%. The reason for this limited
interest costs above zero is to fund a loan loss reserve and offset
personnel and program implementation costs. Typical consumer loans may
be $1,500 to $7,000.
The consumer's energy savings will be reflected on the electricity
bills. The savings reflected on the bill assume the project will pay
back the energy efficiency measures within a 10 year period. The goal
of these loans is for the energy savings from the upgrade to cover
most, if not all, of the cost of the loan. If successful, consumers
will potentially continue to save on their energy bills after the loan
is repaid. RUS would use its existing procedures to approve loans and
to advance funds. In accordance with current practice in RUS Electric
programs, no loan funds would be advanced on approved loans until the
utility borrower submits documentation of work completed for the
approved purposes of this program.
H.R. 4785 also identifies a ``jump start'' grant, not to exceed 4%
of the loan, to the RUS borrower to begin the process. The grant funds
may be used to defray the costs of implementing the re-lending program.
The borrower may use these funds to pay contractors and/or procure for
equipment and labor.
H.R. 4785 also identifies a $2 million grant to provide utility
auditors with information about how to implement the measurement and
verification of savings, how to establish contractual relations with
efficiency upgrade contractors and how to assist consumers in whose
homes and businesses upgrades are being made. It would, for example,
allow RUS to offer zero-interest loans for up to 10 years to current
borrowers to fund energy efficiency measures for their consumers. If
H.R. 4785 were enacted the energy efficiency efforts for this rural
energy savings program does fit within the authority of the RUS. The
definition of eligible entity in the proposed legislation would include
all previous or current RUS borrowers, or a subsidiary or affiliate of
a previous or current RUS borrower.
The repayment period of 10 years on the zero-interest loan would be
a deviation from our existing law that requires the loan term to match
the useful life of the asset. As a result, the legislation contemplates
a net cost that is substantially higher than our existing programs,
which currently operate on a zero subsidy model.
Although existing RUS regulations provide strong protection against
fraud, it is important to ensure either in statute or implementing
regulations that borrowers under H.R. 4785 maintain strong internal
controls and adequate monitoring. The success of this program will
hinge on this. Finally, the legislation limits the amount of funds that
a borrower can advance during a single year to 50 percent of the loan
amount. Currently, RUS borrowers request loan funds on a reimbursement
basis with verification of completed work orders. This reimbursement
provision is generally considered more advantageous for the lender--in
this case, RUS--than those which advance funds.
RUS currently reviews and approves borrower's load forecasts. The
load forecasts use economic modeling to capture expected load
reductions from energy efficiency programs, energy conservations and
load management programs. The cooperative segment of the electric
industry has been a nationally recognized leader in energy efficiency
and demand side management practices. Such practices reduce demand and
help mitigate the need for new electric generation capacity.
RUS has also been instrumental in financing a popular and
successful effort to install geothermal ground loop systems replacing
inefficient heating and air conditioning systems. The up-front cost of
these systems can be prohibitively expensive for many homeowners, but
with the assistance of the ERC program, the cost to the home owner can
be reduced to affordable levels.
Recently, for example, two cooperatives in Alabama and Kentucky and
the Hawaii Habitat for Humanity Office were awarded High Energy Cost
Grants, administered by the Electric Program, to assist low income
homeowners to install energy efficiency measures to reduce their energy
bills. A previous grant to the Alabama cooperative proposes to assist
100 very low income home owners repair or replace duct work, install
energy efficient appliances, replace inefficient furnaces and central
air conditioners with highly efficient heat pumps, install insulation
and energy efficient doors and windows. These efforts reduce not only
the energy bills of the home owner, but also the amount of energy the
cooperative has to purchase to serve those homes. One example shows the
home owner monthly electric bill decreasing from 3,979 kwh per month to
2,080 kwh per month, a 48 percent reduction.
H.R. 4785 would require RUS to contract for services to provide
program measurement and verification, in addition to training and
technical assistance to implement and deliver consumer energy
efficiency projects. The legislation provides funding for additional
staff and program expenses to manage the energy efficiency efforts. RUS
is reviewing these provisions to determine their impact on our current
program.
Mr. Chairman, thank you for the opportunity to testify to provide
details on the impact H.R. 4785 would have on the RUS programs. I would
be pleased to answer any questions the Members of the Subcommittee
have.
The Chairman. Thank you, Ms. Elgohary. The chair will
remind Members that they will be recognized in order of
seniority for those who were here at the beginning of the
hearing and after that on time of arrival. Ms. Elgohary, you
state in your testimony that you are uncertain whether or not
the assumed cost of $755 million for 5 years is a realistic
assumption for the $4.9 billion loan level. Why is it not
certain?
Ms. Elgohary. At this point in time the Department has not
run any official subsidy calculations on the $4.9 billion. We
have no reason to believe that the cost would be inaccurate at
this time.
The Chairman. You mention in your testimony the low
delinquency rate. How do we ensure the approach taken in H.R.
4785 does not have a negative impact on the overall quality of
the RUS loan portfolio, and how can we make sure the loans made
are to creditworthy borrowers?
Ms. Elgohary. As you have heard quite often, our borrowers
have been in the program for at least 75 years since the
inception of the program. Our repayment history and
relationship with the borrower has been impeccable. Our current
delinquency rate is less than \1/2\ of 1 percent, as I
mentioned in my testimony. We also have a mortgage security
document with these borrowers that puts a lien on all of their
assets. The first lien encumbers everything the borrower owns
now and everything the borrower could possibly own in the
future. Based on the existing relationship with the borrowers,
we have no reason to believe that that repayment history
wouldn't continue.
The Chairman. Do you believe that your safeguards are
extended to this legislation, if approved?
Ms. Elgohary. We believe that they are in place, yes.
The Chairman. Will rural electric cooperatives who are not
a current borrower from RUS be eligible for a loan program in
this legislation?
Ms. Elgohary. I believe the legislation specifically
identifies who the eligible entities would be. It identifies
public utility districts, public power districts, cooperatives
or similar utilities that have either paid out or are currently
paying the RUS debt. It also identifies an affiliate or
subsidiary of any of those entities to be eligible for funding
under this program.
The Chairman. What about rural areas not served by rural
electric cooperatives?
Ms. Elgohary. I believe if they fall within the category of
an eligible entity as defined in H.R. 4785 they would be
eligible for funds under this program.
The Chairman. Thank you. Mr. Goodlatte.
Mr. Goodlatte. Thank you, Mr. Chairman. Ms. Elgohary,
welcome. Am I pronouncing your name correctly?
Ms. Elgohary. That is fine.
Mr. Goodlatte. That is fine. I think that is a no. Maybe
you could educate all of us.
Ms. Elgohary. I am used to responding to anything that
comes close. It is Elgohary.
Mr. Goodlatte. Elgohary. All right. Thank you. The
President's budget proposes the Rural Utilities Service
Electric Loan Program no longer make funds available for base
or peak generation from fossil fuels, thus eliminating funding
for coal and natural gas projects. I believe this policy will
limit energy feedstocks and drive up energy costs for rural
customers. Additionally, natural gas is paired with renewable
wind projects to ensure electricity supply isn't interrupted.
Can you comment on why the Administration wants to limit
lending to rural electric cooperatives?
Ms. Elgohary. At this point in time, the Administration
feels that the budget is appropriate. I am here basically to
provide expert testimony on H.R. 4785, and I am not able to
answer that question at this time.
Mr. Goodlatte. I wonder if you might respond to that in
writing after consulting with others in the Department, and in
the Administration, as to why they would do that particularly
when wind given its unreliability, its inconsistency in terms
of generating electricity must be paired with some other source
to protect base loads, and natural gas is often what is used
for that purpose. Why you would eliminate funding for coal or
natural gas to lending for rural electric cooperatives that
need to get increased production?
Whether or not we take the measures that are called for in
this legislation, there is no doubt that increased demand is
going to play a role in the future of rural America, at least
hopefully. We are hoping that we are going to see economic
growth that will call for that increased use. With regard to
the legislation, are rural electric cooperatives currently
offering lending for energy efficiency projects to customers
for their homes?
Ms. Elgohary. Through the ERC program that I described as
part of the testimony, our borrowers can defer their debt and
in turn take the deferred amounts and allow their consumers to
implement energy efficiency and conservation through a loan
program.
Mr. Goodlatte. And are there programs within the Rural
Utilities Service that would allow this type of lending?
Ms. Elgohary. Energy efficiency and conservation is an
eligible purpose under their Rural Electrification Act.
However, we haven't had full implementation of energy
efficiency measures at the extent that H.R. 4785 suggests
because of the cost associated with the borrowers taking out
the funds in the FFB program.
Mr. Goodlatte. How would the Rural Utilities Service
administer the demonstration program authorized in this bill?
Are there co-ops ready to administer this lending program?
Ms. Elgohary. We believe there are a handful of co-ops that
would be ready to step up and administer such a program at this
scale.
Mr. Goodlatte. I have heard from some of the co-ops in my
district who are opposed to this legislation. Have you heard
from rural electric cooperatives around the country that are
concerned about implementing a new program like this, they
think it will detract from the main mission of the Rural
Utilities Service and the focus that needs to be placed on
their ability to access greater sources of electric generating
capacity?
Ms. Elgohary. I have not.
Mr. Goodlatte. And you mentioned in your testimony that the
RUS is still looking into the need for additional employees to
administer the Rural Energy Savings Program. In your personal
opinion, will the RUS need additional money for administration
costs to run the program? Can the RUS run the program at
current staffing levels?
Ms. Elgohary. Our current staffing levels are set and we
have been able to administer the $6.5 billion that we have
received in appropriations over the last 3 years. I think you
would agree that an additional $4.9 billion would be an
additional stress on the program, but we would certainly try to
do the best we could with the resources we are allotted.
Mr. Goodlatte. And do you believe that the reserve fund
created by this program from the interest on loans is
sufficient to offset possible loan defaults?
Ms. Elgohary. The loan defaults are expected at the
consumer base. Our borrower would still be liable for any of
the RUS loan advances that they would take through the program.
We don't have any reason to believe that our borrowers would be
in a higher risk or less likely to repay the RUS debt.
Mr. Goodlatte. Thank you. Thank you, Mr. Chairman.
The Chairman. The chair thanks the Ranking Member. The
gentleman from Tennessee, Mr. Roe, who is not a Member of the
Subcommittee, has joined us. I consulted with the Ranking
Member, and we are pleased to welcome him to join in the
questioning of the witness. The gentleman from North Carolina,
Mr. Kissell.
Mr. Kissell. Thank you, Mr. Chairman. Ms. Elgohary, I
appreciate you being here today. As we anticipate moving
forward with this bill and monies become available for a loan
for someone that lives in a trailer or a substandard house. We
know in rural areas, in the part of North Carolina I am from,
we have a lot of co-ops and we have a lot of people that would
fit that definition. How would they go about accessing a loan?
Would they have to go out and find a contractor to say this is
what you would need to fix and then come back and present that
to the co-op for consideration, or would the co-op provide
experts that would go out and say this is what you need to do?
How would that work?
Ms. Elgohary. We would envision that the program would be
marketed and spearheaded at the co-op where the co-op would
reach out to its consumer base and allow some sort of marketing
and education to the consumers. The consumers, based on an
energy audit, would then select the type of energy efficient
improvement that they would like in their home. Based on the
audit, the energy efficiency measures--the cost of the energy
efficient measures should be recognized in a savings on that
consumer's electric bill.
Mr. Kissell. Now would there be approved, and once again
anticipating what we might see, would there be approved
contractors, people that have been certified to say that these
people will go out and do a good job and not say that we are
going to do this, and then not do that, and we end up loaning
money and not see energy results? How will we provide oversight
to make sure that what needs to be done is done in a credible
way?
Ms. Elgohary. There is funding. As H.R. 4785 states, there
is funding available for training contractors, providing
certifications for those contractors to be able to implement
energy efficiency measures at the consumer's home. In addition
to that, none of the contractors would be paid until the work
has been checked and ensured that the energy efficiency
measures were properly implemented at that consumer's home. To
go just one step further, RUS' standard operating procedures
only allows the reimbursement of loan funds, so we would have
to know that the borrower's work has been completed. Completed
work orders would be submitted to RUS, and then we would be
able to advance the funds to the borrower.
Mr. Kissell. And in terms of the people that are making
this application, would there be any consideration given to the
needs, the amount of--someone who lived in a terrible situation
in terms of their energy inefficiencies versus someone that
just had marginal possibilities for improvement but wanted the
full amount of money to get whatever, new air conditioning, new
heating system and said to be marginal savings versus greater
savings. Were there any considerations being made along those
lines?
Ms. Elgohary. RUS will receive a plan from the borrower,
and I would assume the borrowers would identify the type of
energy improvement measures that would be implemented and the
percentage penetration based on those various types of
measures. But, it would be up to the consumer to select what
type of energy improvement they want at their home. The energy
efficiency audit will show, based on the selection from the
consumer, what type of improvements they want in a home based
on the final numbers that come back from the audit. The co-op
will work with the consumer to set up a repayment schedule
where hopefully the savings will pay for the cost.
Mr. Kissell. But in terms of consideration for who gets it
first, it would be first come, first serve, or would there be
consideration given to, hey, we could save a lot more if we
gave it to this person versus someone else?
Ms. Elgohary. That decision would be made by the co-ops.
RUS would not get involved in deciding which consumer would be
eligible for what energy efficiency projects.
Mr. Kissell. Okay. Thank you, ma'am. Thank you, Mr.
Chairman.
The Chairman. The chair thanks the gentleman, and
recognizes the gentleman from Nebraska, Mr. Smith.
Mr. Smith. Thank you, Mr. Chairman. Thank you for your
service. The stimulus bill last year provided about $8 billion
for weatherization and renovation of low income and public
housing. Do you know how much of that is out the door?
Ms. Elgohary. I do not. I do know that we do have some of
the borrowers that have applied for those funds through the
state and have received funding and have done--Hoosier, for
example, has done a fantastic job of making good use of the
grant funds through that program.
Mr. Smith. Okay. Is it largely out the door though, would
you say?
Ms. Elgohary. I am not aware.
Mr. Smith. Thank you. And then also what would you point to
in this program that would really encourage people to make the
right decision because it is the right decision, rather than
just the funds available?
Ms. Elgohary. I would say that one of the benefits of H.R.
4785 is that it is a loan program. If people are looking at
conserving energy and being able to save money on their
electric bill, then the loan program permits them to defer the
cost of paying for the energy efficiency improvement over a
period of time, as opposed to spending the money on a rebate of
some sort and then having to wait for the benefits of that
expenditure. That is the end of my comment.
Mr. Kissell. Thank you. Thank you, Mr. Chairman. I yield
back.
The Chairman. The chair recognizes the gentlewoman from
Colorado, Ms. Markey.
Ms. Markey. Thank you, Mr. Chairman. So last week we passed
the Home Star Energy Retrofit Act, which gives rebates to
homeowners to install energy efficient--make their home more
energy efficient. This bill would, looking at the differences,
would eliminate those up front costs that a consumer has.
Instead of a rebate, you get the money up front, so I guess
that is the biggest difference is you don't have to pay out.
Would a consumer be eligible to use both programs?
Ms. Elgohary. Based on my knowledge of the bill, it has
been passed and what I understand on H.R. 4785, I believe they
would compliment each other.
Ms. Markey. You mentioned earlier, I thought the Chairman
asked a question about rural areas that are not served by rural
electric cooperatives. I think you said those consumers,
homeowners, would still be eligible. How would that work if the
way this program works is that you repay over 10 years through
your utility bill, but if you are not getting your electricity
from that rural co-op, how could you be eligible? How would
that work?
Ms. Elgohary. If you are receiving service from the
eligible entity as defined in H.R. 4785 so if the consumer is
receiving electric service from a PUD, a PPD, or electric co-
op, then, yes, they would be eligible for the program through
their electric provider.
Ms. Markey. Through their electric provider.
Ms. Elgohary. Yes.
Ms. Markey. What administrative costs are there to the co-
ops, because, obviously, they have to set up a new system
whereby they are going to be monitoring the cost savings of the
consumer and the consumer is paying this loan back through
their utility bills. So have you heard from the co-ops on what
kind of start-up cost and time that they are going to need to
get this system, which would be fairly complex, to get it set
up? And then who is bearing the cost of this? Are the co-ops
going to be compensated for setting up this new system whereby
they are tracking the energy savings and consumers are paying
back through their utility bills?
Ms. Elgohary. We would assume that some of the grant
components would be used to fund some of those up-front costs.
With regard to the timing and how quickly they could turn these
around, it would depend on the current structure within the
electric co-op. If they already have IT systems available to
track energy efficiency and the benefits of energy efficiency,
then certainly that cost would not have to be incurred to this
program. For those co-ops that are not as ready to start the
implementation of such an energy efficiency program, part of
the funds in H.R. 4785 would be allowed through the grant
components.
Ms. Markey. Have you heard from co-ops on estimates, range
of estimates of how much it would cost to get it set up?
Ms. Elgohary. We haven't gone out and polled our borrowers
to get an idea of what these estimates are.
Ms. Markey. Would small businesses in rural areas be
eligible for this program or is it just homeowners?
Ms. Elgohary. In some of the cases, depending on where the
co-op implements the program, small businesses would also be
eligible.
Ms. Markey. All right. Thank you, Mr. Chairman. I yield
back.
The Chairman. The chair thanks the gentlewoman and
recognizes the gentleman from Pennsylvania, Mr. Thompson.
Mr. Thompson. Thank you, Mr. Chairman, and Ranking Member,
and, thank you, Ms. Elgohary, for your leadership and your
testimony. Kind of getting to a basic, are there specific
metrics that are used with all the investments proposed, and
what we have already done in terms of weatherization, energy
efficiency? Are there specific metrics that are used in terms
of measuring energy efficiency that quantify this in a tangible
way, or is it strictly based on reported savings and fuel bills
that consumers have?
Ms. Elgohary. H.R. 4785 uses an energy savings component so
a reduction in kilowatt hour usage translates into savings. We
do know that a lot of our borrowers do look at energy
efficiency as part of their planning and implementation. RUS
has a load forecasting requirement that is rolled from the
distribution level up to the generation transmission level and
then submitted to RUS for approval. So, we do know that a lot
of the borrowers do look at energy efficiency measures and
conservation, as well as the management.
Mr. Thompson. With the types of investments that we have
seen with this today and with this proposed bill, is there a
running total? Is there data that you could provide us in terms
of energy efficiency achieved to date from the investments that
we have had basically in a lot of rural America with
weatherization and energy efficiency initiatives?
Ms. Elgohary. At this point in time, RUS does not have the
technology in place to be able to capture that level of detail
and be able to report on it. We do know that the borrowers are
looking at energy efficiency. We do review energy efficiency
measures, demands on management conservation, through load
forecasts. We also review their plans as part of their loan
request but our current system does not capture that kind of
information.
Mr. Thompson. Will this new piece of legislation provide
that component, because any time we are spending significant
monies, we need to be accountable in a very transparent way and
be able to report. I think that gives the American taxpayer
confidence that we are investing in the right way. Is there a
piece within this new legislation to be able to get that
quantifiable data that you said that is out there so that the
American people can see that this is a good investment.
Ms. Elgohary. As I mentioned, the farm bill provided energy
efficiency as an explicit purpose under the Act, so RUS is
already looking at its reporting requirements and ways that we
can change our IT systems to have the borrowers report, and
then have RUS capture and report on that kind of data, so we
were doing it outside of H.R. 4785.
Mr. Thompson. Okay. Thank you. One more question for you.
You made it clear in your testimony that H.R. 4785 will be very
beneficial for rural areas. In your view, are there any areas
of the bill which you feel need to be improved upon?
Ms. Elgohary. Not at this point in time.
Mr. Thompson. Thank you. Thank you, Mr. Chairman.
The Chairman. I thank the gentleman. The chair now
recognizes the gentlewoman from South Dakota, Ms. Herseth
Sandlin.
Ms. Herseth Sandlin. Thank you, Mr. Chairman. And, Ms.
Elgohary, I would like to explore with you a little bit
following up on Mr. Thompson's question. You had said that RUS
has already been working on some of the reporting requirements,
so I would like to explore a little bit on how the energy
efficiency loan programs that were authorized in the 2008 Farm
Bill, how they--and I know you are currently developing the
rules for that program, how does that differ from Mr. Clyburn's
proposal? I am a cosponsor of this bill. I just met with some
of my rural electric co-ops earlier this week, they are very
excited about the possibility of this program because they
actually do have--they have worked together to pool resources
to offer similar types of loans, low interest loans, to their
members to be able to promote different objectives including
energy efficiency.
One of the gentlemen I talked to said this isn't just the
low-hanging fruit. This is the fruit lying on the ground ready
for us to pick up to lower our carbon footprint, to be of
economic consequence and benefit for rural electric cooperative
members. I think, clearly, one of the advantages of Mr.
Clyburn's legislation compared to perhaps the loan program that
we authorized in 2008, is that it is offered again through RUS
but builds on the longstanding relationship that consumers have
with their particular rural electric cooperative. So if you
could talk about the differences, but also I want you to
address, if you can, how the rules you are currently developing
and how that might marry into this new program should it pass
the House and the Senate. What kind of accreditation or
certification requirements are you developing?
As you know, the House just passed the Home Star Energy
Retrofit Act and I worked with Chairman Waxman, Chairman
Markey, Mr. Welch to make some changes that could benefit
contractors in more rural areas. I think that there are still
some restrictive requirements there that we need to continue to
work through. But I would hope that RUS would recognize that we
have a lot of qualified contractors out there who should, based
on existing certification, be able to participate fully in the
program.
Ms. Elgohary. Okay. I will try to do my best to cover all
of those questions. With regard to the first point, the
difference between the changes in the farm bill and H.R. 4785--
the key difference there is that H.R. 4785 identifies the
interest rate that our borrowers will pay through this
legislation so it is zero to RUS. The farm bill legislation
would allow RUS to provide energy efficiency through its
existing appropriations. Right now, in 2010, all of our
appropriations for our borrowers are coming out of the FFB
program. The current interest rate, long-term FFB program, is
about 4.2 percent. In addition, all of our loans that would be
made if we were to add in the farm bill provisions are based on
the useful life of the asset. H.R. 4785 identifies that the
loans will be for up to a 10 year period. Those are two key
components in the difference between those two.
You asked me about accreditation and how we would be able
to get that information. The staff and I are working now on
trying to come up with measures. We are talking to industry
leaders trying to figure out the best way for us--how we can
capture from the borrowers the true energy savings, carbon
emission reductions, and the avoided cost on more expensive
plant improvements.
Ms. Herseth Sandlin. I appreciate that. I guess what I was
trying to get at is in the Home Star program that we just
passed for contractors to be able to participate to do the
energy audit of the home, install the appliances, there are
some provisions that lead me to believe that states like South
Dakota and others currently don't have any contractors that
would qualify. So, this is more sort of the accreditation
requirements that would be necessary in working with industry
leaders across the country, particularly in rural areas. We are
dealing with professionals in the industry who already go
through and have a lot of professional certifications and
accreditations already.
I just encourage you to ensure that the program is open to
a broad universe, whether it is the current program you are
implementing, or this program as we work through the
legislative process, a broad universe of qualified contractors
because I think that is essential to the success of the program
in rural areas.
Ms. Elgohary. H.R. 4785 does provide for funding for RUS to
let a contract that would look at measures of verification,
training, and certification opportunity.
Ms. Herseth Sandlin. Thank you.
The Chairman. The chair thanks the gentlewoman and
recognizes the gentleman from Tennessee, Mr. Roe.
Mr. Roe. Thank you, Mr. Chairman, for allowing me to be
here today and the Ranking Member. I appreciate the
opportunity. And one of my jobs before I got here was Mayor of
the City of Johnson City, Tennessee, and we were voted green
city of the state and won the national EPA award. We heat and
cool our VA with methane from our landfill. We have been very
aggressive in green policy. We had the first recycling program
20+ years ago in the state, downsized all of our police
vehicles, and so forth, and did an energy audit. And my
question, Mr. Kissell and Mr. Thompson, brought up two great
points. We brought in a private company and they did an energy
audit on every single building we had, schools, every public
building, 44 of them, and identified enough energy savings to
do $11 million rehab with no taxpayer dollars being spent
whatsoever.
I think what Mr. Kissell brought up was if you get a very
marginal, even not measurable benefit, is it worth doing and
how do you make that determination because this particular
program should run on no money. If you do it right, there
should be enough energy savings that would net out a zero for
the taxpayers. Do you have a way to measure that? I think Mr.
Thompson also had a very similar question. Are there systems--I
know you got around it a little bit, but is there any way we
can actually measure that?
Ms. Elgohary. I don't know the answer to that question but
I will be glad to get back to you on it.
Mr. Roe. The reason that is important is because the
taxpayers at home, they enthusiastically endorsed what we were
doing because they knew that it wasn't just a pipe dream that
we were going to maybe do something, they actually saw it in
real green in dollars. We actually made money from these things
that we did. I think that is a critical part of this. When you
rehab homes if there are no savings, what is the point in
putting another heating unit in if it doesn't save any money if
you spend a lot of taxpayer dollars doing it. I think we should
be able to do that. I think Ms. Herseth Sandlin brought a great
question up.
The home builders association at home had the LEED
certified building contractors, and these are green certified
contractors, and you know that you are getting a bang for your
buck when you have one of these contractors. Do you have
anything in there that--and again the question was brought up a
moment ago when this work is done do you know you are getting
the right effect for the money you are spending? In other
words, is somebody putting the windows in and doesn't know what
they are doing? Is there anything in this bill that says you
need to be LEED certified to do this?
Ms. Elgohary. The bill does provide for RUS to let a
contract to be able to do exactly that, certify these
contractors so that we know the work that is being done at the
home is done properly.
Mr. Roe. So you need to be a LEED certified contractor to
be able to do this work?
Ms. Elgohary. I don't know if it is LEED certified, but
there is a certification that is required as part of being a
contractor to implement energy efficiency at the home.
Mr. Roe. Okay. And, of course, a lot of these efficiencies
will depend on what the cost of a kilowatt hour of power is.
Obviously, however you generate your power the more expensive
it is, the more your savings will be. Is there anything in this
bill as far as replacement of bulbs and that sort of thing in a
home which also use a lot of--is that in there also?
Ms. Elgohary. It doesn't identify the type of energy
improvement that is required, energy efficiency improvement,
but it does speak to that it is a permanent fixture. They would
not be able to borrow the money for an appliance, but for any
kind of permanent fixture to the home such as caulking,
insulation, heating, air conditioning units.
Mr. Roe. Thanks very much. I yield back, Mr. Chairman.
The Chairman. The chair thanks the gentleman and recognizes
the gentlewoman from Pennsylvania, Mrs. Dahlkemper.
Mrs. Dahlkemper. Thank you, Mr. Chairman, and thank you,
Ms. Elgohary. I want to ask you a little bit about the Energy
Resource Conservation Program. You mentioned it in your
testimony. I was hoping that you could maybe elaborate a little
bit on the program, exactly what does it do, who are those 43
agreements with, and also you talked about the pool of loans
declining, so I want you to expand on that, please.
Ms. Elgohary. The Energy Resource Conservation Program is
an extension of existing authority that we have in the Act. The
Act basically says that the Secretary can defer principal or
interest payments. The regulations go a bit further and specify
that these deferments are on principal and for the purpose of
energy conservation. The 34 agreements are with borrowers
across the country. I can certainly provide a list of what
borrowers specifically participate. The borrowers sign a 2 year
agreement with the RUS. Only we identify for the borrower what
loans are eligible for the deferments. Basically the loans that
are eligible to be deferred over that 7 year period are direct
RUS loans, so our funding for the last 3 years has been mostly
Federal financing bank loans, which are guaranteed by RUS. It
is not a direct RUS loan. Those would not be eligible for the
deferment and that is why I mentioned the decline in borrower
participation.
Mrs. Dahlkemper. So to what do you attribute the lack of
interest?
Ms. Elgohary. Lack of interest would be measured at the
individual co-op. It is whether or not they want to implement
the energy efficiency program. The pool of deferments, the pool
of loans that would be eligible for deferments is declining
because we haven't received funding since 2007 for any kind of
direct RUS loan.
Mrs. Dahlkemper. Okay. That clears it up. Thank you. I
appreciate that. If a qualified customer defaults on a loan in
H.R. 4785, who will have to be on the hook for that?
Ms. Elgohary. Our borrower, the RUS electric borrower,
would still be responsible to make their debt service payments
to RUS so the battle would be between the consumer and the
utility.
Mrs. Dahlkemper. Okay. And I guess in that line of
questions, if someone makes these improvements to their home
and then they move, they sell the property, what happens in
that instance? Is it still the original borrower?
Ms. Elgohary. The loan stays with the home so it would
either be a selling point in the cost of that home when it
sold, or I would assume the consumer could have the option to
pay off that loan at the utility.
Mrs. Dahlkemper. If they don't pay it off then it goes to
the new owner?
Ms. Elgohary. It goes with the new homeowner.
Mrs. Dahlkemper. Okay. That is clear. And my last question
is will you be able to carry out the provisions of the
legislation with the existing personnel?
Ms. Elgohary. We will do the best we can with the resources
we are provided.
Mrs. Dahlkemper. So at this point there is no plan on
increasing personnel for administering this?
Ms. Elgohary. Not at the Administration level.
Mrs. Dahlkemper. Okay. I yield back. Thank you, Mr.
Chairman.
The Chairman. The chair thanks the gentlewoman. The
gentleman from Louisiana, Mr. Cassidy.
Mr. Cassidy. A couple questions: When I moved into my house
20 years ago, fixed it up, there was actually a loan program
that our local co-op would give for me to get a heat pump, and
I could pay it back on my note, and so it turns out I am not
with the co-op of somebody else, but it just reminded me of
that being in place 20 years ago. My staff and I pulled up a
little thing of all these programs that co-ops are already
doing, programs such as we are describing, as best I can tell
about Federal subsidy. So my co-ops came through and I talked
to them about it. They are a member of the program. And they
were purchasing from a merchant power plant and they found it
in the interest of their bottom line to encourage conservation
relative to purchasing from the merchant power plant.
I am sure I have a couple details wrong but the concept is
correct. So I guess my question is why do we need to insert the
Federal Government into this when indeed the co-ops may find it
good for their bottom line to do it anyway from existing
revenue?
Ms. Elgohary. I would agree that the co-ops would be able
to do this in some cases, but to be able to implement it on a
system wide scale, take into consideration the marketing,
training, retraining and IT systems that would have to be
implemented to be able to measure the benefits of an energy
efficiency program, H.R. 4785 would support all of those
efforts.
Mr. Cassidy. Now I oppose the cap-and-trade but clearly the
Administration is heck bent upon creating a price on carbon.
Now it seems as if we are doing something which if carbon is
priced as high as the Administration wants to price carbon then
again it would be very advantageous for a co-op which buys a
lot of coal to attempt to encourage their members. So, having
heard what you just said in the circumstance of carbon priced
where it is now, I am going to ask you to answer the question
again if the price of carbon through taxes or through offset
programs increases by 20 percent if that answer would still
hold--just like when I moved into Louisiana 20 years ago the
utility found it reasonable to subsidize my heat pump because
they would save money thereof.
Does that question make sense? If the Administration is
successful by taxing carbon 20 percent either through a direct
tax or through cap-and-tax, will that change the business
models so that the co-op again would now find it profitable to
encourage conservation to absorb the cost themselves, as
opposed to again the Federal Government being involved.
Ms. Elgohary. I believe so, but an important point to make
is that co-ops generally have very low equity and operate on a
very thin margin. In most cases they don't have the general
funds or cash available to be able to implement a large scale
energy efficiency marketing and implementation.
Mr. Cassidy. Now my club just came up and I was moving out
of my office and looked like a bum eating a bagel and they
recognized me anyway or maybe because of it. I sat and talked
with them and they actually still have some conservation
program, great conversation, some programs that are still
ongoing where they shut off the electricity, the air
conditioner for 15 minutes during the hot part of the day, and
somehow they are still very conscious of this. Now they are a
great company, DEMCO, but again they seem to be doing this
independently. I asked them was the Federal Government giving
you money and they said, no, we did this on our own. So, again
it almost seems like we are making them a ward of the state
when indeed they seem to be able to accomplish this
independently.
Ms. Elgohary. I think some of them do and can, and some of
them do need an incentive to be able to implement it at such a
large scale. RUS as part of the loan review and approval
process does require the borrowers to look at demand side
management, energy efficiency and alternatives to building the
more expensive maybe higher risk capital infrastructure on base
load. So as part of our review and approval process, we do
require that all borrowers consider and provide to us their
energy efficiency and demand side management programs. I would
be glad to provide you a list of all the borrowers and the
efforts that they do.
Mr. Cassidy. I have this kind of outline here, and there
are heat pumps, and somebody mentioned light bulbs, which we
know can be very cost saving, caulking, et cetera. Some of
those seem like they would be fairly low cost and wouldn't
require tremendous capital investment on the part of the co-op.
It would just be an encouragement, hey, listen, why don't you
use fluorescent bulbs and get rid of those old incandescent if
you still have them, and you could achieve a significant
savings. By the way, I think the concept is great. I am just
wondering if we need to have the Federal Government involved,
or if the market won't be able to address it particularly if
the Administration is successful at capping and taxing carbon
emissions. I yield back. Thank you.
The Chairman. The chair thanks the gentleman. Ms. Elgohary,
thank you very much for your testimony today. And we would now
like to welcome our third panel, the Honorable Glenn English,
CEO, National Rural Electric Cooperative Association; Mr.
Charles Adams, Chief Engineer and Director of Government
Affairs, A.O. Smith Corporation, Milwaukee, Wisconsin; Mr.
Scott Bates, Corporate Vice President, General Counsel, and
Secretary, Rheem Manufacturing Company, Atlanta, Georgia; Mr.
Paul Bony, Director of Residential Market Development,
ClimateMaster, Oklahoma City, Oklahoma; Mr. Jon Cowan,
President, Third Way, Washington, D.C. Mr. English, when you
are ready, you may begin.
STATEMENT OF HON. GLENN ENGLISH, CEO, NATIONAL RURAL ELECTRIC
COOPERATIVE ASSOCIATION,
ARLINGTON, VA
Mr. English. I am delighted to be back with the
Subcommittee and have an opportunity to visit with the Members,
and, certainly, talk about an issue that is very dear to my
heart, which is, namely, electric cooperatives, and the work
that we are doing to deal with the changing times. I want to
try to touch on a couple perspectives perhaps that haven't been
addressed either by the testimony, or by the questions of the
Members. There are a couple of things that are important for us
to understand so we are all operating from the same place.
Electric cooperatives are not for profit. We are not for
profit, and we are actually owned by the consumers themselves,
so that is where we are coming from and that is where our focus
is. Seventy-five years ago yesterday Franklin Roosevelt signed
the Executive Order creating the REA.
Many look at the REA as being the creation of an
infrastructure, wires and poles, and certainly we have a great
deal of it. Forty-two percent of the distribution system of
this country is owned by actually 12 percent of the population
of the country, and we have to maintain it, so it is a very
expensive proposition, no question about it. But our overall
objective and the purpose of signing that REA Executive Order
was to provide consumers of this country that are served by
electric cooperatives, borrow money from the REA, affordable
electric power, and that is where our focus is.
I think you will see from my testimony that many of the
members of electric cooperatives across this country, their
income is less than the national average. We have a far higher
percentage of people whose income is less than that, so many of
the programs that you have talked about, you focused on and
discussed here today are programs that require consumers to put
the money up front. You have to spend something and then later
the Federal Government will give you a rebate, or you can take
some other kind of action that you have to then get reimbursed
for. And many of the consumers that we have, many of those
people who have the least efficient homes, are people who,
quite frankly, can't afford that. So, as you look
demographically as far as the country is concerned, you will
find that the potential for the greatest savings in many cases
are the people that have the least amount of money, have the
least efficient homes. And that is something that we have to
keep in mind as we move forward.
The second point I would like to make to you, this is not
the first time we have gone through this policy shift by our
government, as far as energy is concerned and particularly as
far as fuels are concerned. When I was with this body in 1978,
we had something called the Fuel Use Act that was passed. My
home State of Oklahoma, we had a huge amount of natural gas.
And I remember a generating plant in my district that had a
natural gas well less than a mile away and they were supplying
that generating plant with natural gas. But, we determined at
that particular time, the government did, that we were running
short of natural gas and, therefore, we needed to switch off of
natural gas for generating electricity. We started going
through this transition of changing that plant over to coal-
fired and started shifting coal from Wyoming to Oklahoma to
generate electric power.
We also had a little problem with Three Mile Island, that
some of you probably have heard about and maybe recall, and at
that time we had a lot of new plants that were being built that
were nuclear. And due to the shift and changes that we had as
far as rules and regulations, it made those plants really so
expensive that they were unaffordable and many of them never
were completed. So much was shifted in the way of fuel into
coal at that time. Now we are addressing another issue. We are
making another fuel shift and basically that without question
is going to have a dramatic impact with regard to consumers,
much as what we found back in the late 1970s and early 1980s.
It is an expensive proposition to make this shift is the point.
And many of us recall, certainly I did when I was a Member
of Congress, having town hall meetings having people coming to
me angry about their electric bills, the increases that they
saw. I know many of our cooperatives went though that same kind
of an experience. My point being we ought to learn from history
here and take advantage of that. The one thing that we can do
today to help prepare consumers in this country, certainly
those who are electric co-op members, give them the opportunity
to take some of the edge off of that transition cost. Give them
the opportunity to hold down their electric bills as much as
they possibly can, and, certainly, the least expensive way of
doing that is through a loan program that would enable even
those who, quite frankly, have less wealth than many others in
this country, and who can gain the most through efficiency.
Give them the opportunity to make that conversion and to do so
at very little cost.
Now what we have discussed here today, and we need to
underscore and point out, is the cooperative is on the hook for
this loan. This is a loan to the cooperative, not to the
consumer. It is up to the cooperative to make certain that the
money is spent in such a way that it will provide the
efficiency, because it is only through that efficiency where
those loans would be paid back. And in the end, it is the
cooperative's reputation that is on the line. It is the
cooperative itself that will be making the determination as to
whether or not the people are satisfied with the work that is
done by those contractors, and making certain that we have
contractors that do a good job that are employed to carry this
work out.
In short, this is a win-win proposition all the way for
everyone. It helps government meet its objectives and policies,
namely, promoting efficiency in this country. It helps electric
cooperatives avoid building power plants, which is one of the
more expensive options that we have available and, number
three, it helps consumers with their electric bills, your
constituents, keeping those electric bills as affordable as we
possibly can. Thank you very much. Mr. Chairman, for letting me
testify today. I will be happy to answer questions. I hope my
entire testimony will be made part of the record.
[The prepared statement of Mr. English follows:]
Prepared Statement of Hon. Glenn English, CEO, National Rural Electric
Cooperative Association, Arlington, VA
I thank you for inviting me to provide the views of electric
cooperatives on the Rural Energy Savings Program Act (RESPA), H.R.
4785. It is an honor to appear before the House Agriculture Committee
again.
The National Rural Electric Cooperative Association (NRECA) is the
not-for-profit, national service organization representing nearly 930
not-for-profit, member-owned, rural electric cooperative systems, which
serve 42 million customers in 47 states. NRECA estimates that
cooperatives own and maintain 2.5 million miles or 42 percent of the
nation's electric distribution lines covering \3/4\ of the nation's
landmass. Cooperatives serve approximately 18 million businesses,
homes, farms, schools and other establishments in 2,500 of the nation's
3,141 counties.
Cooperatives still average just seven customers per mile of
electrical distribution line, by far the lowest density in the
industry. These low population densities, the challenge of traversing
vast, remote stretches of often rugged topography, and the increasing
volatility in the electric marketplace pose a daily challenge to our
mission: to provide a stable, reliable supply of affordable power to
our members--including constituents of many Members of the Committee.
Cooperative revenue per mile averages only $10,565, while it is
more than six times higher for investor-owned utilities, at $62,665 and
higher still for municipal utilities, at $86,302 per mile. In summary,
cooperatives have far less revenue than the other electricity sectors
to support a greater share of the distribution infrastructure. The
challenge of providing affordable electricity is critical when you
consider that the average household income in the service territories
of most of our member co-ops is below the national average income by
over 14 percent. A major challenge facing electric cooperatives is how
to help their consumers invest in energy efficiency improvements of
their homes and businesses so that they can save money in the short
run, and also help their cooperatives avoid the long-term costs and
environmental impacts of building new electric infrastructure that
could be avoided through efficiency savings.
New RUS Program to Meet Greater Need for Efficiency Savings in an
Austere Budget
Electric cooperatives were born in the adverse economic times of
the Great Depression 75 years ago, when the Federal Government created
the Rural Electrification Act (REA) loan program. The combination of
Federal loans and the determination of rural people to create viable
utilities that would increase their quality of life resulted in one of
the longest lasting and most successful economic initiatives ever
mounted in the United States. At its very core, the REA was and still
is a self-help program. It was bold to create such a program at the
height of the Great Depression, but it worked. Now called the Rural
Utilities Service (RUS), the Congress has continued to authorize these
loans to not-for-profit utilities to build and maintain a highly
reliable electricity infrastructure that includes distribution,
transmission and generation facilities.
Although efficiency investments have always been part of the
culture of the electric cooperatives and part of the RUS mission, the
authorization of energy efficiency loan programs under Section 6101--
``Energy Efficiency Programs'' of the Food, Conservation and Energy Act
of 2008 (``Farm Bill'') recognized that efficiency investments are now
a key component of providing electricity services to consumers of RUS
borrowers. However, the current RUS loan program is already
oversubscribed just to meet basic infrastructure needs of RUS electric
utility borrowers.
Currently, the cost of loans to the electric cooperative is the
Treasury rate plus \1/8\ of 1 percent. Many cooperatives provide
efficiency help in the form of rebates and, in some cases, financing
for consumers. A barrier for electric cooperatives is that they have
limited financial resources available to provide these services on a
large scale. And the cost of the current loan program would make the
interest rates that the cooperatives would have to charge a major
barrier for many of the consumers that cooperatives serve.
In July 2009, McKinsey & Company published a major report on how to
unlock energy efficiency in the U.S. economy and capture unrealized
energy efficiency potential. We agree with much of their analysis about
the barriers that must be overcome and this proposed new Federal
program was structured to address these barriers. A major barrier is
the up-front costs of the upgrade which is beyond the reach of most
consumers--even if the cost can be totally recovered over time or the
initial price is reduced by a tax credit or rebate.
Another consumer barrier the McKinsey report documents is the lack
of consumer awareness about what technologies are cost effective.
Further, McKinsey's review of programs that work documents the need for
third-party involvement that could support a ``do-it-for-me'' approach
that addresses all of the non-capital barriers as well. The Rural
Energy Saving Program Act was designed specifically to address these
barriers while minimizing the impact on the Federal budget.
This proposal utilizes the current RUS loan procedures, instead of
creating new Federal infrastructure. The program is primarily a loan
program in which the electric cooperatives assume 100 percent of the
risk of providing efficiency loans to consumers and for repaying the
Federal Government. While the program does have a relatively small
grant component (equaling no more than four percent of the loan to a
cooperative to offset costs for initiating the program), the
overwhelming component of RESPA is a $4.9 billion loan program.
The electric cooperatives already have the billing systems in place
to allow the consumer to repay the loan on their electric bill.
National consumer satisfaction surveys consistently show that electric
cooperatives rate the highest in satisfaction among all of the utility
sectors. Overwhelmingly, our consumers trust their cooperatives to
provide high quality services, and this trust would be called upon to
allow the cooperatives to oversee the installation of quality
efficiency upgrades for their consumer-members. The electric
cooperatives have strong, established consumer communication programs
and can get the information out about the efficiency opportunities that
would be provided by this program. Cooperatives have created several
centralized data and billing operations that will allow them to track
the energy usage before and after the installation of energy efficiency
upgrades by consumers.
This program will be cost effective because RESPA has a stringent
cost-benefit requirement in that any investment in efficiency retrofits
must substantially be able to pay for itself in energy savings in 10
years or less. This rule would preclude efficiency technologies that
are not cost effective within a 10 year period. This requirement will
also help build market pressure to bring costs down for efficiency
technologies that are currently very expensive. RESPA allows the
initial set of technologies that the cooperatives submit in their RUS
loan applications to be amended when information can be provided that
new technologies can meet this cost-benefit test.
This cost-benefit rule will allow the cooperatives to reduce the
energy bills of consumers enough to both give the consumers a small
savings below their current cost of energy each month and allow them to
pay off their consumer loans provided by the electric cooperatives at
low, but no more than three percent, interest within a 10 year period.
Because the cooperatives are responsible for paying back the Federal
loan, they have an enormous incentive to make sure that the program
works, that the savings promised occur and that their consumer owners
get the value promised.
The cost-benefit test means that not every efficiency technology on
the market will be used. The program is focused only on upgrades that
are part of the structure of a home or business that is in the
cooperative service territory because a significant goal of the program
is to reduce the need for new expensive investment in new electric
infrastructure, while supporting the obvious job-creation for
contractors and equipment manufacturers.
This program is not targeted at such things as energy efficient
appliances, but rather on very cost-effective improvements like HVAC
systems, heating boilers, geothermal systems and high-rated insulation
to the ``building envelope'' of the structures. Note that this proposed
legislation targets ``energy'' savings, not just electricity savings.
As a result, it is possible that ``electricity'' usage and consumer
bills will go up but overall energy usage and bills will go down
significantly more. An example of this case would be if a cooperative
decides to include in their program the replacement of old inefficient
oil furnaces with high efficiency geothermal systems or heat pumps.
The program will not cover the costs to the electric cooperative
that decides to implement energy efficiency activities through RESPA in
the short-term. The initial costs will be spread across all consumer-
owners of the electric cooperative for the purposes of lowering their
costs in the long-term by avoiding the cost of new expensive
electricity infrastructure. Other than the profit that will be taken by
manufacturers and contractors, the ``do-it-for-me'' role of the
electric cooperatives will be done in accordance with our not-for-
profit business model whose central purpose is to provide affordable
electricity to undergird the quality of life and economic vitality of
the communities we serve. This is a new chapter in the successful
history of the mission of RUS in partnership with the electric
cooperatives.
Electric Co-ops Are Committed to Energy Efficiency
The not-for-profit business model encourages cooperatives to use
all cost-effective methods to keep electricity affordable for the
consumers who own the cooperatives. Rising costs of new generation
resources mean that efficiency is often the ``least-cost'' generation
resource. A commitment to increase the quality of life for consumers
makes efficiency investments an important priority.
Co-ops' engagement with energy efficiency has resulted in the
following achievements:
Cooperatives serve only 12 percent of the nation's consumers
but are responsible for nearly 25 percent of the nation's
residential peak load management capacity.
96 percent of cooperatives operate an efficiency program.
70 percent of co-ops offer financial incentives to promote
greater efficiency.
Cooperatives support Federal incentives to remove barriers so
efficiency investments can be maximized. For example, NRECA supports
extensions of consumer efficiency tax credits, increased Federal
investment in advanced energy technologies, and strengthened efficiency
of hydropower projects and other existing generation. In the Energy
Investment and Security Act of 2007, NRECA supported a national
efficiency model building code. In 2008, NRECA called for a massive
investment in weatherization for the poorest fifth of U.S. households.
A Federal program is needed that would maximize the cooperative
delivery system and provide some additional support for the tough job
of capturing efficiencies in rural communities.
Co-op Consumers Need a New Efficiency Program Tailored to Their Needs
In 2010, the convergence of energy policy and Federal efforts to
create jobs has yielded several energy efficiency proposals aimed at
encouraging consumers to make energy efficiency investments. Popular
mechanisms in these proposals include access to lower-cost capital,
equipment and materials rebates or tax credits. NRECA believes these
proposals have a great deal of merit. However, none of them quite fit
the demographics of the people and areas typically served by electric
cooperatives.
Nationally, \2/3\ of the electricity distributed by cooperatives is
delivered to homes, farms and ranches, with the remainder going to
commercial and industrial businesses. In comparison, other electricity
sectors' loads are \2/3\ commercial and industrial businesses. One out
of seven people served by cooperatives lives below the Federal poverty
line. The average cost ($1,500 and up) of transformational energy
efficiency upgrades has deterred many co-op consumers from making their
homes and businesses more efficient.
Co-op consumers often can see striking reductions in energy usage
when aggressive efficiency measures are applied. However, there are
many barriers. Many consumers lack enough disposable income, adequate
access to information about cost-effective efficiency measures or
knowledge of trusted contractors to do the work.
These concerns were the springboard for the introduction of
legislation creating the Rural Energy Savings Program Act this spring.
RESPA would provide electric cooperative consumers with low-cost
financing for energy efficiency improvements to homes and businesses
that hold the potential of delivering enough savings in energy costs to
substantially repay the loan in no more than 10 years.
A New Proposed RUS Lending Program Will Boost Co-ops' Efficiency
Efforts
RUS Loans and ``Jump-Start'' Grants
Under this proposed legislation, the U.S. Department of Agriculture
(USDA) Rural Utilities Service (RUS) will administer the loan program
at the heart of RESPA. RUS will be able to issue $4.9 billion in 10
year, zero interest loans to individual co-ops or state-based groups of
co-ops to fund low-interest (no more than three percent) loans to
consumers and businesses. A co-op borrower can also tap a ``jump-
start'' grant of no more than four percent of the loan amount to defray
costs of providing service to the first consumers until the cooperative
receives loan funds.
RUS will use its existing procedures to approve loans and advance
funds. In accordance with current practice in RUS electric programs, no
loan funds will be advanced on approved loans until the co-op borrower
submits documentation of work completed for the approved purposes of
this program.
Every RESPA dollar loaned by RUS to a cooperative will be repaid
within 10 years after the cooperative re-lends the funds to the
consumer. There is zero risk to the Federal Government for consumers'
repayment because the co-op will absorb the risks of the payment of
consumer loans. Further, the participating co-op will have to expend
its own funds to set up and manage the program in the same way
cooperatives outlay funds to pay for the costs of adding new
generation.
This legislation authorizes ten new positions for the Rural
Utilities service. RUS is a very small but capable agency, which has
seen its staff reduced by 25 percent over the last 15 years. But, this
agency has, through the work of dedicated Federal employees, maintained
the RUS mission. The addition of these positions recognizes the demands
that will be placed on RUS staff and the important role of this small
but critical energy-related agency within the U.S. Department of
Agriculture.
Co-ops and Consumers Will Work Together to Use RESPA Funds Wisely
The cooperative applicant will specify the efficiency measures it
intends to implement and the expected savings for consumers. When a RUS
loan is approved, the co-op, in turn, will provide low-interest micro-
loans to consumer residences or businesses if an energy audit indicates
potential for significant energy savings.
Typical consumer loans will be $1,500 to $7,000, and will cover
sealing, insulation, HVAC systems, boilers, roofs, and other
improvements co-ops can demonstrate will produce sufficient savings.
Consumer loan amounts from the co-op may only be used to make energy
efficiency improvements to fixtures that convey with the house or
business dwelling. Loans may not be used for appliances that do not
convey with the structure, such as refrigerators or window AC units.
Participating consumers will repay the co-op for the installation
and material costs through an extra charge on their utility bills
within no more than 10 years. The energy savings from the upgrade will
cover most, if not all, of the cost of the loan. After the loan is
repaid, consumers will continue to save on energy bills, potentially
hundreds of dollars annually.
Ensuring a Culture of Accountability
As part of standard RUS procedure, every RESPA loan recipient will
annually provide to RUS:
Evidence of no self-dealing.
Review of program effectiveness as defined by measurement
and verification results.
Efficiency contractor qualifications.
A grant will fund a program-wide measurement and verification
system to track quality control and savings for the 10 year loan
period. A training program will be established, funded by a $2 million
grant, to provide utility auditors with information about how to
implement the measurement and verification of savings, how to establish
contractual relations with efficiency upgrade contractors, and how to
assist consumers receiving efficiency upgrades.
Pilot Programs Will Ensure Quick Start and Strong Program
The first cooperatives applying for loans are to be considered
``pilot'' projects to allow more rapid internal RUS movement as well as
to establish what works and what does not work.
Cost-Effective RESPA Will Create Jobs
The total cost is $993 million for a 10 year, $4.9 billion consumer
loan program, consisting of:
$755 million in budget authority for the $4.9 billion in
zero interest loans to cooperatives.
$200 million for the grant fund to provide jump-start funds.
$1.1 million annually for ten additional RUS staff.
$2.5 million annually to fund measurement and verification
systems to ensure that improvements are installed as contracted
and projected energy savings are achieved.
$2 million one-time-grant to train electric co-op personnel
to develop and implement the consumer-level efficiency loan
programs.
This proposal will create or save an average of 20,000 to 34,000
additional jobs each of the 10 years of the program.
Conclusion
Again, thank you for the opportunity to testify at today's hearing.
The electric cooperative industry faces many challenges, including
developing a viable way to provide large-scale consumer access to
efficiency savings. However, the cooperative business model and the
public-private partnership with RUS make cooperatives well-equipped to
find innovative solutions. NRECA looks forward to working with Members
of this Committee.
The Chairman. Without objection. Thank you, Mr. English.
Mr. Adams.
STATEMENT OF CHARLES ADAMS, CHIEF ENGINEER AND
DIRECTOR OF GOVERNMENT AFFAIRS, A.O. SMITH
CORPORATION, MILWAUKEE, WI
Mr. Adams. Good morning, Mr. Chairman, and Members of the
Subcommittee. My name is Charlie Adams, and I am the Chief
Engineer and Director of Government Affairs for A.O. Smith
Corporation. Founded in 1874, A.O. Smith is the largest
manufacturer of residential and commercial water hearing
equipment in North America, employing nearly 16,000 employees
worldwide. The corporation is a global leader in providing
innovative energy-efficient water heating products in more than
60 countries around the world, including solar heat pump, and
gas hybrid water heaters, and including the highest efficiency
natural-draft gas storage water heater on the market today.
A.O. Smith appreciates the opportunity to testify before
the Subcommittee today regarding the Rural Energy Savings
Program Act, H.R. 4785. We believe this legislation is well-
structured and timely and will help maintain and create jobs
across the entire value chain of the U.S. manufacturing sector.
For A.O. Smith this would include our water heater
manufacturing operations in South Carolina, Kentucky, North
Carolina, Washington, and Tennessee, as well as our Electrical
Products Company operations in Ohio and Kentucky.
The headquarters of our Water Products Company in Ashland
City, Tennessee, was unfortunately affected by the serious
flooding in the Nashville area last week. A large portion of
that facility's production has been temporarily relocated to
our Johnson City, Tennessee facility, which is ably represented
by one of the Agriculture Committee Members, Mr. Roe. I would
like to focus my testimony today on the benefits of H.R. 4785,
how energy efficient water heaters can play a role in reducing
energy usage in rural America, and the importance of ensuring
that the most energy efficient products on the market will
qualify under the Rural Energy Savings Program. H.R. 4785
represents an important means to both save energy and create
and sustain U.S. manufacturing jobs. According to the American
Council for an Energy Efficiency Economy the United States can
cost effectively reduce energy consumption by 25 to 30 percent
or more over the course of the next 20 to 25 years through
energy conservation measures.
In addition, the U.S. manufacturing sector, which has been
hard hit in the recent recession, will benefit from this bill
as an important driver of job growth in the energy efficient
plants manufacturing sector. Congress has previously
established tax credit and other incentives to promote green
building and the use of energy efficient technologies, but the
needs of rural America are unique and require programs
specifically designed to encourage the participation of rural
homeowners and small businesses, many of whom are low income as
has been mentioned in the implementation of these energy
efficient retrofits. H.R. 4785 strikes the right balance in
providing meaningful incentives for rural consumers to
implement these retrofits, while ensuring that the program
participants can easily access the financing that many of them
need to be able to update their facilities.
These retrofits will provide energy savings and cost
savings to rural consumers. Most importantly, the legislation
does not prescribe which specific products will qualify under
the program. Rather, it allows consumers and rural utilities to
choose which products will both serve their needs and save
energy by enabling manufacturers to compete in a level playing
field for those consumers business. This legislation helps
ensure that the best energy value products will be installed in
rural homes and small businesses across the country. Water
heating is estimated to be the second largest user of energy in
the typical American home after space conditioning. As such,
currently available off the shelf energy efficient water
heating technology offers the low-hanging fruit to all users of
water heating equipment who want to reduce their energy usage.
The reductions in energy consumption that can be achieved
quickly by removing older heaters and installing new highly
efficient heaters are sizable. The Subcommittee and full
Committee works to maximize the benefit to rural consumers. We
urge that the final bill ensure that the Rural Energy Savings
Program is sufficiently coordinated with the other incentive
programs such that all highly efficient water heaters are
eligible. Specifically, it is important that eligible products
are not limited to those that qualify under the Environmental
Protection Agency's ENERGY STAR' program. I have
more details on this topic in my written testimony for your
reference, and A.O. Smith would be pleased to work with the
Subcommittee on this issue as you continue your work on H.R.
4785.
A.O. Smith greatly appreciates the work that Congressmen
Clyburn and Whitfield have done to craft this bill, and we are
anxious to work with the Subcommittee to advance this important
legislation. We have no doubt that the Rural Energy Savings
Program would be of significant value to rural homeowners,
small businesses, and manufacturers like A.O. Smith who employ
thousands of U.S. workers dedicated to manufacturing the most
energy efficient appliances on the market. Thank you.
[The prepared statement of Mr. Adams follows:]
Prepared Statement of Charles Adams, Chief Engineer and Director of
Government Affairs, A.O. Smith Corporation, Milwaukee, WI
Good morning, Mr. Chairman, and Members of the Subcommittee. My
name is Charlie Adams, and I am Chief Engineer and Director of
Government Affairs for the A.O. Smith Corporation. Founded in 1874,
A.O. Smith is the largest manufacturer of residential and commercial
water heating equipment in North America, employing 15,350 employees
worldwide. The Corporation is a global leader in applying innovative
technology and energy-efficient solutions to products sold in more than
60 countries around the world, including solar, heat pump, and gas
hybrid water heaters, along with the highest efficiency natural-draft
residential gas storage water heaters on the market.
A.O. Smith appreciates the opportunity to testify before the
Subcommittee today regarding the Rural Energy Savings Program Act, H.R.
4785. We believe this legislation is well-structured and timely and
would help maintain and create jobs across the entire value chain of
the U.S. manufacturing sector. For A.O. Smith this would include our
water heater manufacturing operations in South Carolina, Kentucky,
North Carolina, Washington, and Tennessee, as well as our Electrical
Products Company operations in Ohio and Kentucky. The headquarters of
our Water Products Company in Ashland City, Tennessee, was
unfortunately affected by the serious flooding in the Nashville area
last week, and half of that facility's production has been relocated to
our Johnson City, Tennessee facility, which is ably represented by one
of the Agriculture Committee's Members, Congressman Phil Roe.
I would like to focus my testimony today on the benefits of H.R.
4785, the meaningful role that energy-efficient water heaters can play
in reducing energy usage in rural America, and the importance of
ensuring that the most energy-efficient products on the market will
qualify under the Rural Energy Savings Program.
H.R. 4785 Will Produce Meaningful Energy Savings and Support U.S.
Manufacturing Jobs
H.R. 4785 represents an important means to both save energy and
create and sustain U.S. manufacturing jobs. Installation of energy-
efficient technologies plays a key role in our national effort to
reduce energy usage. According to the American Council for an Energy
Efficiency Economy (ACEEE), the United States can cost-effectively
reduce energy consumption by 25-30% or more over the course of the next
20-25 years through energy conservation measures. In addition, the U.S.
manufacturing sector has been hard hit by the recent recession, and
this bill will be an important driver of job growth in the energy-
efficient appliance manufacturing sector which stands ready and able to
meet heightened demand for our products from rural consumers.
Congress has previously established tax credits and other
incentives to promote ``green'' building and the use of energy-
efficient technologies. Yet the needs in rural America are unique and
require a program specifically designed to encourage the participation
of rural homeowners and small businesses, many of whom are low-income,
in the implementation of energy-efficient retrofits. H.R. 4785 strikes
the right balance in providing meaningful incentives for rural
homeowners and small businesses to implement energy-efficient
retrofits, while ensuring program participants can easily access the
financing that many of them need to update their facilities. In the
end, the implementation of these retrofits will provide energy savings
to rural consumers--a cost savings that is critical for many families
and businesses in this recession.
Most importantly, the legislation does not prescribe which specific
products will qualify under the program; rather, it allows consumers
and rural utilities to choose which products will best serve their
needs and meet energy efficiency goals. By enabling appliance
manufacturers to complete on a level playing field for consumers'
business, this legislation helps ensure that the most energy-efficient,
highest-quality, and greatest-value products will be installed in rural
homes and small businesses across the country--producing significant
energy savings for consumers and helping to reduce our nation's carbon
emissions.
Energy-Efficient Water Heaters Can Provide Substantial Energy Savings
in Rural America
Water heating is estimated to be the second-largest use of energy
in the typical American home, after heating/air-conditioning. As such,
currently-available, off-the-shelf, highly energy-efficient water
heating technology offers ``low hanging fruit'' to all users of water
heating equipment who wish to reduce their energy usage. The reductions
in energy consumption that can be achieved quickly by removing older
units and installing new, highly-efficient units are sizable. For
example, if we were able to replace the estimated 100 million water
heaters in residential use today with the most energy-efficient water
heaters on the market, reductions in annual consumption of natural gas
by water heaters could decrease up to 30%, and the reduction in annual
generation of electricity to power water heaters would equate to the
annual output of 21 large power plants. The greenhouse gas emissions
reductions that could result from this shift would be equivalent to
taking 30 coal-fired power plants offline.
As Congress debates the difficult issue of how best to reduce
emissions from power plants and manufacturing facilities in the future,
energy conservation through replacement of outdated water heaters and
other appliances remains a meaningful step that can be taken to reduce
carbon emissions and U.S. energy usage today. Rural America can reap
uniquely positive benefits from energy conservation, given that a
majority of electric generation by rural electric cooperatives is coal-
fired power generation. Thus, reducing energy usage in rural America
through near-term energy-efficient retrofits is an important means of
reducing carbon emissions from coal-fired plants.
H.R. 4785 Should Ensure Promotion of the Highest Efficiency Appliances
As the Subcommittee and Full Committee examine this legislation and
seek to ensure its maximum benefit for rural homeowners, small
businesses, and manufacturers, we urge that the final bill ensure that
the Rural Energy Savings Program is sufficiently coordinated with
current and future rural utility appliance rebate or energy-efficiency
programs such that all highly efficient water heaters are eligible.
Specifically, it is important that eligible products are not limited to
those that qualify under the Environmental Protection Agency's ENERGY
STAR' program.
Current Federal law does not uniformly rate the energy efficiency
of all classes of water heaters. Depending on a water heater's gallon
capacity and energy input rating, it may be covered under the National
Appliance Energy Conservation Act (NAECA) of 1987 (P.L. 95-619) or the
Energy Policy Act (EPAct) of 1992 (P.L. 102-486). If covered under
NAECA, the water heater must be rated in energy factor (EF). If covered
under EPAct, it must be rated in thermal efficiency (TE). While the
distinctions created by these laws may have seemed practical in prior
years, the water heating industry has changed sufficiently such that
the existence of these two rating systems has become outdated,
arbitrary, and most importantly, confusing to consumers. For this
reason, there is strong industry and NGO support for changing Federal
law to apply one uniform testing standard to all water heaters (see S.
2908, the Water Heater Rating Improvement Act of 2009).
Unfortunately, the ENERGY STAR' program only allows
water heaters rated in EF to qualify for the ENERGY STAR'
rating, despite the fact that there are now water heaters on the market
rated in TE that are far more efficient than those rated in EF. This
inherent problem with the ENERGY STAR' program has been
perpetuated through subsequently-established state and utility rebate
programs that use the ENERGY STAR' program as a model and
thereby prohibit consumers from receiving rebates for many highly-
efficient water heating products. These ENERGY STAR'
standards are particularly restrictive when one considers that Section
25C of the tax code, intended to provide incentives for the
installation of energy-efficient water heaters, provides a homeowner
with a tax credit of up to $1,500 for the purchase of an energy-
efficient water heater rated 90% TE or greater. Yet, in many states, a
homeowner could not receive a rebate for such a water heater through
local rebate programs, because the ENERGY STAR' program does
not recognize the efficiency of TE-rated products. An additional
weakness in ENERGY STAR' is that only electric heat pump
water heaters are eligible, excluding electric storage water heaters
rated as highly as 0.95 EF. This limitation is not reasonable or
practical for the homeowner given that, per a recent analysis by the
Department of Energy,\1\ 40% of homes may not have sufficient space to
accommodate an electric heat pump water heater. In rural areas, with
typically smaller homes and manufactured homes, the percentage would be
higher.
---------------------------------------------------------------------------
\1\ See the Final Rule Technical Support Document (accompanying
the Energy Conservation Program Final Rule: Energy Conservation
Standards for Residential Water Heaters, Direct Heating Equipment, and
Pool Heaters, 10 CFR 430 (2010)), Chapter 8, page 8-23, found at:
http://www1.eere.energy.gov/buildings/appliance_standards/residential/
heating_products_fr_tsd.html.
---------------------------------------------------------------------------
While the Agriculture Committee does not have jurisdiction over the
ENERGY STAR' program or tax policy, it can ensure that rural
utilities, when implementing H.R. 4785, do not simply limit product
eligibility to those that are ENERGY STAR'-rated. Because
some of the most energy-efficient water heaters on the market are not
rated in EF, the Rural Energy Savings Program can only ensure maximum
energy savings through the program by ensuring that products rated in
TE will be deemed eligible for rebates by the rural utilities. Indeed,
the Energy and Commerce Committee recognized the significant energy
savings that can be gained from TE-rated water heaters when it included
them in the rebate program established though the recently-passed Home
Star Energy Retrofit Act (H.R. 5019). A.O. Smith would be pleased to
work with the Subcommittee on this issue as you continue your work on
H.R. 4785.
Conclusion
A.O. Smith greatly appreciates the work that Congressmen Clyburn
and Whitfield have done to craft this bill, and we are anxious to work
with the Subcommittee to advance this important legislation. Should
this bill be enacted this year, we look forward to working with the
rural utilities and state energy offices as this program is implemented
in rural communities across the country. We have no doubt that the
Rural Energy Savings Program would be of significant value to rural
homeowners and small businesses and manufacturers like A.O. Smith who
employ thousands of U.S. workers dedicated to manufacturing the most
energy-efficient appliances on the market.
The Chairman. Thank you, Mr. Adams. Mr. Bates.
STATEMENT OF SCOTT D. BATES, CORPORATE VICE
PRESIDENT, GENERAL COUNSEL, AND SECRETARY, RHEEM MANUFACTURING
COMPANY, ATLANTA, GA
Mr. Bates. Good morning, Chairman Holden, Ranking Member
Goodlatte, and Members of the Subcommittee. Thank you for the
opportunity to speak with you today about H.R. 4785, the Rural
Energy Savings Program Act. My name is Scott Bates, and I am
the Corporate Vice President and General Counsel of Rheem
Manufacturing Company, a leading global producer of water
heaters, air conditioners, furnaces, pool heaters, and boilers.
With our headquarters in Atlanta, we are proud to be a
significant manufacturer and employer of thousands of market
participants in the United States. Since our founding by the
Rheem Brothers in California in 1925, we have provided good
manufacturing, research and development, and distribution jobs.
Offering quality products to our wholesale and retail customers
our employment footprint extends to thousands more across the
nation.
Rheem is an innovator and consistently designs increased
efficiency into its products. In fact, Edwin Ruud, one of
Rheem's forefathers, invented the tank type water heater used
in the United States. As a result, we are very interested in
legislation and government programs which incentivize the
reduction of energy costs and increase the demand for energy
efficient products. We believe that the Rural Energy Savings
Program Act, in particular, is critically important because it
lowers the cost of barriers for consumers to invest in energy
efficient solutions, and to do so in partnership with rural co-
ops will only enhance the program's success. Co-ops know what
they are doing.
Rheem is proud to have substantial experience working with
co-ops to offer its water heaters, air conditioners, furnaces,
and heat pumps to the American public. Presently, we partner
with nearly 300 co-ops across the nation and we work hard to
bring them their energy efficient products to meet the needs of
their customers. One such product is our non-metallic water
heater, which we appropriately call the Marathon. It just keeps
running. With a lifetime tank warranty, it is a popular product
with co-ops because it goes the distance even in rural America
where water quality may not always be optimal. The Rural Energy
Savings Program would enable consumers to realize significant
lifetime savings by lowering their ongoing energy expenses, and
by smoothing out the up front cost for this kind of durable and
efficient water heater which we design in Alabama and
manufacture in Minnesota.
As you know, the availability of low interest financing
through co-ops allow homeowners and small business to more
readily afford cost-reducing and energy efficiency increasing
products such as air conditioners, furnaces, heat pumps, and
water heaters. Generally, for consumers the heating, cooling,
and water heating costs represent the majority of their energy
spent. We at Rheem take this seriously and consistently work to
bend the cost curve for the consumer. This bill is an excellent
answer to a real challenge. This Act encourages and assists
consumers to purchase better products that will reduce their
energy costs and improve their quality of life.
I commend the cosponsors on this Subcommittee for
considering it today. This legislation will benefit consumers
in the program and our country as a whole. The policy will
improve our country's carbon footprint, reduce the cost of
operation for small business, enable consumers to save money,
and support job creation at a critical point in our economic
recovery. In the words of Congressman Clyburn, this bill
provides for energy conservation, job creation, and cost
effective upgrades that will improve consumers' quality of
life. There is such broad support for this initiative because
it is a win-win-win proposition. We could not agree with him
and his cosponsor, Congressman Whitfield, any more, and we
strongly encourage Congress to move forward and establish the
Rural Energy Savings Program.
In closing, I would like to note that this Committee has
been writing agriculture policy for nearly 200 years. Members
of this body have tackled critical energy and rural development
issues. This is another important initiative. We are hopeful
that working with your colleagues in Congress this bill can
become law and provide savings to rural America. Toward that
end, we look forward to working with you. Thank you for the
opportunity to speak with you today, and I welcome any
questions that you may have.
[The prepared statement of Mr. Bates follows:]
Prepared Statement of Scott D. Bates, Corporate Vice President, General
Counsel, and Secretary, Rheem Manufacturing Company, Atlanta, GA
Chairman Holden, Ranking Member Goodlatte, and Members of the
Subcommittee, I would like to thank you for the opportunity to speak
with you today about H.R. 4785, the Rural Energy Savings Program Act.
My name is Scott Bates, and I am the Corporate Vice President,
General Counsel, and Secretary for Rheem Manufacturing Company (Rheem),
a leading global producer of heating, cooling and water heating
products.
Rheem was established in the mid-1920s when brothers Richard and
Donald Rheem acquired a galvanizing plant in San Francisco, California.
The company began manufacturing water heaters in the 1930s and reached
coast to coast distribution of its water heaters by 1936. Rheem
increased its product line to include space heating units for homes,
oil furnaces, and air conditioners during the 1940s and 1950s. In 1959,
Rheem acquired Ruud Manufacturing Company, a pioneer in the water
heating industry and the manufacturer of a well-regarded product line
with a distribution network throughout North America. In the following
years, Rheem entered the heating and air conditioning market, and the
company expanded in the late 1960s and 1970s with the rapid growth of
the central air conditioning industry. In 1985, the company acquired
Raypak, a leading producer of copper tube boilers used for swimming
pool heating and commercial hot water supply and hydronic heating.
Since then, Rheem has become a global market participant.
Rheem is a significant employer in the United States. The company's
headquarters and corporate offices are located in Atlanta, Georgia. The
company has a finished goods distribution center in nearby McDonough,
Georgia, and has additional facilities in Fort Smith, Arkansas;
Montgomery, Alabama; Oxnard, California; Arcadia, Florida; Eagan,
Minnesota; Randleman, North Carolina; and Lewisville, Texas. Rheem also
has an international presence in such locations as Brazil, Canada, and
Mexico.
Today, Rheem is a leading global producer of water heaters, central
warm air furnaces and air conditioners, and swimming pool heaters and
commercial boilers. The company is an engaged market player with a
broad portfolio of products important to the public and our national
energy efficiency goals. The range and variety of Rheem's product line
offerings makes the company a one-stop provider for all heating,
cooling and water heating solutions. Rheem's product offerings cover
residential and commercial heating, cooling, conventional storage-style
water heaters, tankless water heaters, solar water heating systems,
geothermal heat pumps, non-metallic water heaters, replacement parts
and accessories for all categories.
The company has consistently demonstrated a commitment to
innovation and efficiency with its product offerings, and industry
groups have lauded and recognized this commitment in recent years. The
Rheem Passive Solar System Series received the 2009 MVP Award for
Innovation and Efficiency from the Builder's Group, and the California-
based Valley Electric Association awarded the company a 5,000 unit
project for this solar technology. Rheem led the water heating industry
in the development of Flammable Vapor Ignition Resistance (FVIR)
technology. Rheem's hybrid electric heat pump water heater was one of
the first integrated heat pump water heater to qualify for ENERGY
STAR', and the heater has received numerous awards and
recognition: Green Builder Top 50 Best Products Award, Architectural
Record--Top 10 Green Product, Contractor magazine Editor's Pick, Green
Build Expo Award--Best Products Winner, and Builder News--Best Product
2009 Winner. And of particular relevance for today's discussion,
Rheem's non-metallic Marathon water heater, manufactured in the
company's Eagan, Minnesota facility, is offered to the cooperative
market and offers a lifetime tank warranty.
Because of Rheem's demonstrated commitment to energy efficiency,
the company is very interested in legislation and government programs
which incentivize or facilitate the reduction of energy costs and
increase the demand for and availability of energy efficient products.
Government incentives that encourage investment in home energy
efficiency are powerful tools to help support the American consumer and
the industries that supply them. The Rural Energy Savings Program Act
in particular is critically important to energy efficiency efforts
because it lowers the cost barrier faced by consumers interested in
investing in energy efficiency.
In doing so, the program would benefit every concerned party and
our country as a whole. This important initiative would create jobs at
a critical point in our economic recovery and reduce our country's
energy footprint. Consumers would be able to afford to invest in
products that would reduce their costs, increase their energy
efficiency, and improve their quality of life at home or in the
workplace. Domestic manufacturers of energy efficient products would
realize increased demand and increased volume of sales, and others
would have yet another incentive to enter the market of energy
efficient products. In the words of the sponsor of this legislation,
House Majority Whip Jim Clyburn, ``[t]his bill provides for energy
conservation, job creation and cost-effective upgrades that will
improve consumers' quality of life. There is such broad support for
this initiative because it is a win-win-win proposition.'' Similarly,
the lead cosponsor, Congressman Ed Whitfield described the bill as ``a
win for American consumers and a win for improving energy efficiency
across the country.'' We could not agree more, and we strongly urge
Congress to move forward and establish the Rural Energy Savings
Program.
As you know, under the proposed legislation, individual co-ops or
state-based groups of co-ops will apply to the Rural Utilities Service
(RUS) of the U.S. Department of Agriculture (USDA) to borrow money to
fund local energy efficiency programs that meet RUS energy savings
standards. Co-ops, in turn, will use the funding to make low-interest
micro-loans available to residences or small business that choose to
participate in the voluntary program and that have a demonstrated
ability to repay the loans. Participating consumers repay the co-ops
for the installation and material costs through a charge on their
utility bills within a 5-10 year window. Energy savings from the
upgrade should cover most, if not all, of the cost of the loan, and
consumers should save hundreds of dollars annually once the loan is
repaid.
The program builds on an existing and strong co-op infrastructure
that has strong community ties, an established presence in the
industry, and a demonstrated history of repayment of loans. The Rural
Energy Savings Program presents little risk to taxpayers and the
Federal Government because the reliable co-ops will assume the
responsibility of collecting from consumers. Co-ops currently borrow
extensively from the Federal Government to finance electric
distribution, generation and transmission investments and have a proven
repayment track record.
Rheem has significant and proud experience working with co-ops to
offer energy efficient products to consumers. The company's nonmetallic
Marathon water heater, in particular, is a popular product with co-ops.
The product, manufactured in the company's Eagan, Minnesota facility,
comes with a lifetime tank warranty, and it is offered in sizes ranging
from 15 gallons to 105 gallons (see the picture below).
Marathon heaters have efficiency ratings ranging from 91 percent EF
to 94 percent EF, with new, increased efficiency models planned for
release over the next several months. The Marathon heater uses
insulation to keep water hot, and the Marathon's blow-molded tank and
tough outer jacket will not rust, leak or corrode. According to the
Department of Energy, the average lifetime of a water heater is 13
years; however, in rural areas often with lower water quality than
municipal areas, the tank may have to be replaced sooner due to
corrosion. As a result, the Rheem Marathon water heater is a popular
choice among consumers because of its nonmetallic tank, high efficiency
levels, and the Lifetime Tank Warranty that saves consumers the future
expense of buying and installing a replacement heater. Consequently,
the Marathon heater can carry a higher cost, and regardless of eventual
cost savings, Rheem has learned through experience that consumers often
cannot afford the initial up-front cost of higher efficiency products.
The availability of low-interest financing through co-ops will allow
homeowners and small business to more readily afford cost-reducing and
efficiency-increasing products such as the non-metallic Marathon water
heater.
The Rural Energy Savings Program will give consumers the option of
low-interest financing and the ability to decrease initial costs and
realize the cost savings of higher efficiency energy products.
Consumers should see long-term energy savings while avoiding the up-
front capital and financing costs they would face in the private
market, allowing consumers to invest in technology that should save
American families hundreds of dollars each year in energy costs. The
cost savings eventually realized on energy bills will allow low income
households to allocate funds to food, shelter, education, and other
necessities. Similarly, the program will also allow small businesses to
focus their savings on other areas of need. Beyond utility cost
savings, the American public will be working for more successful
businesses and living in homes that are better insulated, more
efficient, and more comfortable.
The impact of the Rural Energy Savings Program extends well beyond
the players in the market for energy efficient products and helps
advance national policies that will benefit the country as a whole.
Improving energy efficiency will reduce our national carbon footprint
and will help decrease our dependency on foreign energy sources. The
program will create jobs at home at a critical time for our economic
recovery and our efforts to lower unemployment rates. Specifically, the
domestic manufacturing and construction industries would benefit
greatly as energy efficient products are domestically manufactured and,
as you know, installation jobs cannot be outsourced. The fact that this
bill would advance such important national policies while at the same
time providing direct and immediate benefits to consumers and
manufacturers explains why Majority Whip Clyburn, Congressman
Whitfield, and others have worked so diligently to advance this
legislation.
For nearly 200 years, the Committee on Agriculture has established
agricultural policy for America and tackled vitally important energy
issues including renewables, rural development, conservation, and
related jobs efforts. The need to lower cost barriers for those in
rural communities to energy efficient products is yet another key
issue.
Under your leadership, Chairman Holden and Ranking Member
Goodlatte, and Members of the Subcommittee, this body has the
opportunity through the Rural Energy Savings Program Act to extend its
long-standing efforts to create jobs, reduce consumer costs, spur
domestic production, and reduce our energy footprint. Moreover, the
program will achieve all these results by prudently using Federal
resources to lower cost barriers and empower co-ops and consumers to
help themselves and our country. Rheem strongly urges you to move
quickly to pass the legislation establishing this program. I thank you
for your time and for the opportunity to testify before you today, and
I welcome any questions you may have at this time.
Thank you.
The Chairman. Thank you, Mr. Bates. Mr. Bony.
STATEMENT OF PAUL S. BONY, DIRECTOR OF RESIDENTIAL MARKET
DEVELOPMENT, ClimateMaster, OKLAHOMA CITY, OK
Mr. Bony. Good morning, Chairman Holden, Congressman
Goodlatte and distinguished Members of Congress. It is truly an
honor and a pleasure to be here this morning to offer support
for the Rural Energy Savings Program Act on behalf of my
employer, ClimateMaster, an Oklahoma based manufacturer of
geothermal heat pumps with dealers and distributors across the
U.S. I am Paul Bony, and I have 23 years of electric utility
experience focused on energy efficiency, renewable energy, and
demand side planning. I have worked for two electric co-ops,
including one where my great uncle was the first elected board
president, and I am a member of an electric co-op.
Based on my experience, this legislation will provide many
benefits to the electric cooperative industry and the members
they serve. This legislation will save energy. Buildings use
nearly 40 percent of all U.S. primary energy and the thermal
loads of heating, cooling, and water heating account for nearly
\1/2\ of this use. These thermal loads can account for as much
as 70 percent of the total energy use of rural homes.
Geothermal heat pumps can reduce this annual energy load by up
to 50 percent.
This legislation will also save rural consumers money. Many
rural areas do not have access to well capitalized and
organized energy retrofit companies. Rural areas also rely on a
high proportion of expensive fossil fuels for heating.
Customers can benefit greatly from energy efficiency upgrades
including geothermal heat pumps. These upgrades can provide
energy savings that will exceed the loan repayments made under
the proposed RES program. I conducted an extensive home energy
retrofit project that confirmed members could easily reduce
their annual energy use by 50 percent or more from efficiency
measures that provided a positive cash flow after debt service.
Unfortunately, in today's tough economy, customers do not
have ready access to affordable loan funds to implement
efficiency measures. This legislation will be invaluable in
breaking this financial barrier. This legislation will also
create jobs. The energy efficiency upgrades financed by this
legislation will generate employment for local labor. For
geothermal heat pumps the installation of the equipment and
ground loop has to be done locally. We will never import ground
loops from off shore. I started a co-op division that focused
exclusively on the installation of 50 to 70 geothermal heat
pump systems annually. This division employs seven full-time
people in good paying jobs with full benefits. It also hires
other contractors to provide services including energy audits,
drilling ground loops and weatherizing homes.
This legislation will improve the financial stability of
participating co-ops. Geothermal heat pumps offer cooperatives
an excellent tool to obtain significant peak load reduction and
improve system load factor. This allows a co-op to provide
energy efficiency to their members and reduce the need for
expensive new generation without putting pressure on electric
rates. These energy savings also spin off significant carbon
savings. Co-ops could bundle these savings and capture their
value for the benefit of their members. Electric co-ops are a
great vehicle to administer the RES program. They have a long
track record of providing member-focused services and paying
back their Federal loans. They are trusted by their members.
They can collect payments on their utility bills.
In rural communities they are often the only organization
with the resources and talent to administer this type of
effort. I recognized over 15 years ago that access to
affordable financing was the key to customer participation and
energy efficiency, when I started the successful geothermal
loop lease program that is still working today. In Colorado, I
again proved that consumers will respond to co-op financing to
make efficiency investments. While individual members in my
loan portfolio experienced the misfortunes that can happen to
any of us, it always generated a positive cash flow. I can also
assure you that my general manager and our board of directors
paid close attention to my monthly reports on this loan
portfolio.
However, in both programs, our ability to fund member
efficiency was limited to internally generated funds, as RUS
was not able to finance these efforts. With support from then
Senator Ken Salazar, we were able to obtain USDA loan funds for
the co-op financed geo loops in the 2007 Food and Energy
Security Act. However, this loan authority only addressed the
geo loop, not the equipment installation and home shell
improvements. This legislation will close this large financing
gap, and in my humble opinion, greatly accelerate the
implementation of energy efficiency in co-op country.
In conclusion, ClimateMaster is very supportive of and
excited about this legislation. I am convinced that it will
provide great benefits to the millions of members of electric
co-ops. It closes the financing gap that has prevented the
greater adoption of energy efficiency in rural America, and it
levers the resources and talent embedded in America's electric
cooperatives. Thank you for giving me this opportunity to share
my comments with you this morning.
[The prepared statement of Mr. Bony follows:]
Prepared Statement of Paul S. Bony, Director of Residential Market
Development, ClimateMaster, Oklahoma City, OK
Good morning, Chairman Holden, Congressman Goodlatte, and
distinguished Members of Congress. It is truly an honor and pleasure to
be here this morning to offer support for the Rural Energy Savings
Program Act on behalf of my employer ClimateMaster, an Oklahoma based
manufacturer of geothermal heat pumps with dealers and distributors
across the U.S.
I am Paul Bony, and I have 23 years of electric utility experience
focused on energy efficiency, renewable energy and demand side
planning. I have worked for two electric cooperatives, including one
where my Great Uncle was the first elected Board President, and I am a
member of an electric co-op.
Based on my experience, this legislation will provide many benefits
to the electric cooperative industry and the members they serve.
This legislation will save energy. Buildings use nearly 40% of all
U.S. primary energy and the thermal loads of heating, cooling, and
water heating accounting for nearly \1/2\ of this use. These thermal
loads can account for as much as 70% of the total energy use of rural
homes. Geothermal heat pumps can reduce this annual energy load by up
to 50%.
This legislation will also save rural consumers money. Many rural
areas do not have access to well capitalized and organized energy
retrofit companies. Rural areas also rely on a high proportion of
expensive fossil fuels for heating. Customers can benefit greatly from
energy efficiency upgrades including geothermal heat pumps. These
upgrades can provide energy savings that will exceed the loan
repayments made under the proposed RES program.
I conducted an extensive home energy retrofit project that
confirmed members could easily reduce their annual energy use by 50% or
more from efficiency measures that provided a positive cash flow after
debt service.
Unfortunately, in today's tough economy, customers do not have
ready access to affordable loan funds to implement efficiency measures.
This legislation will be invaluable in breaking this financial barrier.
This legislation will also create jobs. The Energy Efficiency
upgrades financed by this legislation will generate employment for
local labor. For geothermal heat pumps, the installation of the
equipment and ground loop has to be done locally. We will never import
ground loops from off shore.
I started a co-op division that focused exclusively on the
installation of 50 to 70 geothermal heat pump systems annually. This
division employs seven full time people in good paying jobs with full
benefits. It also hires other contractors to provide services including
energy audits, drilling ground loops, and weatherizing homes.
This legislation will improve the financial stability of
participating co-ops. Geothermal heat pumps offer cooperatives an
excellent tool to obtain significant peak load reduction and improved
system load factor. This allows a co-op to provide energy efficiency to
their members and reduce the need for expensive new generation, without
putting pressure on electric rates. These energy savings also spin off
significant carbon savings. Co-ops could bundle these savings and
capture their value for the benefit of their members.
Electric co-ops are a great vehicle to administer the RES program.
They have a long track record of providing member focused services and
paying back their Federal loans. They are trusted by their members.
They can collect payments on their utility bills. In rural communities
they are often the only organization with the resources and talent to
administer this type of effort.
I recognized over 15 years ago that access to affordable financing
was the key to customer participation in energy efficiency, when I
started a successful geothermal loop lease program that is still
working today.
In Colorado, I again proved that consumers will respond to co-op
financing to make efficiency investments. While individual members in
my loan portfolio experienced the misfortunes that can happen to any of
us, it always generated a positive cash flow. I can also assure you
that my General Manager and our board of directors paid close attention
to my monthly reports on this loan portfolio.
However in both programs, our ability to fund member efficiency was
limited to internally generated funds, as RUS was not able to finance
these efforts. With support from then Senator Ken Salazar we were able
to obtain USDA loan funds for co-op financed geo loops in the 2007 Food
and Energy Security Act. However this loan authority only addressed the
geo loop, not the equipment installation and home shell improvements.
This legislation will close this large financing gap and in my
humble opinion greatly accelerate the implementation of energy
efficiency in co-op country.
In conclusion, ClimateMaster is very supportive of and excited
about this legislation. I am convinced that it will provide great
benefits to the millions of members of electric cooperatives. It closes
the financing gap that has prevented the greater adoption of energy
efficiency in rural America and it levers the resources and talent
embedded in America's electric cooperatives.
Thank you for giving me the opportunity to share my comments with
you this morning.
The Chairman. Thank you. Mr. Cowan.
STATEMENT OF JONATHON COWAN, PRESIDENT, THIRD WAY, WASHINGTON,
D.C.
Mr. Cowan. Good morning, Mr. Chairman, and thank you for
inviting me to testify. My name is Jon Cowan, and I am
President of Third Way. Previously, I was Chief of Staff of the
Department of Housing and Urban Development. I appreciate your
giving me the opportunity to talk today about a policy that, as
all the witnesses have said, has bipartisan, bicameral support,
creates thousands of jobs in rural America, and is an effective
expenditure of our tax dollars. Mr. Chairman, energy efficiency
improvements can save homeowners a lot of money and create good
local jobs, but despite the promise of lower energy bills, most
homeowners don't actually make these improvements. Why? Rural
Energy Star changes that calculation and answers that question.
It makes it convenient to pay for and contract improvements. It
operates through long-established U.S. Department of
Agriculture and co-op processes that we know work, and it
achieves enormous benefits at limited cost.
It should be an easy decision for homeowners to invest in
saving energy. Improvements pay for themselves within 5 to 10
years, and energy savings continue for the lifetime of the
home. But few families, as this Committee knows, have $4,000 or
$5,000 lying around, in a bank, under a mattress to pay for
improvements. And if they do pay for them, they might have to
move before the savings pay off and, as many know, making those
efficiency upgrades can seem daunting and complex to the
average homeowner. Rural Energy Star eliminates these barriers
so that anyone can take advantage of the opportunity to save
money through efficiency. Affordable loans to consumers cover
the entire cost of improvements ensuring that people can
participate as long as they pay their monthly utility bill.
Local electric cooperatives serve as general contractor and
the source of the consumer loans creating a program that is
convenient and trustworthy. Co-ops attach the loan repayment
obligation to the meter ensuring that benefits and costs pass
on if the homeowner actually moves. Rural Energy Star extends
two 75 year old legacies, USDA's lending money to co-ops, and
co-ops financing consumer loans and improvements. USDA has
issued direct loans to electric cooperatives since the New
Deal, with the Rural Utilities Service issuing over $6 billion
in loans last year alone. And the repayment history of co-ops
is second to none. Rural Energy Star takes advantage of the
regulations and processes already in place at USDA, so that
Federal loan-making is smooth and efficient.
Meanwhile, the co-ops are well situated to manage the loan
making and contracting at the consumer level. Because they are
nonprofit and ratepayer-owned, the co-ops have a unique
incentive to help consumers save energy. Co-ops have the
ability to finance their consumers' efficiency improvements,
the data to determine which ratepayers are good credit risks,
and a reliable, property-tied repayment mechanism in the form
of home utility bills. They also have the on-the-ground
management structures and local relationships to ensure sub-
contractor accountability and confirm that improvements are
installed as promised. If cost savings do not materialize, the
co-ops, not the Federal Government, are on the hook for the
losses. That is a powerful incentive to make sure the program
works.
If Congress passes the Rural Energy Star bill, it will
achieve significant economic benefits also at an affordable
cost. The $995 million this bill is projected to cost will
leverage $4.9 billion in consumer loans enabling the
weatherization and retrofitting of nearly 1.5 million rural
homes. That means for every $1 spent by the Federal Government
$5 is spent in rural communities on contractors and
manufactured goods. The resulting energy savings will save
rural homeowners a minimum of $5 billion on their utility bill
in the first 10 years, and even more in the next 10. That extra
money in people's pockets stimulates the economy. Economists
project Rural Energy Star will create about 292,000 jobs by
2020. That means nearly 300,000 jobs and billions in dollars in
savings on consumer energy bills.
Mr. Chairman, Rural Energy Star uses proven mechanisms to
leverage Federal funding and to save homeowners money and
create new local jobs. That is why it has already received
strong bipartisan, bicameral support, and we believe it would
be an effective program if passed into law. Thank you.
[The prepared statement of Mr. Cowan follows:]
Prepared Statement of Jonathon Cowan, President, Third Way, Washington,
D.C.
Good morning, Mr. Chairman, and thank you for inviting me to
testify this morning. My name is Jon Cowan, and I am President of Third
Way. I previously was Chief of Staff of the Department of Housing and
Urban Development. I appreciate your giving me the opportunity today to
talk about a policy that has bipartisan, bicameral support, creates
thousands of jobs in rural America, and is a responsible fiscal steward
of Americans' tax dollars.
Mr. Chairman, energy efficiency improvements can save homeowners a
lot of money and create good local jobs. Despite the promise of lower
energy bills, however, most homeowners don't make these improvements.
With just the lightest touch from the Federal Government, Rural
Energy Star changes the game for rural homeowners when it comes to
saving energy. It makes it convenient and painless to pay for and
contract improvements. It operates through long-established U.S.
Department of Agriculture and co-op processes that we know work
smoothly. And it is fiscally responsible, achieving enormous benefits
at limited cost.
It should be an easy decision for middle class homeowners to invest
in saving energy. Improvements pay for themselves within 5 to 10 years,
and energy savings continue for the life of the home. But few families
have $4,000-$5,000 lying around to pay for improvements, and they might
move before the savings payoff anyway. Moreover, making substantial
efficiency upgrades can be a complex and daunting endeavor.
Rural Energy Star eliminates these barriers so that anyone can take
advantage of the opportunity to save money through efficiency.
Affordable loans to consumers cover the entire cost of improvements,
ensuring people can participate as long as they can pay their monthly
utility bill. Local electric cooperatives serve as general contractor
and the source of the consumer loans, creating a program for homeowners
that is convenient and trustworthy. Co-ops attach the loan repayment
obligation to the meter, ensuring that benefits and costs pass on if
the original homeowner moves.
To take these steps to address consumers' needs, Rural Energy Star
extends two 75 year old legacies--USDA's lending money to co-ops, and
co-ops financing consumer loans and improvements. As Members of this
Committee know well, USDA has issued direct loans to electric
cooperatives since the New Deal, with the Rural Utilities Service
issuing over $6 billion in loans last year alone. And the repayment
history of co-ops is second to none. Rural Energy Star takes advantage
of the regulations and processes already in place at USDA, so that
Federal loan-making is smooth and efficient.
Meanwhile, the co-ops are well situated to manage the loan making
and contracting at the consumer level. Because they are nonprofit and
ratepayer-owned, the co-ops have a unique incentive to help their
consumers save energy. Co-ops have the ability to finance their
consumers' efficiency improvements, the data to determine which
ratepayers are good credit risks, and a reliable, property-tied
repayment mechanism in the form of home utility bills. They also have
on-the-ground management structures and local relationships to ensure
sub-contractor accountability and confirm that improvements are
installed as promised. If cost savings did not materialize, the co-
ops--not the Federal Government--are on the hook for the losses. That's
a powerful incentive to make sure the program works.
If Congress passes the Rural Energy Star bill we are discussing
today, it will be a fiscally responsible action, achieving enormous,
enduring economic benefits at an affordable cost.
The $995 million this bill is projected to cost will leverage $4.9
billion in consumer loans, enabling the weatherization and retrofit of
nearly 1.5 million rural homes. That means for every $1 spent by the
Federal Government, $5 is spent in rural communities on contractors and
manufactured goods. The resulting energy savings will save rural
homeowners a minimum of $5 billion on their utility bills in the first
10 years and even more than that in the next 10 years. The extra money
in people's pockets stimulates the economy even further. Economists
project Rural Energy Star will create 292,000 jobs by 2020. That's
nearly 300,000 jobs and billions upon billions of dollars in savings on
consumer energy bills.
Mr. Chairman, Rural Energy Star uses proven mechanisms to leverage
comparatively few Federal dollars to save homeowners money and create
new local jobs. This is why it has already received strong bipartisan,
bicameral support, and we believe it would be an effective program if
passed into law.
Thank you.
The Chairman. Thank you. Mr. English, do you think H.R.
4785 includes adequate safeguards to ensure the integrity of
the program remains intact, and NRECA does not find itself in a
situation where some customers cannot pay back the loan?
Mr. English. Well, I think that it best can be pointed out
by the fact that as is always any time an electric cooperative
borrows from the Rural Utilities Service it is the electric
cooperative who is responsible for those funds. In this
particular case, it is the electric cooperative making that
investment in efficiency locally, and obviously they know their
membership better than anyone, and they know where they can
acquire those savings. And as I pointed out, we feel that this
legislation provides the flexibility, the accountability that
is necessary for the electric cooperative to do that job and do
it well. I might also point out very quickly, Mr. Chairman,
there is one very important distinction here. To my knowledge,
this is the only case in which you have a segment of electric
utility industry who is stepping up and assuming the
responsibility to make sure that we have a very aggressive
efficiency program taking place and has a delivery mechanism to
make it happen. I know of no other segment of the electric
utility industry that has expressed such interest or is
involved to that extent.
The Chairman. Following up on Mr. Kissell's question
previously, how do you think the projects will be prioritized,
the most savings, or the lowest income homeowner, or how do you
think it will be implemented?
Mr. English. Well, I can only hope that we have enough
interest and demand for electric co-op members that we will
have that difficulty in making that kind of selection.
Obviously, from the standpoint of the cooperative, and this is
where I wanted to underscore that this business is owned by the
consumers, affordable electric power is a big issue, and back
in 1980 it was the local co-op board and the management that
was catching an awful lot of anger from the membership as those
electric bills took those kinds of increases. That was the last
transition we went through. As I said, we are going through
another one now, and so it is certainly in the co-op's
management and board's best interest to make sure that they get
as much efficiency as they possibly can so that they can avoid
taking what is the most expensive option; that is going out and
building a new power plant, and certainly doing it at a time
when there is uncertainty as to what the rules and regulations
are going to be for the future.
So it is in everyone's best interest, both from a
consumer's best interest, as well as from the co-op, the co-op
management, the co-op board's best interest to make sure that
we have this option and we take advantage to make sure where we
can get the greatest gain. I think that is probably what is
going to drive it as much as anything.
The Chairman. Thank you. I now recognize the Ranking
Member, Mr. Goodlatte.
Mr. Goodlatte. Thank you, Mr. Chairman. This program
proposes a nearly $1 billion authorization. If the bill were to
become law, it would require funding to be implemented. Given
our current budgetary situation Congress will need to look for
offsets to pay for this program. I don't believe that the
current rules of the House now that the big horse, health care
reform, is out of the barn, everything else now requires PAYGO
provisions. Are any of you willing to offer suggestions where
to find the funding for this program, or able to prioritize
current programs that incentivize energy efficiency projects?
There are a number of folks, including Congressman Clyburn, who
cited this as a win-win-win proposition. I wonder if any of you
can identify who the loser will be in terms of where a cut can
be made to find the billion dollars.
Mr. English. If I could, Mr. Goodlatte. I will take a crack
at that. As you know, basically the loan itself is going to be
repaid, so unlike the other programs that you are dealing with
as far as the government's approach on efficiency, this is a
loan program. The only thing that you are really subsidizing
here is the interest rate, and you are providing some startup
funds. There is no question about that. Now I would suggest to
you that maybe you ought to look it the other way and look at
what is going to happen if you don't pass it because your
constituents, our membership, is going to lose. That is where
the big costs are going to be.
We have an opportunity here to be able to save our members,
your constituents, some money by a very small investment on the
part of the Federal Government in taking on 42 million
consumers in 47 states across this country. Now this is
probably one of the most efficient investments that this
government has made any time since the creation of the REA back
in 1935. It is a heck of a good partnership that we have had
running for the past 75 years, namely, the government being the
lending officer and the cooperatives and consumers and your
constituents being the people who are enacting this program,
and this is in the best tradition of that. I understand the
difficulties and challenges that you have, but those are the
kinds of choices Members of Congress are going to have to make
as far as priorities.
Mr. Goodlatte. Well, let me just point out that while I
love your answer, it isn't an answer to my question. There is
no doubt that this will be good for approximately two percent
of those 42 million members because this program, as it is
currently proposed, would be able to fund maybe as many as a
million people to get this kind of energy efficiency put into
their homes, and there is absolutely no doubt that doing that
is a very good thing. But the fact of the matter is we don't
have in this Congress, and never have while I have been here,
what is called dynamic scoring. What you just cited is dynamic
scoring when you say, well, gee, you can't go wrong here so we
should just put the money up. We are going to have to find an
offset, and I wonder if anybody else on the panel has a
suggestion for what the offset would be.
Mr. Bony. At the risk of getting in trouble when I get
home, I will take a short stab at that. The energy use has two
components, a supply side and a demand side. This bill
addresses the demand side and the efficiency side. My hunch is,
and I am not an expert on the Federal budget, you have funds
that are being spent to promote the demand side, the generation
of the fuels. Perhaps that would be a good place to look for
the offset for the efficiency side to balance that playing
field.
Mr. Goodlatte. You are suggesting that we could do less to
promote the production of new sources of energy to pay for
this? I think that would run counter to what the direction of
the Congress has been. We want to encourage energy efficiency,
but we certainly recognize that the ability, including the
ability of rural electric cooperatives to meet future demand,
is going to require not only the savings that will be achieved
from allowing a million of those 42 million to be able to get
energy savings, but it is also going to assume that the other
41 million are going to need increased energy consumption over
the time that this program will be in effect. That doesn't even
take into account the employers and jobs and everything else
that are dependent upon having access to, not just the
availability of energy sources, but also the affordability of
that energy.
Mr. Bony. I appreciate the dilemma that looking for a
balanced budget promotes, but I would say that there is money
that is spent to promote the supply side of energy, and if we
leveled the playing field for the demand side and the
efficiency side, that might be a good place to go look.
Mr. Goodlatte. Well, no doubt, and, in fact, someone
pointed out that the legislation that passed the Congress last
year, the so-called stimulus, did have a substantial amount of
money in it for weatherization programs. Let me ask one more
question since my time has expired or is about to expire. How
much would an energy efficiency and verification audit cost an
average homeowner, and is it plausible for the cost of the
audit to be included in the customer's loan?
Mr. Bony. Again, I will step on the limb here. I could do
an audit for about $250 of employee time. There are other
numbers that say as much as $500 if you use a third party
contractor. I would assume that that cost could be included in
the loan and probably should be as part of the administrative
cost for the homeowner.
Mr. Goodlatte. That is five to ten percent of the savings.
Glenn.
Mr. English. I think we also have to recognize and
understand that the cooperative that engages in this program is
going to be undertaking these kinds of costs. How that is dealt
with, it is part of the expense that will be borne by the
homeowner themselves as they repay the loan. I believe it
allows in the legislation, if I remember correctly, up to three
percent to cover those kinds of expenses. So I believe that
that is already anticipated and would be addressed under those
circumstances. You will have, obviously, some people who do an
audit who for one reason or another may find that there are no
savings or the savings are not sufficient to be paid back
during the 10 years. And we are going to have facilities where,
quite frankly, it doesn't make sense to go in and do any kind
of efficiency improvements. The cost of those audits are going
to have to be borne by the program that the cooperative is
operating.
Mr. Goodlatte. The cooperative will have to take the risk
if they do an audit, and it doesn't show savings for that
homeowner who may be below the poverty line status that the
cooperative would have to eat those costs.
Mr. English. Exactly. And we expect that particularly low
income, there will be a number of facilities out there--I know
where this program was really born, in South Carolina. Mike
Couick, who is here today, has told me many times that they
have a number of trailers, for instance, there is just no way
you are going to make them energy efficient. It is a waste of
money to try to invest in that, and that is a decision the co-
op is going to have to make, but we will have to, in effect,
eat that cost.
Mr. Goodlatte. Got you. Well, Mr. Chairman, I want to thank
all the members of this panel. They have been not only dynamic
but also creative, and I thank them for their testimony.
The Chairman. The chair thanks the Ranking Member. The
gentleman from North Carolina, Mr. Kissell.
Mr. Kissell. Thank you, Mr. Chairman. I also want to thank
the panel for being here, and I want to frame a couple of
questions about, first, telling you a little bit of a personal
story, then I will have a couple questions that come off this.
The home that I live in, we built and moved in in 1985. We had
a wood water stove and to the point of coming up here, I never
had a hot water heater. All our hot water came off that wood
stove. All our heat came off that wood stove in terms of
heating the water and then like a car heater convert it through
a coil and blew the hot air into the house, and so forth and so
on. Of course, there had to be a lot of wood cut for that to
happen, and that was my job. And when I was elected to come up
here, I could not convince my wife and two daughters that they
would enjoy using a chainsaw a lot during the winter, and the
rest of the year too, to have that luxury of heat and hot
water. They were not willing to do without heat and hot water
so we had to put in a hot water heater for the first time.
And we put in a complete new--we did enjoy air conditioning
so we put in a new heat pump system that would provide the heat
as well as the air conditioning. My energy bill, I have
averaged out, and I pay the same thing every month, so it came
time for the renewal of that bill this year, and I said, okay,
I have additional electrical use so that bill is going to go
up. And while I still use the wood stove and get some hot water
to the hot water heater, and so forth and so on, my electrical
use went up. And I was very surprised when my electrical bill
averaged out over the last year, my first year up here, went
down $50 a month.
So it does show that the increased efficiency can cut the
use. I was very pleased with that. My question is I paid
several thousand dollars, and, Mr. English, as you said, even
though I am saving money, I would not have paid that unless I
had to. Once again, my wife and daughters could not be
convinced that chainsaws work very easily. I think your point
that we would not do this unless it was included in the
electrical bills and savings, so forth, so on, people would not
put that money up front even though it will save money. So my
open question to anybody who wants to come forth on this one is
how much do you think in terms of the changes that we want to
see the homeowners make, how much would that average cost be
per house in terms, $3,000, $4,000, $5,000? How easily can we
convince people, and, Mr. English, this would probably come
more to you, how easily can we convince people that this is a
good thing? It will save money and there is no up front cost
there. But how much do we think per house we would--cost would
be per house to refit it and the systems and things we need,
and how easily would people respond to this?
Mr. English. I think we have to anticipate we are probably
talking in the neighborhood $4,000 to $7,000, somewhere in that
neighborhood on an average if that is what you are doing, and
that is a very rough average, I understand. There is a second
point though I think that is being missed here. It is not just
the money, the loan. You also have this problem of what do I
do? If you are a homeowner, I don't have any expertise who the
right contractor here, and we have all heard horror stories
about contractors coming in and ripping people off. Nothing
against contractors, you understand. I don't want to get the
contractor folks upset with me. But the second point is also
what kind of products do you include, what kind of technology,
and you have all kinds of salesmen out there selling different
things, making different promises.
You know, what kind of real savings are we going to have. I
think another part of this, and this goes back to the McKinsey
study that came out last year, in which they were making this
very point that one of the things that holds people back from
really getting involved in efficiency has to do with the fact,
golly, gee, I don't know what to do. I don't know what products
to select. I don't know what contractor to get. I don't know
whether it is worth it. I don't know whether the promises being
made are legit. And so really what you are talking about here,
and this is something I think that has been underestimated with
programs that we have done in the past, is the fact that you
have no interface with somebody coming in there with a how to.
Well, the electric co-op, good, bad or indifferent, is
going to be on the hook. Good, bad or indifferent, the electric
co-op is going to be having that interface with their
membership. Good, bad or indifferent, those members are going
to be looking to the co-op as to: you recommended the
contractor, you came in and you checked the work that the
contractor did and it was your evaluation that made this
decision. All that stuff goes a long way, and McKinsey backs
this up, goes a long way down the road to really getting a
full-fledged efficiency program underway in this country. And,
as I said, it is all because in this case you have 12 percent
of the population that is represented by electric co-ops that
are consumer owned, the consumers themselves own it, stepping
forward and saying, okay, we are going to look after our
members. We are asking again for that partnership that we have
had for the last 75 years between government and those
consumers.
Mr. Kissell. I know my time is running out. Time is running
out. Thank you so much.
The Chairman. The chair thanks the gentleman. The gentleman
from Tennessee, Mr. Roe.
Mr. Roe. Thank you, Mr. Chairman, and thank you for
allowing me to be here today. Just a couple of things. One, I
have an A.O. Smith water heater. Two, I have a Rheem heat pump.
And, three, we built two new schools in Washington County,
Tennessee and used underground geothermal to do that, so I have
used all those things from a personal standpoint. A.O. Smith
Water Heater Company employs 1,200 people in my hometown. They
produce a water heater every 17 or 19 seconds, 9,000 of them
per day, good, American manufacturing jobs. And I want to ask
one question of Mr. Adams, a couple of questions. We talked in
our office yesterday about incentives that would incentivize a
foreign country who makes the same efficiency or less efficient
water heater, why would we offer tax incentives to a foreign
country when Rheem and A.O. Smith, and we produce these great
products right here. Mr. Adams, would you take a shot at that
and anyone else on the panel that would like to?
Mr. Adams. Yes, sir, I will be happy to try. As a U.S.
manufacturer of energy efficient appliances, we obviously think
that good public policy should incentivize both energy
efficiency and U.S. jobs. The situation with particularly a
section 25C tax credit that was first established in 2005 or
2006 was based on the energy efficiency rating of water
heaters, and that is a pretty confused world to be blunt. Low
energy input water heaters are regulated under the National
Appliance Energy Conservation Act. Higher energy input water
heaters are regulated under the EPAct, Energy Policy Act.
There are two different energy descriptors, two different
methods of tests, two different ways of rating. The miles per
gallon rating is completely different, if you will, on low
input and high input water heaters. The confusion of having
multiple energy descriptors has created a situation,
particularly, starting with the section 25C tax credit that has
been promulgated through further legislation that has given--I
will refer to it as a biased advantage to certain types of
water heaters. As it happens some of those water heaters that
are really less efficient than other are foreign manufactured.
So there are domestic manufactured heaters that were not
eligible, the most efficient heaters on the market made by all
of our companies, that were not eligible for the original
section 25C tax credit.
Now that has been fixed along the way in Energy
Independence Security Act and reinforced in the stimulus bill,
but there are still some classes of products that are falling
outside of the scope of these incentive programs just because
of the way they are rated.
Mr. Roe. Well, does this legislation address that because I
think this is a great opportunity to address that inequity?
Mr. Adams. It provides, in my opinion, it provides an
indirect means to address it because it leaves the list of
qualified energy improvements up to the co-op to develop. And,
as I mentioned briefly in my testimony and further in my
written testimony that has been submitted, we need to make sure
that some mechanism, we provide guidance to the co-ops on the
types of equipment that is included in the list of approved
things to do, if you will.
Mr. Roe. Anyone else have a comment?
Mr. Bates. In terms of our perspective on this, we have
been dealing with over 300 cooperatives across the country, and
Rheem is a global manufacturer of products. Most of the
products we supply to cooperatives are made in the United
States, but because we have a global footprint not all the
products we make are supplied from the U.S. manufacturer on all
occasions. Then again we also export products for many of our
facilities to other countries around the world. So, as we deal
with cooperatives we just want to make sure that they are aware
of what their members need, and we wouldn't want to preclude
any specific additional product line from being offered to
their members to give them savings.
Mr. Roe. I guess the question I would have would be if it
is less efficient, why be giving American tax incentives to
have--I realize you export, and that is, obviously, an issue
that could be used against you; I think we need to look at that
is all I am saying. One last question very quickly, Mr.
Chairman. There are numerous programs with ARRA and with the
25C tax credit and the Home Star and all of that, do these work
symbolically or are they redundant? And any of you can take a
crack at that. Mr. English
Mr. English. I will take a crack at it. I don't think that
they are redundant. I think they can work together and
compliment each other. They should. What is unique about this
particular program is the fact that we are the only part of the
electric utility industry that is going to directly get
engaged, and this is responding to that and responding to the
fact that this is a cooperative program. Second, it is a
lending program. It is not a grant. And so that makes it
different. And certainly it is tailored to make certain that
the electric cooperative can assume that responsibility and can
carry that program out with the local membership recognizing
the variety of different situations we have throughout this
country.
Mr. Roe. Mr. Chairman, thank you for allowing me to be here
today.
The Chairman. The chair thanks the gentleman, and
recognizes the gentleman from Alabama, Mr. Bright.
Mr. Bright. Mr. Chairman, thank you very much for holding
this important hearing on a key proposal to help create jobs
and increase energy efficiency in rural areas, all while
lowering our constituents' utility bills. I want to thank each
one of the gentlemen here today for your excellent testimony.
Mr. English, you are very motivational and inspirational when
it comes to finding and funding programs like this. We need you
in a lot of other hearings and give us testimony like you did
today, so thank you very much for that. One company that I
really want to acknowledge here today, and if my colleague from
North Carolina was still here, would probably verify that his
energy efficient and energy saving water heater most likely
came from Rheem Manufacturing. And we have a representative,
Mr. Bates, from Rheem Manufacturing here today, and I want to
commend you for being here and thank you for your testimony
here today, and acknowledge Rheem Manufacturing in my district
who employs over 1,200 employees in my district. I want to
thank you for their dedication and their good jobs there in
Montgomery, Alabama.
The company, as I said, has over 1,200 workers making
excellent products in Montgomery, Alabama. Their General
Counsel, Mr. Bates, is here today to give us the testimony that
we have heard already. Mr. Bates, I do have a couple of
questions, and one being specifically how much has the downturn
in the economy affected your products and if it has at all?
Mr. Bates. Thank you, Congressman, and Rheem has been
delighted to be in manufacturing in Montgomery for over 30
years now. It is the center of our headquarters for our water
heating business which employs significant people in terms of
manufacturing, but also research and development, and
excellence senior level managerial jobs where they deal with
various countries around the world. We have been delighted to
be there and appreciate your support. In terms of the downturn,
in the water heating business approximately 85 percent of water
heaters sold in the United States are sold into the replacement
market, so that has been much more stable. But, Rheem is also
and has been a long time player in the air conditioning and
furnace market with our headquarters for that business being in
Fort Smith, Arkansas.
That market, because of the housing downturn, dropped
approximately 50 percent for all players in the air
conditioning and furnace market in the United States and has
been a significant challenge. So, the emerging, still emerging
recovery, but also the Home Star Program and this program that
encourage the use of air conditioner, furnace, and heat pump
products in that marketplace are critically important to that
industry as we struggle with over capacity and challenges in
maintaining manufacturing jobs in this country.
Mr. Bright. Thank you very much. Let me tell you, I know it
is difficult to speculate on this particular issue, but can you
give the Subcommittee a sense of how long you think it will
take after energy efficient measures have been installed on a
home for a customer to see a change in their energy bills? I
know that is purely speculation, but do you have, I call it an
expert's opinion on how quickly a person or a family would be
able to reap those savings? Would it be weeks, days or months
of years?
Mr. Bates. Well, it happens on their first bill. The great
program that the cooperatives have is the ability to have it
financed with a limited charge to the homeowner on their
electric bill. The homeowner in many cases is not out of pocket
the initial cost of the improvement, which allows low income
consumers to hopefully achieve more in energy savings than the
financing cost to the equipment. That is a terrific win-win
proposition, and so that is why we are delighted to support
this bill and believe it can really help people with
significant income challenges achieve real savings and put
their money to better use in terms of other expenditures.
Mr. Bright. Thank you very much. My time is running out,
but I do want to say for the record that I really do support
this bill. I am a cosponsor on the bill with Mr. Clyburn and
others, and really thank you for your testimony, each one of
you, because it has been enlightening. Sometimes it is
necessary to hear from the people who are directly affected out
there, and you have done an excellent job today with your
testimony. Mr. Chairman, I yield back my time.
The Chairman. The chair thanks the gentleman and recognizes
the gentleman from Ohio, Mr. Boccieri.
Mr. Boccieri. Thank you, Mr. Chairman, and thank you to the
panel for being here today. I wanted to address the question--
none of you are budget experts and neither am I, but I
appreciate the Ranking Member's new found fiscal responsibility
in trying to find offsets for an investment into rural America.
How about we start with the $100 billion that we are spending
every year to rebuild Iraq and Afghanistan? How about a billion
dollars to invest in rural America or weapons procurement and
things of such that can be used. This is about jobs, about jobs
in our local communities and investment in rural communities.
As a state legislator, I have seen roving blackouts in rural
communities that have been underserved and under represented as
far as I am concerned with respect to that, supermarkets that
couldn't keep their freezers on to keep food and supplies
intact. And so I would just suggest that this is a matter of
investing in America and something that we can't miss as an
opportunity.
Mr. Cowan, in your words in your testimony you said this
$995 million bill is projected to cost--will leverage about
$4.9 billion in consumer loans. I know that there was
discussion from the Ranking Member about the health care bill
that just passed. We are spending a billion dollars to make
sure every man, woman, and child in Iraq has universal health
care coverage, but we can't invest a billion dollars in rural
America so that we can get this kind of return on investment
for every $1 spent by the Federal Government. We can leverage
in our rural communities. I think it is something that we can't
miss this historic opportunity to invest in our communities.
I had a question for you, Mr. Cowan. On the metering
program where we are going to attach the cost benefit of this
and allow it to be carried from homeowner to homeowner with
respect to that. Can you explain how that metering process is
going to work and how we are going to continue to have a
homeowner, even if they sell the house, be responsible for the
improvements?
Mr. Cowan. I am familiar with this also from my years at
the Department of Housing and Urban Development, when you sell
the home if you sell the home you have, in essence, a debt that
you owe to the rural cooperative. You either pay that back when
you sell the home from the proceeds of the home, or you don't
pay it back and the new homeowner carries it on and they are
carrying the obligation to pay that through on their ongoing
bill. That will be what occurs on many pieces of selling and
buying a home, that is a piece of the transaction, and so you
are either going to obligate it to pay the whole thing back out
of the proceeds of the sale of the home, or the new buyer
actually carries that on as part of the purchase of the home
and they then carry the obligation to pay it back in the
utility bill.
In the same way that a mortgage operates in which you do
something that has great social good and individual good, but
you spread it out over a long period of time, it is exactly the
same here. So, even though the house might cost $150,000 or
$250,000, here the expenses say $5,000, that is still a lot
more than any one person can pay if you are in a low income
bracket at one moment, so you are spreading that out over a
much longer period of time.
Mr. Boccieri. Is that done with other utilities like sewer
and water lines in some rural communities around the country?
Mr. Cowan. That I don't know. Do you mean are there
improvements where you make an improvement and you have an up-
front payment, and then it is spread out over time?
Mr. Boccieri. Sure.
Mr. Cowan. That I don't know.
Mr. Boccieri. One question for Mr. English, the Honorable
Mr. English. I thank you for your testimony. You said
cooperative revenue per mile averages only $10,565 while it is
more than six times higher for investor-owned utility, that is
$62,000, and for municipal utilities at $86,000. How has the
impact of Federal power marketing authorities affected the
investments? There are some like WAPAs and down south they have
the Federal power marketing authorities. Can you explain to me
how that cost has been spread out or has been borne across the
Federal power authority?
Mr. English. Well so much of what electric WAPAs have is
the infrastructure. As I pointed out, the distribution
infrastructure, we have 42 percent of that distribution
infrastructure nationwide, all those wires and poles. And we
only have 12 percent of the population that is paying for it,
so basically the revenue that you have coming in obviously is
more of a challenge for us than it is for, either investor-
owned utilities where you have much denser population, or
municipals. The Power Marketing Administration has been a
tremendous help.
This is another one of those cases in which electric
cooperatives and municipals partnered with the Federal
Government early on when they were building dams in this
country. We agreed through contracts, long-term contracts, to
buy that power at above market rates. Well, we still have the
rates. Only this time the power cost is much lower than what
the prevailing market rate is, so it all evens out and
certainly it has been a tremendous benefit to us. We are,
obviously, very strong supporters of PMAs.
Mr. Boccieri. I am pleased to hear that because in the
energy bill or the cap-and-trade bill that passed out of this
chamber included a Federal power marketing authority for what
is arguably the largest manufacturing sector for the United
States. New York, Pennsylvania, Michigan, Ohio, Indiana,
Illinois, these are areas that are not served by Federal power
marketing authorities. And while Ohio enjoys about $8.92 per
kilowatt hour, which is low for the states that don't have a
Federal power marketing authority, there is a Government
Accountability Office study that shows we can reduce our rates
by 24 percent more if we add this Federal power marketing
authority, so this is absolutely essential to an energy bill,
and absolutely essential for investment in my opinion. I want
to thank you for your testimony and I just want to concur with
you that the cheapest energy is the energy we never use.
Mr. English. Exactly.
Mr. Boccieri. Thank you.
The Chairman. The chair thanks the gentleman and thanks our
witnesses for their testimony and interaction on this
legislation today. Under the rules of the Committee, the record
of today's hearing will remain open for 10 calendar days to
receive additional material and supplementary written response
from the witnesses to any question posed by a Member. This
hearing of the Subcommittee on Conservation, Credit, Energy,
and Research is adjourned.
[Whereupon, at 12:25 p.m., the Subcommittee was adjourned.]
[Material submitted for inclusion in the record follows:]
Submitted Letter by Hon. John M. Spratt, Jr., a Representative in
Congress from South Carolina
May 12, 2010
Hon. Tim Holden,
Chairman,
Subcommittee on Conservation, Credit, Energy, and Research,
House Committee on Agriculture,
Washington, D.C.
Re: Hearing on H.R. 4785, ``The Rural Energy Savings Program''
Dear Mr. Chairman:
I will be taking part in another hearing when your hearing on the
captioned bill is held. I am attaching my written testimony in
wholehearted support of this bill, and would respectfully request that
it be made part of your record.
I am also attaching additional information on how this bill would
work, and if no one else offers this material, I would ask that it also
be made part of your record.
Thank you for considering our bill and for allowing me to make
these submissions for the record.
Respectfully,
John M. Spratt, Jr.attachment 1
Submitted Statement by Hon. John M. Spratt, Jr., a Representative in
Congress from South Carolina
Chairman Holden, Ranking Member Goodlatte, Members of the
Subcommittee, thank you for allowing me to submit testimony in support
of H.R. 4785, ``The Rural Energy Savings Program Act.''
This bill will authorize the Rural Utilities Service (RUS) to make
loans to rural electric cooperatives so that the co-ops, in turn, can
make loans to families and small businesses for energy conservation and
efficiency measures that meet RUS energy standards. The process will
begin with an energy audit, aimed at identifying energy-saving
measures. Based on this audit, the co-ops will propose improvements
such as insulation and high-efficiency heat pumps. Participating
consumers will repay the co-ops for the installation through a charge
on their utility bills spread over a 5 to 10 year period. The energy
savings will cover much, if not all, of the loan repayment; and after
the loan is repaid, the participating consumer will continue to save,
as will the economy due to more efficient use of energy.
The unemployment rate in South Carolina has hovered around 12
percent since onset of the recession, and in most of the 14 counties
that I represent, unemployment has risen well into the double digits.
More than 200,000 rural electric cooperative customer-owners reside in
my Congressional district, many of them near or below the poverty
level. Many pay high electricity bills because they live in old houses
or mobile homes, which are energy-inefficient. In some cases, their
energy bills are almost as expensive their mortgage payments.
As I travel my district, I meet people living on fixed incomes who
have to make the choice between paying their electric bills and putting
food on the table or buying medicine they need to stay healthy. Many of
these hard-working people would gladly invest in their homes to make
them more efficient; however, they cannot borrow or afford the capital
necessary to install a new heat pump or place new insulation in their
walls and ceiling.
This is where the ingenuity of the South Carolina Rural Electric
Cooperatives comes in. Through a program that could be implemented
nationwide, they would provide a simple yet effective solution to help
their customers at relatively little expense. At the same time, they
would create new jobs by making low-cost loans available to install
high-impact energy efficiency improvements. The loans would be repaid
over time on the customer's utility bill, and ideally there would be a
net reduction in utility payments, even when accounting for the loan
repayments.
Over many years of service, the rural electric cooperatives have
developed the knowledge, training, and infrastructure to implement this
program effectively. In South Carolina alone, the cooperatives have
estimated this legislation would create 2,539 new jobs in the first
year, 4,618 by 2020, and 7,113 by 2030. These jobs include both direct
jobs, such as contractors performing energy audits and skilled labor
for retrofitting homes, along with indirect jobs generated by the
manufacture of materials and associated services.
One of the most important pieces to this program is supplying
skilled workers able to begin auditing and updating homes almost
immediately. This is where community colleges and technical schools
come in, many of which are already training workers for green
technologies. They have the capacity and capability to educate and
certify workers who carry out the RESP.
Mr. Chairman, the Rural Energy Savings Program is an opportunity to
better the lives of rural, low to moderate income people across the
country. RESP can raise their quality of life, create good-paying jobs,
and help home-owners invest in and add value to their homes and the
local economy.
Thank you for considering our bill, ``The Rural Energy Savings
Program Act.'' Congressman Clyburn and I know that it will work in
South Carolina, and we fully believe that it is feasible throughout
this country. We hope that your Committee will join us in supporting
this bill and will expedite its passage by reporting it to the floor as
soon as you can.
ATTACHMENT 2
Rural Energy Savings Program
Frequent Asked Questions
What are electric cooperatives? Electric cooperatives are the
independent, not-for-profit electric utilities established in the New
Deal to bring electricity to rural America. They are owned by their
consumers and active in the communities they serve, ensuring that they
are highly accountable to their consumers. Today, there are more than
900 electric cooperatives providing utility service to 42 million
Americans in 47 states, operating under consumer-focused approach to
business unique in the utility sector.
How will the program work? Individual co-ops or state-based groups
of co-ops will apply to the Rural Utilities Service (RUS) of the U.S.
Department of Agriculture (USDA), to borrow money to fund local energy
efficiency programs that meet RUS energy savings standards. Co-ops, in
turn, use the money to make low-interest micro-loans to residences or
small businesses that sign up for the voluntary program and that have a
demonstrated ability to pay back the loans. Electric cooperatives will
pay back the Federal loans from consumer loan payments on their
electric bills within 10 years of making the consumer loan.
Trained contractors will conduct an energy audit to determine what
sorts of energy efficiency improvements are warranted. Typical consumer
loans will be $1,500 to $7,000, and will cover sealing, insulation,
HVAC systems, boilers, roofs and other improvements that the utility
has demonstrated to RUS will produce sufficient savings. Participating
consumers repay the co-ops for the installation and material costs
through a charge on their utility bills within not more than a 5-10
year window, and the energy savings from the upgrade will cover most,
if not all, of the cost of the loan. After the loan is repaid,
consumers will save hundreds of dollars annually.
What sort of track record/history do co-ops have with direct
lending? Many electric co-ops have been lending money directly to their
members for more than 75 years. Prior to the proliferation of hardware
stores across rural America, the local co-ops were often the most
convenient point of sale for rural residents to purchase major
appliances. Frequently, these purchases were structured as low-interest
loans repaid on utility bills--just as this program is structured.
While the amount of direct consumer lending by co-ops has decreased as
retail stores have expanded in rural America, the infrastructure and
institutional knowledge remains.
Are co-ops appropriate stewards of the taxpayers' money? Yes. Since
their inception, co-ops have borrowed extensively from the Federal
Government to finance electric distribution, generation and
transmission investments. The default rate on these loans has been so
small in the past 20 years that USDA has actually made money on the
loans in recent years. Under this rural energy efficiency improvement
program, every dollar loaned to co-ops by the Federal Government and
re-loaned to consumers would be fully repaid within the 10 year period
permitted for the consumer loan. We can have confidence that this money
will be repaid as promised because of co-ops extraordinary track record
of repaying government loans as promised. The loans are secured using
cooperative assets as collateral. In the very unlikely event of a
default, USDA has a lien on these assets.
Are there programs like this currently operating? Most co-ops have
the necessary experience, infrastructure and incentive to implement
this program. A few, however are leading the way. At the planning
level, South Carolina has a fully developed program concept that is
ready to go as soon as it gets funding, while other states such as New
Hampshire, Michigan and Virginia are close. Because low-cost funding
has not been available to this point, co-ops have not been able to
implement a large-scale, comprehensive energy efficiency improvement
program.
New Hampshire's electric cooperative currently runs an energy
efficiency on-bill financing program for small businesses, which
functions exactly the way co-op programs would under this proposal. New
Hampshire wants to expand its program to residences, but access to
capital at reasonable rates has prevented the co-ops from doing so.
This proposal would make available that up-front capital.
How large of a program is this? Can it be rolled out nationwide? We
are proposing that RUS issue $4.9 billion in loans to be available
until expended, over a 10 year period, with no more than 20 percent of
a co-op's loan issued in any one year. Co-ops across the country will
be able to participate in this program. Some cooperatives will be able
to ramp up quickly, while co-ops that need more time to implement the
program will still be able to participate. The RUS will use its
existing loan procedures to administer the loans but the agency has a
serious staff shortage which is addressed by adding funds to support
ten additional staff.
Who will perform the energy audits and efficiency upgrades?
Participating co-ops already have or will hire experienced contractors
to perform energy audits. Cooperatives will establish a list of
contractors who are willing to perform the work and have that work
inspected by auditors before they are paid. The simple fact that the
cooperatives are accepting the responsibility for the repayment of
consumer loans is a serious incentive to ensure contractors do quality
work for the consumers who own the cooperative. Funds will be made
available to train a qualified cooperative audit and administrative
workforce. Co-ops have deep local relationships and an active community
presence, enabling them to identify trustworthy contractors and hold
them accountable.
How many homes can be expected to participate in the energy
efficiency improvement program? 1.6 million households will be able to
participate in the program if the average consumer loan is $3,000. 1.1
million households will be able to participate in the program if the
average consumer loan is $4,500.
What is the profile of a typical co-op customer? The typical co-op
member is poorer than the national average and more likely to live in
an older home or a mobile home which are less energy efficient. As a
result, co-op customers have particularly acute energy efficiency
needs, but their up-front barriers to making energy efficiency
improvements are even higher.
What's in this for the consumer? What's in this for the co-ops?
What's in this for Uncle Sam?
Participating consumers will receive long term energy
savings, eventually saving them hundreds of dollars a year,
while eliminating the up-front capital and financing costs they
would face in the private market. Consumers also get the
quality of life benefit of living in a better insulated, more
comfortable home or a more profitable business.
The co-ops get to save their consumers money while defraying
the need to purchase expensive, new electricity generation
capacity. This program makes available the up-front capital to
implement a consumer efficiency program at a far lower cost
than cooperatives would be able to obtain on the open market.
The lower interest cost lowers an important cost barrier to
consumers.
The Federal Government achieves substantial carbon
reductions by reducing energy consumption in carbon-intensive
parts of the country; creates tens of thousands of construction
jobs annually at a time of recession; and helps more than one
million homeowners achieve long term energy and cost savings to
their home and offset the need for imported oil and natural
gas. This program costs the Federal Government just $1,000 for
every $5,000 of efficiency improvements installed, while taking
advantage of the co-ops rapid deployment and management and
verification capacity.
How would this program be different from the DOE Weatherization
Assistance Program? Wouldn't this program/funding duplicate efforts
already underway? The program has two main advantages over the ARRA
Weatherization assistance program. First, this program takes advantage
of cooperatives superior community relationships, experience with on-
bill financing, management and verification capacity. While the ARRA
program has been challenged in its implementation, co-ops are extremely
well positioned to deploy money quickly and efficiently while guarding
against waste, fraud and abuse. Moreover, because these are loans
rather than grants, this program will leverage Federal dollars more
effectively than the ARRA program.
This program is targeted at rural consumers, which historically
have been underserved by energy efficiency programs, including the DOE
ARRA program and the PACE municipal financing programs.
ATTACHMENT 3
How will the Rural Energy Savings Program work?
Individual co-ops or state-based groups of co-ops will apply to the
Rural Utilities Service (RUS) of the U.S. Department of Agriculture, to
borrow money to fund local energy efficiency programs. The applicant
must specify the measures that it intends to implement and the expected
savings for consideration by RUS. When the loan is approved, the co-
ops, in turn, provide the money in low-interest micro-loans to consumer
residences or businesses. Consumers will benefit from the energy
savings that have a 10 year or less payback period and their savings
will be used to repay the loans.
Trained auditors and contractors will conduct an energy audit to
determine what sorts of energy efficiency improvements are warranted.
Typical consumer loans will be $1,500 to $7,000, and will cover
sealing, insulation, HVAC systems, boilers, roofs and other
improvements that the utility has demonstrated to RUS will produce
sufficient savings. Participating consumers repay the co-ops for the
installation and material costs through an extra charge on their
utility bills within not more than a 10 year window. The energy savings
from the upgrade will cover most, if not all, of the cost of the loan.
Consumers will save more on their energy bills after the loan is
repaid, saving most families hundreds of dollars annually. Every dollar
loaned by RUS to the co-ops is repaid within 10 years after the
cooperative re-lends the funds to the consumer.
A ``jumpstart'' grant of no more than four percent of the loan
amount is provided to RUS borrower so that there are funds to begin the
process, i.e., to provide service to the first consumers. From there,
the RUS will use its existing procedures to approve loans and to
advance funds. In accordance with current practice in RUS Electric
programs, no loan funds will be advanced on approved loans until the
utility borrower submits documentation of work completed for the
approved purposes of this program.
RUS loans to the co-op will bear an interest rate of zero percent.
The co-op can charge an interest rate no higher than 3% to consumers
with the difference used to establish a loan loss reserve and to
partially defray administrative costs.
A training program will be established, funded by a $2 million
grant, to provide utility auditors with information about how to
implement the measurement and verification of savings, how to establish
contractual relations with efficiency upgrade contractors and how to
assist consumers in whose homes and businesses upgrades are being made.
A grant will fund a program-wide measurement and verification
system to track quality control and savings for the 10 year loan
period.
______
Submitted Statement by National Association of REALTORS'
Introduction
The National Association of REALTORS' appreciates the
opportunity to submit a written statement on H.R. 4785, the Rural
Energy Savings Program Act. Also known as ``Rural Star,'' the bill
would propose to create jobs by establishing a loan program for energy-
efficient building retrofits in rural America.
The National Association of REALTORS' (NAR) is America's
largest trade association, representing more than 1.1 million members
involved in all aspects of residential and commercial real estate
sectors. NAR is the leading advocate for homeownership, affordable
housing and private property rights.
NAR Perspectives on the Proposed Rural Star Legislation
NAR strongly supports providing property owners with the resources
they need to voluntarily improve their homes and applauds the
Subcommittee for holding this hearing. The Rural Star bill would
propose to do this by establishing a loan program for energy efficiency
improvements which would add value to property and reduce energy costs
while also stimulating a job market in remodeling and renovation. We
thank Representative Jim Clyburn for his efforts on the ``Rural Star''
legislation, which is the subject of today's hearing.
While we support the bill's goal to make rural homes more energy
efficient, NAR has concerns with the broad energy-audit and worker-
training provisions in the bill. Implementation of these provisions is
left to the USDA, which is then given even broader regulatory authority
to carry out Rural Star while waiving the administrative procedures
that protect consumers from unnecessary regulations and paperwork.
If USDA were to establish energy-audit or labeling requirements
that compare one property with another, NAR believes that owners of
older properties would not be able to take advantage of the loan
program, defeating the purpose of the legislation. Without the
administrative rulemaking/paperwork procedures, property owners would
be denied the opportunity to review or comment on the rulemaking in
order to minimize its impacts. We look forward to working with the
Subcommittee to help minimize regulatory/paperwork burden and maximize
use of this important loan program.
Home Energy Auditing and Labeling
The Rural Star bill would require an energy audit to obtain a loan
and direct USDA to contract with non-governmental organizations to
develop a measurement and verification protocol. While we recognize the
need to verify energy savings in a property before and after
retrofitting, we are concerned that, if the choice where made to
measure and label one home in comparison with another, such an
implementation scheme would create ``winners'' and ``losers''. Such a
decision would ultimately discourage use of the loan program,
especially for older homes which are most difficult to bring up to the
standards that can be achieved vis-a-vis a newer home.
Energy labels stigmatize older properties and make it harder for
the owners to build savings or equity. Labels also will reduce property
values when existing owners sell and are forced to negotiate price
reductions in order to compete in today's buyer's market.
According to data collected by the American Housing Survey (AHS)
and analyzed by NAR, labeling real estate will create disproportional
impacts on older property owners. More than 60% of U.S. homes were
built prior to 1980 when the first building energy codes were
established, and face relatively larger losses in property value due to
building labels. These properties will require more improvements than
the newer properties in order to match labeling scores and maintain
their value.
According to the AHS data, a large share of these older properties
are owned and occupied by older or disadvantaged populations. These
populations include 73% of elderly, 69% of impoverished and 64% of
Hispanic and black owners. Labels will not only stigmatize these
families' older homes but the community where they are located and
which are struggling to maintain and attract investment. There would
also be regional disparities: rural communities could be especially
stigmatized, as a substantial proportion of homes in those areas were
built prior to 1980.
In addition, there is no reliable or meaningful metric that
accurately captures the diversity of energy use across all properties.
An unreliable rating system will not lead to home energy use
reductions. And, while this is not the approach taken by the Rural Star
program, NAR's members do have significant concerns should a labeling
requirement be imposed on properties at time of sale. When buyers hold
all the cards at the closing table, any use of transaction-based
triggers only serve to send conflicting market signals--without any
assurances that needed energy improvements will be made. As a result,
NAR strongly opposes such an approach.
Before branding rural homes and buildings with labels, consumers
require a better understanding of energy efficiency and the tools to
turn information into action. For this reason, NAR supports:
A. Raising public awareness about energy efficiency programs and
information.
B. Encouraging the Federal Government and the states to provide
financial incentives to consumers to improve homes and
buildings.
By developing the infrastructure and education, and providing the
right incentives, property owners will make the energy improvements
that will achieve real energy savings.
Training and Certification Standards
While NAR recognizes the need to address the training of workers to
ensure that qualified work is performed, too many standards and
training criteria will stifle entrepreneurial job creation and hinder
the ability of small businesses to respond to rising retrofit demand.
``One-size-fits-all'' guidelines coming from inside the Beltway
generally do not fit all the varying markets across the country. The
Federal Government must strike a careful balance between creating a
consistent set of guidelines that will increase consumer confidence and
promote a stable and reliable national home retrofit workplace on one
hand, while on the other ensure that local businesses are not hindered
in their ability to respond to demand for this work.
In addition, while NAR appreciates Congress' efforts to encourage
homeowners to make voluntary, incentive-based energy efficiency
improvements, we would note the planned implementation of an EPA rule
threatens to derail these activities. The Lead Renovation, Repair and
Painting program applies to all residential and child-occupied
facilities built before 1978 where a child under the age of 6 or a
pregnant woman resides. Contractors disturbing a painted surface, 6
square feet or greater inside the home or 20 square feet on the
exterior must follow new lead safe regulatory requirements, including
training, certification, work practices, notification, clean-up and
record keeping. As a result, a wide array of home retrofit projects
envisioned by Congress, such as new windows, weatherization, insulation
and other activities will trigger this rule. The renovators who conduct
this type of work will be required to be trained in all of the new
lead-safe work practices.
Unfortunately, the EPA has been slow in getting the required
training and certification programs in place to train a sufficient
number of workers to be available to conduct both the normal renovation
activities and the expanded energy efficiency retrofit projects
anticipated by the report. As a result, while the bill would envision
retrofitting across rural America, in reality there will be few workers
qualified to perform the work, thus hindering the very market the Act
claims to want to jump start. EPA should extend the compliance date for
lead paint training and certification until there are a sufficient
number of workers available.
Conclusion
We thank you for the opportunity to share the REALTOR'
community's views on H.R. 4785, the Rural Energy Savings Program Act or
``Rural Star'' and related matters. We look forward to working with the
Subcommittee to ensure the legislation provides rural property owners
with the resources they need to make the energy improvements that will
reduce energy costs while stimulating jobs in remodeling and renovation
without stigmatizing communities or homes.
______
Supplementary Material Submitted By Charles Adams, Chief Engineer and
Director of Government Affairs, A.O. Smith Corporation
Hon. Tim Holden, Hon. Bob Goodlatte,
Chairman, Ranking Minority Member,
Subcommittee on Conservation, Subcommittee on Conservation,
Credit, Energy, and Research, Credit, Energy, and Research,
House Committee on Agriculture, House Committee on Agriculture,
Washington, D.C.; Washington, D.C.
Dear Chairman Holden and Ranking Member Goodlatte:
I have received the additional question from Congressman Phil Roe
submitted for the record of the House Agriculture Conservation, Credit,
Energy, and Research Subcommittee hearing on H.R. 4785, the Rural
Energy Savings Program Act. I appreciate the Congressman raising this
important issue for the hearing record and am pleased to respond.
The ENERGY STAR' program serves an important purpose,
but the Environmental Protection Agency (EPA) has not necessarily
designed it with rural consumers in mind. A primary goal of H.R. 4785
is to ensure rural consumers have access to the best energy-efficient
products available to suit their needs. Limiting eligibility through
the Rural Energy Savings Program to ENERGY STAR'-rated
products will not achieve this goal, because the ENERGY
STAR' program currently excludes highly-efficient water
heaters that are best suited for rural homes.
As a specific example, many rural homeowners use electric water
heaters. Only advanced-technology electric heat pump water heaters are
eligible for ENERGY STAR', as the program excludes electric
storage water heaters (some of which are rated as highly as 0.95 EF).
This limitation is not reasonable or practical for the rural homeowner
given that, per a recent analysis by the Department of Energy,\1\ forty
percent of all homes may not have sufficient space to accommodate an
electric heat pump water heater, and in the typically older, smaller
homes and manufactured homes found in rural areas, the percentage would
be much higher. It is vital that the higher efficiency (0.95 EF)
``conventional'' electric resistance-element storage water heaters be
covered by the provisions of H.R. 4785; otherwise, the only water
heating option feasible for a very large percentage of rural homeowners
will not be eligible for the incentive.
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\1\ See the Final Rule Technical Support Document (accompanying the
Energy Conservation Program Final Rule: Energy Conservation Standards
for Residential Water Heaters, Direct Heating Equipment, and Pool
Heaters, 10 CFR 430 (2010), Chapter 8, page 8-23, found at: http://
www1.eere.energy.gov/buildings/appliance_standards/residential/
heating_products_fr_tsd.html.
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As noted in Congressman Roe's question, H.R. 4785 provides
significant discretion to rural utilities to determine which products
should be eligible under their Rural Energy Savings Programs. A.O.
Smith is concerned that, for matters of ease or simplicity, rural
utilities will defer to the judgments made by the EPA administrators of
the ENERGY STAR' program and limit program eligibility to
products with the ENERGY STAR' label, which would greatly
restrict choice for rural consumers. As such, we ask the Committee to
consider including language in H.R. 4785 that will urge rural utilities
to not impose this limitation when designing their own programs.
Again, thank you for providing me with this opportunity to submit
additional comments on this important issue for the hearing record.
Please do not hesitate to contact me again should you have any further
questions.
Sincerely,