Insight for Industry – Energy Efficiency Improvement Act Will Reduce Energy Demand
The Energy Efficiency Improvement Act of 2015, which President Obama signed into law on April 30, will add momentum to falling energy consumption per capita in the United States by reducing energy demand from commercial buildings, manufacturing plants, and homes. The relatively uncontroversial bill garnered bipartisan support from both chambers and is the first energy legislation to be enacted during the 114th Congress. The implications of reduced energy demand across the country will be downward pressure on coal and natural gas prices, particularly in the current period of supply abundance. Strengthening building codes and enhancing commercial building design will expand energy efficiency industries and their ancillary sectors by increasing demand for their products and services. The bill will significantly benefit the heating, ventilation, and air conditioning (HVAC) industry, as public disclosure of energy data will force retrofits and replacements.
The Energy Efficiency Improvement Act establishes a voluntary, market-based approach to align the interests of commercial building owners and tenants to reduce energy consumption; allows continued use of grid-connected water heaters required for thermal storage and demand response (DR); and requires energy-use benchmarking and disclosure for federally-leased buildings. The legislation contains three components:
Title I – Better Buildings Act of 2015 – requires the General Services Administration (GSA) to develop and publish model leasing provisions to facilitate collaboration of commercial building owners and tenants for investments in cost-effective energy efficiency and water efficiency measures; and develop policies and practices to implement measures for realty services provided by GSA to agencies. It amends the 2007 Energy Independence and Security Act to require DOE to conduct a study on the feasibility of improving commercial buildings’ energy efficiency through high-performance energy efficiency measures in design and construction processes.
Title II exempts certain thermal storage water heaters from the DOE’s efficiency standards that took effect in April and removes regulatory barriers to manufacture large grid-enabled electric-resistance water heaters which can be used in electrical thermal storage or DR programs. In DR programs, utilities control the use of grid-enabled water heaters to manage energy use at peak times, resulting in large savings. Utilities represented by the National Rural Electric Cooperative (NRECA) and the American Public Power Association, along with PJM Interconnection raised concerns that demand-response programs for water heaters over 55 gallons would suffer under DOE’s efficiency standards, as they would require switching to heat pump water heaters.
Title III requires federally-leased buildings without Energy Star labels to disclose energy usage data. It requires DOE to study the impact of performance-benchmarking and disclosure policies and utility policies to establish benchmarking programs. DOE must establish a database for storage and access of public energy-related information on commercial and multifamily buildings.
Enactment of S. 535 Sets the Stage for a Broader Energy Efficiency Bill Covering Residential, Commercial and Industrial Sectors
The Energy Efficiency Improvement Act of 2015 is a pared down version of the comprehensive Energy Savings and Industrial Competitiveness Act (S. 2262) – Shaheen-Portman bill – from the prior Congress, which seeks to promote energy efficient technologies across residential, commercial, and industrial sectors. The newest iteration of the Shaheen-Portman bill (S. 720) introduced on March 11 contains additional provisions including water efficiency definition and extended product system rebate program.
The Congressional Budget Office estimated that S. 2262 would decrease direct federal spending by $12M between 2014 and 2024. A study by the American Council for an Energy Efficient Economy (ACEEE) estimates the legislation to create more than 190,000 jobs, save approximately $16.2B in annual energy bills, and reduce emissions equivalent to taking 22 million cars off the road by 2030. The Shaheen-Portman bill was originally introduced in 2011 and has been endorsed by business coalitions, environmental groups, and labor groups. Despite wide support, the broader legislation failed in the previous Congress sessions due to amendments regarding volatile topics including the Keystone XL pipeline, natural gas exports, and EPA power plant regulations.
The prospect of a larger energy efficiency bill would impact many facets of the energy industry, particularly utilities that service regions with federal customers and energy efficiency companies that would address new building codes and other requirements. Efforts to reduce electricity consumption would have implications for both utilities and the energy efficiency industry. Utilities with large concentrations of federal facilities in their service territory may lose substantial sales. The Shaheen-Portman also bill contains provisions with major impacts on buildings, manufacturers and the federal government, with a particular emphasis on the commercial and industrial (C&I) sector. Since C&I facilities are generally larger than residential houses and thus consume significantly more electricity, the incorporation of energy efficient measures at a single C&I location can result in substantial kilowatt-hour (kWh) savings.
Passage of a federal energy efficiency bill could reverse the slightly upward C&I electricity usage trend that has occurred over the previous three years. A comprehensive energy efficiency bill with far-reaching implications for both the residential and commercial sector would likely affect peak load and contribute to the declining peak demand growth trend. The end result of declining peak demand growth would be less build-out of transmission infrastructure and generation of sources to handle peak load. This, in turn, would mean fewer assets in a utilities’ rate base that they can earn a return from. This may force utilities and merchant power generators to look for expansion opportunities in areas where peak demand may still be increasing or for other revenue opportunities outside of transmission and generation.
President Obama expressed support for S. 535, noting that energy efficiency is an area that can make the greatest environmental impact while creating jobs and saving money for businesses and customers. National Grid has also endorsed the enactment of S.535, highlighting the potential benefits for customers and communities in New York and New England. Supporters also include the U.S. Chamber of Commerce, Alliance to Save Energy, Business Roundtable, and Environmental Defense Fund.
On April 30, the Senate Energy and Natural Resources Committee received testimony on 22 energy efficiency proposals covering building retrofits, federal energy management, appliance efficiency standards, workforce development, efficiency grants, coordination between agencies and programs, and bills on access to information, state policies, regional coordination, water utility efficiency, and alternative fuel vehicles. The hearing was the first of four that Chairman Lisa Murkowski (R-Alaska) has scheduled through May to consider legislative proposals for the broad energy bill that will put together proposals under four titles – efficiency, infrastructure, supply, and accountability. Ranking Member Maria Cantwell (D-Wash) is working with other Democrats on legislative proposals related to electric grid modernization and energy storage. Several senators have proposed legislation related to electric transmission line siting.
The House Energy and Commerce Committee continues to work on its Architecture of Abundance energy legislation, which contains four focus areas: Modernizing Infrastructure; 21st Century Energy Workforce; Energy Diplomacy for a Changing World; and Efficiency and Accountability. An April 30 hearing focused on discussion drafts addressing modernization of the Strategic Petroleum Reserve and Energy Efficiency and Accountability proposal, which builds on S. 535. On May 6, the House Committee considered discussion drafts on hydropower regulatory modernization and Federal Energy Regulatory Commission (FERC) process coordination under the Natural Gas Act to expedite consideration of natural gas pipelines.
Efforts to restrict rules from the EPA or the Department of the Interior are likely to go through appropriations process. Efforts to block controversial legislative proposals such as Clean Power Plan or water regulations would depend on availability of votes necessary to sustain presidential vetoes. The DOE’s first Quadrennial Energy Review (QER) released on April 21 focuses on energy infrastructure upgrades. Several recommendations presented in the QER call for legislative authorization.
Originally published by EnerKnol.
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