[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
                                  ______

                         U.S. GOVERNMENT PUBLISHING OFFICE 

95-601 PDF                     WASHINGTON : 2015 
-----------------------------------------------------------------------
  For sale by the Superintendent of Documents, U.S. Government Publishing 
  Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; 
         DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, 
                          Washington, DC 20402-0001























                    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:]
   
   
   
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]   
    
    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:]
    
    
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    

                                 [all]