[Senate Hearing 112-528]
[From the U.S. Government Publishing Office]






                                                        S. Hrg. 112-528

                  ENERGY EFFICIENT BUILDING RETROFITS

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

                                HEARING

                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                                   TO

 REVIEW INNOVATIVE NON-FEDERAL PROGRAMS FOR FINANCING ENERGY EFFICIENT 
                           BUILDING RETROFITS

                               __________

                             JUNE 28, 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
Borrelli, Sheri, Senior Business Development Professional, The 
  United Illuminating Company, Orange, CT........................    15
DeBoer, Jeffrey D., President and Chief Executive Officer, The 
  Real Estate Roundtable.........................................    24
Franken, Hon. Al, U.S. Senator From Minnesota....................     1
Leeds, Susan, Chief Executive Officer, New York City Energy 
  Efficiency Corporation, New York, NY...........................    18
Rodgers, William A., Jr., President and Chief Executive Officer, 
  GoodCents Holdings, Inc., Atlanta, GA..........................    10
Smith, Derek, Chief Executive Officer, Clean Energy Works Oregon, 
  Portland, OR...................................................     7
Sundstrom, David E., Auditor-Controller-Treasurer-Tax Collector, 
  County of Sonoma, Santa Rosa, CA...............................     3

                               APPENDIXES
                               Appendix I

Responses to additional questions................................    51

                              Appendix II

Additional material submitted for the record.....................    71

 
                  ENERGY EFFICIENT BUILDING RETROFITS

                              ----------                              


                        THURSDAY, JUNE 28, 2012

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:31 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 go ahead and get started. 
Good morning. Today we're going to have a panel of experts talk 
to us about a variety of programs used across the country to 
finance energy efficient building retrofits. This is 
particularly an important topic for commercial building owners, 
but also for residential building owners. That's according to a 
recent survey from the Institute for Building Efficiency at 
Johnson Controls. They did a sixth annual global survey and 
concluded that more commercial building owners are turning to 
energy efficiency. They continue to seek tax credits, 
incentives, and rebates to assist with those efficiency 
improvements.
    More than half of the 3500 building owners and operators 
worldwide said that improving their public image and increasing 
the value of their buildings were important factors leading 
them to consider energy efficiency.
    We have 6 witnesses today to describe their programs for 
building efficiency retrofits and to discuss best practices for 
financing these retrofits. We hope to learn how best to ensure 
that private capital is available to finance projects through a 
variety of financing mechanisms.
    Before we start, Senator Franken has had a keen interest in 
this subject for some time and I know he wanted to make a 
statement. So let me defer to him.

          STATEMENT OF HON. AL FRANKEN, U.S. SENATOR 
                         FROM MINNESOTA

    Senator Franken. Thank you, Mr. Chairman. Thank you for 
holding today's hearing on financing energy efficient 
buildings, and thank you all to all the witnesses for sharing 
your expertise.
    There are so many reasons why energy efficiency in building 
retrofits makes sense. Retrofitting buildings can pay for 
itself by saving homeowners and businesses money on energy 
bills. Retrofits create jobs in manufacturing and construction 
and engineering. They improve the work environment of the 
retrofitted building, attract and retain tenants, and can bring 
whole neighborhoods back to life. Of course, retrofits cut 
energy waste and carbon emissions. Basically, it's win-win-win.
    That's why last October I started an initiative promoting 
energy efficiency retrofits called ``Back to Work Minnesota.'' 
I've been partnering with leaders in my State, Governor Dayton, 
local chambers of commerce, businesses, utilities, and 
nonprofits. Together we've been spreading the word about the 
benefits of energy efficiency and connecting building owners to 
the resources that can help them retrofit their buildings.
    Interest in energy efficiency is spreading across 
Minnesota. In November the city of Edina, Minnesota, set up the 
first commercial Property Assessed Clean Energy program, or 
PACE program, outside of California. In December I attended the 
ribbon-cutting ceremony of Edina's first PACE-funded solar 
panel installation project at the Edina Grandview Tire and Auto 
Shop.
    Likewise, cities and towns across the State are 
retrofitting public and private buildings with local revolving 
loan programs and utility rebates. Just this month, the Iron 
Range Resources Board created a pilot business retrofit program 
in Hibbing, Minnesota, and by the fall the Minnesota Department 
of Commerce will finalize a new program to provide standardized 
and guaranteed energy-saving performance contracts with energy 
service companies, or ESCO's, like Johnson Controls, which the 
chair mentioned in his opening statement, making it easier for 
the State to retrofit its buildings, saving taxpayers money.
    Despite all this movement in Minnesota, there are still 
financing barriers, as you all know. I don't think I'm telling 
the panel anything they don't know, what we've been doing in 
Minnesota. There are still financing barriers holding many 
building owners back from retrofitting. So I'm eager to hear 
what today's witnesses think we can do to further promote 
retrofits that both save money and create jobs.
    Thank you, Mr. Chairman.
    The Chairman. Thank you very much.
    I'd just point out that there's a long tradition here in 
the Senate of inviting experts from around the country and then 
telling them what they already know. So we are good at that.
    Senator Franken. I really revere the traditions of the 
Senate.
    [Laughter.]
    The Chairman. We know you do. We appreciate your carrying 
them on.
    Let me introduce our 6 panelists. Mr. David Sundstrom, CPA, 
is with SCEIP, the SCEIP program. Is that the right 
pronunciation?
    Mr. Sundstrom. ``SKIPE.''
    The Chairman. ``SKIPE'' Program Administrator, in the 
County of Sonoma in Santa Rosa, California.
    Mr. Derek Smith is the CEO of the Clean Energy Works Oregon 
in Portland, Oregon. Thank you for being here.
    Mr. William Rodgers is President and CEO of GoodCents in 
Atlanta, Georgia. Thank you for being here.
    Ms. Sheri Borrelli, Senior Business Development 
Professional with The United Illuminating Company in Orange, 
Connecticut. Thank you for being here.
    Ms. Susan Leeds is Chief Executive Officer with the New 
York City Efficiency Corporation in New York.
    Mr. Jeffrey DeBoer is the President and CEO of the Real 
Estate Roundtable and has testified here several times before. 
So we appreciate all of you being here.
    Why don't we just take you in that order, and we will 
include your full statements in the record, but if you would 
take about 5 minutes each and give us the main points you think 
we need to try to understand about this set of issues, we would 
be anxious to hear your thoughts.
    Mr. Sundstrom.

 STATEMENT OF DAVID E. SUNDSTROM, AUDITOR-CONTROLLER-TREASURER-
        TAX COLLECTOR, COUNTY OF SONOMA, SANTA ROSA, CA

    Mr. Sundstrom. Honorable Chairman Bingaman, members of the 
committee: Thank you so much for this opportunity to be here to 
share with you our experience with our SCEIP program, also 
known as Sonoma County Energy Independence Program. It is a 
PACE program, which stands for ``Public Assessed Clean 
Energy.'' It was the first in the Nation. I am pleased to have 
this opportunity to discuss our program, a model of multi-
jurisdictional public-private partnership for financing energy 
efficient and renewable energy retrofits for the betterment of 
our communities.
    PACE is a local government initiative that allows property 
owners to finance energy efficiency, water conservation, and 
renewable energy projects for their homes and commercial 
buildings. Qualifying property owners finance those 
improvements through a property tax assessment which is repaid 
over a course of up to 20 years. PACE financing spreads the 
cost of the improvement, such as insulation, energy efficient 
boilers, new windows, or solar installations, over the expected 
life of the improvement.
    The method of financing is intended to allow the repayment 
obligation to ensure transfer--will automatically transfer to 
the next property owner when the property is sold. PACE 
programs have been authorized by the legislatures of the 
District of Columbia and 28 States, including many States 
represented by members of your committee.
    Sonoma County, which has long been a progressive leader in 
the area of energy and environmental stewardship, immediately 
identified PACE as a tremendous strategic opportunity to help 
us reduce our greenhouse gases and promote energy economy 
improvements by local property owners, and to provide jobs, 
many jobs, in the local green construction industry.
    Sonoma County and the Sonoma County Water Agency have 
jointly pledged $60 million of local funds to launch the 
program, making it the largest PACE program in this Nation. 
SCEIP has proven itself to be very popular and effective. After 
3 years of operation, SCEIP has received 2400 applications for 
financing. Those applications have seen more than $89 million 
in local energy improvements, of which more than $62 million 
have been approved and nearly $57 million of projects have been 
already completed. Approximately $6.7 million of these 
assessments have been paid off, freeing up those funds for 
future projects. In addition, the $62 million invested locally 
has energized the creation of an active energy efficiency 
community and has generated more than 145,000 man-hours of 
construction work within the job market.
    SCEIP has coordinated with other State and local energy 
programs to provide our community with a one-stop approach for 
customers to come in and facilitate energy efficiency and 
renewable energy investments.
    Despite the impediments imposed by the Federal Housing 
Finance Agency, albeit we're moving along, albeit at a much 
slower pace. We now have 1700 property owners participating in 
the program and in the last 3 years those property owners have 
completed more than 1600 energy retrofit projects and 1,000 
solar installations. This has been producing about 7.7 
megawatts of energy for these residents, making Sonoma County 
the highest kilowatt-hour per capita solar energy production in 
the country.
    The proposed rule by FHFA does allow us for submittal of 
alternatives. One alternative for the program, adding 
acceptable underwriting criteria to the program. It was our 
belief that H.R. 2599 is predicated on the very criteria being 
called for by FHFA. Programs established under 2599 guidelines 
should mitigate FHFA guidelines. We continue to hope that FHFA 
will revise its proposed rule to allow us to continue with the 
SCEIP program. We certainly would appreciate any assistance 
your committee could give us in pursuing H.R. 2599.
    In conclusion, through collaboration with government, 
business, and nonprofit partners, Sonoma County has been able 
to forge ahead with a financially sustainable program that 
furthers our community's strategic priorities of environmental 
sustainability and local economic vibrancy. In doing so, the 
program has become a shining example of government innovation 
and collaboration. We look forward to continuing to expand our 
efforts in the commercial sector and within underserved 
communities, and to reaching a resolution with FHFA so that 
property owners can continue with PACE financing retrofits 
without the threat of foreclosure.
    Thank you.
    [The prepared statement of Mr. Sundstrom follows:]

Prepared Statement of David E. Sundstrom, Auditor-Controller-Treasurer-
            Tax Collector, County of Sonoma, Santa Rosa, CA
Introduction
    Honorable Chairman Bingaman, Ranking Member Murkowski, and Members 
of the Committee, thank you for this opportunity to appear before you 
today as you examine ``Innovative non-federal programs for financing 
energy efficient building retrofits.'' My name is David Sundstrom, and 
I serve in the elected position of Auditor, Controller, Treasurer and 
Tax Collector of Sonoma County, California. I also serve as the 
administrator of the Sonoma County Energy Independence Program, known 
as SCEIP, which is the leading Property Assessed Clean Energy (PACE) 
program in the nation. I am pleased to have this opportunity to discuss 
the Sonoma County Energy Independence Program, a model of multi-
jurisdictional and public-private partnership for financing energy 
efficient and renewable energy retrofits for the betterment of the 
community.
PACE Explained
    PACE is a local government initiative that allows property owners 
to finance energy efficiency, water conservation and renewable energy 
projects for their homes and commercial buildings. Qualifying property 
owners finance improvements through a property tax assessment which is 
repaid over the course of up to 20 years. PACE financing spreads the 
cost of improvements, such as insulation, energy efficient boilers, new 
windows, or solar installations, over the expected life of the 
improvement. The method of financing is intended to allow the repayment 
obligation to transfer automatically to the next property owner when 
the property is sold. PACE Programs have been authorized by the 
legislators of the District of Columbia and twenty-eight states, 
including many states represented by members of this Committee.
Growth of the Sonoma County Energy Independence Program
    Sonoma County, which has long been a progressive leader in the area 
of green energy and environmental stewardship, immediately identified 
PACE as a tremendous strategic opportunity to help us reach our 
greenhouse gas reduction goals, promote energy efficient improvements 
by local property owners, and provide jobs in the local ``green'' 
construction industry.
    Sonoma County and the Sonoma County Water Agency jointly pledged 
$60 million of local funds to launch the program, making it the largest 
PACE program in the nation. SCEIP has proven itself to be very popular 
and effective: after three years of operation, SCEIP has received 2,400 
applications for financing. Those applications have been for more than 
$89 million in local energy improvements, of which more than $62 
million have been approved, and nearly $57 million have been disbursed 
to projects that are already completed. Approximately $6.7 million of 
these assessments have been paid off, freeing those funds for 
additional projects. In addition, the $62M invested locally has 
energized the creation of an active energy efficiency and renewable 
energy construction market and has generated more than 145,000 man-
hours of construction work within the local job market.
    SCEIP has coordinated with other local- and State-funded energy 
efficiency programs to provide our community with a one-stop-shop 
approach to pursue and facilitate energy efficiency and renewable 
energy investments.
    Despite impediments imposed by the Federal Housing Finance Agency, 
property owners continue to join the Program, which now has over 1700 
participating property owners. In the past three years, those property 
owners have completed more than 1600 energy efficiency projects and 
1000 solar installations which total more than 7.7 megawatts of clean, 
renewable solar photovoltaic energy. This has given Sonoma County one 
of the highest kilowatt-hour per capita solar energy production rates 
in the country.
    We continue to seek long-term financing through the bond market, 
securitization, and private placement, to enable SCEIP to grow, 
allowing the energy and water conservation improvements to continue as 
long as there is a demand. We have also attracted private capital for 
particular projects. In one such case, SCEIP facilitated funding for a 
$1.6 million solar installation on a major commercial complex through 
private capital provided by CleanFund, which recently also assisted in 
the financing of a commercial PACE project in Senator Franken's home 
state of Minnesota.
Partnership for Success
    The energy community continues to be an active partner in our 
efforts to promote sustainability. Energy audits help to ensure the 
best choice in technology and allow for measureable environmental 
results arising from the program. Currently, commercial properties are 
required to conduct an energy evaluation, and the program strongly 
encourages energy audits for residential participants as well - the 
cost of which can be included in the financing provided through the 
program. Our use of Department of Energy grants channeled through the 
California Energy Commission over the last year has allowed us to 
implement several major program improvements, all focused on making 
participation in SCEIP easier, faster and more valuable for the 
property owner.
Bringing PACE to Scale
    The U.S. Green Building Council reports that the building sector 
accounts for almost half of the greenhouse gas emissions in the United 
States annually.\1\ The United States Environmental Protection Agency 
reports that this is spread approximately equally between residential 
buildings and commercial buildings.\2\ The White House Recovery Through 
Retrofit report found that home energy retrofits have the potential of 
reducing home energy bills by $21 billion annually, paying for the 
retrofits over time.\3\ A recent report by the Rockefeller Foundation 
estimated that $279 billion could be invested annually across the 
residential, commercial, and institutional market segments, yielding 
more than $1 trillion of energy savings over 10 years and creating more 
than 3.3 million cumulative job-years of employment.\4\ In short, 
energy retrofits have enormous potential. A concerted push toward 
sustainable energy investment will reduce greenhouse gas emissions, 
save energy, benefit American homeowners and businesses through cost 
savings, and create and sustain millions of jobs.
---------------------------------------------------------------------------
    \1\ Announcement dated 5/7/2007, http://www.usgbc.org/News/ 
PressReleaseDetails.aspx?ID=3124.
    \2\ http://www.epa.gov/ttnchie1/ conference/ei17/session5/
knowles.pdf
    \3\ http://www.whitehouse.gov/assets/documents/ 
Recovery_Through_Retrofit_Final_Report.pdf
    \4\ http://www.rockefellerfoundation.org/ uploads/files/791d15ac-
90e1-4998-8932-5379bcd654c9-building.pdf
---------------------------------------------------------------------------
Obstacles to Residential PACE
    The enthusiastic response we received from the community on the 
launch of our Program and the continued interest we receive from the 
community demonstrates the community's desire for a retrofit program 
that offers a low up-front cost, transferable on sale option. However, 
the Federal Housing Finance Agency has challenged PACE programs because 
it believes PACE programs, which create a lien comparable to property 
taxes and other assessment liens, create risk for Fannie Mae and 
Freddie Mac due to the financing's seniority over the property's first 
mortgage. FHFA has recently proposed a rule on PACE programs 
essentially directing Fannie Mae and Freddie Mac to ensure that their 
mortgage documents permit immediate foreclosure on any property where 
the owner agrees to a PACE funded retrofit-whether or not the property 
owner is current on their mortgage and has a sterling payment history.
    Our own statistics demonstrate that the FHFA's fears are 
groundless. In fact, PACE participants are significantly less likely to 
default on their mortgage payments\5\ and more likely to make their tax 
payments than property owners as a whole. The FHFA indicates that there 
is insufficient evidence to validate this result, yet firmly blocks new 
programs and prevents gathering the very evidence that would satisfy 
its concerns. In the House, HR 2599, setting out parameters to ensure 
PACE programs address the FHFA's concerns, has been submitted by a 
bipartisan group of Congress Members, and we hope that your Committee 
would support a similar effort in the Senate.
---------------------------------------------------------------------------
    \5\ There are only 16 reported mortgage defaults out of over 1600 
properties in the County's PACE program-under one percent, 
significantly below the County average.
---------------------------------------------------------------------------
    The proposed rule issued by the FHFA also allows for the submittal 
of alternatives. One alternative cited was having programs with 
acceptable underwriting criteria. It is our belief that HR 2599 is 
predicated on the very criteria being called for by the FHFA. Programs 
established under HR 2599 guidelines should mitigate FHFA concerns. We 
continue to hope that the FHFA will revise the proposed rule if 
presented with a program that meets the underwriting criteria they 
believe are needed to protect property owner and mortgage holder 
investments. We would greatly appreciate any assistance that you could 
provide in reaching a compromise with FHFA, such as incorporating the 
underwriting criteria cited in HR 2599.
Conclusion
    Through collaboration with government, business, and non-profit 
partners, Sonoma County has been able to forge ahead with a financially 
sustainable program that furthers our community's strategic priorities 
of environmental sustainability and local economic vibrancy. In doing 
so, the program has become a shining example of government innovation 
and collaboration. We look forward to continuing to expand our efforts 
in the commercial sector and within underserved communities, and to 
reaching a resolution with FHFA so that property owners can proceed 
with PACE funded retrofits without threat of foreclosure.
    Thank you again for the opportunity to appear before you today and 
describe our successful, and replicable, Program. I am happy to answer 
any questions from members of the Committee.

    The Chairman. Thank you very much.

STATEMENT OF DEREK SMITH, CHIEF EXECUTIVE OFFICER, CLEAN ENERGY 
                   WORKS OREGON, PORTLAND, OR

    Mr. Smith. Mr. Chairman, members of the committee: My name 
is Derek Smith. I am CEO of Clean Energy Works Oregon, based in 
Portland, Oregon. I'd first like to acknowledge Senator Wyden 
for his leadership on energy and other issues, and especially 
for his support, and in fact the whole Oregon delegation has 
been very supportive of us, including your other colleague, 
Senator Merkley.
    I'd also like to acknowledge our board chair, Jeremy Hayes, 
who's in the audience with me here today.
    Clean Energy Works Oregon is in the residential energy 
sector, which, as you know, represents about 20 percent of our 
Nation's energy consumption. Clean Energy Works is a private 
nonprofit organization that accelerates the delivery of home 
energy remodels. We bring citizens together with private 
contractors and private lenders to help them get their home 
upgraded for energy efficiency. We then bundle the energy 
savings for the utility sector and we report the economic 
development outcomes for our public sector investors.
    Over the past 2 years, our results include: 1800 homes 
remodeled for energy efficiency; 800 workers receiving 
paychecks, including 180 direct construction new hires, in a 
sector that in Oregon recently suffered a greater than 50 
percent decline in employment; average wages of $21 an hour 
across multiple trades, from insulation installers to HVAC 
technicians to electricians to plumbers; market growth of 5X; 
30 percent annual energy savings per home, generating over 
$500,000 annually into the pockets of participating citizens; 
$25 million in economic development; and 4 to one leverage on 
our Federal investment, primarily from private capital lenders. 
All of these numbers are rising on a daily basis.
    We've been able to accomplish this because of the support 
from the U.S. Department of Energy, the State of Oregon, Energy 
Trust of Oregon, city of Portland, local governments, and the 
Rockefeller Foundation, and because of the entrepreneurial 
spirit of our 50 contractors and 4 lenders in rural and urban 
communities throughout Oregon.
    We're proving a model where public sector investment 
delivered alongside private and utility capital into energy 
efficiency pays dividends toward important American values: 
energy independence from volatile fossil fuel markets, small 
business growth, revitalization of our housing market; and 
creation of local jobs that can't be outsourced and that can 
pay family supporting wages to historically disadvantaged 
populations, including women, minorities, and veterans.
    Here's what we're learning and what we'd like to convey to 
you this morning. First, the utility sector, while a critical 
player, is in a limited position to value the full set of 
benefits that are derived from energy efficiency. for example, 
economic development. Therefore, current utility investment 
alone is not sufficient to get the gains we need. Restructuring 
of the sector and its business model should be explored.
    Two, private capital is widely available and does not 
appear to need ongoing credit enhancement, at least for the 
residential sector. What's needed to unlock private capital is 
smart program design, good quality control, and robust data 
that can inform capital markets. As you know, many financial 
institutions are sitting on cash and getting pressure from 
shareholders to earn returns. The government does not need to 
be and shouldn't be the capital provider for this sector. Our 
experience is that local credit unions and regional banks are 
the pathway toward larger scale investment.
    Third, the housing appraisal industry is beginning to 
recognize the value of energy efficiency improvements. We are 
making a dent in the turnaround of our housing economy.
    Four, consumers respond to rebates. We believe rebates 
above utility incentive levels are extremely effective and 
needed to lift the industry and transform the market, at least 
until home valuations routinely recognize the value of energy 
efficiency improvements.
    Last, private businesses are aiming their resources toward 
this growing market. What these businesses need to continue 
investing is the predictability of knowing that the market will 
be supported and sustained.
    Looking forward, we expect this market to stabilize and 
reduce its dependence on public investment. We expect in Oregon 
that State-level investment will recognize the value of job 
creation by assuming the next position of key financial support 
for further market development. We have built a model that does 
not rely on Federal investment to survive.
    So how can the Federal Government help? Given that 
utilities are regulated locally, the Federal Government can 
promote industry standards that cut across State lines, like 
the measurement of non-energy benefits.
    The Federal Government can continue to engage the real 
estate community with development of tools like the Home Energy 
Score so there is transparency to consumers about energy costs 
of homes.
    Finally, the Federal Government can promote the value of 
energy efficiency. Imagine a national advertising campaign that 
links energy efficiency to patriotism, like the Victory Gardens 
campaign from World War II.
    In closing, I would like to thank you for your hard work in 
creating solutions for our energy challenges and for your 
support of energy efficiency as a key piece of the puzzle going 
forward. Thank you.
    [The prepared statement of Mr. Smith follows:]

  Prepared Statement of Derek Smith, CEO, Clean Energy Works Oregon, 
                              Portland, OR
    Thank you for the opportunity to present to the Committee on Energy 
and Natural Resources. I'd first like to acknowledge Senator Wyden for 
his leadership on energy and other issues, and especially for his 
support of Clean Energy Works Oregon. We are grateful for the support 
of the Oregon Delegation, including your other colleague, Senator 
Merkley.
    Clean Energy Works Oregon is in the residential energy sector, 
which, as you know, represents about 20% of our nation's energy 
consumption.
    Clean Energy Works is a private, non-profit organization that 
accelerates the delivery of home energy remodels. We bring citizens 
together with private contractors and private lenders to help them get 
their home upgraded for energy efficiency, and we ensure quality 
control and service throughout their project. We bundle the energy 
savings for the utility sector and we report the economic development 
benefits to our public sector investors.
    Over the past two years, our results include:

   1800 homes remodeled for energy efficiency
   800 workers receiving paychecks, including 180 direct 
        construction newhires-this is in a sector of our economy that, 
        in Oregon, recently suffered a greater than 50% decline in 
        employment
   Average wages of $21/hour across multiple trades-from 
        insulation installers to HVAC technicians to electricians to 
        plumbers
   Market growth of 5x
   30% average energy savings per home, generating over 
        $500,000 annually into the pockets of participating citizens
   $25 million in economic development
   Four-to-one leverage on our Federal investment, primarily 
        from private capital lenders

    All of these numbers are rising on a daily basis.
    We've been able to accomplish this because of the support from the 
US Dept. of Energy, State of Oregon, Energy Trust of Oregon, City of 
Portland, local governments and the Rockefeller Foundation.
    We're proving a model where public sector investment delivered 
alongside private capital into energy efficiency pays dividends toward 
important American values:

   Energy independence from reduced reliance on volatile fossil 
        fuel markets
   Small business growth
   Revitalization of our housing market
   Creation of local jobs that can't be outsourced and that can 
        pay family supporting wages to historically disadvantaged 
        populations including women, minorities and veterans

    Here's what we're learning and what we'd like to convey to you:

          1. The utility sector, while a critical player in this 
        market, is in a limited position to value the full set of 
        benefits that are derived from energy efficiency. For example, 
        economic development is not and cannot be fully valued by 
        utility capital. Therefore, current utility investment alone is 
        not sufficient to get us the gains in efficiency we need. 
        Restructuring of the sector and its business models should be 
        explored.
          2. Private capital can be unlocked, is widely available, and 
        does not appear to need ongoing credit enhancement. What's 
        needed to attract private capital is smart program design, good 
        quality control, robust data and ongoing financial support from 
        the public sector. As you know, many financial institutions are 
        sitting on cash and getting pressure from shareholders to earn 
        returns. The government doesn't need to be - and shouldn't be-
        the capital provider for this sector. Incidentally, our 
        experience is that local credit unions and regional banks are 
        the pathway toward larger-scale investment. As demand and 
        predictability grow, the Wall Street banks will join in, and a 
        national market will emerge.
          3. The housing appraisal industry is beginning to recognize 
        the value of energy efficiency improvements. We are making a 
        dent in the turnaround of our housing economy. Once this starts 
        to happen on a more predictable basis, demand will be steady.
          4. Consumers respond to rebates. We believe rebates above 
        utility incentive levels are extremely effective and needed to 
        lift the industry and transform the market, at least until home 
        valuations routinely recognize the value of energy efficiency 
        improvements (very similar to Cash for Clunkers).
          5. Private businesses are aiming their resources toward this 
        growing market. Many of our contractors tell stories of 
        reorienting their focus 3-4 years ago away from new home 
        construction toward remodeling for energy efficiency. And they 
        are seeing significant year-over-year growth. What these 
        businesses need to continue investing is the predictability of 
        knowing this market will be supported and sustained.

    Looking forward, we expect this market to stabilize and reduce its 
dependence on public investment. We expect, in Oregon, that State-level 
investment will begin to recognize the value of job creation in this 
sector by assuming the next position of key financial support for 
further market development. We have built a model that doesn't rely on 
Federal investment to survive. However, it would be welcome, and it is 
clear that the combination of public sector capital alongside ratepayer 
dollars and private capital is a key to success of mobilizing a 
national energy efficiency industry.
    So how can the Federal government help?

   Given that utilities are regulated locally, the Federal 
        government can promote industry standards that cut across state 
        lines, like the measurement of non-energy benefits and 
        universal data exchange protocols.
   The Federal government can continue to engage the real 
        estate community with development of tools like the Home Energy 
        Score so there is transparency to consumers about energy costs 
        of homes.
   The Federal government could continue to invest financial 
        resources in the emergence of the nascent energy efficiency 
        industry, which holds tremendous promise as a valuable 
        component of a 21st century energy policy that recognizes 
        American job creation in balance with energy independence from 
        the increasingly volatile commodity markets for fossil fuels.
   And, finally, the Federal government can promote the value 
        of energy efficiency. Imagine a national advertising campaign 
        that links energy efficiency to patriotism, a la the Victory 
        Gardens campaign from World War II.

    In closing, I would like to thank you for your hard work in 
creating solutions to our country's energy needs, and for your support 
of energy efficiency as a key piece of the puzzle going forward.

    The Chairman. Thank you very much.
    Mr. Rodgers, go right ahead.

   STATEMENT OF WILLIAM A. RODGERS, JR., PRESIDENT AND CEO, 
             GOODCENTS HOLDINGS, INC., ATLANTA, GA

    Mr. Rodgers. Mr. Chairman, members of the committee: My 
name is Bill Rodgers and I am the President and CEO of 
GoodCents Holdings. GoodCents is headquartered in Atlanta, 
Georgia, and has provided operations in over 20 States and in 
Canada just in the past year. I thank you for the opportunity 
to testify before you today on the very important topic of 
energy efficiency.
    Energy efficiency programs can and do exist independent of 
Federal financing and incentives. Our company has been in 
existence for over 30 years and our continued growth over that 
period is clear evidence of the role market forces can have in 
driving energy efficiency programs.
    During that time, we have provided multiple types of demand 
side management programs, such as energy efficiency, to over 
150 investor-owned utilities, cooperatives, and municipalities, 
as well as their customers. We have over 400 employees focused 
daily on assisting businesses and residents in conserving and 
better utilization of their energy requirements.
    Our involvement covers the full spectrum of services, from 
initial program design to the critical marketing services 
targeted at customer education and enrollment into the 
programs; to the field implementation and the ultimate 
measurement and verification of the actual savings achieved, 
which is used to report back to the respective regulatory 
bodies.
    With the focus of this hearing to review non-Federal 
programs for financing energy efficient building retrofits, I 
would like to review a few items. While there are several 
alternatives to replace or supplement Federal funding and 
support of various programs, such as performance contracting, 
equipment-based loans, on-bill financing, and the type, there 
is a key driver to the ultimate success of these programs. 
Essentially, where we have experienced the greatest level of 
achievement in terms of customer acceptance and collaboration 
is in States where clear standards have been established.
    In our experience, the most successful programs are those 
in which States establish energy efficiency resource standards 
and then allow the marketplace to develop the best methods to 
achieve those goals. The collaboration comes through a strong 
alignment of interests of the State, regulators, utilities, 
commercial and industrial businesses, and the residents, along 
with the private sector service provision.
    Programs are developed that properly focus on maximizing 
the energy savings through targeting the effective rate of 
return on the investments made through these various retrofit 
projects.
    Energy efficiency remains America's cheapest, cleanest, and 
readily deployable energy source when compared to any other 
supply side generation, where costs have continued to rise. We 
can reduce the costs for both the consumer and the utility, 
eliminate pollution, and create green jobs, all without Federal 
dollars.
    A current example of such an initiative is being delivered 
across the State of Indiana. In 2009, the State of Indiana 
joined many other States to establish long-term Energy 
Efficiency Resource Standards. These standards set forth energy 
savings targets with very specific timetables for achievement. 
Once the standards were established, Indiana undertook an 
exhaustive effort to review their options for that achievement. 
Their model evaluated the need for a true partnership of all 
stakeholders in order to achieve their ultimate goals.
    They established a Demand Side Management Coordination 
Committee of the Indiana Utility Regulatory Commission made up 
of representatives from each of the utilities, local 
municipalities, and consumer groups throughout the State. They 
went to the marketplace to bid and ultimately select an 
independent third party administrator for the statewide 
initiative.
    Our company GoodCents was selected to reduce energy use by 
more than 1.2 million megawatt hours over just the first 2 
years of the contract period. Branded ``Energizing Indiana,'' 
the initiative is a united effort by the State, participating 
utilities, businesses, and consumer organizations to offer 
energy efficiency programs that will benefit communities across 
the State.
    This extensive, statewide suite of 5 core energy efficiency 
programs includes: commercial and industrial retrofits; 
residential home energy assessments; income-qualified 
weatherization services; lighting expansion through over 300 
retail participating outlets across the State; and energy 
education programs and commercial building assessments for 
Indiana schools.
    The power of offering an integrated approach most 
definitely drives additional benefit and savings for the 
customers. The Energizing Indiana program has also created a 
significant number of new jobs for Indiana residents. The 
program will directly hire over 150 positions directly out of 
the Indiana work force. In addition, when efficiency 
improvements are made as a result of the assessments that are 
done, the work is performed by local professionals, which means 
that the dollars stay in the local community.
    Similar to our efforts in Indiana, many other States have 
established their own energy efficiency resource standards. 
Once these goals and standards have been set, they then 
developed the proper alignment between all of the stakeholders 
to drive toward their aggressive goals. This allows for the 
best thinking to be put toward the market-based program 
requirements versus establishing Federal prescriptive programs 
that become very difficult to effectively deliver. Costs of 
these programs go through the regulatory system for proper 
review and inclusion in the local rate structure. The market 
ultimately drives the programs, the participation, and the 
returns once those standards have been established.
    Thank you for your time.
    [The prepared statement of Mr. Rodgers follows:]

   Prepared Statement of William A. Rodgers, Jr., President and CEO, 
                 GoodCents Holdings, Inc., Atlanta, GA
GoodCents Overview
    Mr. Chairman and members of the Committee on Energy and Natural 
Resources, my name is Bill Rodgers and I am the President and CEO of 
GoodCents Holdings, Inc. GoodCents is headquartered in Atlanta, Georgia 
and has provided operations in 20 states and Canada over the past year. 
I thank you for the opportunity to testify before you today on the 
important topic of energy efficiency.
    Energy efficiency programs can and do exist independent of federal 
financing and incentives. Our company has been in existence for over 30 
years and our continued growth over that period is clear evidence of 
the role market forces can have in driving EE programs. During that 
time we have provided multiple types of Demand Side Management programs 
such as energy efficiency to over 150 Utilities and their customers. 
Our Utility customers include Investor Owned, Co-operatives and 
Municipalities. We have over 400 employees located across our country 
and in Canada who wake up each and every morning focused on assisting 
businesses and residents in conserving, and better utilization of, 
their energy requirements. Our company partners with both electric and 
gas Utilities to deliver the most effective programs targeted at 
reducing their energy footprint. Just samplings of some of the programs 
we deliver are:

   Facility Audits (both residential and commercial)
   Income Qualified Weatherization
   Equipment Efficiency Studies
   Retrofit Programs for Commercial and Industrial

                  Lighting
                  H.V.A.C.
                  Equipment (motors, drives, refrigeration etc.)

   Trade Ally Network development and management
   Energy End Use Studies

    Our involvement covers the full spectrum of services: From initial 
program design, focusing on the delivery of the required or targeted 
savings; to the critical marketing services, targeted at customer 
education and enrollment into the programs; to the field implementation 
and the ultimate measurement and verification of the actual savings 
achieved which is used to report back to the respective regulatory 
body. With the focus of this hearing to review non-federal programs for 
financing energy efficient building retrofits, I would like to review 
several items. While there are several alternatives to replace or 
supplement federal funding and support of various programs (such as 
performance contracting, equipment based loans, on-bill financing, 
etc.) there is a key driver to the ultimate success of these programs. 
Essentially, where we have experienced the greatest level of 
achievement in terms of customer acceptance and collaboration is in the 
states where clear and precise standards have been established. In our 
experience the most successful programs are those in which a state 
establishes Energy Efficiency Resource Standards (EERS) and then allows 
the marketplace to develop the best method to achieve those goals.
    To date, 26 states have established EERS.
    The collaboration comes through the strong alignment of interests 
of the state, regulators, Utilities, commercial and industrial 
businesses and residents, along with the private sector service 
provision. Programs and models are developed that properly focus on 
maximizing the energy savings through targeting the effective rate of 
return on the investments made through various retrofit projects.. 
Energy efficiency remains America's cheapest, cleanest, and fastest 
energy source when compared to any other supply side generation where 
costs have continued to rise. We can reduce costs for both the consumer 
and utility, eliminate pollution and create green jobs all without 
federal dollars. A current example of a successful Initiative that 
doesn't require any federal financing is being delivered across the 
State of Indiana.
Energizing Indiana Overview
    In 2009, the State of Indiana joined many other states, and since 
that time many others have followed, to establish long-term Energy 
Efficiency Resource Standards (EERS). Please see the map of the current 
State EERS on page 16 of this testimony. These standards set forth 
energy savings targets with specific timetables for achievement. Once 
the EERS were established, Indiana undertook an exhaustive review of 
their options for achievement. Their model evaluated the need for a 
true partnership of all stakeholders in order to achieve their ultimate 
goals. They established a Demand Side Management Coordination Committee 
(DSMCC) of the Indiana Utility Regulatory Commission (IURC) made up of 
representatives of each of the Utilities, municipalities and consumer 
groups in the state. They went to the marketplace to bid and ultimately 
select an Independent Third Party Administrator for their statewide 
initiative. GoodCents was selected and entered into a contract targeted 
to reduce energy use by more than 1.2 million MWh over the first two 
contract years of 2012 and 2013. Branded ``Energizing Indiana,'' the 
initiative is a united effort by the state, participating Utilities, 
businesses and consumer organizations to offer energy efficiency 
programs that will benefit communities across the state.
    This extensive, state-wide suite of five core energy efficiency 
programs includes: Commercial & Industrial Prescriptive program on the 
most energy consuming equipment and process improvements, Residential 
Home Energy Assessments, Income-Qualified Weatherization Services, 
Residential Lighting expansion through over 300 participating retail 
locations, and both Energy Educational Programs and Commercial Building 
Assessments for Indiana Schools.
    As administrator, GoodCents is coordinating, managing, implementing 
and reporting on this core suite of programs designed to meet the 
annual energy savings goals identified for each participating Utility. 
In addition, the Utilities also offer other ``Core Plus'' programs 
directed toward expanding to an even greater suite of energy efficiency 
services that GoodCents works to educate the ultimate customers on the 
combined value. GoodCents has built a world-class team of experienced 
professionals from across the state and is managing the program from 
four Indiana offices in Indianapolis, Merrillville, Fort Wayne, and 
Evansville.
    GoodCents believes that by consolidating energy efficiency programs 
into one core initiative, Energizing Indiana has the power to benefit 
many Utility customers; from industry to businesses, and schools to 
homeowners. The power of offering an integrated, more tailored approach 
most definitely drives additional benefit and savings for the 
customers. We see other states following Indiana's lead of program 
consolidation because of the efficiency and continuity gained by the 
scale of operations. One of the most important operational components 
of these Utility-sponsored programs is the focus on energy savings 
data-gathering, retention, and validation attributable to each Utility 
customer.
    The Energizing Indiana program has also created a significant 
number of new jobs for Indiana residents; the program has to date 
directly hired over 100 management, administrative, and technical 
positions from the Indiana workforce. In addition, when a business or 
home makes efficiency improvements as a result of assessment programs, 
the work is performed by local professionals; that means dollars spent 
stay in the community.
Approach to Market
    Through years of experience, GoodCents has identified a variety of 
tools that are effective in engaging customers and changing their 
behavior resulting in optimal program enrollment. The key to a 
program's success is establishing a strong marketing campaign that 
spans across multiple marketing channels and provides multiple touches 
to Utility customers to increase both awareness and activity. In 
addition, it is essential to develop an enrollment channel that is easy 
and convenient for customers to use.
    Effective marketing is the key to robust participation. GoodCents 
has a complete array of marketing capabilities including print 
collateral design and production, social marketing programs (community 
engagement programs, social media implementation, local enrichment 
programs, etc.), and electronic communications to include website 
development, landing pages, email campaigns, and online program 
administration. In many programs, incentives are used to drive higher 
response rates through both direct mail and community enrichment.
    GoodCents also works with Utilities to establish program awareness 
through social marketing platforms and pushes to engage local 
newspapers for additional support. In addition we use resources such as 
social media sites like Facebook, Twitter, and YouTube to raise 
awareness of the energy efficiency and demand response programs. 
GoodCents works with the Utility to build a program webpage that 
provides program information and allows the customers to enroll. In 
addition, we piggy-back some program marketing approaches with any of 
the Utility's current and future media campaigns or marketing efforts.
    When working within the energy efficiency business the key to 
gaining both commercial and residential customer acceptance is in 
educating them as to the benefits of the programs, allowing them to 
understand the financial impact and return on their investment as well 
as working to make the process participation simple.
Types of Programs Delivered
            Demand Response Programs
                         load control programs
    For more than three decades, GoodCents has been a valued partner 
for Utilities implementing demand response programs. In addition to 
advanced and emerging smart grid technologies, the Company installs and 
commissions a wide array of demand response devices, including 
communicating thermostats, water heater and pool pump controllers, and 
internet gateways, across a range of protocols and communications 
mediums. Active programs being delivered in California, Georgia, 
Illinois, Indiana, Kentucky, North Carolina, Ohio, Oklahoma, South 
Carolina and Virginia. Recently completed programs were also in Nevada 
and Washington.
                          home area networking
    Home area networks connect all aspects of the home to best 
understand how and where and to what degree energy is being used. A 
home area network is a network of energy management devices, digital 
consumer electronics, signal-controlled or enabled appliances, and 
applications within a home environment on the home side of the electric 
meter. GoodCents utilizes its decades of experience in demand response 
and working inside the home to leverage the optimal solutions for our 
customers in establishing the most effective home area networks to 
allow for maximum understanding of usage. We work with our Utility 
clients to identify, enroll and implement the networks as well as 
analyze the data for meaningful future program usage. Current programs 
in Arizona and Texas.
                    advanced metering infrastructure
    GoodCents' Advanced Metering Infrastructure offering combines smart 
meter deployment, infrastructure component installation, proprietary 
scheduling and routing applications, and customer call centers. The 
combined offering ensures the most efficient deployment of smart grid 
programs, and positions GoodCents as an important link between the 
Utility and its customers.
Energy Efficiency Programs
                    income qualified weatherization
    GoodCents' Income-Qualified Weatherization programs utilize a 
combination of a well-defined, standardized in-home measure 
installations process and a solid, long-standing analytic software 
tool. Our program delivery may include combustion safety testing, 
blower door guided air sealing, arranging for attic insulation, and 
providing conservation education and encouraging adoption of energy 
efficiency measures. Active programs are being delivered in Florida, 
Indiana, North Carolina and Virginia.
                     residential energy assessments
    GoodCents believes that on-site energy assessments provide the best 
opportunity to reshape the energy usage habits of all customers. Our 
highly trained and experienced technicians perform detailed site 
surveys and work closely with the customer to install energy efficiency 
measures as determined by the Utility and their customers.
    Along with installing measures, we are also capable and equipped to 
conduct in-out testing for implementation-style assessments such as 
weatherization, duct repairs, ceiling insulation and more. GoodCents 
generally uses six common elements for on-site energy efficiency 
programs, pre-visit and authorization, home health and safety, 
installed measures, energy audit inputs, energy audit analytic engine, 
and homeowner's energy report. Active programs are being delivered in 
Indiana, Ohio and West Virginia.
  six common elements of goodcents on-site energy efficiency programs
Commercial & Industrial Energy Assessments
    GoodCents' Commercial and Industrial programs include prescriptive 
and custom incentive structures that reward participants with monetary 
incentives based on their installation of energy efficiency equipment 
upgrades. These upgrades include lighting, motors and pumps, HVAC, and 
potentially other equipment such as ENERGY STAR transformers and 
efficient package refrigeration. Incentives will be provided for one-
for-one replacements, retrofits and new installations of qualified 
equipment.
    The objectives of the C&I Prescriptive Program are to:

   Lower electric energy consumption in the C&I market sector.
   Help C&I customers decrease their overall energy costs.
   Build market-based activity that captures near- and long-
        term energy and demand savings.
   Encourage equipment vendors and contractors to actively 
        promote and install energy efficient technologies for their C&I 
        customers.

    To assist C&I customers in reducing their electric energy costs, 
the GoodCents team provides program participants with technical 
assistance accessible through Resource Managers working directly with 
their site as well as a toll-free customer service line. The technical 
assistance can include helping to understand the return on their 
potential investments, answering general questions regarding the 
program, evaluating available program incentives, verifying program 
eligibility, and/or connecting them with potential local installation 
contractors that are familiar with and participating in the program. 
Active Programs are being delivered in Indiana, Kentucky, North 
Carolina, Ohio, South Carolina, Virginia and West Virginia.
                            rebate programs
    The goals of the rebate program offered by GoodCents are to provide 
Utilities and their customers with an avenue to reduce energy and 
demand requirements, save money on electric bills, and meet reduction 
goals set forth by state legislatures and commissions. To accomplish 
these goals, the GoodCents rebate program offers a complete turn-key 
offering from the marketing aspect through rebate check processing. Our 
rebate offerings can either be fully customizable or a standard 
prescriptive based program. Similar active programs as listed in the 
commercial energy assessments.
Conclusion
    Similar to our efforts in Indiana, many other states have 
established their own Energy Efficiency Resource Standards. Once these 
goals and standards have been set they then developed the proper 
alignment between the state, regulators, local communities, Utilities, 
industrial and commercial businesses and the residential customers to 
drive towards their aggressive goals. This allows for the best thinking 
to be put towards the market-based program requirements versus 
establishing federal prescriptive programs that become difficult to 
realize ultimate success. Costs of these programs go through the 
regulatory system for proper review and inclusion in the local rate 
structures. The market ultimately drives the programs, participation 
and returns once the standards are established.

    The Chairman. Thank you very much.
    Ms. Borelli, go right ahead.

   STATEMENT OF SHERI BORRELLI, SENIOR BUSINESS DEVELOPMENT 
   PROFESSIONAL, THE UNITED ILLUMINATING COMPANY, ORANGE, CT

    Ms. Borrelli. Thank you. Good morning, Mr. Chairman, 
Senator Murkowski, members of the committee. Thank you for the 
opportunity to appear before you today to discuss financing 
energy efficient building retrofits. My name is Sheri Borrelli 
and I represent The United Illuminating Company. UI is an 
investor-owned electric distribution company serving 
approximately 300,000 customers in southern Connecticut. UI 
also administers energy efficiency programs funded by a 3 mil 
per kilowatt hour charge that is referred to as the Connecticut 
Energy Efficiency Fund.
    I am here today to familiarize you with the Small Business 
Energy Advantage Program. This is one of our many programs that 
we serve as administrator of the Efficiency Fund. This program 
has been designed to provide cost-effective turnkey energy 
services to various types of small businesses.
    This program features a network of vendor contractors 
provided by UI that provide energy efficiency proposals and 
services to our customers. These contractors provide a no-
obligation energy evaluation identifying the potential energy-
saving retrofit measures, the available incentives, and various 
financing options. These proposals will include dollars from 
the Efficiency Fund for a portion of the cost of the 
installation as it is determined by the energy savings that 
will be achieved. The greater level of comprehensive a project, 
the higher the incentive.
    The objective is to offer the customer a proposal where 
there is no or little out of pocket expense and create a 
positive cash-flow scenario, which results in lowering their 
electric bill. Another benefit is that once the loan is paid 
off, usually within 3 to 4 years, the customer will be--the 
customer's bill will be less, reflecting the efficiency 
upgrades.
    Although the program itself is a critical delivery 
mechanism, the innovative part of the program is the financing 
with the convenience of on-bill financing. The loans to the 
customer are interest-free. Interest-free loans are possible 
since the interest expense of 6.3 percent is bought down by the 
Efficiency Fund. Repayment of the loan is made as part of the 
customer's electric bill.
    To quality for the loan, the customer must have a good 
utility bill repayment history for the most recent 6 months. 
The most unique feature about the loan payment is the source of 
capital. UI provides the funds that are loaned to the customer. 
The Efficiency Fund is used as a loan loss reserve fund, 
allowing UI to recover any losses from the defaulted loans 
pending quarterly review from the Public Utility Regulatory 
Authority.
    The interest paid to UI on the outstanding loans to UI's 
after-tax cost of capital, a mix of debt and equity, is the 
same rate the utility would earn on investments on the 
distribution system equipment.
    Although we operate a very innovative financing program, we 
are not resting on our laurels. We are working with the Clean 
Energy Finance and Investment Authority in Connecticut, which 
is operating as a green bank to identify other sources of 
capital that might be beneficial to our customers. Among these 
opportunities is a commercial version of the Property Assessed 
Clean Energy. We are looking toward developing a portfolio 
approach to providing our customers with financing solutions 
for energy efficiency projects.
    UI has a strong tradition of offering successful energy 
efficiency programs and the long-proven success of our small 
business model has been replicated nationally and researched 
internationallyl. If replicated, this program can also result 
in job creation on a national scale.
    Thank you for inviting me here today to testify.
    [The prepared statement of Ms. Borrelli follows:]

   Prepared Statement of Sheri Borrelli, Senior Business Development 
       Professional, The United Illuminating Company, Orange, CT
    This testimony is being presented on behalf of The United 
Illuminating Company (UI), an investor owned electric distribution 
company in Connecticut. UI administers energy efficiency programs 
funded by a 3 mil per kilowatt hour charge that is referred to as the 
Connecticut Energy Efficiency Fund. The program being discussed is the 
Small Business Energy Advantage Program offered to customers since the 
year 2000. This program has been designed to provide cost effective, 
turn key energy services to various types of small businesses. The 
program features a network of vendors contracted by UI that provide 
energy efficiency proposals and services to the customers. These 
contractors provide a no obligation energy evaluation identifying the 
potential energy saving retrofit measures, the available incentives and 
various financing options. These proposals will include incentive 
dollars from the Efficiency Fund for a portion of the cost of the 
installation as determined by the energy savings achieved. The 
objective is to offer the customer a proposal where there is no or 
little out of pocket expense and create a ``positive cash flow'' 
scenario, which results in lowering their electric bill.
    Mr. Chairman, Senator Murkowski and Members of the Committee, thank 
you for the opportunity to appear before you today to discuss financing 
energy efficient building retrofits. My name is Sheri Borrelli, and I 
represent The United Illuminating Company. United Illuminating (UI) is 
an investor owned electric distribution company serving approximately 
300,000 customers throughout seventeen (17) towns and cities in 
southern Connecticut. UI also administers energy efficiency programs 
funded by a 3 mil per kilowatt hour charge that is referred to as the 
Connecticut Energy Efficiency Fund. The Energy Efficiency Fund was 
created in 1998 with the purpose of helping small and large businesses, 
homeowners and renters to promote, encourage, and facilitate the 
adoption of energy efficient technologies and behaviors. The programs 
are designed to help customers manage their energy usage and cost. 
These energy efficiency programs offered through the Energy Efficiency 
Fund play a vital economic role for Connecticut.
    I am here today to familiarize you with one of the programs we 
operate as part of our role of program administrator for the efficiency 
programs, the Small Business Energy Advantage program. Since its 
inception in 2000, this program has been designed to provide cost 
effective, turn key energy services to the various types of small 
businesses within UI's service territory. Some examples of qualifying 
small business would be ``various mom and pop'' stores, houses of 
worship, retail spaces, convenience stores, gas stations, restaurants, 
apartment building common areas and non-profit organizations.
    Typically, these businesses will have an average monthly electric 
utility bill from $150.00 up to $25,000.00 if they are a small 
manufacturing company. The program features a network of vendors 
contracted by UI that provide turn key energy efficiency proposals and 
services to the customers. These contractors provide a no obligation 
energy evaluation identifying the potential energy saving retrofit 
measures, the available incentives and various financing options. These 
proposals will include incentive dollars from the Efficiency Fund for a 
portion of the cost of the installation as determined by the energy 
savings achieved. The more comprehensive a project, the higher the 
incentive, for example a lighting only project incentive may be 
approximately thirty (30%) and for a comprehensive lighting, 
refrigeration and Heating Ventilation and Air Conditioning (HVAC) 
project incentives may be forty (40%) to fifty (50%). In most cases, 
these comprehensive projects max out at the fifty (50%) incentive level 
for multiple technologies. Zero (0%) financing with on bill repayment 
is available to all qualified customers.
    The objective is to offer the customer a proposal where there is no 
or little out of pocket expense and create a ``positive cash flow'' 
scenario, which results in lowering their electric bill almost, if not, 
immediately and the energy savings achieved each month offsets the 
payment. Another benefit is that once the loan is paid off (usually in 
3 or 4 years), the customer's bill will be less reflecting the 
efficiency upgrades that were installed. The minimum loan amount 
offered to the customer is $500, and the maximum loan is $100,000. 
Another appealing feature of the Small Business Energy Advantage 
Program is the ability to offer a loan term up to forty eight (48) 
months. (an example of a recent project comparing pre and post 
installation consumption is included as part of this testimony).
    Although the program itself is a critical delivery mechanism, the 
innovative part of the program is the financing with the convenience of 
on-bill repayment. The loans to the customer are interest free (0%). 
Interest free loans are possible since the interest expense of 6.3% is 
bought down by the Efficiency Fund. Repayment of the loans is made as 
part of the customer's electric bill. The loan qualification is a good 
utility bill repayment history for the most recent six months. The 
loans are fully transferrable and assumable. This particular feature is 
noteworthy especially since eighty (80%) of our customers enrolled in 
this program are tenants.
    The most unique feature about the loan program is the source of the 
capital. The utility, UI, provides the funds that are loaned to the 
customer. The Efficiency Fund is used as a loan loss reserve fund, 
allowing the utility to recover any losses from defaulted loans pending 
quarterly review by Connecticut's Public Utilities Regulatory Authority 
(PURA).
    The interest paid to the utility on the outstanding loans is UI's 
after tax cost of capital (a mix of debt and equity) the same rate the 
utility would earn on investments on distribution system equipment. By 
making investments in energy efficiency appear similar to traditional 
utility investments, the utility is encouraged to invest in energy 
efficiency.
    Although we operate a very innovative financing program, available 
to our Municipal customers as well, we are not resting on our laurels. 
We are working with the Clean Energy Finance and Investment Authority 
in Connecticut, an innovative ``Green Bank'' to identify other sources 
of capital that might be beneficial to customers. Among those 
opportunities is a commercial version of Property Assessed Clean Energy 
(PACE). The PACE model may prove to be beneficial in certain 
circumstances. We are looking toward developing a portfolio approach to 
providing customers with financing solutions for energy efficiency 
projects.
    UI has a strong tradition of offering energy efficiency programs, 
and the long term proven success of our Small Business Model has been 
replicated nationally and researched internationally, and our vendor 
network, if replicated could result in job creation on a national 
scale.
    The impact of financing for energy efficiency for small businesses 
can be shown through these statistics, approximately ninety-four (94%) 
of our customers qualify for the financing, and of this percentage, 
fifty (50%) decide to participate. In contrast, for those who do not 
qualify for the financing less than twenty (20%) participate. With the 
combination of incentives and 0% financing we have been able to empower 
the small business community to take the initiative to move to energy 
efficiency and in doing so we are able to utilize utility funds for the 
benefit of both the customers and the utility.
    Thank you for inviting me to testify today. I would be happy to 
answer any questions you may have.

    The Chairman. Thank you very much.
    Ms. Leeds.

  STATEMENT OF SUSAN LEEDS, CHIEF EXECUTIVE OFFICER, NEW YORK 
        CITY ENERGY EFFICIENCY CORPORATION, NEW YORK, NY

    Ms. Leeds. Thank you for inviting me here today.
    The New York City Energy Efficiency Corporation's mission 
is to help New York City achieve its energy and climate action 
goals by catalyzing an energy efficiency retrofit financing 
market for private building owners. We focus on financing 
commercial and multi-family retrofits in buildings of over 
50,000 square feet.
    Energy efficiency retrofits require up-front capital 
investment and the payback happens over time. Although up-front 
costs and lack of financing are often cited as barriers, I must 
emphasize that the availability of financing is only one 
component of what is necessary to ensure retrofit growth. 
Demand is also critically necessary, as is information on 
building energy use and retrofit performance.
    Barriers to energy efficiency finance differ by building 
segment, but it is generally true that there must be a credible 
source of repayment. The flow of financing for commercial 
retrofit projects is hampered by the absence of collateral with 
significant value in the event of default and by borrowers who 
are not by their nature creditworthy entities with strong 
balance sheets. High transaction costs, limited performance 
data, and preexisting liens on real property are complicating 
factors.
    What is NYCEEC's strategy to address this challenge? We are 
a nonprofit public-private partnership. We are an example of 
the type of specialized organization that is necessary to 
develop effective energy efficiency financing programs, which 
we believe involves managing both energy efficiency technical 
risk and real estate finance risk and capturing data on the 
financial value of energy efficiency investments.
    We are partnering with private financial institutions to 
leverage our core capital of approximately $40 million, 
primarily from Federal stimulus funds, for greatest impact. We 
are piloting new financial products that we believe are 
replicable at scale. This work is generally not being 
undertaken by the private financial sector, primarily due to 
high transactions costs, unproven revenue streams, and a 
currently conservative credit culture.
    We are using two main strategies. We are providing credit 
enhancement in the form of loan loss reserves to mitigate risks 
that lenders currently won't accept; and we are also offering 
loans where capital for retrofits is scarce, high cost, or 
unavailable.
    We are currently working with 3 specific financing 
products. Energy services agreements have historically been 
used by the ESCO industry, along with performance contracting, 
to finance retrofits. We are applying a modification of this 
approach to the commercial real estate sector, which we call 
``ESA Version 2.0,'' in which a third party project sponsor 
invests in the energy savings potential in a building directly, 
although they do not own that building. This is a sophisticated 
approach that makes the most sense for capital-intensive 
projects.
    Unsecured lending for retrofits is not new and is primarily 
applicable to high credit quality borrowers, such as the MUSH 
sector. We believe this is an important tool, but not a 
solution for scaling retrofit financing for commercial 
buildings.
    Energy efficient mortgages allow building owners to borrow 
specifically for building retrofits on top of a conventional 
loan. This may be achieved by increasing the base loan amount 
at the time of refinancing or by providing a supplemental loan 
in conjunction with the first mortgage.
    Conventional mortgage lenders are not providing this form 
of finance today. By providing credit enhancement to mitigate 
savings risk and by bringing energy efficiency technical 
expertise to lenders, we are helping lenders systematically 
incorporate retrofits into the mortgage lending process. We 
believe this is a highly scalable solution.
    Programmatic approaches that we are not currently deploying 
but would like to in the future include PACE for commercial 
buildings and on-bill financing programs implemented through 
the regulated utilities.
    What have we learned so far? We commenced operations 1 year 
ago. We have closed transactions and are working on many more. 
There is demand for the financing products that we support. 
However, base demand for retrofit investment is an issue. This 
means that more information and education is required to propel 
building owners to act. Lenders generally require some form of 
credit enhancement to finance most commercial energy efficiency 
projects. Individual transactions costs are high. Thus it is 
critically important to promote programmatic approaches.
    The retrofit market is highly fragmented and no one 
financing product will suit the needs of all owners and major 
tenants. There is need for both modification of standard 
financial products and for new and innovative approaches.
    My observation is that most policy drivers for building 
retrofits are happening at the municipal and State level. That 
said, NYCEEC would not exist without Federal stimulus funding.
    What can the Federal Government do to help? Consider 
adjusting tax policy with the objective of driving demand for 
commercial retrofits through tax incentives. Encourage the 
GSE's to develop energy efficiency lending strategies. Expand 
efforts to aggregate and provide public access to data on 
retrofits and building energy performance. Finally, provide 
continued financial support through Federal grant funding to 
emerging programs that are demonstrating success.
    Thank you.
    [The prepared statement of Ms. Leeds follows:]

 Prepared Statement of Susan Leeds, Chief Executive Officer, New York 
            City Energy Efficiency Corporation, New York, NY
    Introduction Thank you for inviting me to testify on innovative 
non-federal programs for financing energy efficient building retrofits.
    My name is Susan Leeds, and I am the Chief Executive Officer of the 
New York City Energy Efficiency Corporation. I have worked in energy 
efficiency financing for the past four years in various capacities 
including advocacy, consulting, financial transaction execution, and 
business management. My prior professional experience spans capital 
markets, municipal finance and financial guaranty insurance.
    The New York City Energy Efficiency Corporation - we call ourselves 
``NYCEEC'' - was created as an independent non-profit corporation by 
New York City's Office of Long-term Planning and Sustainability. Our 
mission is to help New York City achieve its energy and climate action 
goals by catalyzing energy efficiency retrofit financing markets for 
private building owners. We were created because our City leaders 
believe that New York City residents can reap economic and 
environmental benefits through greater investment in energy efficiency 
in existing buildings, and that insufficient financing is a barrier to 
such investment.
    What is the potential for energy efficiency investment?
    Retrofitting commercial buildings to make them more energy 
efficient is widely acknowledged to have multiple benefits to building 
owners, occupants and the community at large. Yet actual investment in 
energy efficiency measures remains well below potential.
    In March 2012, the Rockefeller Foundation and the Deutsche Bank 
Group published a report, titled, ``United States Building Energy 
Efficiency Retrofits, Market Sizing and Financing Models.''\1\ This 
report provides a ``snapshot'' of the current investment potential in 
building retrofits of $279 billion dollars or approximately 3 trillion 
BTUs of annual energy savings, with $97 billion of this investment 
potential residing in the commercial and institutional building 
sectors. Studies vary in methodology, but in comparing these figures to 
the U.S. energy efficiency potential study published by McKinsey in 
2009, we find reasonable consistency.\2\
---------------------------------------------------------------------------
    \1\ Note that this analysis is based on an assumption of 30% energy 
savings in buildings built before 1980. Fulton, Mark and et al. 
``United States Buiding Energy Efficiency Retrofits: Market Sizing and 
Financing Models.'' The Rockefeller Foundation and Deutsche Bank 
Climate Change Advisors, March 2012.
    \2\ Granade, Hannah Choi and et al. ``Unlocking Energy Efficiency 
in the U.S. Economy.'' McKinsey & Company, July 2009. http://
www.mckinsey.com/client_service/ electric_power_and_natural_gas/ 
latest_thinking/ unlocking_energy_efficiency_in_the_us_economy.
---------------------------------------------------------------------------
     Figure 1.* What is the energy efficiency investment potential?\3\
---------------------------------------------------------------------------
    * All figures and tables have been retained in committee files.
    \3\ Fulton 7.
---------------------------------------------------------------------------
    However, actual investment is significantly lower. According to 
research published by Bloomberg New Energy Finance, approximately $18-
20 billion was invested in energy efficiency projects in the U.S. in 
2010.\4\ An estimated $3.5 to 5.5 billion of this amount is direct 
spending by homeowners, landlords, small business owners, real estate 
companies and corporations. Approximately 25% (or $4.5-5 billion) was 
funded through debt financing-primarily municipal debt associated with 
energy performance contracting. Innovative financing approaches, which 
comprise NYCEEC's core mission, accounted for only 3% of non-owner 
equity funding sources.
---------------------------------------------------------------------------
    \4\ Hesser, Theodore Gates. ``Is debt financing opening up for 
energy efficiency?'' Energy Smart Technologies-Built Environment-
Research Noe. Bloomberg New Energy Finance, 25 April 2012.
---------------------------------------------------------------------------
    Figure 2. What is the actual level of energy efficiency investment? 
(2010)\5\
---------------------------------------------------------------------------
    \5\ Hesser 2.
---------------------------------------------------------------------------
    What is the role of financing?
    Energy efficiency retrofits require upfront capital investment, and 
the payback happens over time in the form of energy cost savings and 
improved property values. The ``upfront cost'' factor and lack of 
targeted financing options for building efficiency projects are 
consistently cited as barriers to the growth of energy efficiency 
retrofit markets.\6\
---------------------------------------------------------------------------
    \6\ For the past six years, Johnson Controls has conducted an 
annual, global Energy Efficiency Indicator survey that tracks the 
energy priorities and investments by executives from the commercial, 
industrial and institutional sectors. The survey results have 
consistently cited limited capital availability as the most significant 
barrier to businesses undertaking energy efficiency investments. In 
2012, there were 1,139 respondents in the U.S. and Canada. There were 
nearly 3,500 respondents worldwide in 2012. ``Energy Efficiency 
Indicator Survey: U.S./Canada Results.'' Johnson Controls Institute for 
Building Efficiency, 2012. .
---------------------------------------------------------------------------
    In Johnson Controls' 2012 ``Energy Efficiency Indicator Survey,'' 
U.S. and Canadian executives cited a lack of funding as the most 
significant barrier to undertaking energy efficiency investments (37%), 
followed by insufficient payback/return on investment (21%). \7\
---------------------------------------------------------------------------
    \7\ Johnson Controls Institute for Building Efficiency 2012.
---------------------------------------------------------------------------
    As previously mentioned, in 2010, only 25% of the total U.S. energy 
efficiency expenditure was financed via debt, and this was concentrated 
among high credit quality institutions. In comparison, the $16 trillion 
U.S. housing market is financed 60% via debt through mortgages. We 
conclude that a paucity of financing is likely to prevent energy 
efficiency investment from reaching its full potential.
    That said, I must also emphasize that availability of financing 
options is only one component of what is necessary to ensure increasing 
throughput of retrofit activity across building sectors. Demand is also 
critically necessary, which in my experience must be supported by local 
policy drivers, a skilled workforce, including a robust energy audit 
profession, information on building energy use and retrofit 
performance, and effective service delivery business models for project 
implementation.
    Why is so little capital provided to this sector through financing 
today?
    Barriers to energy efficiency finance differ by building segment. 
However, it is generally true that there must be a credible source of 
repayment, either through a strong balance sheet or supported by assets 
with collateral value. The flow of financing for commercial retrofit 
projects is hampered by the absence of collateral with significant 
value in the event of default (in contrast to mortgage or auto 
lending), and by borrowers who are not creditworthy entities (these are 
often limited liability entities in the commercial real estate sector). 
Further, high transactions costs, limited performance data and pre-
existing liens on real property are additional complicating factors. 
Split incentives, and in some regions, low energy prices reduce the 
economic feasibility of projects.
    The chart** below enumerates various barriers relevant to financing 
energy efficiency projects in large buildings:
---------------------------------------------------------------------------
    ** All charts have been retained in committee files.
---------------------------------------------------------------------------
    What is the strategy of New York City Energy Efficiency 
Corporation?
    NYCEEC is structured as a non-profit, public-private partnership, 
as reflected in our Board structure. We are an example of the type of 
specialized organization that is necessary to undertake the development 
of effective energy efficiency financing programs, which we believe 
involves managing both energy efficiency technical risk and real estate 
finance risk, and balancing policy objectives with the need to prove 
and capture data on demonstrable financial value of energy efficiency 
investments.
    Figure 3. What is NYCEEC?
     Our goal is to partner with private financial institutions to 
leverage our core capital for greatest impact. While there are many 
government sponsored programs that promote energy efficiency, NYCEEC is 
novel because we are operating as a non-profit specialized financing 
entity-with an ethos that balances risk management with customer-
service.
    We are filling gaps in the availability of capital, and piloting 
partnerships and financial products that we believe are replicable, 
eventually at scale. This work is generally not being undertaken by the 
private finance sector (with the exception of certain CDFIs\8\), 
primarily due to high transactions costs, unproven revenue streams and 
a current reticence on the part of many financial institutions to 
participate in innovative financing structures (within means of 
mitigating credit risk). We are generating a return on our capital, 
albeit calibrated to our non-profit, mission purpose. We seek to 
maximize energy efficiency investment within our community by 
attracting commercial lenders to the sector.
---------------------------------------------------------------------------
    \8\ Community Development Financial Institutions
---------------------------------------------------------------------------
    NYCEEC is using two main strategies to improve the availability of 
financing for building retrofits. We are providing credit enhancement 
to mitigate risks that commercial and mortgage lenders are currently 
unwilling to accept, and incentivize lenders to attribute value to 
energy efficiency investments. We are also offering loans (often in 
partnership with commercial lenders) to innovative applications of 
energy services agreements and unsecured or partially secured 
transactions, in cases where capital for technically sound energy 
efficiency investments is scarce, high-cost or unavailable.
    Figure 4. NYCEEC's strategy
     What are the innovative financing approaches?
    I am going to briefly discuss five financing approaches that have 
merit for supporting the development of retrofit markets. We are 
working with three of these products at present: energy services 
agreements, energy efficiency mortgages, and unsecured lending. This 
reflects what is feasible today in New York City (without additional 
regulatory or legislative action) and what we believe has the greatest 
applicability to the building stock we are targeting: primarily 
multifamily, commercial and to a lesser extent, institutional buildings 
in NYC.
    First, I want to share my observation that the energy efficiency 
retrofit market is highly fragmented. There is no one predominant or 
obvious approach to financing that will suit the needs of all owners 
and major tenants. Market segmentation is absolutely necessary and not 
well-defined at this moment.
    There is need and opportunity for both modifications of standard 
financial products that can responsibly accommodate the retrofit 
process, and for new and innovative approaches that are specifically 
designed to facilitate investment in energy efficiency retrofits. There 
is important transactional activity underway representing initial 
progress in both of these categories of activity.
    Energy Services Agreements--have historically been used by the ESCO 
industry, along with performance contracting, to finance retrofits. The 
innovation we are interested in developing is applying a modification 
of this approach to the commercial real estate sector, which we call 
``ESA Version 2.0''. In the ESA 2.0, a third party project sponsor 
funds the cost of improvements. These companies (and their capital 
sources) effectively invest in the energy savings potential in 
buildings directly, although they do not own the buildings. To varying 
degrees, they may assume the risk that the energy efficiency retrofit 
project will perform as expected and benefit from some or all of the 
``savings upside''. Often, ESA payments from building owners are 
considered to be operating expenses, as opposed to debt payments per 
se. This is a sophisticated approach that, generally speaking, seems to 
make the most sense for capital intensive projects, e.g., chillers, 
boilers, electrical and control systems, automated energy management 
systems, certain envelope measures and co-generation.
    Unsecured lending--for energy efficiency projects and equipment is 
not new, and is primarily applicable to high credit quality borrowers 
including MUSH sector entities and high-quality corporates. This 
category includes commercial loans that are either unsecured or are 
flexible with respect to collateral, accepting equipment or collateral 
arrangements other than first or second liens on real property, and 
equipment finance including leasing arrangements. We believe that this 
is an important tool in our toolbox, but not a solution for scaling 
retrofit financing across the full range of commercial buildings.
    Energy efficient mortgages--allow building owners to add borrowings 
specifically for building retrofits on top of a conventional mortgage. 
This may be achieved by increasing the base loan amount at the time of 
a refinancing to accommodate the cost of specific energy efficiency 
improvements, or by providing a supplemental first or a second lien 
loan for this purpose in conjunction with the first mortgage. Bloomberg 
New Energy Finance espouses the high potential of energy efficient 
mortgages, `` . . . .the potential market for energy efficiency debt 
derived through energy efficient mortgages is greater than any other 
financing mechanisms . . . , and could theoretically total up to $270bn 
in outstanding energy efficiency debt on top of the $13.5tn US mortgage 
market.\9\
---------------------------------------------------------------------------
    \9\ Hesser 7.
---------------------------------------------------------------------------
    Few if any conventional mortgage lenders are providing this form of 
finance today. By providing credit enhancement to mitigate the risk of 
that retrofit measures won't achieve projected cost savings, and by 
bringing technical expertise with respect to best practices for energy 
efficiency implementation to lenders, NYCEEC's goal is to help lenders 
systematically incorporate the value of energy efficiency-related 
operating savings (and additional value attributes) into the mortgage 
lending process. This is a potentially highly scalable solution in that 
it is based on a modification to standard lending practices that are 
commonly used to finance buildings across various building sectors. 
Furthermore, we believe that this approach has good applicability in 
low- to moderate-income communities.
    Programmatic approaches that we are not currently deploying (but 
may in the future) include PACE commercial and on-bill financing 
programs through the regulated utilities.
    Property assessed clean energy (PACE)--programs employ the ability 
of local governments to assess properties for improvements that have 
public benefit. Given appropriate state-enabling legislation, this 
assessment capability can provide a voluntary mechanism that permits 
property owners to finance clean energy improvements, including 
efficiency improvements, on individual properties. The assessment is 
attached to the property, not the owner, and is paid back through the 
property tax system. The assessment has the same status as property 
taxes, and therefore is empowered to attach a lien to the property in 
the event of nonpayment that is senior to any existing mortgage debt. 
Assuming adequate demand for retrofit investment, the biggest issue in 
relation to uptake of this model is likely the requirement for lender 
acknowledgement or consent. PACE commercial programs all require some 
form of it, and this creates a barrier that many owners may not care to 
deal with, and some mortgage lenders may reject.
    On-utility bill financing--takes advantage of the important 
relationship that a utility already has with its building owner 
customers, and utilities often seek to increase penetration of existing 
energy efficiency programs by offering to finance measures on the 
utility bill. In essence, the upfront cost of efficiency upgrades is 
financed through a repayment charge on the monthly utility bill. In 
tariffed programs, the charge is tied to the meter, so the tariff stays 
with the property when the customer moves; in loan programs, the 
repayment is tied to the customer, so must be repaid at property sale.
    According to Bloomberg New Energy Finance, ``scaling on-bill 
lending.will require programmes to break away from rate-payer coffers, 
and tap into outside credit from the capital markets.''\10\ Our 
research concludes that most existing on-bill programs are active 
primarily in the single-family residential building markets, although 
both New York State and California (and possibly others) are piloting 
effort to promote this financing mechanism for commercial properties.
---------------------------------------------------------------------------
    \10\ Hesser 11.
---------------------------------------------------------------------------
    Figure 5. Innovative financing approaches for commercial retrofits 
in New York City (NYCEEC's assessment)
    Figure 6. Bloomberg New Energy Finance's assessment of innovative 
financing approaches\11\
---------------------------------------------------------------------------
    \11\ Hesser 3.
---------------------------------------------------------------------------
     Figure 7. Bloomberg New Energy Finance's view of the highest 
potential financing solutions\12\
---------------------------------------------------------------------------
    \12\ Hesser 4.
---------------------------------------------------------------------------
    What is our experience so far?
    NYCEEC commenced operations one year ago. We have closed 
transactions and are in-discussions on many more. Highlights of our 
learning to date include:

   We are seeing demand for the financing products we are 
        offering across a range of building segments including 
        commercial, multifamily, retail, hospitality and health care.
   However, base demand for retrofit investments is an issue - 
        this means that more information and education is required to 
        propel building owners to act. We are also anticipating 
        increased demand as the full effect of local regulation - 
        primarily as the local laws and regulations implemented as part 
        of New York City's Greener, Greater Buildings Plan take effect.
   Almost all lenders require some form of credit enhancement 
        to finance energy efficiency projects for all but the most 
        credit-worthy borrowers.
   Individual transactions costs are high, and thus is it 
        critically important to promote programmatic approaches.
   Few financial institutions are willing to invest in 
        developing and integrating the engineering expertise with the 
        specialized finance expertise that is required to implement 
        effective retrofit financing programs in the commercial sector. 
        To take this step, institutions must perceive strong local 
        demand drivers.
   No one financing product is likely to dominate, particularly 
        in the commercial sector. What federal support is appropriate 
        and needed to ensure success?

    My observation is that most of the policy drivers for building 
retrofits are happening at the municipal and state level. Retrofit 
markets are primarily local-and to an extent regional-markets, and need 
to be supported at these levels. That said, NYCEEC could simply not 
exist without Federal stimulus funding. What can the federal government 
do to help promote the development of energy efficiency financing 
markets?

   Provide continued financial support through federal grant 
        funding to emerging programs such as NYCEEC that are 
        demonstrating success;
   Promulgate learning and promote the sharing of experience 
        and best practices among local and regional energy efficiency 
        financing programs;
   Consider adjusting tax policy (by revising 179D so that it 
        works better for existing buildings; by providing accelerated 
        depreciation for retrofit capital equipment; by allowing 
        efficiency improvements to qualify as real estate under REIT 
        regulations; by including tenant-driven as well as owner-driven 
        approaches) with the objective of driving demand for retrofits 
        through tax incentives, and improving the balance of tax 
        subsidy directed at renewables with that directed at energy 
        efficiency, as such subsidy is currently more weighted towards 
        renewables although there is a strong argument that energy 
        efficiency is more cost effective;
   Encourage the GSE's to develop energy efficiency lending 
        strategies.
   Continue and expand efforts to aggregate and provide public 
        access to data on building energy performance, energy 
        efficiency retrofit activity and performance, tenant energy 
        consumption, and municipal initiatives on benchmarking and 
        disclosure.

    An area for future consideration may be developing pathways for the 
integration between building retrofit and energy markets by encouraging 
or incentivizing utilities to purchase aggregated energy efficiency in 
the form of ``negawatts''.

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

 STATEMENT OF JEFFREY D. DEBOER, PRESIDENT AND CHIEF EXECUTIVE 
              OFFICER, THE REAL ESTATE ROUNDTABLE

    Mr. DEBoer. Good morning, Mr. Chairman, Senators. Thank you 
for the opportunity to testify here this morning. As the last 
witness on the panel, I know I bear a heavy burden to be brief. 
I will try to be brief and direct you to see details in my 
written statement.
    Let me dive right in with a few facts that I think will 
underscore what Senator Franken said about this retrofit 
business being a win-win in terms of saving energy, saving 
money, and creating jobs.
    There are over 5 million commercial and industrial 
buildings in America. 85 percent of these buildings that exist 
today are going to be standing in America in 2030. Commercial 
buildings today account for about 20 percent of the Nation's 
energy consumption. The combined average annual energy cost for 
U.S. commercial buildings and industrial facilities exceeds 
$200 billion. We estimate that you can save $20 billion 
annually by simply improving energy efficiency in these 
buildings by a mere 10 percent.
    The basic tools--and Senator Franken referenced this. The 
basic tools for retrofitting buildings, like efficient 
furnaces, water heaters, spray foam insulators, and the like, 
are manufactured here in America and obviously are American 
jobs.
    One other point, and it's been mentioned here, but I would 
underscore: It's cheaper, obviously, to save energy than it is 
to produce energy, and there are studies out there that show 
that energy produced by offshore wind is about 8 times as 
expensive as the equivalent amount of energy saved through 
energy efficiency measures. Similar data exist for nuclear 
sources and solar sources.
    So the bottom line here is that government financing 
programs and the like get more bang for the buck by encouraging 
energy efficiency as opposed to creation of other energy, which 
obviously needs to be done as well.
    While there is no silver bullet to help these retrofits 
from a national point of view, I do want to draw your attention 
to a few items that could be done here in Congress, each of 
which has bipartisan support here in the Senate. First of all, 
Senator Bingaman, I know you and other members of the 
committee, Senator Snowe and others, are looking at section 
179D, which would improve the existing tax deduction for making 
buildings more energy efficient. We applaud you for that, hope 
that it can be enacted some time soon.
    The DOE loan guarantee program which was put in place in 
2005, but to date has focused on high-risk and expensive 
programs like solar, wind energy. There is a bill, S. 1000 that 
Senators Shaheen and Portman have, which would allow DOE to get 
into less risky, less expensive building retrofit loan 
guarantees, capped at $10 million. We think that would go a 
long way.
    Senator Bennet and Isakson have a bill which would 
encourage greater information sharing and the use of appraisals 
to determine the value of energy improvements in buildings and 
we think that is something that should be done.
    There is also another bill that is here in Congress that 
Senator Bennet is developing, that would better align 
commercial owners, landlords if you will, with the tenants and 
their energy usage to make sure that there's a good exchange of 
information here. That would go a long way to help building 
owners manage their properties more energy efficiently.
    Those steps would help directly on retrofitting. I would 
say, however, that to have successful retrofits at any level 
you have to have a more robust commercial real estate market in 
general. The commercial real estate market nationwide continues 
to have some difficulties in terms of overall macro financing. 
We would encourage you to take a look at a bill that Senator 
Menendez and Senator Enzi have that would encourage greater 
foreign investment in U.S. equity markets. We think that some 
of that equity that will come in, that will allow buildings to 
transition out of their sort of purgatory state today back into 
the marketplace, some of that capital will in fact be used to 
help retrofit buildings.
    Finally in this area, Senators Leahy and Grassley have a 
bill to extend this EB-5 program, that allows foreign capital 
to come in to create development so long as jobs are created in 
return. That program expires in September. Senators Leahy and 
Grassley want to extend that. We think it would be a good 
positive thing to do.
    So I will end by saying these are some actions that could 
be done nationally that would help support some of these State 
programs and help the real estate markets and financing in 
general.
    So thank you again for the opportunity, Mr. Chairman.
    [The prepared statement of Mr. DeBoer follows:]

 Prepared Statement of Jeffrey D. DeBoer, President and CEO, The Real 
                           Estate Roundtable
                            (i) introduction
    Chairman Bingaman, Ranking Member Murkowski, and Members of the 
Senate Energy and Natural Resources Committee, thank you for the 
opportunity to testify at this hearing on ``Financing Efficient 
Buildings.''
    I am Jeffrey D. DeBoer, President and CEO of The Real Estate 
Roundtable (www.rer.org). The Roundtable represents the leadership of 
the nation's top privately owned and publicly held real estate 
ownership, development, lending and management firms, as well as the 
elected leaders of the major national real estate industry trade 
associations. Collectively, Roundtable members hold portfolios 
containing over 5 billion square feet of developed property valued at 
over $1 trillion; over 1.5 million apartment units; and in excess of 
1.3 million hotel rooms. Participating Roundtable trade associations 
represent more than 1.5 million people involved in virtually every 
aspect of the real estate business.
    Our nation faces significant economic, employment, and energy 
challenges. One way to address these challenges is by upgrading the 
nation's commercial building infrastructure through energy efficiency 
``retrofits.'' These projects will get Americans back to work with jobs 
that will stay in the United States, save businesses billions of 
dollars a year in utility bills, and help secure our country's energy 
future. The following ``fast facts''\1\ from the Environmental 
Protection Agency, the Energy Information Administration, and other 
sources confirm that the Committee is correct to consider policies that 
will leverage private sector financing to retrofit our existing 
commercial building stock--and spur job growth in the process:
---------------------------------------------------------------------------
    \1\ http://www.energystar.gov/ia/business/ challenge/learn_more/
FastFacts.pdf; http://yosemite.epa.gov/opa/admpress.nsf/ 
8b770facf5edf6f185257359003fb69e/ 1603327c9023eb8c852579dd005e3385.

   There are over 5 million commercial buildings and industrial 
        facilities in the U.S.
   As much as 85% of commercial buildings that exist today will 
        still be standing in 2030.\2\
---------------------------------------------------------------------------
    \2\ PlaNYC, ``Greater Greener Buildings Plan''; http://www.nyc.gov/
html/gbee/dpwnloads/pdf/ greener_greater_buildings_plan.pdf
---------------------------------------------------------------------------
   Commercial buildings account for about 20% of the nation's 
        energy consumption, and as much as 80% of energy consumption in 
        urban areas.
   The combined average annual energy costs for U.S. commercial 
        buildings and industrial facilities is $202.3 billion.
   About $20 billion can be saved if the energy efficiency of 
        commercial buildings and industrial facilities improves by 10%.
   The basic tools to retrofit buildings - like efficient 
        furnaces, water heaters, and spray foam insulation-are 
        manufactured here in the United States and not in China, 
        Germany, or elsewhere overseas.\3\
---------------------------------------------------------------------------
    \3\ http://green.blogs.nytimes.com/2010 /03/12/made-in-the-u-s-a-
efficiency-materials/.
---------------------------------------------------------------------------
   Saving energy is cheaper than producing energy. Our country 
        must pursue an ``all of the above'' energy policy, but it is 
        important to recognize that efficiency is the lowest-cost 
        resource available to move our nation towards energy 
        independence. Simply put, the cost of a kilowatt hour of energy 
        saved is cheaper than the cost of an equivalent kilowatt hour 
        of energy produced:

               COSTS OF SAVING ENERGY vs. PRODUCING ENERGY
------------------------------------------------------------------------
                Technology                   Costs (per kilowatt hour)
------------------------------------------------------------------------
            Energy Efficiency                              2-3 cents\4\
------------------------------------------------------------------------
                   Wind                                      9 cents\5\
------------------------------------------------------------------------
                Geothermal                                     10 cents
------------------------------------------------------------------------
              Advanced Coal                                    11 cents
------------------------------------------------------------------------
             Advanced Nuclear                                  11 cents
------------------------------------------------------------------------
                 Solar PV                                      21 cents
------------------------------------------------------------------------
              Offshore Wind                                   24 cents
------------------------------------------------------------------------
\4\ Costs of saved energy (``CSE'') per kilowatt hour (``kWh'') for
  energy efficiency programs range from 2 cents to 3 cents per kWh. See
  American Council for an Energy Efficient Economy, 11Saving Energy Cost-
  Effectively: A National Review of the Cost of Energy Saved Through
  Utility-Sector Energy Efficiency Programs'' (Sept. 1, 2009), available
  at http://www.aceee.org/research-report/u092.
\5\ Costs for all power generation sources in table provided by U.S.
  Energy Information Administration, ``Levelized Cost of New Generation
  Resources,'' Annual Energy Outlook 2011, available at.http://
  www.eia.gov/oiaf/ aeo/electricity_generation.html (provides ``Total
  System Levelized Cost'' for various ``Plant Type(s)'' in dollars per
  megawatt hour (``mWh'')). For purposes of table conversion: mWh/1000 =
  kWh.

    All of these technologies have their role in a comprehensive 
national energy policy, and will keep America globally competitive in 
the race for innovation, create jobs, and reduce dependence on foreign 
oil. But in allocating scare government resources, policy makers should 
consider that financing programs like tax incentives and loan 
guarantees get more ``bang for the buck'' when they are geared to 
encourage energy efficiency measures, as opposed to assisting new 
energy production through clean fossil fuel or renewable energy 
technologies.

   According to a report\6\ released this past Monday by the 
        Building Owners and Managers Association (BOMA) International, 
        the expenditures that sustain office building operations-
        management, maintenance, repairs, building services and 
        utilities-generate significant, continuous and growing 
        expenditures that support local businesses, create job demand, 
        and contribute significantly to U.S. gross domestic product 
        (GDP):
---------------------------------------------------------------------------
    \6\ ``Where America Goes to Work: The Contribution of Office 
Building Operations to the Economy'' (2012), available at http://
www.boma.org/Resources/news/ pressroom/Pages/pr062412.aspx.

    --For each dollar of office building expenditures, the U.S. economy 
            gains $2.57. And for every one of those dollars, nearly 20 
            jobs not related to the building itself are supported.
    --$79.7 billion in office building operating expenditures 
            contributed $205.1 billion to GDP in 2011 - equivalent to 
            the State of California's annual budget.
    --As a result of the $79.7 billion expenditures for office 
            operations, 1.6 million indirect jobs were created across 
            all sectors of the economy, about the same number employed 
            by McDonald's worldwide. This is in addition to the 
            estimated 2.2 million jobs directly related to the on-site 
            management and operations of buildings.

    The Real Estate Roundtable's members are at the vanguard of 
innovation in making our built environment more energy efficient. For 
example, 14 companies represented through The Roundtable are 
``partners'' and ``allies'' in the U.S. Department of Energy's Better 
Buildings Challenge\7\ and have agreed to showcase projects that lead 
the way for successful retrofits throughout the real estate sector. Our 
members routinely distinguish their buildings as ``top of class'' 
performers by receiving the ``ENERGY STAR'' label and also garner 
``Partner of the Year'' recognition from the U.S. Environmental 
Protection Agency.\8\ Among our many members who have demonstrated 
sustained commitments to energy efficiency are Anthony E. Malkin, the 
Chair of our Sustainability Policy Advisory Committee and the President 
of Malkin Holdings, who is responsible for the groundbreaking retrofit 
of the Empire State Building\9\; and T. Patrick Duncan, the President 
and CEO of USAA Real Estate Company, which recently collected its 
eighth award from EPA for energy efficiency and has been ranked fifth 
in the Americas in the Global Real Estate Sustainability Benchmark.\10\ 
The Roundtable thus has considerable experience with retrofit projects 
and how to finance them, and we appreciate this opportunity to share 
our perspective.
---------------------------------------------------------------------------
    \7\ See http://www4.eere.energy.gov/challenge/; http://www.rer.org/
2011/ PUBLIC-PRIVATE_INVESTMENTS_IN_ENERGY_EFFICIENCY_-
_December_2,_2011_Roundtable_Weekly.aspx 
?terms=better+buildings+challenge.
    \8\ See http://www.energystar.gov/ 
index.cfm?fuseaction=labeled_buildings.locator; http://
www.energystar.gov/ 
index.cfm?fuseaction=pt_awards.showawardlist&year=2012.
    \9\ See http://www.esbnyc.com/ 
sustainability_energy_efficiency.asp; http://apps1.eere.energy.gov/ 
news/news_detail.cfm/ news_id=12387.
    \10\ See http://www.bizjournals.com/sanantonio/ news/2012/03/06/
epa-to-honor-usaa-real-estate-once.html.
---------------------------------------------------------------------------
(II) SUMMARY--SIX STEPS FOR TO SPUR FINANCING FOR EFFICIENT BUILDINGS.
    There is no single ``silver bullet'' to encourage retrofit 
financing, much less a simple solution to inject more equity capital 
and encourage more debt financing in the real estate sector. But the 
Senate can and should take immediate action in this arena. The 
Roundtable suggests six steps Congress can take right now to further 
the goals of greater energy efficiency in commercial buildings, 
invigorate real estate activity in markets across the country-and most 
importantly, boost the optimism of American businesses and workers by 
making a serious dent in unemployment figures that have been too high, 
for too long.
    The Roundtable's first ``four steps'' directly address policies to 
spur more activity in energy efficiency financing. Our last two 
suggestions will have major, positive impacts to improve the economic 
condition of U.S. real estate markets broadly, and will have a ripple 
effect to generate more capital to invest in building retrofits.

          (1) Extend and Reform the 179D Tax Deduction for Energy 
        Efficient Commercial Buildings--Congress should extend and 
        reform the tax deduction for energy efficient commercial 
        buildings at Section 179D of the Internal Revenue Code. 
        Chairman Jeff Bingaman (D-NM) and Senator Olympia Snowe (R-ME) 
        have carefully studied this incentive for months, and have 
        developed a thoughtful proposal to improve the deduction's use 
        to mobilize more existing building retrofits. When they 
        introduce their bill to extend and modify the 179D deduction, 
        it should be enacted swiftly.
          (2) Authorize DOE Retrofit Loan Guarantees--Congress should 
        enact the loan guarantee provisions in S. 1000, the ``Energy 
        Savings and Industrial Competitiveness Act'' co-sponsored by 
        Senators Jeanne Shaheen (D-NH) and Rob Portman (R-OH). 
        President Bush signed the Department of Energy's loan guarantee 
        program into law in 2005, but to date it has focused on high 
        risk (and expensive) solar, wind, and nuclear projects. S. 1000 
        would specifically authorize DOE loan guarantees for less risky 
        and less expensive building retrofits, with modest federal 
        credit support projected to leverage far greater multiples of 
        private sector funding.
          (3) Pass Legislation to Encourage Real Estate Appraisals that 
        Value Energy Efficiency--The Roundtable's members report that 
        real estate owners, lenders, and appraisers need to be better 
        coordinated when valuing properties to account for energy 
        efficiency attributes. S. 1737, the ``Sensible Accounting to 
        Value Energy Act,'' is sponsored by Senators Michael Bennet (D-
        CO) and Johnny Isakson (R-GA). This bill includes important 
        provisions to encourage better information sharing among real 
        estate professionals so that energy efficiency is more 
        consistently, accurately, and fairly valued when appraising 
        commercial and other real estate.
          (4) Pass Legislation to Align Commercial Landlords and 
        Tenants on the Goals of Energy Efficiency--A building can be 
        retrofitted with the latest efficiency technologies but still 
        not perform as designed, or result in optimal energy savings as 
        much as those technologies would otherwise allow. This is 
        because leased spaces may be ``over built'' at the time of new 
        fit-outs to provide more energy capacity than a tenant needs, 
        or because building occupants may have behaviors that 
        unnecessarily waste energy. Senator Bennet is working on 
        important legislation to encourage non-regulatory standards--
        with no budgetary impact - to get commercial landlords and 
        tenants on the same page when it comes to energy efficiency. 
        Upon its introduction, the bill should be studied by the 
        Committee and enacted as soon as possible.
          (5) Encourage More Foreign Investment in U.S. Real Estate-
        FIRPTA Reform and EB-5 Authorization--Foreign equity capital is 
        a significant and largely untapped source to help increase 
        depressed property values in domestic real estate. Injecting 
        greater foreign investment into U.S. real estate markets may be 
        channeled to encourage retrofits, and help overcome the barrier 
        of up-front capital costs that remains the biggest impediment 
        to energy efficiency projects. Congress should thus pass S. 
        1616, the ``Real Estate Investment and Jobs Act'' introduced by 
        Senators Robert Menendez (D-N.J.) and Mike Enzi (R-WY) which 
        has also garnered the support of 25 co-sponsors. S. 1616 would 
        reform the Foreign Investment in Real Property Tax Act 
        (``FIRPTA'') and correct the discriminatory treatment of 
        foreign investment in U.S. real property that presently exists 
        under the tax code. In a similar vein, Congress should pass S. 
        3245, introduced by Senators Patrick Leahy (D-VT) and Charles 
        Grassley (R-IA), to permanently authorize the EB-5 immigrant-
        investor regional center program. EB-5 grants lawful permanent 
        residence in the U.S. to foreign nationals who make investments 
        of $1 million (or $500,000 in high unemployment areas) in 
        domestic real estate and other business projects. These 
        investments must be demonstrated to create jobs in the U.S. 
        Permanent EB-5 authorization will allow the 225 regional 
        centers across the country that manage this program to 
        coordinate with the real estate community and efficiency 
        advocates so that investment funds can be used to help finance 
        retrofits.
          (6) Conduct Oversight to Curb the Recent Rise in GSA 
        ``Holdover'' Leases--In light of the recent troubles and 
        changes in leadership at the General Services Administration 
        (GSA), Roundtable members are reporting a trend in federal 
        lease ``holdovers'' whereby the GSA is simply extending leases 
        on a month-to-month basis after they expire. Congress should 
        conduct oversight to ensure that GSA leasing practices operate 
        efficiently so buildings with departing federal government 
        tenants can be re-positioned in a manner that allows for long-
        term capital improvements like energy upgrades.

    Each of these six steps for immediate congressional action is 
discussed in more detail below. However, a properly functioning real 
estate financing market is a prerequisite to a functioning retrofit 
financing market. I appreciate this opportunity to provide the 
Committee with a short overview on the current economic state of 
affairs in the commercial real estate sector, which will add context 
for the immediate topic at hand regarding policies to finance efficient 
buildings.
III. GENERAL ECONOMIC BACKGROUND ON REAL ESTATE CONDITIONS\11\
---------------------------------------------------------------------------
    \11\ More detail on the current economic conditions of the U.S. 
real estate market is described in The Real Estate Roundtable's 2012 
Annual Report, ``Managing Risks & Opportunities'' (published June 
2012), available at http://www.rer.org/Advocacy/ 
2012_Annual_Report.aspx.
---------------------------------------------------------------------------
    Since the start of the Great Recession in 2009, property values 
have declined to the extent that up to half of all commercial mortgages 
are estimated to be ``underwater,'' with outstanding mortgage debt 
exceeding asset values. Meanwhile, nearly $1.4 trillion in commercial 
real estate loans that were originated before the recession will come 
due in the next three years. As this outstanding debt matures, property 
owners will have difficulty refinancing in the current tight credit 
markets particularly in light of decreased property values, with the 
specter of default facing many properties.
    There is anxiety in the real estate and lending sectors as to where 
all of the debt financing and equity capital will come from to retire 
this maturing debt. (On-going Eurozone turmoil and its effect on 
skittish markets here at home aggravates the situation.) Moreover, 
simply satisfying the outstanding trillion-plus loans would only bring 
real estate markets to a relative place of normalcy and avoid waves of 
foreclosures. Vastly greater sums of additional capital are needed to 
grow the economy and create jobs. There is consensus that a tremendous 
amount of potential equity investment capital is in the hands of 
foreign investors. These funds must be brought into U.S. markets now, 
to staunch the threat of current loan defaults and then help sustain a 
more accelerated pace of economic growth. Infusions of equity and 
credit are necessary to re-set the real estate, lending, and capital 
markets so transactions can move forward to refinance struggling 
assets.
    Political uncertainty is compounding the commercial real estate 
sector's wary economic outlook. The business community is concerned 
that the paralysis on Capitol Hill will continue for the rest of this 
year and beyond, and that Congress will not deliver certainty and 
progress to Wall Street and Main Street on tax, spending, budget, 
health care, and other significant policies. The Senate's recent 
bipartisanship on infrastructure and agriculture legislation provides 
signs for optimism. We strongly encourage this Committee to continue 
down the path toward consensus energy and fiscal policies to jump-start 
the lackluster recovery once and for all.
    Not surprisingly, executives participating in The Real Estate 
Roundtable's most recent, 2Q-2012 ``Sentiment Survey''\12\ reflect the 
industry's economic and political circumspection. While signaling a 
general lack of confidence in the outlook for the rest of this year, 
the Sentiment Survey also portrays a bifurcated recovery for commercial 
properties. So-called ``gateway'' cities have come back strong while 
smaller, more mainstream markets still struggle.
---------------------------------------------------------------------------
    \12\ See http://www.rer.org/ContentDetails.aspx?id=12241.
---------------------------------------------------------------------------
    There is improved access to functioning liquidity and improving 
values (particularly for ``Class A'' assets) in cities like New York, 
Washington, D.C., Boston, San Francisco, and Chicago. Contrast this to 
still-weak capital formation and lackluster fundamentals elsewhere 
around the country. Smaller, more mainstream real estate markets across 
the U.S. continue to face big challenges.
    More directly on the topic of today's hearing and issues 
surrounding capital investments in building improvements, the sustained 
financial pressure on property owners and lack of credit availability 
has led to deferral of maintenance and upgrades on existing properties. 
Meanwhile, development of new projects outside of urban growth centers 
has trickled to a standstill-all resulting in national jobless figures 
that preclude robust recovery. The potential for commercial real estate 
defaults to derail a fragile economic recovery, particularly in non-
gateway markets, and lead to even further job losses, bank closures and 
business retraction, is very real. The need to address these matters is 
imperative.
    As part of the solution to get Americans back to work while also 
helping to generate real estate construction and transactional 
activity, The Roundtable appreciates this opportunity to offer our 
priorities to encourage financing for efficient buildings.
IV. SIX STEPS FOR CONGRESS TO SPUR FINANCING FOR EFFICIENT BUILDINGS
          (1) Extend and Reform the 179D Tax Deduction for Energy 
        Efficient Commercial Buildings.

    The tax deduction at Section 179D of the Internal Revenue Code 
encourages energy efficiency in building design, construction, and 
operations. 179D covers private sector commercial buildings that 
generate rents and income like offices, stores, hotels, warehouses, 
plants, and apartments. It also covers government buildings like 
schools, hospitals and military facilities. The 179D deduction is a 
technology-neutral incentive that does not pick ``winners and losers.'' 
It encourages retrofit projects and not specific products. It gives 
building owners the opportunity to select the best mix among a suite of 
measures to achieve optimal energy efficiency gains.
    Section 179D was first enacted in the 2005 Energy Policy Act, 
extended in 2008, and is scheduled to expire at the end of 2013. While 
the deduction has resulted in some success (especially to encourage 
lighting upgrades), 179D has not yet lived up to its full potential to 
encourage ``deep'' retrofits due to the costs and regulatory complexity 
associated with upgrading multiple building systems including heating 
and cooling, hot water, windows, and insulation. The Roundtable wholly 
supports the work of Chairman Jeff Bingaman (D-NM) and Olympia Snowe 
(R-ME) who have carefully studied the deduction to gain a better 
understanding of how it has worked in the marketplace, and how it can 
be improved. Their proposal to reform the Section 179D deduction would, 
among other things:

    --Measure energy savings for retrofits compared to the existing 
            building's baseline--For purposes of the tax deduction, the 
            Bingaman-Snowe proposal measures savings by comparing how 
            much energy a building consumed before a retrofit, and then 
            comparing how much energy is consumed after a retrofit. 
            This logical ``before-and-after'' comparison makes sense 
            for existing buildings with a track record of energy use, 
            where a retrofit plan may qualify for the deduction based 
            on actual and verified reductions in energy usage 
            intensity.
    --Award performance by linking the amount of the tax deduction to 
            energy savings achieved--Under the Bingaman-Snowe proposal, 
            the amount of the incentive would increase with greater 
            energy savings. This ``sliding scale'' approach will 
            encourage ambitious projects while also rewarding projects 
            that achieve meaningful yet more moderate levels of energy 
            savings.
    --Make the tax incentive useable for a broad range of building 
            efficiency stakeholders and building types, including 
            REITS--Many buildings cannot use the 179D deduction because 
            their ownership structures, like Real Estate Investment 
            Trusts (REITS) and Limited Liability Partnerships (LLPs), 
            cannot make use of conventional tax incentives. The full 
            amount of the deduction that considers such entities' 
            special tax requirements should be available for REITS and 
            other similar holding structures. Additionally, in order to 
            make the incentive useable for more buildings, the building 
            owner should be allowed to allocate the tax deduction to 
            other parties responsible for the retrofit such as an 
            architect, engineer, tenant, source of financing, or energy 
            services company that may guarantee improved performance.

    Of course, extension and modification of Section 179D will get 
caught up in the broader discussions of tax reform, budget policy, and 
re-examination of tax incentives generally. As Congress deliberates 
these important matters, it should keep in mind two points that favor 
179D's extension and modification. First, Section 179D offers a tax 
deduction, and not a tax credit. As former Senator Don Nickles 
testified at hearing earlier this month to the Senate Finance Committee 
on energy tax policy, law makers must carefully distinguish between the 
need for tax credits which may operate as subsidies, compared to more 
favored tax deductions which are expensed as part of ordinary business 
operations.\13\ Second, 179D corrects a flaw in the tax code whereby 
businesses are allowed to immediately deduct utility bills as part of 
their ordinary operating expenses - but retrofits investments can only 
be depreciated over long periods of time as capital expenses. More 
inefficient structures with higher utility bills may thus benefit from 
a larger tax deduction compared to buildings that use less energy. 179D 
aligns the code so that it awards long-term capital investments to save 
energy, as opposed to the operating expenses deduction that can 
otherwise be claimed for wasted energy.
---------------------------------------------------------------------------
    \13\ See stream of June 12 Senate Finance Committee hearing, ``Tax 
Reform: Impact on U.S. Energy Policy,'' oral testimony of The Hon. Don 
Nickles, available at: http://www.finance.senate.gov/hearings/hearing /
?id=990f1101-5056-a032-5202-6921d68e8769 (at the 26:53, 75:50, and 
102:01 marks).
---------------------------------------------------------------------------
    The 179D tax deduction is a critical incentive not only because it 
will deploy innovation in energy efficient commercial buildings, but 
will also lower unemployment. An analysis\14\ commissioned jointly by 
the Natural Resources Defense Council, The Real Estate Roundtable, and 
the U.S. Green Building Council, estimates that over 77,000 
construction and related jobs will be created by the changes to 179D 
suggested by Senators Bingaman and Snowe. In keeping with their 
thoughtful reform proposal, The Roundtable strong encourages extension 
and modification of the 179D tax deduction.
---------------------------------------------------------------------------
    \14\ See Table 8, p. 12 at: http://c4bb.org/wp-content/ uploads/
PeriFINALForRelease06-10-11.pdf

          (2) Authorize Department of Energy Loan Guarantees for 
---------------------------------------------------------------------------
        Building Retrofits

    Senators Jeanne Shaheen (D-NH) and Rob Portman (R-OH) are to be 
commended for their bipartisan work on S. 1000, the Energy Savings and 
Industrial Competitiveness (``ESIC'') Act, which this Committee passed 
by an 18-3 vote in July 2011. Section 202 of S. 1000 would authorize 
credit enhancement from the Department of Energy (``DOE'') to support 
and leverage private sector financing for building retrofit 
projects.\15\ The Roundtable has long-advocated that DOE's current loan 
guarantee program should be used to assist lenders and building owners 
with the capital expenses associated with energy upgrades. Accordingly, 
we strongly encourage enactment of the ESIC Act's financing title.
---------------------------------------------------------------------------
    \15\ Companion legislation (H.R. 4017, the ``mart Energy Ac'') is 
pending in the House, introduced by Reps. Charles Bass (R-NH) and Jim 
Matheson (D-UT).
---------------------------------------------------------------------------
    The Roundtable recognizes the controversies associated with DOE's 
loan guarantee program following the Solyndra investigation. We 
believe, however, that S. 1000 gets the loan guarantee program back on 
track as it was initially envisioned and created by both Republicans 
and Democrats in 2005.\16\ Section 202 is carefully constructed so as 
to limit DOE's exposure to financial risks in the event of a borrower's 
default on a retrofit obligation, as follows:
---------------------------------------------------------------------------
    \16\ The DOE loan guarantee program was created as Title XVII of 
the 2005 Energy Policy Act (H.R. 6, 109th Cong.). It passed the House 
on April 21, 2005 by a 249-183 vote, and the Senate on July 28, 2005 by 
an 85-12 vote. President Bush signed it into law on August 8, 2005.

    --S. 1000 does not pick technology ``winners and losers'' by 
            favoring the manufacture of any particular product or 
            technology--Rather, S. 1000 is technology neutral, and 
            supports retrofit projects and not products. The bill lets 
            building owners in the market decide what types of 
            efficiency measures it should install as part of a retrofit 
            project, as best suited to lower energy consumption in 
            their buildings.
    --S. 1000 incorporates underwriting and due diligence requirements 
            for retrofit financing--The bill directs DOE to develop 
            guidelines that ``shall include . . .  measures to limit 
            the exposure of the Secretary to financial risk in the 
            event of default,'' like the borrower's ability to re-pay a 
            retrofit debt and the value of the underlying collateral 
            supporting the loan. To implement the loan guarantee 
            program for retrofits, S. 1000 directs DOE to develop 
            underwriting criteria that assess a borrower's 
            creditworthiness, the building's loan to value ratio, and 
            the building's history and expectations in generating 
            rental and other income, among other factors.
    --S. 1000 would provide credit support for successful retrofit 
            projects guaranteed to result in energy savings--The bill 
            directs DOE to consider private sector, third-party 
            guarantees of energy savings after a retrofit is 
            implemented, and whether those savings will pay for project 
            costs over time. S. 1000 provides that DOE (and taxpayers) 
            do not bear the ``performance risk'' of whether a project 
            will succeed and result in energy savings. Rather, third-
            party contractors responsible for the retrofit like DOE-
            approved energy services companies-but not DOE itself-would 
            bear risks that installed energy efficiency measures will 
            perform as designed. In this way, the transaction can be 
            structured so as to amortize retrofit financing through 
            measured and verified energy savings accrued over time.
    --S. 1000 places an upper limit on the amount of federal credit 
            support--The bill states that the maximum amount of 
            financial risk that DOE can bear for any single retrofit 
            project is $10 million. In contrast, the direct loan (not a 
            loan guarantee) given to Solyndra left taxpayers on the 
            line for $528 million after the solar company's default.
    --S. 1000 provides financial support for retrofits through loan 
            guarantees - not through loans, grants, subsidies, or hand-
            outs--Loan guarantees will provide an incentive to leverage 
            far greater amounts of private sector investment in 
            building retrofits, so real estate, lending, and energy 
            services firms have their own ``skin in the game.'' It has 
            been estimated that a $200 million federal loan guarantee 
            investment in retrofits would leverage as much as $2 
            billion in private sector financing.
    --S. 1000 would provide credit support for proven building retrofit 
            projects that already have a track record of success--We 
            have case studies on the success of retrofits, such as the 
            Empire State Building, showcase projects associated with 
            the Better Buildings Challenge, and the experiences of 
            EPA's ``Partner of the Year'' winners, among others.\17\ 
            Retrofits pose far lower risks for federal guarantee 
            support compared to unproven manufacture of certain 
            renewable products, where the market may be heavily 
            influenced by subsidies provided by foreign competitors.
---------------------------------------------------------------------------
    \17\ See notes 7-9.

    Moreover, Congress should consider the impact of S. 1000 as a jobs 
creator. The Real Estate Roundtable, in conjunction with the U.S. Green 
Building Council and the Natural Resources Defense Council, estimates 
that a loan guarantee program like the one authorized by the ESIC Act 
can create up to 25,000 American jobs.\18\
---------------------------------------------------------------------------
    \18\ See Table 8 at http://c4bb.org/wp-content/ uploads/
PeriFINALForRelease06-10-11.pdf. The American Council for an Energy 
Efficient Economy (``ACEEE'') estimates that the total impact of S. 
1000 on employment (not just the loan guarantee title) would be 80,000 
jobs created by 2020, and 159,000 jobs by 2030. See http://aceee.org/
white-paper/shaheen-portman.
---------------------------------------------------------------------------
    In short, enactment of S. 1000's bipartisan retrofit loan guarantee 
title will provide a transformative platform to finance efficient 
buildings, lower energy consumption, and get construction workers back 
on the payroll. We urge Congress to pass it.
          (3) Pass Legislation to Encourage Real Estate Appraisals that 
        Value Energy Efficiency.

    The Roundtable has long advocated for better information sharing 
between appraisers, building owners, and lenders to ensure adequate and 
consistent assessment of energy efficiency's effect on property values. 
S. 1737, the Sensible Accounting to Value Energy (``SAVE'') Act 
sponsored by Senators Michael Bennet (D-CO) and Johnny Isakson (R-GA), 
includes provisions that encourage parties to a real estate transaction 
to share energy efficiency information in the context of asset 
valuation. Discussions this spring among The Roundtable, the Appraisal 
Institute, and other organizations have built wider support for this 
concept.
    High-efficiency equipment and better building operations may 
increase the value of commercial real estate. Yet stakeholders from all 
perspectives--lenders, appraisers, building owners and managers, and 
energy efficiency advocates--suffer from the lack of data regarding the 
monetary benefits that energy efficiency components can bring to real 
estate values. Better information sharing will help monetize any added 
values from efficiency equipment and platforms deployed in buildings, 
which in turn can spur greater investments in retrofits.
    The SAVE Act would establish rules so that appraisers, owners and 
lenders have timely access to information that may be relevant to the 
efficiency, conservation, and renewable energy features of real estate. 
These include: building labels or ratings; installed appliances; 
blueprints and construction costs regarding retrofit projects; utility 
bills; energy benchmarking data; third-party verifications of a 
property's energy performance; and financial or other incentives 
regarding installed high-performing components and systems. If such 
information is consistently shared as an industry best practice, over 
time a greater number of comparable assets will be available for 
appraisers to evaluate energy efficiency features when determining 
market value.
    Banks may thereby assess the financing risks associated with 
projects that will save money through energy savings, and develop 
lending products specifically to underwrite retrofit investments.
    Accordingly, as another appropriate measure for Congress to spur 
financing for highly efficient buildings, it should enact the SAVE 
Act's provisions to provide better information regarding energy 
efficiency attributes in the process real estate valuation.

          (4) Pass Legislation to Align Commercial Landlords and 
        Tenants on the Goals of Energy Efficiency

    A commercial building can be retrofitted with the latest efficiency 
technologies but still not perform as it was designed to achieve 
optimal energy savings. This is because spaces leased by tenants may be 
``over built'' at the time of new fit-outs to provide more energy 
capacity than a tenant needs, or because building occupants may have 
behaviors that unnecessarily waste energy.
    Legislation proposed to date has focused on how real estate owners 
and developers may lower energy consumption. But this is only part of 
the issue. Office tenants like data centers, law firms, trading floors, 
financial services firms, restaurants, and retail stores use a lot of 
energy. Based on the Empire State Building's retrofit experience,\19\ 
tenants can consume between 50%-70% of their structures' total energy. 
Choices made by office tenants in designing and operating within leased 
spaces thus have great impact on U.S. energy consumption.
---------------------------------------------------------------------------
    \19\ See note 9.
---------------------------------------------------------------------------
    Accordingly, we encourage Congress to consider legislation that 
gets office landlords and tenants on the same page with regard to 
energy consumption in commercial buildings. We are pleased that Senator 
Michael Bennet (D-CO) is developing a bill that will take a market-
driven, non-regulatory approach to align building owners and their 
lessees to cooperatively reduce demands on the grid. Among other ideas, 
Senator Bennet's legislative concept is developing solutions to:

    --Overcome Energy Consumption Data Barriers--In many cases, 
            commercial property owners are unable to get the data to 
            tell them how much energy their entire building consumes. 
            This is because tenants control access to the energy meters 
            in the spaces they lease. The utility serving the Chicago 
            area, Commonwealth Edison, has overcome this significant 
            data obstacle. An amendment to existing law (Public Utility 
            Regulatory Policies Act [PURPA]) could establish a non-
            binding standard favoring the ComEd model. Utilities would 
            be encouraged to provide aggregated ``whole building'' 
            energy consumption information in a manner that fully 
            safeguards tenant privacy concerns in their energy data, 
            without increasing prices on consumers.
    --Creates Opportunities for Voluntary ``Tenant Star'' Recognition--
            The Environmental Protection Agency's ENERGY STAR program 
            for commercial buildings has been operating for over a 
            decade and is widely embraced by commercial building 
            owners. It is a huge success, and certified buildings 
            typically use 35 percent less energy than average buildings 
            and cost 50 cents less per square foot to operate.\20\ Many 
            Roundtable members and other large commercial building 
            owners and managers strive for the ENERGY STAR label to 
            distinguish their assets as ``top of class.'' Senator 
            Bennet's bill concept would provide EPA with the tools 
            necessary to bring the program to the next level with 
            tenant oriented certification for leased spaces. Today's 
            ENERGY STAR is based on whole-building recognition. The 
            imminent bill would deliver the data set needed to likewise 
            recognize efficient tenant-leased spaces within a building. 
            The synergy of ``Tenant Star'' spaces within ``ENERGY 
            STAR'' buildings could transform--in a non-regulatory way--
            how commercial real estate owners and their tenants think 
            about energy efficiency and dramatically lower energy use 
            throughout the built environment.
---------------------------------------------------------------------------
    \20\ See http://www.energystar.gov/ index.cfm?fuseaction=labeled--
buildings.locator; http://www.energystar.gov/ 
index.cfm?c=evaluate_performance.bus_portfoliomanager_intro.
---------------------------------------------------------------------------
    --Develop Replicable Standards for New Tenant ``Fit-Outs.''--
            Commercial tenants are most likely to make structural 
            investments in the areas they occupy when they enter into 
            new leases, or renew leases for longer terms. We thus want 
            to encourage high-performance design and construction of 
            leased spaces at the point of new ``fit-outs'' that suit 
            tenants' needs, but are not ``over-built'' to encourage or 
            allow wasted energy use. The imminent bill is developing a 
            proposal for industry stakeholders to assist the Energy 
            Department in studying and developing replicable standards 
            for high performance new tenant fit-outs.

    Sound energy policy must take a holistic approach by considering 
the consumption and behaviors of office tenants and other building 
occupants. The Roundtable applauds Senator Bennet for his leadership to 
educate and align commercial building landlords with their tenants, so 
they may cooperate to make even deeper cuts in energy consumption 
attributed to the commercial real estate sector as a whole. When his 
bill is introduced, we recommend that the Committee study it carefully 
and take the necessary steps to move it toward enactment.

          (5) Encourage More Foreign Investment in U.S. Real Estate: 
        FIRPTA Reform and EB-5 Authorization

    The economic and political stability of the United States 
historically has attracted foreign investment capital to our real 
estate markets. The recent decline in the value of the dollar compared 
to other key currencies has made U.S. real estate even more attractive. 
Unfortunately, so far in the recovery, new equity investment from both 
foreign and U.S sources has been skewed to a handful of urban 
``gateway'' markets and large trophy assets. This propensity has 
bifurcated property values, with large market, large asset values 
recovering, while overall asset values have remained depressed and 
distressed property values have generally continued to slip.
    Law makers must consider policies to attract new sources of equity 
capital from Europe, Asia, and the Americas, which in turn would help 
bridge the massive ``equity gap'' complicating the refinancing of 
hundreds of billions in commercial mortgages (and threatening a new 
wave of foreclosures). Injections of foreign investment capital in 
domestic real estate can, incidentally, also be used to finance energy 
efficient buildings.
    To stimulate more foreign investment in U.S. real estate, The 
Roundtable offers two areas where Congress should act immediately. 
First, it should enact pending legislation to reform the Foreign 
Investment in Real Property Tax Act. Second, it should enact 
legislation to permanently re-authorize the EB-5 program for immigrant 
investors. Both are discussed in further detail below.

            (a) FIRPTA Reform

    The commercial real estate industry is united in its view that the 
Foreign Investment in Real Property Tax Act of 1980 (``FIRPTA'') 
dramatically disrupts the rational allocation of foreign capital into 
the U.S. real estate sector. Commercial real property markets in the 
United States need an infusion of equity at this time, not a tax regime 
that deters foreign investment.
    FIRPTA is a significant barrier to non-U.S. investors. In contrast 
to the general U.S. tax law exempting foreign investors' gains from 
U.S. stocks, bonds, and other securities, the United States imposes a 
high rate of taxation on foreign investment in U.S. real property. The 
U.S. tax rate on gains from such direct and indirect ownership of U.S. 
real property can exceed 50 percent, particularly when the branch 
profits tax regime applies to such transaction. Further, a non-U.S. 
investor who is subject to tax under the FIRPTA regime has a filing 
obligation with the Internal Revenue Service. Non-U.S. investors view 
the Internal Revenue Service as a highly intimidating force--much more 
so than the taxing authorities in most other jurisdictions. Thus, the 
filing obligation mandated by FIRPTA is a significant burden and 
deterrent to U.S investment from the perspective of foreign investors. 
Indeed, the U.S. commercial real estate market has slipped to third in 
the race for global funds behind the United Kingdom and now Germany. In 
the absence of FIRPTA reform, potential foreign investors in U.S. real 
estate may choose to invest elsewhere - either in real property in 
countries overseas that have less onerous tax regimes, or in other 
types of U.S. corporations.
    Our nation needs to compete more effectively for global capital, 
and the tax code should not be a barrier to foreign investment in U.S. 
real estate. Additional foreign equity investment would greatly assist 
community banks and other financial institutions now holding mortgages 
on U.S. properties, help address the ongoing residential housing 
foreclosure crisis, and directly lead to job creation and ultimately 
stimulate our economy's overall recovery.
    FIRPTA is an idea whose time has come and gone, and, were it 
fiscally feasible, should be abandoned in its entirety. The Roundtable 
recognizes, however, that budgetary constraints may make it difficult 
to repeal FIRPTA at this time. Reasonable, cost-efficient reform is 
still possible, and The Roundtable strongly urges steps be taken to 
address the negative effects of FIRPTA. In particular, the ``Real 
Estate Investment and Jobs Act'' (S. 1616)\21\ has been introduced by 
Senators Robert Menendez (D-NJ), Mike Enzi (R-WY) and has support from 
25 co-sponsors. It takes a measured approach to FIRPTA reform and 
would:
---------------------------------------------------------------------------
    \21\ Companion legislation (H.R. 2989) is pending in the House, 
introduced by Reps. Kevin Brady (R-TX) and Joe Crowley (D-NY).

    --Withdraw IRS Notice 2007-55--S. 1616 would reinstate an IRS 
            position to allow redemptions and liquidating distributions 
            to be treated the same as sales of stock in the case of a 
            domestically controlled Real Estate Investment Trusts 
            (REITs). Before 2007, such distributions generally were 
            treated as sales of REIT stock, and not subject to U.S. 
            tax. In 2007, The IRS issued Notice 2007-55 which concluded 
            that such distributions should be treated as sales of real 
            estate and therefore subject to FIRPTA. Until the issuance 
            of the Notice, there was no reason for foreign investors to 
            believe that liquidating distributions by REITs, as with 
            the liquidating distributions of any other corporation, 
            should be treated as anything other than sales of stock. 
            The IRS's position has caused considerable consternation in 
            the foreign investor community, has severely constrained 
            continued foreign investment in U.S. real estate, and 
            should be withdrawn.
    --Increase the amount of stock minority shareholders can hold 
            without triggering FIRPTA tax--Presently, a foreign 
            shareholder owning five percent or less of a publicly-
            traded U.S. real property company, including a REIT, is 
            exempt from FIRPTA on a sale of the corporation's stock. In 
            addition, a foreign shareholder owning 5 percent or less of 
            a publicly-traded REIT is exempt from FIRPTA on the receipt 
            of a capital gain distribution attributable to the sale or 
            exchange of a U.S. real property interest. There are 
            numerous investors around the world who own just fewer than 
            5 percent of these companies' stock, but despite their 
            willingness to invest in U.S. companies, won't dare to go 
            over that threshold for fear of being ensnared by FIRPTA. 
            S. 1616 would increase from 5 percent to 10 percent the 
            exemption level threshold and apply it to investors in 
            certain widely held investment vehicles.

    FIRPTA reform is not far afield from the topic of today's hearing. 
Increased foreign equity investment in commercial real estate will 
provide real property owners with much-needed capital to successfully 
refinance maturing loans and engage in new projects to improve existing 
assets. The untapped availability of foreign investment capital would 
be used to invest in our nation's building infrastructure, and provide 
a source of funding for innovative energy efficiency retrofits. In 
short, without a functioning real estate finance market we will not 
have a functioning retrofit financing market. FIRPTA reform and 
enactment of S. 1616 would help achieve both objectives.

            (b) EB-5 Authorization

    Another vehicle to encourage more foreign investment in domestic 
real estate is the EB-5 ``immigrant-investor'' program. It is scheduled 
to expire on September 30, 2012. The Roundtable urges Congress to move 
on pending legislation that would permanently authorize this program.
    Established in 1992, the EB-5 program deploys foreign investment as 
a means to spur job growth while simultaneously affording eligible 
foreign investors the opportunity to become lawful permanent residents 
of the United States. Roundtable members have used EB-5 as an important 
source to assemble funds for development projects that create well-
paying American jobs. The program has grown dramatically in recent 
years and has nationwide impact; the U.S. Citizenship and Immigration 
Service has approved 225 regional centers that distribute foreign 
investment capital in 45 states.\22\ In 2011, the EB-5 program was 
estimated to create and/or save 25,000 American jobs and generated 
direct investment of over $1.25 billion. Furthermore, EB-5 is revenue 
neutral, as program costs are offset by the fees charged in issuing 
permanent residency visas. Because there is no taxpayer impact, EB-5 
has been extended with bipartisan support since its inception.
---------------------------------------------------------------------------
    \22\ See http://www.uscis.gov/portal/site/ uscis/
menuitem.5af9bb95919f35e66f614176543f6d1a/ 
?vgnextoid=d765ee0f4c014210VgnVCM100000082ca60aRCRD&vgnextchannel= 
facb83453d4a3210VgnVCM100000b92ca60aRCRD.
---------------------------------------------------------------------------
    The Roundtable sees potential in EB-5 as a means to aid retrofit 
financing. Foreign investments received through the program may be 
directed to assist with the up-front capital expenses to underwrite 
energy efficiency projects. In considering whether to extend and/or 
permanently authorize the program, Congress has the opportunity to 
encourage EB-5 regional centers to distribute investments to projects 
that do not simply spur economic development, but also make our 
nation's building stock more energy efficient.
    S. 3245, introduced by Senator Patrick Leahy (D-VT) and co-
sponsored by Senator Chuck Grassley (R-IA),\23\ would make the EB-5 
regional center program permanent and thus ensure stability for 
investors, entrepreneurs, and stakeholders that develop and finance 
real estate. Congress should pass this bill, and we encourage the 
Committee to further consider how the EB-5 program may synergistically 
advance our national goal of energy independence.
---------------------------------------------------------------------------
    \23\ Companion legislation (H.R. 2972) is pending in the House.

          Congress Should Conduct Oversight to Curb the Recent Rise in 
---------------------------------------------------------------------------
        GSA ``Holdover'' Leases

    Roundtable members report a growing issue with the largest 
commercial office tenant in the country--the federal government. The 
General Services Administration (``GSA'') is responsible for managing 
the federal buildings portfolio, which includes over 7,100 leased 
properties. GSA's actions thus register a significant impact in 
commercial real estate markets across the country.
    When a tenant--in this instance the GSA--continues to occupy its 
leased premises after the term has ended, it is said to ``hold over.'' 
While holdovers often result in short term extensions for government 
convenience, they have a deleterious effect in the marketplace and 
create uncertainty about the future operations of a commercial 
building. GSA's default position as a holdover freezes the ability of 
landlords to re-position their assets and market their properties to 
prospective new tenants. Federal leasing uncertainties also place 
building owners in precarious situations with their lenders, and 
unnecessarily shift the burden of cost and risk to the private sector. 
A vacant or severely underutilized building has a limited income stream 
and lenders may thus harshly assess the asset's credit worthiness. 
Making matters worse is the backlog of congressional approval required 
for prospectus-level leases worth more than $2.7 million a year.
    Holdovers are not standard practice in the commercial real estate 
industry. In the private sector it is commonplace for tenants to 
provide several years advance notice of their intention to vacate or 
renew a lease prior to expiration. As a result of holding over, the GSA 
immediately pays the direct penalty of higher lease rates as short-term 
extensions are generally 25-50% above standard market rates. Not only 
does the GSA pay significantly higher rates for short-term tenancy, but 
by deviating from standard practices of advance notice of intention 
prior to lease expiration, it also deprives itself of the opportunities 
to pursue the full range of options available in the marketplace.
    For the immediate issue at hand, an unreliable federal leasing 
process impedes capital improvements in building efficiency upgrades. 
Commercial landlords dealing with federal holdover tenancies will lack 
access to predictable income and financing streams necessary to fund 
retrofit investments. Moreover, with spaces frozen to accommodate GSA 
holdovers, there is no chance to design or construct new fit-outs for 
state-of-the art tenant installations.
    Congress's recent and ongoing investigations into the GSA should 
also consider solutions to break the holdover backlog. And, Capitol 
Hill should do its own part by approving prospectus leases as 
expeditiously as possible. More efficient and predictable federal 
leasing protocols in line with typical end-of-term notification 
practices will stabilize and correct commercial real estate markets--
and establish the fundamental conditions that are necessary for private 
sector landlords and tenants to explore long term investments such as 
retrofit improvements.
V. CONCLUSION
    To conclude, The Real Estate Roundtable recommends six actions 
Congress should take now to spur financing of efficient buildings:

          (1) Reform the 179D tax deduction for energy efficient 
        commercial buildings specifically to encourage existing 
        building retrofits.
          (2) Authorize a DOE loan guarantee program spur private 
        sector retrofit financing.
          (3) Enact legislation to establish information sharing 
        practices so that building owners, appraisers, and lenders can 
        more consistently consider energy efficiency attributes when 
        valuing real estate.
          (4) Enact legislation that creates voluntary programs and 
        recognition platforms to encourage commercial tenants to 
        cooperate with their landlords and achieve lower energy 
        consumption in buildings.
          (5) Lower barriers to foreign investment capital in U.S. real 
        estate by reforming FIRPTA and permanently authorizing the EB-5 
        immigrant investor program--thereby making more funds available 
        to finance building energy upgrades.
          (6) Conduct oversight of GSA commercial leasing practices to 
        curtail ``holdover'' tenancies, so buildings can be re-
        positioned in the market when federal leases expire and attract 
        financing that could be used for capital investments like 
        retrofits.

    Thank you again for this opportunity to testify on behalf of The 
Real Estate Roundtable on the important topic of energy efficiency 
financing. I look forward to answering the Committee's questions.

    The Chairman. Thank you. Thank you all for very, very good 
testimony. There's a lot of innovative things that you've 
talked about that we need to understand better.
    Let me just start with a few questions. Ms. Leeds, you 
indicated that the effort you're making there in New York is 
something you think is eminently scalable, I think you said. I 
gather it could be used to faciitate commercial retrofits 
throughout the country. Could you describe a little more how 
you think that could happen? Do you think the Federal 
Government needs to be doing something that it's not doing to 
cause this to be, what you're doing, to be replicated 
elsewhere? Or do you think that the private sector can get that 
done?
    Ms. Leeds. In our experience, the Federal stimulus funding 
that we have as our core capital is essential to being able to 
do the work that we are doing. That said, I think the job rests 
primarily with private capital and that those who consider 
providing public funding into these programs need to carefully 
identify those sectors in which it is really necessary for 
credit enhancement.
    I spoke of the energy efficient mortgage as being a very 
scalable opportunity and I believe that is something that can 
be replicated nationwide. This is something that really 
leverages off of an existing financing tool, and with the right 
expertise and the right motivations many mortgage lenders can 
incorporate this into their general practices.
    The other mechanisms that----
    The Chairman. This would be in the form of a supplemental 
mortgage in addition to the base mortgage that the property 
owner has, is that the idea?
    Ms. Leeds. We are working on two versions of this. One is a 
refinancing. At the point of time of refinancing, the base loan 
is increased by an amount that is required to fund energy 
efficiency retrofit measures with a demonstrable savings 
stream. The second is to add a supplemental loan, which can be 
done either in the form of a supplemental first or a second 
lien loan, and that is an approach that is being used with 
lenders who hold the first mortgage in their current portfolio.
    So I think that this is something that could be done in the 
here and now, although I do believe that other approaches, 
other innovative approaches that we and others are working on, 
will eventually achieve scale. I think it will be a slower 
process.
    The Chairman. Let me ask about rebates. I think one of you 
talked about--maybe, Mr. Smith, did you talk about rebates as 
an important part of the program?
    Mr. Smith. I did.
    The Chairman. Could you describe how that works? I can 
understand the positive cash idea, where you basically persuade 
a residential homeowner to go ahead with retrofits and can see 
a benefit in their utility bills. How does the rebate thing 
work in your experience?
    Mr. Smith. We in Oregon are doing deep retrofits of 
residential buildings that are averaging about a $12,000 
investment per home. So these are multiple trade jobs, where 
we're replacing hot water space heat and doing a full 
insulation wrap. So it's a very involved project and a big cost 
for the consumer.
    We also have very low energy prices in Oregon, and there's 
quite a variance across the country, as you know, in energy 
prices. So rebate levels need to be looked at based on what the 
utility sector is deploying in the current market and what the 
project cost is and where the customer is going to come out 
financially.
    With larger rebates, the general philosophy is--and we have 
many contractors who've been in the market and who really 
understand the consumer intimate transaction and decisionmaking 
process. For us in our market, it's about $2500 at least that 
is needed to motivate consumers to get to the level of making a 
$12,000 investment.
    The utility sector--my point that I was making was that the 
utility sector in our market, in the projects that I'm 
describing, are deploying about $1,000, right around there. 
It's not enough. It's not enough to motivate consumers. So my 
message is, if we believe that there are other benefits beyond 
energy efficiency at this much demand to doing this work, and 
what I'm arguing is the economic developments are very real, we 
have very strong results, then it might be worth an investment 
from market actors, perhaps governments, who care about 
economic development, because we're not going to get there 
exclusively with utility sector investment. Demand could go 
from this [indicating] to this [indicating] if we add a little 
more juice in the form of a rebate, and that might need to be 
sourced from capital that values the economic development 
returns.
    Over time, I think that the importance of rebates will go 
down as market adoption increases, as consumers value energy 
efficiency remodels just like they would a kitchen remodel or a 
bathroom remodel, and it becomes part of the conversation and 
the decisionmaking process of what you do in your home, and 
especially as the real estate markets value energy efficiency 
improvements and the sale price. But until then, I think it's a 
promotional industry and I think we need to respond 
accordingly.
    The Chairman. Let me defer to Senator Murkowski.
    Senator Murkowski. Thank you, Mr. Chairman. I appreciate 
the comments from all the witnesses this morning.
    I think we've all recognized, as several of you have said, 
that the cheapest energy source that we have out there is 
increased efficiency. I think we recognize that, despite all 
the talk and all that we have done up to this point in time, 
we're probably the most wasteful Nation when it comes to our 
energy consumption. We don't really think about it. We keep 
this room too cool in my opinion. I'm from Alaska; it's too 
cool. We keep the lights on too long. We're in a Federal 
building. We should be setting the standard. I think generally 
we do a poor job. We try at the household level.
    But I think part of what we're dealing with is just a lack 
of understanding or a lack of appreciation in terms of how much 
savings truly can be realized as individuals, as families, as 
small business people in our environment.
    So the question--and Mr. Smith, Mr. Rodgers, you both spoke 
to this a little bit: How do we do a better job of educating 
the consumer about the value of energy efficiency, so that we 
start to make a real pronounced difference? Mr. Rodgers, you've 
described the program in Indiana and what you're doing there. I 
guess the question is can you take that Indiana example and 
spread that across the country? Is it important to have a 
national program? Is it better to allow the States and the 
local communities to focus on this?
    I'd like to hear some input there, and I'd like you to 
address a little bit about how we deal with it on the rural 
side. I know that in your experience there in Indiana you've 
got some big box stores, you can find some economies of scale. 
I've got a lot of little villages where residents are paying 
over 40 percent of their income for their energy costs, as 
compared to the national average, which is somewhere between 3 
and 6. Can this be translated to rural America as well? So your 
comments, please?
    Mr. Rodgers. Great. Senator, I think when we--I'd address 
that in a couple of ways. First, I think, in regards to the 
educational component, in each and every program that we're 
involved in probably the biggest challenge is in putting forth 
essentially a branding, marketing, and educational component of 
the programs to really meet, whether it's a commercial facility 
or a resident, at their point of need and understanding how the 
energy that they are using is impacting them economically.
    So that educational--if you can make that linkage, like we 
are doing in Indiana in the case of Energize Indiana, starting 
out at a larger branding component and driving very 
specifically down to the individual resident--we are moving to 
try and educate them to understand how having your temperature 
at this setting or having the lights on at a certain level, how 
that directly translates into the money that it costs them at 
the end of the month, because when you think about it virtually 
everything we do in society is an immediate transaction. In the 
case of your energy bill, you don't know about it until the end 
of the month, so it doesn't go hand in hand with the activity 
that you're performing.
    So that educational component becomes a very big element in 
getting people to understand and to participate much better. So 
I think that educational component can happen across every 
State, can be supported definitely from a Federal perspective 
of really working with the States and businesses to allow that 
understanding to be elevated much greater than it is today.
    When you spoke in regards to the rural part of our country, 
while sometimes that can be a challenge, I think the 
opportunities definitely exist to be able to work within those 
communities both in the assessment of their properties and 
understanding how energy is being utilized there, as well as 
leveraging technology. So if they are not near a big box retail 
outlet, as an example, to be able to understand the impact of 
more efficient equipment or more efficient lighting or whatever 
the case may be, we can leverage and utilize technology to link 
them in for, one, that understanding, and two, the actual 
transaction can take place via technology as well.
    So we have had a lot of success in really pulling in rural 
America to feel like they are right in the middle of these 
programs much more than they have been in the past.
    Senator Murkowski. Mr. Smith, did you have anything you 
wanted to add to that?
    Mr. Smith. Yes, if I may. First, I very much appreciate 
your comment on waste. This is about waste and we can do a much 
better job, and we're all proving that, I think.
    How do you motivate consumers? I think you have to meet the 
consumer where they are. Historically, energy efficiency has 
been sold as save kilowatts. That's not what consumers respond 
to. What we try to do is take a very consumer-based marketing 
approach and sell this based on the benefits to the consumer, 
which is a more comfortable home or, as Senator Franken 
mentioned, a better work environment. That's the way this has 
to be sold.
    In different communities, that message might be applied 
slightly differently. In Klamath Falls, a waste message plays 
much better than in Portland, where it might be reduce your 
environmental footprint, that goes along with the make your 
home more comfortable.
    As far as rural markets, what I would add there is that in 
our case the Bonneville Power Administration, the Federal 
agency, supplies energy to a lot of these small consumer-owned 
utilities and they rely on that. Yet each of these little 
utilities has their own approach to an energy efficiency 
program. We need to be better, much less fragmented. We need to 
have much better common standards.
    We're proving we can deploy and serve in rural and urban 
markets and we can have a marketing approach that works, we can 
have a contractor development approach that works. If we had 
consistent incentive levels and program delivery standards, I 
don't think it really matters if it's rural or urban. There are 
some real fuel delivery challenges, but from a marketing 
standpoint I think we can do it.
    Senator Murkowski. Thank you, Mr. Chairman.
    Mr. Smith. Thank you.
    The Chairman. Senator Franken.
    Senator Franken. Thank you, Mr. Chairman. Thank you for 
calling this hearing, and thank you, all the witnesses.
    I was especially struck with the testimony of a number of 
you who said this will not--this doesn't require Federal 
dollars. I know you said that, Mr. Smith. Mr. Rodgers, you 
talked about that.
    When I first started this initiative in Minnesota, it was 
about 9 or 10 months ago. I said to my staff: We're not going 
to have any money to create jobs. It's essentially looking like 
that, what's going to happen in Congress. Let's find a way to 
create jobs without spending any money, almost a perpetual 
motion machine. No one had ever heard of this.
    What is it? It's retrofitting, because the energy savings 
pays for the retrofit. In the mean time, you're putting to work 
people in the construction business, who have been the hardest 
hit during this recession. You're putting to work 
manufacturers. In Minnesota, we have manufacturers that make 
great geothermal pumps. We have manufacturers who make the most 
efficient HVAC. We have ESCO's like Honeywell and Johnson 
Controls. We have others.
    We have--I at these conferences have had testimony from 
counties that have done retrofits and are saving $900,000 a 
year in electricity. It pays for itself if you do it right. 
What I love about it is that we're not talking about spending a 
dime of Federal money. You can do this without spending a dime 
of Federal money and yet create American jobs and lower our use 
of energy and our carbon footprint. As I said, it's win-win-
win, as Mr. DeBoer said.
    My question is--and many of you spoke to it, which is--I 
think, Mr. Sundstrom, in your written testimony you said that 
this has the potential to create 3.3 million jobs across the 
country. What can Congress do? You've all spoken to it, but 
let's have a discussion about what kinds of things Congress can 
do to accelerate this to create these jobs and to create these 
great work environments, to create economic activity? Those 
people who are working will be spending money in America. The 
money stays here.
    What kinds of things? Some of you have talked to them, but 
I'd like to have a little bit of a discussion here, but not so 
long that I don't get to ask another question, or you can talk. 
OK, Mr. Sundstrom?
    Mr. Sundstrom. If I could start very briefly--I realize 
this is not the Banking Committee, but we really need some help 
with FHFA. If FHFA continues with its rules and it passes that 
rule, which is due in about 30 days now--there's about 15 days 
that have passed so far during the exposure period.
    Senator Franken. This is about PACE?
    Mr. Sundstrom. This is about PACE, yes.
    Senator Franken. This is about them not putting PACE in 
first position?
    Mr. Sundstrom. Right.
    Senator Franken. OK.
    Mr. Sundstrom. PACE, of course, is not a loan. It's an 
assessment.
    Senator Franken. Right.
    Mr. Sundstrom. So under the laws of most States it belongs, 
along with other assessments----
    Senator Franken. So basically, for everyone listening--let 
me see if I've got this right. Basically--and we have this in 
Minnesota. So a PACE thing is basically, it's almost like a 
property tax. In other words, the county government, the city 
government, can help a commercial building, say, make a 
retrofit and, instead of that building, the owner of that 
building, paying in front, it's added on sort of as an 
assessment.
    Mr. Sundstrom. It's an assessment.
    Senator Franken. Right. So what you're talking about is 
whether the Federal Government, the FHFA, will recognize that 
as what it is, which is that you pass that on. If you sell the 
building, you pass that on, that assessment on, to the next 
owner, and that basically if there is a default somewhere along 
the line, that that gets paid off to the city before the 
mortgage. That's the problem in light of the obvious big 
problem we had.
    Mr. Sundstrom. Yes, sir. Right now, as I mentioned, H.R. 
2699 has a lot of accommodations for PACE programs, which the 
FHFA we would hope would want to accept. They include a little 
bit more rigorous qualification for loan. I believe it's 85 
percent loan to value. They require established energy savings 
to be proved as the loans are being--as the assessments, excuse 
me, are being granted.
    Your help in pushing for 2699 or, even better, would be if 
we could somehow exert some level of influence over FHFA to 
accept the language in 2599 before implementation, would be 
most helpful to us.
    Senator Franken. OK. Sorry that we got into this detail. I 
know that when we get in the weeds on these things this sounds 
very complicated. It sounds complicated, and I guess they are, 
but it's doable. It's all doable. It's not rocket science.
    So I'm done. My time's over. But we'll come back to this, 
and excuse me for getting into this. But that's the nature of 
these things, and you all know that. You all know that the 
nature of these things is you have to discuss it for more than 
a couple minutes.
    But the thing is, let me just say that for different kinds 
of buildings--and you talk about MUSH, which is municipals, 
universities, schools, and hospitals, and we all know that 
acronym who are interested in this subject. There are different 
models for different kinds of buildings and maybe different 
States, etcetera, etcetera. But this can be done and it should 
be done and it must be done.
    Mr. Chairman, thank you.
    The Chairman. Thank you very much.
    Senator Shaheen.
    Senator Shaheen. Thank you, Mr. Chairman. Thank you to you 
and Ranking Member Murkowski for calling the hearing today, and 
to all of you for testifying and for the really excellent work 
that you're doing on the ground.
    My personal belief is that energy efficiency is not only 
all of the things that everybody's testified to, but it's also 
a way to bridge some of the differences on our energy strategy 
in this country, because it doesn't matter whether you support 
oil and gas, fossil fuels, or whether you support wind and 
solar; energy efficiency benefits us all. It benefits every 
region of the country.
    So I think it's from that perspective a very good place to 
start with an energy strategy for the country. Notwithstanding 
that we're talking about non-Federal financing for energy 
efficiency programs, the fact is, as we have just talked and 
Mr. DeBoer pointed out very clearly, there are a number of 
things that we can be doing here in Congress that help promote 
energy efficiency in a way that's I think very good for the 
country.
    I appreciate Mr. DeBoer's raising S. 1000, which Senator 
Portman and I have been working on for over a year. I think 
it's one of those pieces of legislation that could help promote 
energy efficiency around the country. I was pleased that the 
American Council for an Energy Efficient Economy analyzed the 
legislation and said that by 2020 it could save consumers $4 
billion and create about 80,000 jobs. So the jobs--this is, as 
everybody has said, a real win-win for everybody.
    Let me ask you, Mr. DeBoer, because I know that you have 
your fingers on what's happening in the real estate industry. 
One of the challenges that has been alluded to by many of you 
is how we quantify savings from energy efficiency and how do we 
get lenders to look at that and be able to include that in 
calculations around lending on this issue.
    I wonder if you could talk about the challenge that is 
presented by that data issue and how we can address that.
    Mr. DeBoer. Thank you. There is a huge problem, I think, 
between utilities, between tenants in buildings and between 
owners on getting a comprehensive sort of holistic picture of 
the energy use, how it's being used, what steps might be taken 
within an individual building to reduce energy consumption.
    To the point from Senator Murkowski about how can we get, 
for example, users of energy to be more responsive, one item 
that we've been working on separate from S. 1000 with Senator 
Bennet to approach a market-driven approach to a bill that 
would give--now there is an Energy Star award for buildings, 
for example, for building owners, and we know that buildings 
that have an Energy Star use about 35 percent less energy than 
one that doesn't.
    We would like to take that to the next level and give sort 
of a tenant-based Energy Star, if you will, to incentivize 
tenants to save energy. We think that that would encourage 
people to do things. We also need to have better data sharing 
between the utilities and the owners on how much energy is 
being used, where it's being used. Different tenants obviously 
use different levels of energy. A large trading floor in a 
tower in Manhattan is burning an awful lot more than an office 
building somewhere else around the country. So we need to share 
that data.
    It frequently surprises people when we say that there is a 
barrier between utilities, owners, and lessees on how this 
energy is being used. The Chicago area has a great example of 
where there's been a sharing of information. We urge people to 
take a look at that.
    The one other item that I think we'd like to see are these 
general appraisal rules, and we think the appraisal industry is 
very willing to help in this area, to give credit for making 
energy efficiency improvements in buildings. We ought to have 
more credit. We ought to be working more together, and there's 
legislation that would do this.
    Most of what I'm talking about again echoes Senator 
Franken. We're not talking about spending Federal dollars here. 
We're talking about breaking down barriers for communication, 
sharing information, allowing people to do things, and 
incentivizing them in this market-based approach. So just a 
couple of ideas, I guess.
    Senator Shaheen. Thank you.
    I don't know if anyone has anything to add to that? Ms. 
Leeds?
    Ms. Leeds. Thank you. I agree with you wholeheartedly that 
the need for data is critical, and I feel that our experience 
shows that, with respect to the lender process and how lenders 
are actually using information to adjust their practices, this 
field is really quite nascent.
    There's a considerable amount of lender education that 
needs to happen. There need to be concerted efforts to track 
data that shows the actual performance of retrofits, that helps 
people understand the financial benefits, both in terms of 
savings, but from a lender's perspective in terms of risk 
mitigation, that retrofits can offer; and that there needs to 
be, I believe, some encouragement, pressure, and assistance in 
data gathering efforts.
    We are working with one study that was funded by 
philanthropy and a group associated with Deutsche Bank 
Foundation that tracked retrofit performance in affordable 
multi-family properties over several years based on an ACERTA 
program and the weatherization assistance program in New York. 
This information has provided a basis for us to work with two 
lending organizations, one local New York City lender and also 
a national lender, to develop energy efficiency retrofit 
financing programs.
    More of this type of information would be extremely 
helpful, I believe, to the lending community, coupled with some 
pressure to get them to act.
    Senator Shaheen. Thank you. My time is up, but I'm sure 
you're all aware that there's a DOE innovation hub in 
Philadelphia that's trying to develop data on building 
efficiency, that hopefully will help add to this debate 
significantly.
    The Chairman. Senator Wyden.
    Senator Wyden. Thank you very much, Mr. Chairman.
    To the witnesses, let me apologize. Suffice it to say, even 
by Washington, DC, standards, this has been something of a 
rollicking day here in the Nation's capital. So I appreciate 
your patience.
    Mr. Smith, we're particularly proud of you. I think the 
Clean Energy Works program and the trailblazing effort that 
you've led, which of course is part of our tradition, is really 
special because you have been able to accomplish what 
essentially folks in the Congress just dream of. You have 
brought the utilities together, small business folks together, 
the State public utility commission, our lending institutions, 
urban and rural folks together, for an effort to promote clean 
energy and particularly prime the energy efficiency pump.
    This is especially important right now, because I think 
it's pretty obvious that the well for taxpayer-financed 
incentives for a variety of energy technologies is running dry 
really at every level of government. So if anything, it's more 
important than ever to try to put the premium on innovation, to 
put the premium on innovation particularly as it relates to 
energy efficient investments.
    It's of course easier said than done, but clearly to find a 
way to bring these investments to homes, buildings, and 
factories means that you've got to look at a variety of new 
approaches. That's what we've done in our State. It really 
began with the bottle bill, and particularly relevant, just 10 
years ago we started the Oregon Energy Trust and that brought a 
surcharge on utility bills to finance energy efficiency and it 
has saved Oregonians about $800 million so far. So it's 
generating real savings as we chart the path to a cleaner and 
more energy efficient future.
    So I want to ask you specifically about how we really began 
that effort and particularly the role that on-bill financing 
plays in your program. With customers repaying energy efficient 
loans on their monthly utility bills, the first question 
everybody asks is: How in the world did you get the utility 
companies to go along with this? Because I want to see if we 
can build, as we have often, on this Oregon model, bringing the 
players together.
    Tell us a little bit, first of all, how you were able to 
get the utility companies to go along, and how you built this 
coalition that has in effect grown and become widely accepted, 
where in most places you can't get these folks to even talk to 
each other, let alone come together around a program you're 
talking about.
    So start with utility companies and how you built this 
coalition?
    Mr. Smith. Thank you, Senator. Thank you. I mentioned your 
leadership before you entered the room and we couldn't be here 
without you. So we really appreciate that.
    I really appreciate the point of supporting innovation. I 
think that's--to Senator Franken's point or question, that is 
really what the government can do, I believe, is to support 
these innovations that are going on out there.
    On-bill started in Oregon over 3 years ago. We have 
progressive utilities by comparison to other parts of the 
country. We're very lucky to have that. But the reality is that 
using their bill for repayment of loans is not what they're in 
the business of doing. It presents some risks to them.
    So they were compelled to do so through State law that was 
sponsored by Representative Jules Bailey and others in the 
State legislature and passed by the State in 2009. That law as 
it was being developed was built with a broad stakeholder 
engagement process, where we had contractors, utilities, 
lenders, everybody involved, as you mentioned. That is sort of 
the Oregon way, which you of course champion.
    It's through that broad stakeholder engagement that we're 
going to get these solutions. That's the only way we're going 
to get to the real innovation that leads to ways that these 
things actually work.
    What we have experienced with on-bill is the utilities have 
been wonderful and supportive of really cataloguing the 
challenges with this on a day to day basis. There's 
information-sharing challenges. There are challenges with 
trying to get payment of capital into the utility--not into the 
utility, but collected by the utility and then back to the 
lender. There's a lot of intricacies with this type of 
approach, and it doesn't also solve every solution that there 
is. On-bill is important and it's one segment of the population 
that has a solution to this larger problem, but we really need 
to get a bunch of lenders involved. We need to have multiple 
loan products that serve multiple needs.
    Senator Wyden. Let me, if I might, because my time--I'm 
just a few seconds over. Mr. Chairman, could I just ask one 
additional question?
    The Chairman. Go right ahead.
    Senator Wyden. Even though you generated significant 
private sector support, you did get some government help at the 
beginning.
    Mr. Smith. We did.
    Senator Wyden. Why don't you--and if any other panel member 
wants to get into this--get into the question of, based on your 
experience, how long do you thnk programs like Clean Energy 
Works are going to require a role for government? In other 
words, in a time of dwindling resources--and I very much share 
Senator Franken's view on this effort to spark innovation. I 
think that's exactly where we want to be. We're still going to 
find a lot of programs needing a bit of governmental support in 
order to get out of the gait.
    How long do you, and perhaps other witnesses want to chime 
in on this, how long do you see that taking in terms of getting 
to the point where you have critical mass and you don't have 
Federal and State support, which is going to be hard to 
generate right now? How do you get there?
    Mr. Smith. I do respect very much the budget decisions that 
you all need to make, very large decisions. I think what we're 
trying to build here is a performance-based model, where we are 
showing that the investment, public investment, actually 
results in real returns, and we have the data to share that. So 
as you make decisions, you might consider looking at where you 
actually know you're going to get proven returns in economic 
development, if it's economic development that you want.
    If we want to support this industry and grow it because we 
believe in the returns that we've all said are win-win-win, 
then it does require some--or it can benefit--we can accelerate 
those outcomes through further investment. I believe more lies 
right now on the rebate side to get consumers involved, because 
until home valuations and property valuations recognize in real 
estate transactions the improvements made by energy efficiency 
I think we're going to need further investment.
    I think it's maybe--it's really hard to guess. There's a 
lot of markers that we need to watch. But 3 years I think is 
what we feel the real estate industry needs to turn around and 
really recognize these improvements. We need market adoption to 
grow such that people talk about doing energy efficiency 
remodels like they would a kitchen remodel or a bathroom 
remodel.
    Senator Wyden. I'm way over my time. If any of you would 
even for the record furnish a written answer to the question of 
how long in your judgment--Mr. Smith thought maybe 3 years--how 
long you think it takes to get to critical mass so that the 
government support can go by the board.
    Mr. Chairman, thank you for the extra time.
    Mr. Smith. Thank you, Senator.
    The Chairman. Senator Murkowski, did you have some 
additional questions?
    Senator Murkowski. Let me just ask. On whole building 
retrofits, you've got the commercial side of it, you've got the 
residential or the private side. Assuming that from the 
financing perspective it's different in how you approach the 
financing for the commercial--and Ms. Leeds, you spoke to 
that--what kind of incentives do we need, if any, for the whole 
building retrofit for private owners?
    I throw that out to the whole. Ms. Leeds, if you want to 
start.
    Ms. Leeds. I will just briefly mention that I believe the 
most important driver we have the benefit of having in New York 
City is the city's Greener Greater Buildings plan, which 
involves benchmarking and eventually mandatory audits and retro 
commissioning for buildings of over 50,000 square feet. This is 
not an incentive, but it is a set of local laws that promulgate 
information about energy use and put in play competitive forces 
that we believe will drive more building owners, larger 
building owners, to adopt energy efficiency measures.
    Senator Murkowski. So you've got a mandatory audit on all 
private buildings over a certain size?
    Ms. Leeds. Private buildings over 50,000 square feet, there 
is a mandatory audit, ASHRAE Level 2 energy audit, and retro 
commissioning measures. This is being phased in over a period 
of years. Every building will need to do it once every 10 
years.
    Mr. DeBoer. Senator, if I could.
    Senator Murkowski. Mr. DeBoer.
    Mr. DeBoer. I think it's important to recognize that 
building owners everywhere want to make their buildings more 
energy efficient. It's better for their bottom lines. It's 
better for their business. They want to do it. But what we're 
talking about here is beyond simply putting in a light switch 
that goes off when people leave the room or changing out the 
lighting.
    In order to achieve deep energy efficiency, we need to have 
deep retrofits. These are very complicated, costly endeavors. 
So one thing that needs to be done if we're going to have a tax 
deduction--and there is one in current law, 179D, as the 
chairman well knows--it should work, and mechanically it 
doesn't work now, and there are some simple ways to make it 
work that would incentivize people to do these deeper 
retrofits.
    On the financing side of things, we're not talking about 
direct loans. We're talking about guaranteeing a small part of 
a loan that could then be levered to a larger loan that a 
private owner could then do a deep retrofit. So there's a lot 
of relatively minor things that could go a long way to 
encourage these kinds of heavy benefits that could come out 
there. Many members of the committee have bills and we support 
them, we support them all.
    Thank you.
    Senator Murkowski. Thank you, Mr. Chairman.
    The Chairman. Senator Franken, did you have some additional 
questions?
    Senator Franken. I do. First of all, on the lighting here 
in this room. The reason it's so bright--and I don't know--I 
think the ranking member knows this--I used to be in show 
business, and they have this--these lights are for TV. Even 
though they----
    Senator Murkowski. We're not here for TV.
    Senator Franken. I know. I know that we're not here for TV. 
But we do have C-SPAN sometimes. Evidently there are members of 
the Senate who have egos and they do like the TV. Even though 
we're not on C-SPAN today, they just don't want Senators to 
come in here and see the lights dimmer and say: Oh, well, it's 
hardly worth it; I'm not on TV. So that's why it's so bright 
today. I just wanted to explain that. That's from my experience 
in a different business.
    This is to anybody. Minnesota, like other States, has an 
energy efficiency resource standard requiring it to reduce 
energy use by 1.5 percent a year, to be that much more 
efficient. To meet the standard, Minnesota utilities are 
offering rebates or low interest loans to help homeowners and 
businesses retrofit their buildings. From what I've seen in 
Minnesota, the standard has turned utilities into efficiency 
partners who support retrofits, and that's why I'm looking for 
a Federal energy efficiency standard that is in part modeled 
after these State programs. There's a lot of States that have 
this, I think a majority.
    A Federal energy efficiency standard can help incentivize 
energy efficiency savings and encourage the use of innovative 
financing mechanisms to achieve these savings. This is for Mr. 
Rodgers or for anyone. In your written testimony, Mr. Rodgers, 
you mentioned that you've seen the greatest level of efficiency 
achievement in States with energy efficiency standards. In 
fact, you highlight a success story in Indiana. Can you 
elaborate on that and explain how a Federal standard could 
expand those kinds of achievements? For the rest of the panel, 
could you comment on whether energy efficiency standards have 
helped encourage the use of innovative financing mechanisms?
    Mr. Rodgers. Yes, thank you, Senator. One of the things 
that we experience with these standards is it does bring out 
the best in who we are. When we have a challenge and a specific 
goal to put out there to meet, it does require all of the 
stakeholders that are involved to come to the table and have 
discussions so as to achieve that. So it's the regulators, it 
is the utilities and business that all come together to bring 
out the best in our thinking, bring out the innovation that is 
necessary.
    There are over 25 States, as you have stated, Senator, who 
have established these standards and have made tremendous 
strides in the energy efficiency measures that they have put 
into place.
    So I think, with a lack of standards, there isn't that 
motivating factor to really bring everyone together. So to the 
extent that there could be Federal involvement in helping to 
set a broader standard----
    Senator Franken. When I talk to utilities in Minnesota, 
they're eager. They're looking for these things.
    Mr. Rodgers. Absolutely.
    Senator Franken. To help meet their standard.
    Mr. Rodgers. Absolutely. In the case of Indiana, we have 5 
investor-owned utilities. All come to the table, working 
strongly together to achieve those standards. As you said, 
sometimes it's difficult to get all the right folks around the 
table, but these standards are what it takes to make that 
happen.
    Senator Franken. I hope we can consider a Federal standard.
    I'll move to something that Mr. DeBoer was talking about, 
if others don't mind not being able to ask a last question. You 
mentioned the 179D tax deduction for commercial building 
retrofits and how powerful they are as tools, helping building 
owners invest in energy efficiency. However, I've heard from 
religious groups and nonprofits, as well as real estate 
investment trusts, or REITs, in Minnesota that would like to 
retrofit their buildings, but don't have tax equity and 
therefore can't take advantage of these incentives.
    If the tax deduction were transferable to a third party, 
like a retrofit contractor, the contractor could reduce the 
price of the retrofit based on the benefit of the tax 
deduction. That could help people with little or no tax equity 
take advantage of the Federal incentive and therefore retrofit 
their buildings.
    Would making Federal tax incentives transferable to third 
parties in your view open up more retrofitting opportunities?
    Mr. Rodgers. Consistent with my statement about being 
brief: Yes. It would very much help.
    Senator Franken. Thank you.
    Mr. Rodgers. Because, as you said, there are a number of 
types of ownership structures that can't take advantage or use, 
is probably a better word, not ``take advantage,'' but make use 
of the available deduction. Being able to allocate it, whether 
it's to engineers or appraisers or to other entities that are 
in the refitting, retrofitting business, yes, it would be very, 
very powerful.
    Senator Franken. I've got some other questions, but I've 
got like 12 seconds. I am so happy that you called this. This 
is so important. This is really an opportunity for us to create 
jobs. A lot of the Federal help--and when I talk to this energy 
efficiency standard, the Federal help doesn't have to be about 
us spending Federal dollars necessarily. Of course, tax being--
opening a tax advantage there is.
    But so much of it can be about just making it possible to 
do these things, just actually encouraging and helping and 
getting out of the way in some cases, get out the way. So I 
want to thank this panel for doing the work that you're doing, 
I really do. I want to thank the chair and the ranking member 
for facilitating this hearing.
    The Chairman. Thank you very much.
    Senator Murkowski, did you have anything else you'd want 
to----
    Senator Murkowski. No, I'd just thank all of you.
    The Chairman. Let me thank the panel as well. We will take 
your full statements and pore through them and try to find what 
action items we can that we can move ahead on here. I think 
this has been a very useful hearing. I thank Senator Franken 
for continuing to keep a focus on this. I think it's a very 
important question.
    Senator Franken. Mr. Chairman, would you like me to explain 
again about the TV lights and why?
    The Chairman. We would, we would. We're very anxious to 
hear.
    Senator Franken. Why Senators like being on TV?
    The Chairman. We would be very anxious to----
    Senator Murkowski. Will you explain the cold temperatures, 
too?
    Senator Franken. Actually, when there are a lot of people 
in the room with the TV cameras, it warms up.
    Now, today we don't have that. We don't have that. But you 
don't want the Senators walking in, it being dim and warm, and 
saying: There's no TV today; I'm not going to show up.
    Senator Murkowski. I'm going to keep that in mind.
    The Chairman. We'll keep that in mind, and thank you very 
much.
    That's the end of our hearing.
    [Whereupon, at 10:55 a.m., the hearing was adjourned.]
                               APPENDIXES

                              ----------                              


                               Appendix I

                   Responses to Additional Questions

                              ----------                              

      Responses of Derek Smith to Questions From Senator Bingaman
    Question 1. How important are tax incentives to stimulating 
commercial building efficiency retrofits? Are there specific incentives 
we should enact?
    Answer. Our experience is more in the residential sector so I will 
defer to other witnesses on questions 1-4.
    Question 2. Government policy makers have been trying to stimulate 
large scale efficiency retrofit commercial building industry for more 
than three decades, but experts say that mandates may be required to 
stimulate the real estate industry to perform large scale energy 
efficiency retrofits in the commercial sector, other than a few high 
profile trophy buildings. Do you agree or disagree that mandates will 
be required for the commercial sector to do large scale retrofits? What 
are the alternatives?
    Question 3. How can utilities be encouraged to adopt the successful 
small commercial and industrial program that was described by Ms. 
Borrelli from United Illuminating? The combination of turnkey service, 
cost-effective incentives and zero -interest financing has been very 
effective in Connecticut and Massachusetts. These programs should be 
implemented across the country. How can we replicate these programs?
    Question 4. Ms. Leeds of NYCEEC cited a study published by the 
Rockefeller Foundation which estimated the potential for energy 
efficiency in institutional buildings at about $25 billion. However, 
NAESCO`s testimony (for the record) states that this estimate is low by 
a factor of four, based on studies performed by the Lawrence Berkeley 
Labs. Do you agree that the potential market for energy efficiency in 
institutional buildings approaches $100 billion? If not, what do you 
see as the potential market and barriers to meeting the potential for 
energy efficiency in buildings?
    Question 5. You say in your testimony that, ``We have built a model 
that doesn't rely on Federal investment to survive''. How does your 
model work? Is it replicable?
    Answer. We believe the residential energy efficiency sector 
requires more public investment before it can become self-sufficient. 
As I mentioned in my testimony, I would estimate further public 
investment on a three-year horizon. My intention with this statement 
was to say we are not reliant on Federal investment beyond ARRA. That 
said, we would welcome it and we believe we are demonstrating the 
economic development value of further public investment through data on 
job creation, small business growth, citizen energy savings, private 
capital leverage, housing value increases, etc.
    Our post-ARRA model is to transition from Federal investment to 
State investment. We are featured in Oregon Governor John Kitzhaber's 
10-Year Energy Action Plan as an example of an effective public-private 
partnership that is worthy of consideration for further State 
investment. Our operational focus is to continue to bring down 
transaction costs currently covered by subsidy and to use additional 
State investment for consumer rebates to buy down project costs. We 
have data that shows that rebate levels above utility incentive levels 
drive additional consumer demand, which leads to significant 
incremental economic development. We call this ``performance-based 
economic development,'' wherein public institutions know their 
investments will provide returns because they are founded on solid 
data.
    We believe our model is replicable. The thrust of a well-
capitalized and sustained market over the next several years is a 
collaborative investment approach by the utility, public and private 
sectors. Clean Energy Works Oregon serves as the intermediary and 
capital aggregator between these sectors.
      Responses of Derek Smith to Questions From Senator Murkowski
    Question 1. In your opinion, should the federal government be 
investing in efficiency? If so, what is the proper role of the federal 
government for these types of retrofits?
    Answer. Unequivocally, yes. The jobs can't be outsourced, small 
businesses grow, citizens save money, the country reduces its reliance 
on volatile fossil fuel markets, and more.
    The Federal government can play several important roles, as noted 
in #2 below.
    Question 2. Within your testimony you list several opportunities 
for the Federal Government to pursue as it pertains to energy 
efficiency. What do you believe would be the option that would have the 
most return on improving energy efficiency and why?
    Answer. I honestly believe that the most important role the Federal 
government can play is as chief advocate for a collective commitment to 
energy efficiency--from setting common data standards (e.g., on energy 
and non-energy benefits) across state lines to catalyzing private 
sector engagement to encouraging citizen awareness to demonstrating 
leadership by reducing energy waste in public buildings (as you, Sen. 
Murkowski, pointed out in your remarks).
    Additionally, on citizen engagement, I suggested in my testimony a 
reference to the Victory Gardens rallying cry by the Federal government 
during WWII. We should link energy efficiency to patriotism.
    Question 3. Please further elaborate on the role that the State of 
Oregon is playing in incentivizing efficiency.
    Answer. The Oregon Dept. of Energy has invested in CEWO. Its 
contributions in consumer rebates, private lender credit enhancements 
and other areas are spelled out in the attached overview.
    Gov. Kitzhaber featured CEWO in his draft 10-Year Energy Action 
Plan (see attached). We are in discussions with the State about 
investing in further consumer rebates to generate ``performance-based 
economic development'' returns from the energy efficiency sector.
    The State also provides various tax incentives and promotes 
supporting legislative and statutory actions.
    Question 4. Is there a silver bullet to lower energy consumption? 
If not, what are options to put into the mix?
    Answer. Ongoing consumer education is critical and often overlooked 
by utility programs. Smart customer management should constantly offer 
new technologies (e.g., smart meter appliances) to participants in home 
weatherization programs, for example. Ensuring quality work--through 
contractor certification and worker training--is also an important 
element of ensuring permanence of energy savings.
         Response of Derek Smith to Question From Senator Wyden
    Question 1. Even projects like Clean Energy Works, which use 
private financing, needed government financing to get started. Given 
the modest pace of the economic recovery, which limits the amount of 
secondary lending for things like energy efficiency, how long do you 
think programs like Clean Energy Works will require support? In other 
words, when do you think these sorts of programs will get to a critical 
mass, and where federal and state support are no longer needed?
    Answer. The key challenge for this sector is that utility capital 
can only value the energy savings returns from energy efficiency. It 
explicitly, by PUC charter, can not value all the non-energy benefits. 
Until this structural issue is addressed, we face a world where public 
capital must ``fill the gap''.
    As I mentioned in my testimony, I think the horizon might be 
roughly three years. The markers of transformation that will herald 
this transition include:

   Steady, growing consumer demand wherein consumer consider 
        energy remodels along with kitchen and bath remodels
   The real estate community recognizing the value of energy 
        efficiency in home valuations
   Contractor capacity, including on sales and marketing, is 
        sufficient to drive demand in a competitive market without 
        rebates needed as a promotional hook

    CEWO has figured out how to engage private lenders without credit 
enhancement. We feel very strongly that Federal dollars may be most 
effectively targeted toward consumer demand and contractor capacity 
rather than support for lenders
                                 ______
                                 
   Responses of David E. Sundstrom to Questions From Senator Bingaman
    Question 1. How important are tax incentives to stimulating 
commercial building efficiency retrofits? Are there specific incentives 
we should enact?
    Answer. Although in my role as Auditor Controller Treasurer Tax 
Collector of the County of Sonoma, and Administrator of our local 
Property Assessed Clean Energy (PACE) program we have no direct 
experience with federal tax incentives, we are aware of their 
importance in motivating property owners towards retrofitting their 
property. Informed tax professionals working with commercial building 
owners and building performance professionals can best define the 
return on investment impacts to a business.
    One particularly difficult segment of the market to stimulate to 
embrace energy efficiency upgrades is the multifamily housing sector. A 
large percentage of multifamily housing units are owned by real estate 
investment trusts, whose mission is to enhance the profits of the 
partners in the trust. Because the building owner does not pay the 
energy bill, there is no motivation, without proper incentives or 
mandates, to upgrade the property. An excellent analysis entitled 
``U.S. Multifamily Energy Efficiency Potential by 2020'' can be found 
at: http://www.benningfieldgroup.com/docs/
Final_MF__EE_Potential_Report_Oct_2009_v2.pdf. That study on 
multifamily housing concludes on p. 5: ``We estimate that the 
achievable potential (the economic potential further bounded by 
reasonable expectations of budgets and adoption rates) by the year 2020 
is over 51,000 gigawatt-hours of electricity and over 2,800 Million 
therms of natural gas (or the equivalent for those regions that use 
other fuels). That is roughly equal to the output of 20 average sized 
coal power plants and the entire non-power plant natural gas usage of 
California, Oregon, and Washington. The potential savings would have a 
value of nearly $9 Billion annually to property owners and tenants, 
compared to current energy costs of over $31 Billion.''
    We would urge the Committee to consider methods of stimulating this 
particularly difficult segment of commercial properties toward 
efficiency upgrades.
    Question 2. Government policy makers have been trying to stimulate 
large scale efficiency retrofit commercial building industry for more 
than three decades, but experts say that mandates may be required to 
stimulate the real estate industry to perform large scale energy 
efficiency retrofits in the commercial sector, other than a few high 
profile trophy buildings. Do you agree or disagree that mandates will 
be required for the commercial sector to do large scale retrofits? What 
are the alternatives?
    Answer. While this is not my particular area of expertise, because 
of my role as Administrator of our PACE program we believe a 
combination of mandates and incentives may be required to motivate 
efficiency upgrades. As explained in Response No. 1, some areas of the 
market, particularly multifamily housing, are very difficult to reach. 
Commercial property owners will consider upgrades if the upgrades 
financially benefit them, financing is available, and existing lenders 
support, or at least do not oppose, that decision. Some combination of 
rewards and mandates may be necessary to drive efficiency upgrades and 
motivate property owners that do not directly bear the energy costs of 
a building.
    Question 3. How can utilities be encouraged to adopt the successful 
small commercial and industrial program that was described by Ms. 
Borrelli from United Illuminating? The combination of turnkey service, 
cost-effective incentives and zero-interest financing has been very 
effective in Connecticut and Massachusetts. These programs should be 
implemented across the country. How can we replicate these programs?
    Answer. To the best of our knowledge, while both of these programs 
are very successful, they are also highly subsidized. Over time, we 
need to transition to programs that can operate with little or no 
subsidy and utilize private capital so that the scale is not limited to 
scarce government funds. PACE provides a vehicle for that approach, in 
both the commercial and residential sectors.
    In the experience of Sonoma County, program success has rested on 
the foundation of strong political will based on established county-
wide community climate and local power generation goals.
    Sonoma supports the replication of a one-stop-shop local energy 
independence upgrade program model to:

   Leverage existing and develop local relationships among 
        local government agencies, business, education, non-profits, 
        utilities, trade organizations, etc., engage in a collaborative 
        operational mode;,
   Minimize consumer confusion by leveraging branding 
        opportunities;
   Focus local workforce balancing and development to stimulate 
        the local economy;
   Design and delivery quality assurance in the evolving 
        building performance and renewable generation industry;
   Maximize rebates and incentive;--Deliver unbiased extensive 
        education and outreach from the perspective of a not for profit 
        organization; and
   Facilitate the pairing of fund sources through partnerships 
        and the delivering of a financial clearing house to consumers.

    A model for replication could include operational funding of the 
local government/not for profit agency by local public good utility 
charges, leverage rebates of utilities, maximize tax incentives from 
the federal government, to educate consumers, develop the clean energy 
workforce and facilitate the pairing of private funding sources with 
projects, including through the PACE model. We believe our model is 
replicable, as demonstrated by the establishment of a PACE program at a 
very reasonable cost, and completion of a PACE project in Encina, 
Minnesota, using documents and methodology developed by Sonoma County.
    Question 4. Ms. Leeds of NYCEEC cited a study published by the 
Rockefeller Foundation which estimated the potential for energy 
efficiency in institutional buildings at about $25 billion. However, 
NAESCO`s testimony (for the record) states that this estimate is low by 
a factor of four, based on studies performed by the Lawrence Berkeley 
Labs. Do you agree that the potential market for energy efficiency in 
institutional buildings approaches $100 billion? If not, what do you 
see as the potential market and barriers to meeting the potential for 
energy efficiency in buildings?
    Answer. We do not have access to the utility use data, building 
square footage, and current efficiency information required to answer 
this question on a national level.
    In Sonoma County we completed implementation of a comprehensive 
energy retrofit program for our central campus in 2010 (institutional 
buildings only). This program included numerous building retrofits, 
water conservation measures, solar PV installation, and the 
installation of a 1.4megawatt fuel cell. The program had zero net cost 
to the county from day one and debt service of the upgrades is being 
paid through utility savings. The anticipated savings for the County 
over the 25 year life of the upgrades is estimated to exceed $35M.
      


------------------------------------------------------------------------
               FINANCING PLAN
------------------------------------------------------------------------
Project Cost                                  $22,272,029
------------------------------------------------------------------------
Incentives, Grants, and Rebates               (3,941,226)
------------------------------------------------------------------------
Financed Amount                               $18,730,803
------------------------------------------------------------------------
Estimated Interest Rate*                      4.98%
------------------------------------------------------------------------
Repayment Term                                16 years
------------------------------------------------------------------------
Assumed Closing/Funding Date                  1/1/09
------------------------------------------------------------------------
Assumed Annual Energy Cost Escalation*        5%
------------------------------------------------------------------------
First year of positive cash flow              Year 12
------------------------------------------------------------------------
Total payments                                $31,794,615
------------------------------------------------------------------------
Total cumulative positive cash flow after 25  $38,404,231
 years (estimate life of equipment)
------------------------------------------------------------------------

  Responses of David E. Sundstrom to Questions From Senator Murkowski
    Question 1. In your opinion, should the federal government be 
investing in efficiency? If so, what is the proper role of the federal 
government for these types of retrofits?
    Answer. The federal government has a key role in creating standards 
and certification, such as Energy Star, as well as providing incentives 
to meet those standards. In addition, the federal government can lead 
the way by retrofitting its own buildings and fleets to demonstrate the 
success and cost-savings in efficiency.
    The federal government should, however, exercise caution. Many 
components work together for a successful nationwide program. While the 
government can stimulate one segment, such as manufacturing or 
innovation, there must be a market at the end of the day. As discussed 
above, there may be tax incentives or mandates that stimulate the 
private market for upgrades. In the residential sector, there must also 
be financing available to property owners. The position of the Federal 
Housing Finance Agency (FHFA) on PACE programs has severely frustrated 
making funding available to residential property owners, and crippled 
the market for products and services. The federal government should 
ensure that its various components are working in unison to promote 
national policy.
    Question 2. Please describe how the first lien program works within 
the PACE Program. How is the PACE Community working with the lending 
community to address concerns about the lien priorities?
    Answer. PACE programs are authorized by state legislation enabling 
local governments to establish assessment- or tax-secured programs so 
that properties can be upgraded for energy efficiency or by 
installation of renewable energy improvements. Legislatures have found 
that there is a public purpose in having these improvements made. The 
local government provides the funding which is secured by assessments 
or taxes levied on the property. As with all other assessments that 
repay bondholders for projects benefitting particular properties 
(sewer, road, etc.), the repayment is secured by a priority lien on the 
property. There are some 37,000 assessment districts in the country: 
this is a well established, well accepted mechanism for funding local 
improvement projects that address a public need.
    A priority lien is essential in any sustainable and replicable PACE 
program. As part of the PACE model, should there be a mortgage default 
on a property with a PACE lien, only the amount in default (i.e., not 
the entire obligation) would need to be paid upon sale of the property. 
The lien would remain in place for all amounts not yet due. In 
contrast, if there were no priority lien and the PACE assessment 
followed the first mortgage in priority, the sale of the property by 
the mortgage holder would eliminate the PACE lien in its entirety. The 
public coffers can't sustain this loss; nor could we attract bond 
investors in the Program at a reasonable interest rate.
    When we established our PACE program, we met with numerous local 
banks and worked with several national banks. For commercial 
properties, banks requested that the first lender be contacted and 
agree that the project made sense for the property. We have implemented 
that request and numerous commercial property owners have obtained 
their lender's agreement to projects. The commercial lenders generally 
evaluate the cash flow: if it is positive, they have no objection to 
the project. Although we believe we do not need a lender's consent to 
assess a property, we are willing to restrict eligibility for 
commercial properties to those that are able to work with their lender 
and receive consent.
    On the other hand, it is impossible for residential property owners 
to obtain lender consent to the priority lien. Mortgages are bundled, 
collateralized and sold. The local bank is only the servicer of the 
mortgage, without power to agree to a priority lien. Local governments 
contend that the priority lien does not violate any provision in 
mortgages, and consent is not required, since tax and assessment liens 
are anticipated in all mortgage documents. Although some banks agreed 
with this position before the Federal Housing Finance Agency challenged 
PACE programs, it has not been possible to resolve this issue or reach 
agreement with any banks since that time. PACE jurisdictions have 
expressed support for HR 2599, which balances the interest of lenders 
and local governments desirous of instituting PACE programs. We hope 
the Committee would consider sponsoring similar legislation in the 
Senate.
    Question 3. Is there value in one national program rather than each 
state implementing their program such as PACE? Or is PACE better suited 
for localities? Who would run such a program on the federal level? 
Could you broaden your program to a larger audience, and continue to 
maintain cost savings and efficiency improvements?
    Answer. It may be valuable to have some national standards, such as 
those established in HR2599, if doing so resolves issues with FHFA, 
Fannie Mae, Freddie Mac, and lenders regulated by FHFA. National 
standards may also assist if creating fungible, marketable bonds that 
could be bundled for sale to investors at more favorable interest 
rates. However, in our view, PACE programs should be implemented on a 
local level although there could be regional cooperation for 
efficiency. In Sonoma County, we have partnered with our nine cities to 
deliver a countywide program.
    Local implementation provides a framework to satisfy local goals 
and priorities in alignment with national standards. The building of a 
local partnership and collaboration model in this area benefits all 
areas of local government operation and provides flexible, responsive 
service to the public. Sonoma supports the replication of a one-stop-
shop local energy independence upgrade program model to:

   Leverage existing and develop other local relationships 
        among local government agencies, business, education, non-
        profits, utilities, trade organizations, etc., to engage in a 
        collaborative operational mode;
   Focus local workforce balancing and development to stimulate 
        the local economy;
   Design and deliver quality assurance in the evolving 
        building performance and renewable generation industry 
        including reliance on local jurisdictions' existing building 
        inspection procedures;
   Deliver unbiased extensive education and outreach from the 
        perspective of a governmental or not for profit organization; 
        and
   Facilitate the pairing of fund sources through partnerships, 
        and deliver a financial package to consumers.

    A model for replication could include operational funding of the 
local government/not for profit agency by local public good utility 
charges, leveraging rebates of utilities, and maximizing tax incentives 
from the federal government. The local government or entity 
implementing the program can educate consumers, develop the clean 
energy workforce and facilitate the pairing of private funding sources 
with projects.
     Response of David E. Sundstrom to Question From Senator Wyden
    Question 1. Even projects like Clean Energy Works, which use 
private financing, needed government financing to get started. Given 
the modest pace of the economic recovery, which limits the amount of 
secondary lending for things like energy efficiency, how long do you 
think programs like Clean Energy Works will require support? In other 
words, when do you think these sorts of programs will get to a critical 
mass, and where federal and state support are no longer needed?
    Answer. I am not directly familiar with the Clean Energy Works 
program. Speaking from the experience of Sonoma PACE, the program 
started and continues to operate without requiring any state or federal 
funding. The barrier facing the potential of PACE financing is the 
opposition by the FHFA and the impact to the program in the long term 
financing market. Elimination of the opposition by the FHFA will open 
the door for the development of local PACE models leveraging the one-
stop-shop model and partnerships with funding providers. With a grant 
funded by the California Energy Commission, Sonoma prepared a 
``replication kit'' which has already been used by other jurisdictions 
to establish PACE programs and fund efficiency projects. We hope we 
have provided valuable guidance to other local governments that will 
assist in minimizing startup costs for other programs.
                                 ______
                                 
   Responses of Jeffrey D. DeBoer to Questions From Senator Bingaman
    Question 1. How important are tax incentives to stimulating 
commercial building efficiency retrofits? Are there specific incentives 
we should enact?
    Answer. Members of The Roundtable's Sustainability Policy Advisory 
Committee (SPAC) have long reported that one of the best ways to 
stimulate retrofit projects would be a workable and usable federal tax 
incentive for energy efficient commercial buildings. In that regard, 
the existing tax deduction at Section 179D of the Internal Revenue Code 
should be extended and improved.
    Section 179D was first enacted in the 2005 Energy Policy Act, 
extended in 2008, and is scheduled to expire at the end of 2013. To 
date, this deduction has resulted in some limited success to encourage 
lighting upgrades. However, 179D has not lived up to its full potential 
to encourage ``deep'' whole-building retrofits because of the costs and 
regulatory complexity associated with upgrading multiple systems 
including heating and cooling, hot water, windows and roofing, and 
insulation. Brenna Walraven, Former Chair of the Building Owners and 
Managers Association (BOMA) International and past Vice Chair of the 
Roundtable's SPAC, is the national managing director of property 
management for USAA Real Estate Co.\1\ She recently reported to the 
Wall Street Journal that:
---------------------------------------------------------------------------
    \1\ USAA recently collected its eighth award from EPA for energy 
efficiency and has been ranked fifth in the Americas in the Global Real 
Estae Sustainability Benchmark. See http://www.bizjournals.com/
sanantonio/news /2012/03/06/epa-to-honor-usaa-real-estate-once.html.

          USAA . . . [has] tried ``many, many times'' to find 
        renovation projects that could be supported by use of the 
        [Section 179D] deduction . . .  ``In every case we modeled, 
        [the benefit] was less than the $50,000 to $60,000 [from 
        building modeling and other administrative costs] . . . ''\2\
---------------------------------------------------------------------------
    \2\ See http://online.wsj.com/article /
SB10000872396390444025204577543060812237798.html.

    Other SPAC members and industry leaders confirm Ms. Walraven's 
experience. Even those real estate companies that have high levels of 
sophistication in energy efficiency design, construction, and building 
management typically find the 179D deduction--as presently structured--
too complicated and beyond their reach.
    To improve and update the 179D deduction, The Roundtable wholly 
supports the 179D reform proposal that Chairman Jeff Bingaman (D-NM) 
and Senator Olympia Snowe (R-ME) plan to introduce. They take a 
performance-based, technology-neutral approach to 179D reform that 
would, among other things:

   Measure energy savings for retrofits compared to the 
        existing building's baseline. For purposes of the tax 
        deduction, the Bingaman-Snowe proposal measures savings by 
        benchmarking how much energy a building consumed before a 
        retrofit, and then comparing how much energy has been saved 
        after a retrofit. This logical ``before-and-after'' comparison 
        makes sense for existing buildings with a track record of 
        energy use, whereby a retrofit plan may qualify for the 
        deduction based on actual and verified reductions in energy 
        usage intensity.
   Award performance by linking the amount of the tax deduction 
        to energy savings achieved--Under the Bingaman-Snowe proposal, 
        the amount of the incentive would increase with greater energy 
        savings. This ``sliding scale'' approach will encourage 
        ambitious projects while also rewarding projects that achieve 
        meaningful yet more moderate levels of energy savings. At least 
        20% reduction in energy usage is the floor for qualification 
        under the proposal.
   Make the tax incentive useable for a broad range of building 
        efficiency stakeholders and building types, including REITS--
        Many buildings cannot use the 179D deduction because their 
        ownership structures, like Real Estate Investment Trusts 
        (REITS) and Limited Liability Partnerships (LLPs), cannot make 
        use of conventional tax incentives. The full amount of the 
        deduction should be available for REITS and other similar 
        holding structures that cannot otherwise use the incentive 
        because they have no tax liability at the corporate entity 
        level. Additionally, in order to make the incentive useable for 
        more buildings, the building owner should be allowed to 
        allocate the tax deduction to other parties responsible for the 
        retrofit such as an architect, engineer, contractor, tenant, 
        source of financing, or energy services company that may 
        guarantee improved performance.

    Question 2. Government policy makers have been trying to stimulate 
large scale efficiency retrofit projects for more than three decades, 
but experts say that mandates may be required to stimulate the real 
estate industry to perform large scale energy efficiency retrofits in 
the commercial sector, other than a few high profile trophy buildings. 
Do you agree or disagree that mandates will be required for the 
commercial sector to do large- scale retrofits? What are the 
alternatives?
    Answer. The Roundtable does not believe that regulatory mandates 
would be appropriate to stimulate energy retrofits. Congress has 
considered ideas like regulatory energy codes and building ``labeling'' 
mandates that would have been administered by the U.S. Department of 
Energy (``DOE''). From The Roundtable's perspective, such ``one size 
fits all'' federal regulations would make little sense given the broad 
diversity of assets that span the U.S. real estate stock (office, 
retail, hospitals, restaurants, hotels, schools, single- and multi-
family residential, etc.); the varying stability and prosperity of real 
estate markets and submarkets across the nation; and the widely 
heterogeneous nature of commercial building tenants and ``plug load'' 
uses that have a major impact on any given structure's energy 
consumption. We are thus encouraged by the trend in recent 
congressional proposals that steer away from such ``command-and-
control'' approaches.
    The Roundtable believes that the escalating success of voluntary 
energy efficiency platforms preclude any perceived need for regulations 
that target building and occupant energy consumption. As market-driven 
programs gain more acceptance and traction, America's buildings are 
indeed making major strides in improved their energy efficiency without 
mandates. For example:

   The ENERGY STAR program for buildings, administered by the 
        U.S. Environmental Protection Agency (``EPA''), has been a 
        great success since its inception in 1999.\3\
---------------------------------------------------------------------------
    \3\ See ``A Decade of ENERGY STAR Buildings,'' at pp. 7-8, 
available at http://www.energystar.gov/ 
index.cfm?c=business.bus_ES_bldgs.

    --As of today's date, 18,608 facilities have earned the ENERGY STAR 
            ``top-performers'' label covering nearly 2.9 billion of 
            commercial, institutional, and industrial office space in 
            the U.S.\4\ Buildings that receive voluntary ENERGY STAR 
            certifications typically use 35 percent less energy than 
            average buildings, and cost 50 cents less per square foot 
            to operate. \5\
---------------------------------------------------------------------------
    \4\ http://www.energystar.gov/index.cfm 
?fuseaction=labeled_buildings.locator.
    \5\ http://www.energystar.gov/
index.cfm?c=evaluate_performance.bus_portfoliomanager_intro.
---------------------------------------------------------------------------
    --Also noteworthy is the widespread use of EPA's ``Portfolio 
            Manager'' program, ``an interactive energy management tool 
            that allows [building owners] to track and assess energy 
            and water consumption across [an] entire portfolio of 
            buildings in a secure online environment.'' This tool 
            assists building owners and managers to ``set investment 
            priorities, identify under-performing buildings, verify 
            efficiency improvements, and receive EPA recognition for 
            superior energy performance.''\6\ Over 40,000 users 
            currently rely on ``Portfolio Manager'' to benchmark, 
            track, and assess energy and water performance in over 
            300,000 U.S. commercial buildings.\7\
---------------------------------------------------------------------------
    \6\ http://www.energystar.gov/
index.cfm?c=evaluate_performance.bus_portfoliomanager.
    \7\ https://www.energystar.gov/istar/has/
index.cfm?fuseaction=absdemo.showDemoInfo.
---------------------------------------------------------------------------
    --The ENERGY STAR program's national competition, ``The Battle of 
            the Buildings,'' has seen exponential growth in the past 
            year alone. In 2011, 245 buildings across the U.S. 
            participated in this ``biggest loser'' type competition,\8\ 
            where EPA provides recognition to assets that shed the most 
            ``weight'' in terms of energy usage consumption over a 1-
            year period, as measured and verified by before-and-after 
            Portfolio Manager inputs. For the 2012 competition, over 
            3,300 buildings have registered to participate\9\--an 
            increase of about 1250% in just a year. This year's 
            competition will also provide recognition to all registered 
            buildings that reduce energy consumption by 20% during 
            calendar year 2012.
---------------------------------------------------------------------------
    \8\ http://www.energystar.gov/ia.business/buildingcontest/ 
downloads/2011_NBC_Report.pdf?d88f-f211.
    \9\ http://www.energystar.gov/ 
index.cfm?fuseaction=buildingcontest.index.

    Congress should ``do no harm'' and avoid regulatory programs and 
instead foster ENERGY STAR and other voluntary platforms. Expanding the 
availability and application of the ENERGY STAR label to more building 
types (like retail malls) and subtypes (like large office buildings 
with data centers); creating a ``Tenant Star'' program to recognize 
energy efficiency in leased spaces within commercial buildings; and 
fostering even deeper market penetration of Portfolio Manager, are all 
better alternatives for Congress (and the agencies) to pursue instead 
---------------------------------------------------------------------------
of controversial and untested mandates on the real estate sector.

   Consensus-driven design and construction standards are 
        making our built environment more energy efficient--without any 
        federal building energy code. Through quantitative and 
        qualitative analyses, DOE has determined that successive 
        iterations of the ASHRAE 90.1 energy standard covering 
        commercial and larger multifamily buildings will achieve 
        greater efficiency than predecessor versions.\10\ As ASHRAE's 
        2010-2011 Annual report asserts:
---------------------------------------------------------------------------
    \10\ 2007 version of ASHRAE 90.1 more energy efficient than 2004 
version: http://www.energycodes.gov/status/ documents/Standard_901-
2007_Final_Determination.pdf. 2010 version of SHRAE 90.1 more energy 
efficient than 2007 version: http://www.energycodes.gov/status/
documents/ Standard_901-2010_Final_Determination.pdf.

          The latest 2010 version of 90.1 achieves more than 30 percent 
        energy savings over the 2004 version of the standard. Extensive 
        analysis work was performed by a team from Pacific Northwest 
        National Laboratories in support of the DOE Building Energy 
        Codes Program. Sixteen different building prototypes were 
        modeled in 17 different climate zones for a total of 272 
        building types and climate zone combinations. Without plug 
        loads, site energy savings are 32.6 percent and energy cost 
        savings 30.1 percent. Including plug loads, the site energy 
        savings are estimated at 25.5 percent and energy cost savings 
        24 percent.\11\
---------------------------------------------------------------------------
    \11\ ``Modeling a Sustainable World,'' 2010 ASHRAE Annual report, 
available at http://www.ashrae.org/home/search?k=annual%20report.

    Rather than creating a first-ever regulatory building energy code 
administered by a Washington, D.C. bureaucracy, The Roundtable believes 
that DOE's participation in the consensus-based process of ASHRAE (and 
similar bodies) should become more open and transparent to all 
stakeholders. In that regard, the latest proposal offered by Senators 
Jeanne Shaheen (D-NH) and Rob Portman (R-OH) in S. 1000, the ``Energy 
Savings and Industrial Competitiveness Act,'' steps in the right 
direction. Among other things, S. 1000 would require DOE to conduct 
notice and comment procedures when it suggests building efficiency 
targets in the context of the IECC/ASHRAE codes and standards 
development processes; assess the cost implications, including a return 
on investment analysis, of building efficiency targets; and consider 
the impacts of such targets on small businesses. These improvements to 
DOE's participation in consensus-based processes can encourage more 
energy efficiency in buildings--with greater stakeholder support--
---------------------------------------------------------------------------
rather than federal mandates.

   The single biggest obstacle to jumpstart more retrofit 
        projects--especially in the midst of the sluggish recovery from 
        the Great Recession--remains a lack of available capital for 
        the up-front costs to pay for building improvements. The 
        American Council for an Energy Efficient Economy (``ACEEE'') 
        recently explained:

          Without access to private capital there will be limited 
        funding for efficiency retrofits-and the associated jobs, 
        energy and cost savings, and environmental benefits will not be 
        realized. Because capital is scarce for energy efficiency 
        finance programs, most use either utility or government funding 
        for the loans, or they rely on small banks and credit unions. 
        While this approach has had some success, large scale 
        implementation is not likely.\12\
---------------------------------------------------------------------------
    \12\ See Sara Hayes, Steven Nadel, Chris Granda, and Kathryn 
Hottel, American Council for an Energy Efficient Economy, ``What Have 
We Learned From Energy Efficiency Financing Programs?'' Report Number 
U115 (September 2011), at p. 1, available at http://
www.cleanergyfinancecenter.org/wp-content /uploads/EE-Financing-report-
ACEEE-Sept-2011.pdf.

    Regulations that would purport to mandate improved energy 
efficiency in buildings (such as through federal codes or labeling) 
would not address the main impediment to retrofits - namely, a lack of 
access to capital and financing. A comprehensive national energy policy 
should therefore include tailored and modest incentives that will 
leverage far greater sums of private investment capital into retrofit 
projects. In particular, Congress should enact the carefully and 
thoughtfully crafted reforms of the 179D tax deduction developed by 
Senators Snowe and Bingaman in the Commercial Buildings Modernization 
Act, and the DOE loan guarantee program for building retrofits proposed 
by Senators Shaheen and Portman in the ESIC Act.
    Question 3. How can utilities be encouraged to adopt the successful 
small commercial and industrial program that was described by Ms. 
Borrelli from United Illuminating? The combination of turnkey service, 
cost-effective incentives, and zero-interest financing has been very 
effective in Connecticut and Massachusetts. These programs should be 
implemented across the country. How can we replicate these programs?
    Answer. Our members report that success of utility-based energy 
efficiency programs generally depend on how well they are capitalized. 
Building owners and other consumers will access these programs but they 
typically run out of money, quickly. The major barriers to more 
widespread adoption of efforts like the United Illuminating program in 
Connecticut and New England is the same that impedes retrofit projects 
generally--that is, lack of access to investment capital.
    Question 4. Ms. LEEDS of NYCEEC cited a study published by the 
Rockefeller Foundation which estimated the potential for energy 
efficiency in institutional buildings at about $25 billion. However, 
NAESCO's testimony (for the record) states that this estimate is low by 
a factor of four, based on studies performed by the Lawrence Berkley 
Labs. Do you agree that the potential market for energy efficiency in 
institutional buildings approaches $100 billion? If not, what do you 
see as the potential market and barriers to meeting the potential for 
energy efficiency in buildings?
    Answer. Regardless of whether the NYCEEC or NAESCO figure is the 
correct one, the potential market for building efficiency is undeniably 
large and has not reached its potential. More retrofit projects will 
certainly ripple throughout the construction, building ownership, 
architecture and design, energy services, and real estate financing 
sectors of our economy.
    A sense of the economic potential that may be specifically 
attributed to building retrofits is provided by the contributions of 
the building operations industry generally to U.S. gross domestic 
product (GDP). According to a report released last month by BOMA 
International,\13\ the expenditures that sustain office building 
operations-management, maintenance, repairs, building services and 
utilities-generate significant, continuous and growing expenditures 
that support local businesses, create job demand, and contribute 
significantly to GDP. As set forth in my written statement:
---------------------------------------------------------------------------
    \13\ ``Where America Goes to Work: The Contribution of Office 
Building Operations to the Economy'' (2012), available at http://
www.boma.org/Resources/ news/pressroom/Pages/pr062412.aspx.

   For each dollar of office building expenditures, the U.S. 
        economy gains $2.57. And for every one of those dollars, nearly 
        20 jobs not related to the building itself are supported.
   $79.7 billion in office building operating expenditures 
        contributed $205.1 billion to GDP in 2011--equivalent to the 
        State of California's annual budget.
   As a result of the $79.7 billion expenditures for office 
        operations, 1.6 million indirect jobs were created across all 
        sectors of the economy, about the same number employed by 
        McDonald's worldwide. This is in addition to the estimated 2.2 
        million jobs directly related to the on-site management and 
        operations of buildings.

    Regarding retrofit market barriers: As my written statement to the 
Committee explains (at pp. 5-6), a properly functioning real estate 
financing market is a prerequisite to a functioning retrofit financing 
market. The recession and the lackluster recovery, nagging unemployment 
figures that still hover around 8%, and falling U.S. property values 
have all dampened growth of the retrofit market. Sustained financial 
pressure on property owners and lack of credit availability has led to 
deferral of maintenance and upgrades on existing properties. Until our 
nation gets to a relative place of normalcy on these macroeconomic 
issues, the full potential of the retrofit market will not be 
unleashed.
    As explained above, the lack of up-front capital and debt financing 
opportunities is the largest barrier to getting more retrofit projects 
off the ground. From the federal policy perspective, The Roundtable 
believes that an improved 179D deduction and a DOE loan guarantee 
product-specifically geared to building retrofits--will have a 
significant impact to encourage building owners and their financiers to 
underwrite more efficiency upgrades.
    Finally, as my written statement maintains, improving information 
flow among owners, lenders, and appraisers (pp. 9-10), and encouraging 
utility ``best practices'' to provide energy consumption data to owners 
of multitenant buildings (p. 10), are other obstacles that can be 
overcome to spur more interest in retrofits.
   Responses of Jeffrey D. DeBoer to Questions From Senator Murkowski
    Question 1. Please explain why you would support tax incentives 
such as 179(D). How do credits and deductions differ within the tax 
code? Why do you feel that this incentive makes sense and why should it 
be a priority in the context of large-scale tax reform?
    Answer. Section 179D offers a tax deduction-not a tax credit. Tax 
deductions reduce the amount of income that is subject to taxation. The 
value of a tax deduction thus depends on the taxpayer's marginal tax 
rate, which rises with income. In contrast, tax credits are a dollar-
for-dollar direct reduction in a person's tax liability and hence have 
the same value for all taxpayers regardless of marginal income rates. 
Both types of incentives can lower the amount of taxes paid by 
individuals and businesses, but each has different economic effects, 
budgetary ramifications, and policy implications. As former Senator Don 
Nickles testified at a Senate Finance Committee hearing last month on 
energy tax policy, law makers must carefully distinguish between energy 
tax credits (such as those available for wind and solar energy 
production) which operate as subsidies, compared to more favored energy 
tax deductions like 179D which are expensed as part of ordinary 
business operations.\15\
---------------------------------------------------------------------------
    \14\ By way of example: Taxpayer A and B are both in the 33% tax 
bracket and they both earn $100 in income. Without any incentives, they 
would each pay $33.00 in taxes. If Taxpayer A gets a $10 tax credit, 
his tax liability is now $23. If Taxpayer B gets a $10 tax deduction, 
her taxable income is lowered to $90 and her ultimate tax liability is 
thus $30.
    \15\ See streamof June 12 Senate Finance Committee hearing, ``Tax 
Reform: Impact on U.S. Energy Policy,'' oral testimony of The Hon. Don 
Nickles, available at: http://www.finance.senate.gov/hearings/hearing/ 
?id=990fl101-5056-a032-5202-6921d68e8769 (at the 26:53, 75:50, and 
102:01 marks).
---------------------------------------------------------------------------
    Furthermore, 179D is needed to make sure that investments in energy 
efficiency improvements are properly incentivized relative to the 
deduction allowed for energy use. Under the Internal Revenue Code, it 
has been long-established that businesses are allowed to immediately 
certain ``ordinary and necessary'' operating expenses such as utility 
bills.\16\ However, building retrofit investments (through purchases of 
high-efficiency equipment and materials) otherwise qualify as 
``commercial income property'' that can only be depreciated as 
``capital expenses'' over long periods of time--up to 39 years using 
straight-line depreciation.\17\ More inefficient buildings with higher 
utility bills may thus immediately benefit from a larger operating 
expenses tax deduction compared to retrofitted buildings that use less 
energy. 179D thus has a critical role to play in the context of 
comprehensive tax reform: It aligns the tax code to properly award 
long-term capital investments that save energy (thus helping building 
owners bear the immediate up-front costs of retrofit projects), as 
opposed to the operating expenses deduction that can otherwise be 
claimed for wasted energy.
---------------------------------------------------------------------------
    \16\ See http://www.irs.gov/publications/p535/ch01.html.
    \17\ See http://www.irs.gov/publications/p946/index.html; http://
www.irs.gov/publications/p946/ar02.html.
---------------------------------------------------------------------------
    Finally, the 179D reform proposal from Senators Bingaman and Snowe 
meets the hallmarks of tax reform insofar as it is technology-neutral, 
performance based, and a lever for significant private investment:

   The 179D deduction is a technology-neutral incentive because 
        it does not pick ``winners and losers.'' It encourages retrofit 
        projects and not specific products. It gives building owners 
        the opportunity to select the best mix among a suite of 
        measures to achieve optimal energy efficiency gains.
   The 179D reform proposal is performance-based because it 
        would link the amount of the deduction to energy savings 
        achieved. The amount of the incentive would increase under a 
        ``sliding scale'' that will encourage ambitious projects while 
        also rewarding projects that achieve meaningful yet more 
        moderate levels of energy savings.
   The 179D deduction is expected to leverage three times as 
        much private sector investment in retrofit projects.\18\ And, 
        to ensure that building owners and lenders have their own 
        ``skin in the game,'' the maximum tax incentive available under 
        the Snowe-Bingaman proposal is 50% of the total cost of a 
        retrofit plan.
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    \18\ See Table 8 at http://c4bb.org/wp-content/uploads/ 
PeriFINALForRelease06-10-11.pdf.

    Question 2. How do you maximize tax incentives? Where do you get 
the biggest bang for the buck? Please describe how energy-efficiency 
tax credits can be administratively simple and transparent.
    Answer. In allocating scarce government resources, policy makers 
should consider that financing programs like tax incentives (and loan 
guarantees) get more ``bang for the buck'' when they are geared to 
encourage energy efficiency measures, as opposed to assisting new 
energy production through clean fossil fuel or renewable energy 
technologies. Renewable and clean energy production technologies 
certainly have their role in a comprehensive national energy policy. 
But simply put, the cost of a kilowatt hour of energy saved is cheaper 
than the cost of an equivalent kilowatt hour of energy produced. As 
portrayed in my written statement to the Committee:

               COSTS OF SAVING ENERGY vs. PRODUCING ENERGY
------------------------------------------------------------------------
                Technology                   Costs (per kilowatt hour)
------------------------------------------------------------------------
Energy Efficiency                                         2-3 cents\19\
------------------------------------------------------------------------
Wind                                                        9 cents\20\
------------------------------------------------------------------------
Geothermal                                                     10 cents
------------------------------------------------------------------------
Advanced Coal                                                  11 cents
------------------------------------------------------------------------
Advanced Nuclear                                               11 cents
------------------------------------------------------------------------
Solar PV                                                       21 cents
------------------------------------------------------------------------
Offshore Wind                                                  24 cents
------------------------------------------------------------------------
\19\ Costs of saved energy (``CSE'') perkilowatt hour (``kWh'') for
  energy efficiency programs range from 2 cents to 3 cents per kWh. See
  American Council for an Energy Efficient Economy, ``Saving Energy Cost-
  Effectively: A National Review of the Cost of Energy Saved Through
  Utility-Sector Energy Efficiency Programs'' (Sept. 1, 2009), available
  at http://www.aceee.org/research-report/u092.
\20\ Costs for all power generation sources in table provided by U.S.
  Energy Information Administration, ``Levelized Cost of New Generation
  Resources,'' Annual Energy Outlook 2011, available at http://
  www.eia.gov/oiaf/ aeo/electricity_generation.html (provides ``Total
  System Levelized Cost'' for various ``Plant Type(s)'' in dollars per
  megawatt hour (``mWh'')). For purposes of table conversion: mWh/
  1000=kWh.

    Question 3. You are supportive of the loan guarantee program within 
S. 1000, the Shaheen/Portman bill. Please describe how the loan 
guarantees in S. 1000 are similar or different from the 1703 program 
from EPAct 2005 and 1705 programs from the stimulus bill.
    Answer. The Shaheen-Portman bill would authorize a DOE loan 
guarantee program specifically geared to building retrofit projects. 
Since this program was created in 2005, its focus has been on credit 
support for nuclear, renewable and other forms of energy production 
that have higher degrees of financial and performance risks as compared 
to building efficiency projects. Indeed, none of the ``project 
solicitation'' from DOE to date have covered building retrofits.\21\
---------------------------------------------------------------------------
    \21\ See https://lpo.energy.gov/?page_id=58.
---------------------------------------------------------------------------
    Shaheen-Portman represents sound energy policy because it would 
allow the credit support program to take advantage of the untapped 
potential in the building retrofit market. As I provided in my written 
statement, there are over 5 million commercial buildings and industrial 
facilities in the U.S.; they account for about 20% of the nation's 
energy consumption; and up to 85% of commercial buildings that exist 
today will still be standing in 2030; and about $20 billion can be 
saved if the energy efficiency of commercial buildings and industrial 
facilities improves by 10%.\22\ Congress should enact S. 1000's loan 
guarantee title because it will encourage more private sector 
transactional activity and liquidity to underwrite retrofits-the 
primary barrier to efficiency upgrades.
---------------------------------------------------------------------------
    \22\ See http://www.energystar.gov/ia/ business/challenge/
learn_more/ FastFacts.pdf; http://yosemite.epa.gov/opa/admpress.nsf/ 
8b770facfedf6f185257359003fb69e/ 1603327c9023eb8c852579dd005e3385; 
PlaNYC, ``Greater Greener Buildings Plan'': http://www.nyc.gov/html/
gbee/ downloads/pdf/ greener_greater_buildings_plan.pdf
---------------------------------------------------------------------------
    Moreover, Shaheen-Portman represents sound financing policy - and 
would correct errors that came to light through recent investigations 
into DOE's loan guarantee program. Legislation pending in the House 
finds, among other things, that ``the portfolio of projects the [DOE] 
included in the loan guarantee program were higher risk investments 
that private capital markets do not generally invest in,'' and that 
``most of the projects had little `skin in the game' from private 
investors.''\23\ S. 1000 contains myriad provisions that address these 
very concerns such as:
---------------------------------------------------------------------------
    \23\ H.R, 6213, ``No More Solyndras Act'' (findings (13) and (14), 
available at http://thomas.oc.gov/cgi-bin/bdquergy/ D?d112:6:./temp/
bdYBAB::/bss/.

   S. 1000 incorporates underwriting and due diligence 
        requirements for retrofit financing--The bill directs DOE to 
        develop guidelines that ``shall include . . .  measures to 
        limit the exposure of the Secretary to financial risk in the 
        event of default,'' like the borrower's ability to re-pay a 
        retrofit debt and the value of the underlying collateral 
        supporting the loan. To implement the loan guarantee program 
        for retrofits, S. 1000 directs DOE to develop underwriting 
        criteria that assess a borrower's creditworthiness, the 
        building's loan to value ratio, and the building's history and 
        expectations in generating rental and other income, among other 
        factors.
   S. 1000 would provide credit support for successful retrofit 
        projects guaranteed to result in energy savings--The bill 
        directs DOE to consider private sector, third-party guarantees 
        of energy savings after a retrofit is implemented, and whether 
        those savings will pay for project costs over time. S. 1000 
        provides that DOE (and taxpayers) do not bear the ``performance 
        risk'' of whether a project will succeed and result in energy 
        savings. Rather, third-party contractors responsible for the 
        retrofit like DOE-approved energy services companies-but not 
        DOE itself--would bear risks that installed energy efficiency 
        measures will perform as designed. In this way, the transaction 
        can be structured so as to amortize retrofit financing through 
        measured and verified energy savings accrued over time.
   S. 1000 places an upper limit on the amount of federal 
        credit support. The bill states that the maximum amount of 
        financial risk that DOE can bear for any single retrofit 
        project is $10 million. In contrast, the direct loan (not a 
        loan guarantee) given to Solyndra left taxpayers on the line 
        for $528 million after the solar company's default.
   S. 1000 allows for proportionate recovery by taxpayers in 
        the event of default--In the Solyndra situation, the taxpayers' 
        financial interest was completely subordinated to private 
        investors. S. 1000 would address this problem through a pari 
        passu structure if, in the event of default, taxpayers and 
        private investors would get repaid based on their proportionate 
        share of collateral interests held as security in the property. 
        For example: Assume a building owner owes $100, further, $90 of 
        it is owed to a bank that holds a prior mortgage on the 
        property and $10 is in the form of a retrofit obligation backed 
        by DOE. If there is a default, for every ten dollars that is 
        paid back by the owner, $9 would go to the first mortgagee and 
        $1 would go to DOE (assuming it is called on the guarantee). In 
        this manner, taxpayers and prior lien holders are treated 
        fairly based on their respective shares of security interests 
        in the property.
   S. 1000 provides financial support for retrofits through 
        loan guarantees--not through loans, grants, subsidies, or hand-
        outs--Loan guarantees will provide an incentive to leverage far 
        greater amounts of private sector investment in building 
        retrofits, so real estate, lending, and energy services firms 
        have their own ``skin in the game.'' It has been estimated that 
        a $200 million federal loan guarantee investment in retrofits 
        would leverage as much as $2 billion in private sector 
        financing.
   S. 1000 would provide credit support for proven building 
        retrofit projects that already have a track record of success--
        We have case studies on the success of retrofits, such as the 
        Empire State Building, showcase projects associated with the 
        Better Buildings Challenge, and the experiences of EPA's 
        ``Partner of the Year'' winners, among others. Retrofits pose 
        far lower risks for federal guarantee support compared to 
        unproven manufacture of certain renewable products, where the 
        market may be heavily influenced by subsidies provided by 
        foreign competitors.
      Response of Jeffrey D. Deboer to Question From Senator Wyden
    Question 1. Even projects like Clean Energy Works, which use 
private financing, needed government financing to get started. Given 
the modest pace of the economic recovery, which limits the amount of 
secondary lending for things like energy efficiency, how long do you 
think programs like Clean Energy Works will require support? In other 
words, when do you think these sorts of programs will get to a critical 
mass, and where federal and state support are no longer needed?
    Answer. The Roundtable agrees that, assuming meaningful and usable 
179D incentives and loan guarantees are enacted and deployed for some 
period of time, they can transform the retrofit market to the extent 
they are no longer necessary because of adequate sources of private 
sector financing. We think, however, that these policies need to be 
adopted and implemented for at least a 5-10 year period to build such a 
``critical mass'' of retrofit projects. The Roundtable also suggests 
that federal agencies with responsibility for these programs must study 
and report on successes/failures to Congress, so the legislature can 
best decide whether and how these incentives may ultimately be phased-
out after a track record of implementation.
                                 ______
                                 

   Responses of William A. Rodgers to Questions From Senator Bingaman
    Question 1. How important are tax incentives to stimulating 
commercial building efficiency retrofits? Are there specific incentives 
we should enact?
    Answer. Incentives will clearly assist with the building owners 
return on investment to allow for a much higher propensity to invest. 
While the energy savings and corresponding reduction in utility bills 
are the most critical component, tax incentives can be an important 
element toward meeting the required financial hurdles.
    Question 2. Government policy makers have been trying to stimulate 
large scale efficiency retrofit commercial building industry for more 
than three decades, but experts say that mandates may be required to 
stimulate the real estate industry to perform large scale energy 
efficiency retrofits in the commercial sector, other than a few high 
profile trophy buildings. Do you agree or disagree that mandates will 
be required for the commercial sector to do large scale retrofits? What 
are the alternatives?
    Answer. Mandates can be effective if developed in conjunction with 
the industry and are tied into realistic energy savings initiatives. 
These mandates should deal with overall energy reduction and not 
strictly those areas that deal with retrofit projects.
    Question 3. How can utilities be encouraged to adopt the successful 
small commercial and industrial program that was described by Ms. 
Borrelli from United Illuminating? The combination of turnkey service, 
cost-effective incentives and zero -interest financing has been very 
effective in Connecticut and Massachusetts. These programs should be 
implemented across the country. How can we replicate these programs?
    Answer. When energy efficiency measures are aligned through 
standard service offerings in conjunction with the utilities these type 
of programs will become more prevalent across the country. Currently 
most regulatory bodies view these as ``stand-alone'' programs versus 
identifying energy efficiency as an overall service that allows for 
more customized turn-key delivery to the customers.
    Question 4. Ms. Leeds of NYCEEC cited a study published by the 
Rockefeller Foundation which estimated the potential for energy 
efficiency in institutional buildings at about $25 billion. However, 
NAESCO`s testimony (for the record) states that this estimate is low by 
a factor of four, based on studies performed by the Lawrence Berkeley 
Labs. Do you agree that the potential market for energy efficiency in 
institutional buildings approaches $100 billion? If not, what do you 
see as the potential market and barriers to meeting the potential for 
energy efficiency in buildings?
    Answer. We do not have statistics on institutional buildings to 
properly determine the market potential. However, when energy 
efficiency services are properly identified and education is developed 
to provide customers a basis to understand the savings potential I 
believe the market is very significant. Most likely closer to the 
NAESCO's estimates.
    Question 5. Is the United Illuminating commercial and industrial 
program one that your company could implement in other states?
    Answer. Yes, programs like this would be adaptable to other 
markets.
  Responses of William A. Rodgers to Questions From Senator Murkowski
    Question 1. In your opinion, should the federal government be 
investing in efficiency? If so, what is the proper role of the federal 
government for these types of retrofits?
    Answer. The investment made should center on the efficiency of 
federally owned properties. Beyond that it would be beneficial to work 
to establish the standards and policy necessary to encourage the 
inclusion of efficiency practices and programs in the marketplace. This 
would include working with the states and utilities to develop 
efficiency standards that will have a direct positive impact on the 
ability to increase the level of efficiency related projects to drive 
to a higher degree of energy savings across the country.
    Question 2. Please describe how your program in Indiana differs 
from the weatherization program.
    Answer. The Weatherization Assistance Program was focused on income 
qualified households and delivered through a number of community action 
agencies. It was prescriptive in who and how the work was to be 
performed and as such there was a significant challenge in the 
understanding and execution of the program to the houses. Some of the 
concerns of that program were that the utilities, which provide the 
energy services, were not in the loop and a majority of the key 
industry service providers were prevented from participating and 
delivering services. In our Indiana program one of the programs we do 
deliver is an Income Qualified Program that also qualifies customers 
based on household income level. The main difference is in the 
coordination with the utilities, the clarity of education and 
communication with the customers and ultimately the impact to the house 
based on the services provided.
    Question 3. How do you ensure success within your program (i.e. 
energy savings, reduced costs in weatherizing a home, etc.)? How do you 
measure success?
    Answer. Success in all of our programs that we deliver is based on 
the energy saved from the activity that is performed. Based on the type 
of program, the equipment involved and the actual services performed 
the energy saved is determined and consolidated to understand the 
overall impact in the market. We then provide an evaluation, 
measurement and verification process which statistically validates the 
actual savings achieved.
    Question 4. How would you characterize the key drivers of this 
program?
    Answer. The key drivers of the Indiana program center on a few 
critical areas.

          i. Open and clear communication with the utilities covering 
        the parameters of the program as well as regular measurement 
        studies
          ii. Strong branding and educational campaign to allow for the 
        marketplace to understand and ultimately participate in the 
        programs
          iii. Clarity of communication with the customer regarding the 
        services to be provided, status of activity and closure of all 
        work performed
          iv. Detailed reporting of all activities including the energy 
        saved and services performed to allow for critical analytical 
        work to be performed to predict future impact
     Response of William A. Rodgers to Question From Senator Wyden
    Question 1. Even projects like Clean Energy Works, which use 
private financing, needed government financing to get started. Given 
the modest pace of the economic recovery, which limits the amount of 
secondary lending for things like energy efficiency, how long do you 
think programs like Clean Energy Works will require support? In other 
words, when do you think these sorts of programs will get to a critical 
mass, and where federal and state support is no longer needed?
    Answer. There are a number of organizations similar to Clean Energy 
Works across the country that do a tremendous job at developing 
relationships between stakeholders that advance the efforts of energy 
efficiency. Ultimately any type of Federal support should target 
education programs versus execution. The execution component must be 
supported by the marketplace and all of the stakeholders must 
understand the economic drivers and impact to lend their support. That 
type of support will ensure the longer term health of these types of 
organizations and their ability to be self-supported.
                                 ______
                                 
     Responses of Sheri Borrelli to Questions From Senator Bingaman
    I am glad to be able to further address the Committee through my 
written responses to your questions submitted to me for the record and 
to elaborate on innovative non-federal programs for financing energy 
efficient building retrofits. My responses are highlighted in bold 
format below your question.
    Question 1a. How important are tax incentives to stimulating 
commercial building efficiency retrofits? Are there specific incentives 
we should enact?
    Answer. Tax incentives may be helpful if properly designed and 
implemented to stimulating a viable, sustainable commercial building 
efficiency retrofit market. Any tax incentives should be created in an 
equitable manner for all commercial property owners with a duration 
that extends beyond one to two years. The following describes one 
potential scenario.
    A structured energy tax incentive based on predicted cost savings 
from energy efficiency retrofits for commercial building improvements 
is only beneficial to the industry if it has long term sustainable 
effects. Tax incentives applied to energy projects should be maximized 
for longer periods of time so the investment in the retrofit benefits 
the customer. Targeted tax incentives may also be applied towards 
specific energy conservation projects. This type of tax incentive would 
be instrumental in stimulating commercial building efficiency 
retrofits. The level of tax incentive can be tiered relative to the 
level of energy reduction achieved. For example, a thirty percent (30%) 
energy reduction would achieve a higher tax incentive than a ten 
percent (10%) reduction, etc. These tax incentives can be issued as a 
tax credit following one year of energy tracking after efficiency 
upgrades are installed and based on the comparison to the twelve (12) 
month usage prior to installation of upgrades. This type of tax 
incentive will keep the customer in business, attract new businesses 
(market growth), create jobs, and boost the economy.
    Question 1b. Government policy makers have been trying to stimulate 
large scale efficiency retrofit commercial building industry for more 
than three decades, but experts say that mandates may be required to 
stimulate the real estate industry to perform large scale energy 
efficiency retrofits in the commercial sector, other than a few high 
profile trophy buildings. Do you agree or disagree that mandates will 
be required for the commercial sector to do large scale retrofits? What 
are the alternatives?
    Answer. Investing in energy efficiency commercial retrofits on a 
large scale could be one of the most cost effective measures new and 
existing buildings could participate in to reduce energy consumption. 
Reducing the amount of consumption and operational costs for building 
owners in these buildings are goals that can be set. Mandates for 
uniform adherence to an efficient building code could be a strategy.
    Other alternatives to such mandates are energy efficiency targeted 
tax incentives, innovative financing, performance contracting, and 
building labeling or rating. These mechanisms are already being 
practiced or are being developed. These mechanisms reduce payback 
periods, can increase incentives and create a supportive Energy State/
Federal Bill.
    Question 2a. How can utilities be encouraged to adopt the 
successful small commercial and industrial program that was described 
by you from United Illuminating?
    Answer. The United Illuminating Company's Small Business Energy 
Advantage (SBEA) Program model has served as a template for program 
design in other states, and has earned international recognition. The 
success of the program hinges on appropriate incentive levels, on bill 
financing, and contractor management and it experiences a low loan 
default rate. In order for other states to implement the SBEA program 
there has to be a commitment on all levels: from the utility to be able 
to reduce generation costs and retain the small business customer base; 
from the vendor infrastructure being in place to offer an incentive and 
the zero percent (0%) financing being backed by the utility company. In 
addition, there also has to be a commitment by the customer to 
undertake the no cost energy audit, complete the simple application, 
etc. When this has been completed, the customer realizes no upfront 
costs, a cash neutral or cash positive transaction and an energy 
efficient retrofit.
    Question 2b. The combination of turnkey service, cost-effective 
incentives and zero-interest financing has been very effective in 
Connecticut and Massachusetts. These programs should be implemented 
across the country. How can we replicate these programs?
    Answer. The United Illuminating Company can help other states with 
their efficiency goals and standards and program design and be used as 
a resource for other utilities who wish to adopt UI's practices. We 
continually make ourselves available as a resource to other utilities, 
states and/or countries that seek assistance with designing their 
programs or establishing efficiency goals and standards.
    Recognizing that efficiency goals and standards will vary from one 
utility and state to another, efficiency goals and standards may be 
ambitious and/or costly to achieve and require going beyond ratepayer 
funds. Our financing model is a sensible means to help meet these 
goals. We have kept it simple. The financed incentive can cover 100 
percent of the upfront cost, or it may make an efficiency investment 
cash-flow neutral or cash-flow positive. It is paid to the customer 
immediately and typically there are no funds paid up-front. The zero 
percent (0%) interest rate and on bill financing is possible with 
utility shareholder funds. In addition, we have attractive terms for 
repayment of the loan. Financing is critical to getting energy 
efficiency projects done in the commercial sector.
    Another important aspect of our program that could easily be used 
as a template is the vendor structure. All vendors use standard 
software for savings calculation and determining incentive awards. If 
replicated, the utility should limit the number of contractors to those 
who are skill certified, background checked, trained and evaluated on a 
regular basis. We have the capability to enter a lead, qualify the 
customer for financing, perform the audit, approve the proposal and 
present documentation to the customer for signature in the same day.
    Question 2c. Ms. Leeds of NYCEEC cited a study published by the 
Rockefeller Foundation which estimated the potential for energy 
efficiency in institutional buildings at about $25 billion. However, 
NAESCO`s testimony (for the record) states that this estimate is low by 
a factor of four, based on studies performed by the Lawrence Berkeley 
Labs. Do you agree that the potential market for energy efficiency in 
institutional buildings approaches $100 billion?
    Answer. Yes.
    If not, what do you see as the potential market and barriers to 
meeting the potential for energy efficiency in buildings?
    Responses of Sheri Borrelli to Questions From Senator Murkowski
    Question 1a. In your opinion, should the federal government be 
investing in efficiency?
    Answer. Yes, it is the lowest hanging fruit to accomplish energy 
saving goals.
    Question 1b. If so, what is the proper role of the federal 
government for these types of retrofits?
    Answer. Increasing our nation's energy efficiency creates jobs, 
saves businesses and consumers money, and increases economic 
productivity by providing appropriate targeted tax incentives and 
defined goals.
    Question 2a. Please describe how you measure performance within the 
programs you administer to ensure energy efficiency.
    Answer. In accordance with Connecticut General Statute Sec. 16-245m 
and Sec. 16-32f, UI submits its annual comprehensive Conservation and 
Load Management Plan (Plan) for the implementation of cost effective 
electric and natural gas energy efficiency programs. Along with this 
Plan, the energy savings are benchmarked through the Program Savings 
Document and by historical savings documentation. As a rule of thumb, a 
twenty percent (20%) average reduction can be achieved through a 
typical lighting retrofit from obsolete lighting to state of the art. 
The savings reduction increases as a project becomes more 
comprehensive.
    Question 2b. Please describe the best policies and programs that 
you have participated in that have motivated energy-efficiency 
investments.
    Answer. In part our program succeeds because of the partnerships 
and alliances we form in the community to promote our programs. Our 
partners have strong ties to the community since they live there and 
work there. Some of the various associations we partner with to conduct 
outreach are the Spanish American Merchants Association, ( SAMA) and 
the Interreligious Eco Justice Network (IREJN) to reach out to houses 
of worship for the SBEA Program and the parishioners for the 
Residential Programs. These partnerships have substantial impact on our 
program performance.
       Response of Sheri Borrelli to Question From Senator Wyden
    Question 1. Even projects like Clean Energy Works, which use 
private financing, needed government financing to get started. Given 
the modest pace of the economic recovery, which limits the amount of 
secondary lending for things like energy efficiency, how long do you 
think programs like Clean Energy Works will require support? In other 
words, when do you think these sorts of programs will get to a critical 
mass, and where federal and state support are no longer needed?
    Answer. With advances in technology and energy efficiency 
strategies it would be hard to define the point at which critical mass 
is achieved. The advancement of technology may need programs to 
continue incenting energy efficiency.
    Currently, our shareholder funds capitalize the program loans, and 
we receive our weighted average cost of capital which is approximately 
two percent (2%) less than the allowable return on these funds. 
Ratepayer funds buy the consumer interest rate down to zero percent 
(0%) and provide loan loss coverage. However, if a reserve of money, 
for example, a guaranteed fund mechanism replenishes the ``fund'' when 
the participants repay the loan, such as state or public funds then 
there would be certainty of the fund availability. The federal 
government can continue to help by making businesses aware, rewarding 
these customers with recognition for participation, and through tax 
credits for energy savings achieved.
                                 ______
                                 
      Responses of Susan Leeds to Questions From Senator Bingaman
    Question 1. How important are tax incentives to stimulating 
commercial building efficiency retrofits? Are there specific incentives 
we should enact?
    Answer. Tax incentives should help stimulate commercial building 
efficiency retrofits, as they will improve the economics of any given 
project. However, non-economic barriers also exist. Tax incentives are 
absolutely important and useful, but I do not believe that enacting tax 
incentives alone will significantly change the pace of retrofit 
activity, (unless they are very rich incentives).
    I strongly advocate for federal tax incentives for existing 
commercial and multifamily buildings as one step that the federal 
government can and should take that will have a positive impact on the 
pace of retrofits. Congress should extend and reform Section 179D of 
the Internal Revenue Code so that it is a more effective incentive for 
retrofitting commercial buildings. (There are detailed proposals and 
analysis that exist on this matter; the Real Estate Roundtable and the 
Natural Resources Defense Council (among others) have analyzed this 
matter and can supply details.) Further consideration should be given 
to providing accelerated depreciation for retrofit capital equipment, 
to allow efficiency improvements to qualify as real estate under REIT 
regulations, and to including tenant-focused incentives, as well as 
owner-focused incentives. The level of federal incentives directed 
towards energy efficiency implementation in buildings is far lower than 
those directed at wind and solar technologies; although there is a 
strong argument that energy efficiency investment in buildings is more 
cost-effective. At a minimum, the playing field between efficiency and 
renewables incentives should be leveled.
    Question 2. Government policy makers have been trying to stimulate 
large scale efficiency retrofit commercial building industry for more 
than three decades, but experts say that mandates may be required to 
stimulate the real estate industry to perform large scale energy 
efficiency retrofits in the commercial sector, other than a few high 
profile trophy buildings. Do you agree or disagree that mandates will 
be required for the commercial sector to do large scale retrofits? What 
are the alternatives?
    Answer. I agree that mandates will be required for the majority of 
the commercial sector to undertake comprehensive retrofits.
    I also believe that without mandates, short-term payback efficiency 
investments (12-24 months) will often be made in the Class A commercial 
sector and by financial strong institutional buildings.
    However, significant gains in more comprehensive energy efficiency 
investments across the majority of the commercial, multifamily and 
institutional sectors are very unlikely to occur without mandates. 
Without mandates, there will likely remain a wide variance in building 
energy performance with energy ``hogs'' continuing to be found even in 
the Class A commercial sector. Furthermore, I believe that other 
sectors such as multifamily, Class B or C commercial and less credit-
worthy institutions will definitely underinvest even in short-term 
payback efficiency measures without mandates.
    A range of mandates is possible, with varying stringency, including 
(1) mandatory benchmarking, (2) code upgrades and enforcement 
improvements, (3) required efficiency implementation for major or 
partial renovations, (4) clean fuel requirements, (5) mandatory 
auditing, (6) mandatory retro commissioning, and (7) required 
efficiency measure implementation, etc.
    The recent experience of New York City in implementing mandates in 
a dense urban environment should be studied when considering how to 
accomplish effective mandates. NYC chose to focus on the largest 
buildings (over 50,000 square feet) and to implement a suite of 
mandates with a range of compliance deadlines that the real estate 
sector in NYC was able to digest. See http://www.nyc.gov/html/
planyc2030/html/about/ggbp.shtml for details.
    One important feature of this suite of policies is mandatory 
benchmarking which requires buildings to report their energy 
consumption and makes this information publicly available. Although the 
cost of complying with this law is minor for building owners, it is 
likely to spur competition with regard to the energy performance of 
buildings. See http://www.nyc.gov/html/gbee/html/plan/
ll84__scores.shtml for NYC's recent report analyzing its first year of 
benchmarking data.
    Another important feature of NYC's ``greener greater buildings 
plan'' is the establishment of the New York City Energy Efficiency 
Corporation with the goal of improving access to financing for 
retrofits projects for commercial building owners who need or want it. 
[See www.nyceec.com.]
    I strongly urge you to review the approach that NYC has taken and 
to follow the results that are produced. It goes without saying that 
these policies would need to be adjusted for smaller cities and 
communities, and for other parts of the country. I remain convinced 
that efficiency is best mandated at the local, or possibly state, 
level. This is due to variations in climate, energy market dynamics, 
energy prices and resources, utility regulation, real estate market 
conditions, prevalent building lease and ownership structures, and 
other local factors (including culture) around the country. Although I 
strongly believe that these local conditions suggest that mandates 
cannot be uniform around the country, I believe that there is much that 
the federal government can do to encourage or require such regulation.
    I am happy to provide you with names and contact information of the 
relevant policy makers in New York City who crafted the local mandates, 
if that is of use.
    The alternatives to mandates are incentives (such as tax, utility, 
and state incentives), well-designed utility programs, education, 
marketing and outreach initiatives, and efforts such as the federal 
Weatherization Assistance Program (which has provided economic 
assistance for many multifamily retrofit projects over the years). 
These approaches do stimulate specific energy efficiency projects; 
however, they have not had the effect of transforming our commercial 
building stock to realize its full efficiency potential. My research 
and experience leads me to believe that such alternatives have an 
important positive effect, but are not sufficient alone, and that well-
crafted and well-enforced mandates are required.
    An alternative that has not been discussed extensively is the 
``negawatt'' approach. In this model, utilities would pay for energy 
efficiency as a resource, as opposed to offering demand-side incentives 
for efficiency implementation. Efficiency aggregators would be 
responsible for developing efficiency projects in existing buildings 
(much like wind developers develop wind farms), and would sell this 
resource back to the grid. Over the years, a few utilities have 
experimented with variations on this approach, but there has been no 
major push to attempt to implement such a strategy.
    Question 3. How can utilities be encouraged to adopt the successful 
small commercial and industrial program that was described by Ms. 
Borrelli from United Illuminating? The combination of turnkey service, 
cost-effective incentives and zero-interest financing has been very 
effective in Connecticut and Massachusetts. These programs should be 
implemented across the country. How can we replicate these programs?
    Answer. Replicating successful utility programs that combine 
services, incentives and no-cost financing is a laudable goal. There 
are definitely examples of successful programs including these 
features, but they are not widespread across the country. One issue 
with widespread implementation of these utility programs is likely 
cost, as well as the leadership of state utility regulators. The fact 
that the business model of most investor-owned utilities is not 
conducive to energy efficiency is a barrier.
    Zero-interest financing for efficiency projects has cost associated 
with it for utilities offering this type of program, and such cost must 
be supported and approved by utility regulators. Working with the 
Regulatory Assistance Project to educate and influence state utility 
regulators may be fruitful. I am not knowledgeable about the ways in 
which the federal government can organize and coordinate with state 
utility regulators, but this type of communication and coordination is 
probably necessary for more widespread implementation of the types of 
programs used in Connecticut and Massachusetts.
    Question 4. Ms. Leeds of NYCEEC cited a study published by the 
Rockefeller Foundation which estimated the potential for energy 
efficiency in institutional buildings at about $25 billion. However, 
NAESCO`s testimony (for the record) states that this estimate is low by 
a factor of four, based on studies performed by the Lawrence Berkeley 
Labs. Do you agree that the potential market for energy efficiency in 
institutional buildings approaches $100 billion? If not, what do you 
see as the potential market and barriers to meeting the potential for 
energy efficiency in buildings?
    Answer. Energy efficiency potential studies can vary widely, based 
on the assumptions made and the objective of the study. Economically 
feasible potential can be different from technical or theoretical 
potential. In any case, it is true that the potential for efficiency in 
institutional buildings remains high, and will not be static. New 
technologies to improve building efficiency will continue to emerge. 
The built environment is dynamic as well. Construction projects are 
undertaken for a wide variety of reasons--but generally not for 
efficiency sake alone.
    Barriers to meeting potential are well-documented. Efficiency 
investment is not typically a priority for most organizations and 
institutions. Other barriers include (1) low awareness and attention, 
(2) limited organizational capacity / competing priorities for scare 
organizational resources, (3) lack of trust in savings projections and 
lack of relevant, sector-specific, reliable data on savings 
projections, (4) upfront cost, (5) lack of low-cost, long-term 
financing, (6) split incentives (although this generally does not apply 
to institutions), (7) disruption of ongoing operations, among others. 
Basically, in marketing energy efficiency implementation, you are 
asking organizations to undertake construction projects in their 
facilities that are not strictly necessary.
    Finding the right opportunities to introduce efficiency investment 
is critical. When equipment fails, when a moderate or extensive 
renovation is taking place, when another construction project is being 
considered, when refinancing is occurring-there are the points in time 
when efficiency must be introduced into the process. Our building stock 
will become significantly more efficient when efficiency investment is 
routinely ``baked into'' these other events and processes, and when the 
barriers to undertaking efficiency at the time of these events and 
during these routine processes are removed.
    Another important point in relation to understanding potential 
accurately is that measurement of the actual level of efficiency 
investment activity seems to me sparse. Not only should we be 
effectively measuring economically feasible potential--which we need to 
do on an ongoing basis and for specific building sectors-but we should 
also be attempting to measure the level of actual energy efficiency 
investment activity taking place.
      Responses of Susan Leeds to Questions From Senator Murkowski
    Question 1. In your opinion, should the federal government be 
investing in efficiency? If so, what is the proper role of the federal 
government for these types of retrofits?
    Answer. Yes, the federal government should be investing in 
efficiency. It is cost-effective, creates jobs, reduces our use of 
foreign-sourced fuels, and improves our environment. It generally pays 
for itself.
    First and foremost, comprehensive efficiency investment should be 
happening in all federal facilities, buildings and organizations.
    For non-federal facilities and entities, the federal government can 
incentivize efficiency investments by private building owners (through 
tax incentives and other mechanisms) and can provide both information 
and education to the market. Levers for driving the utility sector 
towards greater implementation of, and incentives for, energy 
efficiency investments should be explored. My personal belief is that 
mandates are necessary to ensure an efficient building stock, and that 
such mandates are best implemented by state and local governments. That 
said, the federal government could do a lot to assist states and 
municipalities in crafting the right suites of policies for increasing 
investment in the energy efficiency of existing buildings.
    Finally, many impactful energy efficiency programs around the 
country are strengthened and enabled by federal grant funds, and the 
approach of funding program implementation at the local level is sound. 
This type of funding is the type of federal investment that should 
continue. The New York City Energy Efficiency Corporation, which is 
establishing several highly effective energy efficiency financing 
programs enabling numerous commercial and multifamily retrofits, would 
not exist without this funding source.
    Question 2. Outside of funding from the Federal Government, what 
financing options have been most successful in funding energy 
efficiency within your program?
    Answer. Within our program, the most successful financing options 
are (1) the energy services agreement ``version 2.0'' or managed energy 
services agreement, (2) power purchase agreements used for cogeneration 
equipment, and (3) energy efficiency mortgage financing.
    Question 3. Please describe the amount of energy consumed in 
buildings. Please describe how retrofits differ between residential and 
commercial buildings.
    Answer. Buildings (and the ``plug load'' in them) consume 
approximately 40% of the world's primary energy and are responsible for 
40% of global carbon emissions.
    Energy efficiency retrofits are specific to each building, although 
in some building sectors, it is possible to characterize retrofit 
projects by ``typical'' measures. Single-family residential structures 
are typically smaller, and simpler from an energy systems perspective. 
Commercial buildings (including large multifamily) tend to have larger 
systems, often centralized energy systems, and require a higher degree 
of engineering expertise to design effective retrofit projects.
    For example, whereas many residential (single family) energy 
efficiency programs are prescriptive in design (directing homeowners to 
a list of efficiency measures they should implement), New York City's 
``greener greater buildings plan'' was designed to encourage smart and 
effective retrofit investment in large commercial, multifamily and 
institutional buildings (actually any buildings over 50,000 square 
feet). NYC's suite of policies includes the requirement that buildings 
perform an ASHRAE Level II audit to determine the efficiency measures 
they should undertake. Aside from the simplest measures, it is 
necessary to take this step of conducting a proper energy audit in 
order to identify the specific opportunities for energy efficiency 
investment in a commercial facility, and to know how to implement such 
measures effectively.
         Response of Susan Leeds to Question From Senator Wyden
    Question 1. Even projects like Clean Energy Works, which use 
private financing, needed government financing to get started. Given 
the modest pace of the economic recovery, which limits the amount of 
secondary lending for things like energy efficiency, how long do you 
think programs like Clean Energy Works will require support? In other 
words, when do you think these sorts of programs will get to a critical 
mass, and where federal and state support are no longer needed?
    Answer. My organization, the New York City Energy Efficiency 
Corporation, is similar to Clean Energy Works, in that we needed 
government funding to get started. NYCEEC was started with 100% EECBG 
grant funding through the Department of Energy, and we are using both 
private grants and private financing to complement this government 
funding and to increase our organization's operating budget and to 
supply additional capital to our energy efficiency financing programs.
    We are still in the process of deploying our federal capital, which 
we expect to have fully utilized by year-end 2013. It is unclear at 
this moment in time whether or not we will require additional 
government financing. I currently foresee the need for additional 
operating support for NYCEEC - which we expect to receive from the 
private philanthropic community, not government sources--for 
approximately 3-4 years. Beyond this time (2016/2107) we plan to be 
financially self-sufficient, in other words, our program revenue will 
support our energy efficiency program operations. I wish to emphasize 
that these are approximate projections/expectations based on our 
experience so far, and we are a new organization that commenced 
operations less than 18 months ago.
    Although I believe that it is possible for NYCEEC to operate self-
sufficiently without additional government financing in the timeframe 
indicated above, this does not mean that we will be optimizing our 
impact and reach. If we are to grow our energy efficiency financing 
program to meet the full market potential in New York City, we would do 
so most effectively if we had access to additional government 
financing.
                              Appendix II

              Additional Material Submitted for the Record

                              ----------                              

           Statement of the American Institute of Architects
    The American Institute of Architects (AIA) appreciates the 
opportunity to submit this statement for the record and commends the 
Committee's work on the critical issue of financing energy efficient 
buildings.
    Although there are numerous policies that impact financing an 
energy efficient built environment, our statement focuses on an energy 
efficiency tax provision, the Energy Efficient Commercial Building 
Deduction, which is contained in section 179D of the Internal Revenue 
Code. Set to expire in 2013, the AIA highlights the 179D deduction as 
an example of one provision in the energy tax family that has had a 
demonstrable effect on energy efficiency investment, domestic 
manufacturing, and design and construction industry jobs.
    The 179D deduction has leveraged billions of dollars in private 
capital, resulted in the energy-efficient construction or renovation of 
thousands of buildings, and created or preserved hundreds of thousands 
of jobs in the process. It is one of the best indicators of the 
positive impact extensions of energy tax incentives can have on 
financing energy efficient property.
    The AIA represents over 75,000 architects and emerging 
professionals nationwide and around the world. As a leader in the 
design and construction industry, the AIA supports incentivizing energy 
efficiency in a myriad of ways, but particularly through provisions 
like 179D, that have proven to be quite successful in the field.
    The AIA strongly supported this provision when it was enacted as 
part of the Energy Policy Act of 2005. The AIA also helped form a 
partnership with other concerned stakeholders and through this 
partnership, developed implementation recommendations for building 
owners to obtain this tax deduction. In 2008, the AIA helped pass 
legislation to extend the life of the deduction so that it covers 
property placed in service by December 31, 2013. That same year, at the 
AIA's urging, the IRS issued guidance on how the deduction could be 
allocated to the designer.
    The AIA was pleased with the initial clarification that this IRS 
guidance provided, and many agencies on the federal, state and local 
levels followed suit by issuing policies on the allocation of this 
deduction.
    In recognition of the benefits of the section 179D deduction, there 
have been reform proposals offered in recent months aimed at further 
enhancing the important tax benefit. The AIA supports reform of the 
179D deduction that makes it simpler and more accessible. As these 
discussions progress, the AIA also strongly urges Congress to consider 
enhancements to 179D that would provide an effective and efficient way 
to encourage investments in energy efficiency, stimulating construction 
activity and jobs during this fragile time in the nation's economy.
Background on Section 179D, the Energy Efficient Commercial Building 
        Deduction
    The Energy Efficient Commercial Building Deduction was created by 
the Energy Policy Act of 2005 (Pub. L. No. 109-58), in recognition of 
the fact that a substantial portion of U.S. energy consumption is 
attributable to commercial buildings and to provide a tax incentive to 
help offset the costs associated with enhancing their energy 
efficiency. Section 179D provides a deduction for certain energy-
efficient commercial building property expenditures.
    Eligible expenditures are for property which is: (1) installed on 
or in any building that is within the scope of Standard 90.1-2001 of 
the American Society of Heating, Refrigerating, and Air Conditioning 
Engineers and the Illuminating Engineering Society of North America 
(``ASHRAE/IESNA''); (2) installed as part of the (i) interior lighting 
systems, (ii) heating, cooling, ventilation, and hot water systems, or 
(iii) building envelope; and (3) certified as being installed as part 
of a plan designed to reduce total annual energy and power costs by 50 
percent or more. The deduction is effective for property placed in 
service prior to January 1, 2014.
    The maximum deduction is $1.80 per square foot. In the case that a 
building does not meet the 50 percent energy savings requirement, a 
partial deduction of $0.60 per square foot is allowed for each separate 
building system that comprises energy-efficient property and that is 
certified as meeting required savings targets. To encourage the public 
sector to utilize these same energy efficient enhancements, the 179D 
deduction also provides a federal, state, or local government owner of 
a commercial building an election to allocate the tax deduction to the 
primary person responsible for designing the energy efficient 
enhancements installed in the building.
    Building owners who take advantage of 179D not only enjoy a 
deduction for qualifying levels of efficiency but also enjoy 
significantly lower energy costs down the road, the benefits of leading 
edge design and construction which enhances the building's long term 
market value, and the benefits of a cleaner environment overall. Owners 
have utilized the deduction for both new construction projects and 
retrofits of existing buildings.
    Although a public entity cannot take advantage of the tax proceeds 
from the 179D deduction allocation, it will also receive other benefits 
in the form of energy savings and market value, often totaling more 
than the deduction proceeds received by the designer.
    The average 179D project (typically $0.60/sq. ft. for lighting 
upgrades) saves an agency an average of 20 percent on their energy 
expenses. However, even in cases where there are minimal upgrades that 
qualify for 179D, agencies have saved relatively large amounts.
    For example, when a middle school set out to retrofit its lighting 
system, an architect worked to find 12 percent energy savings just on 
that single lighting system. The system then qualified for the 179D 
partial lighting deduction. In return, the school saved $15,000 on its 
energy bill in that year alone. It saved even more the next year, and 
will continue to save each year. Over 10 years, that totals to over 
$150,000, for a single school. School districts that take advantage of 
179D for 5, 10, or 20 schools can save millions of dollars over 10 
years, at no additional cost to them, because they can utilize the 179D 
deduction to finance the additional energy savings.
    This example illustrates the impact of just 12 percent energy 
savings in a single school. There are hundreds of other examples of the 
deduction providing even greater benefits to school districts, army 
bases, civic structures, and other publicly owned buildings across the 
nation.
Proposals to Improve the 179D Deduction
    There have been reform proposals offered in recent months aimed at 
further enhancing this important tax benefit. AIA supports commonsense 
efforts that make 179D more usable, effective and simpler. As these 
discussions progress, the AIA, in particular, strongly urges Congress 
to consider three key improvements to 179D: (1) ensuring the ability of 
pass-through entities to capture the full value of an allocated 
deduction in the case of a public owner of a building; (2) enhancing 
the value of the 179D deduction; and (3) allowing non-profit owners of 
buildings, similar to public owners of buildings, to allocate the 
deduction.
Allocating the Section 179D Deduction to a Pass-Thru Entity
    The section 179D deduction provides a federal, state, or local 
government owner of a commercial building an election to allocate the 
tax deduction to the primary person responsible for designing the 
energy efficient enhancements. In December 2010, the IRS released a 
memo that effectively prevents design firms organized as partnerships 
or S corporations from fully realizing the benefit of a section 179D 
allocated deduction.
    This problem is not merely theoretical-almost 80 percent of 
architectural firms have fewer than 10 employees and a significant 
number of these small businesses are organized as partnerships and S 
corporations. Moreover, it is often these small and mid-size firms that 
work on state and local government projects such as schools.
    By way of background, an allocated section 179D deduction is a tax 
deduction that does not reflect an economic cost to the recipient 
taxpayer, because similar to a tax credit, the deduction provides an 
incentive. The technical tax rules nonetheless treat an allocated 
deduction as reflecting an economic cost to the taxpayer and 
accordingly reduce partnership and S corporation taxable income and the 
partners'/shareholders' basis in the partnership/S corporation (i.e., 
``outside basis'') by the amount of the allocated deduction. The 
reduced outside basis may force partners and S corporation shareholders 
to recognize taxable gain on the distribution of economic earnings that 
were excluded from tax by the allocated section 179D deduction at the 
partnership and S corporation level. The IRS memo states that, in the 
absence of explicit statutory authority allowing for basis adjustments 
to preserve the benefit of the deduction at the partner or shareholder 
level, the technical tax rules govern. The result will be that, in the 
case of many partnerships and S corporations, the benefit of the 
section 179D deduction will be lost or significantly diminished. This 
will harm not only these firms, but also the school districts and other 
public entities who own the buildings.
    In order for partnerships and S corporations to obtain the intended 
benefits, it is necessary for partners and S corporation shareholders 
to obtain a basis in their partnerships and S corporations that is not 
reduced by an allocated 179D deduction. This issue could be addressed 
by a simple modification to expressly require Treasury to issue 
regulations that properly determine partnership or S corporation 
outside basis in the case where the 179D deduction is allocated. Such a 
clarification would provide certainty and address a widespread concern 
among many small businesses that design energy efficient buildings.
Enhancing the Section 179D Deduction
    The impact of the section 179D deduction has become muted over 
time. The maximum deduction of $1.80 per square foot has not been 
increased since the deduction was put in place in 2005 and, as a 
result, has not kept pace with inflation. Moreover, as the economy and 
financial markets continue their fragile recovery, the amount of 
capital available for building design, construction, and renovation 
continues to be limited. A recent AIA survey of architecture firms 
shows that nearly two-thirds report that a lack of financing has slowed 
or stopped construction projects that would create jobs. Owners are 
also less likely to invest the upfront capital costs associated with 
energy efficient systems, which often are somewhat more expensive to 
design, build, and install than their less efficient counterparts.
    In 2010, a coalition of more than 80 organizations and companies 
called on Congress to increase the 179D deduction from the current 
maximum allowable amount of $1.80 per square foot to $3.00 per square 
foot. In the case of individual subsystems, the maximum allowable 
deduction should be increased from $0.60 per square foot to $1.00 per 
square foot. Bipartisan legislation was introduced in both chambers in 
the 111th Congress to enhance the deduction in this way.
    Enhancing the 179D deduction would provide an important source of 
additional capital to stimulate building design, construction, and 
renovation, driving the creation of well-paying jobs. Studies have 
shown that every $1 million invested in design and construction yields 
28.5 full-time jobs. Moreover, an enhanced section 179D deduction would 
further incentivize energy efficiency, improve the nation's commercial 
building stock, and increase energy independence.
Allocating the Section 179D Deduction in the Case of a Non-Profit Owner 

        of a Building
    The 179D deduction allocation provision, which allows a federal, 
state, or local government owner of a building to allocate the 
deduction to the designer, has been used to great effect by design 
professionals to encourage their public sector clients to meet the 
energy targets of the deduction and then have the client assign them 
the tax deduction. The result has been more energy efficient public 
buildings, lower energy costs for the building owners, and tax relief 
for design professionals.
    In many cases, non-profit entities, such as hospitals, 
universities, private schools, charities, and foundations, conduct 
functions similar to state and local governments. Currently, non-profit 
entities own thousands of properties across the country. Although 
retrofits to these properties could result in significant energy 
savings, the non-profit entities do not pay taxes and, consequently, 
cannot benefit from the section 179D deduction.
    The section 179D allocation provision should be expanded to provide 
non-profit owners of buildings, similarly to public owners of 
buildings, with the ability to elect to allocate the deduction to the 
primary designer of the building. Such a provision would assist non-
profits in financing energy efficiency upgrades and would reduce their 
energy costs in the longer-term.
Conclusion
    The AIA appreciates the opportunity to submit this statement for 
the record. As Congress considers issues surrounding financing energy 
efficient property, it is important to recognize the impact the 179D 
deduction has had in leveraging private capital and increasing energy-
efficient construction and renovation. Modest improvements to the 
section 179D deduction would increase the effectiveness and efficiency 
of this important tax policy. The AIA and its members are ready to 
serve as a resource to Congress and the Committee on these and other 
issues.
                                 ______
                                 
                Statement of Rick Barnett, Corvallis, OR
    Thank you for the opportunity to share my views on non-federal 
programs for financing energy efficient building retrofits. I have been 
a residential builder and efficiency advocate for 30 years. Since the 
70's, building contractors have engaged in efficiency retrofits, guided 
by consumer demand and the local building department. Based on their 
experience with installations, contractors continue to market 
insulation, efficient equipment, and reduced heat loss. The homeowner 
is assured of a proper job with the building official's verification of 
meeting code standards.
    I appreciate your effort in gathering this cross section of 
efficiency expertise, and providing an excellent status report of the 
industry today. Mr. DeBoer (The Real Estate Roundtable) has succinctly 
cast the untapped potential of efficiency: ``Our nation faces 
significant economic, employment and energy challenges. One way to 
address these challenges is by upgrading the nation's commercial 
building infrastructure through energy efficiency ``retrofits''.'' I 
believe that the same opportunity is available with residential 
efficiency.
    From this sampling of program models, I point to the United 
Illuminating Company's ``Small Business Energy Advantage Program'' as 
the best example of efficiency being delivered without public sector 
involvement via ARRA/tax dollars, energy agencies or local tax 
departments. With in-house, on-bill financing, this utility program 
simply connects contractors to interested energy customers. As Ms. 
Borelli, United Illuminating Company's representative, testified, ``by 
making investments in energy efficiency appear similar to traditional 
utility investments, the utility is encouraged to invest in energy 
efficiency''. If utilities use this model for residential programs, 
they will invariably improve the product being sold and their return on 
investment.
    The economic opportunity has been documented for many years: as 
referenced in Ms. Leeds' (NYCEEC) testimony, the Rockefeller/Deutsche 
Bank (2012) and McKinsey (2009) Reports outline the conservation and 
employment potentials. Unfortunately, since residential retrofits were 
included in ARRA, my expectation for contractor jobs has not been met. 
Rather, I've seen the emergence of a new marketing and verification 
system, running parallel to the historical marketing role of 
contractors, and oversight role of Building Officials. Mr. Rogers 
(GoodCents Holdings, Inc.) graphically identifies some of the new 
administrative elements on page 12 of his testimony: only one of his 
``Six Common Elements'' is about installing insulation.
    The value of streamlining the new trend is not just about better 
delivery of efficiency: it's also about improving the efficiency being 
delivered. In the current trend, most thermal retrofits bring very 
leaky homes into the range of code standards, which have caused the 
need to reduce residential demand. Fortunately, existing technology is 
able to produce ``net zero'', making higher standards available to 
capture the economic potential.
    Such a transition to high performance and lower energy bills will 
be facilitated by using ``Home Performance Scoring'', where a number is 
used to rate a building's measured thermal performance. With evaluation 
based on a numerical score, the existing checklist-style energy code 
could be simplified.
    From my building experience, I believe that a better return on 
investment is available from higher performing retrofits. This occurs 
because thermal upgrades are labor intensive: using better materials 
doesn't significantly increase the cost, but results in significantly 
better performance. With an elevated private sector role, I am 
confident that efficiency investments would continue improving, until 
we routinely optimize the performance of our buildings. Why should we 
expect anything less?
    Utilities have been increasing their commitment to efficiency, 
producing programs like United Illuminating Company. I agree with Ms. 
Borelli's concluding statement, that utilities ``are able to utilize 
utility funds for the benefit of both the customers and the utility''. 
I am confident that more efficiency and construction jobs can be 
delivered at a lower cost by continuing to expand utility programs. 
Their private sector perspective motivates them to maximize the energy 
savings per dollar invested, and fully capture the economic potential 
of existing buildings.
    When I talk to people about the opportunity represented by our 
existing buildings, the question of capital is quickly raised. I 
believe that the key to attracting an adequate flow of capital is to 
get better at delivering really good efficiency. I ask the Energy and 
Natural Resources Committee to encourage a new commitment by the 
private sector, to unlock this residential energy asset.
                                 ______
                                 
    Statement of the National Association of College and University 
                           Business Officers
    This testimony is submitted today on behalf of the National 
Association of College and University Business Officers (NACUBO) which 
represents chief financial officers and their staff at more than 2,100 
public and nonprofit colleges and universities. NACUBO's mission is to 
promote sound administrative and financial management of institutions 
of higher education.
    In 2009, NACUBO, in collaboration with Second Nature, published 
``Financing Sustainability on Campus,'' a resource detailing a range of 
financing strategies and options available to campuses responding to 
the challenges of financing sustainability efforts. The full range of 
financing options are examined in the publication, including internal 
resources, grants, bank loans, bonds, leases, energy performance 
contracts, tax incentives, power purchase agreements, energy hedges, 
renewable energy certificates, and carbon offsets.
    In a more recent report, ``Higher Education: Leading the Nation to 
a Safe and Secure Energy Future,'' published in June of 2012 by the 
National Association of College and University Business Officers, 
Second Nature, and the American College & University Presidents' 
Climate Commitment, the organizations explore how the federal 
government can develop and enhance clean energy incentives and 
investments that are specific to the higher education sector and how 
these federal policy options could further stimulate deep energy-
efficiency and renewable-energy investments at colleges and 
universities.
    This testimony reflects the five federal policy options presented 
in that report and explores how federal support, with state and local 
government initiatives as well as with institutional funds and private-
sector investments can expand possibilities and mitigate or eliminate 
barriers to furthering energy efficiency goals at colleges and 
universities across the country.
Building on a Solid Foundation
    Higher education institutions are on the forefront of advancing 
efficient and renewable energy production-from wind and solar 
generation, to natural gas cogeneration, to geothermal and biomass 
heating and cooling systems. Equally impressive are the dramatic 
measures taken to maximize the operating efficiency of campus 
infrastructure. During the past decade, institutions have 
systematically curtailed energy consumption through multiple rounds of 
lighting upgrades, weatherization initiatives, and energy audits and 
system controls, and have implemented institution-wide Energy Star 
procurement policies. Buildings that adhere to advanced levels of 
energy-efficient performance criteria are commonplace on many college 
and university campuses. The sector has also embraced aggressive 
programs for water conservation, waste minimization and recycling, 
alternative-fuel vehicle fleets, and local food production-each with 
direct and indirect impacts on campus energy demand.
    All these changes are spurred in part by a growing environmental 
consciousness among students, but they also represent higher 
education's commitment to equip graduates to be future leaders and 
problem solvers within a starkly different energy economy than that of 
decades past. The pursuit of substantial energy savings and new energy 
sourcing also reflects a strong and growing commitment to energy 
efficiency among presidents and campus business administrators and a 
mounting consensus that such shifts in campus operations are necessary 
to contain costs. Ensuring long-term energy reliability and financial 
security of the academy are crucial in advancing the educational 
mission of America's colleges and universities. According to the 
National Center of Education Statistics (NCES), colleges and 
universities annually expend more than $14 billion in operations and 
maintenance of buildings and grounds. They also expend between $6 
billion and $7 billion each year on energy and utilities, about three 
quarters of which is directed toward electricity generation, 
transmission, and use.
    Estimates from APPA, the national association representing higher 
education facilities officers, suggest that America's colleges and 
universities collectively own and manage more than 250,000 buildings 
and heat and cool more than five billion square feet of space on a 
daily basis-no insignificant expenditure. For every college and 
university, stewardship of energy resources bears a direct impact on 
the institution's ability to be a good steward of its financial 
resources.
    In many ways, institutions of higher education represent the ideal 
partner to engage in advanced energy solutions.

   Small-scale cities--Many higher education institutions are, 
        in effect, small-scale cities. Through the built infrastructure 
        of their campuses, colleges and universities operate as mini-
        municipalities of several hundred to tens of thousands of 
        individuals. Many campuses have their own power plants in 
        addition to academic and research buildings, dormitories, 
        cafeterias, athletic facilities, transportation fleets, and 
        more.
   Long-term investors--The higher education sector's long-term 
        perspective regarding investments, infrastructure, and 
        buildings, combined with its willingness to adopt new ideas and 
        technologies and to ``go deep'' with energy-efficiency retrofit 
        projects underscore the fact that American colleges and 
        universities can play a key role in leading the nation to 
        energy independence, energy security, and energy innovation.
   Cross section of the nation--Geographically diverse and 
        serving nearly every population center across the country, U.S. 
        higher education institutions are ideal places to test unique 
        local and regional energy solutions and markets in the drive 
        toward energy efficiency, energy independence, and energy 
        security.
   Learning laboratory--Higher education has a long tradition 
        of equipping graduates with not only the technical skills and 
        knowledge to meet current workforce requirements, but also the 
        critical problem-solving abilities to discern emerging trends 
        and to solve society's greatest challenges. Modeling a variety 
        of energy solutions on their campuses is one way colleges and 
        universities are preparing future scientists and civic leaders 
        to meet tomorrow's energy challenges and opportunities.
   Job trainer--From the responsiveness of community and 
        technical colleges to quickly develop and introduce training 
        programs to retool workers' skill sets, to the systems thinking 
        and complex problem solving offered through immersive learning 
        opportunities that are a hallmark of so many residential 
        liberal arts campuses, to the sophisticated and cutting-edge 
        discovery that takes place at the nation's research 
        universities, the higher education sector collectively holds 
        the capacity to train the next generation of energy managers, 
        engineers, architects, scientists, and entrepreneurs.
   Driver of market transformation--In addition to showcasing 
        to society what is possible in the realm of deep energy 
        efficiency, the higher education sector has the capacity to 
        create new and better markets for goods and services. Consider 
        that the U.S. higher education sector represents operational 
        budgets totaling $350 billion annually-about 2.5 percent of 
        U.S. gross domestic product (GDP). College and university 
        campuses not only possess the purchasing power to encourage 
        emerging and local energy markets, but they are also in a 
        position to sustain these markets.
Potential Savings in Energy Demand, Supply, and Distribution
    New opportunities exist for colleges and universities to 
dramatically improve their energy and fiscal stewardship by further 
reducing energy consumption (demand), altering and expanding their 
energy sourcing (supply), and maximizing infrastructure improvements 
that address energy storage (distribution).
    Demand--Opportunities for higher education to lower demand through 
deep energy retrofits fall into three primary categories.

   Smart labs and high-performance buildings. As a nation, the 
        United States takes pride in its status as a world leader in 
        cutting-edge research. One reason that research-intensive 
        institutions in particular have difficulty reducing overall 
        energy consumption is because today's highly sophisticated 
        research typically requires advanced levels of heating and 
        cooling, illumination, and information technology (IT) 
        infrastructure to support the research mission. The costs to 
        build highly efficient labs and retro-commission existing labs 
        and other campus facilities to improve their energy efficiency 
        are extensive, yet the potential energy savings through the 
        introduction of advanced efficiency measures are as dramatic. 
        When considering that for many research universities, two 
        thirds of total energy costs for the campus' core teaching and 
        research buildings are directly associated with their 
        laboratories, it makes sense to implement measures that safely 
        manage ``smart'' energy use. The ability to dramatically 
        curtail research-related energy consumption- particularly in 
        the thousands of university research labs across the country-
        would not only lower the overall cost of research-related 
        education but would help maximize the federal dollars flowing 
        into the higher education sector for sponsored research, 
        thereby providing a direct benefit to taxpayers.
   Illumination--Every campus, large or small, can benefit 
        operationally from broad incorporation of the latest 
        developments in advanced lighting technologies to more 
        efficiently illuminate everything from classrooms to parking 
        lots. Today's lighting retrofits go far beyond switching out 
        fixtures. Total redesign of lighting systems can incorporate 
        better spacing of fixtures and the introduction of task 
        lighting as well as circuits zoned to maximize daylighting and 
        influence occupancy behavior. This more sophisticated approach 
        to determining lighting requirements and efficiencies of 
        laboratories, classrooms, office spaces, residential settings, 
        and alongside roads, parking facilities, streets, and pathways 
        suggests that the potential for savings is not only significant 
        when extended across an individual campus, but is also highly 
        scalable across the entire higher education sector and beyond.
   IT/computers--While computing and information technologies 
        do not account for the biggest share of campus energy 
        consumption, they do represent the fastest-growing energy 
        strain on most campuses. Growing on average at a rate of 20 
        percent per year, ITrelated energy costs could quickly eclipse 
        those of illumination if left unchecked. For instance, 
        computing clusters purchased with federal dollars create 
        excessive energy demands when the equipment is not installed in 
        an energy-efficient facility setting.

    Supply--Expanding energy-supply options is good not only for 
colleges, but for the country. Many higher education institutions are 
already pursuing a diverse energy strategy centered on enhanced 
efficiency and the transition to renewable and reliable clean energy 
sources as a way to stabilize long-term energy costs, provide hands-on 
educational opportunities for students, encourage local and regional 
economic growth through development of new energy markets, and reduce 
dependence on nondomestic energy supplies. Generating demand for 
renewable energy should encourage continued development of related 
technologies that can lower the costs of these energy sources.
    Distribution--As the nation moves to increase its share of 
renewable energy production, lingering challenges include the 
intermittency of renewable power and the lack of an adequate energy 
storage and distribution system. In many respects, colleges and 
universities are in the best position to lead the country in developing 
solutions to thermal energy storage and distribution because of efforts 
already under way on many campuses to incorporate smart metering and 
design microgrids that can transfer energy across campus infrastructure 
based on demand.
    While many colleges and universities have tackled the low-hanging 
fruit of quick-payback energy efficiency and conservation efforts on 
their campuses, deep energy-efficiency measures represent a tremendous 
and as yet untapped opportunity for the higher education sector to 
further reduce operational costs.
    Herein lies a key role for the federal government: to assist 
institutions in meeting the initial costs of pursuing advanced energy-
efficiency opportunities, infrastructure modifications, and alternate 
sourcing of energy. The right mix of incentives and investment could 
boost institutions over the hump of the current cost feasibility gap in 
order to invest in projects that over time would yield long-term 
savings dividends for taxpayers.
Five Policy Options for Fostering Energy Efficiency and Renewable 
        Energy at Colleges and Universities
          1. Allow tax-exempt revenue bond financing to prepay power 
        purchase agreements.

    The transition to renewable energy is most expensive for the first 
5 to 10 years until projects begin to pay off. Because large-scale 
power purchase agreements (PPAs) for these projects cost more 
initially, one solution would be to allow colleges and universities to 
pre-purchase a 20-year supply of power with low-cost capital bonds and 
with flexibility to shape the debt (e.g., interestonly payments during 
the early years). The opportunity to use tax-exempt revenue bond 
financing for prepayment of PPAs is currently not a qualified use for 
the nonprofit higher education sector, although it is available to 
municipal utilities.
    Many colleges and universities effectively constitute small 
municipalities, replete with infrastructures, municipal services like 
parking and security, and on-site energy utilities that serve an array 
of customers. Investing in an institution's energy infrastructure will 
yield certain, long-term fiscal benefits to taxpayers through downward 
pressure on tuition and indirectly through lower federal and state 
financial aid dollars spent on utility bills.

          2. Develop new energy-efficiency and renewable-energy loan 
        options for institutions of higher education.

    Colleges and universities use term loans to fund a wide variety of 
projects, including energy investments. There is wide variability in 
up-front and ongoing administrative costs as well as interest rates, 
debt term and structure, and market conditions on bank debt. A federal 
loan guarantee program and/or a federal revolving loan fund dedicated 
to higher education energyefficiency and renewable-energy efforts can 
take some of the variability and uncertainty off the table as 
institutions embark on a long-term energy strategy.

                  a. Establish a federal loan guarantee program for 
                energy-efficiency or renewableenergy projects at 
                institutions of higher education--One potential 
                solution for financing advanced energy-efficiency and 
                renewable-energy projects is to provide access to 
                guaranteed loans. Federally backed loan guarantees are 
                particularly beneficial to colleges and universities 
                because these would prevent institutions from pushing 
                beyond their debt capacity limits, which could 
                jeopardize an institution's credit rating and adversely 
                impact its borrowing ability, its reputation, and its 
                cash flow while also increasing the cost of all 
                functions that depend on financing. Providing such an 
                option for the higher education sector to finance 
                energy projects would also provide real value for the 
                government, since there are few entities that are less 
                risky than public universities when it comes to 
                offering loan guarantees, and since the outcome would 
                return real savings to taxpayers.
                  b. Develop a federal revolving loan fund for energy-
                efficiency initiatives--Revolving loan funds (RLFs) are 
                increasingly common on college campuses and could be 
                used as a model for federal investment. A revolving 
                loan fund provides capital for projects that create 
                some level of return or cost savings, such as energy-
                efficiency or renewable-power projects. Some portion of 
                that return or savings is used to repay the fund until 
                the full project cost has been paid off. Repayment can 
                include an interest rate or be interest-free. As the 
                fund is replenished it can finance more projects that 
                meet the RLF's investment criteria. According to a 
                recent study by the Sustainable Endowments Institute, 
                more than 50 higher education institutions have at 
                least $66M invested in green revolving loan funds, with 
                an average rate of return of 32 percent. Colleges and 
                universities have generally found RLFs to be a 
                flexible, relatively lowcost, high-return mechanism for 
                funding energy-efficiency projects. Such a program on a 
                national scale would result in tremendous efficiencies 
                on campuses across the nation.

          3. Establish, alter, and fund federal grant programs.

    Section 471 of the Energy Independence and Security Act of 2007 
authorized, for FY09-FY13, grants and loans to institutions of higher 
education to carry out projects to improve energy efficiency. 
Unfortunately, the program has never been funded. Congress should 
support the overall goals of Section 471 and consider reauthorizing and 
funding the program. The higher education sector recommends modifying 
the program to incent state-based matching grant programs, eliminating 
the $1 million limit on the maximum award, and enabling the federal 
grant to support up to 30 percent of total project cost.
    Additionally, the American Recovery and Reinvestment Act of 2009 
created a renewable-energy grant program that is administered by the 
U.S. Department of Treasury as Renewable Energy Grants, taken in lieu 
of the federal, business, energy investment tax credit (ITC). Only 
colleges and universities partnering with commercial developers can 
benefit from the program. Eligibility should be extended to tax-exempt 
entities.

          4. Allow long-term charitable deductions and tax credits for 
        biomass and biomethane contributions.

    Solar, wind, hydro, and geothermal energy are not viable options in 
all parts of the country. However, biomass and biomethane, especially 
in agriculturally dense communities, have proven to be practicable 
options and of growing interest within the higher education sector for 
combined heat-and-power applications. These systems hold great promise 
not only for college and university energy generation but for 
transforming the nation's energy economy. Yet, construction of a bio-
digester plant represents a huge capital investment-upwards of tens of 
millions to hundreds of millions of dollars to get up and running at 
scale. Likewise, assurance of a steady flow of the materials needed to 
power the system is essential for embarking on such a large-scale 
commitment. A change in the tax code to assign a charitable 
contribution to a supplier of organic material (e.g., farm, canning 
operation, cheese maker, etc.) and make it contingent on a length of 
time (e.g., 10 years) would give incentive to the provider to maintain 
the flow of materials and would provide reassurance regarding supply to 
institutions contemplating such a major investment. Gift tax benefits 
should be offered for the imputed value of source materials if donors 
are willing to make a 10-year commitment.
    Extending existing incentives and tax credits to biomass, biogas, 
biomethane, and geothermal production in addition to wind, solar, and 
hydro power solves a supply-side challenge and could make the 
difference for many institutions to take advantage of readily available 
renewableenergy sources in their region. Agricultural communities in 
particular offer great promise for institutions to partner on projects 
that would reduce consumption of and dependence on foreign sources of 
energy and would open up new possibilities for domestic fuel markets.

          5. Extend eligibility of clean and renewable energy bonds.

    The U.S. higher education sector is a national leader in renewable-
energy purchasing and development. Colleges and universities in many 
cases are exceeding state-mandated renewable portfolio standards as 
part of their total power supply, some with support from Clean and 
Renewable Energy Bonds. The CREB program allows entities to finance 
renewable-energy projects at lower costs than traditional financing 
mechanisms. Currently, private colleges and universities are not 
eligible to take advantage of this tax credit bond. Extending 
eligibility of this financing option to independent institutions could 
boost participation in renewable-energy markets.
    In conclusion, at a time when economic resurgence and job creation 
remain national priorities, incentivizing investment in infrastructure 
that can lead to economic productivity and markedly lower costs is not 
only logical, but necessary. For public institutions in particular, it 
is fiscally responsible for governments to take the steps necessary to 
make every investment in energy efficiency for the properties they own. 
Through bolstering incentives and investments in advanced energy 
efficiency and clean domestic-energy sourcing, both federal and state 
governments have the means to avoid waste and to pursue the wise use of 
taxpayer dollars applied to these efforts to ensure that precious 
resources are available for other critical needs.
                                 ______
                                 
                                                    NAESCO,
                                     Washington, DC, July 10, 2012.
Hon. Jeff Bingaman,
Chairman, Committee on Energy and Natural Resources, U.S. Senate, 304 
        Dirksen Senate Building, Washington, DC.
Hon. Lisa Murkowski,
Ranking Member, Committee on Energy and Natural Resources, U.S. Senate, 
        304 Dirksen Senate Building, Washington, DC.

Re: June 28 Hearing on Energy Efficiency Financing

    Dear Senators Bingaman and Murkowski:

    The National Association of Energy Service Companies (NAESCO) 
appreciates the opportunity to submit these comments for the record in 
the matter of the above-referenced hearing.
    NAESCO has had a chance to review the testimony offered by various 
parties at the June 28 hearing, and we concur with much of what the 
witnesses said. We would like to amplify some of the points that they 
made and offer several policy suggestions, based on the experience of 
our members that collectively provide approximately $4 billion in 
energy efficiency investment annually to public and private sector 
building owners.
    First, we agree that the potential for energy efficiency in the US 
is huge, and that the nation desperately needs the kind of leadership 
that your committee has demonstrated with its overwhelming bipartisan 
support of common-sense energy efficiency legislation. We believe, as 
several witnesses said, that energy efficiency should be the nation's 
first energy resource. No other source of energy is as cheap and 
plentiful as energy efficiency. The high costs and technical issues 
involved with other energy sources--coal, nuclear, oil tar sands, shale 
gas, etc.--demand that we make the most efficient use of every unit of 
energy we have. We, therefore, urge you to press forward with 
consideration and enactment of your legislation in the Senate, and to 
work to convince your colleagues in the House to immediately move 
similar bi-partisan approaches.
    If we have any quarrel with the estimates of the potential for 
energy efficiency in the US, it is that the estimates are too modest. 
For example, Ms. Leeds from the New York City Energy Efficiency 
Corporation (NYCEEC) cited a study published by the Rockefeller 
Foundation and Deutsche Bank, which estimated the potential for energy 
efficiency in institutional buildings at about $25 billion.
    We believe this estimate is low by a factor of four. The federal 
government has estimated that its potential energy efficiency 
improvements in buildings is more than $8 billion, and federal 
buildings represent a small fraction of the total square footage of 
institutional buildings in the country. NAESCO, based on studies 
performed by the Lawrence Berkeley National Laboratory, estimates that 
the potential market in institutional buildings approaches $100 
billion.
    This potential, of course, equates to jobs--hundreds of thousands 
of jobs in the hardpressed construction industry--as well as billions 
of dollars of reductions in taxpayer expenditures for wasted energy.
    Second, we would like to provide some historical context for the 
status of energy efficiency in commercial buildings, and make a policy 
suggestion based on this history. NAESCO member companies, NAESCO 
staff, government policy makers at all levels and utility companies 
have been trying to stimulate large-scale energy efficiency retrofits 
in the commercial building industry for more than three decades. Our 
efforts have not yielded significant results, particularly in the Class 
A tenant-occupied buildings. We appreciate the fact, as Mr. DeBoer 
noted at the hearing, that the commercial real estate market is in a 
financial trough today, but during these three decades the real estate 
industry has gone through several full boom-and-bust cycles, and there 
was no noticeable uptick of energy efficiency retrofits during the boom 
cycles, such as the first part of the last decade.
    The problem is that the real estate industry does not believe that 
increasing energy efficiency is its business. Rather, the industry 
defines its business as buying and re-selling buildings. Moreover, many 
landlords don't see the value of making their buildings energy 
efficient as they pass on the energy costs to their tenants. We, 
therefore, think that mandates are going to be required to stimulate 
the real estate industry to pursue energy efficiency outside of a few 
high profile trophy buildings. We know that government mandates are an 
unpleasant topic these days, but the history of the real estate 
industry is that they work. More than a decade ago, most jurisdictions 
mandated that commercial buildings be retrofitted with fire-suppression 
sprinkler systems. The real estate industry protested vigorously that 
the retrofits would be financially ruinous, but a decade later the job 
was done. And sprinkler systems do not pay for themselves from savings, 
as energy efficiency retrofits do.
    The near potential for mandates is massive. As Mr. deBoer noted in 
his testimony, more than $1.4 trillion in commercial mortgages will be 
refinanced in the next three years. A mandate that all new commercial 
mortgages be increased to finance all of the retrofits that are 
costeffective within the term of the mortgage (e.g., a five-year 
mortgage would be expanded to include all retrofits that have a payback 
of five years or less) would have no practical effect on the building 
owners (since the retrofits would repay their costs on a cash flow 
basis) but would significantly increase the value of the buildings over 
their remaining life.
    Third, the Committee should seek ways to encourage utilities to 
adopt the very successful small commercial and industrial program that 
was described by Ms. Borelli from United Illuminating, a Connecticut 
utility, at your hearing. The combination of turnkey service, 
substantial and cost-effective utility incentives and zero-interest 
financing has been very effective in Connecticut and Massachusetts. 
These programs should be implemented across the country. Utilities 
should also be encouraged to investigate expanding these programs into 
large buildings, many of which could be seen to be vertical 
aggregations of small customers that could be serviced with the same 
programs that today service horizontal (i.e., neighborhood stores and 
businesses) aggregations of small customers.
    In closing, NAESCO appreciates the opportunity to offer these 
comments for the record, and we are ready to answer questions from you 
or your staffs or to supply more information about our suggestions.
            Sincerely,
                                           Donald Gilligan,
                                                         President.
                                 ______
                                 
 Statement of Malcolm Woolf, Director, Maryland Energy Administration, 
     and Chair, The National Association of State Energy Officials
    Chairperson Bingaman and members of the Committee, I am Malcolm 
Woolf, director of Maryland Energy Administration and Chair of the 
National Association of State Energy Officials (NASEO). NASEO 
represents all 56 of the State and Territory Energy Offices and helps 
to support and leverage the work of the energy offices throughout the 
nation. We are pleased to have this opportunity to discuss some of the 
successes and innovations in energy efficiency retrofit financing 
programs both in Maryland and other states. Prior to joining the 
Maryland Energy Administration, I served as Staff Director of the 
Natural Resources Committee of the National Governors Association, as 
counsel on the U.S. Senate Environment and Public Works Committee and 
at U.S. Environmental Protection Agency, and in private legal practice. 
My message today is to highlight that America has a rich resource of 
energy efficiency readily available and that States continue to be at 
the forefront of innovation by developing creative, new financing 
solutions to save money, enhance U.S. competitiveness, create 
opportunities for the private sector and preserve the environment. 
Well-established, long-running programs such as the Nebraska Dollar and 
Energy Savings Loan and Texas Loan STAR programs have proven how state 
programs can enable more energy efficiency retrofits by working with 
the private sector to increase access to financing and reduce market 
barriers. Two decades ago, these and other groundbreaking financing 
programs were created to open new energy-related economic development 
opportunities utilizing seed funds from the U.S. State Energy Program 
and other state and federal resources. Other more recent State Energy 
Office innovations, such as Maryland's financing programs, the Kentucky 
Green Bank, Florida's statewide property assessed clean energy (PACE) 
program, Alabama SAVES revolving loan fund, and New York's on---bill 
repayment program are pushing the envelope and making great strides 
towards scaling up energy efficient retrofits, and leveraging funds 
through public-private partnerships with the financial community, even 
as consumer, commercial, and industrial demand and confidence continues 
to slowly bounce back after the most serious economic downturn in 
decades.
    In my home state of Maryland, Governor O'Malley led the passage of 
the EmPOWER Maryland Act in 2008 to move our state to the forefront of 
energy efficiency. Under his leadership, Maryland has achieved a 9.1% 
reduction in per capita peak demand, which has helped keep the lights 
on while avoiding the need to build a new fleet of fossil fuel peaking 
plants. In addition, over 430,000 Marylanders to date have implemented 
energy efficiency measures in their homes or businesses that will save 
$2.6 billion over the life of the measures and avoid 880,000 metric 
tons of CO2, which translates to about 180,000 cars taken 
off the road.
    Let me share two examples of how we are trying to overcome the 
barriers with respect to financing. First, using a longstanding 
revolving loan fund, Maryland has provided 70 loans worth about $20 
million for energy efficiency improvements that are estimated to save 
nearly $60 million in project lifecycle costs. For example, we recently 
provided a $600,000 loan to improve a 26-story office building in 
downtown Baltimore that, when combined with a utility rebate, will save 
over $300,000 per year. Maryland has also helped local governments 
update parking garage and traffic lights, hospitals achieve significant 
improvements in indoor air quality, and private schools replace aging 
and wasteful heating and cooling systems. Typical projects include 
lighting, heating, and cooling upgrades, as well as building 
optimization technologies and controls. A sister revolving loan program 
focused on state buildings has achieved similar results.
    Maryland has also created a loan loss reserve fund to help leverage 
$15 million in private capital for unsecured residential energy 
efficiency loans. In partnership with the Maryland Clean Energy Center, 
we are providing affordable capital to homeowners with limited options 
for overcoming the upfront cost of an energy efficiency makeover-
without relying on state tax funds.
Other State Energy Efficiency Financing Examples
    The Nebraska Dollar and Energy Savings Loan program is a revolving 
loan fund that the State Energy Office established in 1990, and over 
the last 22 years, the program has financed over 27,000 projects (e.g., 
commercial, industry, small business, residential) totaling over $247 
million, with less than $70,000 in defaults or less than a 0.03% 
default rate over the program life. Of that $247 million, more than 
$111 million came from the state revolving loan fund, and the rest was 
financed by Nebraska banks, credit unions, and building owners, 
amounting to a 1 to 1 private sector leverage on program funds. The key 
to the program's success has been the active participation of the 
state's participating local banks and credit unions who view the 
program as a good service for their communities and customers, and 
therefore good business for them. Currently 290 Nebraska banks and 
credit unions offer the program at 914 locations statewide. This 
flexible program has supported retrofits in Nebraskan homes, 
businesses, and agriculture.
    Like the Nebraska program, the Texas Loan STAR program has operated 
for more than 20 years. Established in 1988, Texas Loan STAR targets 
retrofits in public buildings, including state agencies, school 
districts, higher education, local governments and hospitals. Over its 
program life, Texas Loan STAR has funded approximately 200 loans 
totaling over $280 million dollars. The program has achieved cumulative 
energy savings of over $212 million dollars for state and local public 
buildings. In 2001, the program was expanded to allow for the use of 
energy savings performance contracts (ESPCs), which enabled private 
energy services companies (ESCOs) to expand their work with public 
buildings and bring their technical expertise to bear to develop more 
projects on a larger scale and at lower costs.
    In Kentucky, the high level of interest in the Kentucky Green Bank 
has shown a large area of unmet need and opportunity in the state. 
Founded in September 2009 and capitalized at $14.17 million, this 
revolving loan fund completely disbursed all its funds in one and a 
half years. The program aims to lower operating costs and energy and 
water use without additional taxpayer burden, promote economic 
development, and create new construction and energy management jobs. 
Through this program, Kentucky has funded improvements at the Kentucky 
School for the Blind, the Kentucky School for the Deaf, the Future 
Farmers of America Leadership Training Center, and three nursing 
facilities in the Department of Veterans Affairs. Many of the larger 
projects were accomplished through ESPCs and working with ESCOs.
    Florida recently launched a statewide commercial property assessed 
clean energy or PACE program to support energy efficient upgrades for 
commercial buildings and industrial facilities, which will be expanded 
to residential properties in the future. This program approach 
addresses two primary barriers to implementing upgrades: high upfront 
costs and the owner-tenant split incentive. The voluntary statewide 
program addresses those barriers by providing the upfront capital for 
improvements and using assessments on the building's annual property 
tax bill to serve as security and the repayment mechanism. Although 
this program is too new to report results, it is a great example of the 
kind of creative, practical solutions States devise. This program 
relies on a public-private approach and is a potential proving ground 
for PACE financing programs that other states-and federal programs-can 
learn from and adapt.
    In Alabama, the State Energy Office operates a hybrid revolving 
loan fund/loan loss reserve program called Alabama SAVES, which 
supports retrofits for private businesses. The $25 million fund is 
projected to leverage up to $120 million over its program life. Each 
deal is unique, which has proved essential to closing loans on larger 
commercial and industrial projects, and the program relies heavily on 
its private sector partners such as Philips Lighting, Metrus Energy, 
Bank of America, Efficiency Finance, First Commercial Bank of 
Huntsville, and a network of engaged engineers and contractors. Without 
these partners and their relationships with local businesses, the 
program would not have as many projects under development or as much 
private sector capital leverage. Although it only launched a year and a 
half ago, the program has already financed a number of projects that 
have improved the competitiveness of Alabama businesses and supported 
job creation. For instance, a $2.3 million loan for new high-efficiency 
equipment to the Dixie Group, a carpet yarn manufacturing plant in 
Roanoke, Alabama is expected to create 20 new jobs.
    Recently, Alaska passed new landmark legislation-Alaska's 
Sustainable Strategy for Energy Transmission and Supply, or ASSETS. The 
legislation established a $125 million into a Sustainable Energy 
Transmission and Supply Development Fund (SETS) to provide low-interest 
loans for energy infrastructure and energy efficiency projects in 
Alaska, including construction of power lines, new renewable energy 
generation projects, natural gas projects, bulk fuel tanks, and energy 
efficiency measures. Under ASSETS, the administering agency, the Alaska 
Industrial Development and Export Authority (AIDEA), cannot finance 
more than one-third of the cost of a project without additional 
approval from the Legislature. This provision shows that the state 
intends for the private sector to drive the development of energy 
projects and leverage their own resources for the majority of a 
project's needed funding. This type of public---private partnership at 
the state level truly supports economic development and job creation.
    Another exciting and innovative program is New York's statewide 
utility on-bill repayment program. Established by New York state 
legislation in 2011, the on-bill repayment program provides an easier 
way for homeowners to make loan payments on energy efficient upgrades 
to their homes and because the loan is tied to the meter, it is 
transferrable to new owners when the home is sold. Further, putting the 
loan repayment on the utility bill provides additional security for the 
loan and reduces risk and interest rates. These on-bill loans are 
offered as part of the overarching Green Jobs - Green New York program 
and benefits from the extensive network and infrastructure that New 
York has built over the last decade through its Home Performance with 
ENERGY STAR program. Since November 2011, New York has been closing 
more than 100 energy efficiency retrofit loans a month.
    Less well known is the scale and success of the State and local 
public facilities retrofit market, which exceeds $5 billion in retrofit 
investments annually. This investment is accomplished almost entirely 
with private sector financing linked to State Energy Office and other 
state agency programs. The stream of utility bill savings from 
upgrading facilities as diverse as office buildings, schools, 
correctional institutions, and wastewater treatment plants pays for the 
upgrade and returns additional savings. In Kansas, the U.S. State 
Energy Program-supported program resulted in the upgrade of 76 percent 
of the state-owned buildings. States piloted, refined, and delivered 
these programs in partnership with the energy services industry through 
energy savings performance contracting two decades ago, which was an 
approach later adopted by the Federal agencies and others.
    The above are just a few examples of the innovative financing 
programs operating in states across the country. Many of these programs 
are opening new opportunities for the private sector and helping to 
create new retrofit businesses, spurring innovation among financial 
institutions, and working with the market to motivate cost-effective 
energy efficiency retrofits. NASEO has catalogued State Energy Office-
administered financing programs in an online database, which can be 
found at: http://www.naseo.org/resources/selfs/.
Recommendations to Support State Energy Efficient Building Retrofits
    To support and further state efforts in facilitating energy 
efficient building retrofits, NASEO recommends the following:

          1) Continue to support reauthorization and federal formula 
        funding at $125 million for the U.S. State Energy Program 
        (SEP). Formula SEP funding is utilized by states to create 
        innovative programs in a flexible manner that responds to each 
        state's needs. Many of the financing approaches I have touched 
        on today are part of larger state strategies to support and 
        stimulate market growth for energy efficiency. Financing on its 
        own is just one tool. Past experience has shown us that 
        programs are the most successful when access to financing is 
        delivered as a part of a comprehensive and well-designed 
        program that includes clear marketing, technical support, and 
        streamlined program administration. SEP is the only program 
        offered by the U.S. Department of Energy that allows states to 
        allocate funding within the guidelines and goals of the 
        program, in ways that are best suited to the opportunities and 
        resources of each state.

    Furthermore, SEP is a highly successful program that has achieved 
tremendous results. In January 2003 (and updated in 2005), Oak Ridge 
National Laboratory (ORNL) completed a study finding that, ``The 
impressive savings and emissions reductions numbers, ratios of savings 
to funding, and payback periods . . . indicate that the State Energy 
Program is operating effectively and is having a substantial positive 
impact on the nation's energy situation'' ORNL found that $1 in SEP 
funding yields: 1) $7.22 in annual energy cost savings; 2) $10.71 in 
leveraged funding from the states and private sector in 18 types of 
project areas; 3) annual energy savings of 47,593,409 million source 
BTUs; and 4) annual cost savings of $333,623,619. These cost saving and 
leveraging data are all non-stimulus results. Energy price volatility 
makes the program more essential as businesses and states work together 
to maintain our competitive edge.

          2) Continue to support the Weatherization Assistance Program 
        (WAP), which employs workers in every state and county in 
        America, and has weatherized more than 7.1 million homes over 
        the past 35 years. Weatherization has proven its value and is a 
        highly successful and effective investment in the American 
        workforce. We support continued funding for the program in FY 
        2014 at the pre-Recovery Act level of $210 million. This level 
        of funding is necessary to keep the Weatherization program 
        operating in all of the states. We also strongly support the 
        addition of innovative grants, which provide incentives for 
        non-profit groups like Habitat for Humanity to get into the 
        weatherization program. We and other state partner 
        organizations have worked closely with Senator Coons of 
        Delaware in developing consensus language on innovative grants 
        as part of the reauthorization bill for the State Energy 
        Program and the Weatherization Assistance Program.
          3) Continue to support the Shaheen-Portman bill. Several of 
        the provisions in this bill, such as enabling on-bill repayment 
        for rural electric co-operatives, would positively impact the 
        energy efficient building retrofit market.
          4) Support the Sensible Accounting to Value Energy or SAVE 
        Act (S.1737). This proposed legislation would improve the 
        accuracy of mortgage underwriting used by Federal mortgage 
        agencies by ensuring that energy costs are included in the 
        underwriting process. Better valuation of energy costs and 
        energy efficiency in property value would make the economic 
        benefits of energy efficiency more obvious to consumers and 
        financial institutions. This would increase market demand and 
        aid the energy efficient building upgrade industry to scale up 
        and mature, creating new jobs in construction and 
        manufacturing.
          5) Provide incentives for residential energy efficient 
        retrofits, otherwise known as home energy upgrades. These 
        incentives should support deep energy savings using a whole-
        house approach and at the same time, allow for a prescriptive 
        path that incents individual measures such as air sealing and 
        furnace replacement. All work should be delivered by qualified 
        contractors and operate under a robust system of quality 
        assurance and inspection to ensure that the energy efficient 
        retrofits are executed to the highest quality and to protect 
        homeowners.
          6) Finally, we recommend that the Internal Revenue Service 
        provide clearer guidance on Qualified Energy Conservation Bonds 
        (QECBs). QECBs provide a significant resource for state and 
        local governments to fund energy efficient building retrofits, 
        and while many state and local governments have taken advantage 
        of this resource, about 80% of these bonds are still available 
        for use. In NASEO's discussions with state and local 
        governments, frequently cited barriers include the lack of 
        clarity around how projects should demonstrate the required 20% 
        energy savings for a project, the definition of a ``green 
        community,'' and recognized processes for local governments to 
        waive unused allocations back to the state. If IRS were to 
        issue guidance on these three issues, it would remove these 
        barriers and allow for easier and greater use of these bonds.
Conclusion
    In conclusion, energy efficient building retrofits present enormous 
potential to achieve energy savings, increase national security and our 
businesses' competitiveness, and support economic growth in partnership 
with the private sector. States have been actively working in this area 
for decades, and despite the challenges of implementing energy 
efficiency retrofit financing programs during an economic downturn 
where consumer confidence hit historic lows, the states were still able 
to seize the opportunity to lay the groundwork for many innovative 
programs that will continue to pay dividends years into the future and 
help to scale and transform the energy efficient building retrofits 
market. With continued and expanded support and funding, the states and 
their private sector partners can further accelerate that 
transformation.






                                



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