[Senate Hearing 112-466]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 112-466
 
                              CLEAN ENERGY 

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

                                HEARING

                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                                   TO

  RECEIVE TESTIMONY ON S. 2146, THE CLEAN ENERGY STANDARD ACT OF 2012

                               __________

                              MAY 17, 2012


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               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                  JEFF BINGAMAN, New Mexico, Chairman

RON WYDEN, Oregon                    LISA MURKOWSKI, Alaska
TIM JOHNSON, South Dakota            JOHN BARRASSO, Wyoming
MARY L. LANDRIEU, Louisiana          JAMES E. RISCH, Idaho
MARIA CANTWELL, Washington           MIKE LEE, Utah
BERNARD SANDERS, Vermont             RAND PAUL, Kentucky
DEBBIE STABENOW, Michigan            DANIEL COATS, Indiana
MARK UDALL, Colorado                 ROB PORTMAN, Ohio
JEANNE SHAHEEN, New Hampshire        JOHN HOEVEN, North Dakota
AL FRANKEN, Minnesota                DEAN HELLER, Nevada
JOE MANCHIN, III, West Virginia      BOB CORKER, Tennessee
CHRISTOPHER A. COONS, Delaware

                    Robert M. Simon, Staff Director
                      Sam E. Fowler, Chief Counsel
               McKie Campbell, Republican Staff Director
               Karen K. Billups, Republican Chief Counsel



                            C O N T E N T S

                              ----------                              

                               STATEMENTS

                                                                   Page

Bingaman, Hon. Jeff, U.S. Senator From New Mexico................     1
Dickenson, James A., Managing Director and Chief Executive 
  Officer of JEA.................................................    60
Gibson, Thomas J., President and CEO, American Iron and Steel 
  Institute......................................................    52
Greenwald, Judi, Vice President, Technology and Innovation, 
  Center For Climate and Energy Solutions, Arlington, VA.........    39
Gruenspecht, Howard, Acting Administrator, U.S. Energy 
  Information Administration, Department of Energy,..............     9
Murkowski, Hon. Lisa U.S. Senator From Alaska....................     3
O'Mara, Collin, Secretary, Delaware Department of Natural 
  Resources and Environmental Control, Dover, DE.................    47
Palmer, Karen, Research Director and Senior Fellow, Resources for 
  the future.....................................................    33
Sandalow, David B., Acting Under Secretary of Energy and 
  Assistant Secretary for Policy & International Affairs, 
  Department of Energy...........................................     4
Trent, Keith, Group Executive and President, Duke Energy 
  Commercial Businesses..........................................    57

                               APPENDIXES
                               Appendix I

Responses to additional questions................................    77

                              Appendix II

Additional material submitted for the record.....................    95


                              CLEAN ENERGY

                              ----------                              


                         THURSDAY, MAY 17, 2012

                               U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:33 a.m. in room 
SD-366, Dirksen Senate Office Building, Hon. Jeff Bingaman, 
chairman presiding.

OPENING STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR FROM NEW 
                             MEXICO

    The Chairman. OK, why don't we get started? Thank you all 
for coming.
    Today our hearing is on S. 2146, the Clean Energy Standard 
Act of 2012. This is a bill I introduced with a number of our 
colleagues. I think there are 11 of us on the bill. Its co-
sponsors: Senators Wyden, Sanders, Mark Udall, Franken, Coons. 
Several who are not on our committee are also co-sponsoring the 
bill, Senators Kerry, Whitehouse, Tom Udall and Senators 
Feinstein and Merkley.
    So the purpose of the Clean Energy Standard is to establish 
a national standard for electricity that would make sure that 
we leverage the clean resources that we have today and would 
also provide a continuing incentive to develop cheaper and 
cleaner energy technologies in the future. By design it would 
drive continued diversity in our sources of energy. It would 
also allow each region to deploy clean energy using resources 
appropriate to that region. The Clean Energy Standard does this 
in a way that is intended to support homegrown innovation and 
manufacturing and keep America competitive in the global clean 
energy economy.
    This is not the first Clean Energy Standard to be proposed. 
It's certainly not intended as a partisan proposal. In the last 
Congress during the discussion of a renewable electricity 
standard, in fact we had a lot of discussion about that in this 
committee, several members on the Republican side publicly 
voiced their support for a more inclusive standard, not just 
focused on renewable energy, but on other types of energy as 
well including nuclear power and hydro power and a variety of 
other options.
    At the beginning of this Congress President Obama moved in 
that direction by calling for a Clean Energy Standard in his 
2011 State of the Union speech. He also addressed the proposal 
again and urged Congress to move ahead on something of this 
type in his 2012 State of the Union speech.
    As part of the development process for the legislation we 
received input from hundreds of stakeholder groups and 
citizens. The Energy Information Administration conducted a 
comprehensive set of policy analyses. The Clean Energy Standard 
design was the topic of several academic workshops and industry 
meetings.
    We tried to take all of that feedback and incorporate it in 
what we have proposed.
    The Clean Energy Standard will take all electricity 
generating technologies that exceed the carbon efficiency of 
the current state-of-the-art, super critical coal generation 
and award them credits scaled to their relative improvement in 
carbon intensity over that baseline.
    Zero carbon sources such as nuclear and renewables will get 
a full credit per kilowatt hour produced.
    Advanced coal technologies such as oxy fuel combustion will 
get partial credit.
    Natural gas will get about a half a credit and so on.
    Utilities that sell electricity at retail will acquire and 
turn those credits in to meet a standard that overall will 
start off being fairly easy to meet. The standard though, will 
become cleaner and more stringent over time. The result is 
intended to be a realistic and a predictable market pull on 
advanced energy technologies. By having a long term, 
predictable market for advanced electricity generation the 
legislation is intended to provide innovators with confidence 
and the ability to make their best case to investors and 
project financiers.
    This proposal is only 25 pages in length. It is, we 
believe, simple and straight forward. We think it would also, 
though, have a transformative effect in the power sector.
    The Energy Information Administration projects that 
adopting the CES would drive substantial amounts of clean 
energy production across a diverse set of sources including 
wind, solar, nuclear, biomass and natural gas. It would also 
drive enhanced energy efficiency in particular in the 
industrial sector.
    EIA projects that it would reduce emissions from the power 
sector by 20 percent below their reference case in 2025 and by 
44 percent in 2035.
    This mix of benefits has led to support for the legislation 
from a diverse group of stakeholders. We will hear from some of 
those today.
    The discussion that we're having today on this policy 
proposal is an important one to have. Even though we are in a 
difficult political environment the challenges that the Clean 
Energy Standard seeks to address and the ambitious goals that 
it is intended to achieve are important ones for the country. 
If we really want energy innovation to flourish here at home we 
really need more predictable, long term policy signals. If 
there are better ideas for how we should do that then what 
we've proposed in this Clean Energy Standard, I hope we can 
hear something about those today at the hearing.
    Before I introduce the witnesses, let me call on Senator 
Murkowski for any opening remarks she'd like to make.

        STATEMENT OF HON. LISA MURKOWSKI, U.S. SENATOR 
                          FROM ALASKA

    Senator Murkowski. Thank you, Mr. Chairman. Appreciate you 
scheduling the hearing, your focus on this as an issue.
    Welcome to the witnesses. Thank you for being here.
    I think one of the good things about this committee is the 
quality of feedback that we receive here, the role that it 
plays in informing our decisionmaking. Some of the issues that 
we consider are, of course, pretty complicated. They require 
considerable thought. A Clean Energy Standard, the subject of 
this morning, is certainly one of those.
    You've noted that the President's role in proposed a CES 
when he mentioned this in his State of the Union address back 
in January 2011. At that time I joined the Chairman in 
releasing a White Paper, asking for feedback on it. I was 
really, very impressed and appreciative with the responses we 
received.
    How adept the stakeholders were at exploring the very 
specific challenges and opportunities associated with what was 
a pretty general proposal. From threshold questions of what 
resources should count as clean to who should be regulated 
under a CES. We received a great deal of information. I truly 
thank those who participated in that effort and the information 
that they provided to us.
    There was a lot of inquiry, work and patience. I think that 
the Chairman has clearly benefited from that in getting to this 
point with a bill now written, introduced, analyzed. While some 
are fully convinced a Federal CES is the way to go, there are 
quite a few others that disagree with that approach.
    To me, the biggest question and the one that I hope we'll 
have an opportunity to talk about this morning is whether the 
American people really want a CES. Whether it's appropriate in 
light of what States are already doing.
    Now Mr. Chairman, you've mentioned that there have been 
those that in the past have suggested that incorporating a 
Clean Energy Standard, one that expands beyond the renewable 
energy is something that others on both sides of the aisle have 
mentioned and have encouraged. I acknowledge that I have been 
one that says we need to look broader. But I ultimately decided 
not to co-sponsor the bill for a couple different reasons.
    The responses to the White Paper while again, very detailed 
in their analysis and consideration, clearly lack sufficient 
consensus. I think there's reasonable disagreement about 
whether or not this type of mandate is appropriate at the 
Federal level. There's some other things, other events.
    First and foremost, we've been reminded of the importance 
of affordable energy. Most of the focus lately has been on 
gasoline prices, but electricity costs are also going up. 
Bringing energy prices down, I think, should be our objective, 
not driving them up today or in the future as some analysis 
have projected that a CES would do.
    I recognize that affordability is not the only goal. We all 
want to have cleaner energy sources. Federal mandates, though, 
are just one of the tools at our disposal. As it turns out I 
think we recognize that they can be pretty blunt instruments. 
In the energy space, in particular, Federal mandates make it 
difficult to account for regional differences, consumer 
preferences and international competitiveness.
    Hanging over all of this is our more recent experience in 
health care which shows just how unpopular mandates can be. 
What we should remember is that we're not necessarily limited 
to one policy or one option for addressing our energy 
challenges. My preference would be to increase funding for 
energy innovation with the revenues that we generate from 
increased domestic production of oil, gas, coal, other 
resources.
    If we plan ahead, we could develop a long term policy that 
allows those resources to work themselves out of a job by 
paying for the commercialization of newer, cleaner 
alternatives. In the meantime, we protect families, businesses 
from added costs and burdens.
    Finally I don't think we can have an honest conversation 
about new energy policies without acknowledging, evaluating and 
accounting for the slew of new, stringent regulations that are 
being imposed under existing statutes. I think we need to 
really critically assess this habit that we seem to have of 
piling one policy on top of another. We need to kind of sort 
through all that so that it's clear where the priorities are.
    Mr. Chairman, I am happy to be here this morning. I hope 
the conversation is merely a small part of a much larger one 
about our Nation's energy goals and the most appropriate tools 
for achieving them.
    I thank you for your efforts in this area.
    The Chairman. Thank you very much.
    We have 2 panels of witnesses, the first 2 witnesses from 
the Administration.
    The Honorable David Sandalow, who is the Acting Under 
Secretary of Energy and Assistant Secretary for Policy and 
International Affairs in the Department of Energy.
    Also Dr. Howard Gruenspecht, who is the Acting 
Administrator and the Deputy Administrator with the Energy 
Information Administration.
    We will give them whatever time they need to make their 
points. Then we will have some questions of them. Then we will 
go onto the second panel.
    So Mr. Sandalow, thank you for being here. Go right ahead.

   STATEMENT OF DAVID B. SANDALOW, ACTING UNDER SECRETARY OF 
   ENERGY AND ASSISTANT SECRETARY FOR POLICY & INTERNATIONAL 
                 AFFAIRS, DEPARTMENT OF ENERGY

    Mr. Sandalow. Thank you, Chairman Bingaman and Ranking 
Member Murkowski and all the members of the committee for the 
opportunity to speak to you today about S. 2146, the Clean 
Energy Standard Act of 2012 and the President's goal of 
generating 80 percent of our electricity from clean sources by 
2035.
    Let me start by apologizing for my voice. If it cracks, 
it's not due to emotion as strongly as I support the Clean 
Energy Standard. But it's a persistent cold which is going 
around, not just the Forrestal Building. But I understand from 
somebody yesterday the Hill as well.
    Members of the committee, we're currently engaged in a 
global race to develop, manufacture and deploy clean energy 
technologies. China, Germany, and many other countries are 
investing heavily in clean energy. We can't risk falling 
behind.
    With American ingenuity and manufacturing know how we can 
lead the world in clean energy. Let me repeat that. With 
American ingenuity and manufacturing know how we can lead the 
world in clean energy.
    The President set forth an all of the above energy strategy 
for the 21st century that develops every source of domestic 
energy including clean energy. A core part of the President's 
vision is his call for the U.S. to generate 80 percent of our 
electricity from clean sources by 2035. A Clean Energy Standard 
is a technology neutral approach to achieving that goal. It 
works by setting a target and letting investors and 
entrepreneurs determine the best and most effective 
technologies to deploy to meet it. These include nuclear power, 
clean coal, efficient natural gas generation and renewable 
sources such as wind, solar, geothermal, hydropower and 
biomass.
    There are many ways to define a Clean Energy Standard to 
meet the President's goal. There are many possible energy mixes 
that could realize it. My colleague, Dr. Gruenspecht, from the 
Energy Information Administration has shared with you some 
modeling of Senator Bingaman's proposed approach.
    I want to emphasize Dr. Gruenspecht's statement in his 
testimony that EIA's modeling results represent one potential 
future, but not the only one. Because the Clean Energy Standard 
lets the market drive the outcome the evolution of clean energy 
technologies over time will determine what our energy mix will 
look like in 2035. As a result, the policies we put in place 
and the investments we make now will play a large part in 
determining that future energy mix. The President and the 
Administration remain committed to making the investments in 
innovation that will ensure abundant and affordable, American 
made clean energy.
    Mr. Chairman, the administration welcomes your leadership 
in proposing the Clean Energy Standard Act of 2012 which is an 
important step toward achieving the President's vision. We look 
forward to working with the Chairman and with Congress on the 
critical work of ensuring American leadership in the clean 
energy economy.
    So for my part I want to spend the balance of my time today 
talking about the 5 principles which the President laid out in 
the State of the--when he called for a Clean Energy Standard. 
He's called for it twice, as you mentioned, Mr. Chairman, in 2 
State of the Union addresses. He set forth 5 principles in his 
blueprint for a secure energy future.
    Those 5 principles are crediting a broad range of clean 
energy sources, doubling the share of clean electricity over 
the next 25 years, protecting consumers from rising energy 
bills, ensuring fairness among regions and promoting new and 
emerging clean energy technologies. So let me discuss each of 
these principles in turn.
    First, the President proposed including electricity 
generated from a diverse range of clean energy sources 
including renewable sources, nuclear power, efficient natural 
gas plants and clean coal technologies that capture and store 
carbon dioxide. In addition any clean generation technologies 
developed in the future should be eligible for credit to 
provide an incentive for innovators and entrepreneurs.
    Second, the President proposed to double the share of clean 
electricity over the next 25 years. He's proposed the goal of 
generating 80 percent of our electricity from clean sources by 
2035. That's a bold, but achievable goal that would roughly 
double the share of electricity we get from clean sources. It 
provides a critically, long term price signal to investors that 
will reduce uncertainty and draw capital off the sidelines into 
investments in the electric power sector creating jobs, 
enhancing our national security and helping protect public 
health.
    The President's third principle is protecting consumers 
from rising energy bills. In part this can be achieved by 
drawing on a diverse range of energy sources and using a 
steadily rising target that gives the market time to invest in 
the most cost effective clean energy sources available. In 
addition, key point energy efficiency plays a key role here. 
The Administration supports a variety of complementary policies 
and measures to accompany a Clean Energy Standard each tailored 
to the unique challenges of the sector.
    The President's fourth principle is ensuring fairness among 
regions. Different regions of the country have relied on 
different energy resources. The President's principles state 
that any Clean Energy Standard should take these differences 
into account, both regionally and across rural and urban areas.
    The President's fifth principle is promoting new and 
emerging clean energy technologies. Over the past 3 years the 
United States has made substantial progress in clean energy. 
We've nearly doubled the amount of electricity generated from 
renewable sources such as wind, solar and geothermal. We've 
enabled the world's largest wind farms and several of the 
largest solar projects.
    We're making good progress. But more needs to be done. 
Government has an important role to play. But a market based 
mechanism is the best tool to harness the ingenuity of the 
American people and build our clean energy future.
    That's why we need the Clean Energy Standard. By 
establishing a market for domestic clean energy technologies 
and providing a long term price signal, the private investors 
need, we can move billions of dollars of capital off the 
sidelines and into investments in the electric power sector 
that will drive innovation and create jobs throughout the 
economy.
    Thank you, Mr. Chairman. I look forward to taking your 
questions.
    [The prepared statement of Mr. Sandalow follows:]

  Prepared Statement of David B. Sandalow, Acting Under Secretary of 
  Energy and Assistant Secretary for Policy & International Affairs, 
                          Department of Energy
    Chairman Bingaman, Ranking Member Murkowski, and Members of this 
Committee: Thank you for theopportunity to speak about S. 2146, the 
Clean Energy Standard Act of 2012 (CESA), and how this relatesto the 
President's goal of generating 80% of our electricity from clean 
sources by 2035.
    We are currently engaged in a global race to develop, manufacture, 
and deploy clean energytechnologies. Countries like China and Germany 
are investing heavily in clean energy, and we can't riskfalling behind. 
With American ingenuity and American manufacturing know-how, we can 
lead the worldin clean energy. The President has set forth an all-of-
the-above energy strategy for the 21st century thatdevelops every 
source of domestic energy, including clean energy.
    A core part of the President's vision is his call for the nation to 
generate 80 percent of our electricity from clean sources by 2035. A 
Clean Energy Standard (CES) is a technology-neutral approach 
toachieving that goal. It works by setting a target and letting 
investors and entrepreneurs determine thebest and most-effective 
technologies to deploy to meet it. These include nuclear power, clean 
coal,efficient natural gas generation, and renewable sources like wind, 
solar, geothermal, hydropower andbiomass.
    Of course, there are many ways to design a Clean Energy Standard to 
meet the President's goal, andthere are many possible energy mixes that 
could realize it. My colleague, Dr. Howard Gruenspecht fromthe Energy 
Information Administration (EIA), has shared with you some modeling of 
Senator Bingaman'sproposed approach. I want to emphasize his statement 
that EIA's modeling results represent onepotential future, but not the 
only one. Because a CES lets the market drive the outcome, the 
evolutionof clean energy technologies over time will determine what our 
energy mix will look like in 2035. As aresult, the policies we put in 
place and the investments we make now will play a large part 
indetermining that future energy mix. The Administration remains 
committed to making the investmentsin innovation that will ensure 
abundant and affordable American-made clean energy.
    The Administration welcomes Chairman Bingaman's leadership in 
proposing CESA, and looks forward toworking with the Chairman and with 
Congress on the critical work of ensuring American leadership inthe 
clean energy economy. For my part, I want to spend the rest of my time 
today talking about thePresident's vision for a Clean Energy Standard, 
which he first called for in last year's State of the Unionaddress and 
proposed in more detail in the Blueprint for a Secure Energy Future, 
released in March2011. In the Blueprint, President Obama set forth five 
principles for a Clean Energy Standard. They are:

   Credit a broad range of clean energy sources
   Double the share of clean electricity over the next 25 years
   Protect consumers from rising energy bills
   Ensure fairness among regions, and
   Promote new and emerging clean energy technologies

    Let me discuss each of these principles in turn.
1. Credit a broad range of clean energy sources
    In the Blueprint, the President proposed including electricity 
generated from a diverse range of cleanenergy sources, including 
renewable sources, nuclear power, efficient natural gas plants and 
clean coaltechnologies that capture and store carbon dioxide. In 
addition, any new clean generation technologiesdeveloped in the future 
should be eligible for credit to provide an incentive for innovators 
andentrepreneurs.
    One way to achieve this principle of drawing on a diverse range of 
energy sources is to assign full orpartial credit to generation 
technologies based on a simple metric, such as emissions per unit of 
output.As one example of how this can be done, CESA gives credit to all 
the technologies I just mentionedbased on their carbon intensity 
relative to a benchmark of 0.82 metric tons per megawatt-hour, 
orroughly the same emissions rate as a modern supercritical coal plant.
2. Double the share of clean electricity over the next 25 years
    The President has proposed a goal of generating 80% of our 
electricity from clean sources by 2035. Thisis a bold but achievable 
goal that would roughly double the share of electricity we get from 
clean energysources. A Clean Energy Standard will provide a long-term 
price signal to investors that will reduceuncertainty and draw capital 
off the sidelines into investments in the electric power sector that 
willcreate jobs, enhance our national security, and help protect public 
health.
3. Protect consumers from rising energy bills
    The President has also said that any CES should be tailored to 
protect consumers from rising energy bills. In part this can be 
achieved by drawing on a diverse range of energy sources and using a 
steadily rising target that gives the market time to invest in the most 
cost-effective clean energy sources available. In addition, energy 
efficiency plays a key role here. The Administration supports a variety 
ofcomplementary policies and measures to accompany a Clean Energy 
Standard, each tailored to the unique challenges of a given sector. 
These include energy efficiency standards; the ENERGY STARprogram; 
appliance labeling; weatherization; tax credits, grants, and loans for 
efficiency upgrades andenergy efficiency technologies; the proposed 
Home Star rebate program; and partnerships with theprivate sector and 
states and localities to improve building and industrial energy 
efficiency.
    The savings from these energy efficiency policies translate into 
lower projected household energy bills in the future. In fact, EIA's 
modeling projects that the average household will pay five dollars less 
permonth for energy in 2035 than in 2011 under CESA, largely thanks to 
our current energy efficiencypolicies. We can do even better by 
realizing the full energy efficiency savings opportunity 
throughsustained effort at the federal, state, and local levels.
    While many of the energy efficiency opportunities can be tapped by 
complementary policies, I want tocall out one important example of 
clean generation that can also improve energy efficiency: combinedheat 
and power (or CHP). CHP can lead to significant cost savings for 
industrial energy consumers, helprevitalize America's manufacturing 
base and reduce greenhouse gas emissions. That's why theAdministration 
supports issuing clean energy credits to CHP generation, which is 
something that CESAalso does.
    Finally, there are additional CES design options that could further 
reduce electricity prices forconsumers. In CESA, excluding older 
generators from both crediting and obligation leads to a transfer of 
money from consumers to these generators that increases over time. Such 
transfers could be mitigatedby including these older clean sources in 
utility obligations and giving them a partial credit that is smaller 
than the rising implicit credit they receive under the approach taken 
in CESA. Another option is toinclude an alternative compliance payment 
(or ACP) that acts as a safety valve if costs rise unexpectedly.CESA 
provides one example of how an ACP can be designed.
4. Ensure fairness among regions
    Turning to the principle of fairness among regions, different 
regions of the country have relied ondifferent energy resources. The 
President's principles state that any CES should take these 
differencesinto account, both regionally and across rural and urban 
areas. Again, ensuring a diverse set of energysources is an important 
part of meeting this principle, since it gives all regions of the 
country theopportunity to tap their own sources of clean energy. 
Another way to promote regional equity is byfocusing on new clean 
generation, in order to give every region a similar starting point--
while at thesame time crediting states that have been early movers.
5. Promote new and emerging clean energy technologies
    Over the past three years, the United States has made substantial 
progress in clean energy. We'venearly doubled the amount of electricity 
generated from renewable sources like wind, solar, andgeothermal, and 
we've enabled one of the world's largest wind farms and several of the 
largest solarpower projects. Through the Title XVII and Advanced 
Technology Vehicle Manufacturing loan programs,the Department of Energy 
is supporting over 30 clean energy and advanced vehicle 
technologydeployment projects that are expected to employ nearly 60,000 
Americans. It has issued conditional commitments for loan guarantees to 
support the first new commercial nuclear power plant constructionin 
decades. With $3.25 billion in research, development, and demonstration 
investments since 2010,DOE has been working with industry to keep the 
United States at the forefront of carbon capture,utilization and 
storage technologies.
    We're making good progress, but more needs to be done. Government 
has an important role to play,but a market-based mechanism is the best 
tool to harness the ingenuity of the American people andbuild our clean 
energy future. This is why we need a Clean Energy Standard. By 
establishing a market fordomestic clean energy technologies and 
providing the long term price signal that private investors need,we can 
move billions of dollars of capital off the sidelines and into 
investments in the electric powersector that will drive innovation and 
create jobs throughout the economy. Creating a market here athome for 
the clean energy technologies of the future will help ensure that these 
technologies aredeveloped and manufactured in America instead of being 
imported from abroad. As Secretary Chu hassaid: America is the most 
innovative country in the world, but ``invented in America is not good 
enough.We need to ensure that clean energy technologies are invented in 
America, made in America and soldaround the world.'' A Clean Energy 
Standard is part of an all-of-the-above strategy that will tap 
intodiverse sources of energy here at home, keeping our energy supply 
clean, affordable and secure.
    The Administration thanks Chairman Bingaman for his leadership in 
this vital issue. We look forward toworking with members of this 
Committee to further develop this proposal, and I look forward 
toresponding to your questions.

    The Chairman. Thank you very much.
    Dr. Gruenspecht, you folks have done a lot of analysis of 
this proposal. We appreciate all the hard work that's gone into 
that. If you could highlight what you've concluded and anything 
else you think we need to know, we'd appreciate it.

  STATEMENT OF HOWARD GRUENSPECHT, ACTING ADMINISTRATOR, U.S. 
    ENERGY INFORMATION ADMINISTRATION, DEPARTMENT OF ENERGY

    Mr. Gruenspecht. Mr. Chairman, Ranking Member Murkowski, 
members of the committee, certainly appreciate the opportunity 
to appear before you today. As you well know, the Energy 
Information Administration does not promote or take positions 
on policy issues. We have independence with respect to the 
information we provide.
    So our views should not be construed as representing those 
of the Department or other Federal agencies. But my colleague 
and friend, David Sandalow, has that well covered and is here 
to answer all your difficult questions.
    At the Chairman's request EIA recently analyzed the 
potential impact of the Clean Energy Standard Act on the 
development of future electricity markets and protected and 
sorry, projected, carbon dioxide emissions from electricity 
generation. EIA's full report is attached to my testimony and 
detailed results are available on the EIA website. Let me 
briefly summarize some of our main findings.
    As expected given its underlying structure, the proposal 
leads to a substantial decline in coal fired generation. While 
generation fueled by nuclear energy, natural gas and non hydro 
renewable sources all increase as shown in Figure one of our 
report. This result reflects the ability of nuclear and 
renewable generation to earn credits toward meeting the target 
and the partial crediting of natural gas generation.
    In contrast, most coal generation and really all existing 
coal generation is not able to earn credits. Our results 
suggest a modest increase in combined heat and power in the 
industrial and the commercial sector. But we find that carbon 
capture and sequestration technology does not appear to play a 
significant role in compliance.
    As you mentioned in your opening statement, projected 
carbon dioxide emissions in the electric power sector are 
reduced substantially by the proposal. 44 percent below the 
projected reference case level in 2035 which also happens to be 
about 44 percent below their level in 2005, as shown in Figure 
3 of our report. Overall, carbon dioxide emissions related to 
energy in 2035 are about 18 percent lower than in the reference 
case.
    Impacts on electricity prices over the next decade are 
minimal. But the price impacts then rise as shown in Figure 4 
of our report. National average electricity prices to all users 
are less than 5 percent above those in the Annual Energy 
Outlook 2012 early release reference case through 2025. But by 
2035, they are about 18 percent above the reference case level.
    Impacts on natural gas prices are greatest in the early 
years then fall over time. The value of natural gas as a 
compliance option falls significantly as the clean energy 
target share eventually exceeds the credit value for natural 
gas fired generation.
    You know, we often focus on national measures. But it's 
important to recognize that impacts and particularly, impacts 
on electricity prices differ across States and regions 
reflecting variation in clean energy opportunities. Even within 
a given State or region, price impacts may vary substantially 
between customers served by covered retailers and those served 
by small retailers that are exempt from the requirements of the 
legislation.
    The general price impact contours of the exemption which 
are examined in our report, vary depending on the State level 
regulatory structure in place, regulator discretion, the clean 
energy target level that applies at any point in time and the 
relative shares of load that are served by covered verses 
exempt sellers in each State or region.
    As with all projections there's considerable uncertainty 
about how market conditions and technology cost and performance 
will evolve over time. I think we're relatively confident based 
on this and previous analyses that a CES along the lines 
outlined in your legislation would lead to increased reliance 
on generation from natural gas, nuclear and renewables. But the 
exact mix of technologies could vary significantly under 
alternative assumptions.
    I think 2 factors stand out as key uncertainties.
    One is the uncertainty about the ability of the nuclear 
industry to ramp up quickly even with the incentives that would 
be provided by the Clean Energy Standard. We did do sensitivity 
analysis of the scenario with no additional nuclear plants 
built beyond what we have in the reference case. That 
sensitivity suggests that a mix of natural gas, wind and solar 
generation would largely compensate for the lack of additional 
qualifying nuclear generation.
    Second, although many agree that the use of sustainable 
biomass fuels should result in net zero carbon emissions over a 
long period of time, there is disagreement in the literature 
about the impact, you know, and importance of near term carbon 
emissions from these resources and some of the long term 
indirect effects. For this study we did assume that biomass 
would earn a full credit for each megawatt hour of generation 
consistent with current EIA and EPA accounting practices. But 
the legislation does leave to the Secretary of Energy a 
determination about the ultimate crediting of biomass.
    We did do a little bit of sensitivity analysis. What if it 
did not get a full credit? What if it got a half credit? What 
if it got zero credit? That suggested, again, a shift toward 
natural gas and other renewable resources.
    So in conclusion, while we don't take policy positions, 
EIA's data analysis and projections are certainly meant to 
assist you and other policymakers in their energy 
deliberations. We've often responded to requests from this 
committee for data and special analyses. I want to assure you 
that we stand ready to do over the coming weeks and months.
    As always, I'd be happy to answer any questions you might 
have. Thank you very much.
    [The prepared statement of Mr. Gruenspecht follows:]

  Statement of Howard Gruenspecht, Acting Administrator, U.S. Energy 
            Information Administration, Department of Energy
    Mr. Chairman and Members of the Committee, I appreciate the 
opportunity to appear before you today to discuss recent analysis of 
the proposed Clean Energy Standard Act of 2012 (CESA) by the U.S. 
Energy Information Administration (EIA).
    EIA is the statistical and analytical agency within the U.S. 
Department of Energy. It collects, analyzes, and disseminates 
independent and impartial energy information to promote sound 
policymaking, efficient markets, and public understanding regarding 
energy and its interaction with the economy and the environment. EIA is 
the Nation's premier source of energy information and, by law, its 
data, analyses, and forecasts are independent of approval by any other 
officer or employee of the United States Government. Therefore, our 
views should not be construed as representing those of the Department 
of Energy or other federal agencies.
Projected Impacts of the CESA
    At the request of Chairman Bingaman, EIA analyzed the potential 
impact of the proposed CESA legislation on the development of future 
electricity markets and projected carbon dioxide (CO2) 
emissions from electricity generation. Our report, issued earlier this 
month, is provided as an attachment to this testimony. The CESA 
analysis scenario is referred to in the report as the BCES12 case, to 
distinguish these results from those we reported on in November of 2011 
regarding a closely-related set of proposals. Please note, however, 
that the details of CESA vary significantly from the details of the 
clean energy standard (CES) policies that EIA has previously reported 
on, including the treatment of small utilities, credit banking, 
excluded generation, and alternative compliance payments. This report 
is based on EIA's Annual Energy Outlook 2012 Early Release Reference 
case.
    As might be expected from the underlying structure of the proposal, 
generation fueled by nuclear energy, natural gas, and non-hydro 
renewable sources all increase, as shown in Figure 1 of the attached 
report. This is a direct result of the ability of nuclear and renewable 
generation to earn credits toward meeting the target, and the partial 
crediting of natural gas generation toward meeting the target. In 
contrast, most coal generation is not able to earn credits, so its use 
declines. Although the CESA proposal has specific language allocating 
credits for both combined heat and power (CHP) and carbon capture and 
sequestration (CCS) technologies, neither plays a significant role in 
compliance. CHP generation does increase moderately, but growth is 
limited by a number of factors, including the limited period in which 
CHP facilities can earn their full, net value for each qualifying 
credit, as well as the small size of the CHP market relative to the 
bulk electricity supply market.\1\ CCS technologies are projected to 
remain less competitive than other qualifying sources.
---------------------------------------------------------------------------
    \1\ CESA also includes a provision that provides additional CES 
credits to CHP facilities for displaced heat load under procedures to 
be established by the Secretary at a later date. That provision was not 
modeled.
---------------------------------------------------------------------------
    The approach to awarding credits to generation in the proposal is 
directly tied to the carbon intensity of each technology, or the tons 
of carbon emitted per kilowatthour generated. As a result, projected 
CO2 emissions in the electric power sector in 2035 are 44 
percent below the projected Reference case level and 44 percent below 
their level as of 2005, as shown in Figure 3 of the attached report. 
Although impacts of the proposal are largely felt within the electric 
power sector, there are opportunities for certain combined heat and 
power projects in other sectors to contribute to overall CO2 
emissions reductions. Projected energy-related emissions for all 
sectors in 2035 are about 18 percent lower than in the Reference case. 
Nearly all of these overall reductions occur in the electric power 
sector.
    The CESA proposal allows affected electricity retailers to bank any 
excess credits earned in a given year, and use them toward compliance 
indefinitely into the future. This banking option encourages early 
compliance efforts and provides for relatively stable growth in the 
credit price. In addition, affected companies may pay an ``alternative 
compliance payment'' (ACP) at any time in lieu of procuring qualifying 
generation. However, use of the ACP is projected to be limited, absent 
constraints on the rapid expansion of nuclear power. The projected 
credit price starts at around $20 per megawatt-hour (MWh) in 2015, 
rising to almost $80 per MWh by 2035 (both in real 2010 dollars).
    Impacts on electricity prices over the next decade are minimal, but 
price impacts then rise, as shown in Figure 4 of the attached report. 
Projected national average electricity prices start to rise after 2020. 
National average electricity prices are less than 5 percent above those 
in the AEO 2012 Early Release Reference case through 2025, but by 2035 
they are 18 percent above the Reference case level. Impacts on natural 
gas prices are felt the most in the early years, and are gradually 
ameliorated over time. Increasing the dispatch of existing natural gas 
plants provides a quick, low-cost route for early compliance efforts, 
but the value of natural gas as a compliance option is significantly 
reduced as the clean energy target share starts to exceed the credit 
value for this resource. That is, a resource that can only earn 50 
percent of a credit is less valuable at achieving an 80 percent target 
than a resource earning more than 80 percent of a credit.
Variability of Regional Impacts
    Impacts on electricity prices are not the same everywhere in the 
country, as the stock of existing clean energy capacity and 
opportunities for additions to clean energy capacity vary across states 
and regions. In addition, even within a given state or region, 
electricity price impacts may vary substantially between customers 
served by covered and exempt retailers. ``Small'' electricity 
retailers, as defined in the proposal, are exempt from requirements to 
purchase credits, and thus do not have to recover direct compliance 
costs in their rates. Covered retailers, however, may have to pass-on 
these direct compliance costs.
    Full analysis of the impacts of the small retailer exemption is 
beyond the resolution of this analysis. However, we were able to assess 
the general price impact contours, which vary depending on the State-
level regulatory structure in place, regulator discretion, the clean 
energy target level, and the relative share of the load that is served 
by covered versus exempt retail utilities. In addition, net compliance 
costs are affected by whether or not a given retail utility, exempt or 
covered, owns qualifying resources and has excess credits to sell into 
the market. EIA's results suggest that there is a potential for a large 
divergence in prices paid by customers of covered and exempt sellers as 
the target increases. By 2030, CES-induced compliance costs could 
result in electricity price levels that are about 3 percent to 30 
percent higher for covered retailers than for exempt retailers in the 
same region.
Other Uncertainties in the Analysis
    As with all projections, there is considerable uncertainty about 
how market conditions and technology cost and performance will evolve 
over time. This analysis only looked at the potential impacts of a CES 
under one set of assumptions. While we are relatively confident, based 
on this and previous EIA analyses, that a CES will lead to increased 
reliance on generation from natural gas, nuclear, renewables and, 
potentially, fossil plants with CCS, the exact mix of technologies 
chosen could vary significantly under alternative assumptions.
    While projecting the future of national energy markets is 
inherently uncertain, two factors stand out as key uncertainties in 
this analysis. First, there is uncertainty about the ability of the 
nuclear industry to ramp up quickly even with the incentives that will 
be provided by CESA. While new nuclear capacity is once again under 
construction in the United States, a very rapid ramp-up could prove to 
be challenging, especially if problems affecting the operation of the 
existing fleet of nuclear plants or cost overruns and/or schedule 
delays in the building of new plants occur and result in reduced 
generating company or public support for nuclear power. Sensitivity 
analyses of a scenario with no additional nuclear plants built beyond 
the Reference case capacity indicate that a mix of natural gas, wind, 
and solar generation would largely compensate for the lack of 
qualifying nuclear generation. Such a scenario would also result in use 
of the ACP for compliance in lieu of qualifying generation.
    Second, the proposal does not specify a credit value for generation 
from biomass resources. While many analysts take the view that the use 
of sustainable biomass fuels should result in net zero carbon emissions 
over a long period of time, there is disagreement in the literature 
about the impact and importance of near-term carbon emissions from 
these resources and the possibility that sustainable biomass fuels 
could have adverse indirect effects even over an extended time period. 
CESA requires the Secretary of Energy to determine appropriate credit 
values for biomass feedstocks based on a proposed study from the 
National Academy of Sciences (NAS). Absent a ruling from the Secretary 
or the results of the NAS study, EIA assumed that biomass would earn a 
full CES credit for each MWh of generation. This assumption is 
consistent with prior EIA reports and analysis that assumes biomass to 
be a net-zero carbon resource. Sensitivity analysis of scenarios with a 
half or zero credit for biomass indicate that biomass-based compliance 
would shift to natural gas and other renewable resources, with little 
impact on credit prices.
Conclusion
    As I noted at the outset, while EIA does not take policy positions, 
its data, analyses, and projections are meant to assist policymakers in 
their energy deliberations. EIA has often responded to requests from 
this Committee and others for data and special analyses, and I want to 
assure you that we stand ready to do so over the coming weeks and 
months.
    This concludes my testimony, Mr. Chairman and Members of the 
Committee. I would be happy to answer any questions you may have.

    The Chairman. Thank you both very much.
    Let me start with 5 minutes of questions.
    First, let me ask Mr. Sandalow: The EIA analysis that Dr. 
Gruenspecht just summarized indicates that there would be, 
under this proposal, an increase of a few percent in 
electricity rates nationally by 2025 and the increase would be 
up to 18 percent by 2035. I guess one obvious question is would 
that increase in electricity rates that he's talking about 
there be expected to translate into increased bills to 
consumers directly or is there any way to calculate what the 
actual impact would be on consumers?
    Mr. Sandalow. It's a very important point, Chairman 
Bingaman. So thank you for your question.
    The answer is no. Under the EIA analysis, as I understand 
it, in 2035 household energy bills would actually be lower than 
they are today by about $5 per household. That's the result of 
the combination of energy efficiency policies in the Clean 
Energy Standard working together.
    We can achieve significant savings in the future, as we 
have in the past, for Americans by promoting these 
complementary energy efficiency policies.
    The Chairman. Dr. Gruenspecht, is that an accurate 
description of what your analysis shows or does your analysis 
lead to that conclusion?
    Mr. Gruenspecht. I would say it's accurate. In our 
reference case we did have a projection of falling residential 
electricity bills relative to the 2010 level. Some of those 
bills have already started to fall a little bit with the 
decline in the natural gas prices and the like.
    So yes, the increases that we talk about.
    First of all the 18 percent is for all consumers and 
residential rates would go up less than that.
    Second of all, there is lower consumption of electricity 
which figures into bills as well.
    Households are getting a little bit smaller which again, 
figures into bills.
    So it's really a combination of factors. But what David 
says is exactly right.
    The Chairman. Let me ask Dr. Gruenspecht, you did a couple 
of different analyses. An early analysis you did showed that 
the result of this proposal would be to encourage more CCS 
deployment, as I understood it. I think the final analysis that 
you've given us shows that there will be very little CCS 
deployed.
    What changed between those 2 analyses, if anything? Was it 
some facts that changed or some change in the policy that we 
were talking about proposing?
    Mr. Gruenspecht. Yes, thank you. I think it's really a 
variety of factors that are going on.
    First of all, in the study we did for you late last year, I 
think we looked at a wide range of different policies. It was 
only in some specific cases that you saw significant amounts of 
CCS. So there were many of the cases we looked at you did not 
see a lot of CCS.
    In this particular legislative proposal you have an 
alternative compliance payment. You have--trying to think of 
the different key factors. There's an alternative compliance 
payment which limits costs to, you know, rate payers. You have 
the small utility or small retailer exemption which, again, 
tends to relax the impact of the program a little bit.
    So part of it is, sort of, the specifics of the policy that 
we're looking at in this analysis. Some of it is also the fact 
that as we move forward with our Annual Energy Outlook 
reference cases.
    For instance we have higher coal prices projected in this 
year's baseline than we had in last year's baseline.
    We have lower natural gas prices projected in this year's 
baseline than in last year's baseline.
    So I would say it's a combination of factors that are 
driving this result. Some related to policy. Some related to 
the underlying, you know, features of the baseline case.
    The Chairman. Thank you very much.
    Senator Murkowski.
    Senator Murkowski. Thank you, Mr. Chairman.
    I want to continue on the questioning of the cost and how 
this all works out because I think this is where the consuming 
public is coming from. If this is going to save me money, let's 
talk about it. If it's not, let's not talk about it.
    Last month the DOE Inspector General released this audit. 
This is directed to you, Secretary Sandalow. The audit was 
designed to look at the efforts to comply with the RES that was 
contained in EPACT 2005.
    As we look at those requirements there's some analogy there 
with the CES that we're considering today. But I think clearly 
less demanding than what we have in Senator Bingaman's bill. 
The EPACT requires the Federal Government purchase only 7 \1/2\ 
percent of its electricity from renewable resources by 2013, 
allowed for 8 years of full compliance.
    By contrast the proposed CES we're looking at now requires 
24 percent by 2015, so essentially 3 years from now. What this 
audit showed is somewhat interesting that in order to meet the 
EPACT requirements the Department of Energy paid some pretty 
exorbitant prices, premiums for the electricity. In one case, 
this is at Oak Ridge National Lab. It's my understanding that 
the cost per megawatt hour was $26.67 per megawatt hour, more 
than 20 times more than what other DOE installations were 
paying.
    So I guess the question is is given what we know, given 
what this audit has demonstrated, with a compliance that is or 
requirements that are less rigorous than is proposed in Senator 
Bingaman's legislation here, shouldn't we expect the utilities 
to pay much higher prices for a requirement that is 3 times 
higher with only 3 years to comply?
    If that's the case, aren't we going to then see those costs 
passed on to the consumer?
    Mr. Sandalow. Thank you for the question, Senator 
Murkowski.
    It's important when that highlights a very fundamental 
aspect of the Clean Energy Standard that we're here to talk 
about today. As you say the requirements at issue in the report 
that you cited is the requirement in the 2005 Energy Policy Act 
that Federal agencies buy 7 and a half percent of their energy 
from renewable sources by 2013. The Department of Energy takes 
that obligation extremely seriously, working, obviously, very 
hard to meet it and in fact met it ahead of schedule.
    That legislation which was signed by President Bush in 2005 
includes a specific requirement to buy renewable energy. The 
Clean Energy Standard before us today imposes a requirement to 
buy energy from any type of clean source, not just renewable 
sources, but also nuclear or efficient natural gas or clean 
coal. So it broadens the opportunities for any regulated entity 
to buy clean power. It's that technology neutral aspect of the 
Clean Energy Standard which is, in the eyes of many observers, 
I think and certainly in ours, it's that aspect that's so 
compelling.
    The Clean Energy Standard is technology neutral. It gives a 
price signal to the market. Then let's the market decide how 
best to meet it.
    Senator Murkowski. Then let me ask the question.
    Because Dr. Gruenspecht, you've indicated that there's a 
couple complicating factors here, the nuclear portion of the 
CES requirement and the fact that you rely so much on nuclear 
as part of this portfolio and a recognition there that that 
might not be achievable. On the coal side that too, may not be 
achievable. You've indicated that you're going to--you 
anticipate a substantial decline.
    So for instance, just on the nuclear alone according to 
your analysis, we're going to need 82 gigawatts of new, nuclear 
capacity would be needed by 2035 and this is compared to just 
the ten gigawatts in the reference case. That's an 82,000 
megawatt differential there.
    So I understand what you're saying, Mr. Secretary. But I 
also appreciate that what we're talking about might not be 
achievable. So it might look good on paper, but how do we get 
there from here?
    I'll throw it out to both of you.
    I'm assuming Dr. Gruenspecht, that with the nuclear you've 
indicated that this could be a complicating factor.
    Mr. Gruenspecht. I mean, and that's why we ran--although 
again, one thing we tried to do is make our report shorter and 
not as encyclopedic as it might have been in the past. But we 
did run this, you know, what we call a sensitivity case without 
nuclear above the reference case. You know, there we got a lot 
more, significantly less nuclear obviously, without, you know, 
72 less gigawatts of new construction.
    But we got a lot more non-hydro renewables coming in backed 
by gas because clearly nuclear is a base load technology and 
the renewables, many of them are intermittent technologies. So, 
you know, we lost something like 580 billion kilowatt hours of 
nuclear generation in 2035 relative to, again, this, you know, 
rapid nuclear broad case. But we gained 300 billion kilowatt 
hours of non hydro renewables, 160 billion kilowatt hours of 
gas and 100 billion kilowatt hours of coal to kind of make it 
up. The costs were a little bit higher, but not much higher.
    So you know, again, we don't take a policy position. But 
the point is yes, this kind of program does raise the cost of 
electricity. Obviously you're taking your existing plants that 
are already paid for and, you know, causing them, in some 
sense, forcing them out of the market to a significant extent.
    That's reality of what this proposal does. That's what it's 
intended to do and replacing it with something else. You know, 
we think that nuclear is the cheapest something else, but not 
by a very large margin.
    So if the nuclear something else doesn't come to fruition 
there are other something elses that come into play to, you 
know, to meet the standard. Now if all of the something elses 
can't come to fruition then you really do have a major problem.
    Mr. Sandalow. If I might just briefly add, Mr. Chairman.
    Senator, you asked how do we make this happen? How do we 
bring these clean energy technologies online? I say let's work 
together to make it happen.
    I know that the President believes in the innovative spirit 
of the American people and American know how, ingenuity, 
manufacturing capabilities. Working together there is no 
challenge that we can't meet. These are exactly the type of 
challenges we've met in the past. We can do this.
    Senator Murkowski. My time is expired.
    But I will just point out that since 1977 we've only added 
5,000 megawatts of nuclear capacity in this country. If we're 
looking to CCS, you've already indicated that we're not going 
to be seeing that happen. It would appear to me that it's all 
on the back of natural gas cause we're not moving the solar and 
the wind dial up that rapidly.
    My time is well over, Mr. Chairman. I'm sorry.
    The Chairman. Not a problem.
    Senator Udall.
    Senator Udall. Thank you, Mr. Chairman.
    Thank you to the Ranking Member and yourself for holding 
this important hearing.
    Gentlemen, good morning.
    I think Senator Murkowski is asking some very important 
questions. I would add that I believe it's important we I look 
at the short term costs of transitioning to a clean energy 
economy, bt also the medium and the long term costs if we 
don't.
    There are, the direct costs that we're talking about here 
today. but there are indirect costs. There are also 
externalities that you can link to our national security 
efforts, whether it's protecting oil supply lines all over the 
world or the effect of carbon pollution on our climate.
    With that let me just say that I think this bill would be a 
step in the right direction. I also want to emphasize that I 
still support, as I know many of my colleagues do, a renewable 
electricity standard nationally. We've had great success in the 
State of Colorado with the renewable electricity standard.
    I would argue in fact we felt less the effect of this great 
recession because of our energy sector's capacity to innovate, 
create jobs and provide power that's less and less expensive. 
We all know for example, wind now competes directly with coal. 
Some would argue it's actually cheaper than coal.
    I hope we can take a close look at this legislation because 
it would provide market signals and certainty to businesses, 
innovators and consumers directed at new and clean energy 
technologies. I don't want to be too much of a booster for my 
home State. But I really do believe Colorado presents a great 
example of what could be if we, nationally, embraced something 
like a Clean Energy Standard.
    Let me turn to the 2 of you and ask you how you would 
foresee a national CES helping American businesses compete and 
lead in the clean energy sector. Why do we need a CES? Maybe 
I'll start with you, Mr. Secretary and then turn to the good 
Doctor.
    Mr. Sandalow. Thank you, Senator Udall.
    The point you make is really fundamental here that a Clean 
Energy Standard provides the long term signals that businesses 
tell us they need to bring capital off the sidelines. As I go 
talk to the business community I know one of the comments that 
I hear more often than any other is if government would just 
give us the clear signals over the long term. That's what we 
need.
    A Clean Energy Standard, one that sets a clear pathway for 
several decades, would bring not just capital, but American 
ingenuity, American know how to the table. It would allow us to 
succeed in the global race for clean energy.
    I tell you I've traveled a lot in the last couple of years 
talking to other countries about what they're doing in clean 
energy. The race is on. There's a lot of investment going 
around the world on this. I think we need and the President and 
Secretary, too believe, we need a long term framework. That's 
what the Clean Energy Standard provides.
    Senator Udall. Could you make the case that Europe, China, 
India, all in effect have their own Clean Energy Standards?
    Mr. Sandalow. Different countries have different policies, 
Senator. There's a range of different approaches around the 
world. But, you know, in China, in Germany, in other countries, 
the investment in this area is considerable. Government is 
partnering with businesses in those countries making sure that 
their businesses succeed in this global race.
    It's a challenge to us. It's one I know we can meet. A tool 
like the Clean Energy Standard will let us do it.
    Senator Udall. Doctor.
    Mr. Gruenspecht. Yes, I don't have that much to add on 
that. I would say one thing. You know, in the United States the 
rate of growth of electricity demand, you know, has come down a 
great deal. So like, when I was a child, you know, the demand 
was growing 8, 9 percent a year which meant that load was 
doubling every 8 or 9 years.
    So you needed a lot of new generation of some type to meet 
growing demand. You know, in part because of our maturity, in 
part because of some of the policies that have been enacted, 
you know, we are not looking to very rapid demand growth in the 
United States. So in the United States a lot of these 
technologies, if they're going to be used here, will have to--
will be replacing existing technology.
    In China, in India, that's much more like the United States 
was when I was a kid. You know, electricity demand growing ten, 
twelve percent a year. So they need new capacity of one kind or 
another to meet growing demand.
    I think in general some of these, you know, if you need new 
something then I think the clean energy technologies, you know, 
have much more potential to be competitive with old 
technologies than they have with the situation where the new 
clean energy technologies are competing with old technologies 
that are already in place. You know, whose capital cost has 
already been incurred.
    So again, the issues of the externalities raise, I 
certainly understand that issue. But on a straight, you know, 
sort of economic cost of electricity basis. I'm not saying that 
those policy considerations should be ignored. That's up to, 
you know, my friend, David and you, not me.
    But I can tell you that the opportunity for clean energy is 
inherently going to be much greater in an environment where 
there's a tremendous growth in load than in an environment like 
we have where there's very modest growth in the load.
    Senator Udall. I note the clock has given me more time than 
I think was my due. So let me end with a comment.
    I want to thank the Chairman for including a study on 
biomass. I know my colleague from New Hampshire sitting to my 
right, Senator Shaheen, is very interested in biomass. For the 
record I would welcome your comments on how we might include 
biomass in a Clean Energy Standard.
    Then also we have considered how you measure efficiency 
gains which speaks, Doctor, to what you were just talking about 
as well and if it's possible to put efficiency into a Clean 
Energy Standard or are there other mechanisms to drive signals 
into the market.
    But again, thank you for your thoughts on this and Mr. 
Chairman, thank you for holding this hearing.
    The Chairman. Thank you very much.
    Senator Barrasso.
    Senator Barrasso. Thank you very much, Mr. Chairman.
    I noted in the Chairman's opening remarks he commented that 
one of the goals here is to keep America competitive in the 
global clean energy economy. Those of us from the Rocky 
Mountain West have concerns. We want to just keep America 
competitive in the world. We think that's not happening under 
this Administration in many of the regulations and rules and 
burdensome and expensive and time consuming red tape that is 
being applied by this Administration to the real job creators 
in this country.
    Now, Mr. Secretary, when I take a look at this legislation, 
the purpose of which is to reduce carbon emissions from 
electric utilities, but the Administration has already issued 
regulations designed to reduce carbon emissions from utilities.
    So the question is if Congress adopts this legislation 
would the Administration then turn around and repeal the 
regulations that were designed to reduce carbon emissions from 
utilities?
    Mr. Sandalow. Senator, thank you for the question.
    I think you're referring to Clean Air Act regulations. The 
Clean Air Act has a 40 year history of protecting public health 
in this country, of keeping the air clean, improving the 
quality of life and I would add of increasing GDP in this 
country.
    Senator Barrasso. The question, I mean the question gets 
down to the Administration repeatedly in 2009, 2010 and you're 
part of the Administration, said that Congress had to pass a 
cap and trade bill so that the EPA wouldn't have to issue 
regulations to reduce carbon emissions. To pass this where 
we're going to do that?
    So if I'm looking for one question today from this 
Administration, this is the question. You know, is the 
Administration willing to repeal these regulations instead of 
just wrapping the country up in additional red tape by this 
piece of legislation?
    Mr. Sandalow. Senator, the Clean Air Act has delivered 
enormous benefits to the American people over 40 years. We 
are----
    Senator Barrasso. So the answer yes or no?
    Mr. Sandalow. We're not looking to amend the Clean Air Act.
    Senator Barrasso. So your goal is if you would put this on 
top of all the excessive regulations and we can use whether the 
phrase excessive is the right or wrong one. I believe it is the 
right one. So this would be on top, piled on top, of what the 
job creators are facing today?
    Thank you.
    Scientific American ran a study Monday entitled, ``Asian 
Demand Forecast Boom for Coal.'' You keep talking about and the 
Administration talks about what's going on around the world and 
China leading the way. They're going to widen the gap with the 
United States as the world's largest coal producing country by 
the end of the decade. By 2020 China will produce 4 and a half 
billion metric tons of coal annually, it says, reflecting a 3.5 
percent compound annual growth rate over the next 8 years.
    It goes on to say that Asian forecasts contrast sharply to 
projections for the United States which is expected to see 
sagging demand as power plants undergo fuel switching. The 
article explains that China's coal will be used to meet demand 
in its electric power and steel making sectors. So if Congress 
adopts legislation which increases electricity costs by as much 
as 30 percent how are we going to be able to compete 
economically with China?
    Mr. Sandalow. That wouldn't be legislation on the Clean 
Energy Standard, Senator. This is legislation that we can enact 
while keeping prices low while ensuring equity among regions 
and while promoting technological innovation.
    I'm not familiar with the article that you just cited. But 
it may be that in part the numbers that you're repeating have 
something to do with what Dr. Gruenspecht was talking about, 
the growth in the Chinese economy.
    Senator Barrasso. The additional expense of energy in the 
United States under additional rules and regulations.
    Mr. Secretary, EPA's endangerment findings says 6 
greenhouse gases endanger both the public health and the public 
welfare of current and future generations. Now I assume you 
agree with that statement. Going through your book and other 
things.
    I'd like to share with you what are the health impacts of 
unemployment cause we're considering legislation that will 
effectively shut down American coal plants, coal mines, 
increase electricity rates an average of 18 percent, as much as 
30 percent. With higher electricity rates businesses will have 
less money to invest and to create jobs. So on Sunday the New 
York Times ran an Op Ed. It is called the ``Human Disaster of 
Unemployment.''
    The ``Human Disaster of Unemployment'' and we have long 
term, chronic unemployment in this country now that's impacting 
families all across the country. The article says that the 
unemployment, that unemployment, chronic unemployment causes a 
50 to 100 percent increase in the death rate for older male 
workers in the years following loss of a job.
    The reasons for this include increase in suicide rate by 
actually by 4 additional suicides a day in the United States as 
a result of this.
    Twenty-five percent increase, higher risk of dying from 
cancer.
    It also explains that unemployment leads to a higher 
probability of divorce. Eighteen percent increase when a 
husband loses his job. A 13 percent increase when a wife loses 
her job.
    I mean, it is an article that I would recommend that the 
White House takes seriously into consideration and have 
thoughts about the impact of the regulations as well as 
legislation when they lose jobs in the effort to, I think as 
you've said, lead the world in clean energy.
    So thank you, Mr. Chairman. My time is expired.
    The Chairman. Did either of the witnesses want to respond? 
If not, we'll go to the next question.
    Mr. Sandalow. Thank you, Mr. Chairman.
    Let me just say that, Senator Barrasso, I grew up in the 
great State of Michigan. That's a State that's been plagued by 
unemployment over a number of decades. So the human toll of 
unemployment is terrible, as you say.
    Let's make sure that we are bringing capital off the 
sidelines for investing in our energy economy.
    Let's position the United States to win the energy race of 
the future.
    That's exactly what a Clean Energy Standard can do.
    Thank you.
    The Chairman. Senator Wyden.
    Senator Wyden. Thank you, Mr. Chairman.
    I want to thank both our witnesses who've come this 
morning.
    Gentlemen, I support the basic proposition of Senator 
Bingaman's legislation. I think it's going to give new momentum 
to the effort to promote clean energy in this country. I'm a 
co-sponsor of the bill.
    At the same time I think my colleagues have raised some 
important issues on the proposition of does all the wisdom come 
from Washington, DC through various edicts? I share the concern 
with respect to energy pricing.
    Secretary Sandalow, you, to your credit, make an important 
point with respect to regional differences. It's on page 5 of 
your testimony which is why I want to ask you about another 
idea. Since I haven't talked to the President about it or the 
Secretary, I just want you to use it for purposes this morning 
of something that you all would think about.
    If you want to make some preliminary remarks, you can. Then 
perhaps get back to me.
    My sense is that there would be an opportunity, for 
example, to create a State waiver kind of process. So that you 
could say that if a State hit the target they would have 
freedom, in effect, at the State level to go out and pursue 
approaches that would make sense for them. If they, for 
example, could offset utility emissions with reductions and 
emissions from say, steel mills or emissions from oil 
refineries, they would be in a position to do it.
    In other words, we know that we have the assurance with 
respect to making national progress with respect to clean 
energy. But we'd also, to some extent, liberate the States and 
address this question that you have on page 5 with respect to 
the regional differences.
    So, as I said, I haven't talked about it with the 
Administration. You're getting this cold. I did speak to the 
State utility regulators recently. The reaction was pretty 
positive.
    My sense is we're moving in this direction, with your 
comments. Chairman Bingaman makes an important contribution 
with respect to trying to deal with small utilities. I think 
everybody is trying to find a way to promote clean energy, 
nationally. At the same time address some of these flexibility 
issues.
    Do you have any, kind of, preliminary thoughts recognizing 
you're getting it cold? There's no Administration, you know, 
position on it. I think for all practical purposes the 
Administration is hearing about it for the, you know, first 
time.
    But I can tell you in my State where we, as you know, 
really have green energy in our chromosomes. We would like to 
find ways to have this kind of flexibility. So any preliminary 
thoughts on this?
    Mr. Sandalow. Thank you, Senator.
    I'm hearing about it for the first time. I've learned as a 
job preservation technique never to comment right off the bat 
on something like this.
    Senator Wyden. Always wise.
    Mr. Sandalow. But I thank you very much for the suggestion. 
It's one we'll look at very closely.
    But it raises the broader issue of regional fairness and 
ensuring that all regions participate in this. As we've been 
looking at this Clean Energy Standard one of the conclusions 
that leaps out for me is how clean energy resources are 
distributed across our country, that every region of the 
country has different ways that they can participate in a Clean 
Energy Standard like this.
    So, you know, obviously in your region there's hydro power. 
There's biomass. There's more.
    It's just striking how every region of the country can 
participate in different ways in this. So your proposal is one 
that we'll look at very closely as we move forward.
    Senator Wyden. Understand this is not something I've even 
crystallized in terms of something I would even offer as an 
amendment, you know, tomorrow. What I know is is particularly 
in the West and a lot of parts of the country that are a long 
way from, you know, Washington, DC. I think this is reflected 
in some of my colleagues, you know, questions this morning.
    You know, the concern about pricing. People think that 
they're getting, you know, hit over the head with a 2 by 4 on 
energy prices today is a hugely important issue. You've 
acknowledged that. I mean, in effect, economic growth and 
affordable energy are 2 sides of the same coin.
    It would just seem to me that if we can find a way to 
advance a national agenda for clean energy. Chairman Bingaman 
has put a lot of work into this and a lot of good work. At the 
same time find a way to acknowledge these, you know, regional, 
you know, differences.
    People aren't going to be given a free ride to go do 
whatever they want. They would have to, in effect, show that 
they're hitting these targets. But we recognize that perhaps 
what works in Coos Bay, Oregon and a small utility wouldn't 
necessarily be the same sort of thing you'd do in Miami.
    So I look forward to continuing this discussion. I 
appreciate the good work and Chairman Bingaman for all the 
leadership you've put into this issue. I want you to know I'm 
going to continue working with you on this.
    The Chairman. Thank you very much.
    Senator Corker.
    Senator Corker. Mr. Chairman, good to be back.
    The Chairman. We're glad to have you back.
    Senator Corker. You continue to nibble at this. I 
appreciate--I respect your tenacity. I appreciate the testimony 
of the witnesses.
    Dr. Gruenspecht, I noticed you didn't think there was much 
uptake in the future on carbon capture and sequestration. I've 
always thought it was a pretty hokey idea. It was kind of one 
of those things when donkeys fly we'll have pipes running 
everywhere, piping excess carbon. It seems to me that you share 
the same thoughts.
    Mr. Gruenspecht. I don't think I shared that exact same 
thought.
    [Laughter.]
    Mr. Gruenspecht. Maybe we got to the same point by 
different means or something.
    Senator Corker. So the point is that CCS, I know we've had 
a lot of evolutions here. This is really a pipe dream unless 
you have a coal facility right beside an oil well, which 
they're usually not located next to each other. It's probably 
not that useful.
    So it looks to me like a more transparent way of talking 
about coal when we start looking at Clean Energy Standards 
would be to say that by a certain date coal is just not going 
to be a part of our energy mix in this country if you look at 
these formulas. We might as well say that to the places in 
Appalachia and Wyoming and other parts of this country, you 
need to be planning on a very different future.
    Would you respond?
    Mr. Gruenspecht. Me?
    Senator Corker. Yes.
    Mr. Gruenspecht. You know, I think the modeling results, 
which again, you know, as the first Administrator of the EIA 
said something like there are no facts about the future which 
is certainly true. But in our modeling results the use of coal, 
you know, is reduced pretty significantly.
    Senator Corker. Yes.
    Mr. Gruenspecht. I mean and that's--I don't think anyone 
looking at the legislation not running a model would have 
expected anything else.
    Senator Corker. No, I agree with that.
    So let me ask you this question. The energy policy is 
actually pretty interesting to me. I look at our country and 
then I look at the way sort of companies operate and companies 
look at the strengths that they have. They try to build upon 
those.
    We continually have this phobia about China because for 
some reason they continue to focus on their strengths and the 
weaknesses that they have they try to overcome by creating 
alliances in other parts of the world. To build a little bit on 
Senator Wyden's comments I mean, we have tremendous strengths 
in this Nation that allow us to be competitive over the long 
haul and instead of just focusing on one industry which would 
be clean energy as is discussed today.
    Do you think when we look at these kind of policies that we 
are taking a proper inventory of our country's strengths as it 
relates to energy and deploying them fully to make sure that 
everything in America is competitive or do you think when we 
look at policies like this we end up really moving away from 
the great strengths this Nation has as it relates to its 
resources?
    Yes, sir.
    Mr. Gruenspecht. Me, again?
    Senator Corker. Yes and that's all you this time.
    Mr. Gruenspecht. How unfortunate for me.
    [Laughter.]
    Mr. Gruenspecht. Yes, you know, those are very broad 
questions that go beyond, in some sense, what my role is, you 
know, at the--although I am an economist. I do have views. 
But----
    Senator Corker. You're welcome to share your views.
    Mr. Gruenspecht. Yes, I know I'm welcome to, but I'm an 
older--it was one of the, I think, Senator Barrasso said 
something about older male workers and unemployment. So I want 
to be very careful.
    [Laughter.]
    Senator Corker. I think in essence the witness agrees with 
me. Let me, since he does.
    [Laughter.]
    Mr. Gruenspecht. I did not. I did not say that. What a 
minute. Come on.
    [Laughter.]
    Senator Corker. I think he is saying that.
    So let me just move to my final point. Look, you know, we 
really it seems like here we want to be like some other place. 
We talk about Germany and other places.
    Yet, it seems to me that as a Nation for us to be 
competitive what we would do is focus on the resources and 
strengths that we have and fully deploy those because we have 
advantages over other Nations. Some other Nations, maybe if 
they're by the North Sea or something like that, they have 
advantages over us. It just seems that Washington is constantly 
trying to move away from the great strengths this Nation has 
just in order to be like somebody else in some European place. 
It just doesn't seem a natural or very wise thing for us to do.
    I would ask that if we're going to do studies like this 
where we say the energy prices are going to be up 18 percent 
but we create this formula where that's actually going to save 
taxpayers money in energy which is pretty interesting to me. 
Because we're going to invest in energy efficiency that we 
might look also that if we invested in energy efficiency but 
yet we use the abundant energy resources we had today and 
didn't close existing facilities where energy prices would be 
for Americans.
    It seems to me that that would be a fair thing to look at. 
So let's invest in efficiencies. But let's also use these 
tremendous resources that we have in the Nation. My guess is 
the formula would come out in a very positive way for 
Americans, very different than what I think this is ultimately 
going to lead to in 2035.
    But this has been great. I thank you for being here. I love 
my seat down here.
    [Laughter.]
    The Chairman. Senator Franken.
    Senator Franken. First of all I'd like to stipulate that 
both the witnesses agree with me.
    [Laughter.]
    Senator Franken. Thank you.
    [Laughter.]
    Senator Franken. I think our strength in this country. I 
think one of the strengths that we sometimes ignore is our 
innovation and our spirit of entrepreneurship. There are 
countless innovative ideas and approaches to clean energy 
technologies that are brewing around the country and many of 
them are in Minnesota.
    If American entrepreneurs and inventors are to lead the 
world in this area we have to, as we have in the past in so 
many other technologies, we must bring these ideas from the 
laboratory to the marketplace. This is one reason why the Clean 
Energy Standard, I think, is an important piece of legislation. 
It sends a powerful signal through our country and to use our 
strength of innovation. Gives clean energy entrepreneurs and 
developers long term business certainty.
    Mr. Sandalow, and I know you'll agree with me.
    [Laughter.]
    Senator Franken. Can you describe what some of our 
competitors are doing in this area? Can you give us your 
recommendations on how we can stay competitive as a Nation and 
build on our strengths?
    Mr. Sandalow. I agree with you, Senator.
    Senator Franken. Thank you. That's enough.
    [Laughter.]
    Senator Franken. Please answer the question.
    Mr. Sandalow. Senator, let me start by quoting my boss, 
Secretary Chu, who says, that we need to ensure that our 
technologies are invented in America, made in America and sold 
around the world. That's a goal here. That's what a Clean 
Energy Standard can help us do.
    I visited China a number of times in my current position. 
On one of those trips I went--I was in Shanghai. I went to a 
2.2 gigawatt coal plant that was using ultra super critical 
turbines and had pilot carbon capture onsite.
    We went from there to one of the largest, if not the 
largest, solar manufacturing facilities in the world and from 
there to a state-of-the-art automotive engineering facility. In 
China they are investing heavily in energy technologies and in 
the clean energy future.
    The same is true in Europe where the deployment and the 
innovation actually is quite significant.
    The United States, for more than 2 centuries, has been a 
leader in technologies. It is--this is a race that we can win. 
It's a race that we will win with policies like the Clean 
Energy Standard.
    Senator Franken. OK, thank you.
    I'm a strong supporter of a Clean Energy Standard. I do 
believe, however, it needs to do a better job of incorporating 
renewables. You know, about 90 percent of our electricity today 
is used generating coal, natural gas and nuclear energy and 
obviously natural gas, nuclear energy and coal with the donkey 
flying, carbon sequestration could be part of a Clean Energy 
Standard.
    But I think it's clear that renewable energy needs to be a 
bigger part of this mix. In Minnesota we were the--we had the 
most aggressive renewable energy standard at a certain point to 
do 25 percent renewable energy in our utilities by 2025. We're 
exceeding it. We're ahead of it.
    I believe that we should carve out a renewable energy 
standard within the Clean Energy Standard. I was wondering what 
your feelings are about this. This could be with either Dr. 
Gruenspecht or with Mr. Sandalow.
    Mr. Gruenspecht. Senator, there's no question there's been 
extraordinary progress in renewable energy technologies over 
the course of the past several years.
    We've seen wind power prices come down in the past decade 
or 2 to levels that it's now competitive with other, you know, 
generation sources.
    In many parts of the country solar PV prices have dropped 
dramatically in the course of just the past couple of years. 
State RPS policies or the type that you cite have been an 
important factor and very successful in a number of instances.
    This proposal for a Clean Energy Standard is designed to be 
technology neutral to give utilities and other entities the 
choice between different types of clean energy technologies in 
meeting their obligations. That's one of the President's 
principles under the Clean Energy Standard is a technology 
neutral choice between different energy technologies.
    Senator Franken. I would suggest that a renewable energy 
standard could be carved out in this and be a piece of it. That 
that would be something that we, as a committee, should 
consider in ways that Congress should consider.
    Thank you, gentlemen for agreeing with everything I said.
    [Laughter.]
    The Chairman. Senator Risch.
    Senator Risch. Thank you, Mr. Chairman. I appreciate that. 
Appreciate you holding the hearing.
    I have to say I'm shocked this morning to hear what the 
recommendations from my seat mate, Senator Barrasso. He's never 
before recommended that I read the New York Times. So I don't 
know, maybe he's becoming more enlightened.
    [Laughter.]
    Senator Risch. Dr. Gruenspecht, since you're in charge of 
the Energy Information Administration you talked about these 
models. Have you run a model on this particular piece of 
legislation? How much more and I gather you've already told us 
it's going to cost the American consumer more.
    How much more in direct costs and indirect costs is this 
going to cost the American consumer?
    Mr. Gruenspecht. Thank you for the question.
    I don't think I have that on the top of my head. To be 
honest with you, I think that, you know, electricity bills will 
be higher.
    Senator Risch. Not only the direct costs, but also the 
indirect costs that American consumers pay in every service and 
every commodity that they buy. It's got to be higher. Am I 
right on that?
    Mr. Gruenspecht. Again, I think electricity in all sectors 
is--the 18 percent is average across all users. Electricity is 
about, the last time I looked, is about a third, a third, a 
third, industrial, residential and commercial.
    Senator Risch. But the number you gave was without this 
piece of legislation.
    Mr. Gruenspecht. Actually what I--the 18 percent is this 
piece of legislation in 2035. So there's very little effect on 
prices over the next decade. Then in the middle of the next 
decade you start to see a divergence between the baseline 
without this legislation and the case with this legislation.
    Senator Risch. Mr. Sandalow, let me turn to you for a 
minute. First of all let me say that I share with you the 
absolute optimism that the American people can do this.
    Let me tell you where we part ways. I have absolute 
confidence in the American people. I have zero confidence in 
the government.
    This Administration, a Republican Administration, or any 
Administration to make these innovations work to encourage the 
American people to be innovators. You noted, correctly, that 
for 2 centuries America has led in technology innovation. You 
also observed that we're falling behind.
    I would point out and I would urge that the reason we're 
falling behind is just what Senator Barrasso so eloquently 
pointed out. That is the heavy, heavy, hand of the government 
and the shackles of government regulation that hold innovators 
back, who want to produce, who want to create, who want to 
increase our quality of life.
    This government and if you look around you, almost every 
enterprise of this government, doesn't meet the standards, 
doesn't meet the dream of the American people. The more the 
government gets involved and they get involved every day more 
and more. It seems like the further backward we go.
    If you don't believe that just look at these statistics 
about what the American people think of its government.
    Thank you very much, Mr. Chairman.
    Mr. Sandalow. Mr.?
    The Chairman. Did you want any response from that?
    Senator Risch. I did not.
    The Chairman. You do not want a response?
    Alright.
    [Laughter.]
    The Chairman. I guess that's a fair question. We will 
assume that they disagree with whatever you said.
    [Laughter.]
    The Chairman. Next----
    Senator Risch. Mr. Chairman, I think that's a fair 
assumption.
    [Laughter.]
    The Chairman. Our next witness--our next questioner is 
Senator Coons.
    Senator Coons. Thank you, Chairman Bingaman.
    Thank you for convening this hearing and thank you for your 
leadership and for the way you've conducted this committee. To 
you and to Senator Murkowski for continuing to work forward on 
these important issues.
    Senator Risch and I have a slightly different view of the, 
I think you characterized it as shackles and heavy handedness 
of the Federal Government. I can see how some can disagree over 
the impact of regulations. But I'll simply point to over 2 
centuries of American experience where there are many different 
examples where Federal investment helped drive forward the 
adoption of new technologies, the creation of new markets and 
our leading global position. From intellectual property 
protection to tax trade, immigration, research and development, 
Federal investment, Federal supports, Federal standards have 
played a critical role.
    So, let me get to the question if I can at hand, sir.
    Looking for something that might be helpful. There are, of 
course, critics, both here and nationally who have some real 
issues with a Clean Energy Standard calling it another 
unnecessary Federal Government intrusion and a drag on the 
economy. CAFE Standards for automobiles, fuel efficiency 
standards for car and truck fleets were debated vigorously for 
more than 20 years before there was any real progress to 
increase minimum vehicle standards starting with model year 
2011.
    Phase 2 requirements are now being developed for the next 
round, 2017-2025. I think there have been clear benefits for 
innovation, jobs, economic transformation because of a long 
term market signal.
    Is it valuable to look at CAFE Standards as another place 
where a clear market signal made a fundamental difference?
    I see an American auto economy today where employment has 
stabilized.
    Where they've had record years.
    Where they're selling models that are competitive, 
domestically and globally.
    I'd be interested in both of your comments, but 
particularly if I might, Mr. Sandalow, on whether or not CAFE 
Standards have demonstrated recently the impact, the positive 
impact, of a Federal regulatory standard?
    Mr. Sandalow. Yes, they are, Senator Coons. Thank you for 
your question. Your question is particularly meaningful to me 
because, as I said earlier, I grew up in the great State of 
Michigan. That's the State that's been plagued by unemployment 
over the years.
    When I go back today I see a sense of optimism and hope 
there that's the result of the President's policies to save the 
auto industry. It's the result of the clear, long term signals 
that new fuel efficiency standards provide starting to 
transition the American auto industry toward technologies of 
the future. It's exactly the type of clear, long term signals 
like that that make a big difference.
    If I could just add, thank you for your eloquent statement 
about the Federal Government and the Federal role. I would just 
add.
    Senator Coons. Feel free to expand.
    Mr. Sandalow. Thank you, Senator.
    I would just add it is the American system of government is 
one of the great contributions of our people to mankind.
    It is the American government that funded the research that 
led to the Internet.
    It's the Federal Government that funded the research that 
led to GPS systems.
    The Federal Government that funded the large scale 
deployment that led to commercial aviation.
    Just in my Department, long before I arrived, we started 
administering a program for appliance efficiency standards. 
Those standards are saving American families and businesses $15 
billion a year.
    So the Federal Government plays a central role in promoting 
innovation and in saving American families money, in particular 
in the area of energy.
    Senator Coons. Thank you, Mr. Sandalow.
    I do think there are legitimate questions and concerns 
raised about regulatory impact. We do owe it to our 
constituents to make sure that regulations, when imposed, are 
reasonably targeted, achieve the affect that they are designed 
to achieve and that they are efficient. They need to be 
reconsidered at times, but I do think that's another good case.
    Energy efficiency standards, we've demonstrated in previous 
hearings and discussions on this committee have actually 
incentivized new plants, new investment, new R and D, new 
products, new hiring rather than the counter case which has 
been made by many others.
    Dr. Gruenspecht, would you like to add to this 
conversation?
    Mr. Gruenspecht. Yes. I'm not from Michigan. But I did 
write a thesis that had something to do with the automobile 
industry.
    I would say one difference, you know, again, it doesn't 
make it good or bad because we don't take positions on policy. 
But CAF, you know, has to do with, sort of, what an appliance 
standards have to do with what the new vehicle, you know, what 
would be the characteristics of new vehicles. There's nothing 
in the CAF program or in the appliance efficiency program that 
says effectively we're going to set up a program where you must 
get rid of your existing vehicle or you must get rid of your 
old refrigerator.
    It might be a very good idea. You might save a lot of money 
by getting rid of your old refrigerator.
    This Clean Energy Standard, I think, I mean, it's not about 
what the new build is going to be because we have very little 
coal frankly in our new build anyway given gas prices and a 
host of other things. The Clean Energy Standard would 
essentially, works by displacing, you know, the existing 
capacity that doesn't meet its standard. So in that sense it is 
somewhat different than appliance efficiency standards or 
CAFstandards that focus on, you know, if you're going to buy a 
new car, a new refrigerator, this is how it needs to be.
    So that's just to make a fair observation. You know, there 
are some similarities, but there are some pretty significant 
differences.
    Senator Coons. But wouldn't you agree a critical difference 
is that this is not--this is providing market based incentives 
over the long term for that future mix of energy generation 
rather than mandating that any new generation capacity hit 
certain targets.
    Mr. Gruenspecht. I think what it's saying is it's a, I 
mean, indirectly I think it is a mandate to displace existing 
generating capacity that meets a lot of the Nation's 
electricity load. I mean the coal share of generation has 
fallen from 50 percent right now to well below 40 percent. 
Because with natural gas prices low as they are you find that 
in many cases it's cheaper to dispatch, again without regard to 
emissions or anything else, just in the straight dollars and 
cents, many areas of the country the gas plants will run ahead 
of the coal plants.
    But it is, you know, it is a little bit of a different 
thing to say you must stop using, you know, some of the 
capacity that you're using today. I mean, it's not the same 
thing in my mind as the CAF standard or the Appliance 
Efficiency Standard. But that's just an observation. That's not 
saying it's a good thing to do or a bad thing to do. It's 
saying that it's just inherently a different kind of proposal.
    Senator Coons. I see I've exceeded my time. Thank you.
    The Chairman. Thank you.
    Senator Manchin. Thank you, Mr. Chairman. Thank you all for 
being here today.
    We've heard a lot of discussion back and forth. I think 
what we're trying to find is a balance. I think the frustration 
that Senator Risch is that basically it's hard for government 
to find that balance sometime. I mean, you start moving the 
market in a way the market is not ready to go.
    My concern would be this in competing with our economic 
challengers from China and industrial worlds that are--
countries that are developing and that we're competing with on 
daily. They have an all in policy that they don't really try to 
move the market or change the market because of policy. They 
basically believe that clean energy and if they're going to 
invest in that. But they don't basically decimate their base 
load.
    They're still using their coal. They're still using their 
natural gases. They're still trying to develop the energy for 
the future.
    We seem to be automatically picking one over the other. 
When I say that I know what is in my State of West Virginia. We 
have as much wind, if not more wind than most anybody east of 
the Mississippi. People don't know that. They think we're all a 
fossil State.
    We do everything we can with hydro. We have given the 
energy of this Nation has needed to defend itself, to build the 
industrial might and defend itself in every war we've been in 
with coal, the natural gas and oil. Now we have the Marcellus 
shale.
    We have a chance for a Renaissance, a Renaissance of 
manufacturing again because of the wetness of the Marcellus 
shale. We have a chance to change in transportation fuel. But 
we're not dismantling our coal.
    But yet this government seems to be, our own government, is 
something that we're fighting with continuously trying to find 
a balance. I think that's the frustration that the Senator 
showed. It's the balance my good Senator here wants to find.
    But that's all we're saying is that coal--what you've done 
and what you're planning to do. If you look at China, China is 
going to triple. They will triple in the next 3 decades their 
demand for coal.
    Unless we believe the world is flat. That we quit burning 
any fossil in the United States of America. That's going to 
clean up the atmosphere. Then we would believe the world is 
flat.
    It seems to me to find the technology that really helps, 
that we can go out and clean up the atmosphere around the world 
would be the way to do it. But not--we don't see it. We have 
the FutureGen in the present State of Illinois. It's still 
moving forward. He wants that very much.
    But yet in West Virginia we've already done 
commercialization. We could have done a total Mountaineer power 
plant. Couldn't get the Department of Energy to buy into it.
    They made other investments elsewhere that didn't work out 
as well. We could have had a total commercialization. Proving 
it could be done.
    We're just saying take an all in policy because if you go 
down the road, we've been down the road. We have natural gas 
and coal. So we've been blessed. We have wind. We've got it 
all.
    We know when the prices were at $2 an MCF, two fifty and 
MCF, right now as they are, low prices of gas. People are going 
back to the peaking, their net peaking stations before gas 
jumped to $10 and $12 and $13 an MCF. They shut them all down.
    But we had competition back and forth. If we take an all in 
policy and we discard whether it be coal or gas or whatever. 
You're putting all your eggs in one basket. I think that is a 
formula for disaster.
    Until we develop the fuels of the future you've got to use 
what you have. What I'm saying is we'll be the first Nation in 
history not to use its resources to its own benefit, to all of 
its resources. I've tried to explain this to people.
    Do you know that most of our coal is being bought by 
foreign countries?
    Do you know that our coal mines, the ownership of this 
resource is being bought by foreign countries? They're not 
using it here. They're mining it because it's here. But they're 
taking it elsewhere. That's not going to stop.
    All I'm saying is we've got to find the balance. In West 
Virginia we're asking for you all in these polices here. You're 
rooting out the one abundant energy that you have.
    You've had. It's been stable in pricing. It's affordable, 
dependable and reliable.
    We're happy to supply the gas and God bless us we have it. 
But we have the coal too. That's what we're asking. Can you all 
find that balance?
    Mr. Sandalow. Thank you for that, Senator. Two points in 
response.
    First, a Clean Energy Standard is designed, precisely, to 
bring in the diverse energy sources that you just pointed to in 
West Virginia. It's designed to bring in coal with clean coal 
technology.
    It's designed to bring in----
    Senator Manchin. It's not in this energy--this bill.
    Mr. Sandalow. Senator, a Clean Energy Standard is 
technology neutral.
    So West Virginia wind.
    West Virginia hydro.
    West Virginia natural gas.
    West Virginia coal.
    Can all come in under a Clean Energy Standard.
    I'm going to respectfully disagree with Senator Corker, 
with his points about carbon capture and storage technologies. 
I think there's tremendous potential there. That's why the 
Department of Energy is investing in that technology. It's 
why----
    Senator Manchin. Where.
    Mr. Sandalow. Around the country, Senator.
    Senator Manchin. Not around our country. Not around our 
State. We've got more than anybody. We begged you all to 
complete--commercialize Mountaineer plant and we couldn't get 
it.
    Mr. Sandalow. I don't want to comment on that particular 
project, which you know, Senator.
    Senator Manchin. We'll talk about it in private 
conversation.
    Mr. Sandalow. It implies a lot of ins and outs. But I--
clean coal is a fundamental part of how to meet a Clean Energy 
Standard.
    Related to that let me highlight a second point broadly 
about coal. Because, as you emphasized, coal is a central part 
of our energy mix today. Coal is going to be a central part of 
our energy mix in the future.
    That's one reason that this Administration has invested 
more money than any is promoting clean coal technologies.
    Senator Manchin. If you don't use all of your resources. 
Try to keep your prices competitive with the world energy 
prices then we're going to be in a tremendous disadvantage. 
China, who is our greatest economic challenge right now, is 
using everything.
    They're going to have an advantage we don't have.
    Mr. Sandalow. Thank you, Senator.
    I actually think we're agreeing. So maybe we could pursue 
this because the Clean Energy Standard is technology neutral. 
It's designed to bring capital off the sidelines and make sure 
that the United States competes with a broad range of energy 
sources that we have.
    As you say, your State alone has this incredible range of 
energy sources. It's true around the country. A Clean Energy 
Standard would allow all those to come in and provide long term 
signals to the market. It would bring capital off the 
sidelines. Bring talent off the sidelines and promote American 
competitiveness.
    Senator Manchin. My time is up. So I'd love to follow up 
with you on this. Maybe we'll schedule a meeting with you, OK?
    Mr. Sandalow. Look forward to that.
    Thank you, sir.
    The Chairman. Senator Shaheen.
    Senator Shaheen. Thank you, Mr. Chairman. Thank you to you 
and Senator Murkowski for holding the hearing and for your 
leadership on the Clean Energy Standard.
    Mr. Sandalow, I was really pleased to hear your comments 
just now about carbon capture because I share your enthusiasm. 
At the risk of weighing in on the donkeys flying debate, I 
think technology offers tremendous opportunities in this area. 
We have a company in New Hampshire called Power Span, that's 
been working on this for a very long time. I'm very 
enthusiastic about their potential.
    In fact, there's a long time before we got scrubbers on our 
coal burning power plants in New Hampshire where people thought 
that wasn't going to make any difference on pollution. Now we 
have scrubbers and it's helping with a lot of the pollution 
that's been emitted. We also have created jobs in doing that.
    We have a number of companies that have created jobs and 
developed new technologies to address that. Companies like 
Thermo Fisher, again, that's making gauges to measure emissions 
at power plants. So I think the technology offers us tremendous 
opportunities in these areas.
    I do want to go to an area that has been touched on. But I 
think really deserves more exploration. That's energy 
efficiency.
    As I looked at the 5, sort of, President's principles for a 
Clean Energy Standard, I think there are at least 3, possibly 
4, that energy efficiency actually covers. I was concerned that 
the bill, as it's written, looks at energy efficiency as an 
opportunity for the future.
    There's a non binding report that the Secretary of Energy 
is asked to write. He has 3 years to do that.
    But it seems to me, given what we know about energy 
efficiency, it's the fastest, cheapest way to address our 
energy needs that there is an opportunity here in the Clean 
Energy Standard to elevate the importance of energy efficiency. 
I wonder what you think if the bill language were amended to 
include energy efficiency technologies and the Secretary were 
charged with establishing national guidelines to evaluate 
energy efficiency savings what difference you think it might 
make in terms of the opportunities to move us toward cleaner 
energy in this country.
    Mr. Sandalow. Senator, it's certainly strongly agree about 
the importance of energy efficiency and the enormous 
opportunities that's often called the first fuel. There are 
remarkable opportunities to save money, for families and 
businesses to promote American competitiveness by cutting down 
energy waste, which is really what promoting energy efficiency 
is. Your leadership on this has really been striking, Senator. 
We're all grateful for that.
    Senator Shaheen. Thank you.
    Mr. Sandalow. So thank you.
    There is one way that the bill before us includes energy 
efficiency that's fairly important which is combined heat and 
power and recognizing the role of combined heat and power which 
is a way of producing both heat and electricity at the same 
time. An important opportunity for American business that could 
be much better tapped then it is today. This bill would help to 
promote it.
    There are a range of complementary policies that can work 
very closely with the Clean Electricity Standard, Clean Energy 
Standard. In tandem they can achieve the results we've been 
talking about.
    I just, in particular, I just want to highlight in this is 
such an important point, particularly growing out of Dr. 
Gruenspecht's analysis that when we look at these policies 
energy prices in 2035 for American households will be $5 lower 
than they are today because we've been hearing talk about 
raising energy prices. But under the EIA analysis energy prices 
will be, for American households, will be, household energy 
costs will be $5 lower than they are today.
    Thank you.
    Senator Shaheen. I'm really glad you mentioned combined 
heat and power because I think, again, this is another area 
where there is tremendous opportunity and untapped potential 
usage that we really need to focus on and explore.
    The other place that I would like to see--the other fuel 
that I would like to see included in this bill is thermal 
biomass because, again, another place that I think there is an 
opportunity to really improve. By improve I mean reduce our 
energy consumption.
    So my time is up, but we'll explore with the next panel.
    The Chairman. We do have a second panel and 6 witnesses 
there who have been very patient in waiting. I thank Mr. 
Sandalow, Dr. Gruenspecht, very much for your testimony. We 
will continue to consult with you as we move forward on these 
issues.
    Let me call the second panel forward. I'll introduce them 
as they're coming forward.
    First would be Dr. Karen Palmer, who is the Research 
Director and Senior Fellow with the Resources for the Future.
    Second would be Ms. Judi Greenwald, who is Vice President 
of Technology and Innovation with the Center for Climate and 
Energy Solutions in Arlington, Virginia.
    Third, Mr. Collin O'Mara, who is the Secretary of the 
Delaware Department of Natural Resources and Environmental 
Control in Dover, Delaware.
    Next, Mr. Thomas Gibson, President and CEO of the American 
Iron and Steel Institute.
    Next is Mr. Keith Trent, who is the Group Executive and 
President of Commercial Businesses with Duke Energy.
    Finally, Mr. James Dickenson is the Managing Director and 
Chief Executive Officer with Jacksonville Electric Authority in 
Jacksonville, Florida.
    I thank you all for being here. If we could have each of 
you take 5 minutes and summarize the main points you think we 
need to understand. We will include everyone's full statement 
in the record as if read. Then we will have some questions.
    Dr. Palmer, why don't you start?

STATEMENT OF KAREN PALMER, RESEARCH DIRECTOR AND SENIOR FELLOW, 
                    RESOURCES FOR THE FUTURE

    Ms. Palmer. Thank you, Chairman Bingaman and Senator 
Murkowski, members of the committee, for the opportunity to 
testify today. I am a Research Director and Senior Fellow at 
Resources for the Future, otherwise known as RFF. RFF neither 
lobbies nor takes positions on specific proposals. The views I 
present today are my own.
    As a researcher I've studied the performance of policies 
and regulations to reduce emissions of greenhouse gases from 
the electricity sector including policies to promote renewable 
sources of electricity and energy efficiency. I've conducted 
analyses of the regional greenhouse gas initiative and 
California's AB32 policy. Currently I serve on the New York ISO 
Advisory Council and the U.S. EPA Science Advisory Board's 
Environment Economics Advisory Committee.
    My testimony today is based on results of modeling analysis 
of S. 2146 that I conducted with colleagues at RFF. I want to 
make 3 main points pertaining to the findings of that analysis.
    First, the Clean Energy Standard leads to substantial 
reductions in emissions of carbon dioxide from the electricity 
sector with very little impact on national electricity prices 
for the first 10 years of the policy. Prices in some regions 
actually fall below baseline levels in the early years.
    Second, our modeling indicates that the alternative 
compliance payment or ACP mechanism of the bill will be 
triggered in all years generating substantial revenue for 
States to invest in energy efficiency while at the same time 
reducing the share of clean energy and the carbon dioxide 
emission reductions from the policy.
    Third, the small utilities exemption which applies to 
roughly 17 percent of national electricity sales initially and 
roughly 13 percent from 2025 on, creates a large difference in 
electricity price between exempt and non exempt utilities. This 
potential large price savings provides an incentive for groups 
of electricity consumers to create their own small utility an 
unintended consequence of the bill.
    Now I want to explore each of these 3 points in a bit more 
detail.
    First, like the modeling work done by EIA, our analysis 
finds that the CES leads to a 21 percent reduction in 
cumulative emissions of carbon dioxide from the electricity 
sector over the time horizon to 2035. In 2035 alone, the CES 
would reduce CO2 emissions by 1.1 billion tons which 
is 41 percent of emissions in that year without the policy. 
This amounts to about 27 percent of the necessary 
CO2 reductions in 2035 to be on a linear path to 
meeting the U.S. pledges made at Copenhagen and Cancun.
    We also find that the policy has a moderate effect on 
average retail electricity prices during the first decade 
followed by a period of substantial price increases as the CES 
target and the ACP levels both ramp up. The lack of a 
noticeable initial price effect masks important differences 
across regions. As might be expected the regions that rely 
mostly on coal fired generation experience small retail price 
increases in the early years of the policy. While the 
Northeast, the Western States and Texas actually pay less for 
electricity with the CES than without it in the early years.
    Second, the ACP provision of the bill is triggered in every 
year in our analysis which means that some retail utilities 
will make that payment instead of purchasing clean energy 
credits. When we analyzed a version of the policy without 
restricting--including an ACP we find that the clean energy 
credit price would be a penny higher than the ACP in 2015 and 
2.4 cents higher in 2035. This means that the ACP lowers the 
national electricity price by 4 percent in 2035 but at the same 
time it reduces the environmental efficacy of the policy.
    The binding ACP will prevent the share of electricity 
supply by clean sources from reaching the minimum requirements 
specified in the bill. As a result cumulative CO2 
emissions are 12 percent higher than they would be without the 
ACP.
    In addition to helping to reduce electricity price impacts 
the ACP provision does create some money, 75 percent of which 
is slated to be transferred back to the States for investment 
in energy efficiency. Over the 21 year period from 2015 through 
2035, this policy generates roughly $7.1 billion per year for 
energy efficiency programs. This represents a substantial 
increase over to the $8.5 billion that the Consortium for 
Energy Efficiency estimates was budgeted for expenditures on 
energy efficiency programs across the U.S. and Canada in 2011.
    Third, the small utility exemption means that customers of 
exempt utilities pay an average electricity retail price of 
only 5.2 cents in 2035 with the CES. While customers of non 
exempt utilities pay 11.6 percent--6 cents. Eliminating the 
small utility exemption would raise the average retail price at 
exempt utilities to 10.9 cents per kilowatt hour with no affect 
on prices to customers of non exempt utilities which represent 
roughly 87 percent of sales.
    One potential unintended consequence of this substantial 
gap is that the policy creates an incentive for new small 
utilities to emerge. For example, groups of geographically 
proximate customers such as small cities or towns could decide 
to break away from their local utility and form their own small 
utility to take advantage of the lower electricity prices.
    Thank you for the opportunity to testify today. I look 
forward to the discussion.
    [The prepared statement of Ms. Palmer follows:]

   Prepared Statement of Karen Palmer, Research Directorn and Senior 
                    Fellow, Resources for the Future
                          summary of testimony
    This testimony discusses the effects of the Clean Energy Standard 
Act of 2012 on electricity prices and on carbon dioxide 
(CO2) emissions from the electricity sector. Our modeling 
suggests that the act will result in substantial reductions in 
emissions from the electricity sector, resulting in 21 percent fewer 
cumulative emissions by 2035. The policy has very little effect on 
national average electricity price for the first decade and leads to 
lower prices in the near term in some regions of the country. However, 
after 2025, national average electricity prices will increase as a 
result of the policy, rising to 18 percent above baseline levels by 
2035. The alternative compliance payment (ACP) mechanism will be 
triggered in all years, generating substantial revenue for states to 
invest in energy efficiency, while reducing the share of clean energy 
and the amount of CO2 emissions reductions compared to a CES 
policy without an ACP. The small utility exemption, which applies to 
roughly 17 percent of electricity sales initially and roughly 12.5 
percent after 2025, creates a difference in electricity prices between 
exempt and non-exempt utilities under the policy that grows to roughly 
50 percent on average by 2035. The exemption results in electricity 
prices at exempt utilities that are lower with the CES policy than 
without it for the life of the policy. This large price savings 
provides an incentive for groups of electricity consumers to create 
their own small utility, an unintended consequence of the bill.
    Mr. Chairman, thank you for the opportunity to testify before the 
Senate Committee on Energy and Natural Resources. My name is Karen 
Palmer, and I am a senior fellow and research director at Resources for 
the Future (RFF), a 60-year-old research institution based in 
Washington, DC, that focuses on the economic dimensions of energy, 
environmental, and natural resource issues. RFF is independent and 
nonpartisan, and shares the results of its economic and policy analyses 
with environmental and business advocates, academics, government 
agencies and legislative staff, members of the press, and interested 
citizens. RFF neither lobbies nor takes positions on specific 
legislative or regulatory proposals. I emphasize that the views I 
present today are my own.
    From both scholarly and practical perspectives, I have studied the 
performance of policies and regulations to reduce emissions of 
greenhouse gases from the electricity sector, including policies to 
promote renewable sources of electricity and energy efficiency. I have 
conducted analysis and modeling to support both state and regional 
efforts to design climate policy, including the Regional Greenhouse Gas 
Initiative in the Northeast and the California carbon dioxide 
(CO2) regulations under AB32. Currently, I serve on the New 
York State RGGI Advisory Committee, advising the New York State Energy 
Research and Development Authority on how to use the RGGI allowance 
auction revenue, and on the New York State Independent System Operator 
Environmental Advisory Council. Additionally, I serve on the EPA 
Science Advisory Board's Environmental Economics Advisory Council. 
Recently, with colleagues at RFF, I have conducted economic analysis of 
different Clean Energy Standards policy designs, including the one 
specified in the Clean Energy Standard Act of 2012, S. 2146.
    Today I will focus on the effects of a Clean Energy Standard (CES) 
proposal embodied in S. 2146 on greenhouse gas emissions and 
electricity prices and the implications of two key features of the 
policy: the alternative compliance payment (ACP) and the small utility 
exemption.
    I want to highlight four main points about the CES proposal:

   The CES as proposed in the bill will yield a substantial 
        reduction in CO2 emissions from the electricity 
        sector, resulting in 21 percent fewer cumulative emissions by 
        2035 and 41 percent fewer emissions in 2035 alone.
   The CES will have very modest effects on national average 
        electricity price through 2025 and lead to lower prices in the 
        near term in some regions of the country. However, after 2025, 
        national average electricity prices will increase as a result 
        of the CES policy, rising to 18 percent above baseline levels 
        by 2035.
   The alternative compliance payment mechanism will be 
        triggered in all years, generating substantial revenue for 
        states to invest in energy efficiency, while reducing the share 
        of clean energy and the amount of CO2 emissions 
        reductions compared to a CES policy without an alternative 
        compliance payment.
   The small utility exemption, which applies to roughly 17 
        percent of electricity sales initially and roughly 12.5 percent 
        after 2025, creates a difference in electricity prices between 
        exempt and non-exempt utilities under the policy that grows to 
        close to 50 percent on average by 2035. And, the exemption 
        results in electricity prices at exempt utilities that are 
        lower with the CES policy than without it for the life of the 
        policy. This large price savings provides an incentive for 
        groups of electricity consumers to create their own small 
        utility, an unintended consequence of the bill.
A Summary of the Bill
    A clean energy standard is similar to a renewable portfolio 
standard in that it sets a floor on the share of electricity sales that 
must come from clean sources of generation, and then raises the floor 
over time as a way to squeeze CO2 emissions out of the 
electricity sector. S. 2146 sets the clean energy requirement at 24 
percent in 2015, rising by 3 percent per year to 84 percent in 2035. 
The CES obliges any nonexempt retail utility to hold clean energy 
credits equal to the required clean energy share multiplied by total 
retail electricity sales.
    Generators designated as clean, and therefore qualified to receive 
clean energy credits for electricity production, are those that are 
renewable, natural gas, hydro, nuclear, or qualified waste-to-energy 
facilities that were placed in service after 1991. (This provision 
effectively excludes all existing nuclear and hydroelectric capacity 
from earning credits.) Coal units retrofitted with carbon capture and 
storage may also receive credits. To receive credits, a generator must 
have a carbon intensity of less than 0.82 metric tons of CO2 
per MWh. Credits may be banked for use in future years.
    Retail utilities have the option of paying an alternative 
compliance payment (ACP) of $0.03/kWh in 2015, rising by 5 percent per 
year in real dollars, in lieu of purchasing clean energy credits, Thus, 
the ACP imposes a ceiling on the price of credits.
    Small utilities are exempt from compliance obligation, and the 
threshold defining small utilities is 2 million MWh of sales per year 
in 2015, falling by 100,000 MWh per year to 1 million MWh of sales per 
year in 2025 and beyond. Any electricity sales generated by a nuclear 
or hydro facility placed in service before 1992 (almost all of them) 
are also exempted from the standard, meaning they neither generate nor 
are required to hold credits.
Modeling Approach to Analysis of S. 2146
    To gain insights into how the CES specified in S. 2146 would impact 
the U.S. electricity markets and associated emissions of 
CO2, my colleagues at Resources for the Future and I used 
our electricity sector market model, known as Haiku. Outputs from the 
model include investment in new generating capacity, generation by fuel 
and technology, and CO2 emissions and electricity prices by 
region of the country as well as for the nation as a whole. In addition 
to analyzing the policy as specified, we also looked at the effects of 
different features of the policy, including the alternative compliance 
payment and the small utility exemption as well as other features.
    Like all models, Haiku is an imperfect but useful tool for gaining 
insights into how policies like a CES affect the electricity sector. 
Specific model results will depend on particular assumptions about a 
variety of factors, including technology and fuel costs and the set of 
technologies included in the model.
    The next several sections of this testimony discuss what we learned 
from this analysis about the likely effects of S. 2146 on greenhouse 
gas emissions and on electricity markets. Please note that all dollar 
amounts are expressed in real 2009 dollars.
CO2 Emissions
    The proposed CES legislation would reduce emissions of 
CO2 from the electricity sector substantially. The CES would 
achieve 11.4 billion tons of cumulative CO2 emissions 
reductions from electricity by 2035, or 21 percent of cumulative 
baseline emissions. In 2035 alone, the CES would achieve 1.1 billion 
tons of emissions reductions, or 41 percent of annual emissions in 2035 
without the policy.
    The United States has pledged, as part of the United Nations 
climate change conferences in Copenhagen and Cancun, to reduce economy-
wide CO2 emissions to 83 percent below 2005 levels by 2050. 
To be on a linear path to meet this goal, the United States would have 
to reduce total CO2 emissions in 2035 by roughly 4.1 billion 
tons from 2005 levels, and the CES would contribute 27 percent of the 
United States' pledged CO2 emissions reductions in 2035.
Electricity Generation by Technology and Fuel
    The proposed CES legislation would bring about important changes in 
the composition of electricity supply that evolves over time. In the 
short run, by 2020, the CES will effect a swap of generation from coal 
to natural gas of almost 600 terawatt-hours TWh. By 2035, the policy 
will result in a substantial decline in coal-fired generation. The 
roughly 1,200 TWh decline in coal generation would be offset partially 
by about a 330 TWh reduction in consumption. Offsetting the remainder 
of the lost coal generation would be a variety of new generation 
sources. Large growth in natural gas generation (about 600 TWh) would 
be accompanied by more moderate growth in wind and nuclear generation 
(about 100 and 140 TWh, respectively). The mix of generation under the 
baseline and different specifications of the CES policy are displayed 
in Exhibit 1.*
---------------------------------------------------------------------------
    * Exhibits 1-4 have been retained in committee files.
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National Average Retail Electricity Price
    The CES in S. 2146 will have a moderate effect on average retail 
electricity prices during the first decade of the policy, followed by a 
period of substantial increases as the target and the alternative 
compliance payment levels both ramp up. Exhibit 2 shows national 
average retail electricity prices under the CES (red line) and the 
baseline (blue line) over time.
    What explains the delayed price impact of the CES policy? Under a 
CES, retail electricity prices have two important components: the 
wholesale price of electric energy and the price of a CES credit, the 
latter of which is multiplied by the minimum clean energy share in each 
year. Because the CES leads to greater investment in clean technologies 
with low operating costs, such as wind or efficient natural gas, it 
will tend to increase the supply of electric energy and lead to lower 
wholesale energy prices, particularly in those regions with competitive 
wholesale electricity markets.
    A CES policy also creates a new market for clean energy credits. 
The requirement for retail electricity suppliers to hold those credits 
in increasingly greater proportion over time as the clean energy 
standard rises means that the price of credits plays an increasingly 
bigger role in the determination of electricity prices over time. In 
the initial years of the program, the CES credit prices and credit 
requirements will be relatively low, with the small positive impacts on 
electricity prices typically offset by lower prices in wholesale energy 
markets. In cost-of-service regions, where prices are governed by 
average (or total) costs, the small short-run increase in prices 
resulting from credit requirements is offset by small reductions in 
costs resulting from a net export of credits to competitive regions. 
These countervailing effects of the CES yield approximately no short-
run electricity price impacts for the nation as a whole. In the long 
run, the cost of the credit obligation increases as both the credit 
price and requirement rise, and it trumps all other factors affecting 
electricity prices. By 2035, the national average retail electricity 
price under the CES would exceed that in the absence of the policy by 
$0.016/kWh (18 percent).
Regional Retail Electricity Prices
    The lack of a noticeable initial effect of the CES policy on 
national average electricity prices masks important differences across 
regions of the country. Exhibit 3 shows the effects of the policy on 
retail electricity price by region in 2020. This map reveals that the 
regions of the country that rely most on coal-fired generation stand to 
experience small retail price increases, while the Northeast and Texas 
stand to pay substantially less for electricity with the CES than 
without it. Retail prices are also lower throughout much of the western 
part of the country in 2020 with the CES. By 2025, more regions 
experience price increases, as shown in Exhibit 4, but electricity 
prices are still lower with the policy than without it in the 
Northeast, the Northwest, and Texas.
    After 2025 the policy tends to result in price increases in all 
regions, although the regions with a relatively clean mix of generators 
or a relatively high proportion of small utilities would experience a 
relatively small average retail price increase due to the CES, while 
regions that rely heavily on coal or that have very few small utilities 
would experience relatively larger retail price increases.
The Alternative Compliance Payment
    The ACP provision of the bill is triggered in every year, which 
means that some portion of the retail utilities required to comply with 
the legislation will pay the ACP instead of purchasing clean energy 
credits and that in each year the clean energy credit price will equal 
the ACP. Expressed in 2009 dollars, the ACP starts out at $0.026/kWh in 
2015 and rises by 5 percent per year in real dollars to $0.068/kWh in 
2035. Without an ACP, the clean energy credit price would reach $0.036/
kWh in 2015 and $0.092/kWh in 2035.
    The ACP provision of the bill results in slightly lower costs to 
electricity consumers but it comes at a cost of reduced environmental 
efficacy. Without the ACP, electricity prices would be higher from 2025 
on (as shown by comparing the red and purple lines in Exhibit 2), and 
would be roughly 4 percent higher in 2035. The binding ACP will prevent 
the fraction of power supplied by clean sources under the CES policy 
from reaching the minimum requirements specified in the bill. The 
elevated credit prices in a version of the CES without an ACP would 
engender more generation from clean sources and greater emissions 
reductions, amounting to an additional 12 percent of cumulative 
CO2 emissions reductions by 2035 beyond those reductions 
projected under the CES policy specified in the bill.
    The ACP provision also creates a pot of revenue, 75 percent of 
which is to be transferred back to the states for investment in energy 
efficiency initiatives. Over the 21-year period from 2015 through 2035, 
the CES policy in S. 2146 generates roughly $9.5 billion dollars per 
year in annuitized ACP revenue. Adding 75 percent of this amount, or 
$7.1 billion, to state energy efficiency budgets would represent a 
substantial increase to the $8.5 billion (adjusted to 2009 dollars) 
that the Consortium for Energy Efficiency estimates was budgeted for 
expenditure on energy efficiency programs for both electricity and 
natural gas across the United States and Canada in 2011.
The Small Utility Exemption
    Like the ACP, the small utility exemption provision of the bill 
also serves to dampen electricity price increases resulting from the 
CES. Without the exemption, the national average retail electricity 
price in 2035 would be 25 percent higher than baseline levels, compared 
to only 18 percent higher with the exemption in place. If both the ACP 
and the small utility exemption were struck from the policy, the 
national average retail electricity price would reach $0.13/kWh by 
2035, or 42 percent above baseline levels.
    The benefits to consumers of a lower electricity price due to the 
small utility exemption accrue exclusively to the customers of the 
exempt utilities. Based on the 2009 distribution of utility sizes, we 
estimate the fraction of regional consumption that would be exempted 
under each level of the threshold and find that in 2015, roughly 17 
percent of regional consumption is exempt from compliance. By 2025 and 
thereafter, the small utility exemption is projected to exempt roughly 
12.5 percent of national electricity consumption from having to comply 
with the standard.
    As a result of the small utility exemption, consumers served by the 
exempt utilities pay an average retail electricity price of only 
$0.052/kWh in 2035 with the CES (assuming these utilities have the 
regional average mix of generating technologies), while the consumers 
of non-exempt utilities pay an average price of $0.116/kWh. This 
average difference will be even greater when comparing prices across 
different regions. For example, customers of exempt utilities in the 
Northwest pay only $0.012/kWh in 2035, while consumers on Long Island, 
where no consumers are exempt, pay $0.175/kWh. Eliminating the small 
utility exemption raises the average retail price at utilities that 
would have been exempted to $0.109/kWh, while customers of non-exempt 
utilities pay the same average price of $0.116/kWh. In other words, the 
small utility exemption allows consumers of 12.5 percent of total sales 
to enjoy an average retail electricity price reduction of $0.057/kWh, 
while consumers of the remaining 87.5 percent see no benefit at all.
    Removing the small utility exemption also has no effect on the mix 
of technologies and fuels used to produce electricity or on the 
CO2 emissions reductions resulting from the policy. The 
reason removing the exemption has virtually no effect on the 
performance of the policy outside of the price impact on consumers of 
exempt utilities is because the ACP is binding and thus the price of 
clean energy credits is equal to the ACP. If there were no ACP, the 
small utility exemption would reduce the electricity consumption basis 
to which the CES is applied, which would in turn reduce the total 
amount of clean energy required by the policy, the credit price, and 
electricity prices for all consumers. However, with and without the 
small utility exemption, the ACP is binding, so clean energy generation 
is unchanged by removing the exemption. Instead, the main effect of the 
small utility exemption is to reduce the ACP revenues available to be 
disbursed to the states to fund end-use energy efficiency programs. Our 
results suggest that for a CES with no small utility exemption, the 
annuitized value of ACP revenue for each year between 2015 and 2035 
increases by roughly $10 billion per year to $19.5 billion, 75 percent 
of which would be allocated to states for investment in energy 
efficiency under the provisions of the bill.
    One potential unintended consequence of the small utility exemption 
is that by creating a substantial gap between retail prices for exempt 
and non-exempt utilities, the policy also creates an incentive for new 
small utilities to emerge. For example, groups of geographically 
proximate customers, such as small cities or towns, could decide to 
break away from their local utility and form their own small municipal 
utility to take advantage of the lower electricity prices.
The Existing Nuclear and Hydro Exclusion
    The exclusion of generation from existing nuclear and hydroelectric 
capacity from compliance responsibility is another aspect of the bill 
with evident consequences for ratepayers. If certain nuclear or hydro 
facilities would reduce their production under the CES policy because 
they do not earn clean energy credits, excluding generation from those 
units from compliance obligation will reverse this effect, keeping that 
clean production online. Our modeling suggests that the CO2 
emissions consequences of the exclusion for existing nuclear and 
hydroelectric capacity are virtually zero because the 17 TWh of nuclear 
generation from existing facilities that would be lost without the 
exclusion are made up by additional generation at new nuclear 
facilities.
    The implications of the existing nuclear and hydro exclusion for 
electricity consumers varies across regions depending on how 
electricity prices are set. In cost-of-service regulated regions of the 
country, the exclusion has virtually no effect on electricity prices. 
In regions where electricity is priced in competitive markets, the 
exclusion amounts to a wealth transfer from consumers to the owners of 
existing nuclear and hydroelectric generators. In some states, like New 
York, where some hydroelectric capacity is publicly owned, the 
ratepayers presumably will recapture part of the wealth transfer. In 
other cases, especially with respect to nuclear capacity, the transfer 
will remain with utility shareholders.

    The Chairman. Thank you very much.
    Ms. Greenwald, go ahead.

STATEMENT OF JUDI GREENWALD, VICE PRESIDENT FOR TECHNOLOGY AND 
INNOVATION, CENTER FOR CLIMATE AND ENERGY SOLUTIONS, ARLINGTON, 
                               VA

    Ms. Greenwald. Mr. Chairman, Senator Murkowski and members 
of the committee, thank you for the opportunity to testify. I'm 
Judi Greenwald, Vice President for Technology and Innovation at 
the Center for Climate and Energy Solutions.
    C2ES is an independent, non-profit, non-partisan 
organization advancing practical and effective policies and 
actions to address our climate and energy challenges. Our work 
is informed by the 36 mostly Fortune 500 companies in our 
Business Environmental Leadership Council. The views I'm 
expressing are those of C2ES alone.
    C2ES recently published 2 papers examining issues and 
options in designing a Clean Energy Standard. They ask that 
they be entered into the record.
    The Chairman. We will include those. Thanks.
    Ms. Greenwald. Thanks.
    A Clean Energy Standard is a market based approach that can 
achieve 3 objectives cost effectively.
    Environmental and Public Health Protection.
    The growth of new clean energy industries.
    Diversification of electricity supply.
    Thirty-one States and DC have adopted some form of Clean 
Energy Standards. These differ in a number of critical elements 
providing a wealth of State experience to draw from in 
designing a Federal program. State Clean Energy Standards 
accelerate the deployment of renewables with generally modest 
impacts on electricity rates.
    They tend to favor the cheapest available renewable 
options. Although a number of States have driven innovation in 
less mature technologies. For example, by requiring that a 
certain fraction of the overall target be met using solar 
energy.
    While most of the State standards focus on renewables, 4 
States, Michigan, Ohio, Pennsylvania and West Virginia give 
credit to some non renewable generation as well. But they favor 
renewables compared to the other qualifying sources either by 
requiring that some portion of the clean energy targets be met 
with renewables or by giving renewables extra credit.
    Senator Bingaman's bill embodies a number of innovative 
design features that reasonably balance the multiple objectives 
of a Clean Energy Standard.
    These include a broad, all of the above definition of clean 
energy, maximizing flexibility and minimizing costs.
    A target that starts off modestly but increases over time 
balancing effectiveness in cost and driving innovation.
    Credits calculated based on carbon intensity appropriately 
rewarding environmental performance.
    Some crediting for existing nuclear and hydro power 
balancing the goal of fairly sharing costs with the goal of 
recognizing clean energy investment.
    Allowing utilities to pay an alternative compliance payment 
if clean energy credit prices get too high.
    Advancing energy efficiency by providing credit for 
combined heat and power.
    Using alternative compliance payments to fund State 
efficiency programs.
    EIA's analysis indicates that the bill takes advantage of 
natural gas's near term price and availability while still 
driving innovation in much cleaner technologies. However, it's 
uncertain how each clean energy option will fare in the real 
world.
    If policymakers want to ensure innovation in zero emitting 
technologies and avoid too much reliance on natural gas, they 
have a number of options.
    They could exclude natural gas from the definition of clean 
energy.
    They could draw from State experience and design the 
standard so that it favors or limits specific types of clean 
energy. I believe Senator Franken mentioned that option this 
morning.
    Or they could put in place complimentary policies such as 
loan guarantees for nuclear power plants, tax credits for wind 
and solar power and subsidies for carbon capture and storage.
    On the last point C2ES co-convened a coalition of industry, 
State, environmental and labor leaders. The National Enhanced 
Oil Recovery Initiative, neori.org, calling for a Federal tax 
credit for capturing and transporting CO2 from 
industrial sources and power plants for use in enhanced oil 
recovery. This would expand domestic oil production and drive 
innovation in carbon capture and storage enabling coal to have 
a bigger role in a clean energy future.
    EIA also projects that under the Bingaman proposal 
electricity prices would be largely unchanged until the mid 
2020s giving people and companies both an incentive to increase 
their energy efficiency and potentially reduce their energy 
bills even as prices rise and ample time to do so.
    The bill's alternative compliance payment would protect 
against unforeseen impacts.
    Senator Bingaman, thank you for introducing this bill and 
beginning the public debate on this promising approach to 
protecting the environment, public health and diversifying 
energy supply. We look forward to working with you and your 
colleagues on the committee to analyze, refine and advance this 
proposal.
    [The prepared statement of Ms. Greenwald follows:]

Prepared Statement of Judi Greenwald, Vice President for Technology and 
   Innovation, Center for Climate and Energy Solutions, Arlington, VA
    Mr. Chairman, Senator Murkowski, and members of the Committee, 
thank you for the opportunity to testify on the Clean Energy Standard. 
My name is Judi Greenwald, and I am Vice President for Technology and 
Innovation at the Center for Climate and Energy Solutions (C2ES-
formerly known as the Pew Center on Global Climate Change).
    C2ES is an independent nonprofit, nonpartisan organization 
dedicated to advancing practical and effective policies and actions to 
address our global climate change and energy challenges. Our work is 
informed by our Business Environmental Leadership Council (BELC), a 
group of 36 major companies, most in the Fortune 500, that work with 
C2ES on climate change and energy risks, challenges, and solutions.
    C2ES recently published two papers on the topic of this hearing, 
Clean Energy Standards: State and Federal Policy Options and 
Implications (jointly with the Regulatory Assistance Project),\1\ and 
An Illustrative Framework for a Clean Energy Standard for the Power 
Sector.\2\ I'd like to ask that they be entered into the record.
---------------------------------------------------------------------------
    \1\ Regulatory Assistance Project and Center for Climate and Energy 
Solutions, Clean Energy Standards: State and Federal Policy Options and 
Implications (2011), http://www.c2es.org/docUploads/Clean-Energy-
Standards-State-and-Federal-Policy-Options-and-Implications.pdf.
    \2\ Center for Climate and Energy Solutions, An Illustrative 
Framework for a Clean Energy Standard for the Power Sector, (2011), 
http://www.c2es.org/docUploads/CES--Framework.pdf.
---------------------------------------------------------------------------
    To summarize my testimony, C2ES applauds Senator Bingaman's 
leadership in introducing this bill. It begins the public debate on 
this promising approach to protecting the environment, diversifying 
energy supply, and promoting clean energy industries. C2ES believes 
that Senator Bingaman's proposal embodies a number of design features 
that are innovative and reasonably balance the multiple objectives of a 
Clean Energy Standard. In particular, we would highlight the following: 
a flexible, market-based approach including clean energy credit trading 
and banking; a target that starts off modestly but increases over time; 
a broad ``all-of-the above'' definition of clean energy; and a 
crediting system that rewards environmental performance based on carbon 
intensity.
    My testimony will focus first on the general concept of a Clean 
Energy Standard, then on lessons from the state experience with such 
standards, and finally more specifically on Sen. Bingaman's proposed 
Clean Energy Standard Act of 2012.
Balancing our objectives with a Clean Energy Standard
    I'd like to begin with a note on use of the word ``clean.'' There 
is no commonly accepted definition of ``clean'' energy. Indeed, one 
person's definition of ``clean'' can differ dramatically from another's 
if their objectives for energy policy differ. Renewable energy, nuclear 
power, natural gas, coal with carbon capture and sequestration, energy 
efficiency, and emission offsets all have their advocates as falling 
under the definition of clean. Unless otherwise noted, in my testimony 
I will use the word ``clean'' to refer to these options generally and 
``conventional'' to refer to all other forms of electricity generation.
    Moving from conventional electricity generation to clean energy 
offers three types of possible benefit: the reduction of the 
environmental and public health damages associated with conventional 
electricity generation, the growth of new clean energy industries, and 
diversification of energy supply. A clean energy standard usually 
refers to a market-based approach that can achieve all of these 
objectives cost-effectively: it requires an increasing amount of clean 
electricity, but gives utilities the flexibility to comply by 
generating or buying clean power, or purchasing tradable clean energy 
``credits'' (CECs), typically denominated in megawatt-hours.
    One objective is the protection of public health and the 
environment. Electric power plants are the leading U.S. source of 
emissions of sulfur dioxide, mercury and many other metals, and acid 
gases.\3\ The electricity sector also ranks third among all U.S. 
sources of nitrogen oxide emissions and fourth in emissions of fine 
particulates.\4\ The vast majority of the emissions in this sector are 
associated with coal-fired power plants.\5\ Clean energy sources emit 
zero or very low levels of these pollutants.\6\
---------------------------------------------------------------------------
    \3\ Joe Bryson, ``Reducing Pollution from Power Plants'' 
(presentation, National Association of State Utility Consumer Advocates 
Annual Meeting, Atlanta, GA, November 16, 2010).
    \4\ Ibid.
    \5\ Ibid.
    \6\ ``Clean Energy: Non-Hydroelectric Renewable Energy,'' U.S. 
Environmental Protection Agency, last modified August 5, 2010, http://
www.epa.gov/cleanenergy/energy-and-you/affect/non-hydro.html.
---------------------------------------------------------------------------
    Today, the power sector is the source of about a third of U.S. 
greenhouse gas emissions.\7\ As we heard during the hearing the 
committee held on sea level rise a few weeks ago, recent findings in 
the peer-reviewed science provide only more cause for concern about the 
impacts of climate change. A properly designed clean energy standard 
would lead to the reduction of these emissions from power plants.
---------------------------------------------------------------------------
    \7\ ``Energy in Brief: What are greenhouse gases and how much are 
emitted by the United States?,'' U.S. Energy Information 
Administration, last modified May 9, 2011, http://www.eia.gov/
energy__in__brief/greenhouse_gas.cfm.
---------------------------------------------------------------------------
    A second objective is to advance the position of the United States 
in the global competition to deliver the next generation of energy 
technologies. In a world hungry for energy services, we can be 
confident that modern energy technologies, especially those with a 
smaller environmental footprint than those we have today, will be a 
global growth area for decades to come. A recent report finds that 
global renewable energy finance and investment grew significantly in 
2011 to $263 billion, a 6.5 percent increase from the previous year. 
The renewable energy sector is emerging as one of the most dynamic and 
competitive in the world, witnessing 600 percent growth in finance and 
investments since 2004.\8\ A clean energy standard would spur 
technology and economic development in the United States, allowing the 
market to determine the winners among clean technologies.
---------------------------------------------------------------------------
    \8\ The Pew Charitable Trusts, Who's Winning the Clean Energy Race 
2011 Edition (Washington, DC: The Pew Charitable Trusts, 2012), http://
www.pewenvironment.org/uploadedFiles/PEG/Publications/Report/
FINAL__forweb__WhoIsWinningTheCleanEnergyRace-REPORT-2012.pdf.
---------------------------------------------------------------------------
    A third objective is to ensure a diverse energy supply. Currently 
we obtain 42 percent of our electricity from coal, 25 percent from 
natural gas, 19 percent from nuclear, and 13 percent from 
renewables.\9\ Under business as usual, this energy mix is not expected 
to change significantly over the next two decades; while new builds are 
expected to be primarily natural gas, overall electric generation is 
growing fairly slowly.
---------------------------------------------------------------------------
    \9\ ``Total Energy Data: Table 7.2a Electricity Net Generation 
2011,'' U.S. Energy Information Administration, April 2012, http://
www.eia.gov/totalenergy/data/monthly/pdf/sec7__5.pdf
---------------------------------------------------------------------------
    In many respects, a properly designed clean energy standard would 
advance all three objectives. There are a few aspects in the design of 
a clean energy standard, however, that require one to choose between 
the objectives, or at least to strike a balance between them. Design 
choices may be evaluated in light of additional criteria, including:

   Effectiveness--what is the magnitude of the policy's desired 
        impacts?
   Affordability--does the policy balance the benefits 
        associated with increased clean power generation against the 
        cost impacts of the policy?
   Cost-effectiveness--how efficiently does the policy achieve 
        its intended aims?
   Fairness--does the policy unfairly burden particular groups 
        or regions or lead to any undue burdens or unearned windfalls 
        for particular utilities, power generators, or customers?
   Innovation--does the policy drive innovation in the lowest-
        emitting and/or least mature technologies with the greatest 
        potential long-term benefits?

    I'll elaborate on a few examples of how design choices can involve 
tradeoffs and affect costs.
    Targets, coverage, and alternative compliance payments--More 
ambitious clean energy targets will achieve greater benefits and drive 
greater innovation in the lowest-emitting technologies, but at higher 
cost. Broader inclusion of electric utility companies will increase the 
effectiveness of the standard and more broadly share the costs, but 
could impose greater administrative burdens. Allowing utilities to pay 
an alternative compliance payment if clean energy credit prices get too 
high limits the rate impacts but can also reduce the effectiveness of 
the targets.
    Definition of clean energy--In general, a broader definition of 
clean energy will lower the cost because it allows greater scope for 
identifying the least expensive solutions. It also makes the standard 
more equitable across regions, because different regions have different 
natural endowments of different types of clean energy. Supply diversity 
is also a hedge against price volatility. However, because different 
types of clean energy have different characteristics, policy-makers 
might not be neutral with respect to the role each type plays. There 
are many possible compromises on this issue, depending on the attribute 
of concern.
    As an illustration, natural gas is lower-emitting than coal but 
higher-emitting than nuclear or renewables. A compromise is to award 
natural gas partial credit. In addition, advances in shale gas 
production have increased the availability of inexpensive natural gas. 
Thus, providing credit for natural gas reduces the cost of achieving 
the CES target. However, since natural gas is already the dominant 
choice for new power plant builds, there is a risk that the power 
sector will become too reliant on natural gas, crowding out other 
options.
    Inherently, a clean energy standard will favor the lowest-cost 
clean energy source. But policy-makers may want to drive innovation and 
cost reduction in less mature, advanced clean energy technologies. A 
compromise might be to place a limit on how many credits can be 
distributed to the lowest-cost clean energy source. Another option is 
to provide additional favorable treatment to the lowest-emitting or 
least mature technologies (e.g., by granting certain subcategories of 
technologies additional credits, or guaranteeing them a role by 
establishing ``tiers'' with separate targets). Finally, policy-makers 
can design the CES to be technology-neutral, and rely on complementary 
policies (such as loan guarantees or other financial assistance for 
nuclear power plants, subsidies for carbon capture and storage, and tax 
credits for wind and solar power) to drive innovation in less mature 
and lower-emitting technologies.
    The role of energy efficiency--Energy efficiency is cleaner than 
any of the energy supply options. Providing credit for energy 
efficiency can lower cost, but increase the complexity of the standard 
and potentially diminish its effectiveness. Measuring electricity 
savings from energy efficiency is more challenging than measuring 
generation from qualified clean energy sources, and it is especially 
difficult to distinguish energy savings driven by the standard from 
business as usual.
    Crediting existing clean generation--On the one hand, it is fair to 
reward early clean energy investment. On the other hand, such crediting 
could result in windfall profits and reduce new clean energy 
production.
State experience with renewable and alternative energy standards
    We have substantial experience with renewable and alternative 
energy standards at the state level. At this point, 31 states and the 
District of Columbia have adopted some form of mandatory electricity 
portfolio standards through legislation, regulation, or public utility 
commission order. Another eight states have adopted non-mandatory 
renewable portfolio goals.\10\ These policies differ in a number of the 
design elements described above.\11\ Thus we have a wealth of state 
experience to draw from in designing a federal program. In addition, 22 
states have established mandatory long-term electricity savings targets 
through an Energy Efficiency Resource Standard (EERS), with five other 
states having a non-mandatory electricity savings goal.\12\ In some of 
these cases, the state electricity portfolio standard is combined with 
or linked to the EERS policy.
---------------------------------------------------------------------------
    \10\ ``Renewable & Alternative Energy Portfolio Standards,'' Center 
for Climate and Energy Solutions, last modified January 20, 2012, 
http://www.c2es.org/what__s__being__done/in__the__states/rps.cfm.
    \11\ Ryan Wiser and Galen Barbose, ``The State of the States: 
Updated on the Implementation of U.S. Renewable Portfolio Standards,'' 
(presentation, 2011 National Summit on RPS, Washington, DC, October 26, 
2011) http://www.cleanenergystates.org/assets/Uploads/2011-RPS-Summit-
Combined-Presentations-File.pdf.
    \12\ ``Energy Efficiency Resource Standard,'' Database of State 
Incentives for Renewables & Efficiency, http://www.dsireusa.org/.
---------------------------------------------------------------------------
    Perhaps the most important lesson to be learned from state 
portfolio standards is that they succeed in accelerating the deployment 
of renewable resources.\13\ Ninety percent of the nonhydro renewable 
capacity added in the United States between 2004 and 2010 was built in 
states with a mandatory renewable portfolio standard.\14\ Another clear 
(and expected) lesson is that state portfolio standards tend to result 
in the deployment of the cheapest available renewable energy options. 
In most states, this means utility-scale wind power projects.\15\ State 
portfolio standards are given a good deal of credit for establishing a 
viable wind turbine supply chain in the United States, along with 
training and credential programs and some domestic manufacturing 
facilities.\16\ A number of states have driven some innovation in less 
mature technologies, for example by establishing ``carve-outs'' 
requiring that a certain fraction of the requirement be met using solar 
energy.
---------------------------------------------------------------------------
    \13\ Ryan Wiser and Galen Barbose, ``The State of the States: 
Updated on the Implementation of U.S. Renewable Portfolio Standards, 
(presentation, 2011 National Summit on RPS, Washington, DC, October 26, 
2011), http://www.cleanenergystates.org/assets/Uploads/2011-RPS-Summit-
Combined-Presentations-File.pdf.
    \14\ Regulatory Assistance Project and Center for Climate and 
Energy Solutions, Clean Energy Standards: State and Federal Policy 
Options and Implications (2011), http://www.c2es.org/docUploads/Clean-
Energy-Standards-State-and-Federal-Policy-Options-and-Implications.pdf.
    \15\ Chen et al., Weighing the Costs and Benefits of State 
Renewables Portfolio Standards: A Comparative Analysis of State-Level 
Policy Impact Projections (Berkeley, CA: Lawrence Berkeley National 
Laboratory, 2007), http://eetd.lbl.gov/ea/EMP/reports/61580.pdf.
    \16\ Ibid.
---------------------------------------------------------------------------
    A third key lesson is that the impact of portfolio standards on 
electricity rates has been generally modest, though it is difficult to 
isolate this impact from other factors that influence prices.\17\ Of14 
states where compliance cost data are available, Arizona had the 
highest impact in 2010 of nearly 4 percent.\18\ No other of these 
states saw a rate impact above 2 percent.\19\ As a typical example, the 
Maine Public Utilities Commission estimates a 0.6 percent increase in 
rates in 2010 caused by its portfolio standard of 40 percent renewable 
energy by 2017, and expects a 1.9 percent increase by 2017.\20\ Due to 
the price stability of long-term renewable energy contracts, the 
portfolio standard may even help reduce rates in some states.\21\
---------------------------------------------------------------------------
    \17\ Ibid.
    \18\ Ryan Wiser and Galen Barbose, ``The State of the States: 
Updated on the Implementation of U.S. Renewable Portfolio Standards,'' 
(presentation, 2011 National Summit on RPS, Washington, DC, October 26, 
2011), http://www.cleanenergystates.org/assets/Uploads/2011-RPS-Summit-
Combined-Presentations-File.pdf.
    \19\ Ibid.
    \20\  London Economics International LLC for the Maine Public 
Utilities Commission, MPUC RPS Report 2011-Review of RPS Requirements 
and Compliance in Maine (Boston, MA: London Economics International 
LLC, 2012), http://www.maine.gov/tools/whatsnew/
attach.php?id=349454&an=1.
    \21\ Ibid.
---------------------------------------------------------------------------
    While most of the state portfolio standards focus on energy sources 
that are renewable, nonrenewable electric generation technologies are 
given credit in the programs of four states--Michigan, Ohio, 
Pennsylvania and West Virginia. Natural gas, coal with carbon capture 
and storage (CCS), coal gasification and liquefaction, coal bed 
methane, nuclear power, industrial combined heat and power, and 
greenhouse gas offset projects are given credit under one or more of 
these programs, in addition, of course, to the traditional renewable 
energy sources. All of these states have taken an approach that favors 
renewable sources compared to the other qualifying sources, either by 
establishing ``tiers'' that define some fraction of the clean energy 
targets that must be achieved by renewable sources, or by giving 
renewable sources extra credits.
The proposed Clean Energy Standard Act of 2012
    Let us now turn to Sen. Bingaman's bill, the Clean Energy Standard 
Act of 2012. The bill would, beginning in 2015, require covered 
electric utilities to supply an increasing share of their electricity 
sales from qualifying clean energy sources. Utilities could comply by 
building their own clean power plants, buying clean power from others, 
or buying tradable clean energy credits.
    Senator Bingaman's CES proposal embodies a number of design 
features, including the following, that are innovative and reasonably 
balance the multiple objectives I described earlier:

   A target that starts off modestly but increases over time, 
        balancing effectiveness and cost, and driving innovation;
   A broad, ``all-of-the above'' definition of clean energy, 
        maximizing flexibility and minimizing cost;
   Appropriately rewarding environmental performance by 
        calculating credits based on carbon intensity;
   Providing some credit for existing nuclear and hydropower, 
        balancing the goal of fairly sharing costs with the goal of 
        recognizing clean energy investment;
   Allowing banking of clean energy credits, affording 
        additional compliance flexibility;
   Allowing utilities to pay an alternative compliance payment 
        if clean energy credit prices get too high, but escalating the 
        payment over time; and
   Advancing energy efficiency by providing credit for combined 
        heat and power, and using alternate compliance payments to fund 
        state efficiency programs.

    At Sen. Bingaman's request the Energy Information Administration 
has analyzed the implications of the bill using the National Energy 
Modeling System. As with all economic modeling, we should look at the 
EIA's work for insights, rather than for hard and fast predictions 
about the future. In that spirit, we offer the following additional 
observations about the bill.
The Act and natural gas
    Pertaining to the balancing of natural gas against the other clean 
energy technologies, the EIA projects that under the proposed standard, 
in 2035, natural gas will be 31 percent, nuclear power will be 30 
percent, and renewables will be 20 percent of the total generation 
mix.\22\ According to EIA's scenario, the bill drives the largest 
increase in natural gas use in the early years, but as the standard 
becomes more ambitious, we see an increase in lower-emitting 
technologies. In 2020, natural gas-fired generation under the proposed 
standard is 13 percent higher than in the reference scenario; by 2035 
it is 8 percent higher.\23\ Thus the bill takes advantage of natural 
gas's near-term price and availability while still driving innovation 
in much cleaner technologies. Additionally, the investment in a range 
of low emitting technologies in response to the CES provides supply 
diversity, and a hedge against potential volatility in the price of 
natural gas.
---------------------------------------------------------------------------
    \22\ ``Analysis of the Clean Energy Standard Act of 2012: Scenario 
Case Data,'' U.S. Energy Information Administration, last accessed May 
11, 2012, http://www.eia.gov/analysis/requests/bces12/.
    \23\ Ibid.
---------------------------------------------------------------------------
    Moreover, the EIA projects only a modest natural gas price 
increase, as increased consumption from the electric power sector leads 
to prices around 10 percent higher than the reference case from 2015-
2018. Then, the price converges to reference case levels over the 
following five years.\24\ Given the very low projected price of natural 
gas, in absolute terms, this is actually a small increase. This is good 
news, considering the current investments being made by manufacturers 
on the basis of projected low natural gas prices.
---------------------------------------------------------------------------
    \24\ Ibid.
---------------------------------------------------------------------------
The Act and very low-emitting technologies
    This modestly increased role for gas, however, depends on a 
significant increase in one or more very low-emitting technologies. EIA 
projects especially large growth in nuclear power that may or may not 
come to pass. EIA also projects some increase in biomass, wind and 
solar power, but no increase in coal (or gas) with carbon capture and 
storage. In EIA's analysis of a case in which new nuclear plant builds 
were constrained, and other assumptions were held constant, natural gas 
played a more significant role, and this uniformly raised the projected 
price of natural gas. One could still project a more modest role for 
natural gas with less growth in nuclear power but with more optimistic 
assumptions for renewables and/or carbon capture and storage.
    If policy-makers are interested in ensuring innovation in zero-
emitting technologies, policy options are available, as discussed 
earlier. In any event, C2ES would strongly recommend making a Clean 
Energy Standard just one component of a comprehensive strategy to 
advance the very low-emitting technologies - nuclear power, renewable 
energy, and carbon capture and storage--a strategy that includes 
support for R&D, as well as subsidies to allow power companies and 
others to deploy the technologies.
    Nuclear power plants face a number of major hurdles. One hurdle 
that policy-makers could address is obtaining financing, for example by 
continuing and potentially expanding the current loan guarantee program 
and/or providing other forms of financial assistance to a few ``first 
mover'' next-generation nuclear plants. This could demonstrate to 
potential investors that these plants can indeed be built with lower 
cost and improved safety features, setting the stage for second, third, 
and nth movers to obtain private financing. This would increase the 
likelihood of nuclear power playing a significant role in achieving a 
clean energy standard.
    For wind and solar power, EIA projects increases that are 
significant but not nearly as large as for nuclear power, relative to 
the reference case. Also, EIA assumes that the production tax credit 
(PTC) for wind expires in 2012, and the investment tax credit (ITC) for 
solar expires in 2016. Extending the PTC and ITC could incentivize 
additional solar and wind investment beyond what would be built solely 
to comply with the CES.
    EIA projects that additional coal (or gas) with CCS will not be 
deployed under this bill because it is not cost-competitive with other 
clean energy options. It is technically feasible today to build a 
commercial-scale CCS operation, which several power companies are 
doing.\25\ However, CCS is very expensive due to its current stage of 
development,\26\ and planned projects are limited primarily because of 
uncertainty with respect to the regulation of CO2 emissions. 
Coal--and natural gas-fired generation will likely be significant 
sources of electricity in the United States, and indeed in most of 
world's major economies, for decades to come. Thus, ultimately, in 
order to deeply reduce U.S. and global GHG emissions, we need CCS.\27\
---------------------------------------------------------------------------
    \25\ ``Projects,'' Global CCS Institute, last accessed May 10, 
2012, http://www.globalccsinstitute.com/projects/browse.
    \26\ ``Levelized Cost of New Generation Resources in the Annual 
Energy Outlook 2011,'' U.S. Energy Information Administration, last 
accessed May 11, 2012, http://www.eia.gov/forecasts/archive/aeo11/
electricity__generation.cfm#1.
    \27\ Naomi Pena and Edward S. Rubin, A Trust Fund Approach to 
Accelerating Deployment of CCS: Options and Considerations, (Center for 
Climate and Energy Solutions, 2008), http://www.c2es.org/docUploads/
Trust-Fund-FINAL.pdf.
---------------------------------------------------------------------------
    One approach for advancing CCS would involve utilizing the 
CO2 as a resource, rather than treating it as a waste 
product. C2ES is a co-convener of a coalition of industry, state, 
environmental and labor leaders, known as the National Enhanced Oil 
Recovery Initiative (www.neori.org), which has called for a federal tax 
credit for capturing and transporting CO2 from industrial 
sources and power plants for use in enhanced oil recovery.\28\ In 
addition to driving a lot of domestic oil production, a benefit of such 
a program would be to generate an additional revenue stream to cover 
the cost of CCS. We would expect that as CCS costs come down, it would 
enable coal to have a bigger role.\29\
---------------------------------------------------------------------------
    \28\ National Enhanced Oil Recovery Initiative, Carbon Dioxide 
Enhanced Oil Recovery: A Critical Domestic Energy, Economic, and 
Environmental Opportunity (Washington, DC: 2012), http://www.neori.org/
NEORI__Report.pdf.
    \29\ National Energy Technology Lab, Carbon Dioxide Enhanced Oil 
Recovery (U.S. Department of Energy, 2010), http://www.netl.doe.gov/
technologies/oil-gas/publications/EP/
small__CO2__eor__primer.pdf.
---------------------------------------------------------------------------
Other Impacts of the Act
    EIA projects that under the CES, electricity prices would not 
experience a significant impact until the mid 2020s. The projected 
average end-use electricity price under Senator Bingaman's bill exceeds 
the Reference case by only 1.5 percent in 2023, but that grows to more 
than 18 percent by 2035. There would be almost no impact for the first 
ten years, with a gradual increase over the next dozen years, giving 
people and companies both an incentive to increase their energy 
efficiency (and potentially reduce their energy bills even as prices 
increase) and ample time to do so.
    Also, total combined heat and power (CHP) generation would benefit 
from the policy provision that allows qualified CHP generators to earn 
and sell clean energy credits. According to the EIA, CHP generation 
fired by natural gas under the bill exceeds the Reference case by 8 
percent in 2025 and by 21 percent in 2035. CHP saves energy and 
promotes industrial competitiveness.\30\
---------------------------------------------------------------------------
    \30\ ``Cogeneration / Combined Heat and Power (CHP),'' Center for 
Climate and Energy Solutions, last modified March 2011, http://
www.c2es.org/technology/factsheet/CogenerationCHP.
---------------------------------------------------------------------------
Conclusion
    Senator Bingaman, thank you for introducing this bill and beginning 
the public debate on this promising approach to protecting the 
environment, diversifying energy supply, and promoting clean energy 
industries. C2ES is grateful for your leadership, and we look forward 
to working with you and your colleagues on the Committee to analyze, 
refine and advance this proposal.

    The Chairman. Thank you very much.
    Mr. O'Mara.

 STATEMENT OF COLLIN O'MARA, SECRETARY, DELAWARE DEPARTMENT OF 
     NATURAL RESOURCES AND ENVIRONMENTAL CONTROL, DOVER, DE

    Mr. O'Mara. Chairman Bingaman, Ranking Member Murkowski, 
members of the committee, thank you for having us today. On 
behalf of the Governor of the great State of Delaware, Jack 
Markell, we appreciate the opportunity.
    My name is Collin O'Mara and I serve as the Secretary of 
Energy and Environment. For the past 3 years we've been working 
hard to modernize Delaware's entire energy fleet in an effort 
to improve reliability, reduce and stabilize costs, spur local 
job creation, improve air quality, reduce greenhouse gas 
emissions and obviously improve public health. To achieve these 
outcomes we've worked on a lot of different fronts many of 
which are contained within this bill.
    We've worked to in spur additional local generation from 
natural gas, from combined cycle, co-gen and combined heat and 
power to transform our largest coal unit into one of the 
Nation's cleanest, 2 fuel switch or phaseout, legacy units, to 
invest in energy efficiency and demand response, to support 
transmission and distribution upgrades and to deploy clean, 
renewable energy.
    All these things together are resulting in significant 
private investment and new local jobs in manufacturing, 
construction and facility operations. Since 2009 Delaware has 
benefited from more than $2 billion of investment in energy 
facility modernization and thousands of jobs being created in 
energy related industries. Delaware companies like NRG, 
Calpine, PBF, DuPont, Perdue, Mountaire, Ervaz Steel and Croda 
have all made significant upgrades to their energy facilities.
    At the same time we're experiencing declining energy bills 
and dramatic reductions of both carbon emissions and 
traditional pollutants. It's the equivalent of taking nearly 
half a million cars off the road. So, if you've ever been stuck 
in Delaware and see a lot of cars that will get you through 95 
a little quicker.
    We believe that Delaware's experience demonstrates that the 
conversion to a cleaner energy system, as proposed through 
Senator Bingaman's 2146, is not only technically feasible, but 
it also advances numerous polar policy goals ranging from 
enhancing American competitiveness and supporting job creation 
to improving air quality and public health. The predictability 
alone created by a national and technology agnostic Clean 
Energy Standard will drive private investment in innovation, 
manufacturing facilities and deployment of scales of a range of 
clean technologies.
    Based upon our experience in Delaware we offer 3 
recommendations to strengthen the proposed legislation.
    The first one is to please ensure complimentarity with the 
State standards. 40 States have either a renewable portfolio 
standard or a goal or an energy efficiency resource standard. 
In Delaware we've seen our energy standards drive manufacturing 
and construction and construction jobs.
    Recently with the help of Senator Carper and Senator Coons, 
Governor Markell was able to announce the decision of Bloom 
Energy, an innovative fuel cell company. That they were going 
to locate their manufacturing plant in Delaware on the site of 
a former Chrysler facility. They're going to be creating about 
1,000 jobs manufacturing this technology of the future.
    We've also seen significant private investment in energy 
efficiency, solar, geothermal and hopefully 1 day, offshore 
wind, as that becomes more financeable.
    We greatly appreciate Section L in the legislation and 
recommend its inclusion to preclude any kind of State exemption 
or State pre-emption. To the point of Senator Wyden, we do 
believe that the suggestion of providing some kind of authority 
for the Secretary of Energy in Section L, Subsection 2, to 
establish some form of alternative compliance pathway through 
which States that have these policies in place can demonstrate 
that they meet or exceed CES requirements and be exempted or 
get a waiver for having already achieved the outcome intended 
by the legislation.
    No. 2 is the importance of energy efficiency. There's been 
a lot of debate today about cost. This committee has championed 
in the importance of advancing energy efficiency including the 
strong bipartisan passage of the Shaheen-Portman S. 1000 last 
year.
    Investments in energy efficiency and other electricity 
demand reducing technologies including geothermal, solar 
thermal, district heating, co-gen, CHP and more have 
significant potential to reduce emissions in the most cost 
effective manner. Energy efficiency is our Nation's greatest 
energy supply resource. It represents the greatest opportunity 
we have to reduce energy costs for everyone and reduce 
emissions at the same time. It will spur investments in every 
single State in the Union.
    For these reasons, as Senator Shaheen mentioned just a few 
minutes ago, we encourage the inclusion in the CES of energy 
efficiency from the onset. This will ensure that CES actually 
reduces overall energy costs even well below the EIA reference 
case that we discussed in the last panel.
    To accomplish this we believe that we recommend that the 
Secretary of Energy be directed to establish a national 
evaluation measurement and verification standard. Many States 
have good models that could be built upon. This standard would 
then define how energy efficiency investments would count 
toward the CES requirements. Once completed would allow these 
technologies to be eligible under the CES. We believe that it's 
critical to do this from the beginning because it is the best 
way to reduce energy prices across the entire country.
    In addition we support the language in Section J which 
directs the alternative compliance payments to be provided to 
the States many of which have a very strong track records and 
years of experience implementing energy efficiency programs.
    Delaware, for example, has worked with many different 
utilities and many different companies to support a wide range 
of efficiency programs to help local governments, homeowners, 
businesses, heavy industry, agriculture and low income 
families. We believe these successes can be replicated across 
the country.
    My third point is that on the evaluation of emissions. The 
CES does present an incredible opportunity to have a technology 
agnostic approach to have all technologies compete fairly in 
the marketplace in a manner that actually aligns environmental 
incentives and economic interests in the same way. To ensure 
that the projected overall emission reductions are actually 
achieved we do suggest that the Secretary of Energy is directed 
in Section G of the legislation to incorporate life cycle 
emissions into the carbon intensity calculations, at least 
going forward to make sure that we're actually reducing overall 
aggregate emissions to the best of our ability.
    In summary, we commend the leadership of the entire 
committee. Senator Bingaman in particular, for his years of 
leadership on this issue and the co-sponsors for introducing 
this legislation which we believe carefully balances the goal 
of expanding the generation of a clean, domestic energy in a 
way that meets our long term and economic goals.
    I'm very grateful again for the opportunity to represent 
Delaware today and look forward to your questions. So, thank 
you.
    [The prepared statement of Mr. O'Mara follows:]

Prepared Statement of Collin O'Mara, Secretary, Delaware Department of 
         Natural Resources and Environmental Control, Dover, DE
    Chairman Bingaman, Ranking Member Murkowski, and members of the 
Committee, on behalf of Delaware Governor Jack Markell, thank you for 
the opportunity to testify today.
    For the past three years, we have been working to modernize 
Delaware's electric power generation fleet in an effort to improve 
reliability, reduce and stabilize both short-term and long-term energy 
costs, spur local job creation, improve air quality, reduce greenhouse 
gas emissions, and improve public health. To achieve these outcomes, we 
have worked on several initiatives: to spur additional local generation 
from natural gas combined-cycle, co-generation, and combined heat and 
power units\1\; to transform our largest coal plant into one of the 
nation's cleanest; to fuel switch or phase-out legacy units; to invest 
in energy efficiency and demand response; to support transmission and 
distribution upgrades; and to deploy clean renewable sources of energy 
(solar, fuel cells, geothermal, and eventually offshore wind when 
financeable/cost-effective)\2\.
---------------------------------------------------------------------------
    \1\ Delaware is working to take advantage of low priced natural gas 
for in-state generation and also are working with our neighboring 
states to ensure that additional natural gas from hydraulic fracturing 
is extracted safely to ensure that current and future generations can 
benefit from this cleaner source of domestic energy.
    \2\ Delaware currently has 1,171 solar photovoltatic systems in 
operation comprising 28 megawatts of installed capacity. The State 
Green Energy Program also has enabled the installation of 77 solar 
thermal water heaters (capacity: 4,712 square feet) and 1,011 
geothermal heat pumps (capacity: 5,232.5 tons). Also, Bloom Energy is 
in the process of installing 30 MW of fuel cell capacity in Delaware.
---------------------------------------------------------------------------
    This strategy is resulting in significant private investment and 
new local jobs in manufacturing, construction, and facility operations. 
Since 2009, Delaware has enjoyed more than $2 billion of private 
investment in energy facility modernization and thousands of jobs 
created in energy-related industries. Delaware companies, including 
NRG, Calpine, PBF, DuPont, Perdue, Mountaire, Evraz Steel, and Croda, 
have all made significant upgrades to their energy facilities. Most of 
these projects have been true public-private partnerships with state 
providing assistance either with the financing or expedited permitting 
to ensure completion. At the same time, we are experiencing declining 
energy bills and dramatic reductions in carbon emissions and 
traditional pollutants from our power generation sector\3\. These 
ongoing efforts have reduced air pollution by the equivalent of taking 
almost half a million cars off the road.
---------------------------------------------------------------------------
    \3\ However, Delaware receives more than 90% of its air pollution 
from upwind sources, and thus our ability to ensure clean air depends 
on similar actions by upwind states.
---------------------------------------------------------------------------
    We believe that Delaware's experience is a success, but not unique. 
It demonstrates that the conversion to a cleaner energy system, as 
proposed through S. 2146, is not only technically feasible, but also 
advances numerous policy goals, ranging from enhancing American 
competitiveness and supporting job creation to improving air quality. A 
national Clean Energy Standard (CES) provides predictability for 
consumers and manufacturers alike and encourages private investment in 
innovation, manufacturing facilities, and deployment at scale-all of 
which ultimately drive down consumer costs, support job creation, and 
improve environmental outcomes.
    Based upon our experience, here are a few recommendations which 
could strengthen the proposed legislation:

          1. Complementarity with State Standards--Forty states, 
        including Delaware, have adopted some form of a Renewable 
        Portfolio Standard/Goal and/or an Energy Efficiency Resource 
        Standard.\4\ In Delaware, we have seen our energy standard 
        drive manufacturing and construction jobs. Recently, with the 
        help of Senators Carper and Coons, Governor Markell announced 
        the decision of Bloom Energy to manufacture their next 
        generation solid oxide fuel cell in Delaware, creating nearly 
        1000 jobs on the site of a former Chrysler auto plant which is 
        being transformed into the University of Delaware's Science 
        Technology and Advanced Research (STAR) Park. DuPont is 
        building its North American Photovoltaic Research Center in 
        Delaware and local solar manufacturers, including Motech 
        Americas (photovoltaic) and SolarDock (racking), just received 
        record orders for their products. Hundreds of construction jobs 
        have been supported by the deployment of more than 28 megawatts 
        of solar photovoltaic, more than 5200 tons of geothermal heat 
        pumps, and 30 megawatts of fuel cells.
---------------------------------------------------------------------------
    \4\ Delaware's Renewable Portfolio Standard is 25% by 2025 and the 
state's Energy Efficiency Resource Standard is 15% by 2015. Thirty-one 
states have Renewable Portfolio Standard or Alternative Energy and 
Renewable Portfolio Standard policies: AZ, CA, CO, CT, DE, HI, IL, IA, 
KS, MA, ME, MD, MI, MN, MS, MO NV, NH, NJ, NM, NY, NC, OH, OR, PA, RI, 
TX, VT, WA, WI, WV, as do DC and PR. Eight additional states have 
renewable portfolio goals: AK, FL, IN, OK, ND, SD, UT, VA. Twenty-six 
states have Energy Efficiency, Resource Standard policies currently in 
place: AZ, AK, CA, CO, DE, HI, IL, IN, IA, MA, ME, MD, MI, MN, NC, NM, 
NV, NY, OH, OR, PA, RI, TX, VT, WA, WI (www.c2es.org; www.aceee.org).
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          On behalf of the states with existing standards, we 
        appreciate Section (l) and recommend its continued inclusion to 
        avoid any form of state pre-emption. In addition, we suggest 
        providing authority for the Secretary of Energy in Section (l) 
        subsection (2) to establish an alternative compliance pathway 
        through which states can demonstrate that their policies meet 
        or exceed emission reductions required under the national 
        standard to avoid creation of multiple regulatory regimes.
          2. Importance of Energy Efficiency--This Committee has 
        clearly understood the importance of advancing innovative, non-
        generation energy opportunities, among them recognizing the 
        power of energy efficiency. This is embodied in the strong, 
        bipartisan passage of the Shaheen/Portman bill (S. 1000) last 
        year. While challenging to integrate into an energy standard 
        primarily established for power generation, investments in 
        technologies that reduce or displace energy consumption, 
        including energy efficiency, geothermal, solar thermal, 
        district heating, and more, have significant potential to 
        reduce emissions in a cost-effective manner.
          In particular, energy efficiency is our nation's greatest 
        energy supply resource and represents the greatest potential to 
        reduce energy costs compared to any other supply 
        alternative.\5\ Allowing energy efficiency technologies into 
        the CES from the beginning will ensure that the standard 
        reduces overall implementation costs, even below the status quo 
        reference case projected by the Energy Information 
        Administration (EIA).\6\ Significant efficiency opportunities 
        exist in every state that are achievable and easy to implement 
        in the near-term-and several states have repeatedly 
        demonstrated the numerous benefits of energy efficiency 
        investments, including local job creation, increased disposable 
        income to support local economies, healthier buildings, and 
        more productive employees.
---------------------------------------------------------------------------
    \5\ ACEEE has estimated that 16-30% of all energy consumption could 
be reduced through cost-effective efficiency measures by 2035. Cost-
effective energy efficiency means that by definition these activities 
would reduce energy costs from the reference case and thus would 
significantly reduce the price impact of the CES.
    \6\ Delaware, like several other states, is working to determine 
the best way to integrate established, but separate, RPS and EERS 
statutes--a challenge which an integrated CES could avoid from the 
onset.
---------------------------------------------------------------------------
          While Section (n) recognizes the importance of energy 
        efficiency and other electricity demand reducing technologies, 
        we encourage the inclusion of these technologies in the initial 
        standard, possibly in a manner similar to the treatment of heat 
        from a CHP unit, rather than waiting for a report from the 
        Secretary of Energy. Specifically, we suggest that S. 2146 
        include these technologies as eligible resources and direct the 
        Secretary of Energy to establish a national Evaluation, 
        Measurement, and Verification (EM&V) standard, which would 
        define how efficiency investments would be counted towards the 
        CES requirements.\7\
---------------------------------------------------------------------------
    \7\ The states would be required to implement EM&V standards 
established by the Secretary of Energy.
---------------------------------------------------------------------------
          Alternatively, Section (n) could give the Secretary of Energy 
        the ability to incorporate the findings of the required report 
        directly into the standard, rather than as recommendations, if 
        they are demonstrated to reduce compliance costs. Ideally, the 
        report would be required much earlier than the currently 
        drafted three year timeframe, which would have the unfortunate 
        and unintended consequence of unnecessarily delaying cost-
        savings and creation of local jobs for multiple years.

    Either approach would drive additional near-term investment, 
significantly reduce compliance costs (below the EIA reference case), 
spur greater job creation,\8\ and unleash opportunities to reduce 
emissions well-below the projected 40 percent reduction by 2035 at the 
lowest possible cost.\9\
---------------------------------------------------------------------------
    \8\ Numerous studies, including recent analysis by ACEEE, have 
shown that 17-20 jobs are created for every $1 million invested in 
energy efficiency compared to less than 10 jobs for traditional energy 
generation projects.
    \9\ If the concern exists that the allowance of energy efficiency 
could crowd out other technologies, possible remedies include 
increasing annual CES requirements, including energy displaced by 
energy efficiency in a ultilities' total sales calculation, or allowing 
unlimited energy efficiency to be credited only during a defined period 
of time.
---------------------------------------------------------------------------
    In addition, we support the language in Section (j), which directs 
that alternative compliance payments be provided to the states, many of 
which have a strong track record of implementing energy efficiency 
programs. Delaware, for example, has worked with the Delaware 
Sustainable Energy Utility and local electric and gas utilities, 
including the Delaware Electric Cooperative, Delmarva Power and Light, 
the Delaware Municipal Electric Corporation, and Chesapeake Utilities, 
to support a wide range of efficiency programs to help local 
governments, homeowners, businesses, heavy industry, agriculture, and 
low-income families.\10\
---------------------------------------------------------------------------
    \10\ Delaware participates in the Regional Greenhouse Gas 
Initiative and uses the proceeds for efficiency programs.

          3. Evaluation of emissions--The proposed CES presents an 
        opportunity to have all technologies compete fairly and in a 
        manner that aligns economic and environmental interests. 
        However, to ensure that the anticipated reduction in aggregate 
        greenhouse gas emissions are realized, we suggest directing the 
        Secretary of Energy in Section (g) to incorporate lifecycle 
        emissions into the carbon-intensity calculation to allow 
        apples-to-apples comparisons among technologies and to ensure 
        than projected overall emission reductions are achieved.\11\
---------------------------------------------------------------------------
    \11\ While a full lifecycle analysis is preferable, the carbon 
intensity calculation should be calculated from the gross emissions 
necessary for generating electricity, rather than the net emissions 
after deducting any electricity consumed for plant operations.

    In summary, we commend the leadership of Senator Bingaman and other 
cosponsors for having the foresight to introduce this legislation. We 
believe that S. 2146 carefully balances the goal of expanding the 
generation of a diversity of domestically available clean energy 
sources in a way that meets our long-term economic goals and reduces 
greenhouse gas emissions and other pollutants. We believe that 
legislation of this nature can and should be implemented on a federal 
level, which would provide multiple benefits nationwide and support 
clean energy initiatives already underway in more than half of the 
states.
    Again, thank you for the opportunity to testify before you today on 
this important legislation. I look forward to answering any questions.

    The Chairman. Thank you very much.
    Mr. Gibson.

STATEMENT OF THOMAS J. GIBSON, PRESIDENT AND CEO, AMERICAN IRON 
                      AND STEEL INSTITUTE

    Mr. Gibson. Chairman Bingaman, Ranking Member Murkowski, 
members of the committee, thank you for the invitation to 
appear today. I am Tom Gibson, President and CEO of the 
American Iron and Steel Institute. AISI is comprised of 25 
member companies producing 3-quarters of U.S. and North 
American steel.
    AISI is concerned about electricity costs and reliability 
issues that may result from additional regulation of the 
electricity sector. The simple fact is that compliance costs 
will ultimately be passed on to us, the consumers. Excuse me.
    Like the rest of our economy, the steel industry is 
recovering from the depths of the recession but it's far from 
fully recovered. There are positive signs that the economy 
continues on a slow, but steady recovery although subject to 
volatility, particularly related to the downturn in Europe and 
the slowdown of the Chinese economy. Our latest 2012 estimate 
is for domestic steel shipments of 97 million tons which would 
be an increase of roughly 5 percent over 2011.
    But this amount only matches our shipments in 1995. Only 
represents 90 percent of our 5 year pre-recession average. The 
production of steel is inherently energy intensive and the 
industry consumes substantial amounts of electricity, natural 
gas, coal and coke.
    In 2010, the steel industry consumed 45 billion kilowatt 
hours of electricity. Overall, energy is typically 20 percent 
or more of the cost of making steel. So reducing energy use is 
critical to profitability. It's critical to competitiveness and 
it's a core value for our members.
    The United States industry has effectively set the bar for 
steel energy efficiency worldwide reducing its energy intensity 
by 27 percent since 1990 or reducing its greenhouse gas 
emissions by 33 percent over the same period. DOE data confirms 
that our steel industry has the lowest energy intensity and 
second lowest CO2 emissions intensity of any major 
steel producing country. The U.S. is winning the race for clean 
steel.
    The EIA analysis of S. 2146 highlights our key concerns 
that a CES will raise the price of electricity to customers and 
to large industrial facilities in particular. EIA projects that 
by 2035 national electricity prices will be 18 percent higher 
than the reference case. But for industrial consumers the 
report concludes electricity will cost 25 percent more.
    The economic impact will be exacerbated for the steel 
industry due to the so called regional differences in the fuel 
mix and the cost to switch to other fuels. A national CES will 
have a disproportionate impact on coal fired utilities. There's 
a high correlation between the service areas of those utilities 
and the location of steel and iron production facilities such 
as the 2 States that lead the Nation in steel production, 
Indiana and Ohio.
    The domestic steel industry is subject to substantial 
international competition. In particular this competition comes 
from Nations such as China where the industry is largely State 
owned, controlled, supported and subsidized. In just 2 recent 
trade cases the Commerce Department determined that Chinese 
steel pipe producers were benefiting from below market 
subsidized electricity. Increasing electricity rates would put 
U.S. producers at an even greater disadvantage.
    Additionally, the EIA analysis does not take the entire 
suite of proposed or pending EPA regulations of the utility 
sector into account. Compliance with some of these regulations 
will work across purposes to a CES by requiring technologies 
that reduce energy efficiency. If a CES moves forward better 
regulatory coordination and a rationalization of the multiple 
requirements, multiple regulatory requirements is something 
that should be examined.
    AISI also believes that the benefits of domestic shale gas 
should be fully recognized in the CES program. Our industry 
consumes large amounts of natural gas. Will benefit from 
increased supply resulting from shale production which keeps 
gas both reliable and affordable.
    Affordable natural gas is also allowing the industry to 
implement even more efficient and less carbon intensive steel 
making methods and processes.
    Finally, we appreciate the recognition of industrial energy 
efficiency in the legislation. However, a CES should be broader 
and should recognize the energy efficiency investments made at 
facilities in recent years in addition to those improvements 
made prospectively.
    In conclusion, AISI does not support the creation of a 
Federal standard for electricity producers because of the 
impacts on energy intensive, trade exposed manufacturers like 
steel. While the largest cost increases may appear far off in 
the future steel plants have long life capital assets. A steel 
plant cannot simply move to an area with an easier compliance 
burden and lower costs under a CES. A new facility built today 
will still be in service in 2035 and for decades beyond as will 
many existing facilities.
    Further, market forces and other EPA regulations are 
already moving electricity generation away from coal and toward 
lower carbon fuels. AISI would support a comprehensive and 
market driven energy policy built around promoting greater 
development of all domestic energy sources, incentives for 
efficiency improvements and additional support for 
manufacturing industry efforts to develop breakthrough 
technologies. These polices would serve to meet shared national 
clean energy goals while avoiding the negative impact a CES 
would have on the manufacturing sector.
    Thank you for your time today. Thank you for allowing me to 
testify. I look forward to your questions.
    [The prepared statement of Mr. Gibson follows:]

  Prepared Statement of Thomas J. Gibson, President and CEO, American 
                        Iron and Steel Institute
Introduction & Industry Background
    Chairman Bingaman, Ranking Member Murkowski, and members of the 
Committee, thank you for your invitation to appear today. I am Tom 
Gibson, President and CEO of the American Iron and Steel Institute. 
AISI serves as the voice of the North American steel industry and is 
comprised of 25 member companies, including both integrated and 
electric arc furnace steelmakers. Our member companies represent over 
three quarters of both U.S. and North American steel capacity.
    Steel and other manufacturing industries are the backbone of the 
U.S. economy. A strong manufacturing sector creates significant 
benefits for society, including good-paying jobs, investment in 
research and development, essential materials for our national defense, 
and highvalue exports. A robust American steel industry is critical to 
leading the domestic economy into recovery.
    AISI is concerned about increased electricity costs and reliability 
issues that may result from additional regulation of the utility 
sector, including a national Clean Energy Standard (CES). The consumers 
of electricity will ultimately have the compliance costs and 
reliability risks passed on to them.
    AISI recently commissioned a report by Professor Timothy J. 
Considine of the University of Wyoming on the industry's impact on the 
U.S. economy. Professor Considine found that the steel industry's 
purchases of materials, energy, and supplies for the production of 
steel stimulate economic output and employment in a range of sectors 
across the economy. Steel's economic contributions are multiplied many 
times over, with Professor Considine finding that every $1 increase in 
sales by our sector increases total output in the U.S. economy by 
$2.66. Additionally, he found that every individual job in the steel 
industry supports seven additional jobs in other sectors of the 
economy. In aggregate, the steel industry accounts for over $101 
billion in economic activity and supports more than 1 million jobs 
across the country. A copy of that study is attached to my testimony 
and I request that it be made part of the hearing record.
    Like the rest of our economy, the steel industry is recovering from 
the depths of the recession but far from fully recovered. As we near 
the midpoint of 2012, there are positive signs that the economy 
continues on a slow but steady recovery, although subject to 
volatility--particularly related to the downturn in Europe's economy 
and the slowdown of the Chinese economy. AISI's latest estimate is for 
shipments of 97 million tons for 2012, which would be an increase of 
roughly 5 percent over the 92 million tons the industry shipped in 
2011. Shipments of 97 million tons are only equivalent to our shipments 
in 1995, and represent only 90 percent of our five-year prerecession 
average shipments of 108 million tons.
    Domestic capacity utilization rose to 79 percent in the first 
quarter, a 6 percent improvement from the previous quarter. Total 
finished steel import market share year-to-date is at 23 percent, and 
imports are increasing at a faster rate than our domestic steel market 
is recovering. The most recent Department of Commerce Steel Import 
Monitoring and Analysis data for the month of April recorded another 
sharp rise in finished imports to the highest level since October of 
2008. We are very concerned about this trend and sensitive to policy 
changes that could make production here more expensive and less 
internationally competitive.
Steel & Energy
    The production of steel is inherently energy intensive, and the 
industry consumes substantial amounts of electricity, natural gas, and 
coal and coke to make our products. In 2010 our domestic industry 
consumed 45.7 billion kWh of electricity. Energy is typically 20 
percent or more of the cost of making steel and, as such, energy 
efficiency is key to our industry's competitiveness.
    AISI members are doing everything they can to increase energy 
efficiency, and we are leading the way by effectively setting the bar 
for steel industry efficiency worldwide. AISI members have made 
substantial gains in reducing their energy usage, as well as their 
environmental footprint, over the last two decades. The domestic steel 
industry has voluntarily reduced its energy intensity by 27 percent 
since 1990, while reducing its greenhouse gas (GHG) emissions by 33 
percent over the same time period. In fact, data presented by the U.S. 
Department of Energy at a recent meeting of Global Superior Energy 
Partnership's Steel Task Group showed that the steel industry in the 
U.S. has the lowest energy intensity and second-lowest CO2 
emissions intensity of any major steel producing country.
    While we approach the practical limits for efficiency using today's 
processes and continue to pursue incremental gains, AISI members are 
not resting on their laurels. We recognized in 2003 that in order to 
make any further significant improvement in energy use, new 
breakthrough technologies would be needed. It was at that time the 
industry began investing, often in partnership with DOE, in the 
CO2 Breakthrough Program, a suite of research projects 
designed to develop new ironmaking technologies that emit little or no 
CO2 while conserving energy. We have developed two key 
technologies to achieve those goals since that time, and they are now 
ready for pilot scale testing. The research is being done at MIT and 
University of Utah and both projects are the subject of proposals 
currently under consideration for DOE cost-sharing. This successful 
partnership with DOE, along with the continued support of Congress, 
will accelerate the development and deployment of critical technologies 
such as these.
Concerns with S. 2146
    A national CES imposes its direct requirements on the utility 
sector, not on its customers, but it is the customers that will bear 
the costs associated with compliance. Our principal concern is that 
this will inevitably raise the costs of electricity to large industrial 
customers like steel, while potentially lessening the quality and 
reliability of electricity supply. The analysis of S. 2146 performed by 
the Energy Information Administration (EIA) highlights key concerns 
about a CES raising the price of electricity to customers, and to large 
industrial facilities in particular. EIA projects that by 2035, 
national electricity prices will be 18 percent higher than the 
reference case. For industrial customers, the report concludes that 
electricity will cost 25 percent more under a CES than it otherwise 
would.
    This economic impact will be exacerbated for the steel industry due 
to the regional differences in current fuel mix and the cost to switch 
to other fuels for the generation of electricity. EIA projects that S. 
2146 will substantially reduce coal-fired generation. Compared with a 
reference case, coal generation would decline by 25 percent in 2025 and 
by over half--54 percent--in 2035. Thus, within two decades, the 
electricity generation infrastructure of the United States would 
radically shift from the fuel mix that has been in place since the 
advent of significant nuclear power generation around 1970.
    Certain areas of the country are better suited for renewable 
production from wind and solar sources, while others have an abundance 
of coal sources. As noted above, creating a national CES will have a 
disproportionate impact on coal-fired utilities, and there is a high 
correlation between the service areas of those utilities and the 
location of steel production facilities. Industrial customers, 
especially steel producers, will be charged to offset the cost of 
replacing coal capacity with other sources, including the cost of new 
transmission infrastructure.
    The two leading states in terms of iron and steel production in the 
U.S. are Indiana and Ohio, while other important states for the 
industry are Alabama, Pennsylvania, Kentucky, and Michigan. All of 
these states are heavily dependent on coal for electricity production, 
and in turn, so is our industry. EIA projects in its Annual Energy 
Outlook 2012 Early Release that by 2035, 39 percent of electricity 
generation will be from coal. In its analysis of S. 2146, it projects 
this percentage to drop to 18.7 percent in 2035, a result that will 
disproportionately impact the steel industry.
    Legislative and regulatory policy measures that impact energy 
availability and reliability influence each company's competitive 
situation in a unique way. And, as also noted above, the domestic steel 
industry is subject to substantial international competition. In 
particular, this competition comes from nations such as China, where 
the industry is largely state owned, controlled, and subsidized. In two 
recent countervailing duty cases, the Department of Commerce determined 
that Chinese steel pipe producers were receiving below market rates for 
electricity, which constitutes a subsidy. For the steel industry, 
operating in the U.S. under tight margins with substantial subsidized 
competition from overseas, policies that raise energy costs on domestic 
companies threaten our ability to remain competitive.
    Additionally, while the EIA does factor the Cross-State Air 
Pollution Rule (``CSAPR'') into its analysis, it does not quantify the 
impact of other proposed or pending EPA regulations of the utility 
sector. These regulations, including the Mercury and Air Toxics 
Standards Rule, or ``Utility MACT,'' greenhouse gas utility 
regulations, coal combustion residuals, and Clean Water Act section 
316(b) cooling water intake structures, will all have an impact on 
coal-fired utilities, and therefore threaten the availability and 
reliability of electricity to large industrial customers.
    If a CES were to move forward, EPA regulatory policies could act at 
cross-purposes. Some clean air technologies result in the consumption 
of additional energy and thus might act contrary to the purposes of a 
CES. Otherwise, existing electricity-generating infrastructure will 
face multiple retrofit requirements that are presently scheduled to 
occur at virtually the same time. For example, the second, more 
stringent phase of CSAPR is scheduled to be implemented in 2014. This 
rule affects 28 states overall and the second phase of the rule is 
targeted on 16 states in the Northeast and Midwest, the industrial 
heartland of the United States. Beyond that, the Utility MACT rule 
imposes new controls on existing powerplants in 2015 and 2016. These 
requirements are mandatory; a facility cannot operate unless it 
complies. Finally, newly proposed greenhouse gas rules for powerplants 
would effectively require that natural gas be used for all new 
generation. This requirement will further shift our nation's generation 
from coal to natural gas and other power sources.
    This situation, at minimum, requires better regulatory coordination 
and a rationalization of multiple, new requirements. It could also, 
under certain circumstances, justify preemption for overlapping 
requirements. While some emission control requirements are 
complimentary--for example, improved or additional fabric filters can 
help reduce particulate matter emissions and mercury--this is not 
always the case. We may therefore need to determine in different 
situations whether renewable energy policy should take precedence over 
certain Clean Air Act goals or vice versa.
    AISI also believes that the benefits of domestic shale natural gas 
production should be fully recognized in a CES program. We are 
encouraged by the discovery and production from shale formations. 
Affordable natural gas is presenting both integrated and electric arc 
steelmakers with new options for how to make their products more 
efficiently. As a significant consumer of natural gas, it is important 
to have gas supply be both affordable and reliable. And it provides 
expanded markets for steel pipe and tube products that are essential to 
the production and transmission of natural gas and oil. The advent of 
shale gas production in the U.S. has the potential to be a ``game 
changer'' for domestic manufacturing, and should not be ignored when 
creating a low-carbon energy policy.
    Finally, we appreciate the recognition of the importance of energy 
efficiency in the legislation and believe that efficiency measures from 
manufacturing industry facilities should be fully qualified in a CES 
program if the bill were to move forward. There is potential for steel 
production facilities to qualify as energy efficiency producers, either 
through new CHP capacity, wasted heat and byproduct gas recovery and 
conversion, or demand response mechanisms, such as reductions in 
peaking. All of these efficiency opportunities hold great potential for 
industry, and should be fully included in CES legislation that provides 
incentives for renewable energy production. However, a CES should 
recognize the efficiency investments made at industrial facilities in 
recent years in addition to those improvements made moving forward. As 
noted above, the steel industry has improved its efficiency by 27 
percent over the last two decades. Legislation that does not provide 
credit for recent efficiency projects ignores the energy and 
environmental benefits realized from these investments.
Conclusion
    AISI does not support the creation of a federal standard for 
electricity producers, because of the disruptive economic impact to the 
energy-intensive, trade-exposed manufacturing sector that will occur to 
satisfy CES requirements. While the largest cost increases may appear 
far off in the future under EIA's analysis, steel plants are long-lived 
capital assets. A steel plant serviced by a utility that is 
disadvantaged by the bill cannot simply move to an area with an easier 
compliance burden and lower costs. A new facility built today will 
still be in service in 2035 and for decades beyond, as will many 
existing facilities.
    It is also essential to recognize that EPA's regulatory agenda for 
the utility sector, coupled with relatively affordable natural gas 
supply, is causing numerous utilities to take steps that will 
ultimately reduce their emissions levels without a CES mandate. In the 
recently proposed greenhouse gas requirements for new powerplants, EPA 
bluntly declared that the rule would not impose costs on the utility 
sector since the agency saw little or no coal generation being built 
for the next two decades. While this prediction has been strongly 
criticized as being self-fulfilling, it is clear that EPA anticipates 
the proposed greenhouse gas rules and other Clean Air Act rules will 
result in both near-term and longer-term reductions in emissions from 
the electricity sector. EPA regulations, along with market forces from 
affordable natural gas, are already causing a shift from coal- to 
natural gas-based electricity generation. Coal was last above 50 
percent of U.S. electricity generation in 2008. It is now at 45 
percent, and projected to continue to decline to 39 percent by 2035 
even without a CES in place.
    AISI does believe that Congress should craft a comprehensive and 
market-driven energy policy built around promoting greater development 
of domestic energy sources, incentives for efficiency improvements, and 
additional support for industry efforts to develop breakthrough 
technologies. These policy measures will serve to meet shared national 
clean energy goals, while avoiding the negative impact a CES would have 
on the industrial sector. In particular, such an agenda should create 
an abundant and affordable energy supply by developing domestic oil, 
natural gas, nuclear power, and clean coal resources and fully make all 
these sources of energy part of the nation's energy independence 
strategy moving forward.
    Thank you very much for your time today, and I stand ready to 
answer any questions the Committee may have.

    The Chairman. Thank you very much.
    Mr. Trent.

 STATEMENT OF KEITH TRENT, GROUP EXECUTIVE AND PRESIDENT, DUKE 
                  ENERGY COMMERCIAL BUSINESSES

    Mr. Trent. Good morning, Chairman Bingaman, Ranking Member 
Murkowski and members of the committee.
    The Chairman. You might be sure that microphone is 
operating.
    Mr. Trent. Thank you. Got it, thank you very much. Sorry 
about that.
    I do have my thanks for the opportunity to testify on S. 
2146. I'm Keith Trent and as Chairman Bingaman mentioned, I 
lead Duke Energy's commercial businesses. Those businesses 
include a mixture of around 12,000 megawatts of coal, hydro, 
natural gas, wind and solar energy.
    In addition to the commercial businesses, Duke Energy has a 
whole, operates around 35,000 megawatts of generation. We are 
also the third largest nuclear operator in the United States. 
So we have a very broad and diverse portfolio of generation 
assets.
    That diverse portfolio gives us an insight into the 
economics and competitiveness of each of these technologies and 
fuels. S. 2146 is important because it advances a dialog that 
we need to have about our Nation's future energy mix. We 
support the committee's efforts to establish a policy that 
encourages the most promising energy technologies, promotes 
fuel diversity and sparks job creation.
    I would say that this discussion could not come at a more 
opportune time.
    Our industry is on the cusp of a massive investment cycle. 
Aging plants, some of which are more than 50 years old are 
retiring as tighter environmental regulations go into effect. 
Very low natural gas prices are making many of these plants 
less economically viable even today.
    I'll give you an example. In the Carolinas our natural gas 
plants are dispatching right after our nuclear plants today and 
before even our most efficient coal plants. That's something 
that we would not have even imagined a couple of years ago.
    So older coal plants are clearly struggling today.
    While low natural gas prices may sound like very good news 
for the economy, we know that historically natural gas prices 
have been very, very volatile. We fully expect that that 
volatility is going to continue in the future. For example, 
just as recently from April to today, natural gas prices have 
gone up 30 percent.
    A well crafted clean energy standard can and should 
accomplish several goals.
    First, it should encourage the development of a diverse 
mixture of fuel sources and technologies.
    It should fuel job growth and the wind and solar sectors 
helping to address the uneven Federal support that has 
contributed to the spasmodic growth for those industries.
    A Clean Energy Standard should give emerging clean coal 
technologies an ability to move forward. We know that clean 
coal technology is the key to the future viability of this 
fuel.
    A Clean Energy Standard should be supportive of our only 
zero emission base load technology and that's nuclear power. 
With expanded Federal support the nuclear industry can be a 
major economic growth engine while supplying emissions free 
generation.
    So what I'm describing here is the need for a diverse 
portfolio of clean energy, fuels and technologies, that can 
power America for decades. I believe that S. 2146 is aligned 
with those goals and does so without picking winners or losers.
    There is one specific point of concern and it's a concern 
that I have not heard so far that I do want to raise to the 
committee's attention. The bill, as currently structured, gives 
new gas plants partial energy credit. I do have some concern 
about this, especially given the fact that gas already enjoys a 
very significant market advantage today.
    To layer on an additional advantage it seems to us, 
encourages even more over reliance on a single fuel and very 
well could stymie investments in other fuels, in particularly 
in nuclear and coal.
    Finally, I want to say something about cost. It's very 
important to Duke Energy that the cost to all of our customers 
be taken into consideration. We need to be especially mindful 
of the impact on those that are least able to pay.
    Mr. Chairman, members of the committee, I commend your 
efforts to develop a long term, market based, energy strategy. 
America needs such a policy to drive innovation, fuel diversity 
and job creation. Thank you again for the opportunity to 
testify.
    [The prepared statement of Mr. Trent follows:]

Prepared Statement of Keith Trent, Group Executive and President, Duke 
                      Energy Commercial Businesses
    Thank you, Chairman Bingaman, Ranking Member Murkowski, and the 
rest of the Committee for the opportunity to testify today regarding S 
2146.
    My name is Keith Trent and I'm Group Executive and President of 
Duke Energy's commercial businesses. Most people know Duke Energy as a 
service provider of electricity to more than 4 million customers in 
North and South Carolina, Indiana, Ohio and Kentucky. Through our 
commercial businesses, Duke Energy is also a large independent power 
producer that generates and delivers electric power and related 
services in deregulated energy markets.
    Our domestic commercial businesses include more than 3,500 
megawatts of coal-fueled generation in Ohio; more than 3,000 megawatts 
of natural gas-fueled generation in the Midwest; almost 70 megawatts of 
solar generation in Arizona, California, Florida, New Jersey, North 
Carolina, Pennsylvania and Texas; and by the end of this year, more 
than 1,600 megawatts of wind-powered generation in Colorado, Kansas, 
Pennsylvania, Texas, Wisconsin and Wyoming.
    Duke Energy is the third-largest operator of coal-fueled and 
nuclear-powered generation in the country. Over the last five years, 
Duke Energy has invested approximately $10 billion to build new cleaner 
coal, natural gas, wind and solar power plants. In addition, we are 
pursuing a license with the Nuclear Regulatory Commission to build a 
new nuclear power plant in South Carolina. Building and operating such 
a diverse portfolio of power generation assets affords us valuable 
insight into the economics and relative advantages, drawbacks and 
competitiveness of each of these important energy technologies and 
fuels.
    We are pleased to testify today on this important proposal to spur 
clean energy in the United States. It advances the dialogue about how 
to create jobs and power our nation throughout the 21st century and 
beyond. The challenge we face every day at Duke Energy involves 
balancing the need for affordable, reliable and clean electricity. The 
bill addresses this imperative. We are supportive of the Committee's 
efforts to establish a policy that supports the most promising energy 
technologies, values a diverse mix of power generation fuels, and 
enables sustained job creation.
    The electricity sector is on the cusp of a massive, new investment 
cycle. Out of approximately 300,000 megawatts of coal fueled electric 
generation in this country, about 100,000 MW is as old or older than 
most of us in this room. Compared to newer power plants, these older 
units--predominantly coal-fueled--are generally smaller, less efficient 
and more expensive to run. They typically have higher emission rates of 
sulfur dioxide, nitrogen oxides and mercury, and are therefore most 
vulnerable to stricter environmental regulations. It is projected that 
between 30,000 and 60,000 megawatts of the country's aging coal-fueled 
generation fleet will be retired by 2015 or shortly thereafter to meet 
existing and new environmental regulations.
    Plummeting natural gas prices are also clearly threatening the 
viability of these plants. Natural gas prices have not been this low 
since the mid-1990s, although the 30 percent increase we've witnessed 
over the last month serves as a reminder of the fuel's historic 
volatility. Still, at around $2.50 per thousand cubic feet, and with 
prices predicted by many experts to remain low, it is reasonable to 
expect that most of the coal-fueled units to be retired will be 
replaced with gas-fueled units. Gas producers tell us not to worry. 
There's plenty of gas, they say, and prices will stay low.
    Electric generating plants are built with the expectation they will 
operate for over 40 years. Given this long term investment horizon, I 
believe putting all of our eggs into one basket--one that is very 
attractive today but has a history of volatility--would be imprudent 
and short-sighted. Moreover, this path would result in a massive 
appetite for natural gas from the power industry, putting upward 
pressure on natural gas prices. Understandably, this makes other 
natural gas users--like chemical manufacturers, fertilizer producers, 
and in the Carolinas, textile companies--very nervous. There are also 
serious proposals to shift heavy-duty trucking from diesel to natural 
gas. Gas is currently cheaper than diesel and, using analysis from the 
EIA and RFF, this shift could reduce our oil dependence by up to about 
800 million barrels per year, or roughly 25 percent of our oil imports.
    S 2146 as currently structured gives new gas generation partial 
clean energy credit. We have concerns with the concept of including 
natural gas in the program since it could lead to an overreliance on 
this single fuel. This is counter to policy goals supporting a diverse 
generation mix and, more importantly, investments in other proven and 
promising clean energy technologies. For example, construction of new 
nuclear units--which we know are highly competitive in the long run--
and zero-emission wind and solar power plants will suffer if Congress 
gives natural gas another leg up. Important work on technologies like 
carbon capture and sequestration will also grind to a halt barring 
government support for particular projects. This technology is vital to 
coal's future.
    It is essential to remember that power producers cannot start and 
stop construction of energy projects as public opinion fluctuates with 
the price of natural gas. A well-structured Clean Energy Standard can 
help achieve critical economic and environmental goals while enabling 
investment in a diverse set of energy technologies. These technologies 
will serve as an economic hedge that better positions the U.S. to 
remain competitive when--not just if--market conditions change again.
    A new Clean Energy Standard for our country should focus on zero-
emission nuclear power, renewables and technologies like carbon capture 
and sequestration that ensures the continued use of one of our most 
abundant resources--coal. In addition to the long-term benefits of 
diversification, investments in these diverse energy technologies will 
spur continued job creation across many segments of our industry, 
rather than just one.
    The reemerging nuclear technology and construction industries serve 
as my first example. As we all know, component manufacturing and 
nuclear plant construction in the U.S. all but disappeared in the 
1980s. Today new nuclear construction is putting thousands of Americans 
to work in building a single plant in Georgia. Technology companies are 
working to design new nuclear technologies in anticipation of a future 
boom in new nuclear demand. With expanded support at the federal level, 
the nuclear industry can continue fulfilling its potential as a major 
engine for economic growth.
    A viable Clean Energy Standard would also fuel job growth in 
renewable energy sectors like wind and solar power. Uneven federal 
support has contributed to spasmodic growth in these technologies in 
recent years. Take Duke Energy's wind power business, for instance. 
This year we will install nearly 800 megawatts of new wind-powered 
generation--enough capacity to power nearly a quarter-million U.S. 
homes. But like virtually every other project developer, we have not 
yet announced a new wind project for 2013. Consistent policy support 
encourages sustained investment in zero-emission energy technologies 
like wind power, keeping skilled workers gainfully employed.
    Finally, a Clean Energy Standard could help unlock billions of 
investment dollars that are poised to transform coal to a fuel that can 
be used far more efficiently and cleanly in the decades to come. 
Domestic and foreign investors are ready to make big investments in 
emerging technologies like carbon capture and sequestration. They just 
need an appropriate incentive to lower the technology's investment 
risks. A well designed Clean Energy Standard can provide that 
incentive.
    I have heard the concern that a Clean Energy Standard is the wrong 
policy because it picks winners and losers. I believe this claim is a 
fallacy. A standard does two things. It sets a target for how much 
power must be derived from a basket of clean energy technologies. It 
also specifies qualifying criteria for those technologies. If it is 
structured correctly, the utilities, working with the states will 
decide how best to meet their obligations under a federal Clean Energy 
Standard, using the resources that are most appropriate. In deregulated 
states, technologies would be selected based solely on their relative 
competitiveness. In Arizona, solar power likely fits the bill. South 
Carolina could satisfy requirements by continuing to invest in nuclear 
power. The winners or losers allegation is only accurate if the Clean 
Energy Standard determines carve-outs for each technology, or it 
selects which company will supply the technology.
    Duke Energy judges Clean Energy Standard proposals against the 
following criteria:

          1. Affordability: How will it impact our rate payers? In 
        these tough economic times, we need to be acutely sensitive to 
        the impact of our policy on those least able to pay.
          2. Are they market based--and do they allow the market to 
        decide how much of what type of technologies to deploy?
          3. Does the policy only incentivize technologies which are 
        otherwise not being adopted by the market? Natural gas 
        technologies are already preferred by the market--they don't 
        need additional incentives. Including them weakens the policy's 
        ability to advance and deploy alternative technologies and 
        creates disparate regional cost impacts. Both of these 
        unintended consequences are very problematic but easily 
        resolved. Lower the targets and remove natural gas from the 
        list of technologies that qualify for the incentive.
          4. Does the policy keep alive and advance the deployment of 
        technologies which the electricity sector broadly agrees are 
        needed to lower future risks of fuel price volatility and new 
        environmental regulations? We find the incentive too weak to 
        advance carbon capture technologies, which most energy experts, 
        including engineers and economists at the Electric Power 
        Research Institute, MIT and other institutions agree is a vital 
        technology. Without carbon capture technologies, there will be 
        no new coal investments.
          5. Nothing is free. Is the cost of the policy broadly shared 
        by everyone, or do some states pay significantly more than 
        others? Keeping these technologies alive is in the interest of 
        the entire U.S. economy, yet the EIA analysis indicates wide 
        cost differences throughout the country. Besides being unfair, 
        this hurts the possibility the bill will be passed, increasing 
        the chance our future goes entirely to natural gas.

    The policy can be made even more affordable with the addition of 
supporting policies targeted to remove non-economic barriers to 
nuclear, CCS and energy efficiency deployment. Duke Energy would 
welcome the opportunity to participate in this process.
    In summary, I commend the Committee for pursuing a Clean Energy 
Standard that strives to put the U.S. on a coherent path to investment 
and job creation. Spurring investment in a diverse mix of clean energy 
sources and technologies--including nuclear, renewables and cleaner 
coal--will go a long way toward improving our economic and 
environmental outlook.
    I thank you once again, Chairman Bingaman, for your efforts to 
develop a long-term domestic energy strategy that creates a market-
based incentive to deploy new technologies with minimal future fuel 
price risks and maximum job creation potential. I see a great deal in 
the legislation that benefits consumers, communities and the American 
economy.

    The Chairman. Thank you very much.
    Mr. Dickenson, you're our final witness. Go right 
ahead.Prepared Statement of James A. Dickenson, Managing 
Director and Chief Executive Officer of JEA, Jacksonville 
Electric Authority, Jacksonville, FL

 STATEMENT OF JAMES A. DICKENSON, MANAGING DIRECTOR, AND CHIEF 
                    EXECUTIVE OFFICER OF JEA

    Mr. Dickenson. Thank you for allowing me to testify today 
on behalf of JEA and its customers. JEA is a member of a large 
public power council, American Public Power Association, the 
Florida Municipal Electric Association and our commitment is to 
provide highly reliable, reasonably priced and environmentally 
responsible electric service to our citizen customers. So thank 
you for giving them a voice today.
    We are concerned that any national CES will create 
substantial competitive impacts between regions favoring those 
that are situated to take advantage of geographic assets that 
more readily support development of solar, wind and hydro 
power. Using national average cost impacts can disguise 
significant electric rate differences among regions. While 
applauding the inclusion of nuclear energy and partial credits 
for natural gas technologies in the proposed bill, the move 
away from existing coal generation, including JEA's will strand 
not only large capital investments but the Nation's abundant 
supply of a secure, domestic fuel that will instead be exported 
to other countries.
    We're also concerned that the proposed CES is too 
aggressive. Most large scale electric generation projects take 
years to design, finance, permit and construct. Utilities 
throughout the country will likely be vying for the same 
resources and materials, manpower, financing and regulatory 
review time.
    National energy polices should balance multiple goals 
including energy security, economic growth, electric rate cost 
considerations and the environment.
    JEA's existing non-renewable generation capacity totals 
over 3,700 megawatts with 38 percent of that being coal and pet 
coke.
    Fifty-two percent is combined natural gas and diesel.
    JEA has continued to diversify and move toward closer, 
cleaner generation technologies by adding more natural gas and 
small scale renewables. JEA has also made significant capital 
investment to modernize environmental controls at its existing 
coal plants. We have reviewed and developed an additional 
analysis of the impact of the CES on our generation sources and 
on electricity cost implications for our customers.
    We commend the basic framework of the proposed CES that 
will allow utilities to meet the requirement through the best 
possible combination of energy sources for each utility, in 
each region of the country. We have concerns that because of 
the limited resources in our particular region the cost to meet 
the CES would be higher for JEA and other Southeast utilities. 
We're not blessed with the substantial wind resources, 
elevation changes for hydropower options or intense sun and 
expansive open lands for high intensity solar installations.
    To meet a CES in Northeast Florida we have access to 
limited biomass, solar and landfill gas capabilities. All of 
which we currently use. The potential for nuclear development 
and the opportunity to consume energy more efficiently is also 
available.
    But JEA's approach to renewables has been cautious because 
of the comparatively high costs. We anticipate that the 
combination of proposed CES targets on our customer demand for 
energy would require significant additional nuclear and 
renewable generation resources. JEA would be unable to meet the 
requirements of the CES beginning in 2015 through its own 
resources and would have to rely on a combination of clean 
energy credit purchases and alternative capacity payments while 
working to replace the majority of our current generation 
capacity with other sources.
    JEA customers are concerned about their utility costs. 
These concerns are amplified by the current economic 
environment. While our overall rates remain average for Florida 
utilities, our customers expressed concern about the absolute 
cost of energy and are often not understanding of the relative 
comparisons.
    The total costs to JEA customers to meet the CES over the 
20 years is estimated at an additional $14 billion in combined 
energy replacement and alternative compliance payments, an 
increase over base costs of about 64 percent. The cumulative 
alternative compliance payments necessary to meet the CES would 
be an additional cost burden to JEA customers, who will be 
funding the development or purchase of replacement energy 
sources to meet the CES at the same time.
    We urge reconsideration also of the method of distribution 
of the ACPs to return them directly to any contributing utility 
for restrictive investment in qualifying clean energy or energy 
efficiency projects.
    JEA also recommends allowing utility sponsored customer 
energy efficiency programs and improvements to count toward 
qualified clean energy credits.
    In summary, JEA is very concerned that the CES in Senate 
bill 2146 is too aggressive and too costly to electric 
consumers across the country, especially in our service 
territory.
    Thank you.
    [The prepared statement of Mr. Dickenson follows:]

 Prepared Statement of James A. Dickenson, Managing Director and Chief 
                        Executive Officer of JEA
    My name is James A. Dickenson. I serve as Managing Director & CEO 
of JEA, a municipally owned electric, water and sewer utility located 
in Jacksonville, Florida. JEA is a not-for-profit, community-owned 
utility with an electric system that serves more than 400,000 northeast 
Florida customers in Duval and three adjacent counties. Thank you for 
allowing me to testify today on behalf of JEA and its customers. JEA is 
also a member of the Large Public Power Council (``LPPC''), an 
association of 23 of the nation's largest municipal and state-owned 
utilities, American Public Power Association (``APPA''), a service 
association for the nation's more than 2,000 community-owned electric 
utilities, and Florida Municipal Electric Association (``FMEA''), an 
association of 34 public power communities in the state of Florida. Our 
commitment is to provide highly reliable, reasonably priced and 
environmentally responsible electric service to our citizen-customers.
    We are concerned that any national clean energy standard will 
create substantial competitive impacts between regions, favoring those 
that are situated to take advantage of geographic assets that more 
readily support development of solar, wind and hydropower. Using 
national average cost impacts can disguise significant electric rate 
differences among regions. While applauding the inclusion of nuclear 
energy and the partial credits for natural gas technologies in the 
Clean Energy Standard Act of 2012 (``CES''), the move away from 
existing coal generation, including JEA's, will strand not only large 
capital investments but the nation's abundant supply of a secure 
domestic fuel that will be exported to other countries.
    We are also concerned that the proposed CES requiring large-scale 
phasing in over a short 20-year time frame is too aggressive. Most 
large-scale electric generation projects take years to design, finance, 
permit and construct and utilities throughout the country will likely 
be vying for the same resources in materials, manpower, financing and 
regulatory review time.
    National energy policy should balance multiple goals including 
energy security, economic growth, electric rate/cost considerations and 
the environment. These factors should all be considered with no one 
goal being weighted too heavily, thereby creating an imbalance for 
energy production to U.S. consumers.
    As background, JEA's existing non-renewable generation capacity 
totals over 3700 megawatts (MW) with 38 percent coal or coal/petcoke 
units, 16 percent combined-cycle natural gas turbines, 32 percent 
simple-cycle natural gas turbines and 14 percent natural gas/diesel 
turbines. JEA's resource mix is constantly evolving. JEA was heavily 
reliant on residual oil generation until the 1980s when it diversified 
its fuel mix to include natural gas and coal in order to reduce both 
energy costs and fuel supply risks for our customers. JEA has continued 
to diversify and move to cleaner generation technologies by adding 
natural gas simple- and combined-cycle turbines and small-scale 
renewables. We have constructed seven modern natural gas turbines since 
2000. In the early 2000s, JEA was the recipient of a Department of 
Energy grant of over $70 million dollars to build two innovative 300 MW 
circulating fluidized bed (``CFB'') coal/petcoke units, the leading 
clean-coal, fuel-efficient technology just a decade ago. Those CFB 
units now represent 15 percent of JEA's generation fleet and we have 
been able to use them with coal, petcoke and biomass fuels. JEA has 
made significant capital investments to modernize environmental 
controls at its existing coal plants. JEA carefully balances the 
generation and dispatch of electricity based on the most cost-effective 
use of fuels while meeting environmental standards.
    JEA has reviewed and developed an initial analysis of the impact of 
the CES on JEA's generation sources and on the electricity cost 
implications for JEA customers. JEA continues to model the CES and its 
impact on generation dispatch and associated costs.
    My testimony today addresses our initial analysis of the effects of 
the CES on JEA and ultimately on our customers. I will focus on five 
areas: 1) CES qualifying clean energy resources that are practical 
options for northeast Florida, 2) modifications to JEA's generation mix 
and energy sources to meet the CES over time, 3) projected electricity 
cost impacts to JEA customers, 4) Alternative Compliance Payments 
(``ACP'') and return to contributing utilities for designated 
construction of further CES qualifying resources, and 5) CES credit for 
energy efficiency programs. JEA supports clean energy generation that 
protects and enhances the environment while remaining cost effective on 
our consumers' monthly energy bills.

    1) CES Qualifying Clean Energy Resource Options for JEA

    We commend the basic framework of the proposed CES that would allow 
utilities to meet the requirement through the best possible combination 
of energy sources for each utility in each region of the country. 
However, we have concerns that because of the limited resources in our 
particular region, the costs to meet the CES are higher for JEA and 
other Southeast utilities. As I stated in written testimony in March 
2009 to this Committee, when considering renewable energy from 
Florida's standpoint, as well as the entire Southeast, the available 
options depend very much on geography. In the Southeast, unlike the 
West, Pacific Northwest and Midwest, we are not blessed with 
substantial wind resources, elevation changes for hydropower options, 
or intense sun and expansive open lands for high-intensity solar 
installations. For example, the Department of Energy's (``DOE'') 
nationwide study of wind resources shows that there are no significant 
on-shore wind resources in the Southeast, and only limited off-shore 
capability.\1\
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    \1\ See http://www.windpoweringamerica.gov/windmaps/offshore.asp
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    What we do have in Northeast Florida are limited biomass, solar and 
landfill gas capabilities, the potential for nuclear development and 
the opportunity to consume energy more efficiently. JEA has cautiously 
approached adding renewables to its generation fleet out of concern for 
the comparatively high cost, small production amounts and low capacity 
factors of the available options. JEA has had 10 MW of purchased power 
wind energy in Nebraska since 2005. That facility runs at a capacity 
factor of about 38 percent. JEA sells the energy on the grid and 
retains the renewable credits. JEA also purchases all of the output 
from a 15 MW (direct current) solar installation built in 2010 on 100 
acres of JEA-owned land in Jacksonville. This modern solar farm 
operates at a capacity factor of 17 percent. JEA has a net metering 
policy to purchase excess power from certain customer-owned solar 
installations and has small-scale photovoltaic solar applications 
scattered throughout Duval County. JEA also produces or purchases 16 MW 
of landfill gas from Jacksonville's three local landfills and biogas 
from a JEA-owned wastewater treatment facility. Combined, these 
renewable energy resources represent roughly one percent of JEA's 
retail sales. As mentioned, JEA has been co-firing our CFB units with 
biomass material from tree trimming. JEA also continues to evaluate 
biomass ownership or purchase power options considering the 
availability of biomass fuel supplies, yet-to-be-determined carbon 
classification impacts and relative cost comparisons.
    JEA has a contractual commitment with the Municipal Electric 
Association of Georgia (``MEAG'') for 200 MW of purchase power in the 
new Plant Vogtle nuclear units 3 and 4 that should be available in 
2017. JEA also has an option for an ownership interest of between 5 
percent and 20 percent in the proposed Duke Energy William States Lee 
III Nuclear Station currently scheduled to be available in 2021-2022. 
JEA continues to evaluate other nuclear options.

    2) Modifications to JEA's generation mix and energy sources to meet 
the CES

    JEA has continued to transition its resource mix toward natural gas 
baseload generation, to expand its access to intermittent renewable 
resources, and to diversify with new nuclear options. However, we 
anticipate that the combination of the CES proposed targets and our 
customer demand for energy would require significant additional nuclear 
and renewable generation resources above what is projected in our 
current long-range plans.
    We have prepared a comparison between a base case projection to 
meet JEA's energy demands over the proposed time frame (without CES) 
with a modified case to meet the CES (shown in Exhibit A). The results 
of this analysis were produced by a preliminary study and not by a 
full-blown integrated resource planning study (``IRP''). However, the 
results are a reasonable analysis of the choices we would likely make 
to meet the proposed CES.
    Substantial additional nuclear generation would be the primary 
means to meet the CES. JEA would also add additional solar 
installations in 15 MW increments over an eight-year period early in 
the 20-year time frame and would build or purchase additional solar, 
wind and biomass energy. Even with an aggressive program of renewable 
and nuclear generation development, JEA would be unable to meet the 
requirements of the CES beginning in 2015 through its own resources and 
would have to rely on a combination of clean energy credit purchases 
and Alternative Capacity Payments while working to replace the majority 
of our current generation capacity with other sources.
    Because of the large-scale output and high capital development 
costs of current nuclear design technology, JEA finds its only economic 
option for nuclear is to purchase power or to acquire partial ownership 
interest in nuclear projects. We remain interested in the ongoing 
development of Small Modular Reactor (``SMR'') designs and believe the 
commercial demonstration of SMR might make a local nuclear option more 
viable for JEA in the future. The SMR design is being incentivized by 
DOE at present through proposed funding agreements. Because nuclear 
plants would comprise a great percent of total capacity under the CES, 
new large-scale nuclear plant design and the developing SMR designs 
must allow for flexibility to lower the energy output of nuclear units 
during off-peak demand periods in order to avoid energy dumping.
    JEA has not included new coal capacity with carbon capture and 
sequestration (``CCS'') in either our base case or the CES case. 
Although it has not yet been adequately demonstrated on a utility 
scale, we believe the technical and engineering obstacles to CCS may be 
solved with enough investment in research and development. Of course, 
the high costs and substantial energy penalties of CCS will continue to 
discourage investment by electric utilities. However, solving the 
engineering issues will not be enough.
    The legal and regulatory barriers to sequestration of hundreds of 
millions of tons of CO2 effectively forestall any serious 
consideration of CCS on a widespread basis by electric utilities. 
Although there may be adequate geological formations capable of 
accepting CO2, we see no credible path to licensing large 
scale CO2 sequestration. In Florida, there are no 
significant formations capable of sequestering utility CO2. 
This means that an interstate network of CO2 pipelines would 
need to be sited, licensed, financed and built. The siting alone would 
offer hundreds of miles of opportunities for obstruction. Those 
obstructions would likely include additional environmental concerns, 
permitting difficulties, and lack of confidence in protective, 
effective technologies.
    JEA is also concerned that the CES, as written, will further drive 
our nation away from the economic use of our abundant coal resources. 
Today coal powers more than 40 percent of all electric generation in 
the United States. If coal is removed from our energy mix, the U.S. 
energy position will be both higher cost and less secure.

    3) Projected electricity cost impacts to JEA customers

    JEA customers, like those across the country, are concerned about 
their utility costs. These concerns are amplified by the current 
economic environment. JEA has had a series of rate increases over a 
seven year period to pay for capital construction financing and high 
coal and natural gas fuel costs. Due to the recent drop in natural gas 
prices, we plan to reduce our pass through fuel cost to customers in 
July 2012 for the first significant decrease in overall rates since 
2004. While our overall rates remain about average for Florida 
utilities, our customers express concern about the absolute cost of 
energy and are often not understanding of the relative comparisons.
    Renewable and nuclear energy options are expensive, especially 
compared with the alternatives available today. As discussed earlier, 
renewables in Northeast Florida are limited in terms of output and 
availability and are far from sufficient to meet our customers' 
electric demands even with the addition of new projects.
    Based on the CES case projected in Exhibit A, JEA would be able to 
meet the CES through a combination of resource development, credit 
purchasing and alternative compliance payments with an average annual 
energy cost increase of 4.6 percent above our base case over the first 
six years of the mandate. The cost premium is so low primarily because 
JEA has already committed to the new Plant Vogtle nuclear units. While 
a 4.6 percent cost differential seems relatively reasonable, our 
customers already protest any increases in costs. Neither our 
residential nor our commercial customers will readily accept the CES 
mandate as a good reason to raise rates. Even more troubling are the 
significant annual cost differentials (20 percent to over 100 percent) 
JEA customers will be asked to endure to meet the CES beginning in 
2021. The total cost to JEA customers to meet the CES over the 20 years 
to 2035 is an estimated additional $14 billion in combined energy 
replacement and alternative compliance payments, an increase over base 
case costs of about 64 percent.

    4) Alternative Compliance Payments (``ACP'') and return to 
contributing utilities

    The cumulative alternative compliance payments necessary to meet 
the CES would be an additional cost burden on JEA customers who will be 
funding the development or purchase of replacement energy sources to 
meet the CES while also making the compliance payments. JEA is 
concerned that the ACP structure contained in the proposed CES would 
keep 25 percent of the payments in Washington, D.C. and return 75 
percent of the ACPs to the states for distribution restricted to energy 
efficiency projects as the language is currently worded. This plan 
would likely penalize public power customers unless there was a formula 
directing the payments back to the contributing communities. The 
rationale for keeping 25 percent of the ACPs at the federal level 
appears intended to have the program remain revenue neutral to the 
federal government. However, JEA and other municipal utilities do not 
pay corporate income tax, and would receive no benefit from an expense 
deduction for ACPs. Thus the federal budget would not be harmed if 100 
percent of ACPs paid by public power utilities were returned to the 
public power utilities.
    Additionally, the ACPs may result in substantial sums of dollars 
directed solely to energy efficiency projects when for some utilities 
the development of additional clean or renewable resources might 
provide a greater benefit toward achieving the CES's stated goal of 
reducing carbon emissions. Flexibility to direct the dollars to 
qualified clean energy projects or energy efficiency upgrades would be 
a great improvement.
    Rather than pay the ACP to the federal government, JEA proposes 
that each affected public power utility make this significant 
investment in qualified CES resources that directly benefit their 
communities. This would allow our customers, who are making the 
investment as a portion of their electric rate, to directly benefit 
from the payments. Thus, public power utilities would be provided the 
flexibility to develop more clean or renewable energy projects and 
energy efficiency upgrades, based on cost-benefit analyses. This method 
would result in a large investment in qualified clean energy and energy 
efficiency projects. In Florida, where renewable energy at reasonable 
costs is severely limited, such projects could include rebates for 
customer-owned energy efficiency and photovoltaic energy, as well as 
development of biomass projects.
    We urge reconsideration of the method of distribution of ACPs to 
return them directly to any contributing utility, regardless of 
ownership structure, or in the alternative, return the payments to the 
contributing community-owned utilities, for restricted investment in 
qualifying clean energy or energy efficiency projects. We underscore 
the recommendation to allow the returned payments to be used with 
flexibility by the utilities and communities making the payments and to 
send the full amounts back to public power utilities or allow them to 
track the payments and qualifying expenditures, rather than remitting 
them to the government.

    5) CES credit for energy efficiency programs

    The ACP structure favors energy efficiency programs as currently 
proposed. JEA recommends allowing utility-sponsored customer energy 
efficiency programs and improvements to count toward qualified clean 
energy credits. An exception or deduction could be made for 10 those 
energy efficiency programs that are funded with returned ACPs as 
suggested in item 4 above.
Conclusion
    In summary, JEA is very concerned that the Clean Energy Standard, 
as described in S. 2146, is too aggressive and too costly to electric 
consumers across the country, especially in our service area. The CES 
further isolates our country's abundant coal resources from being a 
viable source of energy production. It would require that large capital 
assets not only be scaled in over a mere 20-year period but would also 
require existing capital assets to be retired or abandoned before the 
end of their useful economic lives. All this cost would be borne by 
electric consumers--our customers, your constituents--in uncertain 
economic times. The ever-changing focus of environmental concerns and 
the long-term uncertainty of fuel availability and pricing impact a 
basic life resource that in part defines our quality standard of 
living.

    The Chairman. Thank you very much.
    Let me start with a few questions to the panel.
    I guess one question occurred to me from your testimony Mr. 
Gibson. In your conclusion of your testimony you say it's 
essential to recognize that EPA's regulatory agenda for the 
utility sector coupled with relatively affordable natural gas 
supply is causing numerous utilities to take steps that will 
ultimately reduce emissions. Then essentially you say that 
this, in your view, is adequate, that it's clear that EPA 
anticipates the proposed greenhouse gas rules and other Clean 
Air Act rules will EPA anticipate--will result in both near 
term and longer term reductions.
    One of the impetuses or a major impetus for trying to 
develop a clean energy standard was that a lot of economists 
have testified to us that they thought we should try to have a 
market based mechanism for improving the environmental 
performance of our generating capacity. That it should not be 
driven by Washington through EPA regulation.
    Mr. Gibson. Right.
    The Chairman. You seem to be saying that you think we 
should go ahead and back off and let EPA do this. Am I reading 
that correctly?
    Mr. Gibson. No, I don't think I'm saying that EPA should. 
I'm saying EPA is. Even the EIA analysis that was the subject 
of the first panel does not include utility MACT.
    It does not include the EPA utility greenhouse gas 
regulations. It doesn't include 316B, the cooling water 
regulation. So we're going down now a parallel track of EPA 
regulating using its authority under the Clean Air Act for 
carbon and for other things. Maybe the utilities would be in a 
better position to talk about that. But I can talk about it 
from my industry because we're subject to the same type of 
regulations.
    Then we're going to add on yet another layer of the market 
based system. Sometimes, as I noted, they can work across 
purposes. Some of the technologies you might have to install to 
comply with the mercury rule, to put on a scrubber of some 
kind, would have a parasitic load associated with it. That will 
reduce your energy efficiency.
    So everybody is, you know, kind of looking at their own 
piece of the problem. There is not an overall approach to it. 
That's the concern.
    Then the comment about with natural gas suddenly being a 
lot more affordable over the past 5 or 6 years since when we 
started this effort, that is already sending signals to the 
market. So that was what I meant. I think I was really just 
trying to point out that we do have almost a parallel structure 
going on if you were to proceed with this and not take a look 
at the full suite of EPA regulations to decide which ones, 
which policy goals, are going to be achieved through regulation 
and which policy goals are going to be achieved through the 
market mechanism.
    Right now you would have both if you passed the bill as it 
is now.
    The Chairman. As I understand it, as far as greenhouse gas 
emissions go, EPA's actions so far, only relate to new coal 
plants going forward. They are not directly dealing with 
greenhouse gas emissions from existing coal plants.
    I don't know if you have an expectation that they will 
continue to decline action in that area or whether in the 
future if we don't do something like a Clean Energy Standard 
they would determine that they should go ahead and act to deal 
with the problem themselves.
    Do you have a view on that?
    Mr. Gibson. I have a view that EPA is going to continue to 
use its regulatory authority both on--first on existing 
facilities but I think the Administrator has testified that 
they will be looking into turn--excuse me, at new facilities. 
In due course they'll be looking at existing facilities as 
well.
    The Chairman. I guess my point is if something like a Clean 
Energy Standard were enacted.
    Mr. Gibson. Right.
    The Chairman. Signed by the President. It would be a pretty 
good argument at least, for why they do not need to regulate in 
the area of existing plants.
    Mr. Gibson. But, you know, respectfully I'd say a lot of 
the uncertainty that's going on right now is whether or not the 
Congress, the previous Congress, ever intended EPA to regulate 
using greenhouse gases using the Clean Air Act at all. You 
would have, if you were to pass this bill, you would have the 
opportunity to speak to that.
    You would have the opportunity to rationalize and say no. 
This is going to be the primary method by which greenhouse 
gases are going to be regulated from utilities or possibly 
other stationary sources. So.
    The Chairman. Mr. Trent, did you have any thoughts on any 
of this?
    Mr. Trent. Yes, first of all, I definitely agree with the 
premise that a market based approach is much better for us and 
the economy than a command and control or EPA regulation type 
of mandate. So I agree most definitely with that premise.
    I also agree that I would encourage Congress to take an 
opportunity if they're passing a Clean Energy Standard to also 
send signals as to what we're going to have in terms of future 
regulations. I would urge you to pre-empt that field.
    The Chairman. Alright. My time is up.
    Senator Murkowski.
    Senator Murkowski. I'm going to follow on that line of 
questioning because what I was hoping from the panel was really 
pretty much a straight up yes or down answer in terms of 
whether or not you think it makes sense to pre-empt duplicative 
or potentially contradictory Federal greenhouse gas emissions 
under the Clean Air Act.
    As Senator Barrasso was trying to drill down with the 
Secretary Sandalow. I mentioned it in my opening comments. 
About the fact that we've got kind of this series of overlap in 
terms of the regulations that are out there.
    That my hope would be that we can figure out how we 
prioritize. So in the event that a CES similar to what Senator 
Bingaman has advanced or something else were to move forward, 
were to become law, do you think it makes good sense to allow 
for a pre-emption of those Federal regulations that relate to 
the emissions?
    We'll just start with you, Mr. Dickenson. Mr. Trent, Mr. 
Gibson, you should be quick and easy on this.
    Mr. Dickenson. Thank you. I do believe that, you know, the 
compounding really creates an effect that we're all trying to 
keep up with. You know, right now we are responding to the NSPS 
rule that's come out on greenhouse gases.
    On one of those I do believe that it's very unusual for EPA 
to commit with that and say they're only going to do it for new 
plants because the history has always been it includes that. 
Then there's also the legal issue, I believe, that's involved 
when you get into PSD permits that I think, once that rule came 
out I think they'll be sued, you know, by the environmental 
agencies or the environmental people. They will--and when that 
gets to court they'll find out that they have to go back and 
include, you know, existing plants in that regulation.
    So I think that's what we'll see happening.
    Senator Murkowski. Mr. Trent? Pre-emption?
    Mr. Trent. Yes, I think that there are different 
legislative models to achieve our goals but I think the 
legislative vehicle is the right vehicle. I would say that the 
legislation should pre-empt.
    Senator Murkowski. Mr. Gibson.
    Mr. Gibson. Yes, I think it should pre-empt. You know, when 
I said in answer to your previous question about whether EPA is 
indicated. I'm not sure on that. I probably should have put 
words in Lisa Jackson's mouth.
    But my expectation is eventually EPA will get to the 
existing sources. So I think your question was do I expect 
existing sources to be brought into the system. It's my 
expectation that existing sources will be brought into the 
system.
    Senator Murkowski. Mr. O'Mara.
    Mr. O'Mara. I don't believe that it should pre-empt. I 
think the reason is that the Tailoring Rule, in particular is 
much broader than just energy generating units. So unless we're 
going to have a legislative solution that's economy wide, which 
I don't think is likely in the near term, allowing EPA to 
continue in, I think, the broader part of the economy I think 
is critical to meet the reduction targets that we've all 
established.
    Senator Murkowski. I'm going to come back to you on the 
State regulation side.
    Ms. Greenwald.
    Ms. Greenwald. Yes, I mean, I don't have a yes or no for 
you. I do think that there are--a lot of us would be open to 
that conversation. I think it depends on the environmental 
effectiveness of the ultimate outcome of this process. If you 
had a very strong CES that was very environmentally strong and 
you could be confident that the outcome from that would be 
better than what EPA could do under specific authorities that 
might be a conversation to have.
    One would have to be very cautious. We certainly would be 
because as my colleague here said, EPA has a broad authority 
under the Clean Air Act for greenhouse gases. This is a 
proposal just about the power sector. So you would have to be 
very careful and targeted and thoughtful to make sure that in 
the end the environmental outcome would be superior. That that 
would be the nature of the kind of conversation I think people 
might want to have.
    Senator Murkowski. Dr. Palmer.
    Ms. Palmer. I want to echo what Mr. O'Mara said in that if 
you're going to--and Judi as well, that if you're going to pre-
empt in this respect, the Clean Air Act, you need to just focus 
on the electricity part because of course, this is only 
addressing the electricity side of things.
    I also think that just with respect to the Clean Air Act 
that there are a number of different ways that things could 
proceed with respect to regulating existing sources some of 
which might be more efficient than others. Might be able to 
grab some reductions in early years while this policy kind of 
ramps up. Because in the early years the Clean Energy Standard 
is easily met by the current, existing fleet because it's 
substantially below what the Clean Energy share is currently.
    So there might be some timing issues here related to pre-
emption.
    Senator Murkowski. Let me, I'm not going to go back to you, 
Mr. O'Mara. Instead I'm going to ask Mr. Trent and Mr. 
Dickenson here.
    We're all concerned about the ultimate cost to the consumer 
here. You represent utilities there with Duke Energy and there 
in down in Florida. What--how do we protect the consumers from 
any significant rate increases here?
    In the last Congress when we moved out a 15 percent 
renewable electricity standard that gave the Secretary of 
Energy some discretion to waive certain requirements if the 
incremental cost of compliance was in excess of 4 percent. I 
think ultimately this is what we need to be looking to. This is 
what folks around the country are going to say is what does 
this mean to me and my family?
    So how do you deal with that aspect of this legislation and 
the fact that it's going to increase your costs?
    Mr. Dickenson. I'll say, I think it will. We've looked at--
we've done an analysis on this in the brief time that we had. 
It wasn't a full IRP or integrated resource plan to look at the 
total cost to us, but we did, kind of, compare a base case 
generation verses what we would have to do under this act. It 
is a significant cost increase.
    I mentioned over that period of time it's a 64 percent.
    Senator Murkowski. Sixty-four percent.
    Mr. Dickenson. Against our base case. That's our generation 
costs, not our rates. Generation today makes up about 70 to 75 
percent of all of our cost. So it would be roughly, maybe, you 
know, 70 percent of that 64 percent, maybe somewhere around 40 
percent or 45 percent.
    Senator Murkowski. If I'm down in Jacksonville and I hear 
you say that you're going to see a 64 percent increase. Again, 
I'm wondering well, what does that mean to me?
    What's your answer to me?
    Mr. Dickenson. Right now they don't want any increase 
because I've already increased it quite a bit over the last 8 
years because of fuel volatility and, you know, the piece is 
so--but it would be an increase.
    I believe that one thing would be that you could look at a 
longer timeframe. 20 years is just a short timeframe in this 
industry. So a longer timeframe would allow more time to comply 
which would spread the cost out over a longer period of time, 
but.
    Senator Murkowski. Mr. Trent, real quickly.
    Mr. Trent. Yes. So we've constantly balanced 3 things, 
affordable, reliable and clean. We do that all the time.
    The reality is prices are going up regardless of what we do 
because we're replacing a lot of old assets. But it's a very, 
very important issue. I think there are a few things here that 
help.
    One, a market based strategy I think, reduces pricing 
giving the industry a long term certainty in terms of what 
we're supposed to be thinking about gives an ability to, I 
think, keep prices lower.
    The alternative compliance payment that's embedded in here, 
I think, can serve, I think, to have some impact on pricing.
    Then one thing that we've supported in the past in the 
Carolinas, for example, we have a renewable energy standard. 
There we actually put in an economic out that basically if the 
cost of compliance reached a certain amount for a customer 
class that the compliance would be suspended until those go 
down.
    So I use that not as to say that ought to be inserted, but 
as an example of tools that I think can be used to mitigate 
costs. But at the end of the day I think we also have to 
recognize that if you're going to have clean as a goal, you're 
going to have some costs associated with that.
    Senator Murkowski. Have you done the internal review? I 
mean, Mr. Dickenson has mentioned that their study indicates a 
64 percent increase. I'm assuming Duke is looking at similar 
cost runs?
    Mr. Trent. Yes. I have not done--we have not modeled this 
recently. We did model it many months ago. But the reality is 
the market has changed so dramatically that I really can't tell 
you what cost impacts, specifically, we would have in our 
jurisdiction.
    What I can tell you is that that is something we absolutely 
would want to do and would do and would want to have further 
conversation with the committee on that point.
    Senator Murkowski. Thank you, Mr. Chairman.
    Thank you, all.
    The Chairman. Senator Franken.
    Senator Franken. I want to agree with Senator Coons and 
Senator Shaheen about energy efficiency.
    Obviously the cheapest unit of energy is the unit of energy 
we don't use. We did something in Minnesota when we did our 
renewable energy standard 25 by 25. We established in an energy 
efficiency resource standard. What it basically said was the 
utilities had to--were responsible for decreasing the 
efficiency of their users by 1.5 percent per year.
    What that ended up doing was it had the utilities encourage 
their users to be more energy efficient and in some cases even 
incentivized the utilities to finance retrofits of some of 
their users. It was kind of, everybody likes it in Minnesota, 
it turns out. I think, I'm not--there might be some utilities 
that don't. But the utilities that I have talked to seemed to 
do that.
    So I believe that an energy efficiency standard does, in 
part, modeled after some State programs is something that the 
committee ought to explore.
    I think energy efficiency is a fairly bipartisan issue. I 
invite my, ah well, my colleagues on the other side of the 
aisle to consider this.
    [Laughter.]
    Senator Franken. Can either Dr. Palmer or Ms. Greenwald 
talk about the potential energy savings that could be derived 
if the country moved toward a unified energy efficiency goal?
    Ms. Palmer. I agree that an energy efficiency resource 
standard has some valuable provisions because it's creating a 
standard and it's making use of the market. I think that's 
important. There have been a lot of experiences from around the 
country that we can learn from in that regard.
    I think that keeping the energy efficiency piece separate 
from the Clean Energy Standard would probably be preferable. 
Because whereas we can pretty effectively meter generated 
electricity, it's difficult always to measure exactly what the 
savings are from particular investments. There's a lot of 
differences across the States with respect to how they do that 
even for a common sort of investment.
    So I think there's a lot of--that work that needs to be 
done there with respect to understanding that better.
    I also think though that the use of the ACP revenue to fund 
energy efficiency while as an economist I should say there may 
be better uses for that revenue. If you were going to use it to 
fund energy efficiency there are big opportunities here. I mean 
in our modeling we find substantial amounts of money might be 
raised through ACP payments.
    The type of opportunities I'm talking about is 
experimentation with particular types of policies and 
opportunities to really do real controlled experiments where 
you can effectively measure the affect of the policy verses the 
affect of folk's proclivity to adopt energy efficiency.
    Ms. Greenwald. Yes, I agree that we have a lot of 
experience at the State level to look to. About 19 States have 
an EERS that is separate. Another 8, include energy efficiency 
as part of their alternative energy portfolio standard or 
renewable portfolio standard.
    So States have taken a variety of approaches to this. So we 
can look at that to get experience. Experience has been good.
    They've achieved savings and energy efficiencies. Generally 
your first choice because of all the energy options it's the 
cleanest. It involves the least trouble in terms of citing. You 
know, any decision that you have to make on the supply side 
energy efficiency is helpful.
    A couple of other points I want to make on energy 
efficiency. I think it relates to the cost issue that's come up 
a few times. We're guilty of this too.
    We can't just focus on rate impacts. We have to focus on 
what happens to people's bills. People pay rates times how much 
they use and that's how you get a bill.
    So if we can get enough efficiency and that can offset the 
rate increases. So that in the end the impacts can be much 
less.
    Senator Franken. Oh, yes.
    Ms. Greenwald. Sometimes even be positive. So I hope that 
as we go forward in this discussion we make sure to look at the 
actual bill impacts and not just focus on the rates.
    I also think it's important and I'll echo what Karen was 
saying about Senator Bingaman and your proposal that there are 
a lot of incentives already in for efficiency which we think 
are very positive, the incentive for CHP, the using the ACP 
payments to fund energy efficiency programs. Also energy 
efficiency inherently will help you comply because it will 
reduce the overall amount of electricity that's needed. This is 
calculated as a percentage of that.
    So you will need to do less to meet the standard if we do 
more energy efficiency.
    So there are already incentives built in. So I think you 
can think about them separately. You can combine them if you 
want. There is experience to draw on.
    But you can keep them separate. Then you can avoid this 
problem where they're a little bit hard to make equivalent 
because a savings in one part of the country could be very 
different from another. The baseline issue, establishing 
baselines around the country is tricky.
    So having a different approach for each type, for 
efficiency on the one hand and renewables and other supply side 
options that are clean makes sense to us.
    Senator Franken. The energy savings from these retrofits 
can be startlingly high and bring down usage by the same kind 
of percentage.
    I realize I've run out of my time. I just want to put a 
word in for combined heat and power which again, Senator 
Shaheen was talking about and also district energy.
    In St. Paul we have a combined heat and power facility that 
is fueled almost by biomass and it heats downtown St. Paul. 
District energy, I think, we need to be considering what piece 
of all this where it might fit.
    Thank you, Mr. Chairman for your work on the CES.
    The Chairman. Thank you.
    Senator Franken. I thank you witnesses for testifying.
    The Chairman. Senator Coons.
    Senator Coons. Thank you, Chairman Bingaman. I'm just going 
to continue Senator Franken's dialog if I could on energy 
efficiency.
    Initially Senator Shaheen and Senator Franken have been 
great leaders and partners on implementing energy efficiency. 
Working with you, Mr. Chairman, in trying to sort of, press 
forward the things that all of us in our experience prior to 
our coming to the Senate, saw. So, since we got through 2 steps 
down the panel.
    If I could Secretary O'Mara, thank you for your testimony 
about the very real success that you and Governor Markell have 
had in Delaware in implementing broad changes.
    If you could first just start by talking a little bit about 
energy efficiency. You referenced in your opening testimony 
that you wish we'd move more aggressively or actively in this 
bill to incorporating energy efficiency rather than studying 
it. There's a variety of different ways that measurement, 
monitoring and verification, MMV are possible around energy 
efficiency.
    Do you see ways that MMV efforts could be put on the table 
to strengthen the energy efficiency components of a CES? What 
signal do you think the inclusion of energy efficiency within 
the CES would send to the market more broadly in terms of 
compliance costs?
    Mr. O'Mara. When a lot of States were developing these 
policies originally the RPS was kind of the fad at the time. 
They nearly kind of ran from 10 percent or to 20 percent. 
Delaware is 25 percent.
    Then at the same time you have this parallel conversation 
about efficiency. Tthen the efficiency standards and Delaware 
is a standard of 15 percent by 2015.
    The challenges that it makes us look at different supply 
alternatives as separate. What it does is that you see a slight 
increase in prices from the RPS because these technologies are 
a little more expensive. You see a price decrease from the 
efficiency side. If you net them out there's actually more of a 
cost savings if you put them together.
    I think the committee can actually learn from the 
experience from the States. Say, you know, by putting them 
together from the beginning that we're going to do everything 
in our power to reduce overall costs while still achieving 
pretty aggressive, environmental goals.
    In Delaware under Governor Markell's leadership we have 
been focused on the outcome. The outcome of these studies 
everyone wants clean air, as clean as you possibly can have 
within the State. It's a challenge with 90 percent of our 
pollution coming from over the border, as Senator Carper has 
told you both. At the same time having bills actually go down 
overall.
    You know, it seems like I could say it's Faustian choice, 
if you will. But it's not. You can actually do both.
    I think if we sent a strong signal through the legislation 
that rather than studying it for years that you would like a 
national EMMV standard established by the Secretary that if 
they are going to be crediting immediately. I would include 
anything that displaces electrical demand including CHP and co-
gen and district heat and solar thermal and biomass thermal 
that that will count toward the credits. The signal that it 
sends is that we are going to, as a Nation, treat energy 
efficiency as a supply resource just as we would any other type 
of energy.
    At the same time that the Congress is sending a strong 
signal that energy efficiency is going to do more to lower our 
bills and estimates for it as much as 16 to 30 percent of 
overall energy consumption could be reduced in this country 
through energy efficiency measures. All of which are cheaper 
than the least costly, traditional generation source.
    So I think that overall it takes the EIA conversation we 
had earlier today whether it's 18 percent and it's $5 savings 
or this and that. We wouldn't be having any of that 
conversation if we had it in it from the beginning because 
everyone would be saving substantial amounts of money if 
efficiency was a big part from day one.
    Senator Coons. Thank you.
    Mr. Secretary, as you well know, in the State of Delaware 
we have a functioning steel mill. We have a well refinery. We 
have heavy industry. We've also got cutting edge technology.
    You referenced in your opening statement that we just did 
the ground breaking on Bloom Energy, a solid oxide fuel cell 
company headquartered in California that's going to be doing 
manufacturing in Delaware. We also hope at some point to have 
offshore wind have one of its first major installations off the 
Atlantic Coast in Delaware.
    Talk a little bit more, if you would, about how you and the 
Governor created an environment in Delaware where all these 
different separate and disparate interests were able to 
participate and then given some of the previous testimony about 
regional concerns that I think are legitimate. Some concerns 
other members of the panel have about regions within the 
country how this national combined approach might learn from 
Delaware's experience in getting all the different stakeholders 
to have some role to play in a more positive clean energy 
future.
    Mr. O'Mara. I think it really starts with the Governor's 
commitment to focusing on the outcome and looking at facilities 
as individual units. I don't think there's a single regulation 
or a single policy that's going to allow this transition to 
easily occur.
    You know, we had legacy coal units that really needed to be 
updated and needed modern controls.
    We had units that really should be fuel switched to use 
natural gas.
    We had, you know, units that could have been co-gen or even 
upgraded to combined cycle.
    So we actually approached it as, even as a--I represent 
part of the regulatory side, but all these products is almost 
like a public/private partnerships. In some cases it was 
helping in financing. In some cases it was small grants. In 
some cases it was expedited permitting.
    By really focusing on the outcome instead of saying, you 
know, we're trying to reduce emissions of this facility by a 
certain amount now let's come up with the best way to do it. 
Not saying that government--I don't think government has the 
best answers on the prescriptive side. I think if government 
can set the standard and work with the various utilities to do 
it, to achieve that outcome, you can achieve great things. 
We've seen great work whether it's with the refinery or with 
energy or with Calpine and the different facilities in our 
States as a result.
    Senator Coons. Thank you, Mr. Secretary.
    If I might, Mr. Chairman, one last question?
    The Chairman. Go ahead.
    Senator Coons. As we discussed briefly yesterday I've 
discussed with a number of members of this committee. I've been 
asking my policy folks to find me some way to provide a tax 
advantage financing for an all of the above, don't pick winners 
and losers, path forward. We've been looking at different 
existing financing vehicles.
    Master limited partnerships have existed, I believe, since 
the ?86 tax bill. Are a tax advantage way, largely to finance 
pipelines, but they're also an extractive technologies of 
different kinds, but mostly oil, gas and pipelines. I've 
suggested to a number of my colleagues that we consider opening 
that up which would be a fairly simple statutory matter to 
other power generation and distribution technologies.
    If we really mean that we want an all of the above, don't 
pick winners and losers, energy strategy and one that is 
demonstrated and sustained and well known in the marketplace, 
this might be one way to move. I'd be interested in whether any 
of the members of the panel have a brief comment in response 
given that I understand we have votes on the floor beginning 
any moment.
    So I'd be interested in anyone's input on master limited 
partnerships.
    The Chairman. I think the votes began about 5 minutes ago. 
But go right ahead.
    Senator Coons. Sorry.
    Mr. Trent. I am familiar with master limited partnerships 
on the pipeline side and the midstream side. We have, at times, 
struggled with the fact that we couldn't take advantage of 
that, especially on the renewable side. So I think it's a good 
idea.
    To be honest with you I haven't studied it enough to know 
if there are nuances that might impact my view on it. But my 
initial reaction, I think it's a good idea.
    Senator Coons. You think utilities might take advantage of 
it as a financing vehicle?
    Mr. Trent. I don't know if it would be utilities, per se or 
people on the competitive generation side. But I think it's 
possible that we could take advantage of it.
    Senator Coons. Sir? Mr. Dickenson.
    Mr. Dickenson. I'd just say on tax exempt issues being a 
large public power company which is what we are, we don't pay 
Federal taxes. But I think if you found a way there would be 
ways you could find to make things comparable for public power 
companies that would have some of the same incentives that 
investor owned who do pay those taxes. So I believe that would 
be helpful to be able to do that.
    But you'd have to find a way to bridge that.
    Mr. O'Mara. We think it's a fantastic idea particularly for 
utility scale projects.
    Senator Coons. Thank you, Mr. Secretary.
    Ms. Greenwald. I don't have a particular view on that 
option. But we do think that we should be thinking about 
complementary policies that help all of these technologies 
become more cost effective. We don't know which technology is 
going to win under this proposal.
    But the more that they can be incentivized to get over that 
early hump where they're not quite ready for market. The more 
we can get a few going. The better and then the more cost 
effective the ultimate outcome is because then everyone has 
more options to choose from.
    Senator Coons. With that, Mr. Chairman, one of the things 
I'm grateful for about how you've structured this Clean Energy 
Standard and how you've led this committee is that you've been 
open to an all of the above strategy and to finding ways to 
achieve American energy independence in a responsible way.
    Thank you for this hearing.
    The Chairman. Thank you for all your help with this Clean 
Energy Standard proposal.
    Thank you all for your testimony. I think it has been very 
useful. I think the hearing overall has been very useful.
    So that will conclude our hearing.
    [Whereupon, at 12:06 p.m., the hearing was adjourned.]
                               APPENDIXES

                              ----------                              


                               Appendix I

                   Responses to Additional Questions

                              ----------                              

  Responses of James A. Dickenson to Questions From Senator Murkowski
    Question 1. Please explain why you believe carbon capture and 
sequestration is not a viable option for Jacksonville Electric 
Authority (JEA).
    Answer. We know of no proven carbon capture and sequestration (CCS) 
system or technology that provides a viable option for underground 
storage. We understand research and development in this area continues 
but for CCS to be viable, a methodology/technology would have to be 1) 
proven, 2) commercially available, 3) capable of large-scale 
application, 4) permittable through multiple entities and 
jurisdictional levels, 5) capable of surviving private environmental 
interest challenges, 6) sustainable--the solution must be long term, 
and 7) acceptable--the solution would survive public perception and 
opinion. Currently Florida law does not permit hazardous waste 
landfills. Depending on the future determination and classification of 
the stored matter, storage solutions for Florida may be out of state, 
offshore and therefore, more unpredictable. As an engineer, I believe 
we will eventually tackle the technology to capture and transport 
carbon. I have serious doubts that we will ever solve the licensing and 
public perception issues for long-term storage.
    Question 2. You suggest that Alternative Compliance Payments should 
be returned to the contributing utility. Please explain your reasoning.
    Answer. Utilities that are not able to meet customers' energy 
demands from available clean sources will be working to replace 
existing sources with clean sources. For JEA, that will require 
additional large-scale, multiyear, capital-intense projects or 
additional purchases of clean replacement power to meet a CES. Customer 
rates will be funding needed clean replacement energy through direct 
capital outlay or long-term financing. Additionally, while working to 
replace the sources, the alternative compliance payments (ACP) will act 
as a penalty on these same customers. Returning the ACPs to the 
contributing utilities or requiring utilities to account and spend any 
ACP amounts on qualified clean energy replacement sources will enable 
utilities to reach clean energy goals faster and at the same time will 
not penalize customers of those utilities working to comply with the 
standard.
    If ACPs were self accrued, reported, accounted and restricted to 
qualified clean energy source investments for all utilities, there 
would be limited oversight and compliance effort required at the 
federal level. Perhaps ACP expenses could be excluded as an expense 
deduction for investor-owned utilities, maintaining revenue neutrality 
and eliminating the concern of revenue losses from corporate tax 
deductions. JEA as a city-owned utility does not pay corporate income 
taxes. The proposed 25 percent retainer of ACPs at the federal level 
would further penalize customers of municipal and not-for-profit 
utilities, especially if the return of ACPs to the states were not used 
to directly benefit the customers who contributed the payments through 
their electric bills.
    Question 3. One issue that seems to be lost in the CES discussion 
is the needed transmission to get these new clean energy resources to 
load. In JEA's experience, how difficult is it to pay for and build new 
transmission? Also, in last Congress's Renewable Electricity Standard 
contained in S. 1462, we carried a provision that would allow the 
Secretary to request a variance from the mandate's requirements on the 
basis of transmission constraints preventing delivery of service. Is a 
transmission variance something JEA would support?
    Answer. JEA has historically been successful in planning, acquiring 
and building new transmission corridors and transmission ties within 
its service area. New transmission routes require multiyear planning, 
engineering, property acquisition, various government-level approvals 
and often required use of eminent domain to secure an entire route for 
construction. Understandably, routes in areas with more dense existing 
development are more difficult to acquire and therefore more costly.
    JEA would support a transmission variance but does not support 
socialized cost allocation of new transmission to reach and deliver 
clean or renewable energy. JEA supports the use of clean energy credits 
in lieu of direct use or availability of clean sources. Since small-
scale, energy-producing renewables are Florida's current viable option, 
and with the uncertainty of biomass energy being classified as clean or 
carbon neutral, most of JEA's current options would allow access to 
existing transmission. Larger scale nuclear project options include 
planning, provision and payment for transmission to access the energy.
    Question 4. Do you believe a federal electricity mandate is 
necessary if there are incentives like a Production Tax Credit (PTC) in 
place? Conversely, does it make sense to have PTC treatment if there's 
a federal electricity mandate?
    Answer. To force reduction of greenhouse gases in the United 
States, a federal mandate of some design may be required. However, the 
Environmental Protection Agency is issuing several rules, including GHG 
regulation of new sources and we expect regulation of existing sources 
to follow. If EPA is successful in implementing the proposed and 
anticipated rules, there is not likely a need for a CES. Conversely, a 
CES should negate the need for the EPA to mandate through regulation, 
especially with a proposed rule that shows no benefits and costs. By 
the way, I strongly support legislative action to pre-empt EPA 
regulation of GHGs.
    More clean energy will likely be built with the availability of 
incentives like the PTC. However, traditional tax credit vehicles like 
the PTC are not available to JEA and other not-for-profit consumer 
owned utilities. Having the PTCs without a balancing incentive for not-
for-profit utilities would continue to disadvantage public power. 
Alternative incentives could include modification of the Clean 
Renewable Energy Bonds (CREBs) program to remove the arbitrary volume 
cap and to instead provide an unlimited volume with a sunset date for 
the entire program that is the same as the PTC. To date, the CREBs 
volume cap has prevented utilities from financing entire projects with 
these bonds and thus public power utilities find it more economical to 
purchase power or partner with a private entity that can access the 
other programs. Another option is extend the currently expired section 
1603 Treasury grant program and expand it to allow public power 
utilities access. The program would allow developers of renewable 
projects to basically convert PTCs into a direct grant payment equal to 
30 percent of the project; it previously excluded public power. Use of 
the PTC, CREBS and section 1603 grants could help achieve a CES goal 
even earlier within an electricity mandate by offsetting some of the 
cost differentials between clean and traditional sources.
   Responses of James A. Dickenson to Questions From Senator Cantwell
    Question 1. I believe one of the most important parts of any energy 
or climate policy is protecting consumers from any energy cost 
increases that result from the policy. This is especially important for 
the lower and middle classes that spend a higher fraction of their 
income on energy. While I'm not convinced that some of the cost 
estimates accurately represent how prices of new technologies actually 
behave, I'm curious what, in your opinion, is the best way (other than 
energy conservation and efficiency) to protect the incomes of lower and 
middle income families as we transition to a clean energy economy?
    Answer. Supplement and continue to fund LIHEAP and consider 
modifying the distribution formula to favor geographic regions that 
have fewer options for significant energy production from renewables. 
LIHEAP formulas already favor cold-weather states so there is a 
precedent for consideration of other disparities.
    Question 2. Studies by the Congressional Budget Office (CBO), for 
example, have shown that auctioning carbon emission permits and 
returning the revenue to households in the form of equal lump sum 
payments is the best way to protect households from any higher prices 
that will result from limiting carbon emissions. What is your view of 
this approach to mitigating the impact on families, and how can we 
ensure that the most vulnerable American households are kept whole?
    Answer. This approach would mitigate the cost of carbon permits but 
would not address the cost of non-economical investments in renewables. 
Of course households in states with great existing renewable resources 
would get a windfall paid for by households from other states that are 
not as positively situated. In most cases those households that would 
receive the windfall already have some of the lowest electric rates in 
the nation.
    Question 3. I appreciate how Chairman Bingaman has worked really 
hard to mitigate the regional impacts in this CES proposal. But some 
regional disparities are inevitable, as some regions have been early 
adopters of clean energy and would start with more.
    Answer. I'm wondering if we need a funding source to provide some 
transition assistance to those regions and groups that will be impacted 
the most. Do you think some transition assistance is necessary to 
prevent an economic shock to certain regions of the country and certain 
income groups?
    Yes, funding to those geographic areas and utilities that are not 
situated in sun, wind and hydropower rich environments would help 
relieve disparities. Resources to advance nuclear construction would 
also be beneficial since it is impractical with current technology to 
supply all power from renewable sources in those regions, like 
Northeast Florida.
    Question 4. I was concerned to learn that in some cases the cost 
burden for utilities regulated under the CES might result in prices 
almost double those for the exempted utilities. Would regulating carbon 
upstream reduce some of these problems and provide a more equitable 
cost share? And would regional disparities be minimized with a more 
economy wide approach to reducing carbon in our economy?
    Answer. Regulating carbon upstream, at the mine and at the 
wellhead, would make the cost of regulation more applicable economy 
wide. However, the costs to mine or produce those fuels would still be 
passed along more directly to end users in the regions that are more 
heavily reliant on electricity produced from fossil fuels.
    Question 5. I believe that putting a price on carbon, such as that 
contained in the clean energy standard, is necessary. It will unleash 
American ingenuity to diversify our energy mix and reduce our carbon 
intensity. But a price on carbon is not sufficient. We must also make 
critical investments--in research and development and in the grid 
itself. Integrating renewables into the grid demands new investments in 
the grid.
    Answer. Washington state passed a renewable portfolio standard five 
years ago. Since then, renewable energy has taken off faster than 
anyone could have imagined. Wind, for example, now accounts for roughly 
3,000 megawatts of my state's power capacity. Integrating this much 
wind into the grid so fast has produced challenges. In my home state, 
we have so much wind power that at certain times it has to be shut off. 
Two weeks ago, many wind farms were forced to shut down simply because 
we had too much cheap power. Too much cheap power that is both clean 
and sustainable should be a boon for our economy--not a burden to bear.
    A study by the Electric Power Research Institute estimated that the 
net investment necessary to create a power delivery system of the 
future would be between $17 and $24 billion dollars per year over the 
next 20 years. That same study found that every dollar of investment in 
the grid would return four dollars of benefits such as reduced outages, 
increased efficiency, and lower demand for energy at peak times.
    Washington state has been leading on realizing this smart grid of 
the future that we so urgently need. The Pacific Northwest National 
Laboratory, PNNL, led a study to determine how willing homeowners are 
to use smart grid technologies; what benefits they found in being able 
to control their energy use according to pricing; and how much money 
they could save. Unfortunately, we're not making these critical 
investments.
    The Department of Energy's 2011 Quadrennial Technology Review 
confirmed this, stating simply that we are ``underinvesting in 
activities supporting modernization of the grid.'' This underinvestment 
delays the nation's transition to a more resilient, reliable, and 
secure electricity system that integrates renewables into the system. 
Do you believe that grid modernization efforts and making the grid 
smarter are important parts of bringing more clean energy online? If 
so, how can we continue to make progress on modernizing our grid?
    Improvements to the grid are beneficial but will still not deliver 
actual power generated from renewable sources in Western or Midwestern 
states to the Southeast. We believe that each region and each utility 
will invest in appropriate transmission upgrades to be able to send, 
move or receive needed power. In Washington and Florida utilities are 
investing in modernizing the grid. Regional transmission organization 
(RTO) regions seem to have more problems with the needed investments.
   Responses of James A. Dickenson to Questions From Senator Barrasso
    Question 1. In your written testimony, you state that your 
``customers express concern about the absolute cost of energy.'' You 
also say that under this legislation the total cost to your customers 
over the next 20 years would be an additional $14 billion, an increase 
of 64 percent over your base costs. Do you believe your customers-
American families and businesses-can afford the higher electricity 
costs that this bill would bring?
    Answer. No, our customers are already concerned about the cost of 
electricity. Electric rates currently have the most negative impact on 
JEA's favorability with customers, with favorability being one measure 
in a third-party customer satisfaction industry survey. During JEA's 
fiscal year 2011, 70 percent of customers surveyed said that they were 
concerned about paying their bills, up from 60 percent the previous 
year. The national average at that time was 51 percent concerned. 
Social service agencies that provide customer bill assistance, 
including LIHEAP, indicate they always have more requests for 
assistance than available dollars. There will be other requirements or 
constraints and economic factors that may combine to impact customer 
rates over the same time period, including additional financial and 
environmental regulation.
    Question 2. In your written testimony, you explain that the 
Jacksonville Electric Authority (JEA) has ``made significant capital 
investments to modernize environmental controls at its existing coal 
plants.'' You also state that ``mov[ing] away from existing coal 
generation . . . will strand . . . [these] large capital investments.'' 
Would you please elaborate on how S. 2146 would strand JEA's large 
capital investments?
    Answer. Although JEA has some of the cleanest coal plants in the 
nation, JEA would retire existing coal plants earlier than it otherwise 
would have to meet the CES (as shown on Exhibit A of the May 17 written 
testimony). Some of those plants would still have outstanding debt. 
Since the CES is aggressively phased in by time (20 years) and by 
target percentages (80 percent), reaching sufficient clean sources will 
require replacement of coal sources earlier than intended. With most 
technologies, plant life cycles are 30 to 40 years and those can be 
increased by significant timeframes with ongoing maintenance and plant 
upgrades, including pollution controls. There would not be incentive to 
continue those upgrades, enhancements and renewals knowing that the CES 
in effect sunsets current technology coal generation. Additionally, 
with EPA's move toward greenhouse gas regulation for new sources, we 
anticipate a similar move to regulate existing sources in the future. 
That will act as another disincentive to upgrade existing coal 
generation capacity.
    Question 3. In your written testimony, you explain that ``the 
Southeast, unlike the West, Pacific Northwest and Midwest, [is] not 
blessed with substantial wind resources,. hydropower options, or 
intense sun and expansive open lands for.solar installations.'' You 
state that ``any national clean energy standard will create substantial 
competitive impacts between regions, favoring those [with] geographic 
assets that more readily support development of solar, wind and 
hydropower.'' Finally, you say that the costs to meet the requirements 
of S. 2146 ``are higher for . . . Southeast utilities . . . '' Would 
you please elaborate on the competitive disadvantage that the Southeast 
would have under any national clean energy standard?
    Answer. Nuclear and biomass are the ``clean'' generation sources 
that make sense geographically in much of the Southeast at present, 
especially in Jacksonville. Based on current technology, there are not 
good wind options for Northeast Florida. Solar does not provide 
sufficient amounts of round-the-clock energy to meet our customer 
demand even if it were cost effective as compared to other sources. The 
treatment of biomass from a greenhouse gas standpoint is still 
undetermined, which further limits the options. Natural gas will only 
receive partial credit under the CES and JEA strives to avoid reliance 
on a single fuel source based on past experience. Therefore, 
replacement of existing fossil fuel generation, like coal and petcoke, 
and the anticipated volatility of natural gas supply and pricing from 
national reliance on one source will drive the need to invest in new 
high-capital nuclear generation.
                                 ______
                                 
    Responses of Keith B. Trent to Questions From Senator Murkowski
    Question 1. What mechanisms would be in place under S. 2146 to 
protect consumers against significant electricity rate increases? Last 
Congress, in S. 1462, this Committee reported out a 15 percent 
Renewable Electricity Standard that authorized the DOE Secretary to 
waive the requirements if the incremental cost of annual compliance 
exceeded 4 percent per retail customer. Would Duke Energy (``Duke'') 
support this kind of additional consumer rate protection?
    Answer. S. 2146 includes an Alternative Compliance Payment which is 
intended to moderate cost impacts--however, rate impacts will vary 
depending on the amount of natural gas fueled generating capacity, wind 
and nuclear generating capacity already in place in each state. Duke 
Energy would be supportive of rate protection, such as the rate 
increase limit that was included in S. 1462, if necessary to protect 
consumers from excessive rate increases and if constructed so that our 
compliance obligation was similarly limited.
    Question 2. One issue that seems to be lost in the CES discussion 
is the needed transmission to get these new clean energy resources to 
load. In Duke's experience, how difficult is it to pay for and build 
new transmission? Also in last Congress's Renewable Electricity 
Standard contained in S. 1462, we carried a provision that would allow 
the Secretary to request a variance from the mandate's requirements on 
the basis of transmission constraints preventing delivery of service. 
Is a transmission variance something Duke would support?
    Answer. This is an excellent point. New transmission projects can 
take ten years or more to complete due to the time required to secure 
regulatory approvals, site the line and construct it and the supporting 
facilities. And the issue of paying for multi-state lines can be very 
contentious.
    Duke Energy would consider supporting a variance to deal with 
transmission constraints if necessary and so long as it would not 
provide competitive advantages or uneven implementation of the overall 
program. We would note that the legislation requires that utilities 
turn in clean energy certificates that they can either create through 
generation of clean energy, or purchase on the market. It does not 
require actual delivery of the clean energy to the utility or utility 
customers.
    Question 3. In a recent National Journal story, Michael Brune, 
Executive Director of the Sierra Club, vowed to ``prevent new gas 
plants from being built wherever we can.'' His stated goal is to ``make 
sure we're not simultaneously switching to natural-gas infrastructure'' 
as coal plants retire. In your testimony, you note Duke's opposition to 
the inclusion of natural gas into a CES mandate. Given your opposition 
to natural gas as a qualifying resource in the CES, do you agree with 
the Sierra Club's statement?
    Answer. No. Duke Energy firmly believes that natural gas is an 
important energy resource and that it can be developed and used safely 
and responsibly. Duke Energy's concern with the inclusion of natural 
gas as a qualifying resource in the clean energy standard is that 
natural gas is already deploying very strongly because of currently low 
prices for natural gas. Inclusion of natural gas in the program weakens 
the incentives for other vital energy technologies, especially nuclear 
and carbon capture and sequestration.
    Question 4. You testified that Duke ``find[s] the incentive too 
weak to advance carbon capture technologies, which most energy experts, 
including engineers and economists at the Electric Power Research 
Institute, MIT and other institutions agree is a vital technology.'' In 
Duke's opinion, why does S. 2146 fail to incentivize CCS technologies?
    Answer. Based on our review of the various analyses of S. 2146 it 
appears that the price of Clean Energy Certificates will be too low to 
incentivize carbon capture and sequestration. Outside of changing the 
supply/demand structure of this new market the Committee might consider 
other incentives within the program or complimentary incentives outside 
the program such as tax incentives to make CCS more attractive.
    Question 5. Duke already operates in states that have their own 
renewable or clean energy mandates. How do you anticipate a federal CES 
program working with existing state programs that have vastly different 
qualifying resources, targets and timetables? Do you believe the 
federal program will become a de facto floor? Do you believe that state 
programs that are not as stringent as a federal CES will need to be 
preempted?
    Answer. We can imagine a program design that allows both programs 
to coexist. Each qualifying resource should be allowed to generate two 
certificates--a State certificate and a Federal certificate (a Megawatt 
hour from a wind turbine would create a one MWh certificate for the 
state and another for the federal program). Of course, our preference 
would be to have only a single standard to manage as we do not believe 
that separate state and federal programs create value for consumers.
    Question 6. Does Duke believe a federal electricity mandate is 
necessary if there are incentives like a Production Tax Credit (PTC) in 
place? Conversely, does it make sense to have PTC treatment if there's 
a federal electricity mandate?
    Answer. If Congress were to pass significant tax incentives for CCS 
and nuclear and maintain the existing PTC/ITC for renewables, the need 
for a program like a Clean Energy Standard would be considerably 
reduced. Conversely, if Congress adopts a workable Clean Energy 
Standard, Duke could support the phase out of the existing PTC/ITC for 
renewables.
     Responses of Keith B. Trent to Questions From Senator Cantwell
    Question 1. I believe one of the most important parts of any energy 
or climate policy is protecting consumers from any energy cost 
increases that result from the policy. This is especially important for 
the lower and middle classes that spend a higher fraction of their 
income on energy. While I'm not convinced that some of the cost 
estimates accurately represent how prices of new technologies actually 
behave, I'm curious what, in your opinion, is the best way (other than 
energy conservation and efficiency) to protect the incomes of lower and 
middle income families as we transition to a clean energy economy?
    Answer. As the existing electricity system continues to age, we 
face an ongoing need to retire and replace power plants. This will 
result in rate increases, which will admittedly vary by state depending 
on the age of the fleet serving the state and the replacement 
technologies available. The economic impact of rate increases is partly 
determined by the size of these increases--a series of small increases 
over time is easier to digest than a large increase in a short time 
which can have a more severe impact on businesses which employ people. 
If increases can be kept small and spread out over time, then 
businesses and households can adjust. Also energy efficiency programs 
targeting both the residential and industrial consumers can negate a 
portion of the rate increase.
    Question 2. Studies by the Congressional Budget Office (CBO), for 
example, have shown that auctioning carbon emission permits and 
returning the revenue to households in the form of equal lump sum 
payments is the best way to protect households from any higher prices 
that will result from limiting carbon emissions. What is your view of 
this approach to mitigating the impact on families, and how can we 
ensure that the most vulnerable American households are kept whole?
    Answer. While a revenue neutral tax which returns the income to 
households may be appealing, we are concerned about the impact on 
larger industrial energy consumers. The revenue neutral tax which 
returns the revenue to households only would mean that these industries 
would see notably large rate increases in the first year of the 
program--we estimated that a twenty dollar carbon price in a coal state 
like Indiana, (home to a lot of heavy manufacturing), would cause about 
a 40 percent electricity price increase. If the program really returned 
most of that sum back to consumers through some sort of rebate, they 
may be irritated but economically undamaged. However, returning 
revenues to households would not help businesses as it may be 
politically difficult to include these businesses in a revenue sharing 
plan). If these businesses are hit all at once by a large increase, it 
would likely have an adverse impact on these companies' viability-an 
unacceptable outcome.
    A revenue neutral tax, should it be pursued, should also factor in 
the impact of shifting revenues from carbon intensive states to low 
carbon states. Coal dependent states would see the largest price 
increases and pay the most into the program. If possible, revenues 
should be returned to people in the state and not transferred to 
households in lower carbon states that tend to already enjoy a 
substantially higher standard of living.
    Question 3. I appreciate how Chairman Bingaman has worked really 
hard to mitigate the regional impacts in this CES proposal. But some 
regional disparities are inevitable, as some regions have been early 
adopters of clean energy and would start with more.
    I'm wondering if we need a funding source to provide some 
transition assistance to those regions and groups that will be impacted 
the most. Do you think some transition assistance is necessary to 
prevent an economic shock to certain regions of the country and certain 
income groups?
    Answer. Duke Energy shares your concern with the disparate regional 
impacts. We would strongly support both ensuring that the structure, 
targets and timetables of the Clean Energy Standard are as workable for 
all regions as possible. In addition, we would support the Committee 
considering the addition of transition assistance for regions that are 
disproportionately impacted by the policy.
    Question 4. I was concerned to learn that in some cases the cost 
burden for utilities regulated under the CES might result in prices 
almost double those for the exempted utilities. Would regulating carbon 
upstream reduce some of these problems and provide a more equitable 
cost share? And would regional disparities be minimized with a more 
economy wide approach to reducing carbon in our economy?
    Answer. Duke Energy shares your concern about the unfairness of 
exempting small utilities, which we think resulted from a 
misunderstanding of the compliance options available under a tradable 
program--no utility would be required to build these resources, but 
rather all electric consumers would help to pay for these technologies, 
the development of which should be seen as vital to the future of a 
reliable, affordable and clean electric system. If all electricity 
consumers are required to procure clean energy certificates, thereby 
helping to pay for the continued development of clean energy 
technologies, the burden of this shared responsibility will be less for 
everyone.
    Regulating carbon upstream would not address the disparity if the 
smaller utilities remained exempt from the program. If carbon were 
regulated upstream, then it would be harder to define this as a clean 
energy program rather than an emissions program.
    Presuming all utilities were required to participate in an upstream 
program, where the cost of the carbon were placed on the fuels, then 
there would still be significant regional costs disparities, depending 
on the carbon intensity of the existing electricity generation fleet. 
This might be made more manageable through an allowance or credit 
allocation program, or if via a fee or carbon tax, through managing the 
price path so as to produce very small year on year changes.
    Question 5. I believe that putting a price on carbon, such as that 
contained in the clean energy standard, is necessary. It will unleash 
American ingenuity to diversify our energy mix and reduce our carbon 
intensity. But a price on carbon is not sufficient. We must also make 
critical investments--in research and development and in the grid 
itself. Integrating renewables into the grid demands new investments in 
the grid.
    Washington state passed a renewable portfolio standard five years 
ago. Since then, renewable energy has taken off faster than anyone 
could have imagined. Wind, for example, now accounts for roughly 3,000 
megawatts of my state's power capacity. Integrating this much wind into 
the grid so fast has produced challenges. In my home state, we have so 
much wind power that at certain times it has to be shut off. Two weeks 
ago, many wind farms were forced to shut down simply because we had too 
much cheap power. Too much cheap power that is both clean and 
sustainable should be a boon for our economy-- not a burden to bear.
    A study by the Electric Power Research Institute estimated that the 
net investment necessary to create a power delivery system of the 
future would be between $17 and $24 billion dollars per year over the 
next 20 years. That same study found that every dollar of investment in 
the grid would return four dollars of benefits such as reduced outages, 
increased efficiency, and lower demand for energy at peak times.
    Washington State has been leading on realizing this smart grid of 
the future that we so urgently need. The Pacific Northwest National 
Laboratory, PNNL, led a study to determine how willing homeowners are 
to use smart grid technologies; what benefits they found in being able 
to control their energy use according to pricing; and how much money 
they could save. Unfortunately, we're not making these critical 
investments.
    The Department of Energy's 2011 Quadrennial Technology Review 
confirmed this, stating simply that we are ``underinvesting in 
activities supporting modernization of the grid.'' This underinvestment 
delays the nation's transition to a more resilient, reliable, and 
secure electricity system that integrates renewables into the system. 
Do you believe that grid modernization efforts and making the grid 
smarter are important parts of bringing more clean energy online? If 
so, how can we continue to make progress on modernizing our grid?
    Answer. Duke Energy strongly believes that smart grid technology is 
a key component of modernizing the nation's power system as it will 
enable many advanced energy efficiency technologies and help with 
challenges like integrating renewable resources into the grid. Another 
major benefit of the smart grid is, as you noted, it can shorten or 
prevent power outages by making the grid ``self-healing'' by 
automatically switching relays to limit or prevent blackouts. For all 
these reasons, investment in modernizing the grid is money well 
invested.
    Congress can help create the conditions where deployment is more 
likely to be efficient and effective by encouraging the development of 
industry-wide standards, similar to those which apply to mundane items 
like electrical plugs or light switches as easy examples. This would 
help cut through the market clutter and uncertainty as each vendor 
pursues tracks which do not allow the easy integration of their product 
into the total system. In addition, there is a tremendous need to 
educate consumers about the advantages of this new technology. In some 
regions of the country, the roll out of smart meters and other 
components of the smart grid have been slowed by opposition from a 
minority of customers. With a smart grid enabling advanced energy 
efficiency and management technologies, we would be able to tap into 
new sources of zero emission energy while buffering the impacts of 
higher energy bills.
      Response of Keith b. Trent to Questions From Senator Manchin
    Question 1. Mr. Trent, in your testimony, you said, ``A Clean 
Energy Standard could help unlock billions of investment dollars that 
are poised to transform coal to a fuel that can be used far more 
efficiently and cleanly in the decades to come. Domestic and foreign 
investors are ready to make big investments in emerging technologies 
like carbon capture and sequestration. They just need an appropriate 
incentive to lower the technology's investment risks. A well designed 
Clean Energy Standard can provide that incentive.'' EIA projects that 
under S. 2146, virtually no electricity will be generated from coal 
with CCS. What changes do you think will need to be made to the Clean 
Energy Standard that would encourage utilities like Duke to install 
carbon capture and sequestration?
    Answer. Based on our review of the various analyses of S. 2146 it 
appears that the price of Clean Energy Certificates will be too low to 
incentivize carbon capture and sequestration. Other ``clean'' 
technologies will be cheaper and will represent the least cost 
compliance approach. Outside of changing the supply/demand structure of 
this new market the Committee might consider other complimentary 
incentives outside the program such as tax incentives to make CCS more 
attractive.
                                 ______
                                 
       Response of Karen Palmer to Question From Senator Bingaman
    Question 1. A design goal for the CES is to minimize any regional 
inequity that could result from the program. Do you have any 
suggestions for improvements to the design of the proposed CES that 
would help in this regard?
    Answer. Our research suggests that price impacts of the CES policy 
will be bigger in regions that have more coal-fired generation. The ACP 
will mitigate this somewhat by limiting the cost impacts of the 
program. Another approach that could help to mitigate regional prices 
effects would be to credit generation from existing nuclear and hydro 
facilities at 0.1 credit instead of excluding them from the 
requirements of the program as the bill currently does. Another way to 
look at the program is that it is undoing existing regional inequities 
in the cost of electricity due to the failure to account for the 
environmental costs of electricity production using high emitting 
technologies. As my co-authors and I point out in our RFF discussion 
paper that evaluates this CES policy (see http://www.rff.org/RFF/
Documents/RFF-DP-12-20.pdf), the policy tends to reduce the differences 
in prices across regions of the country.
     Responses of Karen Palmer to Questions From Senator Murkowski
    Question 1. Do you believe a federal mandate should not contain any 
cost-containment measures such as an Alternative Compliance Payment? 
Last Congress, in S. 1462, this Committee reported out a 15 percent 
Renewable Electricity Standard that authorized the DOE Secretary to 
waive the requirements if the incremental cost of annual compliance 
exceeded 4 percent per retail customer. Would Resources for the Future 
(RFF) support this kind of additional consumer rate protection?
    Answer. I think that an ACP, which essentially serves as a cap on 
the price of clean energy credits, is a good idea for a CES policy. 
Such a cap should be set at a level (in dollars per MWh) where it is 
not expected to be binding. Because the CES policy allows for banking, 
the ACP should increase at the rate of interest over time. I hasten to 
add that my opinion here (and in my testimony) is my opinion alone and 
should not be attributed to Resources for the Future (RFF). RFF does 
not take positions on policy issues.
    Question 2. Why are some existing renewable resources not eligible 
for Credits? For example, why are some generation resources excluded 
from the bill based solely on the date they were built? Why does it 
matter when they were built as long as they meet the carbon intensity 
criteria?
    Answer. I believe that the logic behind giving credits to newer 
vintage renewables is to avoid transfers to owners of existing 
facilities that would operate with or without the credits. The point is 
of the policy is to encourage investment in new low-emitting or non-
emitting sources of electricity. Renewable facilities typically have 
very low operating costs and older facilities will likely operate with 
or without the credit. Giving credit to facilities that will operate 
anyway as a result of the policy tends to increase the costs to 
consumers while not increasing the environmental and technology 
deployment benefits of the policy. One way to reduce the size of these 
transfer payments and provide an incentive for renewables that might 
not generate or might generate less in the future to keep generating is 
to give a partial credit to existing facilities (such as 0.1 of a 
credit for existing hydro and nuclear facilities), as described in the 
answer to the question from Senator Bingaman.
    Question 3. Do you believe a federal electricity mandate is 
necessary if there are incentives like a Production Tax Credit (PTC) in 
place? Conversely, does it make sense to have PTC treatment if there's 
a federal electricity mandate?
    Answer. The CES and the PTC have different purposes and very 
different goals. The PTC is targeted at renewables exclusively and is 
intended to encourage the development and use of these relatively new 
technologies, such as wind power, in order to help increase their use 
and lower their cost. The CES is a much more ambitious policy that 
attempts to encourage investment in and greater electricity generation 
from both low- and non- CO2 emitting technologies. The PTC 
is not a substitute for the CES. Whether a PTC is still necessary when 
there is a CES in place is an open question. One reason it might be 
warranted is that in the early years, the CES tends to encourage more 
gas than renewables and if there is a learning curve effect of greater 
renewable use, the CES alone may not provide a sufficient push to the 
higher cost renewable technologies to realize those learning benefits 
and thus anticipated reductions in the costs of renewables associated 
with greater deployment would be slower to be realized under the CES 
alone than under a CES combined with a PTC.
    Question 4. You testified that the small utility exemption creates 
a difference in electricity prices between exempt and non-exempt 
utilities under the policy that grows to close to 50 percent on average 
by 2035. Does RFF believe that no exemption is appropriate and that all 
utilities should be subject to the CES mandate? What about utilities in 
Alaska and Hawaii?
    Answer. I believe that all utilities should be subject to the CES 
mandate, much the way that all utility generators (except the very 
smallest) are subject to the requirements of the Clean Air Act for 
emissions of SO2 and other air pollutants. Again, this is my opinion 
and should not be attributed to RFF.
    Question 5. Why is there no growth in CCS technologies under a 
federal CES program?
    Answer. According to the assumptions about technology costs in our 
modeling (which are largely consistent with assumptions used by EIA in 
its AEO 2011), new IGCC capacity with CCS is not economic with the CES 
policy as specified. The ACP is a contributing factor here. When we run 
the CES without an ACP we get 50 TWh of generation from IGCC with CCS 
by 2035. We also do not allow for CCS retrofit of existing fossil fuel 
generators in our modeling so we are not able to comment on the 
economics of that particular option.
      Responses of Karen Palmer to Questions From Senator Cantwell
    Question 1. I believe one of the most important parts of any energy 
or climate policy is protecting consumers from any energy cost 
increases that result from the policy. This is especially important for 
the lower and middle classes that spend a higher fraction of their 
income on energy. While I'm not convinced that some of the cost 
estimates accurately represent how prices of new technologies actually 
behave, I'm curious what, in your opinion, is the best way (other than 
energy conservation and efficiency) to protect the incomes of lower and 
middle income families as we transition to a clean energy economy?
    Answer. From an electricity consumer perspective, one of the 
attractive features of the CES policy relative to a carbon pricing 
scenario that is designed to achieve the same level of emissions 
reduction, is that the electricity price impacts of the CES as 
specified in the bill are typically lower and happen later in time than 
the price impacts of the carbon fee. This can be seen by comparing the 
CES and the Carbon Tax lines in the figure* below. Including an ACP in 
the CES policy will also help to mitigate the price impacts on 
consumers and our analysis finds that this effect can be quite large, 
particularly in regions where electricity is priced in competitive 
markets, where our research suggests that the ACP cuts the impact of 
the policy on electricity price in half in 2035.
---------------------------------------------------------------------------
    * Figure 1 has been retained in committee files.
---------------------------------------------------------------------------
    Question 2. Studies by the Congressional Budget Office (CBO), for 
example, have shown that auctioning carbon emission permits and 
returning the revenue to households in the form of equal lump sum 
payments is the best way to protect households from any higher prices 
that will result from limiting carbon emissions. What is your view of 
this approach to mitigating the impact on families, and how can we 
ensure that the most vulnerable American households are kept whole?
    Answer. This approach to mitigating the undesirable impacts of a 
cap and trade climate policy on low-income households has much to 
recommend it. Josh Blonz, Dallas Burtraw and Margaret Walls, colleagues 
of mine at Resources for the Future, have an article in the B.E. 
Journal of Economics and Policy that reaches a similar conclusion. They 
analyze the use of auction revenues under a carbon cap and trade policy 
that is patterned after the provisions of Waxman Markey and find that 
allocating allowance revenue lump sum to households dramatically 
reduces the regressive nature of the climate policy. One cautionary 
note is that the redistribution of allowance auction revenues should be 
done separately from household utility bills in order not to mute the 
incentives to conserve electricity that come from higher electricity 
bills. The goal is to protect the low income consumers from the 
consequences of the policy for their income but not to mute the effects 
on prices or bills which can yield desired changes in energy 
consumption behavior that will help to reduce CO2 emissions. 
(For more information see Blonz, Josh, Dallas Burtraw and Margaret 
Walls, Climate Policy's Uncertain Outcomes for Households: The Role of 
Complex Allocation Schemes in Cap-and-Trade, B.E. Journal of Economic 
Analysis and Policy 10(2): article 5.)
    Question 3. I appreciate how Chairman Bingaman has worked really 
hard to mitigate the regional impacts in this CES proposal. But some 
regional disparities are inevitable, as some regions have been early 
adopters of clean energy and would start with more.
    I'm wondering if we need a funding source to provide some 
transition assistance to those regions and groups that will be impacted 
the most. Do you think some transition assistance is necessary to 
prevent an economic shock to certain regions of the country and certain 
income groups?
    Answer. The main source of transition assistance under the CES 
policy as specified in the bill is the passage of time and the fact 
that the standard and the ACP rise over time. Thus in the early years 
the effects of the policy are small and regions will have time to 
adjust to the expected electricity price increases in the future.
    Question 4. I was concerned to learn that in some cases the cost 
burden for utilities regulated under the CES might result in prices 
almost double those for the exempted utilities. Would regulating carbon 
upstream reduce some of these problems and provide a more equitable 
cost share? And would regional disparities be minimized with a more 
economy wide approach to reducing carbon in our economy?
    Answer. Regulating carbon upstream at the source of the coal or 
other fossil fuel would solve the exempt utilities problem, because the 
cost of the carbon regulation would be reflected in the price of fuel 
to all utilities, both large and small, and presumably no utilities 
would be exempt. It would also make the climate policy more cost 
effective as it would address emissions within the electricity sector 
and beyond. The regional effects on households would depend importantly 
on the mix of fuels used to generate electricity, the aggregate 
stringency of the policy and how that evolves over time, and the use of 
emissions revenues (assuming the upstream regulation took the form of a 
cap-and-trade with an auction or an emissions fee). Any policy that 
creates revenues would also create a potential source of funds to help 
mitigate adverse effects on particular groups of energy consumers.
    Question 5. I believe that putting a price on carbon, such as that 
contained in the clean energy standard, is necessary. It will unleash 
American ingenuity to diversify our energy mix and reduce our carbon 
intensity. But a price on carbon is not sufficient. We must also make 
critical investments--in research and development and in the grid 
itself. Integrating renewables into the grid demands new investments in 
the grid.
    Washington state passed a renewable portfolio standard five years 
ago. Since then, renewable energy has taken off faster than anyone 
could have imagined. Wind, for example, now accounts for roughly 3,000 
megawatts of my state's power capacity. Integrating this much wind into 
the grid so fast has produced challenges. In my home state, we have so 
much wind power that at certain times it has to be shut off. Two weeks 
ago, many wind farms were forced to shut down simply because we had too 
much cheap power. Too much cheap power that is both clean and 
sustainable should be a boon for our economy--not a burden to bear.
    A study by the Electric Power Research Institute estimated that the 
net investment necessary to create a power delivery system of the 
future would be between $17 and $24 billion dollars per year over the 
next 20 years. That same study found that every dollar of investment in 
the grid would return four dollars of benefits such as reduced outages, 
increased efficiency, and lower demand for energy at peak times.
    Washington State has been leading on realizing this smart grid of 
the future that we so urgently need. The Pacific Northwest National 
Laboratory, PNNL, led a study to determine how willing homeowners are 
to use smart grid technologies; what benefits they found in being able 
to control their energy use according to pricing; and how much money 
they could save. Unfortunately, we're not making these critical 
investments.
    The Department of Energy's 2011 Quadrennial Technology Review 
confirmed this, stating simply that we are ``underinvesting in 
activities supporting modernization of the grid.'' This underinvestment 
delays the nation's transition to a more resilient, reliable, and 
secure electricity system that integrates renewables into the system. 
Do you believe that grid modernization efforts and making the grid 
smarter are important parts of bringing more clean energy online? If 
so, how can we continue to make progress on modernizing our grid?
    Answer. Unlike fossil fuels, which can be transported from the 
point of extraction or processing to a generator, renewable resources 
such as solar and wind must be used where they are found. The regions 
with abundance of renewables are often not the regions where there is 
an abundance of electricity demand. Thus transmission capacity is 
particularly important for bringing new supplies of renewable 
electricity to market. With greater transmission capacity there will be 
more opportunities to sell excess wind generation in regions and times 
when supply exceeds demand in a particular location and curtailments 
will presumably be avoided. More transmission capacity will also enable 
the grid operators to take advantage of differences in availability of 
wind and solar energy across space at particular points in time. The 
types of investments that are needed to facilitate getting renewable 
electricity from the point of supply to where the customers are is not 
necessarily modernization of the smartness of the grid but more 
increases in capacity in key locations. These types of investments need 
to be evaluated further to see how they compare in cost and cost 
effectiveness in dealing with intermittency of renewable supply and 
matching supply and demand.
    The role of the smart grid (as opposed to just the grid) in 
enabling the transition to more use of renewables is not something that 
I have studied specifically. However, it could be particularly 
important for greater integration of distributed renewables (PV on roof 
tops and distributed wind) and for encouraging reductions in demand at 
key periods as well as for integration of plug-in electric vehicles, 
which could provide a means for storing excess electricity that is 
generated from wind turbines at night.
                                 ______
                                 
    Responses of Thomas J. Gibson to Questions From Senator Bingaman
    In your testimony, you've raised concerns about the potential for 
energy intensive manufacturing like the Iron and Steel Industry to 
become uncompetitive in the global market if electricity rates rise. 
Your testimony also expresses support for Congress to craft a 
``comprehensive and market-driven energy policy'' that would develop 
natural gas, nuclear power, and clean coal resources, and fully make 
all these sources of energy part of the nation's energy independence 
strategy moving forward. In many ways this, to me, describes the CES 
that I have proposed here.
    Question 1a. Are there ways within the CES paradigm to reduce any 
adverse impacts for energy intensive manufacturing?
    Answer. Although AISI is opposed to the creation of a federal CES, 
there are several concepts that, if included in the program, could 
mitigate some of the negative impact on energy intensive manufacturing 
sectors such as steel. First, there is potential for steel production 
facilities to qualify as energy efficiency producers in a CES, either 
through combined heat and power (CHP) capacity or through the capture 
and conversion to energy of otherwise wasted process heat and byproduct 
gases created during steelmaking. Although technology for capturing and 
converting wasted heat and process gases to energy is commercially 
available, it is also capital intensive. Adding wasted heat and gas 
recovery as a qualified source of renewable or ``clean'' electricity 
generation would make the technology more cost effective, and help to 
achieve the CES legislation's goals.
    Second, steel facilities often have the ability to participate in 
demand response mechanisms with utilities, such as programs where 
manufacturing plants agree to reduce electricity consumption during 
periods of peak electricity demand. Some steel producing facilities 
operations take electric service from utilities under some form of 
interruptible or non-firm rate service that can be curtailed during 
system peaks when electricity generation costs are high and system 
reliability is threatened. This arrangement benefits utilities and 
other consumers as local utilities avoid having to construct additional 
generation capacity to serve the non-firm load. By reducing load in 
response to the utility request, steel producers lower costs for all 
other system users, improve overall system reliability, and reduce peak 
generation-related emissions. In providing this benefit, steel 
facilities incur lost production and production inefficiencies that 
increase their operating costs.
    Several states have policies in place that recognize demand 
response measures, including interruptible or non-firm rate measures, 
as providing an energy efficiency benefit under their state renewable 
electricity standards (RES). Accordingly, these states prohibit the 
renewable surcharge attributable to the RES from being applied to the 
portion of an electricity bill that is interruptible or non-firm rate 
service. These policies incentivize efficiency from both utilities and 
manufacturing customers and are often implemented to mitigate the costs 
utilities--and their industrial customers--face from state RES 
mandates. This concept could also be recognized in the federal CES.
    Finally, changes to the proposed CES to limit the cost impact of 
the mandate on energy consumers would lessen the impact on 
manufacturing facilities served by utilities that rely heavily upon 
coal. For example, the federal RES proposal contained in the American 
Clean Energy Leadership Act (ACELA) from the 111th Congress included a 
provision to permit a utility to apply to the Secretary of Energy for a 
waiver to limit the incremental cost of RES compliance to not more than 
4 percent per retail customer. A similar provision would potentially 
reduce impacts of a CES on energy intensive manufacturers if drafted 
appropriately.
    Question 1b. Do you have concrete suggestions for how to accomplish 
the goals that you've set out above (nuclear, CCS, even more natural 
gas) that will not have the same potentially adverse effects on your 
industry?
    Answer. AISI believes that Congress should craft a comprehensive 
and market-driven energy policy built around promoting greater 
development of all domestic energy sources, incentives for efficiency 
improvements, and additional support for industry efforts to develop 
breakthrough technologies. These policy measures will serve to meet 
shared national clean energy goals, while avoiding the negative impact 
a CES would have on the industrial sector. In particular, such a policy 
agenda should:

   Create an abundant and affordable energy supply--by 
        developing domestic oil, natural gas, nuclear power, and clean 
        coal resources, along with competitive renewables, and fully 
        make all these sources of energy part of the nation's energy 
        independence strategy moving forward. The federal government 
        should not implement policies that restrict domestic resources 
        from being fully harnessed, especially natural gas production 
        from shale. Additionally, regulatory certainty for energy 
        producers, regardless of the types of energy they produce, is 
        essential. Grafting additional requirements onto the existing 
        Federal regulatory structure will exacerbate the uncertainty 
        that already exists. For instance, AISI supports Senate passage 
        of H R. 1229, H.R. 1230 and H.R. 1231, three bills aimed at 
        expanding oil and natural gas production in the Outer 
        Continental Shelf (OCS) that passed the House in 2011. Also, 
        the Department of Interior's proposed Five-Year Plan for 2012-
        2017 ignores the resource potential of several key OCS areas, 
        depriving the nation of the energy, economic, and revenue 
        benefits that they hold. It should be expanded to include these 
        additional areas.
   Maximize the energy efficiency of existing industrial 
        facilities in the near-term--This can be achieved in part by 
        recognizing the efficiency opportunities within the domestic 
        steel industry. Financial incentives could be provided to steel 
        producers to facilitate the capture and conversion to 
        electricity of wasted heat and byproduct gases at industrial 
        facilities. Also, steel facilities that participate in demand 
        response mechanisms with utilities that reduce electricity 
        usage during periods of peak demand, should receive credit for 
        their contribution to improved energy efficiency.
   Support breakthrough research for longer-term benefits--To 
        further lower energy intensity and to substantially reduce 
        emissions, new processes must be developed that do not rely on 
        carbon fuels. Partnership with the Department of Energy, and 
        support of Congress, is essential to achieving these goals. 
        Many developed and developing nations with which our industry 
        competes fund manufacturing research for carbon reduction and 
        energy efficiency at higher levels than the U.S. For steel 
        manufacturing alone, the Japanese government has funded 100 
        percent of a $120 million effort to develop new steelmaking 
        breakthrough technology. Likewise, in Europe, the first $100 
        million phase of Europe's ULCOS (Ultra-Low Carbon dioxide 
        (CO2) Steelmaking) project has received 40 percent 
        government funding. South Korea's government has contributed 50 
        percent of the $27 million dedicated for breakthrough 
        technology research for the steel industry there.

    For our part, AISI and its members continue to invest in the 
CO2 Breakthrough Program, a suite of research projects 
designed to develop new ironmaking technologies that emit little or no 
CO2 while conserving energy. We have developed two key 
technologies to achieve those goals, and they are now ready for pilot 
scale testing. The research is being done at MIT and University of Utah 
and both projects were the subject of proposals recently submitted to 
the Department of Energy. We are pleased that just last week the 
University of Utah project was selected by the Department of Energy's 
Innovative Manufacturing Initiative for a $7.1 million award. This 
successful partnership with DOE, along with the continued support of 
Congress, will accelerate the development and deployment of critical 
breakthrough technologies. Also, legislation that facilitates such 
research with a particular focus on domestic manufacturing, like 
Senator Sherrod Brown's Investments for Manufacturing Progress and 
Clean Technology (IMPACT) Act of 2009, can help maintain out 
competitive position in the world.
   Responses of Thomas J. Gibson to Questions From Senator Murkowski
    Question 1. The domestic steel industry is obviously energy-
intensive and subject to substantial international competition, 
particularly from China. The EIA has determined that a CES will raise 
end-use costs by 25 percent by 2035 for industrial consumers such as 
AISA. How much electricity do members of the Iron and Steel Institute 
purchase on an annual basis? What does an increase in electricity costs 
really mean for an internationally-competitive industry such as yours? 
How long-term do you need to assess pricing impacts?
    Answer. In 2010, the latest year for which cumulative data is 
available, our domestic steel industry consumed 45.7 billion kWh of 
electricity. An increase of 1 cent per kWh in the average electricity 
costs paid by steel producers has a total economic impact of $450 
million in increased costs to the industry as a whole. Steel is 
extensively traded internationally; in 2011, 31 percent of all steel 
manufactured in the world was exported to another country. The United 
States is the most open market in the world for steel, and as such 
increases in costs cannot be passed on to customers who can chose to 
purchase steel from foreign producers not facing such costs. 
Furthermore, as I noted in my written testimony, China, the world's 
largest producer of steel, subsidizes its industry in a number of ways, 
including through government-subsidized energy.
    Steel plants are very expensive and long-lived capital assets. A 
new facility built today will be in service for decades to come, as 
will many existing facilities. Companies make investment decision for 
steel production facilities based on a number of factors, including 
projected long-term energy prices, as steel plants cannot simply move 
to an area with lower costs to remain competitive. Thus the threat of 
higher energy prices is a significant deterrent to new investment in 
the domestic steel industry.
    Question 2. What kind of real-world impact on jobs would an 
industry such as yours experience under a federal electricity mandate?
    Answer. A recent report commissioned by AISI found that every 
individual job in the steel industry supports seven additional jobs in 
other sectors of the economy. In aggregate, the steel industry accounts 
for over $101 billion in economic activity and supports more than 1 
million jobs across the country. As detailed in my statement, as an 
energy-intensive and trade-exposed industry, policies like a federal 
CES that would raise production costs for domestic steel producers 
threaten the competitiveness of steel production in the U.S., and the 
jobs associated with it.
    Question 3. During the hearing, the question was raised how the 
suite of EPA regulations achieves policy goals for greenhouse gas (GHG) 
emissions for existing facilities. It was stated that EPA regulations 
are only directed at new facilities, while a CES would regulate 
existing facilities. You testified that S. 2146, if signed into law, 
would be the primary mechanism for regulating GHG emissions. If S. 2146 
is signed into law as written, wouldn't existing facilities be subject 
to retrofits necessary to comply with the suite of EPA regulations, in 
addition to a CES?
    Answer. Yes. As drafted, S, 2146 does not preempt EPA regulation of 
stationary sources for GHGs, so facilities subject to S. 2146 remain 
susceptible to EPA GHG regulations, which at this point only extend to 
new facilities but are likely to be extended to existing facilities in 
the future unless the Federal Courts or Congress intervene.
    Earlier this year, EPA announced its New Source Performance 
Standards (NSPS) proposal for the regulations of GHGs from electric 
generating utilities (EGUs). EPA indicated at the time of the proposal 
that the regulations would only apply to new power generating 
facilities. However, based on EPA projections for future electricity 
generation composition and the potential for future litigation, 
expectations are that these regulations will eventually apply to 
existing EGU facilities. Beyond that, existing and new power plants are 
also slated to be subject to a variety of other regulations, including 
the Cross State Air Pollution Rule (CSAPR), the Mercury and Air Toxics 
Standards Rule, or ``Utility MACT,'' coal combustion residuals, and 
Clean Water Act section 316(b) cooling water intake structures. All of 
these regulations will all have an impact on coal-fired utilities.
    The result of these regulations, along with market conditions 
regarding natural gas, are already causing a shift from coal- to 
natural gas-based electricity generation. Coal was last above 50 
percent of U.S. electricity generation in 2008. It is now at 45 
percent, and projected to continue to decline to 39 percent by 2035 
even without a CES in place.
    If the CES proposed by S. 2146 were to be enacted as written, 
existing electricity-generating infrastructure would face multiple 
retrofit requirements that are presently scheduled to occur at 
virtually the same time to comply with the suite of Clean Air Act 
regulations. Some clean air technologies result in the consumption of 
additional energy and thus might act contrary to the purposes of a CES. 
As I stated at the hearing in response to questions, if a CES were to 
become law, preemption of EPA regulatory air requirements for the 
utility sector would be necessary to avoid these consequences.
    Question 4. Do you believe a federal electricity mandate is 
necessary if there are incentives like a Production Tax Credit (PTC) in 
place? Conversely, does it make sense to have PTC treatment if there's 
a federal electricity mandate?
    Answer. Currently, over 4 percent of electricity generation in the 
United States comes from non-hydropower renewable sources. Generation 
from non-hydro renewables has more than doubled since 1990. The 
existing PTC has undoubtedly contributed to this increasing amount of 
renewable power generated. A federal RES or CES would similarly be 
designed to increase production from wind and solar sources, but as a 
mandate rather then a tax incentive. If a CES and PTC were both part of 
federal statute, the same kWh of renewable electricity could 
potentially be qualified for both policies. This seems redundant and 
unnecessary. Instead of creating an additional mandate for production, 
maintaining the production incentive would be preferable policy.
    Ideally, a comprehensive market-driven national energy policy would 
be the best approach for the United States. Such a policy should 
promote greater development of all domestic energy sources, as well as 
efficiency improvements, and breakthrough technologies, through market-
based incentives, rather than through government mandates that would 
threaten the competitiveness of key industries like steel.
    Responses of Thomas J. Gibson to Questions From Senator Cantwell
    Question 1. I believe one of the most important parts of any energy 
or climate policy is protecting consumers from any energy cost 
increases that result from the policy. This is especially important for 
the lower and middle classes that spend a higher fraction of their 
income on energy. While I'm not convinced that some of the cost 
estimates accurately represent how prices of new technologies actually 
behave, I'm curious what, in your opinion, is the best way (other than 
energy conservation and efficiency) to protect the incomes of lower and 
middle income families as we transition to a clean energy economy?
    Answer. AISI agrees with your concerns about energy cost increases 
that could result from climate or energy policy. This is especially 
important for an industry, such as steel production, that is both 
energy-intensive and trade-exposed. AISI comes at this question from a 
job creation perspective: if you do not have a job then energy at any 
price is unaffordable. Our concern is that policies that unilaterally 
raise the cost of making steel in the U.S. have the potential to shift 
that production overseas to places with lower energy costs (and 
perversely, higher GHG emissions per ton of steel produced), resulting 
in the loss of many good-paying manufacturing jobs.
    Every individual job in the steel industry supports seven 
additional jobs in other sectors of the economy. In aggregate, the 
steel industry accounts for over $101 billion in economic activity and 
supports more than 1 million jobs across the country. Without 
appropriate provisions for industries like steel that cannot simply 
pass increased energy costs on to its customers, these valuable 
manufacturing jobs and the associated incomes for industry employees 
would be put in jeopardy by a CES mandate.
    Question 2. Studies by the Congressional Budget Office (CBO), for 
example, have shown that auctioning carbon emission permits and 
returning the revenue to households in the form of equal lump sum 
payments is the best way to protect households from any higher prices 
that will result from limiting carbon emissions. What is your view of 
this approach to mitigating the impact on families, and how can we 
ensure that the most vulnerable American households are kept whole?
    Answer. AISI did not support GHG cap-and-trade proposals made in 
previous Congresses because of the negative economic impact to energy-
intensive, trade-exposed manufacturing sectors--especially steel 
production--that would occur as a result enactment of such proposals. 
We continue to believe that such programs, without the appropriate 
policy measures to address cost impacts, would threaten the ability of 
energy-intensive, trade-exposed industries like steel manufacturing to 
remain competitive in global markets. The struggles of European 
manufacturers under the EU Emissions Trading System are a case in 
point.
    While these proposals were being debated, AISI emphasized the 
necessity for any legislation to provide a full allocation of 
allowances to energy-intensive, trade-exposed manufacturers for both 
direct emissions costs and to offset the expected increases in energy 
costs that manufacturers would face. It was also essential that 
legislation include an automatically triggered border adjustment 
measure for imports from all countries that do not have in place 
comparable GHG emissions regulations. We also stated at the time that 
effective national climate legislation must prevail over inconsistent 
state laws and initiatives and should supersede existing federal law 
and avoid overlapping regulation of greenhouse gases. Finally, we 
believe that a robust federal research and development effort into 
breakthrough technologies for key manufacturing sectors is essential.
    Question 3. I appreciate how Chairman Bingaman has worked really 
hard to mitigate the regional impacts in this CES proposal. But some 
regional disparities are inevitable, as some regions have been early 
adopters of clean energy and would start with more.
    I'm wondering if we need a funding source to provide some 
transition assistance to those regions and groups that will be impacted 
the most. Do you think some transition assistance is necessary to 
prevent an economic shock to certain regions of the country and certain 
income groups?
    Answer. AISI agrees that regional disparities are inevitable when 
creating a federal CES. AISI believes that S. 2146 will have a 
disproportionate negative impact on areas of the country that generate 
the majority of their electricity from coal. EIA projects that S. 2146 
will substantially reduce coal-fired generation. Compared with a 
reference case, coal generation would decline by 25 percent in 2025 and 
by over half--54 percent--in 2035. Thus, within two decades, the 
electricity generation infrastructure of the United States would 
radically shift from the fuel mix that has been in place since the 
advent of significant nuclear power generation around 1970. States like 
Ohio, Indiana, Pennsylvania, and West Virginia, which use coal as the 
predominant fuel source for power, will be more affected by a CES than 
other areas of the country, due to regional differences in current fuel 
mix and the cost to switch to other fuels for the generation of 
electricity.
    Certain areas of the country are better suited for renewable 
production from wind and solar sources, while others have an abundance 
of coal sources. Other regions benefit from a legacy of hydro-electric 
production that would be difficult to replicate under the current 
environmental legal regime. As noted above, creating a national CES 
will have a disproportionate impact on coal-fired utilities, and there 
is a high correlation between the service areas of those utilities and 
the location of steel production facilities. Industrial customers, 
especially steel producers, will therefore face significant additional 
charges to offset the cost of replacing coal capacity with other 
sources, including the cost of new transmission infrastructure.
    A preferred approach that would avoid these regional disparities is 
to leave the question of electricity mandates to the states. As of 
September 2011, 30 states and the District of Columbia had enforceable 
RPS or other mandated renewable capacity policies. Also, seven states 
had voluntary goals for renewable generation. The states are best 
equipped to reflect the availability and relative reliance of each fuel 
source in their geographic location, and can best craft renewable 
energy policy accordingly.
    Question 4. I was concerned to learn that in some cases the cost 
burden for utilities regulated under the CES might result in prices 
almost double those for the exempted utilities. Would regulating carbon 
upstream reduce some of these problems and provide a more equitable 
cost share? And would regional disparities be minimized with a more 
economy wide approach to reducing carbon in our economy?
    Answer. From AISI's perspective, the point of compliance is not 
really the issue as an upstream approach will still result in 
substantial cost impacts to energy- intensive, trade-exposed 
manufacturers. Imposing such upstream carbon regulations would likely 
result in both direct emissions costs for steel producers and indirect 
costs passed through to us from increases in energy production costs. 
We would still need to look at transition and mitigation programs 
similar to those needed under a cap and trade system for energy-
intensive, trade-exposed manufacturers.
    The disproportionate impact of a CES on certain areas of the 
country that was discussed in Question #3 is applicable to this 
question as well. The EIA analysis concedes that a CES would have 
disproportionate impact on certain areas of the country, largely those 
that are dependent on coal-based electricity, where a majority of steel 
production facilities are located. Many of the EPA regulations 
currently in place or planned for the utility sector will have a 
similar disproportionate effect on the utilities that serve much of our 
industry.
    An economy-wide approach that does not accommodate regional 
differences will have dramatic cost impacts on the two leading states 
in terms of iron and steel production in the U.S., Indiana and Ohio, as 
well as other leading steel producing states such as Alabama, 
Pennsylvania, Kentucky, and Michigan. All of these states are heavily 
dependent on coal for electricity production. EIA projects in its 
Annual Energy Outlook 2012 Early Release that by 2035, 39 percent of 
electricity generation will be from coal. In its analysis of S. 2146, 
it projects this percentage to drop to 18.7 percent in 2035, a result 
that will disproportionately impact the steel industry.
    Question 5. I believe that putting a price on carbon, such as that 
contained in the clean energy standard, is necessary. It will unleash 
American ingenuity to diversify our energy mix and reduce our carbon 
intensity. But a price on carbon is not sufficient. We must also make 
critical investments--in research and development and in the grid 
itself. Integrating renewables into the grid demands new investments in 
the grid.
    Washington state passed a renewable portfolio standard five years 
ago. Since then, renewable energy has taken off faster than anyone 
could have imagined. Wind, for example, now accounts for roughly 3,000 
megawatts of my state's power capacity. Integrating this much wind into 
the grid so fast has produced challenges. In my home state, we have so 
much wind power that at certain times it has to be shut off. Two weeks 
ago, many wind farms were forced to shut down simply because we had too 
much cheap power. Too much cheap power that is both clean and 
sustainable should be a boon for our economy--not a burden to bear.
    A study by the Electric Power Research Institute estimated that the 
net investment necessary to create a power delivery system of the 
future would be between $17 and $24 billion dollars per year over the 
next 20 years. That same study found that every dollar of investment in 
the grid would return four dollars of benefits such as reduced outages, 
increased efficiency, and lower demand for energy at peak times.
    Washington has been leading on realizing this smart grid of the 
future that we so urgently need. The Pacific Northwest National 
Laboratory, PNNL, led a study to determine how willing homeowners are 
to use smart grid technologies; what benefits they found in being able 
to control their energy use according to pricing; and how much money 
they could save. Unfortunately, we're not making these critical 
investments.
    The Department of Energy's 2011 Quadrennial Technology Review 
confirmed this, stating simply that we are ``underinvesting in 
activities supporting modernization of the grid.'' This underinvestment 
delays the nation's transition to a more resilient, reliable, and 
secure electricity system that integrates renewables into the system. 
Do you believe that grid modernization efforts and making the grid 
smarter are important parts of bringing more clean energy online? If 
so, how can we continue to make progress on modernizing our grid?
    Answer. As the landscape of generation, transmission, and 
utilization of electricity continues to evolve and expand, the costs of 
modernizing the nation's electric grid to reflect these changes will be 
significant. It is essential that policies be instituted to ensure that 
the grid is capable to handle increased demand and changing sources of 
electricity. In doing so, it is essential to realize that many of the 
costs involved in such efforts are passed on by utilities to their 
large industrial customers, and ultimately borne by these sectors, 
including steel producers. Policies addressing efforts to modernize the 
electric grid must therefore contain adequate measures to maintain the 
competitiveness of energy-intensive, trade-exposed industries, like 
steel.
    Responses of Thomas J. Gibson to Questions From Senator Barrasso
     In your written testimony, you state that: ``[i]ndustrial 
customers, especially steel producers, will be charged to offset the 
cost of replacing coal capacity with other sources, including the cost 
of new transmission infrastructure.''
    Question 1a. Would you please expand on how S. 2146 would 
disproportionately impact the steel industry?
    Answer. As detailed by analyses from EIA and others, a national CES 
would impose higher electricity costs on customers of coal-based 
utilities than it would on customers of utilities already fueled by 
nuclear or renewable sources. EIA projects that S. 2146 will 
substantially reduce coal-fired generation. Compared with a reference 
case, coal generation would decline by 25 percent in 2025 and by 54 
percent in 2035. Thus, within two decades, the electricity generation 
infrastructure of the United States would radically shift from the fuel 
mix that has been in place since the advent of significant nuclear 
power generation around 1970.
    In areas of the country where the steel industry operates, coal is 
the predominant fuel source for generating electricity. The two leading 
states in terms of iron and steel production in the U.S. are Indiana 
and Ohio, while other important states for the industry are Alabama, 
Pennsylvania, Kentucky, and Michigan. A CES that will increase 
electricity costs on coal-based utilities more than other sources will 
therefore impact the steel industry more than industrial customers in 
other areas of the country, by virtue of geographic location.
    Question 1b. Would you speak specifically to the impacts of this 
legislation on the steel industry in Ohio, Indiana, Pennsylvania, and 
Michigan?
    Answer. In 2010, the share of coal-based electricity in Ohio was 84 
percent, in Indiana it was 92 percent, in Pennsylvania it was 57 
percent, and in Michigan it was 64 percent. Not only are these four 
states heavily reliant on coal as a source of electricity, but they 
also are key states for steel production. As of 2011, there were 
115,645 direct steel jobs in Ohio, 74,131 in Indiana, 101,227 in 
Pennsylvania, and 67,143 in Michigan. In addition, every individual job 
in the steel industry supports seven additional jobs in other sectors 
of the economy. A national CES would make electricity supply more 
expensive and less reliable for the steel making facilities in these 
states, therefore threatening the international competitiveness of the 
domestic industry and the associated jobs in the industry and related 
sectors.
    Question 2. In your written testimony, you explain that America's 
steel industry is subject to ``substantial international competition.'' 
You say that ``this competition comes from nations such as China, where 
the industry is largely state owned, controlled, and subsidized.'' You 
explain that U.S. steelmakers operate ``under tight margins'' and that 
``policies that raise energy costs on [American steelmakers] threaten 
our ability to remain competitive.'' Would you please elaborate on how 
S. 2146 would undermine American steelmakers' ability to compete with 
Chinese steelmakers?
    Answer. Steel is trade intensive. In 2011, 31 percent of all steel 
produced in the world was exported from its country of origin. Steel 
produced in the United States competes with steel produced in nations 
such as China, where the industry is largely state-owned, controlled, 
and subsidized. These subsidies often come in the form of below market 
rates for electricity, creating an unlevel playing field. In fact, in 
two recent countervailing duty cases, the Department of Commerce 
determined that Chinese steel pipe producers were receiving below 
market rates for electricity.
    Energy, especially electricity, typically composes 20 percent or 
more of the cost of making steel. In 2010 our domestic industry 
consumed 45.7 billion kWh of electricity. A 1 cent per kWh increase in 
the cost of electricity would cost the industry $450 million in 
aggregate. Policies such as a CES that raise electricity rates on 
domestic producers, while our competitors receive subsidized 
electricity supplies, make the industry less competitive 
internationally and threaten the existence of valuable manufacturing 
jobs.
    Question 3. Please describe what happens when a steel plant is 
closed because it is no longer economically viable. What happens to the 
workers, their families, and the community where the plant is located?
    Answer. The North American steel industry is an important source 
for employment and tax revenues for local and regional economies. In 
the U.S., for every one job formed in the steel industry, seven 
additional jobs are created in other economic sectors, such as raw 
materials, transportation, computers, and related technical services. 
Steel's economic contributions are multiplied many times over, as every 
$1 increase in sales by our sector increases total output in the U.S. 
economy by $2.66. In aggregate, the steel industry accounts for over 
$101 billion in economic activity and supports more than 1 million jobs 
across the country.
    The steel industry is and will remain an important source for high 
paying manufacturing jobs and in stimulating employment both upstream 
for raw material and other suppliers and downstream for steel service 
companies, steel using industries, and related firms. Steel plants in 
North America are often the economic centers of their community--
providing above-average wages and benefits. When steel production 
facilities are forced to close, the impact goes beyond the direct 
employees of the facility, to the jobs and employees in related 
industry, and to economic health of the communities in which they are 
located. Policies that hinder the international competitiveness of the 
domestic steel industry put the economic health of the industry and 
related industries and communities at risk.
                              Appendix II

              Additional Material Submitted for the Record

                              ----------                              

            Statement of American Forest & Paper Association
    The American Forest & Paper Association (AF&PA) appreciates the 
opportunity to submit this Statement for the Record on S.2146, the 
Clean Energy Standard Act of 2012.
    AF&PA is the national trade association of the forest products 
industry, representing pulp, paper, packaging and wood products 
manufacturers, and forest landowners. Our companies make products 
essential for everyday life from renewable and recyclable resources 
that sustain the environment. The forest products industry accounts for 
approximately 5 percent of the total U.S. manufacturing GDP. Industry 
companies produce about $190 billion in products annually and employ 
nearly 900,000 men and women, exceeding employment levels in the 
automotive, chemicals, and plastics industries. The industry meets a 
payroll of approximately $50 billion annually and is among the top 10 
manufacturing sector employers in 47 states.
BACKGROUND AND PRINCIPLES
    The forest products industry is the nation's leading producer and 
user of carbon-neutral renewable biomass energy--While other emerging 
technologies are being developed, today's biomass energy is heavily 
dependent on wood fiber. This same woody biomass also is an essential 
raw material for value-added forest products, such as paper, packaging, 
wood products, wood-based chemicals, and other products. Forest 
products facilities account for 70 percent of the renewable biomass 
energy used by all manufacturing facilities in all sectors. Most of 
this energy is a byproduct of the manufacturing process, creating both 
thermal and electrical energy, and often using combined heat and power 
(or cogeneration) technology. The industry's biomass-based energy 
should qualify as a resource under any CES.
    AF&PA's Better Practices, Better Planet 2020 initiative includes 
one of the most extensive set of quantifiable sustainability goals for 
any major U.S. manufacturing industry, with a commitment to 
transparently report progress towards achieving those goals. This 
initiative builds on our legacy as a leader in sustainable forest 
management principles.
    Congress should avoid mandates and incentives that distort the 
market for woody biomass raw material--AF&PA supports market driven 
policies that recognize the industry's leading role in production of 
renewable energy, promote sustainability of forests, focus on adequate 
supply of raw material, and allow markets to direct the flow of fiber. 
Studies show that per ton of wood used, the forest products industry 
sustains nine times as many total jobs as the biomass energy sector. A 
CES is just one of many existing and potential policies that can have 
the unintended effect of diverting biomass supply to subsidized energy 
use, thereby undermining highly efficient renewable energy production 
at existing industry facilities.
    Congress should avoid policies that will increase energy costs--
Despite meeting almost two thirds of its energy demand through biomass-
based energy, paper and wood products manufacturers also purchase 
significant quantities of energy, much of it electricity. We believe 
that a CES will result in increased electricity costs. Moreover, the 
CES would add another layer of costs onto utilities that are already 
facing dramatic cost increases due to a suite of current and future 
environmental requirements. Those costs have been estimated to be as 
high as $120 billion and are not fully reflected in the Energy 
Information Administration's (EIA) reference case that supports the 
recent EIA analysis of S.2146. The EIA analysis indicates that while in 
the short term, electricity prices would remain relatively stable, they 
would increase by nearly 20 percent in later years.
    As large ratepayers, AF&PA members will face steep electricity cost 
increases as utilities seek cost recovery of their environmental 
compliance costs. These increases will adversely affect the 
competitiveness of the industry and the jobs it provides. AF&PA opposes 
policies, such as a CES, that will result in even greater electricity 
cost increases.
Of specific concern are the following
            Clean Electric Energy From Existing Industry Mills is 
                    Excluded
    AF&PA appreciates that the definition of ``Clean Energy'' in the 
bill is broad and encompasses a wide range of energy resources. This 
can help minimize the overall cost of the CES and avoid undue pressure 
on any one clean energy source. However, we are concerned that the 
definition of ``Clean Energy'' would exclude most, if not all electric 
energy generated by existing forest products industry facilities 
because of the placed in service dates included in the bill and the 
restrictions included in the definition of ``qualified combined heat 
and power'' (CHP).
            Definition of Qualifying Biomass
    The bill definition of ``Qualified Renewable Biomass'' is vague and 
could be interpreted to exclude the biomass used by the industry to 
generate electric energy. A study performed by RISI and commissioned by 
AF&PA found that for a given volume of wood consumption, the forest 
products industry sustains 5 times as many core jobs (i.e., mill 3 
jobs) and 9 times as many total jobs (includes logging, paper 
converting jobs, and downstream wood processing jobs) as the energy 
sector. For this reason it is important that federal renewable energy 
policies do not preclude the industry's biomass-based energy from 
qualifying under those policies.
            ``Carbon Neutrality'' of Energy from Biomass Combustion
    The bill calls into question whether energy derived from the 
combustion of biomass is ``carbon neutral.''
    The European Union, the United Nation Intergovernmental Panel on 
Climate Change, and recent federal and state legislation that promotes 
use of biofuel energy have recognized that, unlike fossil fuels, 
biomass is part of the natural carbon cycle. When biomass is burned for 
energy, the carbon dioxide absorbed from the atmosphere during tree 
growth is released. When forests are replanted, or allowed to 
regenerate naturally, that cycle is repeated. So long as forest carbon 
stocks are stable or increasing--as they are in the United States--
biogenic carbon emissions are fully offset by carbon dioxide 
sequestration in regenerating forests and do not result in a net 
increase in atmospheric carbon dioxide concentrations. On the other 
hand, fossil fuel combustion has no such repeating cycle. Stored over 
millions of years, the GHG released when fossil fuels are burned 
produces a net carbon dioxide increase in the atmosphere.
    Forest products manufacturing mills use mill residues and 
byproducts and harvested forest residues to generate onsite energy. The 
manufacture of its products creates biomass residues and bio-byproducts 
that are integral and incidental to the pulp and paper and wood 
products manufacturing processes. There are no economic or 
environmental alternatives for these biomass residues and byproducts 
that would prevent CO2 from entering the atmosphere, and the 
use of these biomass residues and byproducts for energy avoids the use 
of coal and other fossil fuels.
            Energy Efficiency and Thermal Energy Should be Included in 
                    the Definition of ``Clean Energy''
    AF&PA believes that energy efficiency, biomass used for thermal 
energy, and waste heat recovery should be included in any CES as 
qualifying resources.
    Thank you for the opportunity to submit this Statement for the 
Record. AF&PA and its member companies believe that the industry's 
considerable contributions to our country's existing renewable energy 
base provide an important foundation on which our nation can build a 
larger renewable energy economy. As our country seeks to encourage 
additional renewable energy, it is essential that policies are additive 
to existing producers like the forest products industry rather than a 
replacement for existing contributors.
    We greatly value the Committee's consideration of our views and 
would be pleased to answer any questions that the Committee may have, 
or discuss further any items 4 mentioned in this statement. For 
additional information, please contact Elizabeth VanDersarl, Vice 
President of Government Affairs.
                                 ______
                                 
              Statement of American Public Gas Association
    The American Public Gas Association (APGA) appreciates this 
opportunity to submit testimony and commends the Committee for holding 
this important hearing on S. 2146, the Clean Energy Standard Act of 
2012.
    APGA is the national association for publicly-owned natural gas 
distribution systems. There are approximately 1,000 public gas systems 
in 36 states and over 700 of these systems are APGA members. Publicly-
owned gas systems are not-for-profit, retail distribution entities 
owned by, and accountable to, the citizens they serve. They include 
municipal gas distribution systems, public utility districts, county 
districts, and other public agencies that have natural gas distribution 
facilities.
    Natural gas is the cleanest, safest, and most useful of all fossil 
fuels. It is also domestically produced, abundant and reliable. The 
inherent cleanliness of natural gas compared to other fossil fuels, as 
well strong domestic supply projections and superior wells-to-wheels 
efficiency of natural gas equipment, means that substituting gas for 
the other fuels will reduce the emissions of the air pollutants that 
produce smog, acid rain and exacerbate the ``greenhouse'' effect. 
Natural gas is the lowest CO2 emission source per BTU 
delivered of any fossil fuel. Using gas-fired water heaters for homes 
instead of electric resistance water heaters ultimately reduces 
greenhouse gas emissions by one-half to two thirds. Simply put, 
increasing the direct-use of natural gas is the surest, quickest, and 
most cost-effective avenue to achieve significant reductions in 
greenhouse gases and therefore should be a critical component of any 
clean energy legislation.
    In June 2009, APGA, the Interstate Natural Gas Association of 
America and others released a study conducted by the Gas Technology 
Institute (GTI) entitled ``Validation of Direct Natural Gas Use to 
Reduce CO2 Emissions.'' The study analyzed the benefits of 
increased direct use of natural gas as a cost-effective means to 
increase full fuel cycle energy efficiency and reduce greenhouse gas 
emissions. Using the National Energy Modeling System (NEMS), the study 
concluded that the increased direct use of natural gas will reduce 
primary energy consumption, consumer energy costs, and national 
CO2 emissions.
    The study demonstrated, among other things, that conversions to 
natural gas appliances from their electric counterparts will provide 
substantially higher and immediate return values in energy efficiency 
and carbon output reductions than an equal investment in electric 
applications.
    Unfortunately, APGA is concerned that over the years federal 
policies have moved more toward an all-electric society and have not 
recognized the benefits of the direct-use of natural gas. One example 
of this can be found in the manner in which the Department of Energy 
(DOE) calculates appliance efficiency. The DOE measurement takes into 
account energy solely consumed at the ``site'', measuring the energy 
used by the product itself.
    The site-based measurement of energy consumption ignores the energy 
spent in production, generation, transmission, and distribution. For 
example, according to DOE's point of use consumer disclosure labels for 
appliances, an electric water heater may appear to consumers to be over 
60 percent more efficient than a gas water heater despite the fact that 
current national generation, transmission and distribution efficiency 
for central station electricity is, according to the U.S. Energy 
Information Agency, only 29.3 percent efficient while the transmission 
and distribution of natural gas directly to the consumer is 90.1 
percent efficient. Ignoring these energy losses makes electric-
resistance heating appliances appear more efficient (allowing them to 
receive a superior DOE efficiency rating).
    This site-based measurement has placed natural gas appliances at an 
unfair marketing disadvantage and as a result there has been a marked 
increase in shipments of electric water heaters and a decrease in 
shipments of natural gas water heaters. This increase in electric water 
heaters will come with an increase in greenhouse gas emissions given 
that electric water heaters on average emit 2.5 times the amount of 
greenhouse gas emissions as natural gas water heaters given the current 
make up of the sources of U.S. electric generation today. Renewable 
energy generation is poised to grow in the future, but makes up less 
than 2 percent (excluding hydro-electric) of generation today. 
Conversion from electric to natural gas appliances will provide a more 
immediate emissions reduction strategy than the many years it will take 
for large-scale deployment of wind, solar and other renewable 
technologies.
    Rather than a site-based measurement for energy consumption, APGA 
has advocated a ``source-based'' or ``full fuel cycle'' analysis that 
measures energy from the point at which energy is extracted through the 
point at which it is used. Such analysis provides a more accurate 
assessment of energy use, efficiency, as well as greenhouse gas 
emissions. The U.S. Government has consistently supported the most 
efficient use of our natural resources. It has become increasingly 
important for policymakers to look at the full fuel cycle to find out 
if we are using our natural resources most efficiently. If there is any 
question, then we must begin to look at the full fuel cycle when 
measuring energy usage: consider energy use from the point of 
extraction, whether fossil fuels from the earth or otherwise, in a 
continuum through their ultimate usage.
    In 2009, the National Academies recognized the importance of 
measuring efficiency by this method, in its report to Congress, 
``Review of Site (Point-of-Use) and Full-Fuel-Cycle Measurement 
Approaches to DOE/EERE Building Appliance Energy Efficiency 
Standards.'' The report found that the Department of Energy (DOE) 
should consider changing its measurement of appliance energy efficiency 
to one based on the full-fuel-cycle, which takes into account the 
amount of energy produced and lost from the point of production to the 
final point of use.
    Similarly troubling is the fact that the proposed Clean Energy 
Standard Act of 2012 does not credit direct use of natural gas in the 
same manner as other clean energy sources. From a full-fuel-cycle 
perspective, direct use of natural gas is drastically more efficient at 
92 percent system efficiency than electricity, which only reaches 27 
percent system efficiency. This legislation is missing the critical 
component of allowing the option of direct-use of natural gas as a 
means of meeting the CES. APGA strongly believes that if a utility that 
provides both natural gas and electric service were to meet new load 
requirements with the direct-use of natural gas, that utility should 
receive a credit under a CES in the same manner that it would receive a 
credit for utilizing clean and/or renewable energy sources for 
electricity generation. This approach would recognize and take full 
advantage of the benefits that the direct-use of natural gas provides 
in terms of efficiency and reduced greenhouse gas emissions. Moreover, 
it would help reduce the need for additional electricity generation and 
provide electric/gas utilities with more flexibility in terms of 
complying with a CES while meeting future load requirements.
    At a minimum, the direct-use of natural gas should be included in 
the Bill's directed study of alternative credited resources. The U.S. 
Energy Information Agency released its 2012 Annual Energy Outlook on 
January 23, 2012with the claim that there are 2140 trillion cubic feet 
of technically recoverable natural gas resources within the United 
States. Federal policy should seek to maximize every BTU of this 
abundant domestic and low-carbon fuel by encouraging greater direct use 
into our homes and businesses for heating and cooking and other 
appropriate uses. Direct use into the home would be a far better use of 
this country's precious natural gas resources.
    APGA appreciates this opportunity to submit comments and looks 
forward to working with the Committee towards fully utilizing the 
benefits of the direct-use of natural gas in efforts to establish a 
federal CES.
                                 ______
                                 
 Statement of Timothy J. Considine, SER Professor of Energy Economics, 
                         University of Wyoming
 Executive Summary
    This study estimates the contributions of the American steel 
industry to the U.S. economy. The steel industry is defined here to 
include two sectors: iron and steel mills and ferroalloys and steel 
product manufacturing from purchased steel. Based upon data compiled by 
MIG, Inc. from U.S. Department of Commerce data, the American steel 
industry directly employed more than 139,000 workers and contributed 
$17.5 billion in value added or gross domestic product during 2010.
    The economic contribution of the steel industry to the U.S. 
economy, however, goes beyond these sector specific measures because 
steel companies purchase inputs from many other sectors of the U.S. 
economy. Moreover, the steel industry contributes to household income, 
which then induces additional rounds of stimulus to the economy as 
households spend this income on goods and services. For instance, 
during 2010 the steel industry purchased more than $20 billion of 
materials produced in other industries, $8 billion of services, $5 
billion of energy products, $4.5 billion of machinery, $4.4 billion 
from wholesale and retail trade sectors, more than $4 billion of 
transportation services, and generated $12.4 billion in labor income. 
Clearly, the steel industry supports businesses and jobs in many 
sectors of the U.S. economy.
    To map these interdependencies, this study employs an input-output 
table of the U.S. economy with the IMPLAN system from MIG, Inc. to 
estimate these indirect or supply chain impacts as well as the impacts 
induced by the spending of household income contributed directly and 
indirectly by the steel industry. Our economic impact analysis 
indicates that the steel industry directly contributed $17.5 billion of 
value added, $40 billion indirectly via supply chain spending, and 
induced another $35.8 billion as households spent their income 
generated from these activities. So in terms of net contribution to the 
U.S. economy the American steel industry contributed $93.4 billion to 
gross domestic product during 2010. Likewise, the steel industry 
directly employs over 139,000 workers, supports another 360,986 workers 
indirectly through the supply chain, and induces spending by households 
that supports another 443,002 jobs in other sectors of the economy. In 
total the steel industry supported 943,045 jobs in the U.S. economy 
during 2010.
    With higher levels of steel sales during 2011, the American steel 
industry contributes $101.2 billion to gross domestic product, and 
generates $22.9 billion in tax revenues at the federal, state, and 
local level, for a gross economic output of over $246 billion. Since 
steel is the most prevalent material in our economy, the steel industry 
is highly interrelated with other economic sectors, as reflected in the 
ripple effect on employment. Every one job in the U.S. Steel industry 
creates seven jobs in the U.S. economy. For 2011, the industry directly 
employs 150,700, and given the multiplier effect, supports more than 
1,022,009 jobs.
Definition of Steel Sector
    The steel industry in North America is instrumental in supplying 
the material requirements for construction, manufacturing, and energy 
industries. For this study, the steel sector is defined to include two 
industries in the North American Industrial Classification System 
(NAICS): iron and steel mills and ferroalloy manufacturing and steel 
products manufactured from purchased steel. The former includes both 
integrated and electric arc furnace steel producers and companies 
producing ferroalloy inputs to steel making, including ferrochrome, 
nickel, and related products. The latter category includes steel pipe 
and tube manufacturers and companies rolling and drawing purchased 
steel to produce finished steel products. Given the close overlap of 
these two industrial sectors, this study combines these sectors into 
one so-called steel sector.
    Employment, labor income, and value added for the steel sector are 
reported below in Table 1. The iron and steel mill and ferroalloy 
segment is the largest component of the steel sector with more than 
86,000 employees, $8.3 billon in labor income, and $12.6 billion in 
value added, which is defined to include payments to labor and capital 
inputs, including profits, proprietor income, and indirect business 
taxes. The manufacturing of steel products from purchased steel 
requires more than 52,000 workers who generate $4 billion in labor 
income and nearly $5 billion in value added. Together these two sectors 
employ more than 139,000 and generate $12.4 billion in labor income and 
$17.5 billion in value added (see Table 1). 

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    The direct tax impacts associated with steel sector activity appear 
below in Table 2. Tax revenues are paid from contributions to social 
security, proprietor income, indirect business taxes, household income, 
and corporate profits. During 2010, the steel sector paid a total of 
$3.7 billion in federal, state, and local taxes, $1.453 billion in 
social security taxes, $1.1 billion of income taxes on household income 
and $350 in corporate taxes earned from the steel sector, and $772 of 
indirect business taxes, and $9 million of taxes on proprietor income 
(see Table 2). 

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    Labor and multifactor productivity growth continues to allow the 
industry to produce higher quality output with fewer labor hours. Given 
this and pressures from international competition, employment levels in 
the steel sector are down from levels in 2002 (*see Figure 1). After a 
painful period of restructuring, employment steadily declined from 2002 
to 2006 until a rebound in 2007-2008. After a sharp fall in value added 
and employment in the steel sector during 2009, the steel industry 
recovered during 2010 and recent indications suggest that this recovery 
is continuing through early 2012.
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    * Figure 1 has been retained in committee files.
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    This employment and the industry's purchases of energy, materials, 
and supplies for the production of steel stimulate economic output and 
employment in other sectors of the U.S. economy. Since steel is the 
most prevalent material in our economy, the steel industry is highly 
interrelated with other economic sectors.
    In understanding the role of the steel industry in the economy, the 
first step is to identify the industry's purchases of inputs from other 
industries. A tabulation of these transactions for 2010 is reported 
below in Table 2. These estimates are obtained by using the definition 
of the steel sector used in Table 1 above. To simplify the 
presentation, these transactions are classified into several major 
categories for values greater than $100 million with sub-categories 
reported below each item.
    The largest category is materials, such as scrap and iron ore, 
comprising nearly 31 percent of inter-industry purchases. The steel 
sector purchased $9.8 billion of iron and steel scrap, $2.9 billion of 
steam and metallurgical grade coal, $2.4 billion of iron ore, and $1.1 
billion of primary nonferrous metals. Industrial gas purchases totaled 
$739 million while refractory materials amount to $592 million, and 
nonferrous metal product purchases were $485 million. In total, the 
steel sector supports $20 billion in sales of materials, cutting across 
a broad swatch of the mining and manufacturing sectors of the U.S. 
economy.
    Somewhat surprisingly, the next largest category of inputs to the 
steel sector at nearly $8 billion is a broad range of services. 
Management services, services for buildings, securities and investment 
services, legal, and architectural and specialized design services are 
the top six service categories, comprising almost 42 percent of 
purchases of services by the steel sector. The third largest category 
of purchases by the steel sector is from energy industries with nearly 
$5 billion in transactions between these two sectors. Sales of 
machinery, wholesale and retail trade, and transportation to the steel 
sector are each more than $4 billion (see Table 2). Computers and 
electronics provide $1.6 billion to the steel sector.
    Sales between the two major segments of the steel sector amount to 
$18 billion so that total inter-industry purchases from other 
industries to the steel sector amounted to nearly $66 billion in 2010. 
Value added or gross domestic product generated by the steel industry 
is $17.5 billion during 2010 with $12.3 billion compensating employees 
and the remaining $5.2 billion going to payments for capital resources 
and to governments via taxes.
      
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Methodology
    These transactions between the steel sector and other industries 
determine the impact of the steel industry on the U.S. economy. 
Economists have devised several measures of these economic impacts that 
are calibrated to changes in output or final sales. The first are so-
called direct impacts reported above in Table 1 in which changes in 
final steel sector sales directly affect output, employment, labor 
income, or value added.
    If steel sector sales increase then a second round of economic 
impacts above and beyond the direct impacts occurs as the steel sector 
purchases inputs to make steel for shipment to customers. These changes 
are known as indirect impacts and reflect the supply chain stimulus 
that the steel sector provides. This is one reason why so many 
countries around the world welcome investments that establish steel 
mills because they stimulate industrial supply chains. These indirect 
impacts support jobs in industries supplying the steel industry with 
inputs of energy, materials, and services, such as those discussed 
above in Table 2. The sum of the direct and indirect effects divided by 
the direct impacts are called Type I multipliers.
    The third and final set of economic impacts arises from the 
stimulus that additional labor and capital income provides for 
households to spend on goods and services. For example, the direct and 
indirect impacts discussed above increase income to households. This 
additional income induces consumers to spend more on goods and 
services, which provides an additional round of stimulus through the 
direct and indirect channels discussed above. These so-called induced 
impacts together with the direct and indirect impacts constitute the 
``total'' economic impact of the industry. The ratio of this total 
impact to the direct impacts is known as a Type II multiplier.
Estimates of Steel Industry Economic Impact
    These economic multipliers are calculated for every industry in the 
United State economy by a variety of government agencies and private 
companies using the input-output tables collected and published by the 
U.S. Department of Commerce, Bureau of Economic Analysis. This study 
employs the IMPLAN (IMpact analysis for PLANing) system developed by 
MIG, Inc., one of the most widely used and highly regarded system for 
economic impact analysis.\1\
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    \1\ http://implan.com/V4/index.php?option=com__content&view-
frontpage&Itemid=1
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    A summary of the economic multipliers for the two major steel 
industry related sectors discussed above are presented below in Table 
3. For every dollar increase in sales for iron and steel mills and 
ferroalloy industries, total output in the U.S. economy increases by 
$2.66, $1 is the direct sales increase, another $0.94 dollars arise 
from indirect or supply chain impacts, and the remaining $0.73 is 
generated from the induced impacts as workers and asset holders spend 
the additional income generated from the direct and indirect impacts 
(see Table 3). The Type I multiplier of 1.935 means that for every 
dollar increase in sales for iron and steel mills and ferroalloy 
industries total output increases $1.94 (see Table 3). The Type II 
multiplier is 2.66 indicating that for every dollar increase in steel 
sales, the total economic impact is $2.66. The multipliers for steel 
products made from purchased steel are slightly larger than for iron 
and steel mills and ferroalloy manufacturers.
    The employment multipliers reported below in Table 3 are measured 
in jobs per million dollars of gross output. For instance, for every 
one million dollars of final output, 1.44 jobs are supported directly 
by the iron and steel mills and ferroalloy industry, which is simply 
the ratio of employment in this sector 86,461 to gross output of 
$60,043 million reported in Table 1. With indirect and induced effects, 
this industry and steel products produced from steel support 10.87 and 
12.74 jobs respectively. Labor income multipliers and value added are 
also reported in Table 3 and reflect the dollar changes in each of 
these components for a dollar change in final sales.
      
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    An aggregate of these two sectors is formed to calculate 
multipliers for the entire sector. These multipliers are reported below 
in Table 4 and measure the economic impacts of the steel industry on 
the U.S. economy. For instance, the steel industry supports 2.722 
dollars of output for every dollar of steel industry sales. This 
multiplier implies that for the current steel industry gross output or 
sales of $83.5 billion (see Table 1), $227.3 billion in total gross 
output is generated.
    A more meaningful measure of economic impact, however, that avoids 
double counting is value added or gross domestic product. Using this 
measure, the steel industry contributed $17.5 billion of valued added 
directly, $40 billion indirectly via supply chain spending, and $35.8 
billion as households spend their income generated from these 
activities. In summary, the net contribution to the U.S. economy by the 
steel industry is $93.4 billion.
    In terms of employment, for every million dollars of gross output 
11.298 jobs are supported. Another way to express the employment 
impacts is with the Type I and Type II multipliers. For example, for 
every one job directly created in the steel industry, 3.596 jobs are 
supported via supply chain impacts and 6.782 jobs are created from the 
stimulus emanating from industries that supply steel inputs and from 
households as they spend the additional income that this activity 
generates. In summary, for every one job directly created in the steel 
industry seven jobs are created the U.S. economy.
    These multipliers also imply that the direct steel industry 
employment of 139,000 workers, supports another 360,986 workers 
indirectly through the supply chain, and induces spending by households 
that supports another 443,002 jobs in other sectors of the economy. In 
total the steel industry supported 943,045 jobs in the U.S. economy 
during 2010. With higher levels of steel sales, it would fair to say 
that the American steel industry supports more than one million jobs. 

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    The tax multipliers are also displayed below in Table 4. For every 
million dollars of gross output in the steel sector, $152,154 of 
federal tax revenues and $101,046 of state and local tax revenues are 
generated. Using total gross output of $83.5 billion, the steel sector 
generated $21.2 billion in federal and state and local taxes during 
2010, $3.7 billion directly, $9.1 billion indirectly from supply chain 
interactions, and $8.2 billion from induced impacts.
Estimates of Steel Industry Economic Impact
    The economic contributions of the steel sector presented above are 
based upon the IMPLAN input-output tables of 2010. These estimates are 
updated for 2011 based upon preliminary data for employment in the 
steel sector reported by the Bureau of Labor Statistics. The 
preliminary estimate for direct steel sector employment in 2011 is 
150,700. This level of employment is consistent with gross output of 
$90.461 billion and valued added of $18.996 billion (see Table 5). 
Given the multipliers presented above, the steel sector in 2011 
supported 1,022,009 jobs in the U.S. economy and contributed $101.211 
in value added, and $246.213 in gross output (see Table 5). Given the 
tax multipliers presented above, during 2011 the steel sector generated 
$22.9 billion in local, state, and federal taxes (see Table 5).

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Disaggregation of Steel Sector Multipliers
    The multipliers appearing in Table 4 are disaggregated by industry 
in Table 6, sorted by employment impacts from highest to lowest. For 
instance, the 11.298 employment multiplier is the summation of 
employment impacts by sector appearing in Table 5. The steel sector 
contributes 1.963 jobs of this total. The next largest category is 
professional, scientific, and technical services with 1.743 jobs per 
million dollars of gross output. The third largest category is repairs 
and related services. Education and health care and business support 
services each contribute slightly over one job per million dollars of 
gross output. In summary, these top five industries together constitute 
about 65 percent of the total employment impact. The next five 
industries, retail trade, wholesale trade, transportation, machinery 
and equipment, and mining comprise slightly over 22 percent of the 
employment impact. The remaining 13 percent is distributed across a 
broad swatch of the U.S. economy (see Table 5). 

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                                 ______
                                 
              Statement of the American Chemistry Council
    The American Chemistry Council (ACC) is pleased to comment on the 
Clean Energy Standard Act of 2012 (``CESA'' or ``Act''). ACC believes 
that in order for our economy to grow, U.S. industries to innovate and 
compete globally, and businesses to create new jobs, a national energy 
strategy that provides for innovation as well as efficient, cost-
effective and reliable generation of electricity is critical. Policies 
must allow us to capitalize on all of our domestic energy resources; 
prioritize greater energy efficiency in homes, buildings and industrial 
facilities; and encourage the adoption of diverse energy sources, 
including renewable energy and energy recovery from plastics and other 
materials. Unfortunately, CESA falls short of these objectives and 
would significantly raise electricity costs of industry and households.
    We think there are better ways to meet the objectives of a national 
energy strategy. As an energy-intensive industry we know that high-cost 
purchased power can jeopardize our industry's global competitiveness. 
In the short term, policy should favor the deployment of the most 
economically efficient power generation, consistent with the policy 
objective. In the long term, policy should encourage a diverse mix of 
technologies, including clean coal energy systems. Economically 
efficient generation varies in different parts of the country, so 
policy should avoid one-size fits all solutions and should avoid 
picking winners and losers. The nation is already moving toward a 
cleaner energy portfolio so it is fair to ask, are additional policy 
instruments needed in pursuit of a lower carbon economy?
    Americans agree that a national energy strategy is needed. 
According to a recent national survey conducted by Washington-based 
Clarus Research Group, an overwhelming majority of voters (94 percent) 
believe that a ``comprehensive energy policy is essential to building a 
strong economy, creating new jobs, and making America more competitive 
with other countries.''
    The chemistry industry is the foundation of America's manufacturing 
sector, Chemistry creates the basic building blocks for countless 
products Americans rely on every day, as well as 96 percent of all 
manufactured goods made in the United States. Abundant, affordable 
domestic natural gas has created a new competitive edge for American 
chemistry, and it's driving a renaissance in U.S. manufacturing.
    Chemistry companies are tremendous sources of American innovation--
essential to addressing our energy challenges and building and 
maintaining our competitive position in the world. One in five U.S. 
patents is chemistry-related. Chemistry is the source of essential 
materials and technologies for energy efficiency and renewable and 
alternative energy. Building insulation, photovoltaics, advanced 
batteries, lightweight plastic vehicle parts, and fuel innovations are 
among the many sustainable solutions made possible by chemistry. Our 
industry can help enable a strong, secure and sustainable future for 
the United States.
    The energy savings are impressive. A recent ACC study found that 
the use of chemistry in energy-saving products and technologies helps 
save up to 10.9 quadrillion Btus of energy annually, enough to power up 
to 56 million households or up to 135 million vehicles each year, and 
saving Americans up to $85 billion in energy costs annually.
    With so much at stake, we have carefully examined the Clean Energy 
Standard Act of 2012 (S. 2146), which would have far-reaching impacts 
on the power sector and its customers. While ACC supports the bill's 
objectives to encourage growth of clean energy sources of generation, 
we have considerable reservations about how the bill would achieve its 
goals.
    First, we are concerned about a policy that sets 20 plus years of 
ever increasing clean energy thresholds that apparently were chosen 
without concern about costs. No one knows the cost impact of these 
regulations, but power rates are very likely to soar.
    Second, it is not clear to us that a clean energy standard with 
arbitrary thresholds is needed to continue on a path toward a clean 
energy economy. The national economy is rapidly moving toward cleaner 
energy technologies. Federal air quality standards and state renewable 
energy standards will accelerate the shift toward low carbon power 
generation in the years to come. Given the suite of existing and 
forthcoming federal and state policies there may be little compelling 
need for CESA.
    Third, ACC believes that energy efficiency should be a cornerstone 
of any national energy policy, on par with other clean energy sources. 
Yet under CESA, energy efficiency improvements at an electric utility 
or manufacturing facility do not receive credits toward compliance with 
the Act. Investments will focus on credit-receiving clean energy 
technologies. CESA's approach will result in lower investment in energy 
efficiency and comparatively higher utility bills for rate payers.
    A better option can be found in S.1000, the Energy Savings and 
Industrial Competiveness Act, introduced by Senators Shaheen and 
Portman. Congress should pass S. 1000 this year. It contains provisions 
to achieve energy savings across the economy, including building energy 
codes, appliance standards and a manufacturing energy efficiency 
program. The bill will help industries identify new energy efficiency 
opportunities and pave the way for additional programs to harness the 
potential of industrial energy efficiency.
    Fourth, national energy policies must be fair to all regions of the 
country, recognizing differences in their energy resource endowments. 
CESA will create inequities for areas that rely heavily on coal. As a 
result, compliance costs can vary widely across the country. 
Manufacturers are likely to be especially hard hit: Energy-intensive 
industries in coal-dependent states will face higher electricity rates, 
putting them at a competitive disadvantage with businesses from lower-
compliance-cost states.
    Fifth, ACC supports an ``all of the above'' approach to energy 
policy, but CESA discourages sources that are critical to America's 
energy portfolio. For example, the bill discourages coal-fired power 
from the date of enactment. Later in the program, natural gas-fired 
generation would no longer qualify for credits. Faced with a reduced 
portfolio of credit-receiving clean energy technologies power rates are 
very likely to soar in many parts of the country. Again, energy-
intensive industries in hard-hit regions will be placed at a 
competitive disadvantage. The implications for the cost of energy to 
ratepayers, for our economic recovery, and for American jobs are clear.
    In addition, we are concerned that the CES as proposed treats all 
qualified renewable biomass the same way, which has commercial and 
environmental implications. Bio-based feedstocks like black liquor 
soap, crude tall oil, and crude sulfate turpentine can be, and are, 
converted into high-value chemicals and products. However, they can 
also be burned as a fuel. The highest and best use of the biomass, 
based on both commercial considerations and environmental 
considerations taking life cycle impacts into account, may therefore be 
to create bio-based chemicals or products from the biomass and not use 
it as an energy source. A policy that incentivizes their use as bio-
energy can distort the market to the disadvantage of bio-based chemical 
producers.
    On a positive note, we are pleased to see that CESA qualifies new 
combined heat and power (CHP) installations for the standard. CHP can 
and should play a major role in the nation's clean energy future. 
Because CHP facilities create two forms of energy--electricity and 
steam--with the same amount of fuel, they are often twice as efficient 
as older coal-burning electric utilities. By 2030, the U.S. can meet 20 
percent of its electricity needs from high-efficiency CHP, according to 
the Oak Ridge National Laboratory.
    Regrettably, while CESA includes CHP, it is not placed on a level 
playing field with other qualified clean energy sources. Under the 
bill, CHP put in place prior to enactment is not considered ``clean 
energy,'' while other qualified technologies placed in service after 
1991 are eligible to receive credits.\1\ The legislation does award 
clean energy credits to owners of qualified heat and power systems for 
avoided greenhouse gas emissions where the facility is used for on-site 
thermal needs. Facilities that are able to meet the bill's definitions 
of useful electric and thermal energy generation may benefit through 
the award of credits for this activity. This provision recognizes the 
full value of CHP as a cost-effective and energy efficient source of 
thermal heat and power.
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    \1\ Under Section 610(b)(1)(A), facilities placed in service after 
1991 using natural gas are defined as ``clean energy'' while Section 
610(b)(1)(B) considers combined heat and power facilities to constitute 
``clean energy'' only if they are placed in service after the date of 
enactment.
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    Energy recovery is another important provision in CESA. ACC 
supports increased adoption of energy recovery technologies to capture 
abundant amounts of energy, particularly from non-recycled plastics. 
Used plastics have a higher Btu value than coal and can be converted 
into electricity, motor fuels and valuable chemicals. Recovering this 
energy complements recycling and reduces waste that would otherwise be 
sent to landfills. CESA classifies certain energy recovery facilities 
as qualified clean energy. However, we are concerned that over time, 
these facilities may not be able to meet the carbon intensity standard 
established by CESA unless they can employ carbon capture and 
sequestration technology soon.
    In sum, ACC supports the growth of the clean energy economy. 
America's chemical industry is a major supplier of the innovative 
solutions needed. We question the need for legislation that duplicates 
market trends already underway as a result of other regulations. We 
support policies that implement ``all of the above'' energy strategies. 
In its current form, CESA immediately disadvantages coal, would 
eventually disadvantage natural gas, and excludes energy efficiency 
from qualification for clean energy credits. By limiting the nation's 
energy options, the Act will result in higher electricity rates that 
could put energy-intensive industries at a competitive disadvantage in 
the global marketplace. We think there are better ways to meet the 
objectives of a national energy strategy.
                                 ______
                                 
Statement of Steven Nadel, Executive Director, American Council for an 
                        Energy-Efficient Economy
Introduction
    I am pleased to submit this statement for the record in conjunction 
with the hearing today on S. 2146.
    We thank Senator Bingaman and his cosponsors for introducing this 
bill to create a national clean energy standard (CES) as it helps 
advance the discussion on ways to encourage a cleaner electricity 
supply in the United States. We think a national CES would be very 
useful for spurring a gradual transition from today's current 
electricity supply mix to one that is much cleaner, thereby advancing 
our environmental objectives while also helping to build a strong 
economy. In particular, we appreciate that the bill includes combined 
heat and power (CHP) as an eligible resource. Expanding use of CHP in 
the United States is an important approach for saving energy, reducing 
costs, and reducing emissions because CHP systems are significantly 
more efficient than separate power generation and steam systems. 
However, we are troubled by the fact that S. 2146 relegates other 
energy efficiency savings to second class status--energy efficiency is 
not included in the initial CES but instead is left to a report that 
will make recommendations to Congress but that will require further 
congressional action down the road in order to add energy efficiency to 
the standard.
    We strongly urge that S. 2146 be amended to explicitly include 
energy efficiency as an eligible resource. Energy efficiency should be 
included because:

          1. Energy efficiency is generally the lowest cost resource 
        available to electricity providers. Including energy efficiency 
        will reduce the cost to consumers of a CES.
          2. Energy efficiency is generally the cleanest resource.
          3. Energy efficiency standards for electric utilities work--
        half the states now have and are successfully implementing such 
        energy efficiency standards.
          4. Exclusion of energy efficiency from the CES tilts the 
        playing field, increasing rather than decreasing the barriers 
        to energy efficiency.
          5. Energy efficiency will create more jobs-- investments in 
        energy efficiency generate more jobs per dollar invested than 
        other electricity resources.

    In the paragraphs below we elaborate on these points and also make 
some suggestions on how energy efficiency can be incorporated into a 
national CES.
Including Energy Efficiency Will Reduce the Cost of a CES
    Energy efficiency is generally the least expensive resource 
available to power providers as shown in the graph below. Energy 
efficiency generally has costs to the power provider of less than half 
the next cheapest options.
    Graph Sources--Energy efficiency data were gathered from 14 states 
and compiledin an ACEEE study.\1\ All other data from Lazard Ltd.\2\
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    \1\ Friedrich, Katherine, Maggie Eldridge, Dan York, Pattie Witte, 
and Marty Kushler. 2009. Saving Energy Cost-Effectively: A National 
Review of the Cost of Energy Saved Through Utility-Sector Energy 
Efficiency Programs. Report U092. http://www.aceee.org/research-report/
u092. Washington D.C.: American Council for an Energy-Efficient 
Economy.
    \2\ Lazard, Ltd. 2011. Levelized cost of energy analysis-version 
5.0 New York, NY: Lazard Limited. http://j.mp/Lazard__LCOE__ver5
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    Since energy efficiency is lower cost than other resources that 
will be encouraged under the CES, inclusion of energy efficiency will 
reduce the cost of the CES. This is illustrated by the November 2011 
report by EIA that analyzed several CES options.\3\ While the primary 
analysis did not include energy efficiency, one of the alternative 
cases that EIA examined illustrated the positive impacts of energy 
efficiency in reducing the costs of a CES. Specifically, the analysis 
included a case in which electricity use would be reduced by 6.7 
percent in 2035 as a result of stronger energy efficiency standards and 
building codes. EIA found that these energy efficiency savings reduced 
the annual cost of the Basecase Clean Energy Standard (BCES) by $57 
billion in 2035, the last year of the analysis. These savings include 
$44 billion in lower annual electricity expenditures and $13 billion in 
lower annual natural gas expenditures outside of the power sector. 
Electricity costs decline because electricity use is down and because 
electric rates are lower (by an average of 0.3 cents per kWh) than in 
the BCES case. The savings in electricity also mean that less natural 
gas is needed by the electric power sector, reducing natural gas demand 
and lowering the price of natural gas for all users by an average of 40 
cents per thousand cubic feet.
---------------------------------------------------------------------------
    \3\ EIA. 2011. Analysis of Impacts of a Clean Energy Standard as 
requested by Chairman Bingaman. Washington, DC: Energy Information 
Administration.
---------------------------------------------------------------------------
    The energy efficiency standards and codes case that EIA examined 
included only modest efficiency savings--i.e., the 6.7 percent saved in 
2035 works out to an average reduction of 0.3 percent per year. ACEEE's 
recent State Energy Efficiency Scorecard\4\ found that five states 
(Vermont, Nevada, Hawaii, Rhode Island, and Minnesota) are already 
saving more than 1 percent per year, not including standards and codes, 
with the highest saving at 1.6 percent per year. Many other states are 
now ramping up to these levels of savings. Allowing energy efficiency 
to fully participate in a CES would potentially increase the efficiency 
savings by a factor of 3-5 compared to the case EIA examined. So if 6.7 
percent energy efficiency savings saves $57 billion, then 20 percent 
efficiency savings will likely save considerably more-reducing the cost 
of electricity services with a CES to less than the cost of electricity 
services if no CES were enacted. Of course this is a rough 
approximation; we recommend that EIA be tasked with conducting a 
specific analysis on this scenario.
---------------------------------------------------------------------------
    \4\ Sciortino et al. 2011. State Energy Efficiency Scorecard. 
Washington, DC: American Council for an Energy-Efficient Economy. 
http://www.aceee.org/research-report/e115.
---------------------------------------------------------------------------
Including Energy Efficiency Will Reduce Emissions
    The cleanest power is power we do not need to produce. A primary 
purpose of the CES is to reduce emissions of criteria pollutants (e.g. 
nitrogen oxides) as well as greenhouse gases. The November 2011 EIA 
analysis discussed above found that relative to the BCES, including 
efficiency savings from standards and codes would reduce 2035 nitrogen 
oxide emissions by 7 percent, mercury emissions by 6 percent and carbon 
dioxide emissions by 14 percent. If energy efficiency is added to the 
CES, energy efficiency savings will be much greater than just the 
standards and codes savings that EIA modeled, producing even larger 
emissions savings.
Energy Efficiency Resource Standards Are in Place in Half the States 
        and Have Been Proven to Work
    Twenty-five states now have mandatory energy efficiency targets. We 
call these Energy Efficiency Resource Standards (EERS). This includes 
two states (Nevada and North Carolina) with a combined EERS/Renewable 
Energy Standard. These states are shown in the map* below. A 2011 
evaluation of EERS implementation in the 19 states that have been 
implementing their EERS for at least two years found that that all but 
three states are meeting or close to meeting their targets.\5\ One of 
the three has since caught up. In addition, our 2011 State Scorecard 
(referenced above) found that eight other states (Connecticut, Idaho, 
Montana, Nebraska, New Hampshire, New Jersey, South Dakota and Utah) 
plus the District of Columbia have used energy efficiency in the most 
recent year to save at least 0.2 percent of electricity sales. Thus, a 
substantial majority of states are already implementing significant 
energy efficiency programs, allowing them to quickly ramp-up activities 
to help meet early-year CES targets at modest cost.
---------------------------------------------------------------------------
    * The map has been retained in committee files.
    \5\ Sciortino et al. 2011. Energy Efficiency Resource Standards: A 
Progress Report on State Experience. Washington, DC: American Council 
for an Energy-Efficient Economy. http://www.aceee.org/research-report/
u112.
---------------------------------------------------------------------------
Excluding Energy Efficiency from the CES Unfairly ``Tilts the Playing 
        Field''
    Energy efficiency and natural gas are now often competing in the 
market as the low-cost resources for meeting electricity needs. It 
makes no sense to ``put a finger on the scale'' and allow only natural 
gas to participate in a CES, and not energy efficiency as that would 
create a market incentive for utilities to invest in new natural gas 
power plants instead of energy efficiency programs. In order to ``level 
the playing field,'' energy efficiency should be added to the CES. If 
there is a concern that this would mean that the resulting mix does not 
adequately promote renewable energy and other advanced energy sources, 
then the targets can be increased. Energy efficiency produces no 
emissions and therefore is ``cleaner'' than many of the resources now 
included in CES proposals.
    Alternatively, if the intent of the CES is not to reduce emissions 
but is instead designed to encourage use of advanced, low-carbon 
resources that have difficultly competing with efficiency and natural 
gas, then the standard could be retitled an Advanced Energy Standard, 
and only more expensive energy sources that need some help (e.g., 
renewables, nuclear, and coal with carbon capture and storage) would be 
included. In such a case, the targets would need to be lower than those 
now in S. 2146.
Including Energy Efficiency Will Create More Jobs
    Energy efficiency measures tend to be labor intensive, creating 
more jobs than capital-intensive investments such as power plants. 
ACEEE economic analyses have generally found that energy-efficiency 
investments generate about 20 jobs per million dollars invested 
(includes direct, indirect, and induced jobs) while investments in the 
energy sector generate about 10 jobs per million dollars invested.\6\ 
The net difference is about 10 jobs per million dollars invested.
---------------------------------------------------------------------------
    \6\ http://www.aceee.org/files/pdf/fact-sheet/ee-job-creation.pdf.
---------------------------------------------------------------------------
    In 2009, ACEEE examined the job impacts of an EERS that reduces 
nationwide electricity use by 15 percent in 2020 and natural gas use by 
10 percent in 2020. Based on a detailed input-output economic analysis, 
we concluded that such a policy would, by 2020, create 222,000 net jobs 
relative to the EIA Reference Case scenario (net jobs means jobs from 
efficiency investments after adjusting for the fact that lower 
electricity demand results in fewer power plants and reduces the amount 
of fuel needed for power generation).\7\ These are a substantial number 
of jobs.
---------------------------------------------------------------------------
    \7\ Furrey et al. 2009. Laying the Foundation for implementing a 
Federal Energy Efficiency Resource Standard. Washington, DC: American 
Council for an Energy-Efficient Economy. http://www.aceee.org/research-
report/e091.
---------------------------------------------------------------------------
Incorporating Energy Efficiency into a National CES
    In terms of modifying S. 2146 to include energy efficiency, we 
recommend that definitions and and implementation provisions be drawn 
from S. 548, introduced by Senator Schumer in the 111th Congress. Using 
this approach, the legislation would establish evaluation principles 
and DOE would establish national guidelines for evaluation of energy 
efficiency savings. DOE could draw on its own prior work as well as 
regional evaluation guidelines that have been developed in the 
northwest\8\ and are now being developed in the northeast.\9\ States or 
utilities and their contractors would be responsible for conducting 
evaluations. We recommend that states be encouraged to oversee utility 
implementation of the evaluation portions of the CES, including 
reviewing and approving evaluations. DOE would review such state-
approved evaluations on a spot basis to see where the evaluation 
guidelines needed to be improved and to look for any gross abuse. In 
addition, if a state Public Utility Commission elected not to review 
utility evaluations, then DOE would need to conduct this review. 
Furthermore, since energy efficiency opportunities exist in all states, 
we do not think interstate trading of energy efficiency credits is 
needed or desirable. Trading of energy efficiency credits would add 
unneeded complication and would mean that some states will not get 
their share of energy efficiency benefits. Intrastate trading could be 
allowed with approval of the state Public Utility Commission.
---------------------------------------------------------------------------
    \8\ htp://www.nwcouncil.org/energy/rtf/subcommittees/
deemed.Default.asp.
    \9\ http://neep.org/emv-forum.
---------------------------------------------------------------------------
Conclusion
    Energy efficiency is our cheapest and cleanest energy resource. In 
order to reduce the cost of the CES and also further reduce electric 
sector emissions, energy efficiency should be included in the CES. 
Including energy efficiency will save money so that we can better 
afford to use advanced energy resources such as renewables, nuclear and 
coal with carbon capture and storage to meet the balance of our future 
energy demand. S. 2146 should be amended to specifically include energy 
efficiency as an eligible clean energy resource.
                                 ______
                                 
        Statement of the Biomass Power Association, Portland, ME
    The Biomass Power Association (``BPA'') appreciates the opportunity 
to share its views on S. 2146, the ``Clean Energy Standard Act of 
2012.''
    BPA represents the Nation's grid-connected electricity industry 
that utilizes ``open-loop'' biomass-essentially agricultural and 
forestry by-products and residuals, as well as other organic materials-
in the production of electricity and thermal energy. Most member 
companies have operated for decades, supporting rural economies while 
promoting the use of materials that would otherwise contribute to 
climate change if left to decay. While most members operate 
electricity-only facilities, others support manufacturing by providing 
both power and steam. All of our members make a critically important 
contribution to the economic fabric of rural America. We are 
responsible for approximately 14,000 jobs and nearly $1 billion in 
value to the economy.
    It has been 34 years since Congress last attempted a national 
energy policy with enactment of the Public Utility Regulatory Policy 
Act of 1978. As a Nation, we are blessed with abundant, diverse and 
sustainable energy resources that have the potential of contributing to 
our economic growth and providing long-term stability for ratepayers. 
For that reason, we commend Chairman Bingaman and this Committee for 
taking on the task of developing a national policy. The Clean Energy 
Standard Act of 2012 is an important and meaningful first step.
    BPA supports the overall approach in the Act of requiring clean 
energy goals, and establishing targets that can be achieved through 
credits much like states currently do through state-based renewable 
portfolio standards. However, BPA has significant concerns with respect 
to the specific application of the CES to open-loop biomass. First, the 
Act needs to establish a simple and predictable definition of what 
constitutes ``biomass'' and embrace the view-widely shared by all state 
renewable portfolio standards and indeed around the world-that biomass 
as used by our industry today and for the foreseeable future is a 
carbon friendly feedstock that should be promoted wherever possible. 
Second, we object to the Act's requirement of a regulatory proceeding 
to determine the carbon intensity of biomass. Finally, existing biomass 
facilities should qualify under the Act, and not just facilities that 
were built after 1991. Each of these points is discussed in greater 
below.

          1. A Simple and Broad Definition of Biomass

    At last count, there were fourteen (14) different definitions of 
``biomass'' found in legislation enacted by the Congress since 2004, 
see ``Biomass: Comparison of Definition in Legislation Through the 
111th Congress, CRS Report to Congress March 7, 2012'' there are 
thirty-five (35) definitions at the state level. See Exhibit A.
    The definition in Section 610 (b)(5) of ``Qualified Renewable 
Biomass'' would add yet another definition-one that is vague and 
fraught with regulatory uncertainty. Congress should adopt the 
definition of ``open-loop biomass'' found in Section 45 of the Internal 
Revenue Code, or the definition of biomass found in the 2008 Farm Bill. 
Both are familiar to the electric generating industry, and well 
understood. The proposed definition in S. 2146 leaves our industry with 
no certainty about whether biomass will qualify, and delegates 
qualification of the resource--which makes up 50 percent of the 
Nation's renewable energy supply--to agency rulemaking.

          2. The Carbon Intensity of Biomass

    S. 2146 creates uncertainty regarding the carbon intensity of 
biomass. While there has been substantial discussion in the scientific 
community about how to account for carbon emissions associated with 
bioenergy, this much is clear--Biomass to electricity generated today 
and for the foreseeable future is profoundly beneficial from a carbon 
perspective. Current biomass feedstock sources--agricultural and urban 
wastes, residues, by-products and low value roundwood-do not cause land 
use changes or the depletion of carbon stocks. That is why all 35 
states that have a renewable portfolio standard include open-loop 
biomass without regard to a complicated carbon intensity criteria.\1\
---------------------------------------------------------------------------
    \1\ The one possible exception is Massachusetts, which has 
proposed, through its Department of Energy Resources, a complicated and 
unworkable definition of biomass that is based on a flawed scientific 
study that focuses on the harvesting of natural forests, not the use of 
biomass in states with established forest products industries. See 
Proposed changes to Renewable Energy Portfolio Standard Regulation, 225 
CMR 14.00
---------------------------------------------------------------------------
    On what scientific or policy basis should biomass be treated 
differently than solar or wind? Every form of energy results in the 
generation of some carbon emissions. Intermittent sources of renewable 
energy with low capacity factors need backup sources of power, and 
frequently that means fossil fuel-based sources like natural gas. 
Should the CES calculate the carbon profile of backup generation, or 
conduct a lifecycle analysis of solar panels or the steel in wind 
turbines? Congress should resist the overly complicated procedure of 
carbon lifecycles and simply recognize biomass as another form of 
``renewable energy'' in Section 610 (6)(7).
    In addition, the CES should create a ``safe harbor'' from the Clean 
Air Act regulation of GHG emissions for sources of energy that qualify 
under the CES. As others have testified, if the stated goal of the CES 
is to reduce carbon emissions by promoting certain electrical 
generation like biomass, then Congress should avoid duplicative 
regulation by establishing that such source is not subject to further 
carbon regulation by EPA.

          3. Existing Versus ``New'' Facilities

    The proposed cut-off date for what constitutes a qualifying 
facility-December 31, 1991-is arbitrary and would disqualify many 
biomass facilities in operation today. These pre-1991 plants were built 
without federal production tax credits and yet provide benefits like 
baseload capacity and improved air quality that other, intermittent 
sources of renewable fail to provide. If enacted, S. 2146 would have 
the perverse effect of causing existing facilities to close only to 
then promote the development of a new facility in the same place, using 
the same fuel source, creating the same amount of power, solely for the 
purpose of being eligible for the CES. Stated simply, it is in the 
national interest to preserve the economic viability of existing 
biomass while also promoting new facilities. BPA supports both and so 
should the Congress.
    In closing, we commend the sponsors of the Bill and the Committee's 
attention to these important issues. As the Senate considers this 
legislation, we look forward to working with the Committee on the above 
issues.
   exhibit a--state renewable portfolio standards biomass definitions
California
    Any organic material not derived from fossil fuels, including, but 
not limited to, agricultural crops, agricultural wastes and residues, 
waste pallets, crates, dunnage, manufacturing, construction wood 
wastes, landscape and right-of-way tree trimmings, mill residues that 
result from milling lumber, rangeland maintenance residues, biosolids, 
sludge derived from organic matter, and wood and wood waste from 
timbering operations. Agricultural wastes and residues include, but are 
not limited to, animal wastes, remains and tallow; food wastes; 
recycled cooking oils; and pure vegetable oils. Landscape or right-of-
way tree trimmings include all solid waste materials that result from 
tree or vegetation trimming or removal to establish or maintain a 
right-of-way on public or private land for the following purposes: 1) 
For the provision of public utilities, including, but not limited to, 
natural gas, water, electricity, and telecommunications. 2) For fuel 
hazard reduction resulting in fire protection and prevention. 3) For 
the public's recreational use.
Colorado
    Nontoxic plant matter consisting of agricultural crops or their 
byproducts; animal wastes and products of animal wastes; methane 
produced at landfills or as a byproduct of the treatment of wastewater 
residuals.
Delaware
    Organic matter that is available on a renewable or recurring basis, 
including timber, aquatic plants, dedicated energy crops, agricultural 
food and feed crop residues, forestry and timber residues, and lumber/
pulp residues.
Hawaii
    Including biomass crops, agricultural and animal residues and 
wastes, and municipal solid waste and other solid waste.
Illinois
    Crops and untreated and unadulterated organic waste.
Indiana
    (5) Organic waste biomass, including any of the following organic 
matter that is available on a renewable basis:(A) Agricultural crops. 
(B) Agricultural wastes and residues. (C) Wood and wood wastes, 
including the following (i) Wood residues(ii) Forest thinnings. (iii) 
Mill residue wood.(D) Animal wastes (E) Animal byproducts.(F) Aquatic 
plants. (G) Algae.
Iowa
    Agricultural crops or residues, or woodburning facility.
Kansas
    Dedicated crops grown for energy production; cellulosic 
agricultural residues; plant residues; methane from landfills or from 
wastewater treatment; clean and untreated wood products such as 
pallets.
Maine
    Wood or wood waste, landfill gas or anaerobic digestion of 
agricultural products, by-products or wastes.
Maryland
    Nonhazardous, organic material that is available on a renewable or 
recurring basis, and is:(i) waste material that is segregated from 
inorganic waste material and is derived from sources including:1.except 
for old growth timber, any of the following forest-related resources: 
mill residue, except sawdust and wood shavings; precommercial soft wood 
thinning; slash; brush; or yard waste; 2.a pallet, crate, or dunnage; 
3. agricultural and silvicultural sources, including tree crops, 
vineyard materials, grain, legumes, sugar, and other crop by-products 
or residues; or 4. gas produced from the anaerobic decomposition of 
animal waste or poultry waste; or (ii) a plant that is cultivated 
exclusively for purposes of being used at a Tier 1 renewable source or 
a Tier 2 renewable source to produce electricity. does not include: (i) 
unsegregated solid waste or postconsumer wastepaper; or (ii) an 
invasive exotic plant species.
Michigan
    Any organic matter that is not derived from fossil fuels, that can 
be converted to usable fuel for the production of energy, and that 
replenishes over a human, not a geological, time frame, including, but 
not limited to, all of the following: (i) Agricultural crops and crop 
wastes. (ii) Short-rotation energy crops. (iii) Herbaceous plants. (iv) 
Trees and wood, but only if derived from sustainably managed forests or 
procurement systems, as defined in section 261c of the management and 
budget act, 1984 PA 431, MCL 18.1261c. (v) Paper and pulp products. 
(vi) Precommercial wood thinning waste, brush, or yard waste. (vii) 
Wood wastes and residues from the processing of wood products or paper. 
(viii) Animal wastes. (ix) Wastewater sludge or sewage. (x) Aquatic 
plants. (xi) Food production and processing waste. (xii) Organic by-
products from the production of biofuels.
Minnesota
    Biomass includes, without limitation, landfill gas; an anaerobic 
digester system; the predominantly organic components of wastewater 
effluent, sludge, or related by-products from publicly owned treatment 
works, but not including incineration of wastewater sludge to produce 
electricity; and an energy recovery facility used to capture the heat 
value of mixed municipal solid waste or refuse-derived fuel from mixed 
municipal solid waste as a primary fuel.
Missouri
    Dedicated crops grown for energy production, cellulosic 
agricultural residues, plant residues, methane from landfills, from 
agricultural operations, or from wastewater treatment, thermal 
depolymerization or pyrolysis for converting waste material to energy, 
clean and untreated wood such as pallets.
Montana
    Low-emission, nontoxic biomass based on dedicated energy crops, 
animal wastes, or solid organic fuels from wood, forest, or field 
residues, except that the term does not include wood pieces that have 
been treated with chemical preservatives such as creosote, 
pentachlorophenol, or copper-chroma-arsenic.
Nevada
    Biomass.
New Hampshire
    Plant-derived fuel including clean and untreated wood such as 
brush, stumps, lumber ends and trimmings, wood pallets, bark, wood 
chips or pellets, shavings, sawdust and slash, agricultural crops, 
biogas, or liquid biofuels, but shall exclude any materials derived in 
whole or in part from construction and demolition debris.
New Jersey
    Cultivated and harvested in a sustainable manner; same meaning as 
that assigned to this term in Executive Order No. 13134, published in 
the Federal Register on August 16, 1999. Executive Order No. 13134 
defines biomass as `` . . . any organic matter that is available on a 
renewable or recurring basis (excluding old-growth timber), including 
dedicated energy crops and trees, agricultural food and feed crop 
residues, aquatic plants, wood and wood residues, animal wastes, and 
other waste materials.''
New Mexico
    Fuels, such as agriculture or animal waste, small diameter timber, 
salt cedar and other phreatophyte or woody vegetation removed from 
river basins or watersheds in New Mexico, landfill gas and 
anaerobically digested waste biomass.
New York
    Agricultural Residue?Woody or herbaceous matter remaining after the 
harvesting of crops or the thinning or pruning of orchard trees on 
agricultural lands. .Harvested Wood?Wood harvested during commercial 
harvesting. The supplier must have and be in compliance with a current 
Forest Management Plan prepared by a professional forester that 
includes (a) standards and guidelines for sustainable forest management 
that require adherence to management practices which conserve 
biological diversity, maintain productive capacity of forest 
ecosystems, maintain forest ecosystem health and vitality, and conserve 
and maintain soil and water resources; (b) a harvest plan following 
production and harvest standards based on best management practices set 
forth in guides developed, tested and peer reviewed for USDA and USDOE; 
(c) the monitoring of harvest operations by a professional forester; 
(d) the reporting of harvest operations by a professional forester; and 
(e) periodic inspections of harvesting operations by state authorities 
or approved non-governmental forest certification bodies to assure that 
harvest operations conform to the standards.
    Mill Residue Wood Hogged bark, trim slabs, planer shavings, 
sawdust, sander dust and pulverized scraps from sawmills, millworks and 
secondary wood products industries.
    Pallet Waste Unadulterated wood collected from portable platforms 
used for storing or moving cargo or freight.
    Refuse Derived Fuel The source-separated, combustible, untreated 
and unadulterated wood portion of municipal solid waste or construction 
and demolition debris generally prepared by a densification process 
resulting in a uniformly sized, easy to handle fuel pellet or 
briquette.
    Site Conversion Waste Wood Wood harvested when forestland is 
cleared for the development of buildings, roads or other improvements.
    Silvicultural Waste Wood Wood harvested during timber stand 
improvement and other forest management activities conducted to improve 
the health and productivity of the forest. The supplier must have and 
be in compliance with a current Forest Management Plan prepared by a 
professional forester that includes (a) standards and guidelines for 
sustainable forest management that require adherence to management 
practices which conserve biological diversity, maintain productive 
capacity of forest ecosystems, maintain forest ecosystem health and 
vitality, and conserve and maintain soil and water resources; (b) a 
harvest plan following production and harvest standards based on best 
management practices set forth in guides developed, tested and peer 
reviewed for USDA and USDOE; (c) the monitoring of harvest operations 
by a professional forester; (d) the reporting of harvest operations by 
a professional forester; and (e) periodic inspections of harvesting 
operations by state authorities or approved non- governmental forest 
certification bodies to assure that harvest operations conform to the 
standards.
    Sustainable Yield Wood (woody or herbaceous) Woody or herbaceous 
crops grown specifically for the purpose of being consumed as an energy 
feedstock (energy crops).
    Urban Wood Waste The source-separated, combustible untreated and 
uncontaminated wood portion of municipal solid waste or construction 
and demolition debris. Adulterated forms of wood, such as plywood and 
particle board, may be used as a feedstock for biogas or liquid biofuel 
conversion technologies if it can be demonstrated that the technology 
employed would produce power with emissions comparable to that of 
biogas or liquid biofuel using only unadulterated sources as feedstock.
North Carolina
    Agricultural waste, animal waste, wood waste, spent pulping 
liquors, combustible residues, combustible liquids, combustible gases, 
energy crops, or landfill methane.
North Dakota
    Agricultural crops and agricultural wastes and residues, wood and 
?wood wastes and residues, animal wastes, and landfill gas as the fuel 
to produce electricity.
Ohio
    Solid wastes, as defined in section 3734.01 of the Revised Code, 
through fractionation, biological decomposition, or other process that 
does not principally involve combustion, biomass energy, biologically 
derived methane gas, or energy derived from nontreated by-products of 
the pulping process or wood manufacturing process, including bark, wood 
chips, sawdust, and lignin in spent pulping liquors.
Oregon
    Organic human or animal waste; (b) Spent pulping liquor; (c) Forest 
or rangeland woody debris from harvesting or thinning conducted to 
improve forest or rangeland ecological health and to reduce 
uncharacteristic stand replacing wildfire risk; (d) Wood material from 
hardwood timber grown on land described in ORS 321.267 (3);(e) 
Agricultural residues;(f) Dedicated energy crops; and (g) Landfill gas 
or biogas produced from organic matter, wastewater, anaerobic digesters 
or municipal solid waste. (3) Electricity generated from the direct 
combustion of biomass may not be used to comply with a renewable 
portfolio standard if any of the biomass combusted to generate the 
electricity includes wood that has been treated with chemical 
preservatives such as creosote, pentachlorophenol or chromated copper 
arsenate.
Pennsylvania
    (i) Organic material from a plant that is grown for the purpose of 
being used to produce electricity or is protected by the Federal 
Conservation Reserve Program (CRP) and provided further that crop 
production on CRP lands does not prevent achievement of the water 
quality protection, soil erosion prevention or wildlife enhancement 
purposes for which the land was primarily set aside; or (ii) any solid 
nonhazardous, cellulosic waste material that is segregated from other 
waste materials, such as waste pallets, crates and landscape or right-
of-way tree trimmings or agricultural sources, including orchard tree 
crops, vineyards, grain, legumes, sugar and other crop by-products or 
residues.
Rhode Island
    Fuel sources including brush, stumps, lumber ends and trimmings, 
wood pallets, bark, wood chips, shavings, slash and other clean wood 
that is not mixed with other solid wastes; agricultural waste, food and 
vegetative material; energy crops; landfill methane; biogas; or neat 
bio-diesel and other neat liquid fuels that are derived from such fuel 
sources.
North Dakota
    Agricultural crops and agricultural wastes and residues, wood and 
wood wastes and residues, animal and other degradable organic wastes, 
municipal solid waste, or landfill gas as the fuel to produce 
electricity.
Texas
    Biomass or biomass-based waste products, including landfill gas. A 
renewable energy technology does not rely on energy resources derived 
from fossil fuels, waste products from fossil fuels, or waste products 
from inorganic sources.
Utah
    (iv) Except for combustion of wood that has been treated with 
chemical preservatives such as creosote, pentachlorophenol or chromated 
copper arsenate, biomass and biomass byproducts, including: (A) organic 
waste; (B) forest or rangeland woody debris from harvesting or thinning 
conducted to improve forest or rangeland ecological health and to 
reduce wildfire risk; (C) agricultural residue (D) dedicated energy 
crops; and (E) landfill gas or biogas produced from organic matter, 
wastewater, anaerobic digesters, or municipal solid waste.
Virginia
    ``Renewable energy'' means energy derived from.biomass, sustainable 
or otherwise, (the definitions of which shall be liberally construed), 
energy from waste, municipal solid waste.
Washington
    Animal waste or solid organic fuels from wood, forest, or field 
residues, or dedicated energy crops that do not include (i) wood pieces 
that have been treated with chemical preservatives such as creosote, 
pentachlorophenol, or copper-chrome-arsenic; (ii) black liquor by-
product from paper production; (iii) wood from old growth forests; or 
(iv) municipal solid waste.
West Virginia
    Nonhazardous organic material that is available on a renewable or 
recurring basis, including pulp mill sludge.
Wisconsin
    A resource that derives energy from wood or plant material or 
residue, biological waste, crops grown for use as a resource or 
landfill gases. ``Biomass'' does not include garbage, as defined in s. 
289.01 (9), or nonvegetation-based industrial, commercial or household 
waste, except that ``biomass'' includes refuse-derived fuel used for a 
renewable facility that was in service before January 1, 1998.
District of Columbia
    Solid, nonhazardous, cellulosic waste material that is segregated 
from other waste materials, and is derived from any of the following 
forest-related resources, with the exception of old growth timber, 
unsegregated solid waste, or post-consumer wastepaper: (A) Mill 
residue; (B) Precommercial soft wood thinning;(C) Slash; (D) Brush; (E) 
Yard waste; (F) A waste pallet, crate, or dunnage; (G) Agricultural 
sources, including tree crops, vineyard materials, grain, legumes, 
sugar, and other crop by-products or residues; or (H) Cofired biomass, 
subject to the condition under Sec. 34-1433(f).
Puerto Rico
    Any organic or biological material derived from organisms that have 
the potential to generate electricity, such as wood, waste, and 
alcohol-derived fuels; and includes natural biomass, which is produced 
naturally without human intervention; residual biomass, which is a 
byproduct or residue generated in agricultural, forest, and cattle 
activities, as well as solid residue from the food and agriculture 
industry and the wood-processing industry; for the purposes of this Act 
it also includes any biomass similar in nature to those described, as 
designated by the Administration.
Northern Marianas
    Municipal solid waste, biofuels, or fuels derived from organic 
sources (other than coal, oil or gas).
                                 ______
                                 
                                       Calpine Corporation,
                                Washington, DC, February 29, 20012.
Hon. Jeff Bingaman,
Chairman, Committee on Energy and Natural Resources, U. S. Senate, 
        Washington, DC.
    Dear Chairman Bingaman:
    Calpine is a national leader in clean power generation, providing 
nearly 28,000 megawatts of electricity generated from the largest and 
most modern fleet of low-carbon, combined-cycle natural gas-fired power 
plants, and from the largest source of renewable geothermal power. We 
have been a leader in supporting responsible environmental legislation 
and regulations at the state, regional, and national levels. We also 
have been and continue to be committed to generating electricity from 
the cleaner, more efficient energy resources.
    With respect to your proposed Clean Energy Standard Act of 2012 
(``CES'' ), Calpine believes that, if a CES is needed to assist in 
moving the nation towards a cleaner energy economy, it must employ 
specific mechanisms in order to deliver meaningful benefits and meet 
its stated goals. First, it should be defined sufficiently broadly to 
encompass all low GHG emissions resources, including efficient natural-
gas fired power plants and combined heat and power plants. It must set 
reasonable interim targets and timetables to provide incentives for 
early and steady investments in existing and new clean energy 
resources. Cost control mechanisms, such as alternative compliance 
payments (ACP) and banking, should be included to lessen the economic 
impact on regulated entities and consumers. Additionally, when setting 
the price levels for the ACP and CES credits, they should be set at a 
level sufficiently high enough to send a clear price signal to ensure 
regulated entities make needed investments in new, clean technologies. 
The Clean Energy Standard Act of 2012 addresses much of these criteria 
and marks a good framework for discussion should such legislation move 
forward.
    We look forward to working with you as the discussion of this CES 
legislation progresses.
            Sincerely,
                                        Yvonne A. McIntyre,
                       Vice President, Federal Legislative Affairs.
                                 ______
                                 
                  Statement of the Province of Manitoba
    We are pleased to have the opportunity to submit this statement for 
the record in connection with this hearing on S. 2146. We applaud the 
Committee's efforts to promote a clean energy future. However, we have 
a significant concern about the legislation as drafted because it does 
not recognize Canadian hydropower consumed in the U.S. as an eligible 
``clean energy'' source. For the reasons stated below, we respectfully 
urge the Committee to reconsider this aspect of the legislation.
    This statement addresses (1) the important role that Canadian 
hydropower plays in the U.S.; (2) how Canadian hydropower supports the 
development of U.S. renewables; (3) the recognition by several U.S. 
states of Canadian hydropower as a renewable resource; (4) Canada's 
strong commitment to clean electricity; (5) the close alignment of the 
U.S. and Canada's electricity futures; and (6) the substantial untapped 
hydropower potential in Canada that can help the U.S. meet its clean 
energy objectives.
The important role that Canadian hydropower plays in the U.S.
    On an annual basis, Canada exports approximately 50 TWh of 
electricity to the U.S. The vast majority of that power (80 percent) 
is from hydropower. These exports to the U.S. represent 10 percent of 
the hydro currently consumed in the U.S., equivalent to powering 3.5 
million U.S. homes. Over the past 20 years, the electricity imports 
from just one province (Manitoba) have resulted in the avoidance of 
over 170 million metric tons of greenhouse gas emissions. In 2011 
alone, provincial power utility Hydro-Quebec's net electricity exports 
helped avoid 12 million metric tons of CO2 emissions, the 
equivalent of yearly emissions of 3 million vehicles.
    In some Border States, Canadian imports provide an important 
portion of the electricity necessary to meet the state's needs. For 
example, Manitoba typically provides the Upper Midwest with about 
10,000 GWh of electricity per year. This is enough to power nearly 1 
million homes, and accounts for over 30 percent of the region's supply 
of renewable generation. Manitoba Hydro currently delivers electricity 
into Minnesota that is approximately equivalent to 11 percent of the 
state's total electricity demand. In Vermont, the portion is even 
higher, with one-third of the electricity consumed in the state 
delivered from Quebec. New York receives about 7 percent of its 
electricity from Canada.
    The *chart below shows the degree to which some of the Border 
States, and the U.S. as a whole, rely upon Canadian power sources:
---------------------------------------------------------------------------
    * Chart has been retained in committee files.
---------------------------------------------------------------------------
    Consumption of Canadian electricity is not just limited to Border 
States. By virtue of its ties through the Western Interconnection grid, 
Canada provided over 2,250 GWh of electricity to California in 2010-
enough electricity to power about 320,000 California homes (estimate 
based on 2010 Energy Information Administration data). As transmission 
infrastructure continues to develop and Canada increases its hydropower 
infrastructure, the potential for this sort of longer-range 
relationship increases.
Canadian hydropower helps support U.S. renewable development
    In many Border States that rely on Canadian hydropower, the 
availability of this low-cost, clean electricity helps to support the 
development of the states' own intermittent renewable energy sources 
(e.g., wind, solar). Canadian hydropower provides a clean, reliable and 
affordable source of electricity that is available to meet states' 
needs and to support the variability of intermittent resources.
    An increasing number of U.S. utility partners and states that 
border Canada are recognizing Canadian hydropower as part of their 
Renewable Energy Portfolio standards and climate risk strategies. The 
recently completed sale between Minnesota Power and Manitoba Hydro is a 
good example of this. The agreement also includes a `U.S. wind storage' 
provision that highlights the synergies between those resources.\1\ In 
the Northeast, the long-term (2012-2038) contract between H.Q. Energy 
Services (U.S.), a subsidiary of Hydro-Quebec, and Vermont's 
distribution utilities is a key component of Vermont's strategy to 
remain the lowest per-capita emitter of greenhouse gases (GHGs) among 
U.S. states. Including Canadian hydro in Clean Energy Standard (CES) 
legislation would respect historic partnerships between the U.S. and 
Canada and would enable these types of sustainable development 
partnerships to grow.
---------------------------------------------------------------------------
    \1\ Minnesota Power Press Release. May 24, 2011: Hydropower 
purchase agreement will trim carbon emissions, bolster transmission 
system and allow Minnesota Power to ``store'' wind energy: http://
www.mnpower.com/news/articles/2011/20110524__NewsRelease.pdf.
---------------------------------------------------------------------------
    As Jon Brekke, Vice President of Minnesota's Great River Energy, 
stated in 2009 in an interview with Manitoba Hydro:

          We have over 300 megawatts of wind now in operation and as 
        our consumers demands increase during the typical day there's 
        no guarantee that the wind power's going to be there to match 
        that. We also have a problem where sometimes we get too much 
        energy from wind and the demand of our members is not there to 
        absorb all that wind energy. Manitoba Hydro can take advantage 
        of that low cost power and store up water resources during 
        those hours. Then, when loads increase, hydroelectric power can 
        be released to help provide power to the consumers in the 
        region.

    Moreover, recognition of Canadian hydropower as a qualifying clean 
energy resource in a U.S. national CES would not displace or adversely 
affect the development of other clean energy sources in the U.S., such 
as wind or solar power. The Energy Information Administration shows 
that low- or no-carbon sources generated 31 percent of U.S. total 
electricity in 2009 (20 percent nuclear, 7 percent hydroelectric, and 4 
percent other renewables).\2\ S. 2146 would require 84 percent of 
electricity sold to come from low- or no-carbon energy sources by 2035. 
Given the size of that gap, there is an enormous U.S. opportunity for 
the development of clean energy technologies. In fact, considering the 
magnitude of the challenge, very high levels of development would be 
required from many clean energy technologies including Canadian 
hydropower.
---------------------------------------------------------------------------
    \2\ U.S. Energy Information Administration. Analysis of Impacts of 
a Clean Energy Standard as requested by Chairman Bingaman, November 
2011; http://www.eia.gov/analysis/requests/ces__bingaman/pdf/
ces__bingaman.pdf.
---------------------------------------------------------------------------
    At present, Canadian imports account for less than 1 percent of 
overall U.S. electricity consumption--a minimal amount, in the context 
of overall U.S. electricity generation and consumption. Even if this 
figure were augmented by the development of additional Canadian 
hydropower capacity, Canadian hydro exports to the U.S. will still 
account for a very small overall percentage of U.S. consumption.
    Furthermore, any significant Canadian hydro development could only 
take place gradually and over a long period of time due to multiple 
constraints on construction resources, labor, engineering and capital. 
In general, it takes 8-14 years for consultation, planning, permitting, 
and construction of a hydro generating station compared to 3-5 years 
for a thermal generating station. Thus, for the foreseeable future, 
there will be ample room for as much development of U.S. renewable 
resources as the market will accommodate.
    However, if the CES legislation excludes Canadian hydropower, it 
could actually send a perverse signal to current American buyers to 
increase use and reliance on more carbon-intensive or otherwise riskier 
sources of energy, potentially stunting emerging plans for further 
growth of new hydropower into U.S. markets and moving the U.S. further 
away from the goal of reducing GHGs. As Minnesota Power notes in its 
testimony before this Committee, if S. 2146 does not qualify Canadian 
hydro as a clean energy source, Minnesota Power would be compelled to 
develop thermal power alternatives to supply the baseload necessary to 
support its wind power development. This would result in an additional 
annual 560,000 metric tons of greenhouse gas emissions in Minnesota.
States are recognizing Canadian hydropower as a renewable resource
    In recent years, there has been a trend toward recognizing Canadian 
hydroelectricity imports as qualifying under state Renewable Portfolio 
Standards (RPS). Here are examples of developments that have taken 
place over the past two years at the state level:

   In 2010, the Vermont legislature amended its renewable 
        requirements, granting full recognition of all hydroelectricity 
        as renewable, including that imported from Quebec, Canada.
   In July 2011, Wisconsin adopted energy legislation that 
        grants renewable credit to imports from new hydropower 
        facilities under development in Manitoba, Canada.
   In March 2011, Minnesota's Public Utilities Commission ruled 
        that Minnesota Power could apply a portion of hydroelectricity 
        purchased from Manitoba Hydro to meet state RES requirements.
   In April 2011, California adopted legislation that requires 
        the California Energy Commission to conduct a study (due June 
        30, 2012) to determine whether British Columbia's run-of-river 
        hydroelectric generating facilities should be included as 
        eligible resources for its Renewable Energy Resources Program.

    S. 2146 evidences an intention not to impede state Renewable 
Portfolio Standards laws. However, by excluding Canadian hydropower, 
the legislation creates an inconsistency with many state RPS standards. 
If this is not addressed, it could nullify and effectively preempt the 
affected state standards.
    In addition, utilities located in U.S. Border States would face a 
conflicting patchwork of state and federal regulatory requirements if 
federal and state clean energy requirements and incentives are not 
properly aligned. The National Association of Utility Regulators 
(NARUC) has recognized this. In 2010, the Association adopted a 
resolution recognizing all North American hydropower as a renewable 
energy resource that warrants consideration in regional and national 
clean energy mandates.
Canada has strongly committed itself to a clean electricity mix
    Canada's generation mix is already quite clean--about 60 percent of 
the electricity produced in Canada each year is renewable and 15 
percent is nuclear--giving Canada already one of the cleanest 
generation mixes in the world. Canada is undertaking steps to make its 
generation mix even cleaner. Policies to further this effort are being 
adopted at both the federal and provincial levels in Canada.
    The Government of Canada is working towards phasing out 
conventional coal-fired generation through regulations expected to be 
finalized in 2012. The regulation would essentially prohibit the 
construction of new coal-based plants after 2015 unless they include 
carbon capture and storage (CCS) equipment. These regulations would 
also require companies to close plants after 45 years of operation--
unless they are retrofitted with CCS. Approximately two-thirds of 
Canada's coal-fired plants will reach the end of their forty-fifth 
anniversary by 2025, and more than 80 percent will do so by 2030.
    The pie charts* below illustrate the extent to which Canadian 
electricity is produced from clean sources relative to the rest of the 
world.
---------------------------------------------------------------------------
    * Pie charts have been retained in committee files.
---------------------------------------------------------------------------
    In addition to federal regulations, many Canadian provinces have 
regulations in place to reduce GHG emissions. Some examples include:

   British Columbia implemented a carbon tax in 2008 that will 
        increase to CAD $30 per metric ton CO2-equivalent in 
        July 2012 and covers about 75 percent of the province's GHG 
        inventory. In addition, British Columbia has a legislated 
        target to generate at least 93 percent of the electricity in 
        British Columbia from clean or renewable resources. As well, 
        B.C. energy policy states that existing thermal generation must 
        have net zero greenhouse gas emissions by 2016, as must any new 
        facilities.
   Manitoba has implemented an emissions tax on coal, and the 
        last remaining coal-fired facility is regulated to operate only 
        in support of emergency situations.
   Ontario is in the process of phasing out all of its coal-
        fired capacity (over 6000 MW) by 2015.
   In 2012, Quebec started an emissions trading program in 
        conjunction with the Western Climate Initiative that will 
        initially cover, as of January 1, 2013, approximately 75 
        emitters with annual emissions of 25,000 metric tons 
        CO2 equivalent or above. Currently, 97 percent of 
        Quebec's electricity production comes from hydropower. Quebec 
        is committed to meeting its medium-term GHG emissions reduction 
        target (20 percent below 1990 levels by 2020).

    In Canada, hydropower facilities are subject to stringent 
requirements of both the Canadian federal government and provincial 
governments. Every hydropower project is subject to a detailed 
assessment of the impacts of the project on the environment and 
extensive public consultations, including consultations of the 
aboriginal communities. Canada's constitution (s.35) imposes additional 
requirements regarding the consultation of any aboriginal community 
that may be impacted before the government's decision.
    Under federal law, all hydropower projects must also meet the 
requirements of the Fisheries Act, those of the Species at Risk Act 
(SARA), those of the Migratory Birds Convention Act and those of the 
Navigable Waters Protection Act. The Fisheries Act ensures that fish 
populations and migrations are maintained and that losses of fish 
habitat are mitigated or compensated.
    Under provincial law, using the Province of Manitoba as an example, 
approvals contain detailed restrictions on the design and construction 
of the facility. They also require mitigation of habitat implications 
and strict oversight of downstream sediment. Extensive collaboration 
with native First Nations helps to ensure that the effects of projects 
on local populations are minimized. As a result, hydropower facilities 
now under development in Manitoba will rank among the world's most 
environmentally protective. For example:

   The 200-megawatt Wuskwatim Generating Station under 
        construction in northern Manitoba has been designed as a low 
        head, ``run-of-river'' plant. The facility will generate less 
        than 0.2 sq. miles of flooding, minimizing land-use change 
        implications due to flooding and other environmental impacts. 
        Wuskwatim is being developed by an equity partnership between 
        Nisichawayasihk Cree Nation and Manitoba Hydro, and represents 
        the first equity partnership with a First Nations community on 
        a major generating station project.
   The 1485-megawatt Conawapa Generating Station in Manitoba 
        has been designed to take advantage of the naturally steep 
        river banks of the Nelson River, which are over 160 feet high, 
        in order to limit flooding to approximately 1.9 sq. miles, 
        almost all within the river's banks, again minimizing potential 
        negative environmental impacts. The provincial government and 
        Manitoba Hydro have entered into a Memorandum of Understanding 
        with Fox Lake Cree Nation related to the Conawapa project.

    A levelized lifecycle GHG comparison for generating one GWh of 
electricity at the Wuskwatim hydropower facility was produced to 
compare various conventional and renewable power generation options. 
The results show that relative life cycle GHG emissions of the 
Wuskwatim project are very small and insignificant relative to those of 
conventional thermal generating stations and comparable to that of 
wind. Life cycle assessments underway for Conawapa (1485-megawatt) and 
Keeyask (695-megawatt) generating stations are expected to show similar 
results.
    In the Northeast, the Province of Quebec applies ISO-14001 
standards to the development of its hydropower projects, with special 
attention to mitigation and adaptation efforts and community outreach. 
In fact, since the 2002 Peace of the Brave Agreement with the Cree 
nation, the negotiation of agreements with aboriginal communities has 
been a key component of Quebec's approach to hydropower development.
    Long-term environmental follow-up on projects is performed to 
measure the real impact of projects and the effectiveness of the 
mitigation and compensation measures. Recent projects provide examples 
on the benefits of ensuring adequate long-term monitoring of impacts:

   On Quebec's North Shore, construction of the Romaine river 
        complex, an interconnected network of 4 power stations that 
        will generate 1,550 MW, began in 2009, following completion of 
        an extensive environmental impact assessment that lasted 4 
        years. In 2011, 50 percent of the person-years that were 
        created on the Romaine project (1,198) benefitted Cote Nord and 
        Innu workers. Environmental follow-up on the Romaine river 
        complex project will continue until 2040, allowing Hydro-Quebec 
        to monitor environmental changes, determine the effectiveness 
        of mitigation and compensation measures, and make any necessary 
        adjustments. ISO 14001-certified environmental management 
        systems and OHSAS 18001-certified health and safety managements 
        systems govern jobsite activities.
   The Pribonka River project, in Quebec's Saguenay-Lac-St-Jean 
        region, came online in 2008 and is the focus of sustained 
        environmental conservation efforts by Hydro-Quebec, so as to 
        preserve the river's rich fauna. Since 2007, the project's 
        reservoir has been stocked with 315,000 juvenile lake trout. 
        Waterfowl breeding has increased and the reservoir is 
        frequented by twice as many waterfowl broods as in 2008.
U.S. and Canada's electricity futures are closely intertwined and 
        aligned
    Canada plays a very important role in the overall energy security 
of the U.S. The two countries are each others' largest trading 
partners. Canada now supplies 9 percent of overall U.S. energy needs, 
including 87 percent of its natural gas imports, 21 percent of its 
crude oil imports, and one-third of the uranium used in U.S. nuclear 
power plants. Canada plays a key role in helping the U.S. reduce its 
dependence upon energy from unstable and unreliable overseas sources.
    Moreover, the electrical grids of the U.S. and Canada are highly 
interconnected. Indeed, they are more accurately thought of as a single 
North American electrical grid, composed of over 200,000 miles of high-
voltage transmission lines. In 2009, the total amount of electricity 
that flowed across the U.S.-Canada border through this system of power 
lines-from Canada to the U.S. and vice-versa-exceeded 70,000 GWh.
    The map below shows the extent of U.S.-Canadian electrical 
integration (only the high voltage interconnections are shown).
    As the map shows, increased cross-border electricity flow will 
require construction of new transmission infrastructure, which drives 
jobs in design, engineering, construction and production of materials 
on both sides of the Canada-U.S. border. A recent study by Brattle 
Consultants estimated that, for every $1 billion invested in U.S. 
transmission infrastructure, $2.4 billion in economic output and 13,000 
equivalent years of employment are generated.
    Demand for Canadian hydropower helps to promote further development 
of Canadian hydropower infrastructure, and this provides benefits to 
U.S. manufacturers that supply goods and services to help build out the 
Canadian infrastructure. It should also be noted that, because our 
economies are so entwined, for every dollar spent in Canada on energy, 
the U.S. receives 91 cents back in the form of revenue from exports to 
Canada. In all cases, furthering reliance on North American energy 
resources helps minimize leakage of investment out of the economy and 
protects U.S. jobs.
    In February 2009, shortly after taking office, President Obama met 
with Canadian Prime Minister Harper and established the U.S.-Canada 
Clean Energy Dialogue (CED), which committed both nations to move 
toward a cleaner, more secure energy future. When the two leaders met 
again in February 2011, they issued a joint statement incorporating the 
``Beyond the Border'' policy. The statement stressed the close 
interconnection between the two countries on national security and 
energy policy.
    To further the shared energy goals of the U.S. and Canada, the CED 
has committed to ``increasing opportunities for trade in clean 
electricity.'' This commitment was motivated by an acknowledgment that 
``[t]he North American electricity market is integrated across national 
borders.'' Canadian hydropower, which accounts for over 60 percent of 
Canadian electrical generation, is a clean and stable resource that can 
play a central role in realizing the shared clean energy goals. It can 
help displace electrical generation from fossil fuels in the U.S., 
thereby helping the U.S. reduce emissions.
Canada has substantial untapped hydropower potential that can help the 
        U.S. meet its clean energy objectives
    Canada still has a large untapped hydropower potential. Hydropower 
projects are capital-intensive to build and relatively low-cost to 
operate. A recent report by the Canadian Hydropower Association cited 
costs per MW installed from $2.9 million/MW to CAD $4.44 million/MW 
depending on the region in which the generation is built.\3\
---------------------------------------------------------------------------
    \3\ Job Creation and Economic Development Opportunities in the 
Canadian Hydropower Market; HEC Montreal report for the Canadian 
Hydropower Association, 2011.
---------------------------------------------------------------------------
    In addition to the capital costs, building cross-border 
transmission capacity presents additional challenges. In general it 
takes 8-14 years for consultation, planning, permitting, and 
construction of a hydro generating station compared to 3-5 years for a 
thermal generating station.
    Given the high capital costs and long lead times associated with 
new hydropower development in Canada, if the U.S. adopts a CES that 
does not recognize Canadian hydropower as a qualified clean energy 
resource, the U.S. will be disincentivising U.S. utilities from 
purchasing Canadian hydropower to the detriment of U.S. ratepayers that 
have been benefiting from this clean and costs effective energy 
resource.
    Current plans to purchase (and therefore to develop) hydropower in 
Canada depend to an extent on the ability of hydropower to help the 
buyer manage GHG and other environmental price risks. If passed, S. 
2146 would effectively be the major GHG management policy in the United 
States (alongside EPA regulatory actions under the Clean Air Act). 
Unfortunately, under the current bill, Canadian hydro would be treated 
the same as high-emitting GHG intensive coal and less favorably than 
medium-emitting natural gas. This means U.S. purchasers will see little 
of the risk management value they have been counting on from this clean 
renewable resource.
    The total technical potential of 163 GW in Canada as illustrated in 
the *map below is more than double the capacity currently in 
service.\4\ About 25 GW of that capacity is currently accounted for in 
various stages of project planning across Canada. (Construction is 
underway or expected to begin within the next ten years on 13 GW. The 
additional 12 GW could be developed if the appropriate circumstances 
arise.)
---------------------------------------------------------------------------
    * Map has been retained in committee files.
    \4\ Study of the Hydropower Potential in Canada: Final Report. 
Canadian Hydropower Association, 2006.
---------------------------------------------------------------------------
Conclusion
    We are committed to working with the U.S. on the shared goal of 
moving towards a cleaner, more secure electricity future. While we 
strongly support the Committee's objectives in this legislation, we 
believe that the treatment of Canadian hydropower in S.2146 would 
frustrate these objectives. We respectfully urge the Committee to 
revise the bill to enhance the ability of U.S. utilities to utilize 
Canadian hydropower to meet clean energy goals in a cost effective 
manner.
    We thank you for the opportunity to submit this testimony and look 
forward to working with you to achieve these important goals.
                                 ______
                                 
                                            COVANTA ENERGY,
                                 Morristown, NJ, February 29, 2012.
Hon. Jeff Bingaman,
Chairman, Committee on Energy and Natural Resources, U.S. Senate.
    Dear Mr. Chairman: Covanta Energy congratulates you on the 
introduction of your clean energy standard legislation. It is widely 
acknowledged that you have worked for years to create a renewable 
energy standard, and that your leadership and dedication have not only 
advanced the energy and environment debate in Washington, but have also 
helped create state renewable policy across the country. Your 
legislation sets the stage for our country to lessen our dependence on 
fossil fuels and increase the creation of good-paying, long-term jobs 
in the clean energy sector.
    We look forward to doing our part in helping our nation fulfill its 
potential by creating energy from waste and moving away from burying 
valuable BTUs in landfills. Thank you for your continued leadership in 
setting America's energy policy.
            Sincerely,
                                                Paula Soos,
                              Vice President, Government Relations.
                                 ______
                                 
                             Gamesa Technology Corporation,
                                         Trevose, PA, May 10, 2012.
Hon. Jeff Bingaman,
U.S. Senate Energy & Natural Resources Committee, Washington, DC.
    Dear Chairman Bingaman:
    Thank you for this opportunity to submit written testimony in 
connection with the above-referenced hearing.
    With more than 17 years' experience, Gamesa is a world leader in 
the design, manufacture, installation and maintenance of wind turbines, 
with more than 24,000 MW installed in 35 countries on four continents 
and over 16,000 MW under maintenance. The company has 34 production 
facilities in Europe, the US, China, Brazil, and India and over 8,000 
employees worldwide.
    Gamesa is also a world leader in the development, construction and 
sale of wind farms, having installed over 4,100 MW and having a 
portfolio of more than 23,800 MW in Europe, America and Asia. The 
annual equivalent of the 24,000 MW installed amounts to more than 5.4 
million tons of petroleum (TEP) per year and prevents the emission into 
the atmosphere of about 21 million tons of CO2 per year.
    In our responses to the Bingaman-Murkowski White Paper, Gamesa 
stated that the goal of a national Clean Energy Standard (CES) should 
be to drive the domestic market for clean (zero-emissions) energy 
technologies that will reduce greenhouse gas emissions from electric 
generators. In those responses, Gamesa identified several core 
principles that should guide any bill designed to accomplish that goal.
    We at Gamesa are impressed by how The Clean Energy Standard Act of 
2012, S. 2146, addresses these principles, and with small changes, 
Gamesa would wholeheartedly support the bill. Let me explain why the 
bill so closely follows the principles we outlined in the White Paper, 
and what small changes we would recommend.
    Include as many utilities as possible to affect the largest market. 
The bill exempts small electricity retailers that sell fewer than 2 
million megawatt hours of electricity in 2015, and then ratchets the 
exemption down to 1 million megawatt hours by 2025.
    Focus solely on electricity generation and not energy efficiency. 
The bill does precisely this.
    Adopt gradually increasing targets over successive 5-year periods 
to ensure markets can react and grow quickly. The bill exceeds the 
expectations implicit in this principle by increasing the targeted 
percentages of clean electricity every single year, going from 24 
percent in 2015 to 84 percent by 2035.
    Set target percentages at levels that ensure at least 30 percent 
compound annual growth in deployment for the wind industry annually for 
the next five years, and then 20 percent compound annual growth in 
deployment over the subsequent five-year period. According to the 
Energy Information Agency's (EIA) modeling of the bill, the amount of 
wind energy purchased by utilities increases from 95 terawatt hours in 
2010 to 212 terawatt hours by 2025--an overall increase of 223 percent, 
representing a compound annual growth rate of 5.5 percent.
    Allocate credits to only clean (zero-emissions) energy sources; and 
if partial credits are offered for non-clean energy sources, those 
credits should ratchet down over time. The bill does give partial 
credits to energy sources that are responsible for some carbon 
emissions, but their credits are calculated in a reasonable manner. The 
credits do not ratchet down over time, but it appears that the higher 
percentage targets provided in the bill make these partial credits less 
valuable to utilities as they strive to meet the higher percentage 
targets in the later years.
    If partial credits are awarded, establish tiers to incentivize the 
development of non-emitting energies and avoiding a monopoly of 
conventional emitting technologies. The EIA modeling seems to indicate 
that the aggressive target percentage increases over time avoids the 
monopoly of conventional emitting technologies that we feared.
    Measure emissions in the production and extraction process of the 
fuel source. The bill measures emissions only from the generation 
source of electricity. Gamesa's concern here is that there are fuel 
sources tapped for the production of electricity where the greenhouse 
gas emissions could be significant at the extraction (or distribution) 
stages, and those emissions should be accounted for in calculating 
credits under the bill.
    It seems to Gamesa that the bill attempts to address this question 
to some extent in section 611. That section requires a study of the 
``losses of natural gas'' that occur during the ``production and 
transportation'' of natural gas, and it requires the Secretary to make 
policy recommendations based on the results of the study. But we 
believe the scope of this section should be expanded in two ways.
    First, it should require that the study should be explicit about 
including the tracking of the methane component of natural gas 
emissions at these stages. And second, the language should require the 
Secretary to make specific policy recommendations as to what credit 
calculations under section 610(g) of the bill should be modified in 
accordance with the findings of the study.
    Other policies will also be required to achieve the full set of 
goals set by a national CES--namely transmission upgrades, permitting 
acceleration, and ensuring the long-term viability of financial 
capacity to drive the market growth. Gamesa believes that the passage 
of the Clean Energy Standard Act of 2012 will expand the U.S. market 
for clean energy technologies, drive down the costs of clean energy 
technologies over a relatively short period of time, and give millions 
of Americans access to clean, and affordable electricity. In so doing, 
our strong belief is that a CES of this scope will spur economic 
growth, significant greenhouse gas emissions reductions, and robust 
American job creation.
            Sincerely,
                                          David Flitterman,
                                                          Chairman.
                                 ______
                                 
                                                 GE Energy,
                                     Washington, DC, March 1, 2012.
Hon. Jeff Bingaman,
Chairman, Senate Energy and Natural Resources, Committee, 304 Dirksen 
        Senate Office Building, Washington, DC.
    Dear Mr. Chairman:
    Thank you for contacting us to make us aware of the new clean 
energy standard (CES) legislation that you plan to introduce later 
today.
    GE is supportive of the legislation and looks forward to working 
with you and members of the committee on this important proposal. We 
believe that federal energy policy should support an aggressive and 
predictable transition to a diverse portfolio of clean energy 
technologies, including wind and solar power, highly flexible and 
efficient natural gas generation, waste heat-to-electricity, advanced 
nuclear energy and next generation coal power with carbon capture, 
utilization and storage. By our reading, your legislation does provide 
such a transition to a diverse portfolio of clean energy technologies.
    We applaud you and your co-sponsors on this important first step 
toward creating a clean energy standard and improving our nation's 
energy future.
            Sincerely,
                                           Robert Hall III,
                                Senior Manager & Counsel GE Energy.
                                 ______
                                 
 Statement of Douglas A. Dougherty, President and CEO, The Geothermal 
                         Exchange Organization
    On behalf of the Geothermal Exchange Organization (GEO), a non-
profit trade association representing the U.S. geothermal heat pump 
industry, we are pleased to submit a statement for the record on S. 
2146, the Clean Energy Standard Act of 2012.
    GEO strongly supports the goals of S. 2146 but would like to work 
with the Committee to ensure that utilities receive credit under the 
CES for the renewable energy that geothermal heat pumps harness from 
the ground.
    Geothermal heat pumps capture a distributed, thermal form of 
renewable energy that can be measured, metered, and verified and 
effectively address one of the biggest consumers of U.S. energy--
buildings. Buildings account for more than 70 percent of the nation's 
electricity usage, and geothermal heat pumps have the potential to 
reduce energy use by as much as 40-70 percent in a typical building.
    Geothermal heat pumps are a 50 state technology that use the only 
renewable energy resource that is available on demand at the point of 
use and cannot be depleted. If included in the CES, every utility in 
the country can promote geothermal heat pumps as way to meet its CES 
obligation.
    Ensuring that utilities get credit under a CES for the thermal 
energy avoided by geothermal heat pumps will create an incentive for 
utilities to actively promote this proven technology. Every electric 
utility in the country can improve its load factor, mitigate the need 
for price increases, lessen the strain on the transmission grid, 
forestall future generation needs, reduce carbon emissions, and provide 
consumers with improved conditioned space by promoting geothermal heat 
pumps. In fact, a review of existing studies done by DOE labs suggests 
that GHPs could avoid more than 130 billion kWhs of retail electricity 
sales by 2035.
    While GEO appreciates that S. 2146 does direct the Department of 
Energy to conduct a study to examine the benefits and challenges of 
including geothermal heat pumps in the CES, GEO does not believe we 
should wait for up to three years for a study when the benefits of 
installing geothermal heat pumps are well documented.
    In addition, measurement and verification of the GHP contribution 
can be accomplished in a relatively straightforward manner. The 
Department of Energy and the national labs already have identified ways 
to measure and verify the thermal energy savings. Alternatively, 
measurement could be achieved by requiring the installation of a 
relatively inexpensive meter to measure the renewable energy geothermal 
heat pumps harness from the ground.
    The Committee could also look to legislation recently signed into 
law in Maryland as a model. The Maryland legislature recently passed 
legislation to make geothermal heat pumps eligible for renewable energy 
credits under the state's Renewable Portfolio Standard (RPS). The state 
recognized that including geothermal heat pumps will help the state 
meet its RPS goal, while at the same time helping utilities reduce peak 
demand, stimulating the economy by increasing geothermal heat pump 
installations, helping consumers cut energy costs, and reducing carbon 
emissions.
    Under the Maryland model, the thermal energy avoided by installing 
geothermal heat pumps in the residential setting will be estimated 
using modeling tools. For commercial installations, a meter would be 
installed on site to measure the thermal energy saved. In both cases, 
the BTU energy savings attributable to geothermal heat pumps are 
converted into annual megawatt hours that utilities can claim for 
credit under the Maryland RPS.
    In summary, we strongly support legislation to establish a CES and 
hope to work with Chairman Bingaman and the members of the Committee to 
ensure that geothermal heat pumps are included and utilities can claim 
credit for the renewable energy that geothermal heat pumps harness from 
the ground.
    Thank you again for the opportunity to submit testimony for the 
hearing record.
                                 ______
                                 
                                        Hydro Green Energy,
                                       Westmont, IL, March 2, 2012.
Hon. Jeff Bingaman,
Chairman, Energy and Natural Resources Committee, U.S. Senate, 304 
        Dirksen Senate Building, Washington, DC.
    Dear Chairman Bingaman:
    On behalf of Hydro Green Energy, I am writing to express our 
support for S. 2146, the Clean Energy Standard Act of 2012.
    Hydro Green Energy (HGE) is a renewable energy development company 
with proprietary hydropower technology. The company, which maintains 
headquarters in Illinois, focuses on developing new hydropower 
generation at existing, non-powered dams in an environmentally-
responsible manner.
    HGE is currently developing 37 low-impact hydropower projects in 15 
states with a total installed capacity of 350 MW. Our projects will 
provide enough annual power for nearly 200,000 homes and annually avoid 
2.7 billion pounds of carbon emissions.
    Based on our reading of S. 2146, as well as conversations with your 
staff, we understand that S. 2146 would qualify all of our projects and 
our energy output as ``clean,'' allowing for full participation in the 
Clean Energy Standard (CES). Federal policies such as the CES will 
ensure the most robust, economic development of America's renewable 
energy resources.
    While hydropower is the nation's largest renewable resource, and it 
has long played an important role in providing millions of Americans 
with clean, reliable and predictable power, there is substantial growth 
potential for new, environmentally-responsible hydropower. S. 2146 
properly recognizes hydropower's critical role in meeting the goals of 
S. 2146, as well as its ability to robustly contribute to America's 
clean energy economy.
    We look forward to working with you and your colleagues in the 
Senate to see that S. 2146's recognition of hydropower remains 
unchanged and that the Clean Energy Standard Act of 2012 is enacted 
into law.
    If you or your staff have any questions, please do not hesitate to 
contact Mark R. Stover, Hydro Green Energy's Vice President of 
Corporate Affairs.
            Sincerely,
                                          Michael P. Maley,
                                                   President & CEO.
                                 ______
                                 
                                      IBERDROLA RENEWABLES,
                                       Portland, OR, March 1, 2012.
Hon. Jeff Bingaman,
Chairman, Committee on Energy and Natural Resources, U.S. Senate, 
        Washington, DC.
    Dear Mr. Chairman:
    I am writing on behalf of Iberdrola Renewables to commend you for 
introducing the Clean Energy Standard Act of 2012. As one of the 
leading independent electricity generators and marketers in the United 
States, Iberdrola Renewables believes that a properly structured Clean 
Energy Standard is an essential element of a national energy policy 
that enhances our energy security, promotes fuel diversity, protects 
consumers from energy price volatility and substantially reduces 
greenhouse gas emissions.
    A national Clean Energy Standard offers a cost-effective approach 
to provide electric generating facilities utilizing clean energy 
resources an opportunity to compete in the marketplace. Over the last 
decade, the ability of renewable energy generators to attract customers 
has depended, in part, on the availability of a tax credit that has 
been scheduled to expire practically every other year. This has created 
several ``boom and bust'' cycles in the industry. A Clean Energy 
Standard, on the other hand, provides generators utilizing renewable 
and other clean resources, a more stable, long-term environment within 
which to plan and operate.
    Your introduction of the Clean Energy Standard Act of2012 is an 
important first-step in the process of getting a national Clean Energy 
Standard enacted. The bill proposes to establish aggressive, but 
achievable targets for utilities to diversify their resource portfolio. 
Iberdrola Resources offers any assistance necessary to help you get a 
meaningful National Clean Energy Standard enacted this year.
    I also want to take this opportunity to thank you for the vision 
and leadership you have demonstrated during your service in the United 
States Senate. You have been on the forefront of every major piece 
oflegislation that has impacted the renewable energy industry over the 
last 30 years. I hope that you will be able to complete your career 
with the enactment of a strong national Clean Energy Standard.
            Sincerely,
                                             Martin Mugica,
                                          Executive Vice President.
                                 ______
                                 
                 International District Energy Association,
                                    Westborough, MA, March 9, 2012.
Hon. Chairman Bingaman:
    The International District Energy Association (IDEA) applauds you 
for your leadership in introducing the Clean Energy Standard Act of 
2012. This legislation would provide a strong market-based approach to 
encouraging clean energy that can spur economic growth, increase energy 
security and grid reliability, and reduce emissions. Implementation of 
the CES would be particularly timely given the upcoming need for 
replacement of retiring coal power plants.
    We are extremely pleased that the bill recognizes the efficiency 
and economic advantages of combined heat and power (CHP) and district 
energy systems. Few people realize that two thirds of U.S. power 
generation fuel energy is currently thrown away as waste heat. 
Increased implementation of more CHP--which generates electricity while 
recovering useful thermal energy for heating buildings or industrial 
processes-- will increase energy efficiency, reduce emissions, reduce 
power transmission constraints and losses, and strengthen power grid 
reliability and energy security.
    Secretary Chu, in his February 16 testimony to the Senate Energy 
and Natural Resources Committee, described his February 2 visit to IDEA 
member Thermal Energy Corporation (TECO) in Houston, TX which employs 
highly efficient CHP and district energy systems to supply steam for 
heating and chilled water for cooling to the Texas Medical Center, the 
largest medical center in the world. Secretary Chu described DOE as 
``bullish on CHP'' and cited district energy systems as a primary near 
term market opportunity to achieve dramatic increases in energy 
efficiency on a community scale.
    District energy systems like TECO produce steam, hot water and 
chilled water at a central plant for distribution through underground 
piping networks in cities, campuses and communities to multiple 
buildings for space heating, hot water and air conditioning. District 
energy systems not only represent an enormous ``heat sink'' for 
increased CHP capacity. As the CES bill recognizes, district energy 
systems also reduce power loads by delivering thermal energy to 
consumers who would otherwise draw power from the grid. This is welcome 
recognition of the importance of heating and cooling, which consumes 31 
percent of total primary energy use in the U.S.
    In contrast to some of the other potential clean energy resources, 
CHP and district energy are proven technologies that can dramatically 
increase the fuel efficiency of the electricity sector with the 
simultaneous production of useful thermal energy and power nearer to 
end users. CHP systems can reach efficiencies above eighty percent. Oak 
Ridge National Laboratory estimated in 2008 that increasing the 
percentage of electricity generated by combined heat and power in the 
US from 85 GW of capacity (9 percent) to 241 GW (20 percent) by 2030 
would attract $234 billion in private investment, produce 5.3 
www.districtenergy.org quads of annual fuel savings, create nearly 1 
million new jobs and cut CO2 emissions equivalent to taking 
154 million cars off the road.
    IDEA (www.districtenergy.org) serves as a vital information hub for 
the district energy and combined heat and power industries, connecting 
industry professionals and advancing the technology around the world. 
With headquarters just outside of Boston, Mass., the 1,500-member IDEA 
was founded in 1909 and comprises district heating and cooling system 
executives, managers, engineers, consultants and equipment suppliers 
from 25 countries. IDEA supports the growth and utilization of district 
energy as a means to conserve fuel and increase energy efficiency to 
improve the global environment.
    IDEA looks forward to working with members of Congress and the 
Administration on the optimization of district energy/CHP as an 
important clean energy strategy for our country.
            Sincerely,
                                        Robert P. Thornton,
                                                   President & CEO.
                                 ______
                                 
Statement of David J. McMillan, Executive Vice President, for Minnesota 
                           Power, Duluth, MN
    Minnesota Power (MP) has reviewed the Clean Energy Standard Act of 
2012 and related Energy Information Administration (EIA) analysis. MP 
believes that compared to cap-and-trade programs a Clean Energy 
Standard (CES) offers several advantages and is a superior policy to 
achieve utility-sector greenhouse gas (GHG) emission reductions. We 
offer these comments aimed at increasing the amount of clean energy 
that electric utilities provide their customers, reducing greenhouse 
gas emissions, and accomplishing both in a cost-effective manner.
Minnesota Power's General Comments on S. 2146, the Clean Energy 
        Standard Act of 2012
    A fundamental question raised by the legislation is ``what is the 
specific policy objective that is intended to be addressed?'' The 
purpose section contains three separate and in some cases competing 
directives: stimulating clean energy innovation; promoting low and zero 
carbon electric generation in the United States, and; doing this at the 
lowest incremental cost to consumers. In Minnesota Power's view, the 
bill fails to balance the three directives to achieve both 
effectiveness and affordability.
    If the bill's objective is to maximize the reduction of GHG 
emissions, all utilities, including co-operative and municipal 
utilities of any size, should be subject to the same standards. If the 
bill is not comprehensive it will not maximize CO2 emission 
reductions and will create competitive dislocations. The United States 
cannot begin to address what is an international issue if the starting 
off spot for a domestic GHG reduction program isn't comprehensive in 
nature.
    Again, if the objective is to reduce GHG emissions, the legislation 
fails to address EPA's ongoing and duplicative efforts to regulate GHG 
emissions under the Clean Air Act. There is no rational reason to have 
multiple regulations imposed on the power sector which seek the same 
endpoint. Doing so will have the effect of driving up consumer prices, 
threatening electric reliability and limiting fuel diversity.
    If the objective is to reduce utility GHG and other emissions, and 
do so at the lowest incremental cost, then there is no basis to exclude 
any clean energy resources that are connected to the North American 
grid. ``Clean energy'' resources that are available to U.S. consumers 
from across the border should be considered qualifying resources under 
the Act.
    Similarly, there is no reason to treat biomass energy any 
differently than other clean energy or renewable energy resources. As 
crafted, the bill does not consider existing biomass energy clean or 
renewable; new biomass energy is not considered ``renewable'' and the 
definition of new biomass energy is overly prescriptive, and; the 
speculative nature of the biomass clean energy crediting scheme creates 
uncertainty.
    The time frames and intensity of increasing clean energy 
requirements envisioned by the Clean Energy Standard Act of 2012 seem 
extraordinarily aggressive. Either the program's time frame needs to be 
lengthened or the program's goals need to be moderated--or both--to 
balance the needs for reliable, affordable and available electric 
energy.
Background
    Minnesota Power (MP) is an investor owned utility providing energy 
services to customers in central and northeastern Minnesota and 
northwest Wisconsin. Minnesota Power's northern location and high 
percentage of industrial customers who operate around-the-clock make MP 
a winter-peaking utility. Thirteen large power customers (requiring at 
least 10 megawatts of generating capacity) purchase about half the 
electricity MP sells. These large power customers compete in 
competitive global markets. Minnesota Power's unique load profile makes 
it imperative that our energy resources be reliable, affordable and 
available around the clock.
    The majority of MPs steam electric generation is coal-based with 
the exception of two facilities that burn a mix of coal, biomass and 
natural gas. These two facilities also provide steam to paper mills. 
Minnesota Power has achieved significant particulate, SO2, 
NOX and mercury emission reductions associated with our 
electricity generation through a combination of emission reduction 
technologies. By 2015 our emissions will be 85 percent less than they 
were in 2005.
    MP has an expanding base of renewable hydroelectric, biomass and 
wind energy that supports compliance with the Minnesota Renewable 
Portfolio Standard (25 percent by 2025). Today approximately 15 percent 
of the energy Minnesota Power sells to its customers is from renewable 
resources, including hydropower, wind and biomass, up from just 4 
percent in 2005. Minnesota Power recently purchased a direct current 
(DC) line in order to help it meet Minnesota's ``25 by 2025'' renewable 
energy mandate. The DC line provides MP's customers with greater access 
to North Dakota wind resources.
    Minnesota Power also recently signed a long-term contract with 
Manitoba Hydro. The contract is critical to enable us to ``back-up'' 
our wind resources from North Dakota with dependable hydropower from 
Canada. We believe this marriage of ``wind and water'', which creates a 
reliable and dispatchable renewable electric resource, is unique in the 
utility industry.
Specific Comments on S. 2146
    Minnesota Power uses a series of policy ``screens'' to evaluate 
legislation and proposed regulations that affect the electric utility 
sector. S. 2146 fails several of these screens, which we elaborate on 
below.

   Is the Policy Fair and Equitable--Does the policy affect all 
        players across the industry sector in a fair and equitable 
        manner?

    --NO--The exclusion of ``small'' utilities has the effect of the 
            federal government picking winners and losers. EIA's recent 
            analysis confirms this by pointing out that . . .  ``there 
            is likely to be a considerable divergence in the price 
            impacts for customers of exempt and non-exempt electricity 
            providers.'' EIA estimates that in some regions the cost 
            difference between exempt vs. non-exempt utilities can vary 
            as much as a factor of two. Exempting certain utilities, 
            restrictive qualifiers for credits and aggressive credit 
            surrender requirements will tend to magnify local and 
            regional differences in energy supply costs.
    --If compliance costs and associated customer impacts of the CES 
            are a concern and the primary reason for the ``small 
            utility'' exemption, there are better solutions. For 
            example, fully funding the Low Income Home Energy 
            Assistance Program (LIHEAP) is a more direct method to 
            address the energy cost concerns. LIHEAP puts money 
            directly in the hands of the neediest electric consumers 
            across the utility sector. Low income consumers are not 
            limited to ``small'' utilities and are found in city 
            centers and urban areas as well as in small towns and rural 
            America.
    --The CES treats biomass energy generators differently than other 
            clean and renewable energy options. The CES provides no 
            benefit to existing (pre-December 31, 1991) biomass energy 
            projects, and places significant qualifying burdens on new 
            biomass energy projects.

   Do Consumer Benefits Outweigh the Regulatory Burdens: Do the 
        regulations result in compliance burdens that benefit our 
        customers?

    --NO--One of the fundamental stated purposes of the CES is to 
            reduce carbon dioxide emissions. Yet the bill does not 
            address the concurrent regulatory scheme that the 
            Environmental Protection Agency (EPA) is in the midst of 
            implementing.
    --EPA has recently issued proposed rules under the Clean Air Act 
            with the express intent of regulating new fossil-fueled 
            generation sources. Many believe, and EPA has so much as 
            conceded, that it will eventually extend these New Source 
            Performance Standard regulations to existing sources.
    --Since the CES has the same stated policy outcome that EPA is 
            seeking under its regulatory program, that is to limit 
            carbon dioxide emissions from utility generation sources, 
            then the CES should either preempt the EPA from regulating 
            utility greenhouse gas emissions, or amend the Clean Air 
            Act to make clear that, once the CES is implemented, 
            greenhouse gases from utility generators are not considered 
            a pollutant under the Clean Air Act.
    --Layering on another GHG regulatory program adds costs, complexity 
            and confusion.

   Does the Policy Respect Regional Differences: Are 
        differences across the country factored into the design of the 
        program?

    --NO. Each region of the country has access to different types of 
            renewable energy, yet the bill treats these renewable 
            energy resources in a disparate fashion.
    --Biomass energy, widely available in some parts of the country, is 
            treated differently than other clean and renewable energy 
            resources.
    --Clean energy generation located outside the borders of the United 
            States, yet accessible to electric consumers within the 
            United States, receives no recognition in the bill.
    --Minnesota Power recently entered into a long-term contract with 
            Manitoba Hydro that will enable, not inhibit, additional 
            domestic wind energy resources. The exclusion of clean 
            energy resources located outside the United States but 
            connected to the integrated North American electric grid 
            will increase incremental costs to consumers in the United 
            States and, in our case, will also result in increased 
            overall carbon dioxide emissions. Natural gas is the only 
            other readily available option to back up our North Dakota 
            wind resources if we cannot use clean Canadian hydropower 
            to do so (for more information on our contract and 
            emissions profile see the attachment at the end of these 
            comments).
    --The exclusion of Canadian hydropower also acts as a non-tariff 
            trade barrier, suggesting possible conflicts with the North 
            American Free Trade Agreement.
    --For more detail on the use and clean energy benefits of Canadian 
            hydropower please see the comments submitted for the record 
            by several Canadian Provinces and electric energy entities.
    --Regarding biomass energy, there is no defense for the 
            differential treatment of biomass energy resources as 
            compared to other ``renewable energy'' resources as defined 
            in the bill (solar, wind, ocean, current, wave, tidal or 
            geothermal energy).
    --For more details on the use of biomass energy see the comments 
            submitted for the record by the Biomass Power Association.

   Is the Policy Technically Feasible--Are the outcomes 
        envisioned or created by the policy achievable in a cost-
        effective manner in the required time frames.

    --NO. Minnesota Power's analysis of the predictions in EIA's recent 
            analysis of the Clean Energy Standard suggests that they 
            are highly optimistic. Significant increases in clean 
            energy generation resources will be needed. Some of these 
            resources have considerable licensing and siting challenges 
            as well as requiring significant investments in related 
            infrastructure to either make the electricity (i.e. natural 
            gas lines to power plants) or get the electricity to market 
            (i.e. electric transmission lines). These major 
            infrastructure additions will need to be in place in just 
            over 20 years.

    --From the 2010 baseline, output from nuclear power plants is 
            expected to increase by a factor of 1.8 times by 2035, 
            which will significantly increase the proportion of nuclear 
            energy in the U.S. electricity mix from its current level 
            of 20 percent. Given that we have not built a new nuclear 
            plant in the United States in decades, and nuclear power 
            plants face daunting licensing and siting requirements, 
            this seems unlikely to occur.
    --Similarly, the recent EIA analysis shows that, from a 2010 
            baseline, the output of natural gas generation is expected 
            to increase by a factor of 1.5 times. This may or may not 
            be achievable given the fact that this type of increase 
            would require substantial investments in new gas 
            transmission lines.
    --One cannot assume that electricity output from natural gas 
            generation could be increased to make up for baseload 
            capacity deficits if the predicted nuclear output does not 
            materialize. This is because the goals of the CES cannot be 
            met if more natural gas is introduced into the system. 
            Another, as of yet unknown, baseload energy generation 
            technology would be required and in place in order to meet 
            the CES goals.

                   New natural gas generation is likely to 
                receive approximately one-half a credit per unit of 
                energy. Natural gas generation that goes into service 
                after 2023 will immediately fall short of credits 
                needed for its own compliance.

    --Non-hydro renewables are predicted to increase by a factor of 
            four as compared to 2010 levels. Within this group, EIA 
            predicts that biomass energy will increase by a factor of 
            over six times from 2010 levels, and wind increases of 
            nearly three times. These seem to be wildly optimistic 
            projections which do not factor in the significant 
            investment in new electric transmission infrastructure to 
            connect these often remote, and in the case of wind, 
            variable electric resources to the grid. Given the unknown 
            treatment of biomass energy in the bill and its 
            questionable ability to count as a clean energy resource, 
            the EIA projection of a 6.6 times increase seems 
            exceedingly optimistic.
    --Precluding clean energy resources located outside of the United 
            States from qualifying under the Act only makes a 
            challenging emission reduction policy goal more difficult 
            to attain. Given the aggressive nature and requirements of 
            the Clean Energy Standard, not allowing all clean energy 
            resources connected to the North American electric grid to 
            qualify under the Act violates the policy goal of 
            implementing this program at the lowest incremental cost to 
            consumers.
Conclusion
    Minnesota Power believes that expanded clean energy deployment, 
reductions of greenhouse gas emissions associated with electricity 
generation, expanded energy conservation and efficiency improvements 
are all important objectives for U.S. energy policy. Achieving a 
balance between these sometimes competing objectives is essential for 
keeping our electricity supply reliable and affordable. Balance is also 
needed to deliver meaningful progress towards environmental objectives 
while helping the U.S. economy support existing jobs while creating, 
new well-paying job opportunities.
    To mitigate unintended economic impacts the CES needs a mechanism 
to encourage compliance yet allow flexibility should, for example, 
unforeseen circumstances prevent deployment of needed clean energy 
technology. Towards this end, the current structure of the alternative 
compliance payment provision needs to be reconsidered. By 2035, when 
more than 80 percent of all energy resources must come from clean 
energy sources, the alternative compliance payment will be over $60 per 
credit. Given that 2035 is just 23 years from today (a short time by 
electric utility planning standards) this potential cost of compliance 
could pose serious challenges for residential and energy intensive 
industrial consumers alike.
    The Clean Energy Standard Act of 2012 is directionally correct. 
However, the breadth of infrastructure investments necessary to meet 
its objectives will require significant changes to the electricity 
generation and delivery system in a very short time frame. For example, 
a massive switch from coal to natural gas generation may appear to be 
technically possible by 2035. However, since even efficient natural gas 
will require credit offsets after 2023, the investment costs from these 
new and long-lived investments will not be fully recovered before they 
come under intense CES compliance cost pressure.
    Minnesota Power believes that the concerns we have raised can 
easily be remedied and adopting these changes will make the Clean 
Energy Act of 2012 better. Moderating the overall targets; minimizing 
regional and local disparities by applying it to all utilities; 
assuring that the alternative compliance payment is truly an 
alternative compliance option; allowing all clean energy resources to 
qualify under the Act including those connected to the electric grid 
but located outside the U.S. border, and; preventing redundant 
regulatory requirements are desirable and easily delivered objectives.
    We all want a strong economy and a clean environment, and a Clean 
Energy Standard for the electric utility sector is a policy 
intervention that has a lot of merit. Minnesota Power welcomes the 
opportunity to work with the authors of the Clean Energy Standard Act 
of 2012 to support our shared objectives. Please contact William Libro 
([email protected]) or Michael Cashin ([email protected]) if you 
have questions or concerns about these Minnesota Power comments to the 
Clean Energy Standard Act of 2012.
                                 ______
                                 
          Statement of the National Alliance of Forest Owners
Introduction
    The National Alliance of Forest Owners (``NAFO'') is pleased to 
submit a statement to the Senate Committee on Energy and Natural 
Resources (``Committe'') on the S. 2146, Clean Energy Standard Act of 
2012 (``CES''). NAFO is an organization of private forest owners 
committed to promoting Federal policies that protect the economic and 
environmental values of privately-owned forests at the national level. 
NAFO membership encompasses more than 79 million acres of private 
forestland in 47 states. NAFO members are well positioned to help our 
nation meet its renewable energy objectives, and NAFO is prepared to 
work with the Committee and Congress toward that end.
    Private working forests are a fundamental part of the strategic 
natural resources infrastructure of our nation, producing renewable, 
recyclable, and reusable wood and paper products; sustaining plants and 
wildlife; producing clean water and air; and providing recreation 
experiences. Working forests also play a substantial role in helping 
this country achieve energy independence while reducing greenhouse gas 
(``GHG'') emissions. Forest biomass is a renewable energy feedstock 
that can help meet our national renewable energy goals in all regions 
of the country, if placed on a level playing field with other renewable 
energy sources. Thus, biomass will play a vital role in an ``all-of-
the-above'' approach to American energy production.
    NAFO urges this Committee to take care to avoid picking winners and 
losers in the public marketplace; any definition of qualifying 
renewable energy feedstocks should provide a level playing field for 
market access. The CES should recognize that forest owners already work 
within a well-established framework of laws, regulations and non-
regulatory programs and actions that apply to all aspects of forest 
management, including biomass production, and that promote and maintain 
responsible forest stewardship with proven results.
II. Private forests provide jobs for millions of Americans and 
        contribute significantly to the nation's economic well being

    According to a recent national study, private forests in the United 
States support over 2.4 million jobs, $87 billion in paychecks to 
employees, and $115 billion in economic contributions. Forests and the 
manufacturing they support are key employers in many states.
    Private working forests and the jobs they support depend upon 
reliable markets for continued viability. The U.S. has experienced 
sustained growth in its forest resources in concert with an ever-
increasing demand for renewable forest products. This is attributable 
at its core to the fact that viable markets for forest products keep 
forestland economic compared to other uses, spurring investment in 
forest management and limiting forest conversion to other land uses 
that otherwise would yield a greater economic return.\1\ When existing 
markets for their products are strong, or when new markets like 
renewable energy emerge, forest owners are able to invest in tree 
planting and forest health treatments which help maintain the private 
forest land base, keep private forests economically competitive with 
other land uses, and maintain family-waged jobs in the forestry sector.
---------------------------------------------------------------------------
    \1\ Environmental Effects of Land-Use Change: The Role of Economics 
and Policy, Ruben Lubowski, et al., USDA Economic Research Service. 
Economic Research Service Report No. 25 (Aug. 2006).
---------------------------------------------------------------------------
    The Federal government should take actions to encourage viable 
markets for forest products and maintain a regulatory framework that 
encourages forestry as a viable land use that will continue to provide 
good paying jobs in rural communities and provide multiple public 
benefits for all Americans.
III. Our nation will not meet its objectives to increase our reliance 
        on secure, domestic sources of renewable energy without the 
        contributions of working forests
    Wood is a dependable, domestic renewable energy resource that can 
be utilized for energy production through a variety of processes like 
biomass generation, wood gasification, and conversion to cellulosic 
biofuels. Wood, wood residuals, and other plant material can be 
utilized to produce steam and heat hot water boilers. Steam can be 
converted to electrical power by turbines or used to heat buildings 
through piping distribution networks. Newer ``wood gasification'' 
technologies heat wood in an oxygenstarved environment, collect gases 
from the wood, and later mix the gases with air or pure oxygen for 
combustion. Wood gases can be cooled, filtered, and purified to remove 
pollutants and used as fuel for internal combustion engines, micro-
turbines, and gas turbines.
    As members of the Committee are aware, biomass already produces 
roughly 40 percent of the nation's non-hydro renewable electricity.\2\ 
Existing state CES policies reflect the importance of utilizing biomass 
to successfully lower demand for traditional fossil fuels. To help meet 
renewable energy goals, at least 38 states and the District of Columbia 
have included biomass as a renewable generation source.\3\
---------------------------------------------------------------------------
    \2\ U.S. EIA at http://www.eia.gov/cneaf/alternate/page/
renew_energy_consump/table3.html. Biomass is the primary energy source 
for 54.3 billion kilowatt hours of the 141 billion kilowatt hours of 
non-hydro renewable energy produced in 2009.
    \3\ Source: Database of State Incentives for Renewable Energy, 
available at http://www.dsireusa.org/.
---------------------------------------------------------------------------
    A federal CES that does not appropriately include all forms of 
forest biomass poses challenges to regions of the country where forest 
biomass is the prevailing renewable energy source and where wind, 
geothermal, solar, or hydroelectric power are not expected to make a 
significant contribution. Moreover, a federal standard that does not 
acknowledge or encourage the full use of forest biomass will jeopardize 
the nation's ability to meet its renewable energy objectives.
IV. Utilizing working forests will both meet our nation's energy needs 
        and help reduce atmospheric GHG concentrations
    Experts have long recognized working forests as a source of real 
and verifiable reductions in greenhouse gas emissions and a cost-
effective source of industrial GHG offsets. The United Nations' 2007 
Intergovernmental Panel on Climate Change (``IPCC'') highlights forest 
management as a primary tool to reduce GHG emissions. The IPCC states: 
``In the long term, a sustainable forest management strategy aimed at 
maintaining or increasing forest stocks, while producing an annual 
sustained yield of timber, fiber or energy from the forest, will 
generate the greatest mitigation benefit''.\4\
---------------------------------------------------------------------------
    \4\ Climate Change 2007: Mitigation. Contribution of Working Group 
III to the Fourth Assessment Report of the Intergovernmental Panel on 
Climate Change [B. Metz, O.R. Davidson, P.R. Bosch, R. Dave, L.A. Meyer 
(eds)], Cambridge University Press, Cambridge, United Kingdom and New 
York, NY, USA, page 543.
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    Similarly, the EPA has concluded that there is ```scientific 
consensus' . . .  that the carbon dioxide emitted from burning biomass 
will not increase CO2 in the air if it is done on a 
sustainable basis.''\5\ This position is supported not only by the 
IPCC, but also by the Energy Information Administration (``EIA''), the 
World Resources Institute (``WRI'') and other credible scientific 
bodies. EPA is currently in the midst of a scientific review of the 
climate impacts of biogenic CO2 emissions, which will inform 
EPA policy under the Tailoring Rule and other related actions. Although 
EPA's policy decisions are still forthcoming,, current research 
consistently demonstrates that, when viewed on appropriate temporal and 
spatial scales, the combustion of woody biomass for energy does not 
increase atmospheric CO2 concentrations and instead provides 
significant climate benefits by displacing fossil fuels.
---------------------------------------------------------------------------
    \5\  Environmental Protection Agency Combined Heat and Power 
Partnership, Biomass Combined Heat and Power Catalog of Technologies, 
96 (Sept. 2007) available at www.epa.gov/chp/documents/
biomass_chp_catalog.pdf.
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    Appropriately including forest biomass in a CES standard would take 
full advantage of these carbon mitigation benefits in the energy 
context. Likewise, a policy that discourages forest biomass utilization 
will forfeit these benefits, particularly in areas where fossil fuels 
are the predominant source of energy production and where alternative 
forms of renewable energy, such as wind, solar, and geothermal, are not 
viable options.
V. Forest owners work within a well-established framework of laws, 
        regulations and non-regulatory programs and actions that 
        maintain responsible forest management
    Private forestry operations are governed by a fairly complex set of 
laws, regulations, as well as non-regulatory policies at the federal, 
state, and local levels. While the resulting framework is fairly 
complicated and can vary widely between jurisdictions, overall it has 
been very effective in improving the environmental performance of 
forestry operations, and can be expected to do so in the future.
    Under this framework, working forests provide significant 
environmental benefits while producing important economic benefits like 
renewable energy. Watershed protection, wildlife habitat, carbon 
dioxide absorption, and other ``environmental services'' are currently 
provided by private landowners at little or no cost to society. 
Whenever policymakers consider new environmental requirements on 
private forestry, such as eligibility requirements for forest biomass 
intended for energy use, the implications for the economic viability of 
working forests should be considered. If new regulatory requirements 
reduce the private forest owner's ability to realize value from a 
working forest, or if new market limitations constrain market 
opportunities for working forests, private forest owners might be 
compelled to consider other uses for their forests, which could result 
in the reduction of many of the broader environmental benefits they 
provide.
VI. Definitions of eligible biomass feedstock should put working 
        forests on an even playing field with other renewable energy 
        sources
    Definitions of qualifying renewable energy feedstocks should 
provide a level playing field for market access across all feedstock 
sources and encompass the full range of forest biomass, including trees 
and other plants, forest residuals (e.g., tops, branches, bark, etc), 
and byproducts of manufacturing (e.g., sawdust, bark, chips, dissolved 
wood retrieved from the paper-making process, etc). Presently there are 
at least four different definitions of qualifying forest biomass in the 
major federal statutes affecting biomass energy production.\6\ This 
adds complexity and confusion for project developers, biomass 
producers, and federal program administrators who are required to 
determine how the various, and at times conflicting, definitions 
interact with one another.
---------------------------------------------------------------------------
    \6\ Separate definitions of eligible forest biomass can be found in 
Section 45 (c)(3) of the Internal Revenue Code (26 U.S.C. 45(c)(3)); 
Section 203(b)(1) of the Energy Policy Act of 2005 (42 U.S.C. 
15852(b)); Section 201(1)(I) of the Energy Independence and Security 
Act of 2007 (42 U.S.C. 7545(o)(1)(I)); and Section 9001(13) of the 
Food, Conservation, and Energy Act of 2008 (7 U.S.C. 8101 (3))
---------------------------------------------------------------------------
    Some of these statutes define biomass in a clear, yet broad manner 
and allow biomass to compete with other renewable energy sources on a 
level playing field. For example, the Food, Conservation, and Energy 
Act defines biomass as ``any organic material that is available on a 
renewable or recurring basis.'' 7 U.S.C. Sec.  8101(3)(A). To avoid any 
confusion, the definition goes on to explicitly include ``trees grown 
for energy production.'' Id. Sec.  8101(3)(B)(ii). This definition is 
broad enough to include all forest-based biomass feedstocks without 
restriction.\7\ At the same time, it provides clarity and regulatory 
certainty, allowing private forest owners to invest in forests with 
confidence that their products will be allowed to compete in renewable 
energy markets without facing unnecessary regulatory hurdles.
---------------------------------------------------------------------------
    \7\ However, even this broad definition excludes recycled paper and 
fails to address mill residues, a critical feedstock for many 
facilities utilizing biomass energy. Both should be included in a 
definition of biomass.
---------------------------------------------------------------------------
    In contrast, other definitions, such as the definition of eligible 
forest biomass in the Energy Independence and Security Act of 2007 
(``EISA''), place complicated and arbitrary parameters on significant 
acreages of private forestlands in the form of land use restrictions. 
These restrictions needlessly disqualify millions of acres of private 
forest as a source of renewable energy and foreclose new market 
opportunities for forest owners who are already reeling from steep 
declines in traditional markets such as solid wood and pulp and paper 
manufacturing. It also places forest biomass at a significant 
disadvantage to other biomass feedstocks, such as short rotation 
agricultural crops that require more energy, nutrients and water to 
grow, as well as other renewable energy sources.
    If applied to a federal clean energy standard, the EISA definition 
or any other definition establishing arbitrary or complicated 
parameters on the use of biomass would discourage necessary and 
appropriate forest management activities that promote forest health and 
sustainability. Such a definition would also create complex chain-of-
custody requirements that would discourage electricity producers from 
using biomass because of the cost and complexity of compliance and the 
associated legal uncertainty. If identifying qualifying feedstock 
becomes too complex or costly, project developers will forego the 
development of biomass facilities altogether, thereby potentially 
placing the overall CES in jeopardy.
    VII. NAFO is prepared to work with Congress and other stakeholders 
to realize the contributions of working forests in energy policy in an 
environmentally responsible way.
    NAFO is prepared to help develop a constructive approach to using 
forest biomass to help meet our nation's energy needs. Notwithstanding 
the strong record of environmental benefits private forests provide, 
NAFO is prepared to continue to work with policy makers and other 
stakeholders to ensure that forest biomass, and all other sources of 
renewable energy, help meet our renewable energy objectives in an 
environmentally responsible way. NAFO suggests the Committee apply the 
following principles when crafting legislation addressing the 
eligibility of forest biomass as a renewable energy source:
    1. Federal renewable energy policy should promote rather than 
discourage the use of forest biomass for renewable energy--Federal 
policy, and definitions of qualifying forest biomass in particular, 
should be broad and inclusive so as to encourage forest biomass 
utilization and foster cost-effective compliance. If definitions and 
compliance requirements become too complex (e.g. the EISA definition), 
they will place forest biomass at a disadvantage with respect to other 
feedstocks or renewable energy sources and ultimately discourage its 
use. This, in turn, would jeopardize the overall goal of the CES and 
reduce the carbon mitigation and other environmental services private 
working forests provide.
    The proposed definition's focus on site-specific land management 
practices will require forest owners and biomass energy producers to 
maintain complex chain-of-custody records that will vastly increase 
compliance costs and ultimately discourage the production of biomass 
energy. The definition of biomass must focus on the carbon benefits of 
biomass feedstocks, not the location or method of harvest.
    2. Federal policy should provide clarity and regulatory certainty 
in order to promote investment in private forests and preserve the 
environmental benefits of working forests--Federal policy should 
promote predictability and regulatory certainty so that private 
landowners can invest in forests with confidence that regulatory 
programs and interpretations will support a stable marketplace. New 
markets, such as renewable energy, help supplement disappearing markets 
and provide new reasons to keep our forests growing sustainably for the 
long term. Definitions of qualifying biomass that are complex, 
ambiguous, or arbitrarily exclude biomass will create market and legal 
uncertainty and reduce private investments in forests and in renewable 
biomass energy. Likewise, definitions of renewable biomass that seek 
land use objectives that are tangential to renewable energy policy 
objectives will create strong regulatory disincentives and legal 
uncertainty regarding the use of biomass in both future and existing 
facilities.
    The proposed definition includes many ambiguous terms, including 
the requirement to ``maintain and restore the composition, structure, 
and processes of ecosystems.'' This ambiguity will generate regulatory 
uncertainty and limit investment in renewable biomass energy as 
regulated entities will be unable to determine whether biomass 
feedstocks will qualify under the CES program. Moreover, the 
definition's consideration of ``diversity of plant and animal 
communities, water quality, and the productive capacity of soil and the 
ecological systems'' would introduce tangential land use objectives 
that are unrelated to renewable energy production and would 
unnecessarily complicate the CES program.
    3. Federal policy must place all forms of renewable energy on an 
even playing field--Accomplishing our nation's renewable energy goals 
will require an ``all-of-the-above'' strategy. Rather than picking 
winners and losers among renewable energy sources, Federal policy 
should treat all types of renewable energy equally and allow market 
forces to dictate choices among renewable energy options. Policies that 
exclude biomass from ``renewable energy,'' narrow the definition of 
renewable biomass, or discount the production of renewable biomass 
energy by applying ``carbon intensity factors'' will arbitrarily limit 
the production of renewable biomass energy and the environmental 
benefits it provides.
    The proposed definition of ``renewable energy'' excludes biomass 
and arbitrarily distinguishes it from other renewables such as solar, 
wind, and geothermal energy. This exclusion would discourage investment 
in biomass energy by sending the message that biomass is something 
other than renewable. Moreover, the bill's inclusion of ``carbon 
intensity factors'' creates additional disincentives for biomass energy 
by only allowing it to obtain a fraction of the credit provided to 
``renewable energy'' sources. The CES definitions should treat all 
renewable energy sources equally and allow market forces to operate 
free of regulatory interference.
    4. Federal policy should acknowledge and support existing federal, 
state, local, and nongovernmental forestry practices and capabilities--
Federal policy should acknowledge and support the existing framework of 
federal, state, and local laws, practices, and capabilities and avoid 
overlaying on top of them new and potentially conflicting federal 
requirements that would introduce unnecessary complexity and legal 
uncertainty. The existing framework is well suited to address local 
conditions and needs. Federal policies should also assume that this 
framework will continue in the long-term and be applied to all forestry 
practices, whether associated with traditional or emerging markets.
    Forest owners are already subject to a host of regulations that 
promote ``diversity of plant and animal communities, water quality, and 
the productive capacity of soil and the ecological systems,'' many of 
which are specifically tailored to local conditions. There is simply no 
need to overlay a duplicative national standard that will lack the 
flexibility to address local conditions and needs.
    5. Federal policy should recognize that state and local resource 
professionals are best positioned to identify and address changing 
resource conditions and emerging needs--Given the uniqueness and 
diversity of forest ecosystems across the nation, it is extremely 
problematic to set forest management or land use standards in a Federal 
policy. Potentially changing resource conditions and needs are best 
addressed with a more tailored approach at the local level by state and 
local authorities using existing tools, common forestry practices, and 
well-established procedures.
    State and local authorities should continue to fulfill their 
responsibilities to assess any changing resource conditions associated 
with existing or future forest practices, including the use of biomass 
to meet federal energy standards, and make a determination as to 
whether additional measures are needed to address emerging needs. If 
state or local authorities determine that additional measures are 
necessary, they should be allowed to continue the current practice of 
identifying and taking necessary corrective measures, following the BMP 
model that has proven highly successful across the country in 
protecting water quality.
VIII. CONCLUSION
    NAFO strongly supports our nation's efforts to establish new 
sources of renewable energy, and thereby reduce its dependence on 
fossil fuels and imported energy. America's working forests can play a 
fundamental role in meeting these new and growing energy needs. U.S. 
policies should encourage investment in forests as a source of 
renewable energy, by establishing non-restrictive definitions of forest 
biomass eligible for use in renewable energy programs.
    A Federal CES, if adopted, should fully include forest biomass as a 
renewable energy source, and ensure that the definition of biomass 
encompasses the full range of forest biomass, including trees and other 
plants; forest residuals; and wood byproducts including sawdust, bark, 
wood chips, and dissolved wood. In addition, Federal policy should 
allow state and local authorities to continue their current role in 
assessing and responding to local resource conditions and needs 
associated with renewable energy production. Such an approach will 
enable our country to meet is renewable energy objectives and allow 
working forests to make their full contribution to our energy future 
while also reducing overal GHG emissions and providing clean water, 
wildlife habitat quality recreation and other environmental benefits 
Americans need and enjoy.
                                 ______
                                 
                                        Sustainable Slopes,
                                       Lakewood, CO, March 9, 2011.
Hon. Jeff Bingaman,
Chairman, Senate Energy & Natural Resources Committee, SD 304 Dirksen 
        Senate Office Building, Washington, DC.
Re: Ski Industry Support for S.2146

    Dear Senator Bingaman:
    We are writing to express our support for your Clean Energy 
Standard (CES) legislation, S.2146. Eightyone (81 ) ski resorts across 
twenty-two (22) states support the measure as a framework for boosting 
the development of domestic clean energy, conserving natural resources, 
reducing greenhouse gas emissions, reducing the cost of energy over 
time, and national security. Ski areas support a long-term, stable 
policy that provides an incentive for companies to use low-carbon 
energy sources and helps support successful state clean energy programs 
already existing in 31 states.
    The 81 endorsing ski resorts, listed* below, are committed to 
raising awareness of the problem of global warming and helping apply 
solutions to solve it. As you know, there are plenty of good reasons 
for ski resorts to be concerned about climate change and its potential 
impacts. Apart from environmental impacts, scientific models suggest 
that as warming continues, we could experience decreased snowpack, 
warmer nights, wetter shoulder seasons, and reduced weather 
predictability. All of these changes affect our industry, as fewer 
operating days would obviously impact our bottom line, warmer nights 
can impact our ability to make snow, and spring rain can wash away our 
base at a critical time of year. We view climate change as a long-term 
problem, and want to implement reasonable, bi-partisan supported 
measures now to help solve it.
---------------------------------------------------------------------------
    * List has been retained in committee files.
---------------------------------------------------------------------------
    Ski areas have taken tremendous steps to reduce our own GHG 
emissions. New this season, the National Ski Areas Association 
initiated ``Climate Challenge,'' voluntary program dedicated to helping 
participating ski areas reduce greenhouse gas (GHG) emissions and reap 
other benefits in their operations, such as reducing costs of energy 
use. Resorts who take the Challenge are required to complete a climate 
inventory on their resort operations, set a target for greenhouse gas 
reduction, and implement a new program or project annually to meet the 
reduction goal. Examples of some of the actions taken so far include 
lighting retrofits, development of on-site renewable energy including 
solar and wind and investment in high efficiency snowmaking equipment. 
Eight ski areas took up the challenge in its inaugural year: Alta Ski 
Area (UT), Arapahoe Basin (CO), Canyons Resort (UT), Jackson Hole 
Mountain Resort (WY), Jiminy Peak (MA), Mount Hood Meadows (OR), Park 
City Mountain Resort (UT), and Telluride Ski & Golf Resort (CO). These 
founding members of NSAA's Climate Challenge are listed first below as 
resort endorsers of your legislation. We anticipate many more resorts 
joining the Challenge in future years and are pleased to keep you 
apprised of their progress.
    Apart from the Climate Challenge, ski areas across the board are 
developing renewable energy on site through the application of wind, 
solar, geothermal and micro-hyrdo technology. Ski areas are applying 
energy-efficient green building techniques, retrofitting existing 
facilities to save energy, replacing inefficient compressors in 
snowmaking operations, using alternative fuels in resort vehicle 
fleets, implementing anti-idling policies and providing or promoting 
car pooling or mass transit use by guests and employees. Ski areas are 
also supporting renewable energy by purchasing Renewable Energy Credits 
(RECs) and providing their customers the opportunity to do the same. 
The ski industry represents a relatively small source of greenhouse gas 
emissions, however, we are doing our part to set the example and unify 
all businesses behind the common goal of addressing the long term issue 
of climate change.
    Please let us know if there is anything else we can to do help 
ensure the passage of S.2146.
            Best Regards,
                    ``Climate Challenge'' Founding Resorts,
Alta Ski Area (UT), Arapahoe Basin (CO), Canyons (UT), Jackson Hole 
  Mountain Resort (WY), Jiminy Peak (MA), Mount Hood Meadows (OR), 
         Park City Mountain Resort (UT), Telluride Ski & Golf (CO).
                                 ______
                                 
                                     Pew Charitable Trusts,
                                   Philadelphia, PA, March 6, 2012.
Hon. Jeff Bingaman,
Chairman, U.S. Senate, 703 Hart Senate Office Bldg., Washington, DC.
    Dear Senator Bingaman:

    On behalf of the Pew Charitable Trusts, I am writing to thank you 
for introducing S. 2146, the Clean Energy Standard Act (CES) of 2012 
and for your continued leadership on clean energy issues. Over the past 
decade, clean energy investment, businesses, and jobs have increased 
dramatically around the world, reaching $260 billion in 2011. Expansion 
of the clean energy industry in the United States can spur economic 
growth, strengthen our national security, and reduce emissions that 
threaten health and the environment.
    Your CES legislation provides a foundation for building a clean 
energy economy that will spur a new wave of technological innovation, 
job growth, and manufacturing. Our research shows that clean energy 
policy is vital to national competitiveness in this sector. Nations 
with effective clean energy policies-- such as a clean energy standard, 
renewable energy standards, feed-in tariffs, and clean energy tax 
incentives--have attracted investment, manufacturing and jobs.
    Over the next 25 years, global energy demand will grow by nearly 50 
percent, mostly in emerging markets around the world. The United States 
remains the world's leading source of clean energy innovation, but lags 
behind in manufacturing and deployment of solar, wind and other 
technologies. To strengthen our industry, make it more competitive and 
take advantage of emerging export opportunities, the United States 
needs to bolster domestic demand. The Clean Energy Standard Act will 
create that demand and enhance the competitiveness of the U.S. clean 
energy sector. A CES is an effective, market-based approach that will 
give investors the certainty they need to finance in American clean 
energy projects. It will bolster domestic manufacturing of clean energy 
products and stimulate private sector innovation. And it will help the 
United States harness the benefits of energy innovations that make our 
economy stronger, our environment cleaner and our nation more secure.
    We applaud the inclusion of industrial efficiency policies such as 
combined heat and power (CHP) in the CES. However, a broader CES that 
includes waste heat recovery, district energy, and other technologies 
that utilize wasted heat, can create even more jobs and further expand 
the clean energy economy. For example, a study by the Oak Ridge 
National Laboratory found that doubling the U.S. production of combined 
heat and power and waste heat recovery by 2020 could create up to 1 
million highly skilled jobs. The Pew Charitable Trusts applauds you for 
your 30 years of leadership on energy issues and joins you in seeking 
pragmatic policies for enhancing our energy independence and security. 
Without effective, forward-looking policy, the U.S. competitive 
position in clean energy is at risk and capital is sitting on the 
sidelines. We look forward to working with you to secure passage of S. 
2146.
            Sincerely,
                                           Phyllis Cuttino,
                                    Director, Clean Energy Program.
                                 ______
                                 
        Statement of REMA (Renewable Energy Markets Association)
            Renewable energy trade association recognizes Senator 
                    Bingaman leadership in latest clean energy proposal
    WASHINGTON, March 1, 2012--The Renewable Energy Markets Association 
(REMA) applauds Senator Jeff Bingaman's (D-NM) leadership in clean 
energy through his introduction of the Clean Energy Standard Act of 
2012 (CES). The CES calls for retail electric utilities to provide 24 
percent of their energy from qualifying clean energy sources beginning 
in 2015, increasing to 84 percent by the year 2035.
    ``REMA applauds Senator Bingaman's leadership in on renewable and 
clean energy legislation,'' said Josh Lieberman, REMA General Manager. 
``We know this is a difficult time politically to stand and deliver on 
clean energy development, but Sen. Bingaman's proposal today will help 
lead our nation down the path of greater energy security and job 
creation.''
    Over the upcoming months, REMA pledges to work with Senator 
Bingaman and other leaders in clean energy to ensure that the CES does 
not impinge on the role of the voluntary markets for clean, renewable 
energy. In 2010, the voluntary market for green power exceeded the 
electricity needs of 3 million American homes, approximately 35.6 
million MWh.
    REMA urges policy makers to participate in rigorous debate that 
allows private consumers to go above and beyond mandates to boost the 
nation's energy future.
    For more information on REMA's Clean Energy Standard position, 
please visit renewablemarketers.com/pdf/REMA--CES--4.11.2011.pdf
    About the Renewable Energy Markets Association (REMA)--The 
Renewable Energy Markets Association (REMA) is a nonprofit trade 
association dedicated to maintaining and growing strong markets for 
renewable energy in the United States. REMA engages in education and 
advocacy efforts on behalf of an industry coalition of renewable energy 
marketers, utilities, equipment manufacturers, and others supportive of 
renewable energy markets. www.renewablemarketers.org
                                 ______
                                 
      San Francisco Bay Area Biosolids to Energy Coalition,
                                                      May 22, 2012.
Hon. Jeff Bingaman,
Chairman, Committee on Energy and Natural Resources, U.S. Senate, 
        Washington, DC.
    Dear Chairman Bingaman:
    On behalf of the San Francisco Bay Area Biosolids to Energy 
Coalition, I request that this statement be made part of the formal 
record for the Committee on Energy and Natural Resources' hearing of 
May 17, 2012 into the Clean Energy Standard Act of 2012 (S. 2146).
    The San Francisco Bay Area Biosolids to Energy Coalition (BAB2E) 
represents the interests of seventeen public agencies serving 
wastewater needs of close to three million citizens and the related 
industries. BAB2E is dedicated to the construction of an innovative 
alternative energy project that will provide a biosolids biomass energy 
solution. The project will deliver clean energy, reduced greenhouse gas 
emissions, reduced demand on the region's road systems and reduced 
reliance upon conventional and land intensive disposal options. The 
project is in alignment with the Administration and Congress's priority 
to leverage our renewable resources in a manner that will boost energy 
independence, reduce environmental impacts, and generate new jobs. I 
have enclosed detailed background information on the project. The 
priority for this project is vital because conventional disposal 
options such as land disposal are being constrained or eliminated by 
changing regulatory conditions and the need to minimize greenhouse gas 
emissions.
    BAB2E initiated its effort to develop this promising energy 
production technology because of the embedded energy contained in 
biosolids. According to studies (Water Environment Research 
Foundation), the energy value contained in the wastewater treatment 
process exceeds by ten times the energy required to treat the 
wastewater and biosolids. More important, it is estimated that if this 
embedded energy is captured and utilized at facilities across the 
nation, it could meet as much as 12 percent of nation's electricity 
demand. BAB2E has determined that its ability to utilize biosolids to 
develop a sustainable energy supply can lead to energy independence of 
local, public utility operations AND provide a reliable source of 
alternative energy to the grid for use by the public. During these 
times of fiscal constraint, the ability to capture and utilize this 
embedded energy can reduce energy costs to the public and ensure that 
our efforts to address the energy-water nexus are comprehensively 
addressed at the federal level.
    One of the key foundational actions to leverage this untapped 
sustainable energy resource is to provide a cogent and unambiguous 
federal policy that will ensure this biomass resource is developed with 
a commitment similar to that afforded cellulosic biomass energy 
projects. This is an important matter.
    Under current federal energy policies, biosolids biomass projects 
appear to be disadvantaged in favor of cellulosic biomass. We 
understand that the Department of Energy is on course to meet its 
target of developing adequate supplies of such energy supplies, 
suggesting that any clean energy standard must take into consideration 
that biomass opportunities extend beyond cellulosic biomass supplies. 
This is especially noteworthy as we consider water scarcity and the 
highly water intensive nature of many cellulosic energy supplies. 
Biosolids, conversely, provide a readily available feedstock to develop 
a renewable and sustainable energy supply that does not impose burdens 
on limited potable water supplies. Equally important, biosolids-
generated energy supplies can support other sustainable activities 
including energy cooling waters and refinery needs. Of course, the 
development of such a sustainable supply can be married to water 
recycling and desalination technologies, further reducing the cost of 
production of such alternative water supplies.
    S. 2146 marks an important advancement in the policy debate to 
establish a baseline of standards for clean energy supplies. Under 
Section 2, Federal Clean Energy Standards, the bill articulates that a 
market oriented standard for electric generation that will advance 
clean energy innovation and that promotes a diverse set of low and zero 
carbon generation solutions is vital. BAB2E has dedicated its effort to 
address this priority.
    Unfortunately, Section 2 would establish a clean energy standard 
that inadvertently discriminates against biosolids. This is the 
situation results from the bill's definition of qualified renewable 
biomass (Section 610(b)(5)) and qualified waste-to-energy (Section 
610(b)(6)).
    Section 610 (b)(5) specifies that renewable biomass means that 
which is ``produced and harvested through land management practices 
that maintain or restore the composition, structure, and processes of 
ecosystems, including the diversity of plant and animal communities, 
water quality, and the productive capacity of soil and the ecological 
systems.'' Biosolids, based on the embedded energy content and the fact 
that diversion of biosolids from land application to energy production 
would enhance ecosystems, should enjoy the explicit definition of 
qualified renewable biomass as extended to cellulosic biomass. We 
request that the committee amend this section to clarify that the 
definition of qualified renewable biomass include biosolids by stating:

          (5) QUALIFIED RENEWABLE BIOMASS--The term `qualified 
        renewable biomass' means (1) renewable biomass produced and 
        harvested through land management practices that maintain or 
        restore the composition, structure, and processes of 
        ecosystems, including the diversity of plant and animal 
        communities, water quality, and the productive capacity of soil 
        and the ecological systems; or (2) conversion of solids 
        produced at publically owned treatment works.

    Similarly, Section 610(b)(6) creates a barrier to entry for this 
readily available and sustainable clean energy feedstock. Under this 
provision, qualified waste-to-energy is a produced energy from a series 
of specific activities. This includes biogas, landfill methane, and 
animal waste or animal byproducts. Absent from this extensive list of 
qualified energy sources is biosolids. Our review suggests that this 
lack of specificity would lead to a disqualification of biosolids. This 
circumstance exists because regulators distinguish between animal waste 
and biosolids. Further, while biogas and landfill methane can be 
generated from the presence of biosolids as ``daily cover'' for 
landfills and similar facilities, the vast amount of biosolids far 
exceeds the capacity of landfills. Yet, the opportunity to recover the 
embedded energy from biosolids exists, provided that federal policy 
establishes equitable treatment and consideration of biosolids. Given 
this discriminatory impact, we strongly urge the committee to amend the 
definition of qualified waste-to-energy as follows:

          (v) animal waste, animal byproducts, biosolids or a 
        combination thereof; or

    This technical revision would clarify that biosolids and the 
embedded energy would be available to develop sustainable energy 
supplies alone or in combination with other eligible forms of biomass 
energy.
    The BAB2E Coalition has demonstrated that a critical mass of 
support exists for this kind of innovative energy production project 
that will deliver multiple benefits to the environment and deliver a 
sustainable energy supply directly related to the energy/water nexus. 
The ability to leverage this opportunity through a clean energy 
standard will help to propel similar projects across the nation and 
capture up to 12 percent of the nation's electricity demands. This is 
consistent with the Administration's ``all of the above'' approach to 
energy development.
    We look forward to working with the committee as you and your 
colleagues proceed with finalization of S. 2146.
            Sincerely,
                                           Gary W. Darling,
                                      Bay Area Biosolids to Energy.
                                 ______
                                 
                  STATEMENT OF THE WILDERNESS SOCIETY
    The Wilderness Society welcomes the opportunity to discuss the 
proposal of Senator Bingaman and others to establish a Clean Energy 
Standard (CES) for the production of electricity in the United States. 
State renewable energy standards already in effect are demonstrating 
the power of establishing market incentives and suggest that there is 
an opportunity here to move the nation more quickly in the direction of 
a low-carbon clean energy system that drives innovation, improves 
public health, protects our public lands and meets our 21st century 
energy needs.
    Our public lands are managed for multiple uses, including energy 
development. But the pace, scale and location of projects can 
significantly degrade the health and integrity of these landscapes. 
Expanded natural gas extraction in the Rocky Mountain West has boomed 
in recent years, creating major environmental challenges. Moreover, 
fossil fuels--oil, natural gas and coal--extracted from federal public 
lands and waters are major air polluters, accounting for nearly 25 
percent of the nation's energy-related greenhouse gas pollution. For 
these reasons, we believe national market standards should be evaluated 
across the full set of impacts and designed to jumpstart more 
sustainable energy production, not more of the same.
    In this regard, we wish to reinforce several points which we have 
shared with the Committee in earlier comments on the White Paper that 
preceded the bill.
    First, we wish to note a fundamental difference between the 
proposed CES and a renewable energy standard (RES) or RES and energy 
efficiency standard (EES) combination common at the state level--that 
is, the definition of eligible generation technologies. As recently as 
2010, the House and Senate have worked to pass bipartisan RES and RES/
EES legislation that focuses on moving electricity supply away from 
fossil fuels. The proposed CES would make nuclear and certain natural 
gas and coal technologies eligible as well, thus shifting the focus 
from renewable technologies and energy efficiency applications to a 
suite of traditional energy sources that include every major 
electricity source, some of which are anything but ``clean.''
    For the reasons outlined below, The Wilderness Society strongly 
prefers an approach which focuses on creating needed new markets for 
renewable energy and does not include non-renewable sources. We urge 
the Committee not to expand the list of eligible technologies beyond 
the traditional suite of renewable sources approved by the Committee on 
a bipartisan basis in 2009. That list generally reflects a two part 
test--(1) Is the technology a low-or-no greenhouse gas emitter and (2) 
Does it need an artificial boost in the marketplace in order to get 
established?
    We believe that there is general agreement that an RES is intended 
to include solar, wind, geothermal, small hydroelectric, marine and 
hydrokinetic renewable energy, and biogas and biofuels derived 
exclusively from eligible biomass. That consensus falls apart when the 
concept of an RES is extended to the following:

   Nuclear energy--While nuclear energy meets the first test, 
        it clearly does not meet the second.
   Natural Gas--Natural Gas is a major source of greenhouse gas 
        pollution, already thrives in the electricity marketplace, and 
        its use continues to expand under current market and regulatory 
        conditions. It fails on both considerations.
   Coal--Coal-based electricity, even with Carbon Capture and 
        Storage technology attached, remains a major source of 
        greenhouse gases. CCS technology can be, and in fact is, 
        encouraged through traditional forms of support such as tax 
        incentives.

    TWS urges the committee to refocus its efforts on tweaking its 
existing RES blueprint rather than trying to expand the concept to 
sources that are neither credibly ``clean'' nor ``renewable''.
    Second, we urge the Committee to put Energy Efficiency first. 
Energy Efficiency is the most underutilized inexpensive nonpolluting 
source of energy in America. The cleanest power plant will always be 
the one that was rendered unnecessary before it got built because of 
increased efficiencies in the end use of electricity. Energy efficient 
appliances, boilers, furnaces, air conditioning, lighting and other 
energy consuming machines can drastically reduce annual energy 
consumption. Bringing the existing housing stock up to much higher 
levels of thermal efficiency was recently found by the National Academy 
of Sciences to offer the greatest potential for energy savings over the 
next decade (see, eg, Real Prospects for Energy Efficiency in the 
United States, National Academy of Sciences, 2012). Yet the persistent 
lack of up-front financing and the failure to account for environmental 
benefits that do not accrue to the individual consumer have left a huge 
gap between the level of investment that would maximize net social and 
environmental benefits and the investments in efficiency strategies 
actually made by individuals and businesses. Therefore capturing cost 
savings over time and achieving potential public benefits from private 
energy reduction have proven to be problems at least as intractable as 
shifting to more renewable energy sources.
    To deal with this challenge, in the 111th Congress the House 
combined an EES (Energy Efficiency Standard) and an RES, allowing 
utilities to meet up to a quarter of their 20-percent-by-2020 
compliance obligation through energy efficiency measures instead of 
renewable technologies. The result of this approach would be to 
complement the Committee's 15 percent RES with a 5 percent EES. TWS 
urges the Committee to adopt this approach so that energy efficiency 
measures, which are the most cost-effective to adopt, are not neglected 
by utilities seeking to meet the RES standard.
    Third, we suggest the following specific improvements in the new 
bill:

          1. Provide incentives for reuse of brownfields--TWS urges the 
        Committee to provide the same incentive for locating new solar, 
        wind and geothermal projects on already-disturbed 
        ``brownfields'' sites that it provides for locating such 
        projects on tribal lands. Every congressional district has at 
        least one brownfields site, and the EPA has helped identify 
        which of those sites have renewable resource generation 
        potential. By simply building a multiplier incentive into a 
        national RES, utilities would be knocking on the doors of 
        public officials asking for the opportunity to redevelop 
        blighted land, rather than public officials trying to attract 
        the utilities to sites that they consider problematic. The 
        multiplier incentive is justified by the multiplier effects of 
        such an approach--protection of undisturbed land, development 
        closer to existing employment centers, less pollution, and 
        reuse of existing infrastructure and transmission lines. And by 
        offering a way to bring idle lands back on the tax rolls 
        without dependence on taxpayer dollars, everyone would benefit.

    The Wilderness Society, the U.S. Conference of Mayors and a broad 
coalition of groups has endorsed this small change in the RES that 
could generate significant new support for the RES concept.

          2. Provide improved standards for biomass eligibility:

          a. TWS strongly supports the provision that asks the 
        Secretary to engage in a process with the National Academy of 
        Sciences to determine the correct methodology for determining 
        the net greenhouse gas emissions from various forms of biomass 
        harvest, combustion and replanting. Biomass is unlike other 
        renewable energy sources in that it emits both conventional and 
        greenhouse gas pollutants when it is burned. It is unlike 
        fossil fuels in that its removal is not necessarily permanent--
        as plant material, it can be regrown over a period of decades 
        in a way that can mitigate some of the GHG pollution depending 
        on the original source.

    TWS urges the Committee to follow the science of biomass 
conversion. It makes no sense for some forms of biomass to be 
considered eligible under RES if they create a carbon debt that cannot 
be offset for 50 years after the harvest for electricity--as may be the 
case when the source is whole living trees. On the other hand, no 
carbon debt is truly caused when the source is the byproduct of 
activity that is occurring for other economic reasons, such as the 
waste stream of lumber mills or tree trimming to protect power lines or 
the safety of homeowners in the wild land-urban interface. These 
distinctions can and should be made in the definition of what 
constitutes renewable biomass under an RES.

          b. TWS is concerned that the new bill makes no distinction 
        between biomass found on public lands generally versus biomass 
        found in areas of special conservation concern. Under the bill, 
        utilities would submit credits to the Department of Energy and 
        certify compliance. Electricity generated by biomass would 
        qualify as long as the biomass source meets the definition of 
        ``qualified renewable biomass'' in the bill, regardless of the 
        origin of the biomass.

                  (5) QUALIFIED RENEWABLE BIOMASS.-The term `qualified 
                renewable biomass' means renewable biomass produced and 
                harvested through land management practices that 
                maintain or restore the composition, structure, and 
                processes of ecosystems, including the diversity of 
                plant and animal communities, water quality, and the 
                productive capacity of soil and the ecological systems.

    This is a very broad definition that lacks many of the ``no-go'' 
categories contained in earlier iterations of biomass definitions. In 
the past the Senate Energy and Natural Resources Committee has been 
careful to protect conservation areas, such as wilderness areas, 
national monuments (see, eg, section 133 of S. 1462, 111th Congress.) 
And the definition used for the Renewable Electricity Standards which 
passed the House in 2010 within the context of the climate bill 
specifically excluded biomass taken from

                   . . . components of the National Wilderness 
                Preservation System, Wilderness Study Areas, 
                Inventoried Roadless Areas, old growth stands, late 
                successional stands (except for dead, severely damaged, 
                or badly infested trees), components of the National 
                Landscape Conservation System, National Monuments, 
                National Conservation Areas, Designated Primitive 
                Areas, or Wild and Scenic Rivers corridors.

    These careful distinctions are lacking in the new bill, which opens 
up all federal lands as potential sources of biomass, with any 
exceptions to be determined by regulations written after the bill 
passes. This creates enormous uncertainly about whether critical 
conservation areas will be found to be off-limits.
    The regulations themselves are to be written by the Department of 
Energy because DOE is in charge of certifying compliance. DOE is not a 
conservation agency, nor does it have expertise regarding ``land 
management practices that maintain or restore the composition, 
structure, and processes of ecosystems, including the diversity of 
plant and animal communities, water quality, and the productive 
capacity of soil and the ecological systems.''
    We strongly urge the Committee to restore meaningful distinctions 
that steer biomass markets away from areas of clear conservation 
concern and that require strong sustainability criteria as a condition 
of eligibility. Areas that are managed primarily for their conservation 
value--such as wilderness areas, wild and scenic river corridors, 
roadless areas, etc.--should remain outside the commercial pull of RES 
demand and be managed first and foremost for their ecological health.
    Thank you for this opportunity to discuss this important proposal.
                                 ______
                                 
              United States Clean Heat & Power Association,
                                   Falls Church, VA, March 1, 2012.
Hon. Jeff Bingaman,
Chairman, Senate Energy and Natural Resources Committee, 703 Hart 
        Senate Office Building, Washington, DC.
    Dear Mr. Chairman:
    As you know, USCHPA is a trade association whose members are 
leaders in combined heat and power (CHP) technologies.\1\ Our 
membership includes manufacturers, developers, and suppliers who seek 
sound clean energy policy and marketplace solutions that will 
facilitate deployment of CHP systems in the U.S. On behalf of the CHP 
industry, I am writing to commend you for introducing legislation to 
establish a national Clean Energy Standard (CES) that aptly recognizes 
the energy and environmental benefits of CHP and effectively 
incentivizes greater deployment of combined heat and power in the 
American marketplace.
---------------------------------------------------------------------------
    \1\ Combined heat and power systems include waste heat recovery, or 
``bottoming-cycle'' CHP systems.
---------------------------------------------------------------------------
    USCHPA supports the overall policy objectives behind the CES, such 
as reducing emissions of greenhouse gasses and other emissions, 
creating new innovation and manufacturing opportunities, and increasing 
the overall energy efficiency of the American economy. Greater 
deployment of CHP has the potential to greatly contribute to all of 
these objectives. For instance, the Oak Ridge National Laboratory 
estimated in a 2008 study that if the United States adopted high-
deployment policies to achieve 20 percent of generation capacity 
through CHP by 2030, it could save 5.3 quadrillion BTU of fuel 
annually-nearly equivalent to the total energy consumed by U.S. 
households. In addition, such policies would create $234 billion in 
cumulative investment, and create over one million high-skilled 
technical jobs.\2\
---------------------------------------------------------------------------
    \2\ U.S. Department of Energy, Oak Ridge National Laboratory. 
December 1, 2008. Combined Heat and Power: Effective Energy Solutions 
for a Sustainable Future. http://info.ornl.gov.sites/publications/
files/Pub13655.pdf.
---------------------------------------------------------------------------
    In particular, USCHPA is pleased that greater efficiencies under 
the proposed CES will be awarded with greater credit. CHP system 
efficiencies average above sixty-five percent, and many new systems 
achieve efficiencies above eighty percent. In addition, we appreciate 
that the clean energy standard recognizes the thermal benefits of CHP 
by making additional credits available under the CES for emissions 
avoided from not using a separate thermal source.
    Thank you for your continued support of CHP and for your leadership 
toward establishing a cleaner, more efficient economy. The members of 
USCHPA and I look forward to working with you as the legislation 
advances through Congress.
            Sincerely,
                                        Jessica H. Bridges,
                                        CAE IOM Executive Director.
                                 ______
                                 
   Statement of National Association of Clean Water Agencies (NACWA)
    The National Association of Clean Water Agencies (NACWA) is pleased 
to have the opportunity to submit for the record this written statement 
to the Senate Energy and Natural Resources Committee on the occasion of 
the Committee's hearing entitled, ``Market-Oriented Standards for Clean 
Electric Energy Generation'' held on May 17, 2012.
    NACWA is the leading advocate for responsible national policies 
that advance clean water, clean energy and a healthy environment. The 
Association represents the interests of more than 350 municipally-owned 
wastewater treatment agencies and organizations who treat and reclaim 
more than 18 billion gallons of wastewater each day.
    A growing number of NACWA members are beneficially using and 
producing electric energy from biosolids, a nutrient-rich byproduct of 
wastewater treatment. While the technologies needed to generate energy 
from biosolids are proven and mature, clean energy production from the 
wastewater sector is still an enormously untapped resource.
    To help communities across the country take advantage of this 
abundant carbon-neutral clean energy source, it must be properly 
encouraged. Energy generated from both biogas and biosolids produced in 
the wastewater treatment process can and should be eligible to receive 
full clean energy credit under a National Clean Electricity Standard 
(CES). Full clean energy credit is a warranted and necessary first step 
to realizing greater energy production from an abundantresource capable 
of helping meet our national clean energy goals.
The Wastewater Sector Should Be Included in a Clean Electricity 
        Standard
    Today, approximately 104 publicly-owned treatment works (POTWs) 
produce renewable energy by anaerobically digesting biosolids and using 
the resulting methane gas. If the policy objectives of aCES are to (1) 
promote cost-effective clean energy production, (2) create greater 
energy and resource efficiency, and (3) achieve a net reduction of 
atmospheric carbon dioxide (CO2) emissions from the power 
sector, it should incentivize deployment of energy produced from all 
sources that helps achieve these goals, including energy produced by 
the wastewater sector. CES legislation should encourage the total clean 
energy recovery potential from biosolids and biogas for the following 
reasons:

   The Energy Potential in Biosolids is Huge--The energy 
        potential contained in biosolids exceeds the electricity 
        requirements for treatment by a factor of 9.3 to 1. In other 
        words, domestic wastewater contains almost ten times the energy 
        needed to treat it. This can potentially meet up to 12% of the 
        national electricity demand, enough to power New York City, 
        Houston, Dallas and Chicago annually.
   Biosolids Are Abundant and Must Be Managed--Biosolids result 
        naturally and are collected and managed by POTWs to protect 
        human health and the environment. As one of many management 
        options, the emerging trend of energy generation is an 
        efficient and environmentally-beneficial management practice-
        and therefore worth encouraging.
   Biosolids and Biogas are Carbon-Neutral and Not a Waste--
        Unlike other forms of biomass or qualified waste-to-energy 
        types, biosolids are uniquely recognized as being completely 
        biogenic and part of the natural carbon cycle (i.e. a truly 
        carbon-neutral fuel).
   Energy Recovery Replaces Fossil Fuel Requirements--When 
        combusted directly or indirectly as digested biogas to produce 
        electricity, the biogenic CO2 emissions stored in 
        biosolids are recycled efficiently, producing a closed-loop, 
        net reduction in atmospheric CO2 levels by avoiding 
        release of methane gas and displacing required fossil fuel 
        electricity. EPA estimates that more than 3 million metric tons 
        of CO2 could be displaced if only the POTWs 
        currently using anaerobic digestion for biosolids management 
        were to deploy technology to actually generate electricity. 
        This is the equivalent of taking nearly 600,000 cars of the 
        roads.
   Biogas Production Produces Beneficial By-Products--Digesting 
        biosolids to produce biogas fuel produces a nitrogen-rich 
        fertilizer which can also help displace CO2 
        emissions caused chemical fertilizer production. In addition, 
        digested biosolids result in significant volume reduction 
        requiring far fewer trucks to transport the material off-site, 
        which also results in significant CO2 displacement. 
        These emission reductions are in addition to the direct 
        reductions of the electricity generated and its use.
   Projects are Clean, On-site, Reliable and Cost-Effective--
        Recovery of energy from biosolids and biogas can decrease the 
        costs communities must bear to treat wastewater and can 
        increase grid reliability.
   Biosolids Energy Recovery Can Create Jobs and Innovation in 
        Every State. Biosolids or biogas-to-energy projects are 
        possible in all 50 states, and can create local jobs and spur 
        growth and innovation.
   Several States have already recognized the energy potential 
        in biosolids--Utilizing CHP technology, biogas is eligible 
        under 30 state and district renewable portfolio standards as a 
        qualifying renewable energy resource. Enabling biosolids to 
        qualify under a national clean energy standard would support 
        these states' efforts and avoid undermining current market 
        trends.
Technologies Used by Wastewater Treatment Plants to Generate and 
        Recover Energy
    Energy can be recovered from domestic wastewater in several 
different ways. The following list covers the ways that energy can be 
recovered, briefly describes the technologies used, and their status 
(common, innovative or under development). While many of these 
technologies are mature and already in place at some utilities, current 
rates of utilization are low. Including biogas and biosolids produced 
in the wastewater treatment process in a national CES would rapidly 
increase employment of these technologies throughout the sector.
    Mature Technologies Underutilized by the Wastewater Treatment 
Sector Include:

   Anaerobic Digestion--An established technology to process 
        biosolids is anaerobic digestion which produces biogas 
        (methane). The biogas can be used to generate electricity, heat 
        or direct power. The technologies used to co-generate 
        electricity from biogas include internal combustion engines, 
        external combustion engines (Stirling), micro turbines, and 
        fuel cells (emerging). The engines also generate heat which can 
        be recovered. Biogas can also be used to produce heat required 
        for treatment or to operate boilers. Each million gallons per 
        day (MGD) of wastewater flow can produce enough biogas in an 
        anaerobic digester to produce 26 kilowatts (kW) of electric 
        capacity and 2.4 million Btu per day (MMBtu/day) of thermal 
        energy in a Combined Heat and Power (CHP) system. This is 
        mature technology and commonly used. However, on a national 
        scale, the technical potential for additional CHP at WWTFs is 
        over 400 MW of biogas-based electricity generating capacity and 
        approximately 38,000 MMBtu/day of thermal energy. This capacity 
        could prevent approximately 3 million metric tons of carbon 
        dioxide emissions annually, equivalent to the emissions of 
        approximately 596,000 passenger vehicles.
   Hydraulic Head Loss--Energy in the form of hydraulic head 
        loss is available in most wastewater systems. This is the 
        energy from water stored at a higher level as it falls to a 
        lower level. Turbines are used to convert the energy from the 
        force of falling water to electric current. A few treatment 
        plants, such as San Diego, CA, use large turbines to capture 
        this energy and produce electricity. A more recently popular 
        technology, applicable in more systems, are micro (mini hydro) 
        turbines which use low head loss to generate electric current. 
        This is mature technology and available for widespread use. 
        Hydrokinetic energy, or the energy from flowing water, can also 
        be captured by some emerging technologies.
   Thermal Energy--Energy in the form of thermal energy can be 
        extracted from most domestic wastewaters as the temperature of 
        the water is warmer than the air and ground. Heat pumps are 
        used to extract this energy which can be used by the wastewater 
        treatment facility to offset their demand for heat. This 
        technology works best in cold climates, and has been used in 
        Scandinavia. Some applications are underway in the U.S. (Aspen, 
        CO). This is mature technology but not yet commonly used in the 
        U.S.
   Biosolids Thermal Oxidation--Solids are removed from 
        domestic wastewater in the treatment plant. Several types of 
        technologies can be used to recover energy from these solids. 
        Dry solids can be burned or incinerated. This is an established 
        technology but new designs are making this process more 
        efficient and reducing the need for additional energy sources 
        to keep the process going. In most new applications and 
        retrofit incinerator designs, there is the ability to recover 
        heat. This is mature technology and commonly used, but still 
        considered underutilized.
   Biogas as Fuel--Recently, biogas generated by the wastewater 
        treatment process has been soldto natural gas suppliers and 
        used to fuel vehicles retrofitted to run on natural gas. Biogas 
        can be used to run direct drive engines which power pumps and 
        other equipment. This is mature technology but not commonly 
        used.
   Gasification--New technologies are on the market that 
        convert wastewater solids to combustible gases through 
        pyrolysis or gasification. These gases are carbon-based and 
        energy rich, but are different from methane. Gasification is 
        the transformation of solids under high temperatures into a 
        carbon-rich substance called ``char'', which is subsequently 
        gasified producing a gas called syngas that can be used as fuel 
        to generate electricity and heat. Pyrolysis is a process used 
        to produce oil from sludge under heat and pressure. These 
        combustible gases can be used in engines to generate 
        electricity similar to the equipment to convert biogas. Heat 
        can also be generated and recovered. Sometimes these gases can 
        be used as feedstock to produce combustible products such as 
        oil and syngas.
Emerging Technologies Still Under Development:
   Nutrient-rich Algae--The constituents in wastewater also 
        have energy recovery potential, but little has been done beyond 
        the research stage at this time. The nutrient-rich effluent can 
        be used to grow algae. The algae can be harvested and used to 
        generate fuel feed stocks. Sunnyvale, CA, harvests algae and 
        co-digests the algae with other solids to generate biogas. This 
        is emerging technology that still requires research and 
        development.
   Microbial Fuel Cells--A new technology emerging from 
        laboratory research is the microbial fuel cell. A small amount 
        of electricity is released during microbial transformation of 
        both carbon and nitrogen compounds in wastewater during 
        treatment. New advances in nanotechnology allow this energy to 
        be recovered. This is an emerging technology and there are no 
        full scale applications yet, but it looks promising.
   Nitrous Oxide Capture from Biological Nitrogen Removal for 
        Power--Biological nitrogen removal processes are based on 
        microbial conversions that release nitrous oxide as a 
        byproduct. It may be possible to capture the nitrous oxide 
        emitted from these processes and burn the nitrous oxide to 
        generate additional power or electricity. This technology is 
        also in the research stages and has not been applied at any 
        treatment facility.
The Clean Energy Standard (CES) Act of 2012 (S.2146)
    The Clean Energy Standard Act of 2012 (S. 2146), introduced by 
Senator Jeff Bingaman (D-NM) earlier this year, employs a market-based 
approach to accelerate deployment of a wide variety of power generation 
technologies and feedstocks. NACWA welcomes this legislation and 
encourages policymakers to include all energy derived from the 
wastewater treatment sector as qualifying energy sources.
    As currently written, the Clean Energy Standard Act of 2012 would 
credit biogas energy recovered from wastewater biosolids in a CES. 
However, the bill discriminates against older facilities by 
discrediting biogas produced at wastewater treatment plants built 
before 1992. We urge Congress to amend the December 31, 1991 cut-off 
date so that the wastewater sector may participate in the clean energy 
market and help meet federal renewable energy targets. Furthermore, 
this bill does not credit energy produced from dry wastewater biosolids 
used as feedstocks for certain types of technology. For example, dry 
biosolids are used in cement kilns as an energy source, reducing the 
need for those cement kilns to use as much coal or other forms of 
higher CO2-intensive energy sources. This is an often 
overlooked energy option as renewables regulators are often unfamiliar 
with biosolids. Yet with a consistent, predictable and sustainable 
supply, it would be foolish to neglect this energy-rich resource.
    Beyond these critical adjustments, we would recommend that biogas 
and solids produced by the municipal wastewater treatment process be 
provided its own separate category of qualifying clean energy sources. 
The clean energy and environmental benefits provided by this resource 
warrants separate categorical treatment to ensure optimal deployment. 
Proper inclusion and recognition of the clean energy potential of 
biosolids and biogas recovered and produced by municipal wastewater 
treatment plants begins by recognizing its unique differences from 
other types of energy resources. That potential should be captured 
properly and fully promoted in any final CES legislation.
    If you have any further questions regarding the intrinsic clean 
energy potential of biosolids and biogas, or how a CES should account 
for and promote such potential, feel free to contact Hannah Mellman at 
[email protected].
                                 ______
                                 
                 Statement of Third Way Fresh Thinking
    Third Way has long supported a clean energy standard as a way to 
help get America movingon clean energy. This will enable the United 
States to compete in the $2.3 trillion global cleanenergy market, 
reduce pollution, and accelerate innovation. Chairman Bingaman's Clean 
Energy Standard Act of 2012 is a very important step in that direction. 
The bill is technologyneutral, giving utilities a variety of options in 
how they choose to comply. It also provides businesses with the 
certainty they need to invest in clean energy.
    The Clean Energy Standard Act embraces a truly all-of-the-above 
strategy that empowers utilities and states to choose the best strategy 
for them to move to clean energy. This includes not only critical 
renewable energy sources like on- and off-shore wind, concentrated 
solar, solar photovoltaic, and hydropower, but also combined heat and 
power, natural gas, and nuclear energy.
    This technology-neutral approach will minimize the cost of reducing 
pollution and allow different regions to harness the resources that are 
most economical for them to accomplish a national goal. The fact that 
37 states now have goals or requirements for increased generation of 
clean energy shows there is strong support for the concept of aCES. Yet 
the diversity of these state requirements shows the importance of 
giving utilities as many tools as possible to meet that standard. As 
the debate on aCES continues, Third Way would advocate for greater 
inclusion of efficiency measures as an additional tool that can be used 
to meet the standard.
    Chairman Bingaman's proposal also provides industry with the 
certainty it needs to make long-term investment decisions. New 
electricity generation is expensive, with costs often reaching into the 
billions of dollars for a single plant. These facilities can take years 
to build and can be operated for decades. To make such large 
investments with long-term payoffs, utilities need certainty as to what 
the government will require of them and the confidence that the rules 
of the game won't be changed.
    In today's global economy, the developed countries that succeed 
have modern infrastructure, innovative industries, and reduced 
pollution. Even China has a plan in place to increase its use of clean 
energy. The United States cannot compete if we do not set high 
standards for our private sector to reach so that we can remain the 
world's leading economic power. While we are confident that the 
Chairman will refine and improve it, Clean Energy Standard Act will 
move us in the right direction.

                                    

      
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