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





   ENERGY EFFICIENCY: COMPLEMENTARY POLICIES FOR CLIMATE LEGISLATION

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

                                HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON ENERGY AND ENVIRONMENT

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                           FEBRUARY 24, 2009

                               __________

                            Serial No. 111-4









      Printed for the use of the Committee on Energy and Commerce

                        energycommerce.house.gov

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                    COMMITTEE ON ENERGY AND COMMERCE

                      HENRY A. WAXMAN, California
                                 Chairman

JOHN D. DINGELL, Michigan            JOE BARTON, Texas
  Chairman Emeritus                    Ranking Member
EDWARD J. MARKEY, Massachusetts      RALPH M. HALL, Texas
RICK BOUCHER, Virginia               FRED UPTON, Michigan
FRANK PALLONE, Jr., New Jersey       CLIFF STEARNS, Florida
BART GORDON, Tennessee               NATHAN DEAL, Georgia
BOBBY L. RUSH, Illinois              ED WHITFIELD, Kentucky
ANNA G. ESHOO, California            JOHN SHIMKUS, Illinois
BART STUPAK, Michigan                JOHN B. SHADEGG, Arizona
ELIOT L. ENGEL, New York             ROY BLUNT, Missouri
GENE GREEN, Texas                    STEVE BUYER, Indiana
DIANA DeGETTE, Colorado              GEORGE RADANOVICH, California
  Vice Chairman                      JOSEPH R. PITTS, Pennsylvania
LOIS CAPPS, California               MARY BONO MACK, California
MICHAEL F. DOYLE, Pennsylvania       GREG WALDEN, Oregon
JANE HARMAN, California              LEE TERRY, Nebraska
JANICE D. SCHAKOWSKY, Illinois       MIKE ROGERS, Michigan
HILDA L. SOLIS, California           SUE WILKINS MYRICK, North Carolina
CHARLES A. GONZALEZ, Texas           JOHN SULLIVAN, Oklahoma
JAY INSLEE, Washington               TIM MURPHY, Pennsylvania
TAMMY BALDWIN, Wisconsin             MICHAEL C. BURGESS, Texas
MIKE ROSS, Arkansas                  MARSHA BLACKBURN, Tennessee
ANTHONY D. WEINER, New York          PHIL GINGREY, Georgia
JIM MATHESON, Utah                   STEVE SCALISE, Louisiana
G.K. BUTTERFIELD, North Carolina
CHARLIE MELANCON, Louisiana
JOHN BARROW, Georgia
BARON P. HILL, Indiana
DORIS O. MATSUI, California
DONNA M. CHRISTENSEN, Virgin 
Islands
KATHY CASTOR, Florida
JOHN P. SARBANES, Maryland
CHRISTOPHER MURPHY, Connecticut
ZACHARY T. SPACE, Ohio
JERRY McNERNEY, California
BETTY SUTTON, Ohio
BRUCE BRALEY, Iowa
PETER WELCH, Vermont

                                  (ii)
                 Subcommittee on Energy and Environment

                    EDWARD J. MARKEY, Massachusetts
                                 Chairman
MIKE DOYLE, Pennsylvania             DENNIS HASTERT, Illinois
G.K. BUTTERFIELD, North Carolina        Ranking Member
CHARLIE MELANCON, Louisiana          RALPH M. HALL, Texas
BARON P. HILL, Indiana               FRED UPTON, Michigan
DORIS O. MATSUI, California          ED WHITFIELD, Kentucky
JERRY McNERNEY, California           JOHN SHIMKUS, Illinois
PETER WELCH, Vermont                 HEATHER WILSON, New Mexico
JOHN D. DINGELL, Michigan            JOHN B. SHADEGG, Arizona
RICK BOUCHER, Virginia               CHARLES W. ``CHIP'' PICKERING, 
FRANK PALLONE, Jr., New Jersey           Mississippi
ELIOT L. ENGEL, New York             STEVE BUYER, Indiana
GENE GREEN, Texas                    GREG WALDEN, Oregon
LOIS CAPPS, California               SUE WILKINS MYRICK, North Carolina
JANE HARMAN, California              JOHN SULLIVAN, Oklahoma
CHARLES A. GONZALEZ, Texas           MICHAEL C. BURGESS, Texas
TAMMY BALDWIN, Wisconsin
MIKE ROSS, Arkansas
JIM MATHESON, Utah
JOHN BARROW, Georgia









                             C O N T E N T S

                              ----------                              
                                                                   Page
Hon. Edward J. Markey, a Representative in Congress from the 
  Commonwealth of Massachussetts, opening statement..............     1
Hon. Fred Upton, a Representative in Congress from the State of 
  Michigan, opening statement....................................     2
Hon. Jay Inslee, a Representative in Congress from the State of 
  Washington, opening statement..................................     4
Hon. John Shimkus, a Representative in Congress from the State of 
  Illinois, opening statement....................................     4
Hon. G.K. Buttefield, a Representative in Congress from the State 
  of North Carolina, opening statement...........................     5
Hon. Greg Walden, a Representative in Congress from the State of 
  Oregon, opening statement......................................     6
Hon. Henry A. Waxman, a Representative in Congress from the State 
  of California, opening statement...............................     7
Hon. Cliff Stearns, a Representative in Congress from the State 
  of Florida, opening statement..................................     8
Hon. Peter Welch, a Representative in Congress from the State of 
  Vermont, opening statement.....................................     9
Hon. Steve Scalise, a Representative in Congress from the State 
  of Louisiana, opening statement................................    10
Hon. Doris O. Matsui, a Representative in Congress from the State 
  of California, opening statement...............................    11
Hon. Joseph R. Pitts, a Representative in Congress from the 
  Commonwealth of Pennsylvania, opening statement................    11
Hon. Lois Capps, a Representative in Congress from the State of 
  California, opening statement..................................    12
Hon. Michael C. Burgess, a Representative in Congress from the 
  State of Texas, opening statement..............................    13
Hon. Tammy Baldwin, a Representative in Congress from the State 
  of Wisconsin, opening statement................................    14

                               Witnesses

Philip Giudice, Commissioner, Massachusetts Department of Energy 
  Resources......................................................    15
    Prepared statement...........................................    18
    Answers to submitted questions...............................   162
Tom King, President, National Grid USA...........................    29
    Prepared statement...........................................    31
    Answers to submitted questions...............................  -\1\
Rich Wells, Vice President, Energy, The Dow Chemical Corporation.    38
    Prepared statement...........................................    40
    Answers to submitted questions...............................   \2\
Iain Campbell, Vice President and General Manager, Johnson 
  Controls, Inc..................................................    52
    Prepared statement...........................................    54
    Answers to submitted questions...............................   167
John Anderson, President, Electricity Consumers Resource Council.   112
    Prepared statement...........................................   115
    Answers to submitted questions...............................   175
Bryan Reichel, President and CEO, PureChoice, Inc................   122
    Prepared statement...........................................   125
    Answers to submitted questions...............................   186

                           Submitted Material

Letter of February 24, 2009, from Pilkington North America, Inc., 
  to Hon. Fred Upton.............................................   156
Chart entitled ``Total Electricity Use, per capita, 1960-2001....   159
OnPoint transcript, February 23, 2009............................   160

----------
\1\ Mr. King did not respond to submitted questions for the 
  record.
\2\ Mr. Wells did not respond to submitted questions for the 
  record.

 
   ENERGY EFFICIENCY: COMPLEMENTARY POLICIES FOR CLIMATE LEGISLATION

                              ----------                              


                       TUESDAY, FEBRUARY 24, 2009

                  House of Representatives,
            Subcommittee on Energy and Air Quality,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 9:38 a.m., in 
room 2322, Rayburn House Office Building, Hon. Edward J. Markey 
(chairman of the subcommittee) presiding.
    Present: Representatives Markey, Inslee, Butterfield, 
Matsui, Welch, Green, Capps, Gonzalez, Baldwin, Matheson, 
Barrow, Waxman, Upton, Hall, Stearns, Shimkus, Blunt, Pitts, 
Walden, Burgess, Scalise, Barton, and Blackburn.
    Staff Present: John Jimison, Melissa Bez, Joel Beauvais, 
Matt Weiner, Lindsay Vidal, Greg Dotson, Andrea Spring, Amanda 
Mertens Campbell, and Peter Kielty.

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

    Mr. Markey. Good morning.
    When we look at the energy and climate solutions toolbox, 
we tend to focus on exciting, new technologies like high-
powered wind turbines and thin-filmed solar cells or carbon 
capture and sequestration. Today's hearing is about the less-
eye-catching but equally important solutions that improve 
energy efficiency, better building and appliance standards, 
energy efficiency resource standards, demand side management 
programs and a host of other policies and technologies that 
enable us to use energy more intelligently.
    The Department of Energy estimates that U.S. electricity 
demand will grow by 30 percent by 2030. There are two ways to 
meet these rising demand, megawatts and negawatts. The first 
approach is familiar to us, simply building more power plants. 
The second uses efficiency measures to do more with less. It is 
based on the reality that the cheapest and cleanest power plant 
is the one we never have to build. Efficiency costs us as 
little as one-third per kilowatt hour of the cost of new 
electricity supply and emits no carbon.
    Energy efficiency will also play a critical role in 
avoiding an excessive dash to natural gas, which many fear 
could damage the competitiveness of U.S. manufacturing. A 
recent study by McKenzie & Company concluded that in 2030 
efficiency measures can cut U.S. global warming pollution by 
nearly 15 percent of current levels at a profit.
    The 10 northeastern States participating in the RGGI, 
Regional Greenhouse Gas Initiative, a cap and auction trade 
system, have found that by auctioning 100 percent of the 
pollution allowances and investing the proceeds in efficiency 
measures, they can achieve their climate goals at virtually no 
additional cost to consumers.
    Climate legislation can provide the resources to make 
efficiency policies work, while efficiency cuts pollution at 
the lowest possible costs. These solutions help us to work 
smarter and not harder.
    Investing in efficiency is not just a cost-effective energy 
and climate solution. It will also pay major dividends in new 
jobs and economic growth. America's efficiency industry already 
produces close to a trillion dollars in annual revenues. By 
putting America in the vanguard of the efficiency revolution, 
we can create high-quality green jobs at home, while exporting 
high-quality green technology to the world.
    Unfortunately, increasing America's energy efficiency is 
not as straightforward it as may seem. As we will hear from our 
witnesses, many efficiency improvements can already be achieved 
today at a profit but are not being implemented because of 
market barriers and market failures. For this reason, simply 
putting a price on carbon is not enough. Focused policies must 
be used to reward efficiency and to eliminate perverse 
incentives like those that shackle utilities' profits with the 
amount of electricity they sell.
    Progressive States, along with innovative companies like 
Dow, Johnson Controls, and National Grid, have taken the lead 
in tackling these challenges. We are grateful to have 
representatives of these government and business leaders on our 
witness panel today. They can help show us the way forward.
    As Congress considers climate legislation it will be 
critical to include policies that make energy efficiency our 
first fuel. Efficiency provides a vast zero carbon energy 
supply that can be deployed right now with current technologies 
at a net savings. If we are to cut global warming pollution as 
quickly and as deeply as the science says it must, it is 
imperative that climate legislation must be designed to capture 
efficiency gains immediately.
    By making the potential of energy efficiency a reality, we 
can save the planet, while simultaneously saving consumers 
money, spurring job growth and meeting our Nation's rising 
energy demand at the lowest possible cost.
    NBA coach Pat Riley once said, a particular shot, a way of 
moving the ball, can be a player's personal signature, but 
efficiency of performance is what wins the game for the team. 
If we are going to beat this energy climate and economic 
challenge, aggressively increasing America's energy efficiency 
may be at the center of our game plan.
    That completes the opening statement of the Chair. I now 
turn and recognize the ranking member, the gentleman from 
Michigan, Mr. Upton.

   OPENING STATEMENT OF HON. FRED UPTON, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Upton. Thank you, Mr. Chairman.
    Our hearing today is an important one. The environmental 
and economic benefits of energy efficiency are truly 
significant.
    Before I begin, I would like to submit a letter from 
Pilkington North America for the record.
    [The information appears at the conclusion of the hearing.]
    Mr. Upton. Pilkington is the leading U.S. manufacturer of 
glass, and they have a facility in my district.
    Pilkington makes some very interesting points about the 
nature of energy efficiency. For example, certain building 
products like windows that are most efficient in southern 
States are not nearly as efficient in northern States. In the 
warm weather States of the south, windows that block solar heat 
are the most energy efficient. However, in the cold weather 
States in the north, with more heating days than cooling days, 
such as Massachusetts and Michigan, windows with a higher solar 
heat gain are more efficient. The right type of window on a 
cold winter day in Boston or Detroit or Chicago can take in 
heat from the sun, thus reducing the utility bills and saving 
energy.
    With a tax provision in the stimulus bill that promotes 
windows that are designed primarily for warmer climates, the 
tax credit is only available for windows that block over 70 
percent of solar heat. According to a Web site developed 
jointly by the Center for Sustainable Building Research, the 
Alliance to Save Energy, and Lawrence Berkeley National Lab, 
lower solar heat gains are best for southern climates. The site 
also recommends for northern States to reduce heating select 
the highest solar heat gain you can find so that winter solar 
gains can offset a portion of the heating energy need.
    Pilkington said this about the tax revisions that favor 
southern windows: "It will result in northern homes using glass 
that blocks 70 percent of the sun's free and renewable solar 
energy from entering the home. That in turn will result in 
unnecessary burning of additional fossil fuels to heat these 
homes."
    That means higher utility bills in northern States and more 
greenhouse gas emissions. We must recognizes regional 
differences. When it comes to energy efficiency in buildings 
one size fits all doesn't always work. In fact, as we see in 
the window example, it could actually have the opposite effect.
    I have long been an advocate in spurring efficient 
technologies into the marketplace. I was proud to work with my 
colleague, Ms. Harman, in passing legislation that improved 
efficiency standards of the light bulbs. Across the Nation, the 
environmental and economic benefits of more efficient bulbs 
will be, in fact, substantial.
    Our work on light bulbs wasn't an arbitrary mandate. We 
didn't just pick a standard out of the air and look for a 
catchy sounding standard like 25 by 2025, not based on science 
or feasible. Instead, we worked with the industry and 
environmental groups to come up with a standard that made sense 
and doable, a standard that can be met by bulbs manufactured in 
this country, a standard that will include bulbs without any 
hazardous ingredients such as mercury.
    If done correctly, increasing the energy efficiency 
standards can reduce energy costs for consumers, help the 
environment, and have a positive economic impact. These 
benefits can be gained without a cap and trade program.
    The question is, what should the Federal Government's role 
be? Well intentioned, it is possible for the government to get 
it wrong and push policies that will have a detrimental impact 
on the environment and pocketbook.
    I look forward to hearing from our witnesses today, and I 
yield back the balance of my time.
    Mr. Markey. The gentleman's time has expired.
    The Chair recognized the gentleman from Washington State, 
Mr. Inslee.

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

    Mr. Inslee. Thank you.
    I just want to make two points. One, we have started last 
week, last Tuesday, down the efficiency road when President 
Obama signed the economic recovery bill; and I think over the 
long term one of the most productive things in that bill will 
be the provisions that require governors to certify that they 
would move towards more efficient building standards of about 
30 percent improvement and decoupling which will unleash great 
economic resources for the efficiency industry. It was a small, 
quiet thing that was little noted on but I think will unleash 
tremendous assets for the efficiency industry.
    Number two, I want to make the point that the efficiency 
industry is an industry. People think of avoiding waste as 
something of a void or vacuum. In fact, it is a tremendous 
profit and job creation center.
    I just want to note in my little neck of the woods up in 
Seattle some companies are doing that right now, just so that 
people know it is not a pipe dream.
    We have got the MagnaDrive company in Bellevue, Washington, 
manufacturing electrical transmission services that reduces the 
electrical needs of generators by about 30 percent; Seattle 
Steam that does cogent electrical, a heating that essentially 
almost doubles the efficiency of a heating plant; McKinstry, 
which is the world's leading company to help corporations 
reduce their electrical usage, particularly on server forms; 
Boeing, which is making the world's energy efficient jetliners 
20 percent more energy efficient than any other competitive 
jetliner; the Verdean Company, which is selling software which 
significantly reduces a corporation's use of energy in the 
computer industry.
    I point those out because one of the largest job creation 
engines we have in the United States is the efficiency 
industry, and we intend to continue to draft policies to help 
them grow.
    Thank you.
    Mr. Markey. Thank you. The gentleman's time has expired. 
The Chair recognize the gentleman from Illinois, Mr. Shimkus.

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

    Mr. Shimkus. Thank you, Mr. Chairman.
    First, I want to thank my ranking member for bringing up 
that provision on windows. I am surprised I did not read it.
    Oh, I did not have enough time to read the bill. But had I 
read the bill, I might have another window issue.
    Mr. Upton. You will have an extra hour because of daylight 
savings in a couple of weeks.
    Mr. Shimkus. But let me thank the chairman on bringing up 
this issue on efficiencies, and excuse me if I don't share in 
the enthusiasm. Because for many, many years we have been 
talking about efficiency gains in the generation of 
electricity; and we have a Federal policy that does just the 
opposite. It is one that we have debated here for 12 years, and 
it is the issue of new source review.
    And take a power generating plant--I don't care if it is 
pulverized coal. I don't care if it is gasification. Say that 
we want and have a new generator that can generate for the same 
amount of power output, double the amount of electricity. Now, 
I would say that many of us would say that that is an 
efficiency gain that should be noted, not punished, not 
penalized. But what occurs under new source review is the 
entire air permitting process has to revolve itself, which is a 
disincentive. If the boiler is the same, if the emissions is 
the same, if they are meeting air quality standards at the same 
time and there is no change, but you are going to double the 
amount of output, that is what we are talking about in 
efficiency gains. However, since I have been here for 12 years, 
we continue to provide a disincentive in the new source review 
debate.
    And you will hear the claim it promotes dirty air. 
Especially if it is in a generator debate, it does no such 
thing.
    So, Mr. Chairman, I hope you work with me in reforming the 
permitting process and streamlining the procedures by which, if 
we have the same emissions standards, whatever they are, and if 
we are going to have increased efficiency and electricity 
gains, that we change this capricious new source review 
program.
    I yield back my time.
    Mr. Markey. The gentleman's time has expired.
    The Chair recognizes the gentleman from North Carolina, Mr. 
Butterfield.

OPENING STATEMENT OF HON. G.K. BUTTERFIELD, A REPRESENTATIVE IN 
           CONGRESS FROM THE STATE OF NORTH CAROLINA

    Mr. Butterfield. Thank you very much, Mr. Chairman, for 
convening this hearing today and thank the witnesses for coming 
forward with your testimonies.
    Mr. Chairman, you told us a few weeks ago that you were 
serious about moving this debate along; and you are absolutely 
right. Today is evidence that we are ready to move boldly with 
this initiative.
    With 40 percent of the U.S. Energy consumption coming from 
commercial and residential buildings, raising efficiency and 
greening of our buildings provides a clear path toward lowering 
our emissions in a relatively low cost yet highly scalable 
capacity.
    In the Southeast, where I am from, making strides in energy 
efficiency represents the most readily available means of 
cutting greenhouse gas emissions. North Carolina, my State, 
currently has a renewable energy standard which is helping to 
drive innovation and deployment of new renewable technologies. 
However, we remain at a regional disadvantage for access to 
much of the existing renewable energy options. As such, it is 
incumbent upon us that we develop policies that place a value 
on the reduction of greenhouse gasses, regardless of the means 
of achieving that goal. This means focusing on a broader 
approach, including renewables as well as energy efficiency.
    I want to comment briefly on a project in my hometown of 
Wilson, North Carolina, that is saving energy and reducing 
emissions using effective design and engineering changes. 
Wilson Community College recently constructed a LEED building, 
which is a certified green building, as a student center on the 
campus. I spoke for the dedication, and what I saw exceeded my 
expectations.
    We must invest in more green buildings. Studies using DOE 
assistance indicate that this building will use 50 to 60 
percent less energy than a normal new building of similar size, 
built to existing codes. The center's efficiency improvements 
will pay for themselves 10 times over in energy savings during 
the building's lifetime.
    Energy efficiency is an issue, Mr. Chairman, that is and 
should be universally supported.
    Thank you, I yield back.
    Mr. Markey. The gentleman's time has expired.
    The Chair recognizes the gentleman from Oregon, Mr. Walden.

  OPENING STATEMENT OF HON. GREG WALDEN, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF OREGON

    Mr. Walden. Thank you very much, Mr. Chairman. I appreciate 
the opportunity to participate in this hearing.
    We also have a communications hearing that is going to take 
place starting at 10:00, so I apologize to the witnesses ahead 
of time. I will be bouncing back and forth between the two.
    As I was reading through the testimony, I was struck by the 
Johnson Controls' testimony on the part about how energy 
efficiency is good for consumers and business. I believe it is, 
and I come from a State that has pioneered energy efficiency 
and conservation. We believe in it strongly.
    In the testimony, Mr. Campbell says, energy prices are 
escalating and will continue to rise with the price on carbon. 
Energy efficiency will reduce the impact of climate policies on 
consumers' energy bills. It will lower energy spending for 
American businesses large and small, enabling them to better 
compete in the global economy. Smarter, more efficient 
buildings not only have lower utility bills but also improve 
health, safety and comfort.
    I concur with all of that. Except that this committee just 
passed something that none of us--well, at least those on the 
Republican side--didn't get a chance to see in advance, and 
that is this decoupling motion. Which, as I understand it, 
basically says the utilities will have the right to come in and 
make up their lost revenue that results from energy efficiency. 
And while some consumers maybe think that is a warm idea, mine 
are pretty hot about it. They are going to get hotter the more 
they find out about it.
    I would like to know, Mr. Chairman, who wrote these 
positions? Who was in the room when this was written in secret 
in this bill since we never had a hearing and only learned 
about it as we went into markup? I would hope at some point 
we'd know who were the lobbyists in the room? Who were the 
legislators in the room? There sure seem to be a lot of folks 
who know about this and how those provisions came to be. But 
there sure was no public hearing on the legislation.
    And I would say, too, our area in Oregon is known for its 
wind energy. And yet I have also seen the hour-by-hour energy 
production data that indicates that without some sort of 
peaking power you cannot balance out that load. So gas does 
matter. Peaking power is going to be more important the more we 
go to non-firm power-based generators.
    Thank you, Mr. Chairman. I realize I have run out of time.
    Mr. Markey. The gentleman's time has expired.
    The Chair recognizes the gentleman from California, the 
chairman of the full committee, Mr. Waxman.

OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Mr. Waxman. Thank you very much, Mr. Chairman.
    Today's hearing will explore how energy efficiency can meet 
our power needs, save us money, create jobs and help slow 
global warming. Sometimes, the simple solutions are overlooked. 
Energy efficiency is both the most affordable and fastest 
source of energy, even though many people don't think of it 
that way.
    As several of our witnesses point out in their written 
testimony, supplying a kilowatt through energy efficiency 
commonly costs half as much as buying a kilowatt from power 
generators; and because the cost of efficiency doesn't depend 
on oil or natural gas prices, efficiency reduces energy costs 
across the board and their volatility.
    Businesses across the country find that when they focus on 
energy efficiency they can achieve significant cost savings, 
increasing profits to invest in expansion and new jobs. We will 
hear about some of those experiences today.
    Homeowners find that they can make their houses more 
comfortable, lower utility bills, recoup their costs in a few 
years, and then watch their savings grow.
    Energy efficiency can also be deployed quickly, compared to 
planning, siting, financing, permitting, and constructing a new 
power plant. And energy efficiency doesn't require any new or 
existing transition capacity. That means efficiency can come on 
line without waiting for transmission upgrades.
    Energy efficiency is a job engine. Because efficiency gains 
come in so many forms, efficiency creates opportunities for 
small businesses and big businesses throughout the economy. 
These range from construction and engineering jobs, 
retrofitting buildings, manufacture of efficient products such 
as next generation windows and lighting. In building a strong 
energy efficient economy for America, we will help employ 
workers and give more jobs.
    For all these reasons, promoting energy efficiency must be 
a key element of climate legislation. We need substantial 
efficiency improvements to achieve large greenhouse gas 
emissions reductions at a reasonable cost. That is why the 
International Energy Agency concluded that more than half of 
the emissions reductions required by 2050 globally must come 
from improvements in energy efficiency.
    And we know that the experiences--that the market by itself 
won't deliver all the available low-cost efficiency savings. 
Homeowners, for example, may know that they can save money by 
buying a more efficient furnace, but many don't have the 
capital to make up-front investments. A landlord has little 
incentive to weatherize an apartment when the tenant pays the 
utilities.
    Local, State and Federal policies have helped successfully 
address some of those and other barriers. Building codes and 
appliance standards are two types of policies that saved us 
huge amounts of energy and money in 1 year alone. For example, 
the savings from the efficient appliances and qualifier for an 
ENERGY STAR label save as much energy as required by 10 million 
American homes.
    You can see the results in a State such as California, 
which made energy efficiency a priority for decades. Since 
1975, California's energy efficiency standards for buildings 
and appliances have saved residences and businesses $56 billion 
in energy costs and avoided the need to build 24 major power 
plants. And today we will hear about Massachusetts' instructive 
experience in promoting energy efficiency.
    I look forward to hearing from our witnesses and their 
recommendations on how we design climate change legislation to 
best take advantage of the great benefits that energy 
efficiency offers us. Thank you, Mr. Chairman.
    Mr. Markey. The gentleman's time has expired.
    The Chair recognizes the gentleman from Florida, Mr. 
Stearns.

 OPENING STATEMENT OF HON. CLIFF STEARNS, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF FLORIDA

    Mr. Stearns. Thank you, Mr. Chairman. I thank you and the 
ranking member for this hearing.
    My staff just was able to get a copy of the stimulus bill 
that we passed 11 days ago. So it is not humanly possible for 
us to read it. So we didn't know of all the intricacies that 
were in the bill.
    But for those homeowners that are installing those 
programmable thermostats, choosing ENERGY STAR qualified 
appliances and things Mr. Waxman, the chairman, mentioned, 
additional attic installation, and replacing all windows and 
doors with more efficient ones are all cost-effective 
renovations. Homeowners will be very pleased with these 
renovations, hoping that will make their house more modernized 
but also more cost efficient.
    But because, my colleagues, of the decoupling provision 
that passed in the stimulus bill which was supported by the 
majority party, they will be surprised. Customers will be 
forced to pay more energy after they have done all these things 
I mentioned.
    The resulting high energy rates will be especially hard on 
those elderly people that spend their hard-earned dollars to 
fix up their homes. Because their incomes will be fixed; and 
these individuals will think, well, gee whiz, my costs are 
coming down. But, lo and behold, they will not be coming down. 
Because of the complex structure of the energy utility bills, 
you hope to attain achievable energy savings, but you will not 
see that.
    So I think that that is a very important part of this 
hearing. We want to promote energy efficient technologies to 
reduce energy consumption, but, ultimately, I think the market 
has to play a spot here, and not Congress, in determining the 
preferred cost-effective technologies and effective and 
efficient building practices implemented.
    So I look forward to this hearing and thank you, Mr. 
Chairman.
    Mr. Markey. The gentleman's time has expired.
    The Chair recognizes the gentleman from Vermont, Mr. Welch.

  OPENING STATEMENT OF HON. PETER WELCH, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF VERMONT

    Mr. Welch. Thank you, Mr. Chairman.
    Global warming, as we all know, is real, and it is urgent, 
and it requires immediate action. We cannot simply solve this 
crisis without focusing, increasing our energy efficiency. For 
a Nation that consumes more than 25 percent of the world's 
energy, we simply can not afford anything that is less.
    In Vermont, actually, we have shown that it can be done. We 
have an energy efficiency utility. It is the Nation's first 
Statewide provider of energy efficiency services. And what this 
pioneering energy efficiency utility has demonstrated is really 
quite remarkable.
    First, efficiency works. Thanks to a commitment to 
investing in efficiency and the effectiveness of Efficiency 
Vermont, our Statewide energy requirements were reduced by 1.74 
percent in 2007. That exceeded the projected rate of low 
growth, making us the first State to ever turn low growth 
negative. People said it couldn't be done. Vermont has done it.
    Second, efficiency is cost effective. The cost of 
efficiency, as you pointed out, is about 2.6 cents per kilowatt 
hour, compared to 10.7 cents per kilowatt hour for comparable 
energy; and Vermonters saved money. In 2007, this was an 88 
percent increase savings over 2006.
    Third, energy efficiency is the path to reducing our carbon 
emissions. For 2007, Efficiency Vermont's efforts resulted in 
661,000 fewer tons of CO2, 562 fewer tons of 
nitrogen oxide, and 1,100 fewer tons of sulfur dioxide entering 
the atmosphere.
    The goal of this committee is to reduce greenhouse gasses 
by 80 percent by 2050. Many models suggest that energy 
efficiency can and must provide about 30 percent of that 
reduction, and to meet that target we must have to have as a 
goal about 3 percent reduction through efficiency each year. 
Now Vermont had 2 percent last year. We can and we must begin 
to build the on ramp towards a global warming solution. That on 
ramp, simply put, is through efficiency.
    I yield back.
    Mr. Markey. The gentleman's time has expired.
    The Chair recognizes the gentleman from Texas, Mr. Hall.
    Mr. Hall. Mr. Chairman, I pass on questions. I reserve my 
time.
    Mr. Markey. The Chair recognizes the gentleman from 
Louisiana, Mr. Scalise.

 OPENING STATEMENT OF HON. STEVE SCALISE, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF LOUISIANA

    Mr. Scalise. Thank you, Mr. Chairman. I am looking forward 
to the hearing that we are going to have and the testimony from 
our panel.
    As we develop a comprehensive national energy policy, 
efficiency and conservation are definitely part of what needs 
to be a comprehensive plan that also needs to include the 
development of our own natural resources to reduce our 
dependence on foreign oil. But, also, it has got to include a 
provision that encourages the development of alternative 
sources of energy, the renewables like wind and solar which are 
not commercially viable enough today to replace the domestic 
energy that we have but ultimately we can use that domestic 
energy as a bridge to get there.
    But I think if you look at what people are doing in this 
country, they are conserving. When gas was at $4 a gallon, 
people were cutting back dramatically; and they haven't changed 
their habits to a large degree, even though the price has 
dropped a significant amount. So I think we need to encourage 
that conservation and the efficiencies that they have been 
yielding.
    One concern that some of us have is that we looked at the 
stimulation bill and there was a provision, the decoupling 
provision, that, in essence, will penalize some people who go 
and do those things to make their homes more energy efficient. 
And I think we have to be very careful in this committee and in 
the Congress as a whole that we don't penalize people who take 
those extra steps. If they want to spend what is a large 
capital outlay to put solar panels on the roof and to put 
insulation on the attic, they are not penalized by having to 
pay higher utility rates for doing those things.
    So we shouldn't discourage good behavior by policy; and, 
unfortunately, that was a provision that got into the stimulus 
bill. Hopefully, as people across the country realize that and 
senior citizens realize they may be paying more for energy 
because they didn't spend $40,000 to put those solar panels up, 
that is an issue we can revisit. Because we should avoid 
policies that discourage people from doing the right thing.
    So, hopefully, we will look at all of those and all parts 
of that three-legged stool, of a comprehensive policy, 
efficiency and conservation being one of those three.
    Thank you, and I yield back.
    Mr. Markey. The gentleman's time has expired.
    The Chair recognizes Mr. Green.
    Mr. Green. Mr. Chairman, I waive opening statement for 
additional questioning time.
    Mr. Markey. The gentleman waives.
    The Chair recognizes the gentleman from Georgia, Mr. 
Barrow.
    Mr. Barrow. I thank the Chair. I will waive, also.
    Mr. Markey. The Chair recognizes the gentlelady from 
California, Ms. Matsui.

OPENING STATEMENT OF HON. DORIS O. MATSUI, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Ms. Matsui. Thank you, Mr. Chairman. Thank you very much 
for calling this hearing today.
    I would also like to thank today's panelists. We all 
appreciate your time and expertise on those matters.
    Buildings in our country are responsible for more 
greenhouse gas emissions than any other sector. Heating, 
cooling, lighting our buildings, as well as powering our 
appliances requires vast amounts of energy. But, thankfully, we 
currently possess the technology and knowledge needed to 
address a quarter of our Nation's carbon emissions.
    Improved energy efficiency will be an essential element of 
any climate change solution. My district of Sacramento, 
California, has been a leader in adopting green building 
practices. We have the first LEED platinum certified office 
building in the country. We also have the second-most LEED 
certified square footage of any city. We are also home to the 
California Energy Commission and have been a leader in energy 
efficiency for over 30 years.
    Under the leadership of Art Rosenfeld, who is really the 
godfather of energy efficiency in this country, our State 
energy commission has kept California's per capita energy 
consumption flat.
    Furthermore, Federal programs such as ENERGY STAR and Build 
America are expending technologies and giving us concrete ways 
to confront climate change.
    Last Congress, I introduced a measure to assist homeowners 
across the country with energy efficiency landscaping 
practices. Even changing something as simple as how our 
buildings get sunlight can make a big difference in how much 
energy they consume.
    I look forward to working with my colleagues on this 
committee to examine and promote energy efficiency, while 
helping our constituents to do the same. By saving people money 
and reducing our carbon emissions, energy efficiency is truly a 
win-win proposition.
    Once again, Mr. Chairman, thank you very much for 
highlighting this important issue; and I yield back the balance 
of my time.
    Mr. Markey. The gentlelady's time has completed.
    The Chair recognizes the gentleman from Pennsylvania, Mr. 
Pitts.

OPENING STATEMENT OF HON. JOSEPH R. PITTS, A REPRESENTATIVE IN 
         CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA

    Mr. Pitts. Thank you, Mr. Chairman. I want to thank you for 
convening this hearing today on such an important issue.
    Like all of us, I believe that sound energy efficiency 
measures will certainly help decrease the amount of greenhouse 
gas emission in our atmosphere. It will also encourage our 
country to strengthen our energy security and end our 
dependence on foreign energy resources. However, if energy 
efficiency matters are not implemented in a cost-effective 
manner, they will harm our economy.
    In the recently passed stimulus bill, as has been noted 
that we just were able to get a copy of, a potentially very 
harmful provision was included, decoupling. Decoupling, the 
separating of utility rates from the amount of electricity or 
natural gas that utilities sell, will inevitably harm our 
already damaged economy and those least able to withstand more 
economic pressure, regular Americans who are struggling to make 
ends meet during this recession.
    Under the stimulus, if a State accepts Federal energy 
efficiency grants, they will have to guarantee that utilities 
recover their lost revenue when consumers don't use as much 
electricity; and this forces the consumer, the rate payer, to 
keep utilities solvent, even if their own energy use decreases.
    With an anticipated decline in energy use in 2009, this 
policy will force customers to pay more money for less energy; 
and the government essentially will be punishing people for 
conserving energy. I believe we must instead create incentives 
for energy conservation and reward consumers when they save 
energy, not force them to pay artificially higher utility 
rates.
    Utilities have a legitimate concern that increased 
efficiency will cost revenue, but if we learned anything from 
the mortgage crunch it is this: Government policies that try to 
alter or ignore the fundamental laws of economics create more 
problems than they solve. Penalizing consumers for using less 
energy doesn't seem like the right solution. I hope we can all 
work together and come up with a better alternative.
    I look forward to hearing the witness today and thank you 
and yield back.
    Mr. Markey. The gentleman's time has expired.
    The Chair recognizes the gentlelady from California, Mrs. 
Capps.

   OPENING STATEMENT OF HON. LOIS CAPPS, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Mrs. Capps. Thank you, Mr. Chairman, for holding this very 
important hearing to explore the vital role energy efficiency 
will play on reducing greenhouse gases and achieving our 
climate change objectives.
    I remember so well the image of one of the CEOs of the big 
oil companies when the gasoline prices were skyrocketing being 
challenged, what are we going do about these high prices? He 
said, I have one word for you: efficiency. And it holds true in 
our topic here today as well.
    I thank our esteemed witness for their testimony on this 
very important matter.
    Energy efficiency is a win-win. By reducing consumption of 
energy, we save money and we also cut greenhouse gasses. The 
chairman of our full committee as well as my neighbor from 
Sacramento, Doris Matsui, have highlighted what has been 
achieved in California, my State as well, a long-time leader 
among other States in energy efficiency. We use less energy per 
capita than any other State in the Nation. As the chairman 
said, in 1995--since 1975, rather, per capita energy 
consumption in California has held steady, while in the U.S. as 
a whole it has grown by 50 percent.
    Furthermore, by implementing green energy policies that 
lower consumption and cut greenhouse gasses, we have managed to 
spend less. On average, California families now spend $800 a 
year less on energy than they would have without the efficiency 
advancements of the last three decades. We have managed to cut 
also per capita of carbon dioxide emissions by 30 percent over 
the last 30 years.
    These successes have come as a result of strong standards 
combined with innovative regulations and innovative 
achievements. So I thank you, Mr. Chairman, for the leadership 
of this committee and of our administration for setting some 
high goals.
    As we move forward to craft climate legislation, consider 
the complementary policies necessary to reduce greenhouse 
gasses. I hope you will recognize groundbreaking work that is 
already occurring in California, Massachusetts, and other 
places and that will build smart policy on their achievements, 
on the achievements that have been already accomplished in 
local communities.
    Thank you very much, and I yield back.
    Mr. Markey. The gentlelady's time has expired.
    The Chair recognizes the gentleman from Texas, Mr. Burgess.

OPENING STATEMENT OF HON. MICHAEL C. BURGESS, A REPRESENTATIVE 
              IN CONGRESS FROM THE STATE OF TEXAS

    Mr. Burgess. I thank you for holding this hearing. I look 
forward to hearing from our panel of witnesses today.
    Energy efficiency is exactly the type of issue where we can 
work together on this committee despite our clear differences 
on carbon control regimes. Energy efficiency is the type of 
win-win scenario that people seek in public policy decisions 
before Congress.
    We need to ensure that the consumers of electricity receive 
the cost savings from energy efficiency and that this does not 
accrue to the electric utilities. The incentive to implement 
energy efficiency technology must provide direct benefits to 
the end users who ultimately pay the rates to families of small 
businesses and to manufacturers.
    Unfortunately, the revenue-decoupling portion of the 
economic stimulus bill redirected these benefits to the 
utilities so the consumers pay the same price no matter how 
much energy they consume or save. I hope that this committee 
can work together to correct this provision and redirect the 
benefits of energy efficiency back to rate payers.
    This is not just a hypothetical concern with me, Mr. 
Chairman. A few years ago my wife and I found ourselves 
building a new home, and the number of things that were 
available off the shelf for energy efficiency really made an 
impression upon me--we already heard from a member on the other 
side--things like siding your house correctly to take advantage 
of passive solar heating if you are in a climate where that 
will be of benefit; the ultra-high-efficiency air conditioners 
that are available nowadays; foam insulation in the walls; Low-
E glass; the tankless water heater; the Efficient Attic System.
    Our electric utility rates dropped one-half the summer we 
moved into this house which was the same square footage as the 
house we had occupied the previous summer. Our natural gas 
consumption similarly declined by about half, demonstrating the 
powerful effect of energy efficiency.
    This is an area where we can all agree improvements can be 
made. I want to be certain, though, that the decisions we make 
in this committee do not increase the cost of development and 
increase the cost of manufacturing, because the economy right 
now cannot tolerate that type of convulsion. 
    I yield back the balance of my time.
    Mr. Markey. The gentleman's time has expired.
    The Chair recognizes the gentleman from Texas, Mr. 
Gonzalez.
    Mr. Gonzalez. I waive opening.
    Mr. Markey. The Chair recognizes the gentlelady from 
Wisconsin, Ms. Baldwin.

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

    Ms. Baldwin. Thank you, Mr. Chairman.
    Over the past 2 years, this subcommittee has heard about 
emerging technologies, necessary investments in research, and 
critical infrastructure that must be developed if we are to 
reduce our energy use and lower our greenhouse gas emissions. 
We have focused on carbon sequestration, cellulosic ethanol and 
plug-in hybrid vehicles as solutions to our energy and climate 
change crises. These are important discussions to have.
    In looking toward the future, we cannot lose sight of the 
significant energy savings that are currently available to us. 
Today, by having a thorough discussion of energy efficiency 
opportunities, we draw attention to low-cost strategies that 
can be used to reduce greenhouse gas emissions.
    I am particularly interested in how the industrial sector 
can optimize its energy use. In December, the Oak Ridge 
National Laboratory released a report saying that waste energy 
recovery is, "One of the most promising options in the U.S. 
energy efficiency portfolio." I am pleased with a number of the 
provisions included in the Energy Independence and Security Act 
that encourage waste heat recovery, and I look forward to 
hearing about our opportunities that we may be able to make 
available.
    Finally, I want to welcome all of our witnesses here today. 
But one in particular, Mr. Iain Campbell, is here representing 
Johnson Controls, which is headquartered just outside of my 
district in Milwaukee, Wisconsin. Johnson Controls is a leader 
in innovation, building batteries for the next generation of 
plug-in hybrid vehicles and addressing efficiency in buildings 
to help manage energy costs, reduce environmental impacts and 
improve productivity and competitiveness.
    I would add that Johnson Controls doesn't just talk the 
talk. Rather, they have taken significant steps to improve 
their own efficiencies and reduce their own carbon footprint; 
and through it all they have continued growing.
    I thank you for your company's commitment to environmental 
stewardship and corporate responsibility and welcome your 
testimony as well as the testimony of the entire panel that we 
are very grateful to have before us today.
    Thank you, Mr. Chairman. I yield back the balance of my 
time.
    Mr. Markey. The gentlelady's time expired.
    The Chair recognizes the gentleman from Missouri, Mr. 
Blunt.
    Mr. Blunt. I think, Mr. Chairman, I will submit a statement 
later for the record.
    Mr. Markey. Then that completes all opening statements by 
the members, and we will now turn to our very distinguished 
panel and hear from our first witness.
    Our first witness is Phil Giudice, who is the Commissioner 
of the Massachusetts Department of Energy Resources. He has 
over 30 years of experience in the energy industry and 
currently serves on the boards of the Regional Greenhouse Gas 
Initiative and the Massachusetts Renewable Energy Trust.
    We look forward to your testimony. Whenever you are ready, 
please begin.

   STATEMENT OF PHILIP GIUDICE, COMMISSIONER, MASSACHUSETTS 
                 DEPARTMENT OF ENERGY RESOURCES

    Mr. Giudice. Thank you, Chairman Markey and the committee, 
on behalf of Governor Patrick, Secretary Bowles, all of 
Massachusetts and all of the State energy offices. I thank you 
not only for your long-standing leadership on energy and 
climate matters but for your aggressive support of the recently 
passed stimulus package.
    Funding for the State energy program, the Weatherization 
Assistance Program, the energy efficiency conservation block 
grants and the appliance energy rebates, among many other 
program in the stimulus package, will be put to good use in 
Massachusetts and elsewhere around the country.
    In 1990, when the State Energy Efficiency Program 
Improvement Act was passed, you were the chief sponsor, 
Chairman Markey. This has allowed the SEP programs to serve as 
a ready-to-use vehicle across the country for distributing a 
significant portion of these stimulus dollars. Every year, you 
have led the effort in the House of Representatives to increase 
funding for SEP, weatherization and LIHEAP. These are important 
for Massachusetts and our country. Thank you.
    Further, we are proud to strongly support your recently 
filed Save American Energy Act; and we look forward to working 
with you, the committee, the Massachusetts delegation, Congress 
and the administration to advance boldly Federal energy and 
climate policies this session.
    If you take away only one thing from my comments today it 
is this: Energy efficiency is a proven, reliable and extremely 
valuable tool for building a greener energy future. It is also 
a tool that we can quickly deploy to reinvest in our homes, 
businesses, starting today, in ways that will begin to turn 
around our economy and in the longer term put the United States 
at the hub of a 21st century global clean energy economy.
    As Governor Patrick has said about Massachusetts, if we get 
clean energy right, the world will be our customer. And in the 
context of your consideration of Federal climate legislation it 
is also clear, based on our long experience in Massachusetts 
with the efficiency programs and our short-but-valuable 
experience with carbon caps through the Regional Greenhouse Gas 
Initiative, that energy efficiency is the best climate 
mitigation tool that we have and a powerful economic driver for 
our economies.
    I know you are well acquainted with our existing efficiency 
policies in Massachusetts, but I want to take this opportunity 
to share for the record some of the lessons and provide a 
glimpse of the transformation that is under way in 
Massachusetts.
    Massachusetts has historically had some of the highest 
costs of energy in the country, but our innovative people have 
combined to establish us as a leader in efficiency. Our energy 
productivity of the State is the one of the highest in the 
Nation, with our economy generating $200 of gross State product 
for every million BTUs of energy consumed. The U.S. averages 
$116 for million BTUs consumed.
    The efficiency and economic growth can and do go hand in 
hand in Massachusetts. Massachusetts's long and distinguished 
record investing in energy efficiency is delivering great 
results. We have continuously invested for over three decades. 
We collect about a quarter of a penny for every kilowatt hour. 
This is distributed by our regulated utilities in wide-ranging 
and far-reaching energy efficiency programs, totals about $125 
million a year, which is about $20 per person in the State of 
Massachusetts. U.S. total through regulated utility programs 
are spending about $2.5 billion or about $8. So we are about 
2.5 times the national average.
    These programs result in saving energy at a cost of about 
3.6 cents a kilowatt hour and contribute to an overall savings 
of 8 percent of the kilowatt hours that we would otherwise be 
consuming in Massachusetts. So this is a great deal, especially 
when the annual cost of power from generation in the wholesale 
market averages 8 or more cents a kilowatt hour.
    We are not resting on those accomplishments. In fact, we at 
this moment are in the process of transforming our energy 
efficiency infrastructure in our approaches; and this effort is 
producing remarkable results.
    The transformation began with Governor Patrick and our 
legislature's leadership to fundamentally change the equation 
for investing in efficiency. Instead of investing a prescribed 
amount of the 2.5 mills that they were collecting and getting 
as much energy efficiency as we could with this sum of money, 
we are now required by law to invest in all energy efficiency 
that is less expensive than supply sources. We expect this will 
double, triple or more our efficiency spending and the results 
that we will be getting from our efficiency programs.
    This transformation is largely being accelerated by 
investing the revenues from our participation in the Regional 
Greenhouse Gas Initiative. We have had two auctions, and we 
have generated almost $30 million that are going directly into 
these programs in Massachusetts and will be further 
turbocharged by the recently passed Federal stimulus. This will 
mean more G auditors, more contractors working on insulation in 
air, ceiling and homes and businesses and improving our 
building stock, more plumbers and HVAC control technicians to 
change out the inefficient equipment and put in much more 
efficient.
    All kinds of organizations are taking charge of becoming 
energy leaders. As you well know, Mr. Chairman, Massachusetts 
is proud of its professional sports teams; and, in addition to 
winning six championship banners in the last 7 years, each of 
our sports teams, the Red Sox and New England Patriots, are 
doing fantastic things from their energy consumption.
    So I ask you at this moment to go much bolder than we will 
necessarily be comfortable for. Because, in the future, we will 
look back and wish we were taking bold steps at this time. 
Thank you.
    [The prepared statement of Mr. Giudice follows:]



    
    Mr. Markey. Thank you very much. We appreciate it.
    Our next witness is Mr. Thomas King, who is the President 
of National Grid in the United States. Before joining National 
Grid, Mr. King spent 10 years with Pacific Gas and Electric 
Company where he was Chairman and CEO.
    Whenever you are ready, please begin.

      STATEMENT OF TOM KING, PRESIDENT, NATIONAL GRID USA

    Mr. King. Mr. Chairman, Ranking Member Upton and members of 
the committee, I want to thank you for including National Grid 
in this very important hearing on energy efficiency.
    May I first congratulate you and your congressional 
colleagues for your focus and success with important 
initiatives on energy efficiency renewables, infrastructure 
such as smart grid, and other critical energy support in last 
week's stimulus bill.
    Mr. Chairman, we are also pleased with the directional 
approach you have introduced with initiatives that address both 
Energy Efficiency Resource Standard and renewable energy.
    There is no single solution with the overall energy policy. 
We need more expansive, robust energy efficiency programs. We 
need new sources of renewable energy, wind, solar biomass, 
geothermal. We need a comprehensive strategy to address our 
transmission infrastructure, including policies that will 
enable us to bring renewable energy to load centers; and we 
need smart grid technology and smart meters to maximize the 
potential of current and future energy technologies through 
efficiency and automation. All of those actions play a critical 
role in an effective National energy policy.
    While the National energy strategy must be multifaceted, my 
comments today will focus on energy efficiency. Energy 
efficiency uniquely addresses many of our Nation's core energy 
issues. It is more cost effective than building new power 
plants, has the potential to dramatically lower greenhouse gas 
emissions, and provides consumers with long-term savings on 
their energy bills.
    Let me begin with some simple facts on the cost 
effectiveness of energy efficiency.
    Energy efficiency can cost as little as $0.03 per kilowatt 
hours saved, while electricity costs $0.06 to $0.12 per 
kilowatt hour. As a country, we spend about $215 billion 
annually on production of electricity, but we only invest $2.6 
billion on energy efficiency. For natural gas, efficiency costs 
range $1 to $2 per thousand cubic foot consumed, compared to a 
typical market cost ranging from $6 to $8 per Mcf. Yet we spend 
approximately $91 billion annually on natural gas and only $500 
million on efficiency of natural gas.
    This country must take better advantage of this opportunity 
and prioritize energy efficiency. National Grid's experience 
with energy efficiency programs in Massachusetts can be a model 
for the rest of the country. The successful programs include 
comprehensive whole house efficiency approaches, energy audits, 
high efficiency lighting, HVAC installation to ensure 
efficiency, energy efficiency services to low-income customers, 
business customer assistance to implement energy savings, and 
weatherization initiatives.
    On the gas side, the programs include high efficiency 
appliances; weatherization; and system controls, including 
automatic thermostats.
    I congratulate Governor Deval Patrick and the Massachusetts 
Executive Office of Energy and Environmental Affairs for 
passing comprehensive energy legislation in Massachusetts, the 
2008 Green Communities Act. This provision will allow National 
Grid to expand our efficiency programs by 300 to 400 percent 
over the next 5 years.
    National Grid, in partnership with other leading energy 
companies such as PG&E, DT&E, environmental groups such as the 
Natural Resources Defense Council, and Environmental Defense, 
worked together with McKenzie & Company to look at energy 
efficiency. The landmark study found that the U.S. can make 
substantial emissions by 2030 without damaging the economy with 
the help of energy efficiency.
    The Electric Power and Research Institute recently 
introduced its own energy efficiency savings analysis. By 
analyzing the impacts of codes and standards as well as market-
driven efficiency, the study shows measurable reductions in 
energy consumption.
    In addition to energy efficiency, we will need a national 
policy such as a mandatory cap and trade program. As consumers 
bear the cost of addressing climate change in the form of 
higher energy prices, climate change policies must be designed 
to mitigate that impact. One of the most effective and 
transparent ways to simultaneously address consumer costs and 
energy efficiency is to distribute allowances to local 
distribution companies with the mandate that the value be 
returned expeditiously to the customers to reduce their energy 
bills.
    Current State enforcement power and rigorous open reporting 
will ensure that all allowance values allocated to the LDCs do 
benefit the customers. LDCs are uniquely positioned to 
administer community based energy efficiency programs because 
they already have the necessary experience, communication 
channels, marketing expertise, funding and oversight processes 
and access in place in the market to move things quickly.
    National Grid already has efficiency programs in place that 
are saving customers in New England over $250 million a year. 
As a result of these programs, National Grid's customers have 
saved more than $3.6 billion in energy costs. In 2007 alone, 
our gas program saved 4.6 million thermal units and avoided 
27,000 tons of CO2; and our electricity program 
saved 380,000 megawatts, avoiding 218 tons of CO2. 
This is a total carbon emission equivalent of taking 48,000 
cars off the road a year. Expansion of such programs, as a 
result, creates energy efficiency jobs.
    Energy efficiency should act as the foundation of our 
national energy policy; and, importantly, we need to move 
quickly. I commend your work and thank you.
    Mr. Markey. Thank you, Mr. King, very much.
    [The prepared statement of Mr. King follows:]



    
    Mr. Markey. Our next witness is Rich Wells, who is the Vice 
President of Energy for the Dow Chemical Company. He is a 
member of the board of directors of the Alliance to Save Energy 
and in 2008 was appointed to the Michigan Climate Change Action 
Council by Governor Jennifer Granholm.
    Thank you for being with us today.

   STATEMENT OF RICH WELLS, VICE PRESIDENT, ENERGY, THE DOW 
                      CHEMICAL CORPORATION

    Mr. Wells. Chairman Markey, Representative Upton, and 
members of the committee, thank you for the opportunity to 
provide our views on energy efficiency and its role in the 
future energy and climate change policies in our country.
    First, I would like to address the role energy plays for 
Dow. As one of the largest chemicals and plastics producers, 
Dow uses the equivalent of 850,000 barrels of oil every day in 
its global operation. Of this total, approximately half is in 
the United States. Energy used by Dow is converted into a wide 
variety of products essential to our economy and our citizens' 
quality of life. Those products serve as building blocks for 
everything from pharmaceuticals, insulation, electronic 
materials, infrastructure and much more.
    With energy being a key enabler for all of our products, it 
is no surprise that the volatility of energy prices over the 
last 6 years has had a dramatic impact on Dow. In 2002, our 
total annual energy and feedstock bill was $8 billion. In 2008, 
that number climbed to over $27 billion.
    Dow has an energy efficiency and conservation program which 
has been refined over the past two decades. This program, 
through its energy savings, has allowed us to sustain our 
operation despite these raising energy costs. Let me give you 
some examples of the impressive results from that program.
    We have saved over 1,600 trillion BTUs of energy since 
1994, which is enough energy to power every home in California 
for 1 year. We have saved $8.6 billion in energy costs over the 
past 14 years, and these energy savings have prevented 86 
million metric tons of CO2 from entering our 
atmosphere.
    Dow's efforts in energy efficiency have been recognized by 
the EPA, who named our company an ENERGY STAR partner of the 
year in 2008. We have been involved in energy efficient 
outreach efforts both in the U.S. and internationally, 
including China.
    Despite being a very energy intensive company, Dow provides 
products that helps consumers save energy and reduce greenhouse 
gas emissions. In fact, the emissions avoided by use of Dow 
thermal insulation are seven times greater than our total 
corporate emissions.
    As you can see, Dow is committed to energy efficiency. It 
is the quickest, cheapest, cleanest way to extend our Nation's 
energy supplies and reduce carbon emissions. That is why we 
recommend Congress implement the following complementary 
policies for energy efficiency:
    First, strengthen building energy codes by 30 percent 
starting in 2012 and 50 percent by 2020.
    These building code improvements could save up to 6 billion 
metric tons of CO2 emissions by 2050.
    Second, implement a Federal energy efficiency resource 
standard. Estimates show that by 2020 a Federal EERS could 
reduce peak electrical demand by 90,000 megawatts, cut 
CO2 emissions by 260 million metric tons, and create 
260,000 net jobs.
    Third, increase the payback periods on low-interest loans 
to industry for energy-efficiency projects. These projects 
would improve energy efficiency within the private sector, 
stimulate the economy, and lower greenhouse gas emissions.
    And finally, re-energize the DOE Industrial Technologies 
Program. Strengthen the program by placing greater emphasis on 
early-stage R&D, as well as expanding focus on cogeneration and 
recycled energy.
    Dow supports the prompt enactment of an environmentally 
effective and economically sustainable cap-and-trade program. 
As a member of USCAP, Dow supports an 80 percent reduction in 
CO2 emissions by the year 2050. However, we need to 
be thoughtful when designing climate policy. Too strong a price 
signal on carbon in the short term could accelerate fuel 
switching from coal to natural gas in the power generation 
sector. Such a movement could trigger a steep demand for 
natural gas, dramatically driving up prices and harming 
manufacturers, including Dow. Combined with other well-designed 
climate policy elements, complementary energy efficiency 
measures can lessen the impact of fuel switching under a cap-
and-trade program.
    In conclusion, Congress should pass cap-and-trade 
legislation with complementary measures in order to drive 
energy efficiency through all phases of climate policy. If we 
fail to do so, we risk negative impacts and burdens on all 
sectors of our economy, including our manufacturing base.
    I thank you for the opportunity to speak with you today, 
and I will be happy to answer your questions when it is 
appropriate. Thank you.
    [The prepared statement of Mr. Wells follows:]



    
    Mr. Inslee. Thank you, Mr. Wells. And I know about your 
great work. There is an interesting book that has said really 
good things about Dow. I will tell you about that later.
    Mr. Campbell?

STATEMENT OF IAIN CAMPBELL, VICE PRESIDENT AND GENERAL MANAGER, 
                     JOHNSON CONTROLS INC.

    Mr. Campbell. Chairman Markey and members of the 
subcommittee, thank you for the opportunity to provide 
testimony on complementary policies for climate legislation.
    Johnson Controls is a world leader in providing energy-
efficiency products, technologies, and services for buildings, 
and we would like to share an on-the-ground view of the 
opportunities and barriers to energy efficiency.
    Some refer to energy efficiency as the fifth fuel, a new 
source of energy that we can tap to drive economic growth. We 
believe that energy efficiency should be considered the first 
fuel, as it saves consumers and businesses money through lower 
energy consumption and represents the lowest-cost source of 
energy using technologies widely available today.
    In the first of three key points that we wish to make, we 
believe that a variety of complementary policies are needed to 
drive energy efficiency. In addition to putting a price on 
carbon, we support time-of-use pricing and smart-grid 
investments to give energy users and their building management 
systems the information that they need to make smart decisions.
    We support energy-efficiency resource standards, such as 
the legislation Representative Markey has recently introduced. 
Such a standard would dramatically ramp up efficiency 
investments while providing a path for utilities to cost-
effectively decrease their overall emissions.
    Building codes and equipment standards represent important 
policy levers. We support policies to provide incentives for 
the purchase of the highest-efficiency equipment to drive 
innovation and enable manufacturing scale. We also support the 
introduction of a system to label building performance to help 
better inform current and perspective building owners and 
ultimately increase demand for high-performance buildings.
    With approximately 1 billion square feet of annual new 
construction, establishing complementary policies to enhance 
energy efficiency in new buildings is an important step. But, 
to the second of our three key points, these opportunities are 
dwarfed by the prospects of enhancing energy efficiency in the 
approximately 72 billion square feet of existing nonresidential 
building stock.
    There are a range of barriers that prevent raising of 
energy-efficiency levels in existing buildings that have 
effectively been addressed in the public sector using an 
approach known as performance contracting. Performance 
contracting is a competitive, market-based approach to 
delivering energy and operational savings that leverages public 
funding with private investment. This programmatic approach to 
retrofitting buildings can combine energy efficiency and 
renewable energy in a single, cost-effective project. The 
energy performance guarantees provided under these contracts 
ensure transparency and accountability for project outcomes, a 
critical element of any successful energy and climate policy.
    Performance contracting has been successfully applied in 
the public sector for over 20 years. Examples include the 
University of Massachusetts in Amherst, where a $42 million 
investment, funded through public and private sources, 
delivered $56 million in guaranteed energy and operational 
savings as well as an improved learning environment for 
students and faculty alike. And Wyandotte Public Schools in 
Michigan implemented a combination of energy-efficiency 
retrofits, technology upgrades, and solar PV installation that 
delivered significant savings and helped the school district 
become the first in Michigan to be fully certified under the 
EPA's ENERGY STAR program.
    While performance contracting has been successful in the 
public sector, there are barriers to the adoption of this model 
in the private sector: the mismatch of incentives between 
property owners and tenants, the frequency of turnover in 
building ownership, and the requirement to use building assets 
as collateral to secure loans.
    To address this, we recommend establishing a program that 
would encourage large-scale, deep retrofitting of privately 
owned, commercial buildings. The program should provide 
incentives for efficiency improvements, in the form of rebates 
provided to building owners or their agents in proportion to 
verified and sustained performance improvements, and loan 
guarantees to help attract capital from private sources to fund 
those improvements.
    A third and final point is that these complementary energy-
efficiency policies have the potential to create a substantial 
wave of new green-collar jobs across the country. Developing 
this workforce will require a combination of public and private 
investment, along with the creation of certification programs 
to ensure that workers have the right skills and training to 
engineer, install, and maintain energy-efficiency projects.
    Finally, let me note that included in my written testimony 
are a number of consensus recommendations from a coalition of 
energy-efficiency organizations, including Johnson Controls, 
entitled, "Reducing the Cost of Addressing Climate Change 
Through Energy Efficiency."
    In closing, Johnson Controls believes in the need to 
increase the Nation's focus and investment in energy 
efficiency. Energy efficiency must be the first priority in 
addressing climate change as a way of containing the cost of 
climate protection and creating new jobs. It is imperative as a 
Nation that we focus on efficiency now. It has never been more 
important.
    On behalf of Johnson Controls, thank you again for the 
opportunity to testify.
    [The prepared statement of Mr. Campbell follows:]



    
    Mr. Inslee. Mr. Campbell, excuse my failure to introduce 
you to the group.
    Mr. Campbell, who just gave us a really interesting 
discussion, is vice president and general manager of the North 
America Service and Global WorkPlace Solutions for Johnson 
Controls.
    Thank you very much.
    The next witness is Dr. John Anderson, president and CEO of 
the Electricity Consumers Resource Council. His organization 
represents large industrial electricity consumers from 
virtually every sector of the manufacturing community.
    Thank you, Dr. Anderson.

 STATEMENT OF JOHN ANDERSON, PRESIDENT, ELECTRICITY CONSUMERS 
                        RESOURCE COUNCIL

    Mr. Anderson. Thank you very much, Mr. Chairman and Mr. 
Upton and members of the subcommittee, for the opportunity to 
be here today.
    I don't have to tell the members of this subcommittee that 
we are in troubled times. And these times are especially 
troubling for manufacturers. Speaking personally, I don't see a 
light at the end of this very dark tunnel in the near future.
    As this subcommittee and Congress debate energy policy, I 
urge you to think very carefully about what the proposed 
policies will do to the electricity cost for consumers, whether 
industrial consumers will be able to bear these costs, and if 
instead they will have to close additional manufacturing 
facilities and move to lower-cost locations. We want to avoid 
that situation.
    Which brings me to the subject of this hearing, energy 
efficiency. At the outset I emphasize that ELCON does not doubt 
that many opportunities exist to improve energy efficiency of 
manufacturing processes and that such improvements would help 
reduce greenhouse gases. However, most large industrial 
facilities are beyond the point where substantial savings can 
be achieved with plug-and-play measures, such as high-
efficiency lightbulbs or insulation or motors. The next level 
of efficiency gains are achieved when entire industrial 
processes are retooled or rebuilt and options are explored, 
such as combined heating and power. These are big-ticket items 
requiring very large outlays of capital over long periods of 
time.
    Further complicating this problem is the current credit 
crunch. The core issue is, can utility financing of energy-
efficiency investments compete with large industrial's own 
ability to raise capital on its own in normal capital markets? 
A question we ask consistently, are utilities better banks than 
banks are? And that may be a difficult question to answer 
today, but we don't think so.
    Again, I emphasize the industrial customers are strong 
advocates, even activists, of cost-effective energy efficiency. 
Such manufacturers are in a constant quest to reduce the 
operating cost to increase competitiveness. But, at the same 
time, large industrial customers have historically not 
supported legislative or regulatory mandates for utility-
implemented energy efficiencies. Such programs are both costly 
and not designed in a manner that would achieve maximum 
efficiency gains.
    I raise four other related issues that are often discussed 
in the context of achieving greater energy efficiency, and I 
address them in much more detail in my written statements.
    First is the energy-efficiency resource standards that has 
already been mentioned today. ELCON has not taken a formal 
position on the EERS. We certainly support measures that result 
in the implementation of cost-effective energy efficiency. 
However, there are some very basic questions that any EERS 
would raise, and those I touch on in my written comments. If an 
EERS is actually implemented, we strongly urge that industrial 
facilities be exempt, recognizing that they already have taken 
significant energy-efficiency steps and knowing that this is 
not the time to layer additional costs on manufacturers.
    The second issue I raise is revenue decoupling, which is 
one that has been mentioned several times here already. The 
debate over the stimulus bill demonstrated the great opposition 
to federally mandated revenue decoupling from both small and 
large customers alike. We disagree with the advocates of 
revenue coupling for several reasons.
    First, we believe that revenue decoupling disrupts and 
distorts the utility's core business functions--to produce and 
deliver electricity in an efficient manner--and is not a 
particularly effective way of promoting energy efficiency. 
Moreover, there are better ways to deliver cost-effective 
energy efficiency, such as with a third-party entity rather 
than a utility. There is no basic conflict between 
implementation of energy efficiency through an independent 
third party and the loss of revenues for a utility.
    Second, several States have found decoupling to be a 
failure once policy recognizes that a cool summer or a warm 
winter or an economic downturn triggers increased revenues to 
the utility even if no efficiency gains are made.
    Third, we question why a regulated public utility that has 
been given a monopoly service territory by a State should be 
rewarded for implementing an efficiency program that is 
required by either Federal or State mandates. We believe they 
have an obligation to serve and should be given an opportunity 
to recover prudently incurred costs and earn a return that 
reflects risk they incur but no more.
    And, finally, many proponents of decoupling hold California 
up as a poster child for energy efficiency, at least partially 
because decoupling advocates assert that per-capita consumption 
of kilowatt hours in California was reduced. However, 
California also implemented an inverted rate structure that may 
have, in and of itself, brought about more energy efficiency 
than decoupling that was implemented and then taken away and 
then put back. And California's very high electric rates have 
contributed to the tremendous loss of manufacturing in the 
State. It is not hard to reduce electricity consumption if you 
take away your manufacturing base and put people out of work.
    The third issue I raise is demand response. And I am not 
going to go into that in detail in my oral statements, but I 
urge to you look at it. We think it has a tremendous potential, 
and it ought to be considered along with energy-efficiency 
measures.
    And the fourth issue is the utilization of combined heat 
and power, which was mentioned at least once. Manufacturing 
industries have been leaders in this effort. Unfortunately, 
companies planning to increase their CHP production have been 
disappointed by a recent rulemaking process at the Federal 
Energy Regulatory Commission, or FERC.
    Specifically, ELCON worked with members of this 
subcommittee, led by Representatives Barton, Boucher, and 
others, in drafting compromise language, the intent of which 
was to continue certain incentives for combined heat and power 
as provided for under PURPA until truly competitive markets 
were established. Unfortunately, things just didn't work out as 
expected. FERC's rule, in essence, discontinued those 
incentives for any facility operating in one of the FERC-
approved RTOs or ISOs.
    This rule will clearly hinder CHP growth. We strongly urge 
Congress to either reconsider the language in EPACT 2005 to 
more accurately reflect congressional intent or address this 
issue in an oversight hearing.
    In conclusion, I return to where I started. Basic 
manufacturing in the U.S. is in terrible shape. Despite the 
well-intentioned stimulus package, I have seen no projections 
that manufacturing output will increase in the near future. Yet 
many in Congress and elsewhere seem intent on implementing 
several new and substantial energy initiatives. All have noble 
goals, but many will work to the detriment of industrial 
companies and their employees.
    I applaud the subcommittee for seeking to make our energy 
market more efficient, but I ask the subcommittee, when 
considering energy legislation, to examine the total impact of 
its proposals, including its impacts on the manufacturing 
sector. I urge you to consider several specific recommendations 
that are in my written testimony.
    I thank you again for the opportunity to be before you 
today and look forward to your questions.
    [The prepared statement of Mr. Anderson follows:]



    
    Mr. Inslee. Thank you.
    And our last witness is Mr. Bryan Reichel, who is president 
and CEO of PureChoice, Incorporated. PureChoice provides 
building performance reporting software and helps organizations 
with their energy efficiency.
    Thank you, Mr. Reichel.

STATEMENT OF BRYAN REICHEL, PRESIDENT AND CEO, PURECHOICE, INC.

    Mr. Reichel. Thank you, sir.
    I would like to thank Chairman Markey and Ranking Member 
Upton and the members of the subcommittee for inviting me here 
today. My name is Bryan Reichel. And I am president of 
PureChoice, Burnsville, Minnesota. We are an ENERGY STAR 
partner.
    I will summarize my testimony, but I ask that it be 
included in the record as submitted. But what I am going to do 
is tell you a little bit different story today. Instead of 
telling you what I think we can do, I am going to tell what you 
we are doing today as a small company in Minnesota. There has 
been talk about looking for shovel-ready projects, and we are 
about as shovel-ready as they go.
    The main reason for energy use in commercial buildings is 
to condition the space for human occupancy. There are 
approximately 5 million existing commercial buildings in the 
U.S. today, totaling well over 70 billion square feet. Consider 
then that, according to the Department of Energy, about 33 
percent of the energy used in those buildings is used 
specifically for heating, ventilation, and air conditioning. 
The average cost of that is about $1.23 a square foot, or about 
$86 billion annually.
    There has been talk of increasing the energy-efficient 
goals up to 10, 20, 30, now I hear up to 50 percent. But I ask 
the question, without first measuring the building for the 
performance of the building, how do you know that that building 
can even attain better energy efficiency? We need to somehow 
measure the performance of the building. I can achieve 100 
percent energy efficiency in this particular building. If 
somebody would show me to the breaker panel, I will shut all 
the switches off. However, we screw up the interior environment 
of this building. So there has to be a balance somehow between 
energy-efficiency goals and our indoor air quality goals, which 
is the reason a lot of these codes were put into place in the 
first place.
    PureChoice takes a bit of a different approach. We actually 
measure the interior performance of the building. We measure 
temperature and humidity and carbon dioxide and carbon monoxide 
and VOCs, which are basically odors and gases.
    I brought with me today one of our mechanical pieces; it is 
called "The Nose." The Nose houses all these particular sensors 
on a single platform, and it is delivered every 20 seconds back 
to our server in Minnesota that is on a secure site. We then 
put it out with our building performance software, which is 
called PureTrac. PureTrac is a Web-based data collection 
software that functions very much like a continuous energy 
audit. Essentially, we are continuously commissioning the 
building all the time.
    Every building has an operating strategy. On a continuous 
basis, the software checks the overall performance of the 
building against that particular operating strategy. And, at 
the end of the month, we generate a report, and we tell you how 
efficient your building is to that particular operating 
strategy.
    I can tell you we have no customers that are 100 percent. 
We have some customers in the 15 to 20 percent range, and they 
had no idea. And, on a simple basis, if you are spending 
$10,000 a month on energy, and you are 50 percent efficient, 
that is $5,000 that you have room to find.
    I will give you an example of what we have done. We 
recently partnered with the Federal Government at the Bishop 
Henry Whipple Building in Minneapolis. It is located at Fort 
Snelling. The GSA, the Department of Energy, and the Minnesota 
Department of Commerce were our partners on the project. We 
monitored the building for 1 year. The partners identified 
opportunities for energy savings, and we modified the operation 
strategy. We realized a savings in excess of 20 percent in 1 
year without compromising indoor air quality and without 
purchasing any additional HVAC equipment. The energy saving 
opportunity was in excess of $144,000. The payback was less 
than 2.2 years, fully funded.
    Now, the GSA was so pleased with that study that--you may 
have seen this before--they have included it in their 
"Sustainability Matters" document. I have submitted some of 
those for the subcommittee, and I have just an excerpt to show 
you. On page 94 to 99, it is the center of their bible going 
forward on how they achieve green and high-performance 
buildings.
    The President has placed a priority on this. Congress 
recently passed $4.5 billion in the stimulus for energy 
conservation. We can achieve that in a very simplistic format. 
And I will tell you, if the GSA just wanted to do all their 
Federal buildings, they would spend less than $40 million and 
save approximately $60 million a year. And that is the bottom 
line, just to give you how much of this is available.
    I will give you another example. We recently partnered with 
a big-box retailer in the city of Chicago. Chicago has got some 
of the strictest building codes in the country, as far as 
ventilation is required. The major retailer couldn't meet their 
energy-efficiency goals and achieve their indoor air quality 
goals at the same time. They used our PureTrac data, and the 
city gave them a variance on the ventilation rate, and they 
were able to cut ventilation by over 54 percent. But because 
they were able to electronically prove that they matched the 
indoor air quality guidelines of the code, that 54 percent 
averaged into $2,500 a month per store in realtime savings. 
They didn't disqualify the indoor air quality of the building, 
and they met all the requirements of the code.
    Currently, the technology is being used by Tulsa 
University. It is being taught in the engineering program at 
Stout University. We have partnered with Secretary Chu's old 
company, Lawrence Berkeley Labs. We have done three school 
studies with them. Dr. Michael Aptee has been our project 
partner out there. The study that we did in the schools found 
that the worse the air quality was in schools, the higher the 
absenteeism. For every thousand parts per million of carbon 
dioxide, absenteeism went up 10 to 20 percent.
    Minnesota Power and the Minnesota Department of Commerce 
had us do another program called SAMPLE2, School Air Monitoring 
Program for Learning and Energy Efficiency. We did three 
schools in Minnesota, and the findings averaged that we could 
save an average of 14 percent of energy conservation, which was 
approximately $30,000 per school. If we take that across what 
Senator Boxer has proposed, we would save in excess of $580 
million annually, using 2003 energy numbers, on all the public 
schools in this country.
    This technology works. We are here today talking about how 
do we do energy efficiency. You need to measure the performance 
of the building, and we can turn everything else around. We 
have some suggestions. I look forward to your questions. Thank 
you for your time.
    [The prepared statement of Mr. Reichel follows:]



    
    Mr. Inslee. Thank you very much.
    We would like to go to Mr. Upton first, in recognition of 
his great work on lighting last year.
    Mr. Upton. Thank you. Thank you, Mr. Vice Chairman.
    I would like to make a couple points.
    First of all, when we dealt with the energy title as part 
of the stimulus bill, that moved through this committee, and 
those provisions actually passed by voice. I don't think there 
was any opposition to having incentives for improving on our 
energy efficiency in, really, any sector of our economy.
    However, there was one rather contentious item that we 
debated--and, Mr. Anderson, you touched on it--and that was the 
decoupling issue. And I want to just pass a chart out to my 
colleagues and members of the panel on both sides here. This 
was printed by the Department of Energy, and it appeared in CQ 
Today back last month, and it talked a little bit about 
decoupling.
    And, Mr. Wells, I have Western Michigan University in my 
district, and I want to think that every one of our rooms in 
the 50-some buildings on campus now have a Johnson Controls 
sensor, and it works. It savings the university hundreds of 
thousands of dollars every year in heating costs that we are 
able to see. We have schools in my district that have now 
achieved the ENERGY STAR rating. It is terrific, in terms of 
what we have.
    And, as you look at the strides that we have made on 
appliance standards, building standards, lightbulbs--one of the 
issues that this subcommittee worked on and was able to pass in 
the Congress--wind turbines--last week, in my district, again, 
we looked at both residential and some of the giant, 80-meter 
types that are there--we can save great amounts of energy.
    But if you impose this decoupling on States--and this chart 
illustrates that, again, from the Department of Energy--you 
don't actually, at least my reading of it, you don't actually 
see the savings, the incentives to purchase that additional 
equipment. At the end of the day, the utilities are able to add 
increases in that rate, and you don't see the same savings. I 
mean, it would be like buying a hybrid automobile, and instead 
of paying the normal gas price, you just say, well, you drive a 
hybrid, so we are going to charge you another 25 cents a gallon 
at the pump to make up for what you are not giving the Exxon or 
BP or somebody else.
    And I would like each of you maybe to just comment. It is a 
fairly simple chart here that was printed by the Department of 
Energy. But, as you can see, it has the original billing for 
residents, office buildings, and industrial buildings. And then 
it has the decoupled buildings, where the high users pay a 
little bit less but the low users pay considerably more. And I 
just think that it takes away the incentive for folks, 
businesses or homeowners, to actually install the devices that 
are going to save energy and make us less energy-reliant on 
other sources.
    Mr. Reichel, if you would like to just start and make your 
comment based on this chart, and we will just go down the line 
in the time that I have remaining.
    Mr. Reichel. Thank you, sir, but I don't have any position 
on the decoupling. In fact, the last time I heard the word 
"decoupling" was at my dog breeder's. So I can't speak to that.
    Mr. Upton. OK. I am glad this isn't in the big house 
downstairs, live on C-SPAN.
    Mr. Anderson?
    Mr. Anderson. Thank you, Mr. Upton. I have not seen this 
chart before, so I can't really respond to it.
    Let me say a couple things about decoupling that I said a 
little more in my written statement. And we actually have a 
publication on it that I would like to ask if it can be 
inserted into this record.
    [The information appears at the conclusion of the hearing.]
    Mr. Anderson. Decoupling, as you said, it does increase 
rates. That is what it does. Now, the increased rates may bring 
about reduced consumption. And for some customers, there could 
be a reduced bill. But for other customers, there won't be a 
reduced bill.
    Mr. Upton. That is right. It rewards the folks that don't 
do as much as the folks that may invest in energy conservation.
    Mr. Anderson. Precisely. Precisely. And that, to me, boils 
it down to----
    Mr. Upton. That is a good answer.
    Mr. Campbell?
    Mr. Campbell. I am not sure I can comment deeply around the 
decoupling provisions. But what I can say is that, for energy 
efficiency to work, there has to be alignment of incentives so 
that when energy efficiency is being driven and achieved there 
has to be incentives appropriate to that.
    Mr. Upton. I am running out of time, so we have to go fast. 
Mr. Wells?
    Mr. Wells. I will echo what Mr. Campbell says. A lot of us 
have talked about the energy-efficiency improvements we have 
done at our companies. The question is, why hasn't that 
happened in the public sector? It is because we have split 
incentives. We have to find a way to break that.
    Mr. Upton. Mr. King?
    Mr. King. Thank you. There are numerous issues associated 
with rate design. I think the incentive component is critical, 
as well as there is an ability, through the rate design, to 
mitigate some of the low-income, low-user impacts. That can be 
dealt with State by State as we deal with decoupling.
    Mr. Upton. Mr. Giudice?
    Mr. Guidice. Yes, from my perspective, decoupling is 
neither the panacea or the cause of what ails us. It is just 
one of the tools that can be useful, done right, to help make 
sure we move forward.
    And the stimulus bill does not require decoupling, in my 
read. It requires Governors to assert that they are going to 
work towards minimizing disincentives for efficiency as well as 
move to better building codes.
    Mr. Markey [presiding]. Great. The gentleman's time has 
expired.
    That is an important point that you made, Mr. Guidice, that 
it is not mandated. Just elaborate upon that for another 30 
seconds, please.
    Mr. Guidice. Sure. The national State energy officials 
actually worked with committee members when looking at this 
issue, because decoupling is a third-rail, hot issue across the 
country. Lots of different States look at decoupling in 
different ways. Massachusetts has recently, last year, chosen 
to move forward with decoupling, and we are going to be looking 
at our first utility rate cases in a long time.
    And the parameters of looking at those rate cases and how 
that decoupling is going to be done in Massachusetts, it is 
going to have all of the normal sort of processes to assure 
that extraordinary returns are not being generated by 
utilities. There are protections to make sure that rates are 
set appropriately.
    The stimulus bill recognizes all of the various ways that 
different States are dealing with this issue and allows for 
Governors to simply assert that they are going to work towards 
building codes and towards disincentives--take away 
disincentives to maximize efficiency. And there are lots of 
ways that we can make that happen across the country.
    Mr. Markey. Thank you.
    Mr. King, Mr. Anderson has raised some criticisms of 
utility-based efficiency programs, such as those used in 
Massachusetts, arguing that they are bad for industrial 
consumers. Could you respond briefly to those criticisms?
    Mr. King. We have had great success with our industrial 
energy-efficiency programs. And a critical component is that we 
have the consistency and the targets that we set with our 
State, and then we execute accordingly within the various 
energy-efficiency programs. So it has proven to be an effective 
tool for us to achieve our energy-efficiency goals.
    Mr. Markey. OK. Thank you.
    Mr. Campbell, you testified that an energy-efficiency 
resource standard could create 260,000 new jobs. Can you talk 
about some of those job opportunities, how they would be 
created?
    Mr. Campbell. We believe those job opportunities get 
created very quickly, as energy-efficiency projects and energy-
efficiency activity starts to increase. Some of the numbers 
that we see is just for every million dollars' worth of 
projects, we are probably looking at five to seven direct jobs 
associated with that activity.
    And these are well-paid jobs. I mean, these are things like 
energy engineers, controls engineers, software engineers, 
project managers, construction managers, construction crews, 
technicians, mechanics. These are good, solid, domestic jobs 
that get created with energy efficiency.
    Mr. Markey. OK.
    Mr. King, what is the average rate of return on each dollar 
you invest in energy-efficiency projects?
    Mr. King. Our overall energy-efficiency projects are not 
the utility investment. It is programs that are funded through 
our various State programs. And it is the most efficient low-
cost investment with other alternatives, because we do view it 
as a resource. So as you deal with energy efficiency, demand 
reductions, et cetera, those are the most effective investments 
from an overall return standpoint.
    Mr. Markey. OK. Thank you.
    Mr. Anderson, under my EERS bill, electric and natural gas 
distribution companies are required to meet certain energy 
savings targets each year. Under that bill, utilities could 
satisfy those targets in part by buying from members of your 
organization the energy savings that your members achieve at 
their own facilities, for example, through combined heat and 
power, waste heat recovery, or other efficiency measures.
    In other words, this is a major opportunity for your 
members to profit through energy-saving projects. Isn't that 
something that you could actively support?
    Mr. Anderson. Mr. Chairman, your bill has quite a few very 
good things in it. I mean, I compliment you. It goes beyond 
utilities into building codes. It uses cost-effectiveness 
throughout the bill. It talks about the need for measurement 
and verification. It talks about, you know, taking into account 
weather and the economy and oversight and CHP, as you 
mentioned.
    But the way we look at the bill is, it mandates energy 
efficiencies across the board. This is probably going to put a 
layer of cost across the board. Yes, there are some 
opportunities involved for some manufacturers who might be able 
to sell through a bilateral contract, which your bill does 
allow, but it also is going to affect other industrials in a 
different way.
    We think, at least, that industrials, through their 
competitive forces, have had to implement energy efficiency in 
a great amount. And we just think they ought to be exempt from 
the----
    Mr. Markey. All right. Let me let Mr. Wells respond to 
that.
    What do you think about that?
    Mr. Wells. Could you repeat the question, please?
    Mr. Markey. Just respond to Mr.----
    Mr. Wells. About the EERS?
    Mr. Markey. Yes, please.
    Mr. Wells. We have reviewed the bill. We support the bill. 
When you look at the energy-efficiency opportunity, we look at 
our own company. It is in line with the performance that I 
talked about, and it is in line with the opportunities that we 
see going forward.
    Mr. Markey. OK.
    And I will give you the final word, Mr. Guidice.
    Mr. Guidice. I think that the bill will actually unleash 
all kinds of opportunities, in industrial facilities and 
commercial and governmental facilities. And I am quite excited 
about it. I think many folks across the country will be able 
to----
    Mr. Markey. Do you agree with that, Mr. King?
    Mr. King. Yes. Again, if you go back to some of my 
comments, our view is this is the foundation of a strong energy 
policy. And if we can build energy policy on the foundation of 
energy efficiency as one of the top resources, I think it is 
the right way to go.
    Mr. Markey. Thank you, Mr. King.
    The Chair recognizes the gentleman from Illinois, Mr. 
Shimkus.
    Mr. Shimkus. Thank you, Mr. Chairman.
    Let me follow up on this. Would anyone who supports the 
EERS support it without decoupling?
    Mr. Guidice. Yes, I would support EERS----
    Mr. Shimkus. Without decoupling?
    Mr. Guidice [continuing]. Without decoupling as a specified 
requirement, absolutely. But, to be clear, we would require 
different States dealing with the utility-by-utility issues for 
that one.
    Mr. Shimkus. Mr. King?
    Mr. King. We are operating in States that are moving on a 
progressive path towards sound energy policy, and decoupling is 
an issue that they are willing to tackle. So we are going 
forward without it being a part of the----
    Mr. Shimkus. So you don't need decoupling to support EERS?
    Mr. King. Within the States we are operating in, the States 
are supportive of moving in the direction----
    Mr. Shimkus. Anyone else want to add on to this debate?
    Let me follow up on this decoupling debate, because this is 
pretty telling. Major users were thrown out, but this chart by 
the Department of Energy that my colleague, Mr. Upton, brought 
out talks about the additional cost to low users.
    Now, I represent parts of 30 counties in southern Illinois. 
We wish we had more manufacturing. We wish we had big users. We 
are producers of electricity through coal and through coal-
fired operations. I have talked about that last hearing, where 
a thousand jobs in my district were lost through the Clean Air 
Act. I can point to the specific mine, and I showed pictures of 
that mine in the last hearing. But this is talking about the 
effect to low users and residential small businesses of 
decoupling. So I would hope we didn't just disregard this.
    And I would want to ask Mr. Guidice and Mr. King, The 
Boston Globe in an article, January 18, 2008--and this is the 
second paragraph: "Massachusetts manufacturers pay the highest 
electricity prices in the continental United States, and the 
gap between their costs and those of competitors in other 
States is widening, according to the Energy Department. In 
2006, the most recent annual data available, industrial users 
in Massachusetts paid more than double the average U.S. rate, 
compared to 60 percent more in 2005. Only Hawaii has higher 
industrial rates."
    And you are telling us that that is a standard that we 
should have? Higher industrial rates?
    Mr. Guidice. No.
    Mr. Shimkus. The Massachusetts model?
    Mr. Guidice. I am not saying that our rates are the model 
for the country. I would actually love to bring our rates down, 
and we are working hard to do that--and our spending down on 
energy. And I suspect that the efficiency initiatives that we 
are taking are the ones that are going to drive that down most 
dramatically. And, to be clear----
    Mr. Shimkus. Let me add to this debate the international 
scope, because this is really an international debate, and we 
are competing internationally with countries around the world.
    If China and India do not fall into some climate change 
regime on cap and trade, can we ever compete with them in the 
manufacturing sector again?
    Mr. Guidice. In my view, the world needs to get involved in 
the carbon issues.
    Mr. Shimkus. No, that is not the question. The question is, 
if China and India does not--which I believe they will not, 
based upon discussions I have had with senior Chinese 
officials--if they do not, will we ever be competitive in major 
manufacturing in this country again?
    Mr. Guidice. We will have gigantic problems if China and 
India do not get involved in carbon issues.
    Mr. Shimkus. Thank you.
    Let me follow up with--and I don't believe they will, 
obviously.
    Let me go--Mr. Campbell, this is a great--in your 
testimony--and this is, again, on this decoupling. And you 
could have been stronger based upon your written testimony, 
because you say this: "Improving efficiency is good for 
everyone. Efficiency improvements not only reduce emissions but 
also save consumers and businesses money. Energy prices are 
escalating and would continue to rise with a price on carbon." 
This is what we say all the time: Energy prices are escalating 
and would continue to rise with a price on carbon. That is 
climate change--putting a price on carbon.
    "Energy efficiency will reduce that impact of climate 
policies on consumers' energy bills. It would lower energy 
spending for American business large and small, enabling them 
to better compete in the global economy. Smarter, more 
efficient buildings not only have lower utility bills"--and 
that is the one I want to highlight--"but also improve health, 
safety, and comfort."
    If consumers do not see lower utility bills by 
efficiencies, will they move to a new efficiency world?
    Mr. Campbell. I would say that for consumers and businesses 
to take on those energy-efficiency improvement measures, they 
have to see the incentive. There has to be an incentive for 
that.
    Mr. Shimkus. And just for my Massachusetts friends at the 
panel, we debated decoupling here in the hearing. And you are 
correct that the stimulus bill strongly implies for the 
Governors to move their PUCs to a decoupling regime. And if you 
followed the debate here, there was no confusion that 
decoupling is a major issue. And, as we see, it is going to 
cost individual consumers, and it is not going to provide the 
incentives for the individual consumers.
    And I yield back.
    Mr. Markey. The gentleman's time has expired. The Chair 
recognizes the gentleman from Washington, Mr. Inslee.
    Mr. Inslee. Thank you.
    Could the staff put up--we have a chart with California 
rates, or California usage. If you could put it up on the 
screen, please. I just want to make reference to that.
    It is a little difficult to see, but I think it does help 
visually to look at how stunningly different the per-capita 
usage is in California, which is the lower blue line, and the 
average per-capita usage of the American, the upper red line, 
and how they have diverged. And they have diverged in no small 
part because of some efforts in California to inspire 
efficiency.
    And I just want to note that the numbers are pretty 
stunning. As a result of that difference, together with the 
rate structures in California, that has saved Californians 
somewhere between--$4.1 billion between 1997 and 2004. And 
basically it is the difference between a flat per-capita usage 
in California and about a 40 percent increase per capita in the 
United States.
    Now, as I understand what has happened in California, they 
have followed sort of a commonsense provision. Their measures 
they have adopted basically say that if a consumer's energy 
needs can be met with a 3-cent-per-kilowatt investment in 
energy efficiency, essentially California has required 
utilities to go in that direction, where, instead, a 10-cent-
per-kilowatt investment in a new power plant would be an 
alternative way to go about that.
    Now, our efforts in the stimulus bill would essentially, in 
one way or another, ask utilities to adopt that same type of 
strategy, which, to me, seems a relatively commonsense 
provision. If you can achieve your consumers' goals, which is a 
warm house, with a less expensive investment in efficiency 
rather than a more expensive investment in power generation, 
then we want you to go in that direction.
    Now, I think the language of the stimulus bill, in fact, 
meets that sort of goal. And that is why the president of the 
National Association of Regulatory Utility Commissioners just 
last week basically expressed acceptance of the language that 
we put in the stimulus bill.
    So I just want to ask Mr. Guidice, if I pronounced your 
name right, to comment. Is that a fair assessment of what we 
are doing in that bill?
    Mr. Guidice. Yes, that is a fair assessment. And I think it 
is a good case example of what is possible here for the whole 
country to move forward with.
    Mr. Inslee. Do any of the panel disagree with that 
assessment?
    Mr. Anderson. I would like to add a couple of things to it. 
I happen to have been looking at the same chart that you have 
put up there, and just add a couple of things to it.
    The vertical line right there--it is hard to see--it was 
1976. My understanding is that California decoupled in 1982. 
They got rid of decoupling in 1996. They instituted recoupling 
again in 2004. They implemented inversed rates--in other words, 
the more you consumed, the higher the cost per kilowatt hour--
that I think, at least, went farther than anything else in 
bringing this about. And I conclude from this, if you have high 
rates, you are going to have lower consumption.
    Now, climate helps too. You know, when you are on the coast 
of California, you have a wonderful climate. It is truly God's 
country, and you don't need air conditioning a lot of the time, 
or heating. So there is a lot of other factors here besides it.
    But what my main point is is that business flight out of 
California has exceeded, I believe, just about any other State 
for a considerable length of time. And if we, as a society, 
like that as a model--high prices, flights of businesses away--
then I think we can get into this.
    I don't think this chart, though, tells us that decoupling 
is good or bad or whatever because it just is far more 
complicated than that.
    Mr. Inslee. So do you have any assessment of--are you 
familiar with any studies that have tried to parse out the 
relative contributions to the California experience?
    Mr. Anderson. I don't know of any particular ones, no.
    Mr. Inslee. Very well.
    Let me ask in general, regarding Mr. Markey's bill, do any 
of you have any suggestions on changes to the bill, other than 
what you have already articulated? I just want to give you an 
opportunity if you have any suggestions for us in that regard.
    Mr. Markey, of course, thinks that this is a perfect Mona 
Lisa, which we would normally start with a presumption in that 
regard. But I just wanted to give anybody an opportunity.
    Mr. Guidice. I would look at even more aggressive targets 
in the EERS, both on the gas side and on the electric side. I 
think those are understandable as to those why those are the 
sets that we are starting with. But I think, as we think about 
the climate challenges that we are facing and the economic 
opportunities that we will unleash, that we could ramp those 
targets up more significantly and quicker.
    Mr. Inslee. Anyone else?
    Mr. Anderson. We would like very much to see the bill have 
the ability for industrials to opt into it. Clearly, there are 
cases where there could be real advantages if an industrial was 
involved to sell some energy-efficiency savings. But we also 
think that one size does not fit all, and we think it would be 
very difficult. So we would prefer to see them excluded 
otherwise.
    Mr. Inslee. Thank you.
    Mr. Markey. Great. The gentleman's time has expired. The 
Chair recognizes the gentleman from Texas, Mr. Barton.
    Mr. Barton. Thank you. Thank you, Mr. Chairman. We have go 
a hearing going on downstairs, too, so I have been running back 
and forth.
    I want to ask Mr. Inslee a question, although he is not on 
the panel. What is the retail cost of your constituents for 
electricity in Washington?
    Mr. Inslee. Well, that violates the rule against 
embarrassing any of your colleagues. So I will decline to 
answer, both because it violates that rule and, secondly, I 
don't know.
    Mr. Barton. Oh. Well, I am not trying to embarrass you. I 
think it is around 7 cents a kilowatt hour.
    Mr. Inslee. I honestly do not know the answer to that 
question.
    Mr. Barton. OK. It is very low. You have some of the lowest 
utility----
    Mr. Inslee. That is correct. That is correct.
    Mr. Barton. What is the average retail rate in California, 
Mr. Anderson or Mr. Reichel? They have some of the highest 
rates.
    Mr. Anderson. I am sorry, Mr. Barton, I don't know the 
numbers. I know that it is very, very, substantially----
    Mr. Barton. Well, I know in San Francisco their highest 
rate is 37 cents a kilowatt hour.
    Now, spare me the California model--you know, brownouts, 
haven't built any new power plants in probably decades; this 
decoupling, which I am going to ask Mr. Anderson about. I want 
the Jay Inslee-Washington State model, Bonneville Power 
Administration generating clean hydropower because God blessed 
his region of the country with great hydro resources, and the 
Federal Government, during the New Deal, built some of the most 
efficient hydroelectric power dams in the world. So his 
constituents get power at probably the lowest rate in the 
country. That is a plus for them; it is not a negative. And I 
am not trying to embarrass Mr. Inslee at all, because that is 
just the way it is.
    But, you know, this hearing on energy efficiency is a good 
hearing. I am for what Mr. Markey is trying to do. But don't 
gag me by saying that we need to emulate the great State of 
California, who is almost single-handedly doing everything they 
can to destroy their economy on almost a daily basis and which 
has the largest State budget deficit in the history of the 
Nation, $42 billion this year alone. To put that in 
perspective, the entire budget of the State of Texas, on an 
annual basis, which is the second most populous State, is, I 
think, $75 billion.
    So, anyway, Mr. Anderson, what is your opinion of 
decoupling?
    I asked Mr. Anderson, but I will let Mr. Reichel answer it 
if he wants to.
    Mr. Reichel. I yield to Mr. Anderson.
    Mr. Anderson. As I said very briefly in my oral remarks, 
and I have much more detail----
    Mr. Barton. Oh, I got the nametags wrong. I am sorry. Go 
ahead, Mr. Anderson.
    Mr. Anderson. We are very much opposed to revenue 
decoupling for a variety of reasons.
    First of all, we agree that there needs to be incentives 
for cost-effective energy efficiency; there is no doubt about 
that. But trying to pay extra amounts to utilities to have them 
implemented just doesn't make sense. The dollar that you give 
to a utility for energy efficiency--and, remember, utilities 
don't spend their money; they spend customers' money. So you 
give a dollar to a utility to implement energy efficiency, they 
take a sizable portion of that in overhead and whatever else, 
and then they give what is left back to some customers. This is 
an income redistribution. It probably doesn't really reduce the 
disincentive of a utility anyway. Eighty, 90 percent of the 
utility's revenues are still going to come from generation, no 
matter what you do.
    So we have a whole variety of reasons why we are strongly 
opposed to revenue decoupling.
    I would also like to say that I was surprised to hear 
someone say that NARUC, the Natural Association of Regulatory 
Utility Commissioners, supported the provision in the stimulus 
bill. I was working very closely with NARUC throughout that 
debate, and I thought that they were opposed. I cannot speak 
for them, but I think we ought to find out where they stood on 
the final----
    Mr. Barton. Is there a better way to incent a utility to do 
these energy-efficiency programs than decoupling?
    Mr. Anderson. I think a far better way--if you are going to 
have a utility involved at all, I think a far better way is to 
have the utility be basically a tax collector; they collect 
money from customers however you specify that they are going to 
do it. And they turn the money over to a third party, whose 
sole objective is to implement energy efficiency. Their 
business model is to implement energy efficiency.
    I believe Vermont has one, North Carolina has one, New York 
has one. There is a variety of examples. And we think, at 
least, that they work a whole lot better than trying to have an 
interim conflict within a utility. One side wants to sell more 
power; another side wants to sell less power. And it is an 
internal conflict inside. Have a business model of a utility to 
produce and sell and distribute energy efficiently, and have a 
third party whose sole business it is to implement energy 
efficiency.
    Mr. Barton. My time has expired. Thank you, Mr. Chairman.
    Mr. Markey. Great. The gentleman's time has expired.
    Mr. Inslee. Mr. Chair?
    Mr. Markey. The gentleman from Washington.
    Mr. Inslee. Thank you.
    Mr. Anderson brought up an issue about the Chair of the 
National Association of Regulatory Utility Commissioners, and I 
had made a reference to, essentially, that they had said that 
they are comfortable with the final product. With your 
permission, I will put his statement in the record, and I think 
it will clarify that. They basically had concerns about the 
original product. He expressed comfort with the final product.
    [The information appears at the conclusion of the hearing.]
    Mr. Markey. If I may, I am going to ask the gentleman from 
Texas if he would mind having this clarification be part of a 
1-minute extension that is granted to the gentleman from Texas.
    Mr. Barton. Sure. Sure.
    Mr. Markey. Thank you.
    Mr. Anderson, if you want to respond?
    Mr. Anderson. Yes, I was at the meetings where they did 
this, and I didn't understand the final, so I may be incorrect 
with it. But I know that there was tremendous concern that a 
public utility commission is supposed to be an independent 
body. And the way I read the language, the way they were 
reading the language was the Governor is supposed to be, in 
essence, trying to tell the independent commission what to do. 
And they thought this caused tremendous amounts of internal 
conflict, maybe ex parte kinds of concerns and that sort of 
thing.
    But if I am incorrect, I need to stand corrected. I 
apologize if I am.
    Mr. Inslee. We will just put this in the record and let 
people draw their own conclusions. Thank you.
    Mr. Markey. I thank the gentleman.
    The Chair recognizes the gentleman from Vermont, Mr. Welch.
    Mr. Welch. Thank you, Mr. Chairman.
    Mr. Anderson, I am from Vermont. We do have decoupling, and 
we do have a separate energy efficiency utility. And they both 
seem to be successful. The decoupling was a process that was 
widely debated with our utilities and worked out. And I want to 
get back to what we can do and not get just bogged down in 
whether this question of decoupling should get in the way of an 
aggressive frontal assault on efficiency.
    Mr. Guidice, as a State official, you obviously have some 
sense of the importance of State autonomy. And some are arguing 
that setting a Federal floor for building energy efficiency 
imposes a one-size-fits-all approach that interferes with 
autonomy at the State level. Yet you are arguing very 
aggressively for strong Federal building standards. And I want 
you to elaborate on that.
    Mr. Guidice. Thank you.
    Yes, it is clear that the market alone is not working on 
our efficiency around the country. There are market failures. 
There are market barriers. And so we need to stimulate the 
right decisions. But it isn't one size fits all. And what does 
work in the Southeast in terms of windows, as Mr. Upton was 
speaking of earlier, is different than what works in the 
Northeast. But that doesn't mean that all of us don't have an 
opportunity to go much, much more significantly towards energy 
efficiency. And I do think that this kind of approach, as laid 
out in the proposed act, will enable us to do that.
    Mr. Welch. OK, thank you.
    Mr. Campbell, it is tremendous to hear about the success 
that you have had at Johnson Controls. And one of the big 
dilemmas that we face, and it is being argued here, I think, 
largely around this question of decoupling is, what is the 
dislocation that occurs when you go from one energy policy to a 
new one?
    And you have been successful, as I understand it, in 
achieving efficiency and also creating jobs. And I want you to 
elaborate on that, in your point of view about how aggressive 
we should be, using efficiency as a tool to create jobs.
    Mr. Campbell. I mean, our view is that energy efficiency is 
the number-one opportunity for managing emissions, for managing 
some of the capacity issues that we have on the generation 
side. And, clearly, energy efficiency creates significant jobs. 
There is a significant industry behind that. But there are a 
mismatch of incentives that are out there today.
    So, as we look at this, we really do see significant value 
coming from a whole series of complementary measures that need 
to be introduced, both around building codes, equipment 
standards, and also the energy-efficiency resource standards 
that have been introduced. But, in addition to that, we believe 
that there does need to be a very clear alignment of incentives 
for people that are making energy-efficiency improvements on 
their buildings.
    Mr. Welch. All right. What would you say would be the, say, 
two or three incentive alignments that would be the most 
helpful?
    Mr. Campbell. Well, the first one has to be to save money. 
I mean, that is ultimately what you want to see with any 
efficiency improvement measures, that you have to have a return 
for undertaking that activity. And depending on the set scale 
of the return, which can be complemented with specific 
incentives, depends how deep you can go with an energy-
efficiency project.
    So you can see energy-efficiency projects without 
incentives, especially in the private sector, that go very 
shallow, maybe look at lighting, maybe look at recommissioning, 
constant commissioning of a building. But to do the deep 
energy-efficiency improvement measures that go 30, 40 percent 
energy-efficiency improvement in a building, people have to 
either have a very long-term perspective on that building or 
there have to be incentives attached to taking those measures.
    Mr. Welch. OK, thank you.
    You know, in Vermont, we spend about a billion dollars a 
year, which for our small State is a lot of money, on energy 
that is money that goes straight out of the State. A lot of 
interest in doing combined heat and power or other means of 
local generation of electricity, in order to keep that energy 
dollar recirculating as much as possible in Vermont.
    Mr. Wells, what specific things could we do, as you see it, 
to encourage local generation of power, to keep those dollars 
at home?
    Mr. Wells. When you talk specifically to combined heat and 
power or cogeneration, it is finding a means to utilize the 
waste heat that comes off power generation. Today's power 
generation, pulverized coal efficiencies are in the high 30s, 
and some of the cogeneration units that we run are in the high 
70s, if not approaching 80, because of our ability to capture 
that heat. We have a ready heatsink right there to use it. So, 
distributive heating, finding a way to take the heat off of a 
power plant and using it to heat homes in a neighborhood or in 
some sort of way, or finding an industry that needs that heat 
and coupling that up with a power plant. When electricity is 
sold on the grid, the heat is used.
    The problem is, heat can't be transported like electricity 
can. So it has to be something local, it has to be something 
distributed right nearby.
    Mr. Welch. And then, how do you deal with the impact that 
it has on the local utilities that would potentially lose 
customer base or lose revenues? And anybody on the panel can 
answer that.
    Mr. King. Just to put a couple of things in perspective, 
first of all, when you look at the total energy bill, both the 
transmission and distribution costs and other key important 
programs are basically at inflation or below. The bigger 
problem is the energy costs. And what we need to do is focus on 
how can we most efficiently reduce consumption and help reduce 
those overall energy costs. That is the fundamental driver on 
why bills are the way they are.
    Mr. Welch. Thank you. I think my time has expired.
    Thank you, Mr. Chairman.
    Mr. Markey. The gentleman's time has expired. The Chair 
recognizes the gentleman from Oregon, Mr. Walden.
    Mr. Walden. Thank you very much, Mr. Chairman.
    Mr. Campbell, as you know, in my opening remarks I cited 
the comments in your testimony. And I apologize for having to 
leave to go to the Communications Subcommittee, so you may have 
addressed this. But it appears to me that you are arguing 
against decoupling in those comments, because you are saying 
that "energy prices are escalating and would continue to rise 
with a price on carbon. Energy efficiency will reduce the 
impact of climate policies on consumers' energy bills. It will 
lower energy spending for American business."
    You talk about doing all these controls to lower energy 
bills on consumers as a good thing, as an incentive, I would 
assume, to do energy conservation. I mean, you know, I think 
the average person in my district says, "Gee, I want to cut my 
costs. My budget is constrained right now. I am afraid of 
losing my job." They are not going to be really excited if the 
State moves forward on decoupling and says, "Yeah, you do all 
that stuff. But, oh, by the way, you are going to pay the same 
amount."
    Isn't that really what happens under decoupling?
    Mr. Campbell. Yeah, I mean, I am not arguing against 
decoupling, but I am arguing for energy efficiency and ensuring 
that there is aligned incentives associated with those energy-
efficiency measures to drive energy efficiency so we bring true 
economics to the consumer or the business so they can make 
smart decisions.
    Mr. Walden. All right.
    Mr. Anderson, let me go to you, because it seems to me, 
from your testimony, you would be arguing against decoupling. 
And I don't know what the--it seems to me it is a really 
perverse incentive to tell businesses--and I was a small-
business owner for 21 years--that you use less, pay the same. I 
don't know how that is going to help our economy.
    Tell me the stimulative effect on a small business by 
having them pay the same utility rates because they conserve 
their energy consumption.
    Mr. Anderson. As I have said earlier today also, I agree 
with you completely, and it is a disincentive. We also look at 
it for, why are the utilities guaranteed anything? I mean, my 
members right now would love to be decoupled from their 
customers. I assure you, my auto companies today would love to 
be making the same amount of money that they used to make.
    Mr. Walden. You know, I was in the radio business for 21 
years, small-market radio stations. And I always thought it 
would be great for every time we didn't sell an ad and had time 
to run it that, you know, maybe we should have gotten paid. 
That would be the ultimate form of decoupling. My sales people 
would have loved that, too, I suppose. But it is not the way it 
works.
    Mr. Anderson. Correct.
    Mr. Walden. It is not the way it works.
    Mr. King, I noticed in your testimony that you 
congratulated the Congress for passing the stimulus with $3.1 
billion in State matching grants for energy efficiency and 
assistance for low-income consumers to weatherize their homes.
    Won't low-income consumers be hurt, as well, if they do all 
this weatherization and the utility company comes back and gets 
to charge them the same amount?
    Mr. King. The intent behind the low-income consumer program 
will be to ensure that we are doing what we can to reduce their 
overall energy bill. And all that goes into how overall rates 
are----
    Mr. Walden. And who pays for that subsidy to the low-income 
energy consumers who have reduced their consumption because 
they have taken advantage of weatherization, of which I am a 
big advocate of, who subsidizes them? Where does that money 
come from?
    Mr. King. All of those types of decisions are rolled into 
the overall rate design. And our customers, as a whole, as a 
community, support those kinds of programs.
    Mr. Walden. Now, "community" is a wonderful term to use. 
But, at the end of the day, it is everybody paying their power 
bill, right?
    Mr. King. That is absolutely----
    Mr. Walden. Do higher power rates affect the economy?
    Mr. King. No, they don't. That is a cost of living and 
doing business.
    Mr. Walden. Have you ever been in small business?
    Mr. King. No, I have not.
    Mr. Walden. I have. And I have to tell you, in the radio 
business I did everything I could, as I could afford to, to 
replace old tube-type transmitters with solid-state ones so I 
could cut my energy bill, be more efficient. That savings 
amounted to something in my bottom line.
    Mr. King. I can understand that. And we have spent a 
tremendous amount of time with our customers trying to find 
ways to help them reduce it.
    Mr. Walden. But how can you say that the higher energy 
costs don't affect the economy? I am struggling here.
    Mr. King. I don't think I said that. I think I said, yes, I 
understand how it impacts the economy. And it is part of living 
within a certain area and trying to help manage overall energy 
bills on a day-in, day-out basis.
    Mr. Walden. But don't you think the best incentive is the 
good old marketplace that says, if I can cut the use of my 
power, I can save myself a little money and put it towards 
something else?
    Mr. King. That is exactly what energy efficiency and demand 
reduction is about.
    Mr. Walden. It is, except when you add the decoupling to it 
that says the utility gets to charge me the same amount 
regardless of how much I save.
    Mr. King. Decoupling doesn't necessarily equate to that 
sentence.
    Mr. Walden. What does it equate to then?
    Mr. King. The overall issue that we are trying to deal with 
from decoupling is to make sure that we understand the cost to 
deliver the energy and that we have the ability to recover 
those costs. That is it.
    Mr. Walden. Which is why the utilities love decoupling.
    Mr. King. The overall issue with why we support decoupling 
is to make sure that, again, as you heard from the panel today, 
is the incentives are aligned and we are making sure that we 
are doing what we can to support the policy to reduce energy 
demand.
    Mr. Walden. I wish we would have had a single hearing on 
this issue as it was related to the language in the bill that 
everybody voted on and very few got a chance to read in 
advance. I am trying to figure out now what this language that 
is now law means in terms of assuring that the governors get 
assurance from their PUCs to implement it.
    I know my time has expired. Thank you.
    Mr. Markey. The gentleman's time has expired.
    The Chair recognizes the gentleman from Texas, Mr. 
Gonzalez.
    Mr. Gonzalez. Thank you very much, Mr. Chairman.
    I guess I should start off with my own observation of Texas 
government and Texas budget as compared to California. I am not 
here to defend California, but, by the same token, I know how 
State governments can save a lot of money.
    Texas has been able to do it by simply not investing in 
infrastructure, on maintaining what they have and making no 
real investment in health care and education. You can save a 
lot of money that way. There is a greater price down the road, 
and I believe that my analysis would be supported by any study 
of what Texas has done in the past few years.
    As we go through this debate today, you would think that we 
have made some real progress. Because you think in terms of the 
first year of the Bush administration in 2001--and I know it is 
getting into the partisan, but let's figure that we made some 
progress.
    Because, in 2001, it was Vice President Cheney who 
commented on efficiency and conservation that conservation may 
be a sign of personal virtual, but it is not a sufficient basis 
for a sound, comprehensive energy policy.
    I think we all acknowledge today--even my colleagues on the 
other side of the aisle--that conservation efficiency does in 
fact have a place in the overall energy policy of this country. 
At least that is what I am hearing. I have heard it referred to 
as not necessarily the fifth fuel but the first fuel. I have 
heard it as being one of the legs of the three-legged stool and 
so on. But what I am really hearing here is that we acknowledge 
it is out there, its value, but it can't be done, whether we 
say it is about decoupling or are talking about exemption for 
the industrial sector and so on.
    So, on one hand, I think we recognize certain things like, 
well, we recognize that global warming is real, but I am not 
real sure that we can do anything about it. But at least we 
have the acknowledgment. So I feel hopeful that we have finally 
acknowledged a fundamental fact, and we move forward.
    The question to the panel, and I am going to ask Mr. 
Anderson, during your testimony, I wasn't real sure if I heard 
you correctly about an industrial sector exemption. Is that 
what you stated?
    Mr. Anderson. In Mr. Markey's bill, that is what we were 
suggesting, yes.
    Mr. Gonzalez. All right. And do you wish to elaborate at 
all? Because I am going to ask the other witnesses to comment 
on that proposal and what they believe might be the impact.
    Mr. Anderson. Our companies operate in worldwide 
competitive markets; and the tremendous competition requires 
them, we believe, to implement cost-effective energy efficiency 
already. And we are concerned that if another layer gets put on 
top of that, it adds another layer of cost while doing more on 
the energy efficiency is quite difficult. So we are asking that 
industrials have the option of opting in if they want to be but 
otherwise being left out of the Federal mandates.
    Mr. Gonzalez. I think our industrial base does operate at a 
terrible disadvantage with other countries. India and China, of 
course, come to mind. The problem is we are not India and 
China, and much of our progress was based on some pretty bad 
experiences, and it doesn't mean that we continue or revert 
back to practices that should have been unacceptable under any 
circumstances.
    I do not want to go too far back, but let's go back to 
child labor and working conditions and such. That will give us 
a tremendous advantage. Maybe we will be able to compete with 
practices in other countries. I don't think we do that.
    When it comes to global warming and practices, I think 
there is a certain responsibility not to sink our economy but 
to do the responsible thing. I am not you are sure if you say 
it is a moral imperative and all that. Look, this is the real 
world. My constituents want jobs and a quality of life, also. 
So it does not fall on deaf ears.
    But I am not sure if you are advancing an argument that 
simply says we just can't do it under the present economic 
circumstances and we never will be able to do it. But let's 
just talk about the exemption. Is that a viable choice? Is that 
something Mr. Markey should be considering?
    And I will ask the other witnesses to make their remarks 
and to address that particular statement by Mr. Anderson.
    Mr. Wells. I think when you look at competitive that is a 
very good point; and in my case the competition is not labor 
cost, it is energy cost. So we are competing with places like 
the Middle East, where they can get natural gas out of the 
wellhead for a dollar BTU. And as recently as last summer we 
were paying $14 for that same.
    For this reason, we have done sort of the efficiency 
improvements that I talked about, 1,600 trillion BTUs that Dow 
Chemical saved since 1994. And for this reason the opt-out may 
make some sense. Because we have done a lot of things that are 
out there, and for us to go the next step gets us out of what 
would be defined as cost effective and into much more costly.
    However, having said that, having looked at the bill and 
looked at the numbers, at least for our particular company, we 
feel the bill as introduced is something we can live with.
    Mr. Campbell. Let me just add to that. With the targets 
within the bill I would concur. Personally, on behalf of the 
company, I believe we need to get serious about energy 
efficiency; and having exemptions is not getting serious about 
energy efficiency. I think the numbers are very attainable from 
all businesses, and I think that it really is a significant 
opportunity to drive competitiveness of our industrial base, to 
get more competitive in relation to energy efficiency and 
energy consumed.
    Mr. Giudice. I strongly support no opt-out for anyone. We 
are all in this together, and there is opportunities for all of 
us to do so much more.
    In Texas, the PUC there in the State energy offices 
recently looked at the efficiency potential in Texas and 
determined there is upwards of 20 plus percent of reduction of 
energy consumption possible and the economy would grow without 
any shrinkage. It would grow jobs in Texas by reducing energy 
consumption by upwards of 20 percent.
    Mr. King. Our industrial base is very interested in finding 
every way they could to reduce their energy consumption. We 
spend a great deal of time with them. We have had great success 
in reducing the overall energy consumption; and if we set goals 
and objectives in this bill, we need to find every way we can 
to achieve those goals and objectives. I would highly recommend 
that we stay with as large of a market impact that we can to 
ensure that we are achieving the efficiency goals.
    Mr. Gonzalez. Mr. Reichel--is that correct? The 
pronunciation?
    Mr. Reichel. Yes, sir.
    As my expertise here today is pretty much with energy, once 
it is inside the building I would support anything that we can 
do from the energy efficiency side on the outside of the 
building.
    Mr. Gonzalez. Thank you very much.
    Yield back, Mr. Chairman.
    Mr. Markey. The Chair recognizes the gentleman from 
Louisiana, Mr. Scalise.
    Mr. Scalise. Thank you, Mr. Chairman.
    Mr. King, in your testimony that you submitted, I think on 
the first page, you talked about the various strategies that 
you embrace; and I think your comment was we need law. And I 
agree with that. I know a lot of us last year in the big energy 
debate we were having in Congress proposed an all-of-the-above 
strategy, which encompasses efficiency conservation but also 
production and natural resources as well as renewables.
    One of the things--and we had this debate on the stimulus 
bill--that we consider a renewable option is nuclear power; and 
there was an attempt to include nuclear power, which has no 
carbon emissions, in that renewable definition. Unfortunately, 
that was an unsuccessful attempt.
    Do you support including nuclear power in that we-need-it-
all strategy that you envision in your testimony?
    Mr. King. I think it is important that we look at all the 
alternatives.
    Mr. Scalise. And consider that as one of the alternatives.
    Mr. King. So it is important that we look at all the 
alternatives and make sure that we understand and have a 
comprehensive view of the national energy policy.
    Mr. Scalise. Clearly, many other countries are already 
pursuing that in a very aggressive way; and our country seems 
to be lagging behind. Hopefully, that changes as the 
technologies advance. It is clearly working well for many who 
are using it. So I appreciate that.
    Mr. Wells, in some of your testimony as you talk about 
natural gas prices and the effects--and, obviously, we have 
some large facilities with your company and others in south 
Louisiana--as gas prices increased, it had a stifling affect on 
growth in the industry. As companies are trying to be more 
efficient--and, of course, the biggest incentive is the profit 
incentive, and there is a profit incentive to be more 
efficient.
    But as you squeeze efficiencies out and then you get to a 
point where decoupling and other things would potentially 
increase rates for those who have done all they can--in terms 
of job losses, every time you have a 1 percent increase in 
natural gas prices, for example, what does that mean in terms 
of your ability to continue keeping the people employed that 
you have employed, looking at moving more operations overseas? 
How many jobs are lost for every 1 percent increase in natural 
gas prices?
    Mr. Wells. I don't have the number for the 1 percent, but 
the chemical industry in the last 8 years we have lost over 
100,000 jobs in this country in large part due to what has 
happened in natural gas pricing, where we were in an area where 
we paid a pretty constant price in this country and we built a 
large chemical infrastructure around that and became an export 
base for much of the world. When natural gas did what it did in 
the late '90s and the early part of this decade, then we 
started looking for other, cheaper sources and found them. My 
own company, we are looking at building plants in Saudi Arabia, 
places like Libya, Egypt, because we can get that very cheap 
feedstock.
    It is important to know for the chemical industry natural 
gas is not just a source of energy. We don't just burn it in a 
turbine and just combust it to make steam. We also use it to 
make our feedstocks.
    I talked about in our company alone the bill last year was 
over $27 billion for our energy costs. Not only do they rise 
because of increasing demand and supply that is starting to 
fall off--we have seen some new discovery that has helped, but 
we think that just at best will delay the inevitable. But we 
also when we think about the climate change and what could 
happen with climate change and climate legislation, which we 
support, the easy answer is to go to natural gas for power 
generation and to combust natural gas over coal and lead to 
this dash to gas which could even further exasperate the 
situation.
    Mr. Scalise. I just hope as we go forward we--a lot of us 
have concerns about exporting jobs overseas and job losses. You 
talk about 100,000 jobs lost, in a way, because of a failed 
energy policy. I just hope we are very cautious in how we 
proceed, that some of the things we do, where we all agree that 
efficiency is important, where we don't have penalties on the 
other side that actually cost us more jobs. And your industry 
is a good example of there is a point of, if you exceed that 
level, your ability to continue employing the people you have 
is going to diminish.
    So, hopefully, we keep all of that in mind as we entertain 
legislation to address the concerns that I think a lot of us 
have. But how we get there, we have to be cautious that we 
don't have those consequences which I don't think would be 
unintended, because we are well aware, as you point out, that 
those have direct impacts on businesses' ability to continue 
operating profitably here or looking at other options in other 
countries which have definitely been taken by companies over 
years and hopefully won't in the future. And, hopefully, we 
won't do anything in this Congress that encourages people to 
move those jobs overseas.
    Thank you.
    Mr. Markey. The gentleman's time has expired.
    The Chair recognizes the gentleman from Texas, Mr. Green.
    Mr. Green. Thank you, Mr. Chairman.
    And it is interesting I follow our new colleague from 
Louisiana, because I have a district in Houston that--I have 
the petrochemical complexes there. When you talk about losing 
jobs because of the high price of natural gas, we have seen 
that in our district, and particularly in the recent with our 
own economy with what is happening. Because a lot of the things 
our chemical industry does actually goes into home buildings 
for weatherization and things like that. That is why this last 
bill was a success, I think, to try to do some of the things 
that we want to do.
    I want to follow up on that line of questioning, Mr. Wells. 
I know Dow Chemical is a member of the U.S. Climate Action 
Partnership. Like I said, your biggest plant in my area is in 
Freeport. It is not in our district. But I have Channelview, 
Houston and Pasadena, so I have a number of your facilities.
    In your testimony, you mentioned that one of the likeliest 
ways to meet short-term carbon emission reduction targets 
called for in climate changes that fuel switching from nat coal 
to natural gas. And, again, with my accent, you would think I 
would love natural gas. And that is not a problem. It is just 
that in the chemical industry it is not only a fuel but it is a 
feedstock, and that is what caused us to lose those jobs.
    I can tell you 3 years ago Shell Chemical moved jobs from 
Deer Park, Texas, in my district to the Netherlands for two 
reasons. The price of natural gas in the North Sea was cheaper, 
but also the price of health care for the Netherlands was 
cheaper per employee than their plan in Deer Park. So our 
committee has jurisdiction over both of those; and, hopefully, 
we will make it a little more competitive.
    But the so-called dash to gas could be ruinous for the 
industries that are dependent on it, like the chemical 
industry. So I have significant concerns about any impact the 
climate change would have on affordable and reliable supplies 
of clean natural gas.
    I have to admit even in Washington we see Boone Pickens 
ads. If we all did what Boone Pickens wanted us to do, not only 
with wind and solar but natural gas, we might not be having 
this concern.
    Since I represent a great deal of the manufacturing 
facilities, Mr. Wells, do you believe that enacting energy 
efficiency measures would be enough to offset the job losses in 
particularly your manufacturing sector due to the increased 
demand for natural gas from the fuel switching?
    Mr. Wells. No, there would not be enough. They are an 
important step. They are an important easy step, an important 
economical step, but we have to go further, and we have to look 
at increased supply, what we can do to get more supply in a 
situation.
    We have to manage both sides of the supply and demand 
equation. We have to manage demand by the efficiency measures 
and other complementary measures we talked about today. We also 
have to manage the demand side and make sure the country--we 
can get at the source of natural gas and oil that we have 
available. We are the only country in the world that is not 
allowed to look for our own resources right off our shores.
    Mr. Green. The last Congress made exceptions, and we took 
off the moratorium on Outer Continental Shelf drilling. There 
may be some adjustments to that, and we don't want to drill in 
national parks and sanctuaries and things like that, but there 
are areas that we can get natural gas.
    Natural gas is site based. Dow put in an LNG facility in 
Freeport, but that is not the way to solve the problem. We 
really need to have it much closer. You can pipeline it closer, 
because the cost gets so extravagant.
    Mr. Wells. We didn't put it in. It is another company that 
put it next to ours, and we are a user to clear that up.
    Mr. Green. You probably wouldn't be there without Dow in 
Freeport. In fact, in the 2005 energy bill, Congressman Terry 
and I both championed that we would import natural gas when 
possible. But that is not our solution, either.
    What design elements for a cap and trade program where 
there is reduction of targets and timetables or cost 
containment mechanisms or complementary policies would be most 
effective and lessen the impact of fuel switching? Does Dow 
have----
    Mr. Wells. Absolutely. As a member of U.S. CAP, they 
recently came out with their blueprint for legislative action. 
In there it talks about complementary measures for coal, 
complementary measures for transportation, things we would like 
to see. Certainly carbon capture and storage. The ability to 
continue to use coal in a responsible way will would go long 
way to keeping the dash for gas.
    What will happen if we don't do something like that, 
natural gas becomes the bridge as we invent the carbon free 
energy infrastructure. That will take time, and to bridge that 
time the easy choice is to go to natural gas. It creates half 
the amount of CO2 as coal does in a power generation 
situation, and our industry cannot afford for that to happen 
because of what I talked about.
    Mr. Green. Also, when you happen--and carbon capture and 
sequestration, that will help, particularly with coal. I know 
from your response to the earlier question about nuclear power, 
again, that is 15 years away, if we are lucky, maybe 12.
    Mr. Wells. We certainly think nuclear is part of it, both 
the traditional light water reactors and next generation, the 
high temperature reactor. We see lots of potential--although 
technology has a long way to go, lots of potential for that 
also to come to bear.
    Mr. Green. Last year, the natural-gas-council produced a 
model that predicted demand for natural gas to increase by as 
much as 10 trillion cubic feet per year under climate change 
legislation.
    The first question is, even with measures to increase 
energy efficiency, do you believe it is still necessary to 
increase environmentally responsible reduction of natural gas, 
domestic natural gas supplies in order to meet short-term 
carbon reduction targets called for in the climate change 
legislation and to keep those good-paying manufacturing jobs in 
the United States?
    Mr. Wells. Yes, absolutely.
    Mr. Green. Could congressional efforts to hinder the 
domestic production of clean natural gas inhibit the U.S. from 
achieving the short-term carbon reduction targets while 
protecting our manufacturing base?
    Mr. Wells. Yes.
    Mr. Green. So it is compatible as a member of both U.S. CAP 
to be a supporter of efforts to reduce carbon emissions as well 
as the increased domestic supplies of clean natural gas?
    Mr. Wells. Yes.
    Mr. Green. Thank you.
    Dr. Anderson, you mentioned the importance of utilizing 
combined heat and power technologies and petroleum chemical 
industries expressed disappointment with FERC's recent 
rulemaking regarding incentives for CHP as called for under the 
Energy Act of 2005. Can you further elaborate on why you 
believe that rulemaking would discontinue CHP incentives in 
certain FERC-approved regional transmission organizations?
    Mr. Anderson. The FERC order rule that came out basically 
said that the PRPA incentives granted in 1978 for combined heat 
and power for cogeneration would go away in those markets that 
FERC has approved as being an RTO or an ISO. That is an 
independent system operator or a regional transmission system. 
So in those areas, which covers a significant portion of the 
country, the incentives that have been there since 1978 are 
going away. A utility can simply file with FERC and ask that 
they go away, and they are beginning to do that.
    We did not think that was the intent of the Act in 2005. In 
fact, we worked with Representatives Barton and Boucher and 
others when that language went through. And so what we are 
asking is that you all take another look at that and see if 
this really was the intent. We at least believe, as 
manufacturers that do a lot of cogeneration, that it is a big 
detriment.
    Mr. Green. Thank you, Mr. Chairman. I know my time has 
expired.
    I appreciate that. I know that wasn't the intent in 2005.
    Mr. Anderson. Thank you very much.
    Mr. Markey. The gentleman's time has expired.
    The Chair recognizes Ms. Baldwin.
    Ms. Baldwin. Thank you.
    Mr. Green's questioning dovetails well with the direction I 
want to go in.
    In my opening remarks, I cited the December Oak Ridge 
Natural Laboratory report stating the manufacturing facilities 
and commercial buildings are sources of waste energy that can 
be captured and converted into useful electricity and steam 
productions.
    Further, it said that waste energy recovery is one of the 
most promising options in the U.S. energy efficiency portfolio 
and that if the U.S. adopted a high deployment strategy, 
combined heat and power development could generate $234 billion 
in new investments and create nearly 1 million new high-skilled 
technical jobs throughout the country.
    The report goes on to say that the U.S. could avoid 60 
percent of potential growth in greenhouse gas emissions between 
now and the year 2030 if we increase the amount of electricity 
produced from distributed energy sources from 9 percent today 
to 20 percent by the year 2030. We have had some questioning 
about this, but I would like to, with this potential out there, 
sort of have a little bit more of a discussion about the 
various incentives and barriers, the regulatory environment, as 
we just talked about, the technological hurdles and cost.
    I guess I want to start in with cost. There was some 
testimony suggesting that this isn't cost effective but cost 
prohibitive. I have certainly heard from many industrial waste 
experts, waste energy experts, who say that much of the 
technology is readily available without further R&D. Required 
heat exchangers, turbines, piping are all off the shelf, not 
requiring additional R&D. And that there are other things that 
create hesitation in making investments in the industry sector.
    I guess, to Mr. Wells and Mr. Anderson, if you might 
comment first on the cost barriers and additional incentives 
that we could be looking at.
    Mr. Wells. I can only speak for the industrial sector and 
for our own, and we don't see any cost barriers for the Dow 
Chemical Company. A vast majority of the power that we use is 
self generated, well over 70 percent; and of this power well 
over 90 percent comes from cogeneration. So in our application 
it makes a lot of sense, an awful lot of sense for us. We make 
maximum use of it.
    Mr. Anderson. First, I am not familiar with the studies. I 
apologize for that. But one of the big barriers to cogeneration 
is the ability to get backup maintenance and standby power. If 
your generator does go down, you have to buy in a non-
discriminatory way. We are concerned that when the incentives 
of PRPA were taken away that has taken those things away, and 
that is why we are asking that you look at those things again.
    I agree that there is a tremendous potential for combined 
heat and power. I am not as familiar with distributed 
generation. It is much smaller and applies to commercial and 
residential entities. But I understand that there is a 
potential there, also.
    Ms. Baldwin. Let me follow up on that answer.
    In designing the Energy Independence and Security Act, I 
know that I worked with energy efficiency experts in my own 
district to craft the waste energy incentive grant program 
really to incentivize owners and operators of industry 
facilities to successfully produce electricity from recovered 
waste energy. Specifically, it provides a financial incentive 
of $10 per megawatt hour; and it is authorized at the $200 
million level, although not yet appropriated. Is this in your 
mind sufficient financial incentive from manufacturers to 
invest in capturing waste energy and converting it to useful 
energy?
    Mr. Anderson. We are strong supporters of the program. I 
can't say whether that is sufficient or not, but it is 
definitely a significant step in the right direction, and I 
hope the money does get appropriated. As you said, it has not 
been appropriated yet. We have been working with the Department 
of Energy as they are trying to implement this, and we think it 
is a great idea.
    Ms. Baldwin. I recognize there is controversy over whether 
manufacturers should be able to convert waste heat to energy 
and then sell any excess back onto the grid. How essential is 
the ability to sell excess energy to the success of harnessing 
waste energy--industrial waste energy?
    Mr. Anderson. I think it varies significantly by 
application, by industry, even down to the individual plant.
    Mr. Wells just mentioned they consume most of the power 
that they consume, and that certainly is a model that many 
others use, but others have the opportunity to produce more 
power than they can consume. And you have to be able to sell it 
at a price that makes sense.
    Once again, it gets into the review of it, but that is an 
important area for many applications.
    Ms. Baldwin. Mr. Wells.
    Mr. Wells. When you look at how we use cogeneration, that 
is a very important thing for us. Because we balance on steam. 
We make all the steam we need; and then whatever power that 
comes along through the cogeneration process, if it is more 
than we need at a location, being able to sell on the grid is 
very helpful to us. If we don't make enough, being able to buy 
off the grid is helpful to us.
    Mr. Markey. The gentlelady's time has expired.
    The Chair recognizes the gentleman from Utah, Mr. Matheson.
    Mr. Matheson. Thank you, Mr. Chairman.
    One observation before I ask questions.
    As I listened to the discussion on decoupling that was 
taking place, whether people think they are for it or against 
it, I detected a lack of understanding about it during this 
discussion. I heard people comparing decoupling issues relative 
to regulated utilities with how it applied to private-sector 
competitive businesses. I sense the discussion, quite frankly, 
diverted into a lot of extraneous issues that weren't relevant; 
and so it may be helpful for members of this committee to get a 
primer on decoupling and what it means and what it doesn't 
mean. Because, as I said, as I listened to that discussion I 
think there was a lot of confusion, a lot of apples and oranges 
comparison that were not necessarily appropriate or productive 
to the conversation.
    Mr. Markey. I think that is a good idea. Thank you.
    Mr. Matheson. I want to address the issue briefly of 
appliance standards in the Act that was developed between the 
House and the Senate. The House version in 2007 had some 
provisions that allowed multiple efficiency standards for a 
single appliance. During the conference negotiation in the 
Senate, some of the provisions were dropped. Anyone on the 
panel, I would like to ask what room you think there is for 
further improvement in energy efficient appliances regulations.
    Mr. Giudice. Gigantic room for improvement. We are 
consuming electricity in devices that are not producing any 
useful product for us. Our set top boxes, TVs that are on 
standby, plug power, vampire power in our homes is consuming 10 
or 15 percent of the electricity that our residence is 
consuming for no useful output. There is technologies off the 
shelf that once we put them in place can go back down to 1 watt 
standbys on all those devices and still come alive at 4:00 in 
the morning when you want to record a show if need be. We just 
haven't spent enough time on those matters across the board.
    As we look at it in Massachusetts, and we have seen similar 
studies across the country, just taking energy efficient 
devices off the shelf that exist today, ENERGY STAR and better, 
and putting them in across the Nation would save on the order 
of 20 or 25 percent in our residential electricity consumption. 
So tremendous opportunities. We haven't unleashed all the 
potential from design and marketplace to really drive that. And 
I would call for very high standards.
    Mr. Matheson. All right.
    Mr. King. The other element I would add is we need to also 
think about the future as we deal with intelligence on the 
grid, smart meters, et cetera. If we could start developing the 
standards for appliances where we could automate demand 
reduction, energy efficiency, et cetera, it will have a 
significant impact when you have a broad-scale deployment of 
energy efficiency in those appliances.
    Mr. Matheson. I think being forward looking makes some 
sense.
    Currently, the law does not allow for use of multiple 
standards for appliances like if you have a dual electric gas 
furnace. Are those changes Congress ought to be looking at try 
to create some of those multiple standards?
    Mr. Giudice. Yes. I think we have to look at all the 
standard setting very differently than we have to date. SEER 
rating standards on air conditioners are seasonal electricity 
consumption, not peak electricity consumption. Some of the air 
conditioners actually have a small compressor that when it gets 
really hot it is very inefficiently producing that cooling to 
kind of boost it. It looks like a good SEER rating, but it 
actually hits us the hardest on those peak days when we are 
trying to meet the electric load. So looking at the standard 
setting and doing it on a very accelerated time path I think is 
very appropriate for national attention.
    Mr. Matheson. The committee learned in 2007 the DOE process 
for appliance standards takes a long time. And other countries 
such as Japan use a top runner program where the standard is 
updated every 3 years based on the top technology at the time. 
That technology becomes a standard for the next 3-year period. 
My question is, is this type of model realistic for the United 
States and how do we address concerns that manufacturers may 
express about making that a challenging time frame for them to 
adopt new standards? Any thoughts on that?
    Mr. Giudice. I am a little familiar with the program in 
Japan, and I think it is a very interesting model. I think it 
stimulates innovation and creativity in their design, and I 
think it would do the same here. I think that we have been so 
comfortable in our absence of attention on this and our 
manufacturing folks have not spent sufficient attention to 
these matters that any kind of a change to a new regime is 
really hard, and so the initial reaction is to resist it. But I 
think working collaboratively, under very clear deadlines and 
very clear outcomes, that we could get to very similar models; 
and it would be beneficial to all of us.
    Mr. King. Just to quickly add to that, the opportunity that 
the bill provides us is a Federal standard. So once we have 
absolutely set that target, then you'll get a lot of expertise 
to jump in and help move to help not only from a State 
standpoint but over from a Federal policy. So that is a big 
opportunity you have as you debate the bill and support it.
    Mr. Matheson. Thank you, Mr. Chairman.
    Mr. Campbell. I would add a comment. I think aggressive 
standards drive innovation; and they also ultimately help with 
manufacturing scale, which gives us more cost-effective 
appliances going into the market.
    Mr. Matheson. Thank you. I yield back.
    Mr. Markey. The gentleman's time has expired.
    Here's what we're going to do. We will give each one of you 
one minute to tell us when you want us to remember from your 
testimony. What is your highlight? What is your takeaway 
message? What is it that you want us to be factoring into the 
development of energy and client change legislation this year 
in terms of efficiency?
    We will begin with you, Mr. Reichel.
    Mr. Reichel. Thank you, Mr. Chairman.
    I don't want you to remember me for my expertise on 
decoupling.
    Mr. Markey. It is the joke of the day. Though. Well done.
    Mr. Reichel. Our technology that we have brought before the 
panel today and the committee works with every control system 
and every HVAC system in the country. I would encourage this 
committee to set up a performance efficiency standard. For 
every building has different controls and different HVAC 
systems, but they all have an operating strategy. Building 
performance software can help these buildings calibrate the 
buildings to actually achieve that energy efficiency goal. This 
was probably one of the last bastions of energy efficiency 
available in operation and maintenance. The Federal buildings I 
would encourage as strongly. We are working with the GSA, but I 
would encourage them, because private practice will follow what 
the Federal buildings do.
    I would also look at setting this for schools. There is $13 
to 15 billion of savings if we did this across the country. I 
think it is very important, and I commend you for your work 
here.
    Thank you.
    Mr. Markey. Thank you very much.
    Mr. Anderson.
    Mr. Anderson. I just hope that you will look very carefully 
at what the impacts of whatever you do will be on the 
manufacturing community. Nearly every one of these proposals 
will raise rates that we see. Some will bring about lowering 
consumption; and if the two offset, then that is great. But 
have a very realistic look at what it is going to do to the 
manufacturing community. Because many are right on the edge, 
and they are going to close the plant here. And they are not 
going to reopen it here but somewhere else.
    Mr. Markey. Mr. Campbell.
    Mr. Campbell. We do believe that energy efficiency should 
be considered the first fuel, because it does save consumers 
and businesses money. And we do have the technology available, 
widely available today to deliver energy efficiency. We don't 
believe there is a silver bullet to energy efficiency. We 
believe there is silver buckshot. There will be complementary 
measures like the ones we have been discussing this morning, 
and they are going to give us the opportunity to drive energy 
efficiency to the level that I think as a Nation we need to 
drive it.
    I think that energy efficiency is the most important thing 
that we can focus on when it comes to climate change. We need 
to make sure that there is alignment of incentives from the 
utilities to the users of energy. And I don't think it has ever 
been more important. We have to focus on it now.
    Mr. Markey. Mr. Wells.
    Mr. Wells. When we think about the triad of economic 
success and environment performance and energy security, energy 
efficiency hits the sweet spot of those three things. It is a 
win-win-win. So why aren't we doing more of it?
    We talked about the barriers today. It is clear we need a 
nudge or a push of some sort. So the complementary policies 
that we talked about today can form this nudge, give us the 
push we need to do the right thing with respect to energy 
efficiency and to help our economy.
    Mr. Markey. Thank you.
    Mr. King.
    Mr. King. I would start with energy efficiency is a 
resource, and it is a critical resource to meet America's 
overall energy needs. Secondly, that it is one of the least 
expensive investments that we have as an alternative to us. So 
we should be aggressive both on the targets to achieve as well 
as the time lines to achieve them, and we stand ready to help 
deploy and deepen its impact.
    Mr. Markey. Mr. Giudice.
    Mr. Giudice. I encourage the committee and Congress and the 
administration to be very, very bold at this time. I cannot 
imagine but I suspect that decades in the future we will be 
looking back and wishing we were bolder about what we will be 
accomplishing right now. And I thank you for your leadership on 
these matters.
    Mr. Markey. Thank you, Mr. Giudice; and we thank all of 
you. Just an excellent panel today.
    I just want to, in closing, say that there has been a lot 
of talk this morning about the stimulus bill and decoupling; 
and it was raised by Mr. Matheson as well. So I just thought I 
would read the language from the stimulus bill so that people 
can hear it and it is on the record.
    What it says is that, as enacted, the language requires the 
Governor of a State, as a condition for receiving the 
allocation for State energy program funds, to notify the 
Secretary of Energy, "in writing that the Governor has obtained 
necessary assurances that the applicable State regulatory 
authority will seek to implement in appropriate proceedings for 
each electric and gas utility with respect to which the State 
regulatory authority has rate making authority, a general 
policy that ensures that utility financial incentives are 
aligned with helping their customers use energy more 
efficiently and that provide timely cost recovery and a timely 
earnings opportunity for utilities associatedwith cost-
effective, measurable and verifiable efficiency savings in a 
way that sustains or enhances utility consumers' incentives to 
use energy more efficiently."
    The language does not mandate decoupling. It simply asks 
States to pursue policies to align utilities' initiatives with 
the pursuit of efficiency while insuring that consumers have 
incentives to pursue efficiency as well. NARUK does support the 
final language, and there are many ways to satisfy this 
requirement. It does not require decoupling and allows States 
to innovate in order to protect their own consumers.
    So I thank the panel very much for being here today. It is 
incredibly helpful.
    Unfortunately, historically, this subject and its 
discussion is only exceeded by watching grass grow in terms of 
the level of enthusiasm that it brings to a room. But, as you 
are all saying, it is the sweet spot. It is the first fuel. It 
is the whole key to how we can put a dent in climate change and 
energy industry issues and economic growth simultaneously. It 
is important for us to ensure that this year we put the laws on 
the books that telescope the time frame it will take for us to 
reach that day.
    We thank each of you for being here today.
    This hearing is adjourned.
    [Whereupon, at 12:16 p.m., the committee was adjourned.]
    [Material submitted for inclusion in the record follows:]




                                 
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