    [House Hearing, 114 Congress]
    [From the U.S. Government Publishing Office]

     H.R. 906, A BILL TO MODIFY THE EFFICIENCY STANDARDS FOR GRID	ENABLED
                                 WATER HEATERS

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

                                    HEARING

                                   BEFORE THE

                        SUBCOMMITTEE ON ENERGY AND POWER

                                     OF THE

                        COMMITTEE ON ENERGY AND COMMERCE
                            HOUSE OF REPRESENTATIVES

                        ONE HUNDRED FOURTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 MARCH 19, 2015

                                   __________

                               Serial No. 114-23

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

          Printed for the use of the Committee on Energy and Commerce
                            energycommerce.house.gov
                                      ______

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                        COMMITTEE ON ENERGY AND COMMERCE

                              FRED UPTON, Michigan
                                     Chairman

    JOE BARTON, Texas                    FRANK PALLONE, Jr., New Jersey
      Chairman Emeritus                    Ranking Member
    ED WHITFIELD, Kentucky               BOBBY L. RUSH, Illinois
    JOHN SHIMKUS, Illinois               ANNA G. ESHOO, California
    JOSEPH R. PITTS, Pennsylvania        ELIOT L. ENGEL, New York
    GREG WALDEN, Oregon                  GENE GREEN, Texas
    TIM MURPHY, Pennsylvania             DIANA DeGETTE, Colorado
    MICHAEL C. BURGESS, Texas            LOIS CAPPS, California
    MARSHA BLACKBURN, Tennessee          MICHAEL F. DOYLE, Pennsylvania
      Vice Chairman                      JANICE D. SCHAKOWSKY, Illinois
    STEVE SCALISE, Louisiana             G.K. BUTTERFIELD, North Carolina
    ROBERT E. LATTA, Ohio                DORIS O. MATSUI, California
    CATHY McMORRIS RODGERS, Washington   KATHY CASTOR, Florida
    GREGG HARPER, Mississippi            JOHN P. SARBANES, Maryland
    LEONARD LANCE, New Jersey            JERRY McNERNEY, California
    BRETT GUTHRIE, Kentucky              PETER WELCH, Vermont
    PETE OLSON, Texas                    BEN RAY LUJAN, New Mexico
    DAVID B. McKINLEY, West Virginia     PAUL TONKO, New York
    MIKE POMPEO, Kansas                  JOHN A. YARMUTH, Kentucky
    ADAM KINZINGER, Illinois             YVETTE D. CLARKE, New York
    H. MORGAN GRIFFITH, Virginia         DAVID LOEBSACK, Iowa
    GUS M. BILIRAKIS, Florida            KURT SCHRADER, Oregon
    BILL JOHNSON, Ohio                   JOSEPH P. KENNEDY, III,
    BILLY LONG, Missouri                 Massachusetts
    RENEE L. ELLMERS, North Carolina     TONY CARDENAS, California7
    LARRY BUCSHON, Indiana
    BILL FLORES, Texas
    SUSAN W. BROOKS, Indiana
    MARKWAYNE MULLIN, Oklahoma
    RICHARD HUDSON, North Carolina
    CHRIS COLLINS, New York
    KEVIN CRAMER, North Dakota

                        Subcommittee on Energy and Power

                             ED WHITFIELD, Kentucky
                                     Chairman
    PETE OLSON, Texas                    BOBBY L. RUSH, Illinois
      Vice Chairman                        Ranking Member
    JOHN SHIMKUS, Illinois               JERRY McNERNEY, California
    JOSEPH R. PITTS, Pennsylvania        PAUL TONKO, New York
    ROBERT E. LATTA, Ohio                ELIOT L. ENGEL, New York
    GREGG HARPER, Vice Chairman          GENE GREEN, Texas
    DAVID B. McKINLEY, West Virginia     LOIS CAPPS, California
    MIKE POMPEO, Kansas                  MICHAEL F. DOYLE, Pennsylvania
    ADAM KINZINGER, Illinois             KATHY CASTOR, Florida
    H. MORGAN GRIFFITH, Virginia         JOHN P. SARBANES, Maryland
    BILL JOHNSON, Ohio                   PETER WELCH, Vermont
    BILLY LONG, Missouri                 JOHN A. YARMUTH, Kentucky
    RENEE L. ELLMERS, North Carolina     DAVID LOEBSACK, Iowa
    BILL FLORES, Texas                   FRANK PALLONE, Jr., New Jersey (ex
    MARKWAYNE MULLIN, Oklahoma               officio)
    RICHARD HUDSON, North Carolina
    JOE BARTON, Texas
    FRED UPTON, Michigan (ex officio)

                                      (ii)

                                 C O N T E N T S

                                  ----------
                                                                       Page
    Hon. Ed Whitfield, a Representative in Congress from the
      Commonwealth of Kentucky, opening statement....................     1
        Prepared statement...........................................     2
    Hon. Bobby L. Rush, a Representative in Congress from the State
      of Illinois, opening statement.................................     3
    Hon. Peter Welch, a Representative in Congress from the State of
      Vermont, opening statement.....................................     4

                                   Witnesses

    Gary Connett, Director, Demand-Side Management and Member
      Services, Great River Energy...................................     5
        Prepared statement...........................................     8
    Steven Koep, National Utility Sales Manager, Vaughan Thermal
      Corporation....................................................    15
        Prepared statement...........................................    17
    Steven Nadel, Executive Director, American Council for an Energy-
      Efficient Economy..............................................    23
        Prepared statement...........................................    25
    Robin Roy, Director, Building Energy Efficiency and Clean Energy
      Strategy, Natural Resources Defense Council....................    34
        Prepared statement...........................................    36

                               Submitted Material

    H.R. 906, a Bill to modify the efficiency standards for grid-
      enabled water heaters, submitted by Mr. Whitfield..............    52

     H.R. 906, A BILL TO MODIFY THE EFFICIENCY STANDARDS FOR GRID-ENABLED
                                 WATER HEATERS

                                  ----------

                            THURSDAY, MARCH 19, 2015

                      House of Representatives,
                      Subcommittee on Energy and Power,
                              Committee on Energy and Commerce,
                                                        Washington, DC.
        The subcommittee met, pursuant to call, at 10:03 a.m., in
    room 2322 of the Rayburn House Office Building, Hon. Ed
    Whitfield (chairman of the subcommittee) presiding.
        Members present: Representatives Whitfield, Shimkus, Latta,
    McKinley, Griffith, Flores, Mullin, Hudson, Rush, Tonko, Green,
    Welch, Loebsack, and Pallone (ex officio).
        Staff present: Nick Abraham, Legislative Clerk; Charlotte
    Baker, Deputy Communications Director; Leighton Brown, Press
    Assistant; Allison Busbee, Policy Coordinator, Energy and
    Power; Patrick Currier, Counsel, Energy and Power; Chris
    Sarley, Policy Coordinator, Environment and the Economy;
    Michael Goo, Democratic Senior Counsel, Energy and Environment;
    Caitlin Haberman, Democratic Professional Staff Member; and
    John Marshall, Democratic Policy Coordinator.

      OPENING STATEMENT OF HON. ED WHITFIELD, A REPRESENTATIVE IN
               CONGRESS FROM THE COMMONWEALTH OF KENTUCKY

        Mr. Whitfield. I would like to call the hearing to order
    this morning. I know we are going to have some votes. This is a
    very important hearing, and we certainly want to give everyone
    an opportunity to give their opening statement and ask
    questions.
        Today's hearing is about H.R. 906, a bill to modify the
    efficiency standards for grid-enabled water heaters. Many of
    you may remember a singing group called Dire Straits, and they
    had this marvelous song, Money for Nothing and the chicks are
    free. And in the lyrics of that song they talk about moving and
    selling microwave ovens, refrigerators, and color TVs. And we
    know in today's world, you can't sell a microwave oven or a
    color TV or a refrigerator or anything else without the
    Government dictating what is in the product.
        So we find ourselves in a world where the Government is
    really micromanaging through regulations really everything in
    our society, whether we are talking about healthcare, the
    requirements for a community bank to make to a farmer in
    Kentucky, to make a loan. And now today--last March, I guess it
    was--the Department of Energy came out with a regulation about
    hot water heaters.
        So we are here today to discuss a bill that will bring
    regulatory relief to many electricity providers, manufacturers,
    and consumers across the country. There are approximately 250
    electric cooperatives in 34 States that utilize these large
    electric resistance water heaters in demand response programs
    to help with reliability and consumer costs during peak periods
    of energy use.
        As I said, the Department issued this new efficiency
    standard in March of 2010, and they are prohibiting the
    manufacture of water heaters that are 55 gallons or larger if
    they are electric resistance heaters, and they are mandating
    that they go to heat pump technology.
        You know, all of us here in Congress, we have groups come
    in all the time talking about the Government's control in what
    kind of fan motor you can have, what kind of light bulb you can
    have, whatever. This is one of those issues that I think just
    about every Member of Congress agrees that when you are
    interfering with demand response programs, it is
    counterproductive.
        So hopefully we can introduce this bill, and if people want
    to try to amend it or whatever, do regular order and try to
    bring some relief to the American consumer. I get really
    excited when I think about hot water heaters, and I would like
    to say more, but right now I am going to yield 1 minute to Mr.
    Latta of Ohio.
        [The prepared statement of Mr. Whitfield follows:]

                    Prepared statement of Hon. Ed Whitfield

        We are here today to discuss a bill that will bring
    regulatory relief to many electricity providers and
    manufacturers across the country. There are approximately 250
    electric cooperatives in 34 States that utilize large electric
    resistance water heaters in demand response programs to help
    with reliability and consumer costs during peak periods of
    energy use.
        In March, 2010, the Department of Energy issued new energy
    efficiency standards for large electric resistance water
    heaters that would in effect prohibit the manufacture of these
    water heaters that are 55 gallons or larger in favor of heat
    pump technology for water heaters of 55 gallons or larger.
        Many heat pump water heaters are not compatible with
    certain utility thermal energy storage and demand response
    programs that allow utilities to reduce or shift their load
    during certain periods of energy use.
        This legislation allows for the continued manufacture of
    large electric resistance water heaters above 75 gallons
    specifically for use in these energy saving programs.
        H.R. 906 is a bipartisan piece of legislation that has been
    voted on twice by the House and once by the Senate. I want to
    thank my colleagues on both sides of the committee-
    Representatives Welch, Latta, Loebsack, Cramer, and Doyle who
    have worked to bring regulatory relief through this bill.

        Mr. Latta. I appreciate the chairman for yielding, and you
    are absolutely right. We all love those hot water heaters when
    you get in there in the shower in the morning. But Mr.
    Chairman, thanks again for having this very important hearing
    today to discuss this very important legislation to modify the
    efficiency standards for grid-enabled hot water heaters. I am
    pleased to be a cosponsor of the legislation. I hope the
    committee can advance the legislation quickly as you said, and
    that there is great bipartisan support.
        The rural electric cooperatives are very important in my
    district. They provide power to agriculture and manufacturing
    operations that are important to the local, State, and national
    and global economy. In fact, I have seven rural electric co-ops
    in my district, and all seven use voluntary demand response
    programs to reduce peak demand, increase the use of renewable
    energy, and decrease costs to the consumer. This legislation
    permits the continued manufacturing of electric resistant hot
    water heaters above 75 gallons for use in thermal energy
    storage and demand response programs. Enabling the
    manufacturing of these water heaters is vital for the demand
    response programs. I look forward to today's testimony, Mr.
    Chairman, and I yield back. I appreciate it. Thank you.
        Mr. Whitfield. The gentleman yields back. At this time I
    would like to recognize the gentleman from Illinois, Mr. Rush,
    for his opening statement.

     OPENING STATEMENT OF HON. BOBBY L. RUSH, A REPRESENTATIVE IN
                  CONGRESS FROM THE STATE OF ILLINOIS

        Mr. Rush. Thank you, Mr. Chairman. I want to thank you for
    holding this hearing. Mr. Chairman, my first request is for
    unanimous consent. We would like to hear you sing that song
    that you mentioned.
        Mr. Whitfield. I object.
        Mr. Rush. Mr. Chairman, as you know, I have been
    unavoidably absent, and I want to thank my friend from
    California, Mr. McNerney--he is not here right now--for sitting
    in the chair for me during my absence, and I want to also thank
    you, Mr. Chairman, for holding today's hearing on this very
    important bill, H.R. 906. This is a straightforward bill that
    seeks to modify the Department of Energy's efficiency standards
    regarding low-capacity electric resistant water heaters in
    order to allow the continual manufacture and use of electric
    resistant water heaters above 75 gallons for use in thermal
    energy storage and demand response programs because as I
    understand it, Mr. Chairman, in 2010, energy efficiency
    standards issued by the Department under the Energy Policy and
    Conservation Act require nearly 200 percent efficiency for
    large-capacity electric resistant water heaters for those
    manufactured after April 16, 2015.
        Supporters of H.R. 906, such as National Rural Electric
    Cooperative Association, argue that the rule as drafted would
    effectively prohibit the continual manufacture of large-
    capacity electric resistant water heaters which would then have
    to be replaced by heat pumps that are not compatible with
    certain utility thermal energy storage and demand response
    programs.
        So, Mr. Chairman, as you can see, this is a very important
    hearing, and I look forward to hearing the testimony from the
    expert witnesses today. And with that, I yield back the balance
    of my time.
        Mr. Whitfield. The gentleman yields back.
        Mr. Rush. There is somebody that--
        Mr. Whitfield. I tell you what. If you all wouldn't mind, I
    will recognize you all for 5 minutes, and you can split it up
    the way you want to. Is that OK? OK. All right.
        Is there anyone on our side that would like to make any
    comments about this bill? OK. Then Mr. Welch, I will recognize
    you for 5 minutes.

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

        Mr. Welch. Well, I can't match your lyrics, but I can agree
    with everything you have said and my colleague, Mr. Latta. You
    know, the Department of Energy does really good stuff, and I
    actually think standards are a very important tool. But we also
    have to have it match what realistically can be done in order
    to get the benefit of demand response. And there are a lot of
    homes that have these water heaters that are going to benefit,
    and this is going to save folks money. So the regulation I
    think has to have as a goal the maximum deployment and the
    maximum energy efficiency. And I think that is what is uniting
    us in this effort here.
        I am like Congressman Latta. The local cooperatives are
    fantastic and really a lifeline for a lot of our citizens in
    rural areas. And homeowners are doing everything they can to
    try to save money on their bills. They need an opportunity.
    They know that less is more if they can save some money. And
    then when they have their cooperative working with them in this
    demand response that actually integrates this opportunity of
    savings with the technology that people actually have in their
    homes, let us take advantage of it.
        So this is great bipartisan legislation, and I am hopeful
    that we can get this done. And I appreciate, Mr. Chairman and
    Mr. Ranking Member, your cooperation on this in leading the
    committee. Thank you. I yield back.
        Mr. Whitfield. Did you want to yield to Mr. Loebsack or----
        Mr. Welch. I yield to Mr. Loebsack. Thank you.
        Mr. Loebsack. Thank you, Mr. Welch. Thank you, Mr. Chair.
    My wife often refers to me as what Second City used to call
    mainstream-challenged. I don't know if you know what I am
    talking about or not. That probably means that I really am
    mainstream-challenged if I am the only one who knows what I am
    talking about. But talking about water heaters I think puts me
    in the mainstream, and talking about Dire Straits really does--
    I would love to hear you sing, Mr. Chairman, but I would like
    to have Sting accompany you as he does on that song that you
    mentioned.
        But it is great to be here. It is really wonderful because
    this is a bipartisan effort, something that the American public
    and everyone in this room knows happens all too infrequently
    here in the U.S. Capitol here in Washington, DC. A problem was
    recognized, and a problem is going to get rectified with this
    legislation. And also on a bipartisan basis, we are here to
    really recognize the importance of these rural electric
    cooperatives as well. You know, they date back a long ways to
    the 1930s in Iowa certainly and about 15 percent of our
    population are served by these RECs now. And I visit as many of
    them as I possibly can. I have had meetings. They have let me
    hold meetings there, not just to go see what they have to do
    but so I can talk to other folks as well. But they get it. They
    understand how to service the population in these rural areas.
    And so their concerns I think need to be our concerns, and that
    is in large part why we have this legislation today.
        So I thank you, Mr. Chair, and thank all those folks on a
    bipartisan basis who joined together on this, and I do look
    forward to your testimony. Thank you. And I yield back to Mr.
    Welch.
        Mr. Whitfield. OK. They yield back. That concludes the
    opening statements. Now I have just been notified that we have
    two votes on the House floor right now, and they have already
    started, 10 minutes left in the first vote. So we are going to
    recess, and then when we come back, we really look forward to
    the testimony of you four gentlemen because you all are very
    much aware of the ramifications of this legislation, the impact
    of the regulation as well. So we look forward to that. Did you
    want to say anything? OK. So we will recess, and hopefully we
    will be back within about 15 or 20 minutes. So thank you all
    for your patience. I am sorry for the interruption, but we will
    be back as soon as we can.
        [Recess.]
        Mr. Whitfield. I would like to call the hearing back to
    order, and we do expect some of the other members to be here
    shortly. As I said, we have a great panel of witnesses. I want
    to thank all of you for coming, and I am just going to
    introduce you individually as you prepare to give your
    statement. So our first witness this morning is Gary Connett,
    who is the Director for Member Services and Demand-Side
    Management at the Great River Energy entity. So Mr. Connett,
    you are recognized for 5 minutes. And I would just ask all of
    you to pull the microphone up close enough so that we can hear
    you clearly. And thank you for being with us, Mr. Connett.

     STATEMENTS OF GARY CONNETT, DIRECTOR, DEMAND-SIDE MANAGEMENT
    AND MEMBER SERVICES, GREAT RIVER ENERGY; STEVEN KOEP, NATIONAL
       UTILITY SALES MANAGER, VAUGHN THERMAL CORPORATION; STEVEN
       NADEL, EXECUTIVE DIRECTOR, AMERICAN COUNCIL FOR AN ENERGY-
      EFFICIENT ECONOMY; AND ROBIN ROY, DIRECTOR, BUILDING ENERGY
    EFFICIENCY AND CLEAN ENERGY STRATEGY, NATURAL RESOURCES DEFENSE
                                COUNCIL

                       STATEMENT OF GARY CONNETT

        Mr. Connett. Thank you. Chairman Whitfield and members of
    the subcommittee, thank you for inviting me to testify today on
    legislation to protect grid-enabled water heaters.
        You mentioned my name. My name is Gary Connett, Director of
    Demand-Side Management at Great River Energy, a generation and
    transmission cooperative that serves 28 member retail
    distribution cooperatives located in Minnesota and Northwestern
    Wisconsin. And I, by the way, am one of these people that
    actually has one of these water heaters that we are talking
    about today. I want to thank the subcommittee for addressing
    this important and timely issue. Large-capacity electric
    resistance water heaters are essential demand response tools
    for electric cooperatives. Immediate action is needed to
    mitigate the impacts of a 2010 Department of Energy efficiency
    rule and help maintain our ability to use those water heaters
    in voluntary demand response programs.
        The DOE rule which goes into effect on April 16, as you
    mentioned, effectively bans the manufacture of electric
    resistance water heaters with this storage capacity of over 55
    gallons. As manufacturers prepare to shut down production
    lines, this widely supported legislation is urgently needed.
        The electric industry is searching for a low-cost battery
    to store electricity. At Great River Energy, we think we have
    it. It is in the basements of nearly 100,000 homes in
    Minnesota. It charges each night and discharges every day in
    the form of hot water. It does this night after night, year
    after year, storing and discharging over 1,000 megawatt hours
    every day. I would argue that it might be the largest battery
    in the upper Midwest. This battery consists precisely of the
    same water heaters that the DOE wants to ban.
        Through demand response programs offered by electric
    cooperatives, these super-insulated, high-efficiency water
    heaters store low-cost off-peak energy which is available in
    the nighttime hours. We store it in the form of hot water. They
    allow for the better utilization of renewable energy and more
    efficient operation of the electric grid. More importantly,
    water heaters play an important role in cooperatives' efforts
    to provide its member-owners with safe, reliable, and
    affordable electric energy.
        Even when not tied to renewable energy, cooperatives across
    the country use these water heaters to reduce demand for
    electricity during peak hours which would otherwise be served
    by additional and less efficient electric generators. Today
    over 250 electric cooperatives across the country are engaged
    in voluntary demand response programs using large-capacity
    electric-resistance water heaters.
        They are one of the best tools cooperatives have for
    integrating renewable energy and encouraging demand response
    and improving system reliability.
        So on April 16 a new efficiency standard will take effect.
    This standard will require all large-capacity electric water
    heaters to operate at about 200 percent efficiency, a level
    that only heat-pump water heaters can achieve. While heat pump
    water heaters are energy efficient, they don't work so well
    with utility demand response programs and they don't work so
    well in cold climates, such as Minnesota.
        The DOE, despite its good intentions, was unaware of the
    impact that its rule would have on utilities' demand response
    programs. However, due to regulatory hurdles, the DOE has not
    been able to resolve the issue.
        In a great cooperative fashion, the National Rural Electric
    Cooperative Association worked with a large stakeholder group
    to come up with a legislative solution that will not only help
    protect these water heaters but will also advance water heater
    technology by establishing criteria for grid-enabled water
    heaters. The widespread stakeholder support for this solution
    should make it an easy decision to pass this urgent legislation
    immediately.
        H.R. 906 doesn't repeal the DOE standard but rather permits
    the continued manufacture of large capacity water heaters above
    75 gallons for use in demand response programs. The legislation
    includes language to prevent these water heaters from entering
    the market unless they are used in utility demand response
    programs.
        As the subcommittee is aware, the consensus legislation has
    been incorporated into numerous pieces of energy efficiency
    legislation in both the House and the Senate over the past 2
    years. Last March the House passed H.R. 2126, the Energy
    Efficiency Improvement Act, by an overwhelming vote of 375 to
    36. Three of the four titles of H.R. 2126 were recently
    attached to S. 1, a bill to approve the Keystone pipeline, a
    bill that passed both the House and Senate in this Congress but
    was vetoed for reasons unrelated to the water heater title.
        In summary, H.R. 906 is a good bill. It fixes things to
    everyone's liking. On behalf of Great River Energy and the
    other cooperatives across the Nation who face the threat to
    this new DOE standard, I want to thank Chairman Whitfield and
    Representative Welch as well as Representatives Latta,
    Loebsack, Cramer, and Doyle for their leadership on the current
    legislation and persistence in seeing it through. Thank you.
        [The prepared statement of Mr. Connett follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Whitfield. Mr. Connett, thank you very much for your
    statement. At this time, I would like to recognize Steven Koep
    who is the Utility Sales Manager at the Vaughn Thermal
    Corporation and the Vaughn Electric Water Heaters. Thank you
    very much for being with us this morning, and we look forward
    to your 5 minutes of testimony.

                        STATEMENT OF STEVEN KOEP

        Mr. Koep. Good morning and thank you.
        Mr. Whitfield. And if you wouldn't mind turning it on and
    get it up closer so that we can hear you?
        Mr. Koep. OK. Am I coming through?
        Mr. Whitfield. Yes, sir.
        Mr. Koep. Thank you.
        Mr. Whitfield. Thanks.
        Mr. Koep. Good morning and thank you. Chairman Whitfield,
    Ranking Member Rush, members of the subcommittee, thank you for
    inviting me to today. My name is Steve Koep. I am the National
    Utility Sales Manager at Vaughn Thermal Corporation. We
    manufacture electric water heaters in Salisbury, Massachusetts.
    We also manufacture a wide range of water heating and
    electronic control technologies. I would like to thank the
    subcommittee for addressing this important issue and for
    inviting me here today.
        Vaughn has been in the business of manufacturing high-
    efficiency, long-life electric water heaters for electric
    utility programs for over 50 years. We are an active member of
    AHRI, and as such, I am here to represent Vaughn but also the
    other water heater manufacturers who support the legislative
    effort. That would be A.O. Smith and Rheem and General Electric
    who are all part of that stakeholder group.
        Following the general outline of my written testimony, I
    would like to touch on some pertinent questions and topics.
        First is why the urgency? It has been almost 5 years since
    the final rule was announced, and it has been 2 years since DOE
    held a meeting on the proposed rulemaking to establish a waiver
    process to address the concerns of the electric utility
    industry. As we have heard, the DOE rule will most certainly
    cause the erosion of existing demand response resources,
    resources that by DOE's own admission the country needs and the
    country wants.
        Secondly, why are we all so concerned about this fraction
    of a fraction of the electric water heating market? While
    large-capacity residential electric resistance water heaters
    make up less than 5 percent of the electric water heating
    market, they are more than 90 percent of what gets installed in
    utility demand response programs. That is why they are so
    important.
        As you know, the legislation contains the provision for a
    grid-enabled product classification. I feel it is important to
    point out that utilities, manufacturers, and public policy
    organizations, all of those represented here today, all support
    this legislation. This is as close as we can get to unanimous
    support on any utility industry issue.
        In addition, there is an activation key provision within
    the legislation that will equate to a very low likelihood of
    leakage for these products through traditional wholesale and
    retail channels. In previous presentations on this issue, I
    have used the phrase, ``change the technology or change the
    source energy.'' It is fair to characterize the DOE approach as
    change the technology since efficiency gains will lead to
    reduced carbon emissions. But it is also true that changing the
    source energy and maximizing of the renewable input to these
    appliances reduces carbon as much or more. We need to pursue
    both strategies simultaneously. It needs to be ``and,'' not
    ``or.'' We need to change the technology and change the source
    energy, and by doing so we have the unique opportunity to
    double the carbon reduction potential in the electric water
    heating market. That is exciting.
        I think it is fair to look at this as a renewable storage
    opportunity. Again, a phrase that I have used: ``What happens
    when the forgotten appliance meets the Internet of things? You
    get the grid-enabled water heater.'' High-speed, two-way
    communication to this appliance and aggregation on the scale of
    the Great River Energy Program, which means we have the
    potential for the largest aggregated interactive thermal
    battery probably on the face of the earth.
        I am sure you are all familiar with the issues of curtailed
    wind and spilled hydro. In this country we have excess low-cost
    and no-cost renewable energy that goes for the asking at
    certain times of the year and certain times of the day. So
    please remember that electric thermal storage is the low-
    hanging fruit when it comes to renewable storage and electric
    storage technologies. ETS storage is \1/10\ the cost of
    batteries or flywheels.
        In summary I just want to touch briefly on the market
    potential and the potential market impact of grid-enabled water
    heaters. Within this country there are over 50 million
    installed electric water heaters in households across the
    country. Roughly 4 million of those are replaced annually. That
    money is being spent, that investment is being made on an
    annual basis. If we could divert or convert 10 percent of the
    annual turnover to grid-enabled water heaters, that would be
    400,000 water heaters a year. That would be like implementing
    four Great River Energy Programs on an annual basis. But you
    know, the potential here is very large. And as I said, the
    investment is being made. We could do this for just the
    incremental cost of the controls. The tanks are being
    manufactured and sold and installed every year to replace the
    water heaters that are failing.
        Historically, my personal experience is telling me that
    timing is everything. So if doing the wrong thing at the right
    time or any other time isn't going to get us where we want to
    go, even the right thing at the wrong time doesn't help. We
    need to do the right thing at the right time, and this
    legislation is the right thing at the right time. So I want to
    thank you for the opportunity to visit with you today, and I
    welcome any questions you may have.
        [The prepared statement of Mr. Koep follows:]

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        Mr. Whitfield. Thanks very much, Mr. Koep. At this time I
    would like to introduce Mr. Steve Nadel who is the Executive
    Director of the American Council for an Energy-Efficient
    Economy. Thanks for being with us, and you are recognized for 5
    minutes.

                       STATEMENT OF STEVEN NADEL

        Mr. Nadel. OK. Thank you, Mr. Chairman, Mr. Ranking Member,
    the members of the committee. As you noted, I am with the
    American Council for an Energy-Efficient Economy. We are a non-
    profit research organization that works on technologies,
    programs, and policies to advance energy efficiency. We have
    been doing this for 35 years now, and over this period,
    substantial progress has been made on energy efficiency, due in
    part to strong bipartisan support from Congress. As you, Mr.
    Chairman, stated at a previous hearing I testified at, no one
    is in favor of energy waste.
        I am here today like the other witnesses to testify in
    support of H.R. 906. Water heating is a major use of home
    energy use, second only to space heating. For homes with
    electric water heating, the water heater is generally the
    single largest electricity user. Due to the high cost of water
    heaters, they were included in part of Federal energy
    efficiency standards passed by Congress in 1987 and signed by
    President Reagan. Congress set the initial standards, and DOE
    periodically revises these standards based on criteria that
    Congress established.
        A 2012 analysis estimates that the standards already
    enacted on water heaters as well as other products are saving
    consumers and businesses in the United States a cumulative
    trillion dollars. So these are enormous savings, not million,
    not billion, trillion.
        In 2010, as we have already heard, after a multistep
    rulemaking process, DOE established new efficiency standards
    for water heaters that take effect next month. The standards
    apply at the point of manufacture and do not affect water
    heaters already in houses or in the sales distribution system.
    The new standards require moderate efficiency improvements in
    water heaters with a storage capacity of 55 gallons or less but
    much larger efficiency improvements in both electric and gas
    water heaters over 55 gallons. I would note that 50 gallons is
    the average electric water heater. So these only apply above
    those stronger standards, above that.
        Households with very large water heaters use more hot water
    on average, making higher efficiency levels cost effective.
    When DOE established the standards, it estimated that the
    average household with a very large electric water heater would
    save over $600 over the life cycle of their high efficiency
    unit.
        Now, as we have heard, many electric cooperatives as well
    as some other utilities have long sponsored programs to use
    water heaters to heat and store hot water during off-peak
    periods, such as overnight, permitting lower energy use during
    peak periods. These programs help utilities manage their
    systems by reducing peak loads. A timer or radio control or
    other type of communication device controls the water heaters
    to generally stop them from operating during peak periods.
        After DOE issued the rule in 2010, some utilities realized
    that the very large electric-resistance water heaters they
    sometimes use in demand response and thermal storage programs
    would no longer be manufactured. There are heat pump water
    heaters, but these have not yet been fully evaluated and field
    tested for use in demand response and thermal storage programs.
        To address these concerns, as we have all heard, many
    organizations negotiated the language in H.R. 906, and we very
    much appreciate the chairman and the other cosponsors. It
    carefully balances opportunities for saving energy via high-
    efficiency water heaters with the benefits to utilities of
    using large electric water heaters and demand response and
    thermal storage programs. It allows for the continued
    manufacture of these large electric resistance water heaters
    with a variety of provisions to limit their use to homes
    participating in demand response and thermal storage programs.
    The bill also provides guidance so that DOE will carefully
    consider both energy efficiency and demand response
    opportunities in future rulemakings.
        So, as I said, we do support this bill. We also recommend
    that this committee consider other energy efficiency bills. We
    hope that this is just the beginning of what we think could be
    a very productive Congress in terms of energy efficiency. So
    with that, I look forward to your questions, and thank you for
    the opportunity to testify.
        [The prepared statement of Mr. Nadel follows:]

      [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Whitfield. Thank you very much, Mr. Nadel, for that
    statement. At this time I would like to recognize Mr. Robin Roy
    who is the Director for Building Energy Efficiency and Clean
    Energy Strategy at the Natural Resources Defense Council. Thank
    you very much for being with us, and you are recognized for 5
    minutes.

                         STATEMENT OF ROBIN ROY

        Mr. Roy. Thank you, Mr. Chairman, and members of the
    subcommittee. Thank you for the opportunity to share the views
    of the Natural Resources Defense Council on grid-enabled water
    heaters which we believe present a promising opportunity for a
    more efficient, more economic, and ultimately lower emissions
    electricity system overall. We really appreciate your
    leadership on this issue and your sponsorship of this bill.
        In brief, NRDC supports H.R. 906 to allow continued
    production, use, and evaluation of grid-enabled water heaters.
    One of NRDC's top institutional priorities is creating and
    facilitating a clean energy future, and to that end we have
    long supported and advocated for greater energy efficiency,
    greater productivity, and using Federal energy appliance
    standards as one tool in the portfolio for getting there.
        Given our longstanding support for stronger energy
    efficiency, it may seem surprising that we support this
    legislation, which allows for continued production of electric
    resistance water heaters that may use double or more the energy
    of a heat pump water heater that would otherwise be required.
    But there is a good reason. We explored the opportunities. We
    talked to our colleagues here and many others in manufacturing
    and among utilities, and we found the case persuasive. We
    worked with these colleagues from manufacturing, utilities,
    other efficiency and environmental organizations, and we came
    up with an approach that delivers on the opportunity for
    efficiency savings and delivers on the opportunity for grid-
    interactive water heating, demand response and ancillary
    services. It doesn't undermine the opportunities from the
    efficiency standards. This language is a product of that work.
        I have to say as a bit of an aside, sometimes when a lot of
    folks get together, it is hard work to come up with something
    that we can all agree on. We come with different perspectives.
    And sometimes that goes into an abyss. We never hear anything
    from it again. And it is so pleasing to see something like H.R.
    906. I really do appreciate the effort. We see the result of
    our hard work, and it kind of encourages us at NRDC to do more
    of that, reaching out to other parties, and I really do
    appreciate that. I know I burned some time on that, but it is
    really important.
        The key opportunity here is, as my colleagues have already
    expressed, is the achievement of benefits at a system level.
    Federal energy appliance standards focus on the component
    level. We recognize the difference. We are looking towards
    having while maybe more energy use, having that energy use at
    more attractive times, lower cost, lower emissions, overall
    just a much better outcome. We are very keen on that. We
    recognize that that is the opportunity that is presented by
    this water heater energy storage, this large battery as my
    colleagues have said. We are very keen on it.
        One of the key elements of H.R. 906 that we are so
    delighted by is that it allows for, really encourages, much
    more analysis of consumer and environmental impacts from grid-
    enabled water heaters. It is built right in. There is so much
    to be learned about the effectiveness of these water heaters.
    Actually, there is so much to be learned about not just grid-
    enabled water heaters but about heat pump water heaters and
    what might be done to optimize our energy use delivering the
    greatest consumer and environmental outcomes.
        We are at a really early stage analytically. It is
    inherently complex. There are a lot of other water heater
    technologies existing and emerging. Conditions in Mr. Connett's
    area are different from conditions in the Pacific Northwest,
    and those are different from those in the South. Getting
    analysis right is not always that easy, but it is really worth
    doing for water heaters. They are 15 percent or more of
    residential energy use. They are big. If we get this one right,
    even small improvements can deliver great consumer and
    environmental outcomes.
        One issue that is often on some people's minds is whether
    this grid-enabled water heater legislation will pose a problem
    for heat pump water heaters. We don't think that is the case.
    We think that grid-enabled water heaters, this legislation,
    focuses on a fairly small market segment where heat pump water
    heaters may not be most well-suited and in fact, the attention
    to water heating, the further analysis that will come from
    this, may actually end up delivering much more advance in all
    sorts of water heater technologies, both in development of
    technologies and understanding them and deploying them through
    good utility programs and consumer choices.
        I think that is really pretty much all I want to say. I can
    talk a little bit more about our long and abiding love for
    Federal energy standards as one of the tools in the portfolio
    that give us a more efficient, economic future, but I think
    that is already on the record pretty well. I appreciate the
    opportunity.
        [The prepared statement of Mr. Roy follows:]

       [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Whitfield. Mr. Roy, thanks very much, and thanks for
    being here. At this time we will ask questions, and I would
    like to recognize myself for 5 minutes.
        First of all, I was not aware that hot water heaters were
    the largest users of electricity in most homes, and I think
    someone did say that. But Mr. Koep, I think you are involved in
    the manufacture of water heaters, and let us say we are not
    successful in adopting 906. Would a heat pump water heater that
    would be manufactured under the new regulation, would that be
    more expensive than the heat resistant water heater that is
    currently being used?
        Mr. Koep. Chairman, thank you for the question. Yes, it
    would. Large-capacity heat pump water heaters in general will
    be about twice the cost of a large-capacity electric resistance
    water heater. You add the compressor cost and the installation
    cost, and it is more expensive by about a factor of two. So it
    does have a cost impact. The question has also been asked
    whether heat pump water heaters can be grid-enabled and grid
    interactive. The technology is taking us in that direction, but
    you know, in the short term, we are just not there yet. There
    is important work to do in that area, but right now the grid-
    enabled large-capacity units are the tools that we need.
        Mr. Whitfield. So what would be, if you double the cost,
    what kind of costs are we talking about for a large hot water
    heater?
        Mr. Koep. Well, an 80-gallon heat pump water heater is
    going to be in the $1,500 range----
        Mr. Whitfield. $1,500?
        Mr. Koep [continuing]. At retail.
        Mr. Whitfield. Yes.
        Mr. Koep. I think that an 80-gallon is the small end of the
    range. Generally with large-capacity units for thermal storage,
    you will see 100-gallon and we are gearing up to build 120-
    gallon water heaters. So we are moving in that direction.
        Mr. Whitfield. Well, without getting too technical and just
    for laymen's understanding, why is it that a heat-resistant
    water heater is more compatible with demand response than--heat
    pump would be less compatible than the heat resistant?
        Mr. Koep. Well, it has to do with the ability to control
    the wattage of the element. You know, the finer element control
    enables a lot of the ancillary services in terms of frequency
    control and other things that the independent system operators
    are willing to compensate for. So to the extent that we can
    control those elements, we can provide these services.
        The heat pump water heater with the compressor, we can vary
    element wattage to the compressor. Turning a compressor on and
    off in short periods of time shortens compressor life. It is
    just not a real compatible technology for the fine level of
    control that we can achieve with elements.
        Mr. Whitfield. Right. And Mr. Connett, what do you think
    would be the overall impact for electric co-ops around the
    country if we are not successful in passing this legislation?
        Mr. Connett. Mr. Chair, a lot of the electric cooperatives
    have a fair amount of electric water heaters in their territory
    today. We might call those uncontrolled water heaters. A lot of
    the co-ops' service territory doesn't have natural gas. It has
    propane as an option, and in many of those areas, the choice
    for heating water would be an electric water heater. It is less
    expensive to operate than a propane one.
        Mr. Whitfield. OK.
        Mr. Connett. And so if those were all to go in without any
    control capability, we are going to add to our peak demands,
    and if we start to add to our peak demands, that means
    additional cost to our consumers. It means additional
    emissions, additional fuel costs, additional power plants
    potentially. And so having this ability to have a water heater
    that is a large volume water heater that allows us to take that
    entire electric load and shift it to an off-peak period is good
    for our memberships and good for our co-ops.
        Mr. Whitfield. OK. Well, I want to thank all of the groups
    that work together. You know, we have a lot of issues up here
    in which there are strong philosophical differences, and the
    only way we are going to move forward is for groups to
    recognize, including those on my side, we can't always get
    everything we want. And that is why the regular order is so
    important. So thank you all for working together on this, and
    hopefully we can pass this legislation.
        And at this time I would like to yield 5 minutes to the
    gentleman from Illinois.
        Mr. Rush. Thank you, Mr. Chairman. Mr. Nadel, in the
    initial legislative effort to address this grid-enabled water
    heater issue, you actually testified before the Senate Energy
    and Resources Committee in June of last year, June of 2013
    rather, expressing your organization's concern over the
    legislative language proposed at the time. Would you assert
    ``allow widespread use of less efficient water heaters and
    application without off-peak water heating or load
    management''? Since that time your organization has been--at
    the negotiating table and actually helped draft the new
    language contained in this bill. Can you speak to your
    organization's involvement and investment in this new language
    and have your fears been addressed in the current bill that we
    have before us today?
        Mr. Nadel. Yes, I thank you for bringing that up. Yes, our
    concerns have been addressed. In fact, after that hearing some
    of the people here in this room came up to me and said can we
    talk? Can we try to work something out? The bill originally
    basically just allowed unlimited sales of these water heaters
    for these applications. We have, as you have heard in the
    testimony here, the bill has a number of provisions to
    effectively limit its use to those households where there is a
    demand response or thermal storage program. With those
    limitations and those protections, and I describe them in more
    detail in my written testimony, we are very comfortable with
    this bill. It allows demand response programs but doesn't allow
    widespread leakage.
        Mr. Rush. Thank you. Mr. Roy, are you convinced that this
    bill will have a positive impact on both consumers and the
    environment by allowing the use of grid-enabled water heaters?
        Mr. Roy. Yes, I am, sir. I believe the light that will be
    shown on this opportunity for grid-enabled water heaters, the
    analysis that will come with it will focus a lot of attention.
    So we will get benefits not just directly from the application
    of grid-enabled water heaters as they are called for here, but
    I think we will have more utilities, more demand response
    service providers and aggregators for utilities. I see that we
    have a representative from a Pennsylvania, a PJM, transmission
    organization in the room here today. We will have much more
    attention on the broader set of opportunities that are
    available in water heating.
        I think the direct and spillover effects both can be great
    from this. I know my organization will be working hard with all
    these parties to see what can we do now that we have something
    that is powerful and productive in this space? How can we
    really work forward and help each other with the programs, help
    deliver better consumer and environmental outcomes?
        Mr. Rush. Thank you. Let me ask across the table. Is there
    anyone who has any concerns with this bill in thinking that it
    may have unintended consequences that we have not covered
    today? Does anyone of you all think that there is anything that
    we haven't focused on, that we haven't covered, that may have
    an unintended consequence that we should be aware of?
        Mr. Roy. I think we always find some unintended
    consequences in most things we do, either as actions or through
    inaction. What is important is that we are aware of it, are
    responsive, and we work forward.
        What we have here is an industry segment and a degree of
    attention that I think will help us all address any unintended
    consequences in a timely fashion and deal with those and move
    onto the great opportunities that are available.
        Mr. Rush. Mr. Chairman, with that I yield back the balance
    of my time.
        Mr. Whitfield. The gentleman yields back. At this time I
    recognize the gentleman from West Virginia, Mr. McKinley, for 5
    minutes.
        Mr. McKinley. Thank you, Mr. Chairman, and thank you for
    having this hearing. I am curious back on the comment that I
    think it was you, Mr. Koep, said about the heat pump water
    heater at around the cost of $1,500. Also labor would be a
    little higher, too, wouldn't it, installing that?
        Mr. Koep. Yes. Installation costs with heat pump water
    heaters are generally higher than electric resistance.
        Mr. McKinley. And so building on that, what kind of
    payback, what should someone expect to pay back on that?
        Mr. Koep. On a heat pump water heater in general?
        Mr. McKinley. Yes, 10 years, 15 years?
        Mr. Koep. I think in the marketplace today there are a lot
    of incentives for heat pump water heaters, and generally heat
    pump water heaters are operating at twice the efficiency of
    electric resistance. So most of our experience is with 50-
    gallon heat pump water heaters replacing standard 50-gallon
    electric resistance. And I think payback is less than 5 years.
        Mr. McKinley. Even in a place other than--in West Virginia,
    we are probably paying around 7 cents a kilowatt hour, but in
    New York it is 19, 20 cents a kilowatt hour. So are you saying
    generally speaking across the country or are you talking----
        Mr. Koep. Well, generally, I am saying that there are--as
    an example in Iowa, there are a number of cooperatives that
    have $500 rebates on heat pump water heaters. So they are
    buying down the cost of this technology, and that is what makes
    the payback period more attractive. In the Pacific Northwest we
    have seen $900 rebates on heat pump water heaters. But that has
    helped to make them more cost effective and reduce the payback
    time. But the fact remains that, you know, trying to control a
    heat pump water heater for grid-enabled functionality, that has
    not been worked out yet.
        Mr. McKinley. OK.
        Mr. Koep. And that is the major difficulty.
        Mr. McKinley. Mr. Nadel?
        Mr. Nadel. Yes. Department of Energy did examine the exact
    question you ask, and they estimate the average simple payback
    is 6 years for a heat pump water heater. That is the average.
    If it is more expensive electricity, it will be less. If it is
    only 7 cents a kilowatt hour, it will be more.
        Mr. McKinley. Yes.
        Mr. Nadel. I think that is based on about 11 cents as I
    recall, average.
        Mr. McKinley. Mr. Koep, back on, you know, we received some
    promotion--my former firm, we had an architectural engineering
    practice, and so we were always being promoted to put those in-
    line electric units so that weren't storing water. We never
    used those, but how inefficient are they to be able to have
    instant hot water instead of having a 50- or 100-gallon tank
    sitting there trying to maintain a low temp or a high
    temperature for a period of time? How inefficient is it to have
    just simply the in-line augmented?
        Mr. Koep. The in-line or instantaneous electric water
    heating technology at an efficiency level is very high in terms
    of converting kilowatt hours, you know, to BTUs. But the
    general consensus is that whole-house applications of
    instantaneous electric or electric tankless, they cause
    problems in terms of transformer sizing, demand charges for the
    home or the business, impact for the cooperative or the
    utility. Most electric tankless technologies that I refer to as
    point-of-use are the ones who have the best application because
    you can run one line to one location and put a point-of-use
    water heater in for a lavatory or for hand-washing or something
    like that. But whole-house applications have been problematic.
        Mr. McKinley. OK. The last question more is about
    efficiency. What should we be anticipating in the industry,
    should be the next move in efficiency, whether it is hot water
    heaters or other appliances that we have in our households?
    What is the next generation of efficiency we should be
    anticipating?
        Mr. Koep. Well, I think heat pump water heater technologies
    will continue to gain in efficiency. In 5 years, you know, they
    have moved from 2.0 to somewhere over 3.0 in terms of
    performance factor meaning that for every kilowatt hour you
    provide to that compressor, you can move 3 kilowatt hours'
    worth of heat. So I would say that is probably going to be the
    major improvement. I don't see a new major technology on the
    horizon. I think that, you know, the introduction of water
    heaters to the Internet of things and high-speed,two-way
    communication to the appliance offer us multiple levels of
    efficiencies that we can explore. But in terms of raw
    technology, you know, it has taken us 20, 25, 30 years to get
    heat pump water heaters into the market.
        Mr. McKinley. Sure. Mr. Nadel, do you have a comment about
    that?
        Mr. Nadel. I totally agree with that. I'd just expand
    slightly for gas water heaters. We have condensing water
    heaters. During the break a number of us were talking about
    opportunities to meld the water heater with the space heating
    and cooling systems, combination appliances. So this is
    something----
        Mr. McKinley. Eventually we have run out of our time, but
    condensing and non-condensing, I would like to have more
    discussion about that. Thank you.
        Mr. Whitfield. If you would meet Mr. McKinley right after
    the hearing to talk about that? At this time I would like to
    introduce and recognize the gentleman from New York, Mr. Tonko,
    for 5 minutes.
        Mr. Tonko. Thank you, Mr. Chair, and welcome to our
    panelists. Mr. Connett, what are your estimates for savings to
    the utility and to the customer, to consumers, achieved through
    the use of demand-response programs?
        Mr. Connett. Thank you. In terms of the consumers, we sell
    the energy that goes to these large-capacity water heaters. We
    call them off-peak water heaters if you will. We sell the
    energy to them at a fairly low price. And so they can heat
    their water for around $240 a year. And that compares to say
    propane. And propane is rather volatile, at least it is in
    Minnesota, or has been. And so sometimes propane for that same
    amount of water could be $500 or $600 or $700 cost. It would
    vary. In terms of natural gas, it would be competitive with
    natural gas if you could heat your water for $240 we will do
    the same with an off-peak water heater.
        Mr. Tonko. And the savings to the utility?
        Mr. Connett. Those are savings to the consumer. In terms of
    the utility, it has to go back to this notion that without
    these programs, we would have to buy high-cost energy in the
    market. And the notion is is that we have a peak at every
    utility every day, and that peak for a lot of co-ops occurs at
    suppertime. That is when we are all home and we are having
    dinner. And by the way, that is usually the largest time of hot
    water consumption. And so if all these water heaters were not
    able to--if we weren't able to control them, they are adding to
    our peaks and we would have to build peaking plants to serve
    that load or buy high-cost energy. The cost to build the
    peaking plant for 100 megawatts is about $80 million. It gets
    fairly expensive to serve that peak power that we can avoid.
        Mr. Tonko. I hear you. Thank you. What percentage of the
    demand-response programs used by our rural co-ops are due to
    the use of electric thermal storage devices?
        Mr. Connett. You know, I would say it this way, that
    premier program for the co-ops, demand-side management programs
    is water heating.
        Mr. Tonko. OK.
        Mr. Connett. It is by far the most successful and the most
    widespread program that we have.
        Mr. Tonko. And in that regard, what proportion of your
    customers participate in the demand-response programs using
    electric thermal storage?
        Mr. Connett. Yes, I can speak to Great River Energy. And
    about 20 percent of our membership has a demand-response water
    heater.
        Mr. Tonko. And just as to how the consumers benefit from
    the use of water heaters that are incorporated into a demand-
    response program?
        Mr. Connett. Again, for the consumer, it is cost savings.
    They are not going to spend as much to heat hot water as they
    would otherwise.
        Mr. Tonko. OK. And obviously the ancillary piece of the
    avoidance of peak capacity plants, that would have to be
    addressed.
        For Mr. Nadel and Mr. Roy, a question about water heaters
    and the fact that they are replaced about every 15 years, often
    when they have failed. So consumers often need to make quick
    choices about replacement. I have a few questions related to
    consumer purchasing. Will water heaters exempted from the
    standard be identified as such to the consumer?
        Mr. Roy. Yes, there is a clear requirement for labeling
    that is permanent, water resistant. They will know for a long
    time. Also importantly, they won't be that readily available
    unless they are part of a utility program because there is a
    lock-and-key arrangement required by the legislation.
        Mr. Tonko. And then for either of you, will the consumer
    know that these products will not deliver more than 50 percent
    of hot water if they are not part of a utility-demand response
    program?
        Mr. Nadel. The warning label on it says they will only
    operate properly. I don't think it gives the exact details, but
    it does say they will not operate properly unless enrolled in a
    program and enabled by a technician associated with that
    program.
        Mr. Tonko. But it doesn't mention a percentage? It just----
        Mr. Nadel. No.
        Mr. Tonko. OK. And then consumers do use the yellow energy
    usage information on appliances to make purchasing decisions.
    Do these labels need to reflect the dual nature of the energy
    usage of these systems?
        Mr. Nadel. On the labels, they will have to talk about
    their current--the energy use of these products under this
    typical test procedure, and they give a range of comparability.
    I have to look at the exact details of the Federal Trade
    Commission rules to say what will be on the range of
    comparability for these particular types of water heaters.
        Mr. Tonko. And if they are installed and are not part of a
    demand-response system, aren't they less efficient than the
    identical appliance installed as part of a demand-response
    program?
        Mr. Nadel. Yes, they are not as efficient, so they do use
    more power that is compensated for the ability to control them.
    But if you somehow defeat the protections which are quite
    substantial, yes, you will get higher energy use and you won't
    get the benefit. But we I think very carefully constructed it
    to minimize the chances of leakage.
        Mr. Tonko. OK. Gentlemen, I thank you. With that, Mr.
    Chairman, my time is----
        Mr. Whitfield. OK. Did you want to say anything, Mr. Koep?
    You look like you were----
        Mr. Koep. No, I don't have anything to add at this time.
    Thank you.
        Mr. Whitfield. OK. At this time I would like to recognize
    the gentleman from Virginia, Mr. Griffith, for 5 minutes.
        Mr. Griffith. Thank you very much, Mr. Chairman. I
    appreciate you all being here, and listening to your testimony
    today is making me think I should go ahead and get a new hot
    water heater because mine clearly is not going be nearly as
    efficient as what you all are talking about.
        I am concerned about some things. The gentleman just
    brought up the warning label. I do think that we probably need
    to take a look at that and see if we can make sure we let folks
    know that it will go to 50 percent of efficiency if it is
    tampered with, and the whole lock-and-key mechanism concerns me
    some. I will tell you that when this was a part of a Senate
    amendment to a House bill, I looked at it, and fortunately the
    penalties do not include incarceration for trying to get around
    the system by doing something to the machine. But it does
    include a fine penalty which causes me concern. It always makes
    me nervous when we are mandating things. And so I am trying to
    figure out--and I know most consumers will just, you know, this
    is what is available on the market. If something happens, their
    plumber tells them this is what you need to buy. They will buy
    that or they will go to the Home Depot and get something off
    the shelf. But if somebody really wants to have 100 gallons
    ready whenever they want it, what would keep them from buying
    two, 50-gallon hot water heaters under this program or this
    bill?
        Mr. Koep. Thank you for the question. There is nothing that
    stops a consumer from buying two smaller-capacity water
    heaters. There is nothing that prevents them from buying a
    commercial water heater and putting it into their residence.
        Mr. Griffith. Let me ask that question because I am trying
    to find answers, and anytime the Government is mandating stuff,
    it makes me nervous. So if I wanted to buy a commercial hot
    water heater, this wouldn't be a problem?
        Mr. Koep. No. This relates specifically to residential.
    This goes back to the DOE ruling which is specifically for
    residential----
        Mr. Griffith. But I could put a commercial hot water heater
    into my residence?
        Mr. Koep. My understanding, there is no law that prevents a
    homeowner from buying a commercial water heater, gas or
    electric, and putting it into their residence.
        Mr. Griffith. OK. Now, let me ask this because I know a lot
    of people will have this question, too. I read somewhere that
    if you have the heat pump type water heater and it is in an
    area that is normally heated, it may actually cool the air a
    little bit as well. Is that accurate?
        Mr. Koep. A heat pump water heater will cool and dehumidify
    the space that it resides in because it is pulling heat out of
    that space and putting it into the tank. There are some ducting
    options that are being developed for heat pump water heaters
    that would allow them to pull outside air in and expel, you
    know, cool air. You know, so the technology is evolving in that
    direction. But most of the technology that is on the market
    today does cool and dehumidify the space that it resides in.
        Mr. Griffith. OK. And so when you say that the unit would
    cost more if you had it say in the middle of your basement and
    you converted the basement or the house had a basement
    converted into a living space, you would have to spend some
    more money getting the outside air brought in so that you
    wouldn't cool your basement where perhaps your daughter has
    taken up residency? Just saying.
        Mr. Koep. Well--go ahead.
        Mr. Nadel. Yes. A good question. In fact, there was a study
    published just a few weeks ago in the Pacific Northwest looking
    at this issue. It found that yes, it does occur. It was
    relatively rare. As I recall, they found out across a sample of
    homes with heat pump water heaters in the Northwest relatively
    cold, instead of getting that co-efficient performance of two
    when you factor this in, it might be 1.9 or something.
        Mr. Griffith. All right.
        Mr. Nadel. On average.
        Mr. Griffith. Let us translate that into that alleged
    daughter's bedroom area. How much is the temperature going to
    drop? Are we talking 1 degree or we talking, you know, she is
    going to notice 10 degrees cooler? Do we know?
        Mr. Connett. I should speak for Minnesota. And we have
    installed a number of heat pump water heaters in employees'
    homes just to get a sense of how well they do work, and there
    is no doubt about it. In Minnesota, every water heater is in a
    basement, and those basements are conditioned. And we heat
    those basements. And so to put a heat pump water heater into I
    will call it the furnace room, it is going to cool that furnace
    room down quite a bit. It has been described as I can hang dead
    deer in there now. It is cold. And what it is doing is a heat
    pump water heater extracts heat from that room. That is what a
    heat pump does. It extracts heat and puts that heat into the
    water heater.
        Think of a refrigerator for a minute. That is extracting
    heat from inside the refrigerator and putting it into your
    kitchen. That is a heat pump in action. This is another heat
    pump. It is going to extract heat from its environment. You
    need a fairly--the heat pump manufacturers will tell you, you
    need so much area in your furnace room to have a heat pump
    water heater because it has to extract heat from that space,
    and it is going to condense it and squeeze it all together and
    put it into the water heater. So that mechanical room is going
    to be a little cool. And that might spill over into the family
    room or the living room down in the basement as well.
        Mr. Griffith. All right. I do appreciate it. Thank you all
    so much for being here. We are all trying to be more efficient,
    but we want to make sure we balance out all the interests
    concerned. Thank you so much. I yield back.
        Mr. Whitfield. Thank you, Mr. Griffith. At this time, I
    recognize the gentleman from Texas, Mr. Green, for 5 minutes.
        Mr. Green. Thank you, Mr. Chairman. I would like to put my
    statement into the record, and I can go straight to questions.
        Mr. Roy, I have some questions, and I have to admit, coming
    from Texas and refining and oil, we normally don't agree with
    the NRDC. But today that is a different case. Does NRDC have a
    sense of why new efficiency standards were proposed by DOE?
        Mr. Roy. There have been a series of efficiency standards
    on increasing numbers----
        Mr. Green. I was just going to say.
        Mr. Roy [continuing]. In 1987, signed into law by President
    Reagan. This is an update on the water heater standards that
    were first put in then.
        Mr. Green. In 1987?
        Mr. Roy. Yes.
        Mr. Green. We would hope the technology has changed since
    then.
        Mr. Roy. The technology is moving at a quick pace but in
    part because of this. I think the major manufacturers now are
    introducing products. Vaughn is introducing great new products
    in the heat pump water heater space and condensing gas water
    heaters. It really is moving.
        Mr. Green. Your thoughts on the DOE proposed waiter
    authority for water heaters. Is that something you all support?
        Mr. Roy. We talked to the other stakeholders, the
    manufacturers, the utilities consumer groups, other efficiency
    environment groups after it was brought to our attention that
    there was a challenge with the DOE standard. We heard what they
    said. It made sense to us. So we worked together to support a
    waiver approach by DOE under their existing legislation. We
    would still like to see that move forward.
        Mr. Green. OK. Mr. Koep, on your position as National
    Utility Sales Manager, can you describe what the U.S. water
    heater market looks like? For example, coming from Texas, we
    don't mind--how many natural gas versus electric water heaters
    are sold. Have we seen it in the last few years particularly
    with the cost of natural gas cheaper?
        Mr. Koep. I think that would have been expected, but from
    what I have seen from the industry numbers, it is still roughly
    a half-and-half market, that half is electric and half is
    natural gas. It varies greatly by region. The Pacific Northwest
    has much more electric water heating. If you go to California,
    it might be 95 percent gas. There is also a split between rural
    and urban. Metro areas are usually decidedly more gas water
    heating because natural gas is readily available.
        Mr. Green. Pipelines are available and everything else.
        Mr. Koep. Yes. But on the national average that I have
    seen, it hasn't moved much from just about a 50-50 split
    between gas and electric, and that is sustained over the years.
        Mr. Green. OK. What is the standard size for a home now?
    Because I know I have heard over the years our homes have
    gotten so much bigger compared to the last generation. What is
    the standard size of a water heater now?
        Mr. Koep. The 50-gallon electric is still the most popular
    size, and you know, it might be 80 or 85 percent of the
    marketplace. But this is an uncontrolled 50-gallon electric
    water heater generally not part of a demand-response program or
    an off-peak program because of the size limitation. On the gas
    side I think the most popular historically has been the 40-
    gallon gas, but I think that is moving--both electric and gas
    seem to be slightly toward larger capacity units because we are
    building larger houses, and we have more uses for hot water
    within the home.
        Mr. Green. Yes. What are the market share for new
    technologies like the tankless and heat pump water heaters, the
    pump heaters?
        Mr. Koep. That is a great question, and we talk about that
    at the ACEEE Hot Water Forum that they hold fairly regularly.
    Tankless gas technology was introduced roughly 15 years ago,
    and they spent a lot of money promoting that technology, and it
    is just within the last couple years they have gotten about 5
    percent market share or now they might be slightly above that.
    So you know, that concerted effort has garnered them some
    market share.
        Heat pump water heaters as a generally available technology
    has only been in the market about 5 years, and after 5 years,
    they are just approaching or have just gone over the 1 percent
    market share mark. So despite all the best efforts and the
    money and the promotion and the education efforts, there seems
    to be a regular schedule for technology adoption by the
    American public. Nobody is running out to buy the newest water
    heater. People buy a water heater when they need one.
        Mr. Green. When they need it, yes. OK. Given that the DOE
    standards take effect next month, have the supply chains for
    larger water heaters closed down or do you think that it --
    because sometimes when the standards change, the supply is not
    there because plants haven't been doing it. Do you think there
    is enough supply to match what the DOE is doing?
        Mr. Koep. Well, I think the supply chains are beginning to
    be impacted. A lot of the electric cooperatives and utilities
    that buy product directly for their programs had preordered in
    order to put in a stock of qualifying products so that when the
    rule goes into effect, they would not be immediately impacted.
    In terms of the manufacturers and the supply chains, they are
    already making the changes.
        Vaughn is a very small manufacturer. You know, the big
    players in the industry, A.O. Smith and Rheem, you know, they
    are 80 percent or more of the water heating market with two
    companies. So you know, their production facilities, you know,
    they can stop building large-capacity residential, but they
    will still be building large-capacity commercial units. So the
    impact will not be that great.
        Mr. Green. OK. I know I am over time. Thank you, Mr.
    Chairman.
        Mr. Whitfield. Notice how patient we are, Mr. Green. Well,
    that concludes the questions today, and I want to thank the
    panel for joining us and for your input and working with us in
    trying to formulate this legislation. And we look forward to
    working with you as we move forward, and we will keep the
    record open for 10 days for any material that needs to be
    inserted, and that will conclude today's hearing. Thank you
    very much.
        [Whereupon, at 11:34 a.m., the subcommittee was adjourned.]
        [Material submitted for inclusion in the record follows:]

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