Policy Priorities

Federal Advocacy Update - 2nd Quarter 2010

At the beginning of the Obama Administration, NAESCO and the other national energy efficiency and environmental advocates agreed on a three-phase strategy.

• The first phase was the passage of ARRA, which was intended to jump-start the economy and to establish energy efficiency programs as a major element of national energy policy with an unprecedented level of federal funding.
• The second phase was to be a set of "Jobs Bills" that would bridge the gap between ARRA and long-term climate and energy legislation by directing additional federal funding into residential retrofits (Home Star), commercial building retrofits (Building Star), industrial efficiency programs, rural efficiency programs and the replacement of pre-1976 mobile homes.
• The third phase was to be climate and energy legislation that would re-set national energy strategy and provide, through carbon taxes or cap-and-trade regimes, hundreds of billions of dollars for investments in energy efficiency and a portfolio of Clean Energy electricity generation (renewables, coal with carbon sequestration, nuclear and advanced natural gas).

Unfortunately the strategy did not work as planned.

• ARRA was enacted on schedule in early 2009, but it has taken much longer than anticipated to get the energy efficiency program funding on the street and producing jobs (see below for ARRA status report).
• The House made a monumental effort in the spring of 2009 and passed comprehensive climate and energy legislation, the Waxman-Markey bill, by a very close margin in June. Waxman-Markey established a cap-and-trade system for carbon emissions as well as a carbon emissions allowance trading system that provided significant long-term funding for EE and RE programs starting in 2013. Also in June, the Senate passed the energy half of a comprehensive climate and energy bill out of committee, with bi-partisan support. But the Senate has not been able to complete its work on the climate half of a comprehensive bill, so the prospects for comprehensive legislation being enacted are dim.
• In late 2009, when the national coalitions began to advocate for the Jobs Bills as the logical bridge between the expiration of the ARRA funding and the beginning of the funding from the carbon allowance trading, we had little in the way of results from the ARRA funding to show that large-scale EE programs could create substantial employment. Congressional leaders were reluctant to push for new funding, especially since the Republican leadership and some moderate Democrats were becoming increasingly worried about the deficit.

American Recovery and Reinvestment Act (ARRA)

The programs are still having problems, and spending lags significantly behind the levels that Congress and the Obama Administration had hoped for (see recent report from the DOE Inspector General on the EECBG program here). During the last quarter, the ARRA-funded energy efficiency programs have begun to hit their stride. In its July 30, report, US DOE reported that the nearly $11 billion aggregate funding for the State Energy Program (SEP), Energy Efficiency and Conservation Block Grants (EECBG) and Weatherization Assistance Program (WAP) are essentially fully committed. US DOE has paid out about $1.8 billion, or about 17% of the total.

NAESCO ARRA Advocacy Activities

NAESCO has been working with the National Association of State Energy Officials (NAESO) and with the Energy Services Coalition (ESC) to identify and address program bottlenecks. NAESCO regularly responds to requests from US DOE officials for information and "best practices" and has participated in working groups convened by US DOE, such as the Finance SWAT Team, which assembled a set of resources and held a series of webinars on finance issues earlier this year. The resources and downloadable versions of the past webinars are available on the US DOE website.

During the last week, US DOE has released revised Guidance documents for financing programs that use SEP or EECBG grants. The Guidance documents define what constitutes obligation of the grant funds, when and under what conditions grantees can draw down funds, and what constitutes expenditure of the funds. These definitions are important because they relate to deadlines for the use of the grant funds. The Guidance documents also state that in the case of grants that are used for Revolving Loan Funds, the federal conditions placed on the use of the funds, such as the need for a NEPA review, application of prevailing wages, and meeting the requirements set forth in historic preservation law will continue to apply with each revolution of the funds. The Guidance documents are on the NAESCO website here.

NAESCO is now working with the ESC and NASEO to develop a streamlined program design that we believe will help states that have fallen behind in their program implementation and are in danger of losing some of their ARRA grants to quickly develop and implement public buildings ESPC programs. We will present this program design at the upcoming NASEO conference in Boston at the end of September (see www.NASEO.org for conference information).

The Jobs Bills

Home Star has attracted bi-partisan sponsorship in both the House and Senate. In early 2010, the Obama Administration latched onto Home Star, because of its populist appeal, as the poster child for increased investment in energy efficiency, but the rest of the Jobs Bill portfolio languished. In the spring of 2010, Home Star passed the House as part of a major package of employment legislation, a second stimulus bill. The Senate has not considered this House bill as a whole, but has considered some of its individual measures, such as Home Star, which is part of the so-called "Spill Bill" that Majority Leader Reid is trying to assemble because it meets his qualification of bi-partisan sponsorship.

NAESCO Jobs Bills Advocacy

NAESCO has participated in both the Home Star and Building Star coalitions. We have attended meetings, participated in conference calls and webinars, and signed letters of support to Members of Congress. However, we have not made Home Star and Building Star our top priorities. NAESCO members do not sell retrofits to individual 1-4 family residential buildings, and so would not directly benefit from Home Star. As discussed above, Building Star has languished for lack of support from the Obama Administration and Congressional leadership. So we have felt that NAESCO efforts are better focused on an EERS (see discussion below).

Climate and Energy Legislation

As noted above, the House passed comprehensive climate and energy legislation, the Waxman-Markey bill, in June of 2009. The Senate has been working on comprehensive legislation for about 18 months. The Senate Energy and Natural Resources Committee, with bi-partisan support, passed ACELA, the energy portion of a comprehensive bill, in June of 2009, but has not been able to pass that bill through the entire Senate, or to develop a comprehensive energy and climate bill that can muster the 60 votes required to overcome a Republican filibuster(see below for a brief history of the Senate legislative efforts).

Senator Reid announced in mid-July that he was suspending the effort to assemble a comprehensive bill, and would instead bring a smaller bill to the floor (now known as the "Spill Bill") that reforms the management of offshore drilling, increases the corporate liability for oil spills, funds Home Star, provides incentives for heavy vehicles to switch to natural gas and provides funding for the Land and Water Conservation Fund. He then announced at the end of July that he could not find 60 votes for that limited package and so put it off until September. The sticking point is the increased liability of offshore drillers, which is being negotiated during the current Congressional recess.

A number of industries and interest groups were disappointed/furious at the inability of the Senate to act. The national environmental groups said they had spent $100 million advocating for carbon caps. A group of utilities said they had spent more than $60 million advocating for carbon caps to provide regulatory certainty to the industry. The RE industry estimated that it also spent about $60 million advocating for a national Renewable Electricity Standard (RES). The environmental groups and the utilities have said they are exhausted; the RE people vowed to continue fighting for an RES. They hired former Senate Majority Leader Tom Daschle as a lobbyist, produced a letter to Senator Reid from a bipartisan group of 33 Senators, and said they had 62 Senators pledged to support an RES. Senator Reid responded that while they might have 62 votes for a standalone RES, they do not have 62 votes for a larger bill that contains an RES. The RE industry continues to work during the recess to gather support to bring the RES to the Senate floor in September.

NAESCO EERS Advocacy Efforts

Throughout the effort to pass comprehensive energy and climate legislation, NAESCO has focused on the measure that we think has the most long-term potential for our industry - adoption of a national Energy Efficiency Resource Standard (EERS). An EERS would require that all utilities procure a minimum percentage of their energy resources from efficiency, and would create a long-term market totaling hundreds of billions of dollars for energy efficiency services.

NAESCO participated in the national EERS coalition in 2007 and became one of the core members of the national coalition that promoted an EERS during 2009. At the beginning of 2010, the NAESCO Board approved our request that we use an extraordinary portion of the advocacy budget to promote adoption of an EERS. We retained Lynn Sutcliffe to help with the advocacy effort and we put together a breakthrough proposal that we call the NEER (National Energy Efficiency Resource) standard. NEER would require that all utilities that need new capacity procure 60% of that capacity from energy efficiency, and that the utilities finance the energy efficiency improvements for their customers. NEER would produce hundreds of thousand of jobs, hundreds of billions of dollars of net economic benefits and more than the entire 2020 utility goal for carbon reduction.

Lynn got a good initial reception to NEER from Senate staffers, and we were making some headway with the EERS coalition, when the leaders of the coalition, in the early summer, asked us to set aside NEER as an alternate approach because it was confusing the staffers. We agreed to put aside NEER and to instead support a doubled EERS (2% instead of 1%). Then Senator Reid pulled the plug.

Our current position is to wait and see what happens in the Senate after the summer recess.

• One possibility is that the Senate will not take up an energy bill, because there will still not be 60 votes, and any action will be put off until a lame duck session in late November.
• Another possibility is that a compromise on oil spill liability will be reached and there will be enough votes for Senate action on the Spill Bill in September. But that bill would not have any EE provisions except Home Star.
• A third possibility is that the RE people gather enough momentum to bring an RES to the Senate floor, either as part of a Spill Bill or as a separate bill. Then substantial EE provisions would potentially be back in play as part of an RES.

In the meantime we have dialed back our advocacy efforts, recognizing that in an arena where other groups are spending tens of millions, we need to conserve our modest resources for the final push, if there is one. Our best hope seems to be to get an EERS as part of a national RES.

There is an RES in both the Waxman-Markey bill and in the ACELA bill, and in both bills the RES contains the provision that EE can be used to satisfy part of the RE requirement, a sort of stepchild version of a national EERS. The problem is that the EE component of both bills is inadequate. In the Waxman-Markey bill, the EE requirement gets close to business as usual (BAU), which is EE at about 6% of total electricity resources by 2020. In the ACELA bill, the EE requirement is substantially below BAU, perhaps 4% of total electricity resources. In comparison, the coalition proposal for a standalone national EERS would get us to about 11% EE by 2020, and the NAESCO NEER/EERS-2 proposal would get us to about 20% EE by 2020.

Senators who are sponsoring the EERS are trying to make an accommodation with the EERS coalition by offering to increase the total RES target and/or to increase the allowable percentage of EE. But the discussion is now around provisions that would be only marginally better than BAU. NAESCO's position is that we should simply remove the cap on EE in the RES, leaving it up to the states and utilities to determine the most cost-effective way to meet the national mandate. NAESCO's position makes many in the EERS coalition uncomfortable, because it pits EE against RE. But we think it is good national policy (EE is much less expensive than RE) and will be much better for NAESCO members.

Property Assessed Clean Energy (PACE) Programs

During the last month, the momentum that had been building for the implementation of PACE programs around the country has been quashed by the actions of the federal home financing agencies - Fannie Mae, Freddie Mac and the FHFA. The federal agencies are concerned that the PACE programs, which provides financing for building owners (residential and commercial) to retrofit their homes and businesses with EE and RE measures that is repaid through additional tax assessments, will threaten the value of the home mortgages that they back. In early July FHFA issued a Statement directing Fannie Mae and Freddie Mac to review their credit standards in light of the fact that PACE assessments are to be considered additional loans against the value of the property, loans that are senior to mortgages. The Statement effectively shut down the PACE programs across the country.

The response to the FHFA Statement has been a series of lawsuits from states and local governments that have PACE programs, the introduction of national legislation that would effectively reverse the FHFA Statement, and negotiations by interested Congressmen (e.g., Representative Steve Israel) and the Administration with FHFA to allow for pilot PACE programs to test whether the problems that FHFA fears are real. Significantly, however, neither Administration officials nor Congressional leaders have gone public in opposition to FHFA, apparently because they do not want to appear to be meddling with housing finance in the midst of the current shaky economic recovery.

NAESCO PACE Advocacy Activities

NAESCO is a member of the coalitions that are working to establish PACE programs across the country. We have not taken a lead role in these coalitions because the cutting edge of PACE programs is residential, a market segment that is not the focus of the majority of our ESCO members. Commercial building PACE programs, which would be of major interest to nearly all NAESCO members, have major issues of their own, primarily the shaky finances of the commercial real estate industry, that do not, at the moment, seem susceptible to policy solutions. A paper summarizing the current status of the PACE programs can be found on the NAESCO website here.

HUD

Among our members that serve the Public Housing market, there is considerable concern regarding the current revisions of a number of the key documents affecting the process by which PHAs procure energy services from ESCOs through EPCs, which has been the primary source of all energy efficiency historically achieved at PHAs. The significant delays in EPC review and execution, the slow roll out of the revised documentation, and the resultant hesitancy by PHAs to issue RFQs for new energy efficiency projects have resulted in considerable uncertainty by ESCOs and their PHA customers leading to a slowdown in project approvals.

NAESCO HUD Advocacy Activities

NAESCO sampled several member companies working in the HUD market and initially identified 21 contracts (some dating back to 2009) still "under review" -- totaling $134 million in delayed investment. In addition, there is easily $35 million in RFQs that have not been issued due to concern by PHAs about the prospective changes in the procurement process. According to the HUD Strategic Plan for FY2010-2015, the stated goal is to retrofit and make green 159,000 units. The contracts currently "under review" represent 29,711 units to be retrofitted or 19% of the HUD strategic goal that could be met now in year one of the five year strategic plan.

After consulting with our members active in this market, NAESCO wrote to HUD Assistant Secretary for Public and Indian Housing Sandra Henriquez and her team at the agency to request a meeting to discuss, among other things, the timeframe for review and issuance of the final notices including the long-awaited revisions to the Green Book, the apparent change in requirements for projects that are underway and have been fully negotiated, and the apparent change in measurement and verification requirements.

The request for a meeting was granted and on August 4, 2010, NAESCO and the representatives of seven NAESCO member companies met with approximately fifteen HUD managers and staff directly involved in the formulation of policies related to PHA acquisition of energy efficiency resources through EPCs. The two-hour meeting resulted in follow up requests for information by HUD and subsequent communication with members of the HUD team.

NAESCO is currently working with HUD to establish a more transparent review process and to create a better communications process among the Energy Center Office, the field offices, and the HUD headquarters managers, and the ESCO service providers.