[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]


 
   HEARING TO REVIEW H.R. 4785, THE RURAL ENERGY SAVINGS PROGRAM ACT

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

                                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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                        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

                              ----------                              
                                                                   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

                              ----------                              


                        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.] *
---------------------------------------------------------------------------
    * The video referred to is retained in Committee files, and is 
available to be viewed at
http://www.youtube.com/watch?v=7fxDfDujKmQ.
---------------------------------------------------------------------------
    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.*
---------------------------------------------------------------------------
    * 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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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,
            
            
                                  
