8. Would you agree that there is a need to streamline or remove certain regulatory procedural barriers that unreasonably constrain the deployment of new, advanced renewable and energy efficiency technologies.

Answer: Yes, regulatory procedural barriers do exist which constrain the deployment of new, advanced renewable and energy efficiency technologies. For example, in many states there is a long-standing regulatory bias toward supply investments. Not only are most utilities rewarded solely for their investments in production and delivery facilities, but ratemaking generally makes utilities averse to customer efficiency improvements because reduced consumption actually lowers revenues and profits. Finally, for full deployment of energy efficiency technologies, utility recovery for past plant investments must be decoupled from sales. Utilities will not vigorously pursue programs that harm their shareholders.

Least-cost energy planning

Section 3101 of S. 341, as does the Administration's National Energy Strategy, fosters State public utility consideration of least-cost energy planning which is defined to mean "any standard, regulation, practice or policy by which a State regulatory authority considers, or requires a State regulated electric utility to consider or implement, a plan for action (including the construction of or purchase of electric energy from new generation facilities and investment in or expenditures for conservation, energy efficiency resources, other demand-side management measures) to be taken by a State regulated electric utility for purposes of providing adequate and reliable service to its electric customers with the incurrence of lowest costs by such utility and its customers."

9. How does "least-cost planning differ from "life-cycle costing of energy alternatives?

Answer: The term "life-cycle" costing refers to an engineering
economics technique of evaluating the costs and benefits of resources on
a comparable basis. In electricity planning, supply-side (generation)
resources have been traditionally evaluated using life-cycle costing.
Demand-side resources (conservation programs) have generally been
compared with each other using life-cycle costing. However, supply and
demand resources are not generally compared directly with each other.
Least-cost planning refers to an integrated life-cycle comparison of
supply and demand resources. In addition, least-cost planning often
broadens the evaluation to include environmental and other externalities
(cost is broadened to be "social," not direct dollar costs).

10. Least-cost planning requires that assumptions be made regarding interest rates, the life of a proposed facility, fuel prices,

maintenance costs and so on.

a. It would appear that such calculations would favor technologies
with low capital costs (such as gas-fired) over

longer-lived capital intensive facilities (such as coal and nuclear
facilities).

Answer: Done properly, least-cost planning does not unfairly favor
particular technologies. However, low capital cost technologies
(such as gas-fired) have tax advantages compared to
capital-intensive technologies (as discussed in my written

testimony on renewables). În addition, capital-intensive facilities
in the electric industry are inherently riskier investments than
are low capital cost facilities.

b. It would appear that least-cost planning would provide an economic premium to demand reduction and energy conservation measures, and perhaps off-system power purchases, rather than the construction of new baseload power plants. Would you comment?

Answer: Proper least-cost planning does not "provide an economic
premium"--it merely reflects the reality that in very many cases it
is cheaper to buy surplus power from neighbors or to save energy
rather than to build new power plants. The "premium" would only
come in if the externality of the environment is included in the
definition of cost. In this case, energy conservation would be
given a boost over options that produced air emissions or other
environmental impacts. Off-system power purchases would receive a
premium only if the resources used to produce that power were
"cleaner" or a utility only valued environmental impact to its own
area and not that of its neighbors.

II. a. There are those who advocate that "least cost" planning

should include so-called "environmental externalities" whatever that concept includes. If I am not mistaken, "least-cost" planning already includes the costs of environmental controls. Would you agree?

Answer: Both traditional planning and "least-cost" planning include the costs of environmental controls. However, these controls generally reduce, but do not eliminate, environmental impacts. For example, new coal-fired power plants that have all required controls would still emit some sulfur oxides. These emissions are "environmental externalities," which some parties believe should be quantified in comparing new coal-fired power plants to other energy resources. The primary objection to including environmental externalities in least-cost planning is that societal values are so difficult to quantify.

b. To the extent that any "least-cost planning includes externalities, should it not also include national security costs, such as those associated with maintaining a military presence in the Middle-East? What other externalities should be considered?

Answer: Ideally, all externalities should be considered.
However, overly broad consideration of externalities can lead to
paralysis of decision-making. Some exercise of judgement is
needed to consider only those externalities that our decisions can
measurably affect. The externalities PG&E has studied, but not
used directly yet in planning decisions include environment and
fuel supply security (diversity of fuel sources).

Additional questions

For Scott Sklar

Solar Energy Industries Assoc.

Renewable Energy Joint Ventures

1. Your statement indicates your support for expansion of the renewable energy joint venture program as provided in S.341. In your view, what types of projects would be likely to compete for the joint ventures in each of these areas?

2. You mention in your statement that an additional joint ventures should be included for solar thermal. Isn't this a project already funded by DOE? What additional benefits would be obtained by including this project as a joint venture?

Initiatives to Encourage Renewable Energy Development

1. You mention in your statement that additional annual expenditures of $500 million over the next 9 years for solar and renewables would increase the market share from 9 percent to nearly 20 percent of total U.S. energy consumption. That is a significant increase in spending over the FY-92 request of $166 million.

Please explain where this $500 million would be spent. How much would be spent on R&D activities?

How would a more modest annual increase in spending -- such as $200 million -- affect the market share for solar and renewables?

2. What other initiatives should be considered by the Congress to encourage commercialization of renewable energy technologies?

Technology Transfer

You say in your statement that new techniques are necessary to get technology development out of the laboratory and into the marketplace. You mention a figure of $20 million necessary to institute new innovations in tech transfer.

1. What innovations? What additional action is required? Is legislation necessary to accomplish this?

2. Should the laboratories be doing more in applied research?

You also mentioned in your testimony that the joint ventures must be oriented to be a little more useful to industry. Please explain what you meant by this. Is legislation necessary to accomplish this?

Questions

Senator Malcolm Wallop (R-WY)

Energy Efficiency and Renewable Energy

provisions of S. 341, the Energy Security Act of 1991 February 26, 1991

PANEL II

General questions

Would you agree that regulatory interventions into the marketplace can impose unforeseen costs by reducing the flexibility of our economy and in the long-term reducing our options?

Therefore, is it not essential that government initiatives rely on free-market, economic incentives and be based on rigorous cost-benefit analyses?

Would you agree that in order to be effective in
promoting the most efficient use of energy, policy
initiatives must rely on market forces?

Would you agree that this is particularly true if
integrated resources planning is to be effective in
promoting energy efficiency and renewable energy
technologies?

Building questions for all witnesses

3.

This bill contains several provisions relating to energy efficiency guidelines for both new and existing housing. While I have no objection to the development of voluntary guidelines in this area, I am very concerned about the direction that the Administration and the Congress seems to be taking toward making these guidelines mandatory.

a.

b.

Last year's Cranston/Gonzales Affordable Housing Act required the development of energy efficiency standards for new construction in order to be eligible for FHA mortgages. In your view, are such conditions necessary or desirable?

What effect will this requirement have on the private mortgage market?

What effect will the approach have on the building
industry?

SEL

SOLAR ENERGY INDUSTRIES ASSOCIATION Suite 805 777 North Capital Street, N.E.

Marc9 MAR 1291PM 9 38

Washington, DC. 20002-4226 (202) 408-0660
Fax: (202) 408-8536

In response to your letter of February 27th requesting answers to additional questions, I have attempted to respond briefly to each.

Renewable Energy Joint Ventures

1. Joint ventures are cost-shared projects used either
to validate nearly commercial technologies or buy-down
the risk of more mature technologies that just haven't
achieved enough market penetration to access
conventional financing.

2. S.341 does not have a solar thermal joint venture,
and the technology is no less or more mature than the
other technologies that have one. DOE's only joint
venture is for solar detoxification. The solar thermal
industry particularly wants joint ventures to validate
dish/engine and central receiver technology options
which are nearing commercialization.

Initiatives to Encourage Renewable Energy Development

1. An increase to $500 million would still be half of
the funding renewables received in FY '81 yet it would
be less than waht the United States is spending for
nuclear fission and fusion R&D and will provide far
more than these technologies will over the next decade.
A $200 million renewable energy budget would basically
be a maintainance budget which could not achieve the 20
percent goal. I have attached the alternative energy
budget which establishes the directions and initiatives
for funding.