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NATIONAL ENERGY CONSERVATION POLICY ACT
HEARINGS
BEFORE
THE
COMMITTEE ON
BANKING, HOUSING, AND URBAN AFFAIRS
UNITED STATES SENATE
NINETY-FIFTH
FIRST
CONGEESS
SESSION
ON
T I T L E I, PART A
OF
S. 1469
A B I L L TO E S T A B L I S H A C O M P R E H E N S I V E E N E R G Y P O L I C Y
J U N E 27, 28, A N D 29, 1977
P r i n t e d f o r the use of the Committee on Banking, Housing,
and U r b a n A f f a i r s
U.S. GOVERNMENT P R I N T I N G OFFICE
W A S H I N G T O N : 1977
C O M M I T T E E ON B A N K I N G , H O U S I N G , A N D U R B A N A F F A I R S
W I L L I A M P R O X M I R E , Wisconsin, Chairman
J O H N S P A R K M A N , Alabama
E D W A R D W. BROOKE, Massachusetts
H A R R I S O N A. W I L L I A M S , JR., New Jersey
T H O M A S J. M C I N T Y R E , New Hampshire
A L A N CRANSTON, California
A D L A I E. STEVENSON, Illinois
R O B E R T MORGAN, North Carolina
D O N A L D W. R I E G L E , JR., Michigan
P A U L S. SARBANES, Maryland
J O H N T O W E R , Texas
J A K E GARN, Utah
H. J O H N H E I N Z I I I , Pennsylvania
R I C H A R D G. LUGAR, Indiana
H A R R I S O N S C H M I T T , New Mexico
K E N N E T H A . M C L E A N , Staff
Director
JEREMIAH S. BUCKLEY, Minority
Staff
Director
ROBERT E. MALAKOFF, Staff Directory Subcommittee
on Housing and Urban
JAMES H . SCHUYLER, Minority
Counsel, Subcommittee
on Housing and Urban
M I C H A E L B . BARTON, Special
JOANN S. BAREFOOT, Professional
(II)
Counsel
Staff
Member
Affairs
Affairs
CONTENTS
Page
T i t l e I , P a r t A of S. 1469
78
L I S T OF WITNESSES
MONDAY,
JUNE
27
D a v i d J. B a r d i n , D e p u t y A d m i n i s t r a t o r , Federal Energy A d m i n i s t r a t i o n ,
accompanied b y R o b e r t H e m p h i l l , Director of Conservation Policy
Lawrence P. Simons, Assistant Secretary for Housing and F H A Commissioner, accompanied b y H a r r y K . Schwartz, Assistant Secretary for
Legislation, D e p a r t m e n t of Housing and U r b a n Development
R o b e r t A r q u i l l a , president, N a t i o n a l Association of H o m e Builders,
accompanied b y Jennifer Sauve and Dennis O'Toole, legislative staff
H a r r y G. E l m s t r o m , president, N a t i o n a l Association of Realtors, accompanied b y A l b e r t E . Abrahams, vice president, government affairs__
TUESDAY, JUNE
JUNE
STATEMENTS
AND
53
103
104
117
198
222
232
245
251
254
271
279
DATA
A F L - C I O , Department of U r b a n Affairs: Prepared statement of H e n r y
B. Schechter, director
American Bankers Association: Prepared statement f r o m Gerald M .
Lowrie, executive director, Government Relations
American Public Power Association:
Prepared statement
U t i l i t y insulation program
Council on Wage and Price S t a b i l i t y :
News release
r
R e p o r t prepared b y James F. Mongoven, senior staff economist
Edison Electric I n s t i t u t e : Prepared statement of Herbert D . Nash, vice
president of Pennsylvania Power & L i g h t Co
(Hi)
46
29
H e n r y Lee, director, Energy Policy Office, Commonwealth of Massachusetts
J o h n Stevens, vice president, N e w England Electric Systems, Westborough,
Massachusetts
M i c h a e l Johnson, assistant chief of congressional liaison, N a t i o n a l Associat i o n of R e g u l a t o r y U t i l i t y Commissioners, Washington, D . C
Susannah Lawrence, executive director, Consumer A c t i o n N o w , Washington, D . C
T o m Stanton, Housing Research Group, Center for S t u d y of Responsive
L a w , Washington, D . C . , accompanied b y Charlie Donaldson, c o u n s e l —
ADDITIONAL
17
28
Ernest F. Hollings, U.S. Senator f r o m the State of South Carolina
R o b e r t B. Reich, Director, Office of Policy Planning and E v a l u a t i o n ,
Federal Trade Commission
John A. H a r d i n , president, U.S. League of Savings Associations, accompanied b y H a r o l d O l i n
H e r b e r t D . Nash, chairman, Energy Management Committee, Edison
Electric I n s t i t u t e , N e w Y o r k , accompanied b y Paul Greiner, vice president, Conservation and Energy D i v i s i o n
Peter B . Epstein, president, Regional and U r b a n Planning I m p l e m e n t a t i o n ,
Inc
J. D . Nichols, vice president, N a t i o n a l A p a r t m e n t Association
WEDNESDAY,
5
369
343
373
378
299
300
203
IV
Energy Research and Development A d m i n i s t r a t i o n : R e p r i n t of article Page
"Survey of Cellulosic Insulation M a t e r i a l s " dated January 1977
320
Federal Energy A d m i n i s t r a t i o n :
U t i l i t y finance plans
28
1977 T h e r m a l retrofit survey
31
A d d i t i o n a l i n f o r m a t i o n on S. 1469
42
Federal H o m e Loan B a n k B o a r d :
L e t t e r t o Thomas L . Ashley, Chairman, Subcommittee on Housing
and C o m m u n i t y Development, dated June 1, 1977
36
A r t i c l e f r o m F H L B B Journal, A p r i l 1977
197
Federal H o m e L o a n Mortgage Corporation: Letter to Bob M a l a k o f f , Staff
D i r e c t o r , Subcommittee on Housing and U r b a n Affairs, dated June 27,
1977
36
Federal N a t i o n a l Mortgage Association: Letter t o W i l l i a m Proxmire, Chairman, Committee on Banking, Housing, and U r b a n Affairs, dated June 27,
1977
38
Federal Trade Commission, Office of Policy Planning and E v a l u a t i o n :
Prepared statement of R o b e r t B . Reich
118
Gas companies m a r k e t i n g attic insulation
16
Magazine, Public Power, January-February 1977: R e p r i n t of article
" T h e r m a l Profile of Garland Boosts Energy Conservation", b y L o u
Chibbaro
379
N a t i o n a l A p a r t m e n t Association: Prepared statement of J. D . Nichols,
vice president
234
N a t i o n a l Association of Home Builders:
A d d i t i o n a l comments i n response t o request t o review the s t u d y submitted to F E A
66
Prepared statement of R o b e r t Arquilla, president
47
N a t i o n a l Association of M u t u a l Savings Banks: Letter to Senator W i l l i a m
Proxmire f r o m W i l l i a m A. James, chairman, Committee on Mortgage
Investments
359
N a t i o n a l Association of Regulatory U t i l i t y Commissioners, prepared statement
254
N a t i o n a l Association of Realtors, prepared statement of H a r r y H . E l m strom
54
N a t i o n a l Bureau of Standards:
Outline of t a l k i n g points for D r . Ambler's summary remarks
286
Statement of D r . Ernest Ambler, acting director, N B S
287
Statement of Jack E. Snell, manager, Energy Conservation Programs,
NBS
294
N a t i o n a l O i l Jobbers Council: Prepared statement
361
P P G Industries: Letter to Senator W i l l i a m Proxmire f r o m F r a n k Breeze,
group vice president-glass
365
Regional and U r b a n Planning Implementation, I n c . : Prepared statement
of Peter B . Epstein, president
223
Sheet M e t a l Worker's I n t e r n a t i o n a l Association: Prepared statement of
E d w a r d J. Carlough, general president
351
U.S. D e p a r t m e n t of the I n t e r i o r : Bureau of Mines, reprint f r o m B u l l e t i n
667, t i t l e d " B O R O N "
306
U.S. League of Savings Associations:
L e t t e r t o W i l l i a m Proxmire, Chairman, Committee on Banking, Housing, and U r b a n Affairs, dated J u l y 5, 1977
197
L e t t e r t o James R . Schlesinger dated A p r i l 7, 1977
194
W r i t t e n statement of John H a r d i n , president of First Federal Savings
and Loan Association of R o c k H i l l , South Carolina
181
NATIONAL ENERGY CONSERVATION POLICY ACT
M O N D A Y , J U N E 27,
1977
U . S . SENATE,
C O M M I T T E E ON B A N K I N G , H O U S I N G AND U R B A N A F F A I R S ,
'Washington,
B.C.
The committee met at 10:15 a.m., i n room 5302, Dirksen Senate
Office Building, Senator W i l l i a m Proxmire, chairman of the committee, presiding.
Present: Senators Proxmire, Sparkman, Morgan, Brooke, Lugar
and Schmitt.
OPENING STATEMENT OF CHAIRMAN PROXMIRE
The CHAIRMAN. The committee w i l l come to order.
This morning, the Committee on Banking, Housing and Urban A f fairs begins 3 days of hearings on the subject of energy conservation
programs for existing residential buildings and other energy conservation programs of concern to the committee.
We shall, particularly, be concerned w i t h the administration's
proposal i n part A of S. 1469, the National Energy Act, introduced
by Senator Jackson at the request of the administration.
The b i l l has been referred to the Committee on Energy and Nat u r a l Resources. Senator Jackson has indicated his interest i n receiving the views of this committee regarding the provisions of part
A . Accordingly, I anticipate that the committee, after hearing testimony this week, w i l l consider i n markup the recommendations i t
wishes to make to the Committee on Energy and Natural Resources
early next month.
We w i l l also consider eight other energy related bills referred to
this committee during this period, including S. 1304 offered by Senator Brooke.
The administration's proposals affect many aspects of housing.
The proposals would affect homeowners and homebuyers. They
would affect builders and rehabilitators of housing. They would affect the industries which produce insulation materials and energy
conserving equipment, and the industries which provide utilities and
financing f o r residential construction and rehabilitation.
The proposals raise questions about the projected demand for and
supply of insulation materials, the effect that Federal tax credits,
loans and grants w i l l have on conservation activities, the future role
of the electric and gas u t i l i t y companies i n financing and installing
energy improvements, consumer protection, and the expansion of the
role of secondary market institutions for energy conservation purposes.
(1)
2
W e have invited a number of experts to testify on these matters
d u r i n g the next 3 days. Before I present the i n i t i a l witnesses I ' m
going to call on Senator Brooke who I understand has a statement.
OPENING STATEMENT OF SENATOR BROOKE
Senator BROOKE. Thank you, M r . Chairman.
M r . Chairman, the matter of establishing a general system of incentives to spare residential energy conservation has long been of
special concern to me. The portions of the President's energy package and my alternative proposal, S. 1304, to which you referred
which we are considering today cover only one aspect of this important issue.
The administration's u t i l i t y program is apparently predicated on
two assumptions. One is that an adequate residential retrofit market
w i l l not arise purely f r o m the energy price incentives and the tax
credits that are established under other sections of the national
energy plan. The u t i l i t y program therefore establishes a system under which homeowners w i l l have access to packaged services. Energy
evaluations, ready financing, and contractor services would be identifiable and obtainable through the utilities. The administration has
also made a second assumption, namely, that a strategy f o r freeing
new capital for such home improvements is essential.
The proposed opening of secondary markets to loans f o r energy
conservation so as to increase the amount of available capital, to even
out the flow of such funds among the various regions, and to create
new lenders i n the utilities is aimed at removing any private market
restrictions existing or anticipated on these funds.
I have been engaged i n debate over these issues since last winter
when F E A Assistant Administrator, W i l l i a m Rosenberg, i n i t i a l l y
proposed a program of u t i l i t y finance and installation of residential
insulation and retrofit. I felt then as I do now, that, even i f indeed
new marketing strategies are necessary to persuade the American
people to conserve residential energy, these u t i l i t y proposals were
the wrong such strategy to pursue. I worked on this matter f o r more
than a half a year and I have yet to see any convincing evidence that
the dangers of allowing regulated monopolies to move into the business of consumer credit and home improvement financing are i n any
way offset by an overwhelming need to replace the combination of
our traditional enterprises and the new conservation programs that
Congress has enacted i n the past 2 years.
I seriously question whether utilities would hold conservation retrofit costs down. I fear they would weaken competition i n the markets
f o r contractor services, materials and credits. I suspect some m i g h t
well be involved i n the k i n d of consumer credit abuses this committee
has been w o r k i n g so hard to reduce and I see no reason utilities
should t r y to duplicate the programs f o r performing energy audits
and consultations w i t h which the Congress has lately entrusted the
new States energy offices.
I n addition, M r . Chairman, I ' m sure that utilities do not want nor
are they prepared to get into this field.
3
M y b i l l , the Energy Conservation Investment A c t of 1977, would
establish an alternative system f o r c a r r y i n g out the purposes of the
u t i l i t y program i n the administration b i l l . The p r i m a r y responsibilities f o r a program to make energy evaluations to buildings and f o r
package home energy conservation services and financing would rest
w i t h the Governors' energy officers which are already developing
such services according to the new State energy conservation plans
mandated by the Energy Policy and Conservation A c t .
Where new capital is needed to supplement resources available f o r
existing financial institutions, H U D may supply capital f r o m a new
revolving f u n d t h r o u g h the States to financial institutions designated
by the governments. U t i l i t i e s could be included i n each phase of this
program i f the Governors should so decide.
M y proposal is designed to remedy the elements of the administration's plan I consider to be g l a r i n g weaknesses, but very candidly I
t h i n k the committee should be using these hearings not only to look
at the impact on the specific program the President has proposed,
but also to reexamine the fundamental assumptions upon which all
of this legislation is based.
Before any f u r t h e r set of plans and regulations is mandated, we
must first of a l l determine whether or not we need to provide more
t h a n the projected increase i n energy priced, the tax credits f o r home
owners and the winterization program f o r low-income households i n
order to maximize residential conservation efforts. W e must ask
whether the difficulty of obtaining an accurate assessment of buildi n g energy consumption is a serious disincentive to action. W e must
look f o r any h a r d evidence available to show that the home owner
really needs the offer of a comprehensive package of material and
services, and of special interest to this committee is the matter of
whether there are t r u l y capital shortages or imbalances impeding the
availability of credit f o r these conservation investments. I f so, we
s t i l l have to carefully consider whether the radical alterations i n our
financing programs proposed by the President are i n fact warranted
by any d i f f i c u l t i e s we may uncover. T o be perfectly f r a n k , I have
followed the hearings on these issues i n two committees of the House
and the Senate Energy Committee and I ' m not at a l l satisfied that
there's a need f o r these programs i n addition to the tax and price
incentives that are i n the national energy plan. I look f o r w a r d to
questioning the witnesses we have invited as well as soliciting the
views of some others whom I feel should have a similar opportunity
to be heard. There's no question that this committee's findings w i l l
be shared by the Energy and N a t u r a l Resources Committee, w i l l
have important implications f o r the Senate. W e are going to have to
assess whether or not a wide variety of new regulations, incentives
and sanctions must be added to the fundamental p r i c i n g and t a x i n g
provisions of our new energy legislation i n order to achieve significant conservation improvements. I f the answer is yes, our w o r k is
cut out f o r us i n determining what is the simplest, most economic
and most equitable package of incentives that w i l l f u n d the attainment of our national goal of drastically reducing our energy use.
I thank you, M r . Chairman.
The CHAIRMAN. Thank you, Senator Brooke. Senator Schmitt.
4
OPENING STATEMENT OF SENATOR SCHMITT
Senator SCHMITT. Thank you, M r . Chairman.
I t h i n k this is an extremely important set of hearings that we .will
have today, as all of the hearings i n the Congress relative to the national energy policy proposed by the administration. I ' m a f r a i d m y
greatest concern is that the Congress has been diverted f r o m the real
issues of energy policy by discussion of tax rebate and regulation and
other so-called incentives or disincentives to conserve or to use energy
respectively. I t ' s unfortunate that i n the context of various conservat i o n programs and tax programs that we are not also considering
very positive programs that this country is capable of implementing
that w i l l mean that i n addition to sacrifice w i t h the moral equivalent
of war that we w i l l also have the promise of victory some time early
i n the next century f o r our children and eventually their children.
Conservation is an extremely important part of any energy policy.
I t h i n k that is admitted by all, no matter what side of other issues
they may f a l l upon. However, we must remember that w i t h conservation comes certain problems. I f we conserve too much without clearly
defining where that conservation should occur, we can i n fact trigger
additional unemployment and the possibility of recession. A t the
same time, we must have our sights set on the future where our use
of energy is decoupled f r o m our economic growth to some degree. I t
w i l l never be completely decoupled, but I t h i n k that's a fact that w i l l
be admitted by all. We also must remember i n our conservation discussions that there really basically are two types of conservation—
operational conservation which is just how do you use the equipment
and the facilities and the housing that you have today, and there's
modification conservation or capital-intensive conservation which i n
many cases w i l l i n a short-term result i n an increased use of energy
i n order to provide the materials necessary for such conservation.
Those two types of conservation have to be balanced. We have to be
aware that at any time we are s t i l l extremely vulnerable to a restriction of imports of petroleum f r o m abroad and that at a particular
time raise our dependency on that could cause other international
and national difficulties.
Energy must also be available to the housing industry which is the
focus of much of our attention today, not only i n construction of
homes but i n the use of those homes by consumers. A n d so at any
time we t a l k about conservation we must simultaneous t a l k about
production and insuring that energy is available to the people that
w i l l eventually use i t or are able to, those who are already using
energy i n their homes. I t h i n k it's important that the Department of
Housing and U r b a n Development and E K D A and N A S A have been
w o r k i n g together for some time on the solar heating and cooling
demonstration program, one which I understand is moving quite
well considering the status of the technology that exists today and
that existed when that program began. I hope that this effort w i l l
continue so that this conservative energy source, which is the Sun,
can continue to be made available i n an increasing amount to the
people of this country f o r their homes and f o r their business enterprises.
5
F i n a l l y , M r . Chairman, I t h i n k it's important that this committee
keep i n the back of its mind the economic assumptions that underlie
much of the President's energy policy. As you may recall, on another
occasion i n this committee and i n the other committees considering
this legislation i t has come to light that the administration is anticipating a sustained growth rate of 5.2 percent i n the economy over
the next decade or so. A t the same time, they are hoping to cut the
use of energy to an annual growth of 2 percent. W e l l , again, as I
mentioned earlier, these two growth rates, our national economic
growth and our energy growth rates, have been very closely coupled
ever since W o r l d W a r I I , and it's going to be an extremely difficult
job, not necessarily completely impossible, but very difficult to decouple those and I think this committee must spend some time discussing that issue either today or at some other point i n the future.
The free market has been grossly distorted by our energy policies
of the past. I t h i n k one of our goals must be to gradually remove
those distortions understanding that i n the process i t w i l l take a great
deal of effort by Government to insure that there are no inequities
and there's no great unnecessary sacrifice by people who would suffer
i f the distortions were removed instantly.
A case i n point is the decontrol of natural gas. I t h i n k that most
observers, at least outside the Congress, would say that it's necessary
for a decontrol of new natural gas. Simultaneously, however, there
are people dependent on cheap natural gas and we must insure that
those people and those industries dependent on that gas are not adversely affected by such a decontrol operation.
So finally, M r . Chairman, I wish to compliment you for holding
these hearings and f o r the list of witnesses that we have and I ' m
looking forward to their testimony.
The C H A I R M A N . Thank you, Senator Schmitt. I understand the
other Senators do not have an opening statement.
Our first witness is Hon. D a v i d J. Bardin, Deputy Adminstrator,
Federal Energy Administration. M r . Bardin, we are glad to have
you. Go r i g h t ahead. Incidentally, i f you would like to abbreviate
your statement i n any way we w i l l be happy to have i t printed i n
f u l l i n the record.
STATEMENT OF DAVID J. BARDIN, DEPUTY ADMINISTRATOR,
FEDERAL ENERGY ADMINISTRATION, ACCOMPANIED BY ROBERT
HEMPHILL, DIRECTOR OF CONSERVATION POLICY
M r . B A R D I N . I f I may, it's lengthy statement.
The C H A I R M A N . I t ' s a 1 9 - or 20-page statement, so you go r i g h t
ahead.
M r . B A R D I N , I ' l l be happy to highlight it.
The C H A I R M A N . A n d the attachments w i l l be printed i n the record,
too.
M r . B A R D I N . I am accompanied, M r . Chairman, by M r . Robert
Hemphill, the Director of Conservation Policy i n the Federal Energy
Administration and I want to introduce h i m to the committee.
W e appreciate the committee's attention to the very serious issues
before you today as outlined i n your opening statement, M r . Chairman, and the other opening statements.
6
Conservation is the cornerstone of the national energy plan.
President Carter's conservation proposals would implement a prog r a m repeatedly called f o r by the Congress i n recent years and
builds on the foundation l a i d by the Congress i n recent enactments.
The proposals before you today, together w i t h the tax proposals i n
S. 1472 t h a t w i l l be considered by the Committee on Finance, are expected to save a fuel equivalent estimated at 920,000 barrels of o i l
per day by 1985. That's close to a m i l l i o n barrels of o i l f u e l equivalent
per day by 1985 and to give you a frame of reference, last year we
consumed approximately 17 m i l l i o n barrels of o i l a day of w h i c h
over 7 m i l l i o n barrels a day was imported. So we are discussing
programs aimed to achieve substantial results by 1985 and i n the
years thereafter.
The tax credit programs are twofold. One is a residential tax credit
to consist of 25 percent of the first $800 and 15 percent of the next
$1,400 invested i n r e t r o f i t t i n g existing buildings. T h a t tax credit program which is now before the Finance Committee w o u l d be available f r o m A p r i l 20 of this year t h r o u g h January 1, 1985. The
second is a business-investment tax credit of 20 percent f o r investments starting A p r i l 20 of this year t h r o u g h January 1, 1983, w h i c h
w o u l d be available to, among others, the owners of m u l t i p l e d w e l l i n g
units.
The proposals immediately before you i n the legislation referred
to this committee include the u t i l i t y conservation p r o g r a m under
w h i c h utilities would participate i n i n f o r m i n g their customers of
effective energy conservation retrofit measures, w o u l d offer to install
the retrofit materials, usually t h r o u g h subcontractors, and as an
alternative to the customer dealing directly w i t h contractors or doi n g the installation himself, and also would offer a source of alternative financing. The proposals before you also include a weatherization
program f o r low income homeowners whom a tax credit w i l l not
benefit, and mechanisms f o r additional financing of home improvements.
L e t me t u r n i f I may first to the u t i l i t y conservation p r o g r a m and
some of the issues that have been raised w i t h regard to t h a t program.
Under the administration proposal, by January 1980, every homeowner w i l l have been contacted and i n f o r m e d about available conservation measures and offered the most convenient set of services
available to make his home energy efficient. The contact would be the
electric u t i l i t y and/or the gas u t i l i t y serving t h a t area. There m i g h t
be t w o contacts by each u t i i l t y . These services m i g h t also be offered
v o l u n t a r i l y by the homeowner's fuel o i l dealer. There m i g h t be a
selling i n addition independent contractors w i l l likely offer to install
retrofit materials directly. B u t the b i l l before you would mandate
as to the electric and natural gas utilities an obligation, a duty, to
contact the homeowner to provide h i m or her w i t h information,
offer insulation installation services and offer financing services.
A t present, the homeowner faces a bewildering array of informat i o n sources, of separate contractors, and of lenders, who must each
be contacted i n d i v i d u a l l y i n t r y i n g to p u t together a complete conser-
7
vation package. Developing one central source of i n f o r m a t i o n and
service is an essential element i n achieving serious conservation goals
w i t h i n a reasonable time frame.
Surveying the possible organizations to do that job, we have selected public utilities. Public utilities are located throughout the
country. They have well established relations w i t h v i r t u a l l y every
homeowner. A public u t i l i t y is a permanent member of the community. There's no way i n which a u t i l i t y , any more than local government, can simply pack up its business and move out of town.
Generally utilities are subject to careful regulation and control by
state agencies. O u r proposal gives people the choice to use the u t i l i t y
service. They don't have to use i t but the u t i l i t y would have to offer
it.
Several progressive utilities have already undertaken such conservation programs. W e don't dream this up i n 1977 out of whole cloth.
Attached to my prepared testimony is a list of gas distribution u t i l ities, almost three dozen around the country, that have already undertaken one or another part of our program. None of them—or
v i r t u a l l y none of them have actually undertaken a l l of it. I t seems
to us there ought to be a framework set by Congress imposing an
obligation on the utilities i n the country and defining their responsib i l i t y to help the people of America conserve fuel.
I want to emphasize t h a t we don't seek to carve up the residential
market among the utilities by heating fuel type, f o r example. I n stead, the administration proposal seeks to stimulate m u l t i p l e and
competing offers to the American homeowner. Ideally American
householders w i l l be offered i n f o r m a t i o n and services by electric u t i l ities, by gas utilities, by fuel o i l dealers and by independent contractors, each competing to get a message across and offering competing
services. The conservation packages offered by utilities w i l l vary by
location and b u i l d i n g types.
The Federal Trade Commission has proposed a number of modifications to guarantee adequate competition i n the u t i l i t y program
and to strengthen our product quality proposals. W e agree w i t h
some. W e agree w i t h the Federal Trade Commission that utilities
ought to be subject to the requirements of the T r u t h - i n - L e n d i n g Act.
W e also agree that the Federal Energy A d m i n i s t r a t i o n ought to
consult w i t h the Federal Trade Commission i n developing the specific implementing regulations to carry out the u t i l i t y program so as
to assure competition at that level and also to deal at the subcontractor level w i t h the danger of f r a u d inherent i n this k i n d of very large
business outreach to many householders.
W e strongly oppose, however, the Federal Trade Commission's
proposals to narrow the requirement that utilities offer to install insulation. I n l i g h t of the urgent need to save energy, we believe u t i l ities must be mandated to offer both the installation and the financing
services proposed. A s I understand it, the Federal Trade Commission's concerns are l i m i t e d only to the installation services. The Federal Trade Commission is understandably anxious to preserve a
maximum choice, a competitive choice, f o r each homeowner. W e
share their concern, but we urge the committee t o look carefully at
8
the picture that some would paint to you of predatory utilities who
w i l l take u n f a i r advantage of this program, moving f r o m the p a t r i otism of conservation to seizing control of the conservation retrofit
market or even of using the occasion to convince homeowners to
switch f r o m their present home fuel to a fuel t h a t the u t i l i t y is anxious to push.
More specifically, the solution advocated by the Federal Trade
Commission i n addressing the hypothetical, the alleged problem of
the predatory u t i l i t y is simply unrealistic, even schizophrenic, because
the solution is to make the program voluntary t o allow those u t i l ities already doing this program, to promote conservation and installation of retrofit and financing of retrofit i f they so elect.
Now i f there is a predatory u t i l i t y out there, i t certainly is going
to elect to take advantage of this opportunity. W h a t we w a n t to do
is to enlist the good services of all the utilities w i t h the managerial
capability to reach the public to get a job done i n a reasonable number of years, a job which w i l l take a great deal of know-how and organization i f i t is to be accomplished.
W e have considered which intermediate agency at the State level
is best capable of coordinating the program and i n the administrat i o n b i l l it's the regulatory agency, the State public u t i l i t y commission, t h a t would w o r k w i t h the regulated utilities t o accomplish t h a t
program. A g a i n , we do not concoct t h a t model out of whole cloth i n
1977. W e have experience i n states Where, as we see i t , the best solut i o n is have an aggressive State energy office p e r f o r m i n g an advocacy
role, t u r n i n g to the regulatory agency and advocating the development of this k i n d of conservation program by the utilities w i t h the
program actually implemented by the u t i l i t y regulatory commission.
A f t e r all, i t is not the Governor or the State energy office which
generally has regulatory responsibility over the electric and gas u t i l ities of the country. I t is typically the public u t i l i t y commissions of
the States. F o r example, i n C a l i f o r n i a and i n my home State of New
Jersey, we have seen that k i n d of system i n which the State energy
office turns to the P U C advocating a u t i l i t y conservation retrofit program. W e would certainly write i n t o the program a requirement f o r
coordination w i t h the Governor and the Governor's State energy office i n order to achieve a t i g h t , well-managed organization at the
State level.
Concern has also been expressed about the possibility of shortages
and price increases f o r weatherization materials. W e have examined
the capacity of the various industries which produce the materials to
be installed i n homes and have concluded that i f the p r o g r a m is
spread out over the 9-year period which we propose there w i l l be adequate incentives f o r manufacturers of a l l types to provide insulation
to meet the increased demand.
W e have a recently completed study of the insulation i n d u s t r y
which I would like to make available to the committee today w h i c h
describes the supply t h a t would be available t o meet residential insulation retrofit demand. T h i s is a study prepared just this month.
A n additional study is underway by the Department of Commerce
and ought to be ready i n J u l y .
W e recognize that followup by the appropriate Federal agencies
as well as nongovernmental bodies is certainly going to be desirable
9
to help us l i m i t the risk of an overheating of insulation prices. The
program seeks to develop a secondary market f o r home improvement
conservation loans and would allow the utilities to become eligible
lenders under the H U D title I loan program.
A number of alternatives were considered as we prepared the plan
f o r energy conservation i n residences. Some of these would have imposed mandatory requirements on the i n d i v i d u a l homeowner. W e
decided, instead, to rely on a voluntary conservation program as f a r
as the i n d i v i d u a l homeowner was concerned. The expectation of the
administration proposal is t h a t the public response w i l l be sufficient
to meet our goals of achieving adequate insulation i n 90 percent of
the single and t w o - f a m i l y homes by 1985. I f i t becomes apparent i n
subsequent years t h a t we are not making adequate progress toward
that 90-percent goal, then we w i l l have to consider proposing legislat i o n designed to guarantee achievement of that goal.
Moreover, any substantial reduction i n the package of voluntary
proposals that has been submitted to the Congress, such as changes
proposed i n the other body circumscribing the role of the utilities i n
the conservation program, w i l l of course make the need f o r mandatory measures as to the i n d i v i d u a l homeowner a l l the more likely
i n the future.
I ' d like to focus i f I may on several new provisions that were
added by the House Committee on Banking, Finance and U r b a n A f fairs f o r the i n f o r m a t i o n of this committee.
The House committee would require the Department of H U D to
revise and strengthen its m i n i m u m property standards. The administration supports such action.
The House committee would establish a $25 m i l l i o n weatherization
program f o r r u r a l low income residences to be r u n by the Farmers
Home Administration. This program would duplicate and we t h i n k
complicate the F E A weatherization program which I shall describe.
Under the F E A grant program States receiving the grants are
authorized to provide weatherization assistance i n both r u r a l and
urban areas. W e don't t h i n k that under these circumstance, a case
has been made f o r the additional $25 m i l l i o n authorization earmarked
f o r the r u r a l areas.
The House committee would provide for $10 m i l l i o n a year f o r
the Department of H U D to weatherize existing stock of public
housing. The administration does not believe that new legislation is
needed to authorize (that program. We believe that H U D already has
that authority but we believe that implementing that authority is
long overdue and the administration strongly supports action to
weatherize the existing H U D - o w n e d public housing stock.
F i n a l l y , the House b i l l provides a subsidized loan program at low
interest rates. Subject to two caveats, the administration supports
the addition of new authority f o r a loan program. The caveats are,
first, that the i n d i v i d u a l homeowner has an option but he would have
to choose between the tax credit and the loan. There should not be a
double d i p p i n g here or any other aspect of the program. So the administration would propose carefully worded authority to the administrator to assure by regulation that there is no overlap. Second,
i t is our intention to defer any decision on whether to implement the
10
loan program and, i f so, on when to implement t h a t p r o g r a m u n t i l
the entire package has been developed and we have had a chance to
consult w i t h the congressional committees on the net result o f the
entire package, and also u n t i l we have an opportunity to test the
conditions of the insulation manufacturers and insulation market
as to the whole question of the a b i l i t y t o respond to increased demand.
T u r n i n g t o the low-income weatherization p r o g r a m w h i c h was established by the Energy Conservation and Production A c t , the adm i n i s t r a t i o n proposes to increase the authorization f r o m the present
$200 m i l l i o n f o r grants to the States f o r the weatherization of low
income housing to $585 m i l l i o n .
T h e House Committee on Banking, Finance and U r b a n A f f a i r s
has voted (to increase the income e l i g i b i l i t y level f o r the program
f r o m 100 percent of the poverty line to 125 percent of the poverty
line. W e understand the advantages and agree w i t h the desirability
of this change so long as flexibility be provided to the administrator
of F E A t o insure, again, t h a t there be no overlap, t h a t there be no
double dipping. W e do not want to provide both the tax credit and
the weatherization grant to the same homeowner. W e are concerned
t h a t the overall cost of this program be carefully controlled. A t the
125 percent of the poverty guidelines e l i g i b i l i t y level, over 14 m i l l i o n
households would be eligible, whereas at the 100-percent level, 8.6
m i l l i o n households would qualify. The advantage under the 125percent-eligibility level is that 99 percent of American households
w o u l d be covered under one or the other program. T h i s w o u l d eliminate a serious gap i n our o r i g i n a l program, but there are dollar
implications, long-term budgetary implications, which are of great
concern to us.
The House committee has proposed a number of other changes i n
the b i l l as to the spending l i m i t per household and the retrofit activities to be covered, and we do not believe that the additional
changes which would expand the p r o g r a m would be either budgetarily prudent or entirely cost-effective.
W e urge you to authorize the $585 m i l l i o n level t h r o u g h 1980 w h i c h
is proposed i n the President's b i l l f o r weatherization and we w i l l of
course consider f u r t h e r authorization requests f o r a period thereafter based on the effectiveness of the program and actual experience.
The final aspect of the p r o g r a m has to do w i t h the standards f o r
new buildings to be set by the Secretary of H U D . T h e President has
directed the Secretary to accelerate t h a t program by 1 year. I t w i l l
take additional funding, p a r t i c u l a r l y f o r the State implementation
of programs f o r t r a i n i n g personnel w h i c h M r . Simons w i l l deal w i t h .
I n conclusion, we believe the proposals f o r voluntary residential
conservation must be viewed as a package aimed at assuring t h a t we
get as good a crack as possible at getting to t h a t goal of 90-percent
retrofit, 90 percent of adequate insulation f o r American homes by
1985. W e have relied on a combination of Federal financial incentives,
easily accessible information, and readily available installation and
financing services to achieve this goal. The alternative of a detailed
mandatory program w o u l d require cumbersome administrative mech-
11
anisms by some level of government and would appear t o many people to be inequitable. W e believe we can avoid such a requirement but
only by timely enactment of a voluntary program w h i c h is comprehensive.
W e look f o r w a r d to w o r k i n g w i t h this committee i n t h a t effort.
I would be happy to answer any questions you may have.
[Complete statement follows:]
STATEMENT
OF
DAVID
J.
BARDIN,
DEPUTY
ADMINISTRATOR,
FEDERAL
ENERGY
ADMINISTRATION
M r . Chairman and members of the subcommittee, I am D a v i d B a r d i n ,
Deputy A d m i n i s t r a t o r of the Federal Energy A d m i n i s t r a t i o n . I am here this
m o r n i n g to present the views of the A d m i n i s t r a t i o n on the residential conservation provisions of President Carter's proposed N a t i o n a l Energy A c t contained i n P a r t A of S. 1469. T h i s P a r t includes proposals f o r u t i l i t y conservafinancing,
t i o n programs, low-income weatherization, adequate conservation
and accelerated development of new b u i l d i n g standards.
Conservation is the cornerstone of the N a t i o n a l Energy Plan. Conservation
means more efficient and tempered use of our energy resources. Conservation
cuts down the r i s k of curtailment and saves resources so t h a t Americans can
protect our real standard of living. Conservation can lead to a higher quality
of life.
Congress has repeatedly called f o r the development and implementation of
conservation programs. Section 5 (b) (7) of the Federal Energy Administrat i o n A c t of 1974 provides t h a t the A d m i n i s t r a t o r shall "develop and oversee
the implementation of equitable v o l u n t a r y and mandatory energy conservation
programs and promote efficiencies i n the use of energy resources." The proposals before you today b u i l d on p r i o r Congressional i n i t i a t i v e s expressed i n
the Energy Policy and Conservation Act of 1975 ( E P C A ) , and the Energy
Conservation and Production A c t of 1976 ( E C P A ) . I n some areas we now propose to accelerate and expand existing programs. I n others we propose similar
or related new programs t h a t w i l l stimulate conservation activities. The proposals before you today, together w i t h related t a x credit proposals i n S. 1472,
to be considered by the Senate Finance Committee, w i l l save f u e l equivalent
to an estimated 920,000 barrels of o i l per day by 1985.
M y testimony today w i l l address these proposals, as w e l l as discussing the
m a j o r issues t h a t have been raised about them, and the impact of actions
taken by the House of Representatives to date.
E X I S T I N G RESIDENCES
Seventy-four m i l l i o n households i n the U n i t e d States consume 23 percent of
our Nation's energy, or the equivalent of 8.3 m i l l i o n barrels per day. F u l l y
three-quarters of this 23 percent goes to w a t e r heating and space heating and
cooling. The goal of our residential energy conservation proposals is to b r i n g
90 percent of a l l American households up to m i n i m u m Federal insulation
standards by 1985.
W e have made five proposals w h i c h together address t h i s goal. T w o of
them, the residential energy t a x credit and the business t a x credit, are contained i n S. 1472 and are to be considered by the Committee on Finance. The
remaining three before you today are the u t i l i t y conservation programs, the
provisions to assure adequate financing, and the increases i n the low-income
Weatherization program.
W e a l l know how much household budgets have been h u r t d u r i n g w i n t e r
months by r i s i n g home heating f u e l costs. T h i s past w i n t e r average bills across
the country increased d r a m a t i c a l l y over the preceding year, reflecting higher
energy costs as w e l l as the extreme cold. Though savings w i l l v a r y by climate
and by the i n i t i a l condition of the house, households w h i c h participate i n the
residential conservation program and improve t h e i r energy efficiency w i l l save
about 35 percent of t h e i r energy consumption f o r heating and cooling or f u l l y
20 percent of t h e i r t o t a l home energy use.
The t o t a l energy savings potential t h r o u g h conservation investments i n
existing residences exceeds the equivalent of 500,000 barrels of o i l per day.
12
Greater attention by home dwellers to t h e i r own energy use w o u l d result i n
f u r t h e r savings. Temperature settings, equipment maintenance, a n d actions as
simple as opening and closing windows a t appropriate times each substantially
affect energy consumption.
U T I L I T Y C O N S E R V A T I O N PROGRAM
P a r t A, Subpart 1 of S. 1469 w o u l d establish a u t i l i t y energy savings program, as a v i t a l element of the t o t a l residential energy conservation proposals
i n the b i l l . The u t i l i t y program w i l l require the Nation's public u t i l i t i e s to provide a " t u r n k e y " conservation service, including identification, i n s t a l l a t i o n , and
financing of conservation items. I t is an i n f o r m a t i o n and service program, of
v i r t u a l l y no cost to the Federal Government, designed to overcome one of the
more significant human diseases, lethargy. I f this program is enacted as we
suggest, by J a n u a r y 1, 1980, every homeowner w i l l have been contacted, inf o r m e d about available conservation measures, and offered t h e most convenient
set of services available to make his home energy efficient.
Each gas or electric u t i l i t y w i l l be required to offer its customers a conservat i o n program w h i c h meets several Federal requirements. B y J a n u a r y 1, 1980,
u t i l i t i e s w i l l offer three services:
To inspect upon request the residence of each customer and provide energy
conservation costs and savings i n f o r m a t i o n ;
To arrange to i n s t a l l certain specified conservation measures at the customer's request ( n o r m a l l y t h r o u g h subcontractors), w h i l e also p r o v i d i n g
a list of a l l other businesses i n the area who could do the w o r k ; and
To arrange financing f o r these investments through additions to u t i l i t y
bills, i f desired by the customer, and provide h i m or her w i t h a l i s t of a l l
competing qualified lenders i n the area.
Owners and renters of one and t w o f a m i l y residences w o u l d be included i n
this coverage, and would also be eligible f o r financing and f o r t a x credits.
T o carry out the program, F E A w o u l d develop guidelines f o r u t i l i t y conservat i o n programs w i t h i n 120 days of the passage of the Act. U t i l i t y commissions
w o u l d be asked to submit plans f o r d i r e c t i n g the u t i l i t i e s they regulate t o c a r r y
out adequate conservation programs, as described above. I f a regulatory commission d i d not submit an adequate plan, the F E A w o u l d itself direct u t i l i t i e s
to undertake conservation programs. Nonregulated utilities, such as m u n i c i p a l
u t i l i t i e s or cooperatives, w o u l d submit plans f o r conservation programs d i r e c t l y
to F E A f o r approval. U t i l i t i e s w i t h sales below 750 m i l l i o n k w h or 10 b i l l i o n
cubic feet ( f o r electricity and n a t u r a l gas respectively) w o u l d be exempted
f r o m t h i s requirement of t h e Act. W e w o u l d thus require action by about 380
of the Nation's over 3000 municipal, cooperative, and p r i v a t e l y owned u t i l i t i e s .
C e r t a i n other exemptions w o u l d be allowed. A n y u t i l i t y w i t h inadequate
resources to finance conservation, or an i n a b i l i t y to arrange financing f r o m
another source, w o u l d be exempted f r o m the requirements to offer
financing.
U t i l i t i e s could also propose t o implement a l t e r n a t i v e programs w h i c h do not
meet the specific requirements of the A c t i f they could demonstrate t h a t t h e i r
alternative program w o u l d be equally effective.
A t present, a homeowner faces a bewildering a r r a y of i n f o r m a t i o n sources,
of separate contractors, and of lenders, w h o must each be contacted indiv i d u a l l y i n t r y i n g to put together a complete conservation package. Developing
one central source of i n f o r m a t i o n and service is an essential element i n the
achievement of our goals. W e have selected public u t i l i t i e s to serve this funct i o n since they are located i n every p a r t of the country, and already have
well-established relations w i t h v i r t u a l l y every household i n the Nation. Moreover, u t i l i t i e s are permanent members of the community they serve and are
generally carefully regulated and controlled. Our proposal gives people the
choice to use the u t i l i t y service or not.
Several progressive u t i l i t i e s have already undertaken conservation programs
offering p a r t of the services we have proposed to make mandatory. I have
attached a l i s t of such utilities. T h e great m a j o r i t y are not offering a l l the
services w h i c h we believe must be available f r o m one source, but t h e i r experiences to date have l a i d a base f o r f u t u r e programs. M a n y f u e l o i l dealers have
also offered conservation services to t h e i r customers, often as p a r t of n o r m a l
annual servicing contracts. We have proposed t o let the f u e l o i l dealers themserves decide t o offer conservation services, r a t h e r t h a n establishing some new
mechanisms to require participation.
13
W e do not seek to carve up the residential m a r k e t by heating f u e l type f o r
the purposes of conservation programs. Instead we seek t o s t i m u l a t e multiple,
competing offers to American households. A home served by a p a r t i c i p a t i n g
electric u t i l i t y but buying n a t u r a l gas f o r heat w o u l d receive offers f r o m both
u t i l i t i e s f o r conservation services. S i m i l a r l y , homes w i t h o i l heat and electric
service w o u l d receive an offer of conservation services f r o m the electric u t i l i t y ,
b u t could also receive such an offer f r o m their o i l dealer. I n each instance, contractors not connected w i t h f u e l o i l or u t i l i t y businesses could also compete.
To the extent American households have practical opportunities, we expect
them to select and go f o r w a r d w i t h appropriate conservation packages.
The conservation packages offered by the u t i l i t i e s w i l l v a r y by location and
may include ceiling, wall, floor, and w a t e r heater insulation, storm windows,
clock or automatic thermostats, caulking and weatherstripping, and three
specific furnace modifications. Our regulations w i l l define the measures appropriate to various buildings and parts of the country according to climate
and type of construction. For example, i t does not pay to t r y to insulate cert a i n types of homes or to add storm windows i n certain parts of the country.
W e have chosen the specific measures f o r consideration because we believe the
number of homes i n w h i c h they are cost-justified t o be large, though we do not
deprecate private choices t o use other measures. We chose to exclude other
measures, such as storm doors and reflective glass, because we believe the
number of homes where they are cost-effective to be small.
W e have proposed t w o efforts to l i m i t the possibility of f r a u d i n the production, sale, and installation of such materials. F i r s t , the proposed legislation
w o u l d allow F E A to promulgate standards f o r the manufacture and installat i o n of materials. W e would rely on E R D A and N B S f o r technical support i n
the development of these standards. I n f o r m a t i o n gathered f r o m H U D and
GSA w i l l also be useful, and we would w o r k w i t h knowledgeable p r i v a t e organizations. Secondly, State regulatory agencies w i l l be required to develop
programs f o r preventing u n f a i r or deceptive activities i n connection w i t h u t i l i t y
home conservation programs.
The Federal T r a d e Commission has proposed a number of modifications to
guarantee adequate competition i n the u t i l i t y p r o g r a m and to strengthen our
product quality proposals. We agree w i t h the F T C t h a t u t i l i t i e s ought to be
subject to the requirements of the T r u t h i n Lending A c t w i t h respect to the
expanded role i n conservation financing. We also agree t h a t F E A ought to
consult w i t h F T C i n the development of the standards and f r a u d prevention
guidelines I described a moment ago. We strongly oppose the F T C proposals to
n a r r o w the requirement t h a t u t i l i t i e s offer to i n s t a l l insulation. I n l i g h t of
our Nation's urgent needs t o save energy, u t i l i t i e s must be mandated to offer
the i n s t a l l a t i o n and financing services proposed. FTC's concerns are l i m i t e d to
i n s t a l l a t i o n services, being anxious to preserve a m a x i m u m choice f o r each
household.
B o t h the House Banking, Finance and Urban A f f a i r s Committee, and the
Energy and Power Subcommittee of the House Interstate and Foreign Commerce Committee have l i m i t e d the u t i l i t y role i n installation. W e feel t h a t this
seriously cripples the potential impact of the program, destroying the "onestop shopping" appeal of our proposals and requiring l i t t l e more of u t i l i t i e s
t h a n t h a t they send out a b i t of energy conservation advice along w i t h f u e l
bills, sometime before 1980. We share the strong concern, also expressed i n the
House, t h a t u t i l i t i e s be prevented f r o m dominating local insulation markets.
B u t supervision by both F E A and State regulatory agencies i n consultation
w i t h the appropriate a n t i t r u s t agencies, under the requirements promoting
competition w h i c h are found i n the bill, w i l l protect the public's interest i n
competition.
Concern has been expressed about the possibility of shortages and price
increases f o r weatherization materials. W e have examined the capacity of the
various industries w h i c h produce the materials to be installed i n homes. We
have concluded t h a t i f a program to insulate homes is spread over the 9-year
period we are proposing, there w i l l be adequate incentives f o r manufacturers
of a l l types of i n s u l a t i o n t o b u i l d new facilities to meet increased demand. A
recently completed study of the insulation industry, w h i c h I am today m a k i n g
available to the Committee, supports our earlier conclusions about the f u t u r e
9 4 - 8 4 3 O - 77 - 2
14
supplies of insulation. W e look f o r w a r d to the f u r t h e r analysis of t h i s issue
w h i c h w i l l be completed by the Department of Commerce i n J u l y .
The House Committee on B a n k i n g has shifted management responsibility f o r
u t i l i t y programs f r o m State regulatory agencies to the Governors. W e have
chosen State regulatory bodies to manage the conservation p r o g r a m because
they already possess substantial a u t h o r i t y over public utilities, and thus u t i l i t y
programs can be i n i t i a t e d w i t h o u t m a j o r changes i n State laws. I n addition,
State regulatory bodies already have substantial experience and expertise i n
m o n i t o r i n g and regulating the activities of u t i l i t i e s . Few Governors have t h i s
experience or currently have the a u t h o r i t y to direct u t i l i t y activities. Under
our approach, the Governors w o u l d have a role, since we i n t e n d to require cocoordination of u t i l i t y programs w i t h other State activities as p a r t of our
regulations. Several State energy offices have, i n fact, already moved aggressively i n t h i s area.
The A d m i n i s t r a t i o n has f o u n d i t difficult t o design incentives f o r v o l u n t a r y
r e t r o f i t of m u l t i - f a m i l y buildings. M a n y owners who pay f u e l bills h o l d buildings f o r appreciation r a t h e r t h a n f o r operating profits. A n d renters who pay
f u e l b i l l s are not w i l l i n g to invest i n measures w i t h useful lives longer t h a n
t h e i r tenancy.
Three of our proposals address conservation i n m u l t i - u n i t buildings. A l l
tenants w i l l be eligible f o r the residential t a x credit f o r whatever expenses
they m i g h t i n c u r i n buying materials on our l i s t of eligible measures. Moreover, owners w i l l be eligible f o r the business t a x credit, and buildings occupied
by low-income families may be featherized w i t h Federal funds.
P R O V I S I O N S TO A S S U R E A D E Q U A T E
FINANCING
Sections 110-114 of S. 1469 are designed to help assure t h a t interest rates to
homeowners are reasonable and t h a t as f e w u t i l i t i e s as possible are exempted
f r o m the financing provisions described above. U t i l i t i e s w o u l d become eligible
lenders under the H U D T i t l e I Loan Program. These loans could be grouped
i n t o packages of loans of equal t e r m and interest rates, and then sold to such
secondary m a r k e t organizations as Fannie Mae and Freddie Mac. Other institutions now dealing i n packaged home mortgages on the secondary m a r k e t may
then be more l i k e l y to purchase these packages as well. We recognize t h a t
there are nonfederal a d m i n i s t r a t i v e decisions and agreements w h i c h need to
be made i n order f o r an active secondary m a r k e t i n home improvement loans
to begin. However, w i t h a large enough volume of these loans, and w i t h cooperation f r o m u t i l i t i e s and lenders, we consider i t l i k e l y t h a t such a m a r k e t
can be created.
As you may be aware, a number of alternatives were considered as we
prepared t h i s plan f o r conservation i n residences. Some of these w o u l d have
imposed mandatory requirements on i n d i v i d u a l homeowners to insulate t h e i r
homes. W e have decided instead to rely on a v o l u n t a r y p r o g r a m of conservat i o n services through u t i l i t i e s and Federal financial incentives w i t h the expect a t i o n t h a t public response w i l l more t h a n meet our goals. I f i t becomes apparent i n subsequent years t h a t adequate progress is not being made towards
the President's goal of i n s u l a t i n g 90 percent of American homes, we w i l l consider proposing legislation designed to guarantee achievement of t h i s target.
Any substantial reduction i n the package of v o l u n t a r y proposals we have submitted, such as the changes proposed by the House circumscribing the role of
the u t i l i t i e s i n the conservation program, w i l l of course make t h e need f o r
mandatory measures i n the f u t u r e a l l the more likely.
T h e b i l l reported out by the House Banking, Finance and U r b a n A f f a i r s
Committee contains several new provisions. F o r example:
The Committee b i l l w o u l d require H U D to revise and strengthen i t s m i n i m u m
Property Standards, and we support such action.
A $25 m i l l i o n weatherization f o r r u r a l low-income residents r u n by the
F a r m e r ' s Home A d m i n i s t r a t i o n is established. T h i s p r o g r a m w o u l d duplicate
and complicate F E A ' s Weatherization Program. Under the F E A g r a n t program, States are authorized to provide weatherization assistance i n both
r u r a l and u r b a n areas.
$10 m i l l i o n / y e a r i n contracting a u t h o r i t y is authorized to weatherize existi n g H U D - o w n e d public housing. Such a program is long overdue, and we
strongly support i t .
15
LOW-INCOME
WEATHERIZATION
We have proposed to augment the Weatherization P r o g r a m f o r low-income
Americans authorized by T i t l e I V of the Energy Conservation and Production
Act. T i t l e I V authorizes $200 m i l l i o n i n grants over a 3-year period (fiscal
y ear a* 1977-1979) to pay f o r materials such as ceiling insulation, storm windows, w e a t h e r s t r i p p i n g and caulking to be used t o weatherize low-income
homes. The President has proposed expanding T i t l e I V to authorize additional
grants amounting to $385 m i l l i o n t h r o u g h fiscal 1980 ($65 M i n 1978, $120 M
i n 1979, and $200 M i n 1980).
The costs of i n s t a l l i n g the materials w i l l be borne out of Comprehensive Employment and T r a i n i n g A c t ( C E T A ) funds, as w e l l as other alternative approaches t h a t a State or local government may choose, including voluntary
labor. Arrangements are now being made w i t h the Department of Labor to
f a c i l i t a t e the use of C E T A labor f o r this purpose.
A f e w words about the Weatherization Program to date. T h i s program was
authorized i n August of 1976, and i n A p r i l of this year Congress appropriated
$27.5 m i l l i o n to F E A to begin implementation. A n t i c i p a t i n g t h i s appropriation,
F E A issued a set of proposed regulations on A p r i l 1. Public hearings were
held i n 12 cities, i n c l u d i n g the 10 cities of the F E A regions and the final set of
regulations was published on June 1. States have 90 days to apply f o r fiscal
year 77 funds, w h i c h we expect to disburse by September 30.
The House Committee on Banking, Finance, and U r b a n A f f a i r s has voted to
increase the income e l i g i b i l i t y level f o r this program f r o m 100 percent of the
O M B poverty guidelines t o 125 percent. W e understand the advantages and
agree w i t h the desirability of this change i f flexibility is provided to the
A d m i n i s t r a t o r of the F E A to ensure t h a t both the t a x credit and weatherizat i o n are not provided to the same individual. However, we are concerned t h a t
the overall cost of this program be carefully controlled i n view of the f a c t
t h a t such a change w o u l d greatly increase the number of eligible participants.
A t 125 percent of poverty guidelines, 14.1 m i l l i o n households w o u l d be eligible;
at 100 percent, 8.6 m i l l i o n q u a l i f y .
T h i s increase w i l l mean t h a t 99 percent of the households i n the country
can take f u l l advantage of either Weatherization Assistance or the t a x credit,
as midified by the House Ways and Means Committee. I f the credit is available t h r o u g h 1984, as we have proposed, the gap between the t w o programs
w o u l d be eliminated.
The House B a n k i n g Committee has also voted to increase the spending l i m i t
per house f r o m $400 to $800 and to expand the materials and other categories
f o r w h i c h Federal funds could be expended. We estimate t h a t these changes
w i l l raise the average cost of r e t r o f i t t i n g the t y p i c a l low-income house f r o m
somewhat over $200 to about $500. I n combination w i t h the increase i n the
income criterion, these changes would increase the t o t a l Federal cost of retrofitting a l l eligible low-income homes f r o m about $1.8 b i l l i o n to about $5.5 billion. T h i s increase w i l l pay f o r storm doors, reflective glass, clock thermostats, furnace modifications, supervisory labor, and up to $100 per house f o r
s t r u c t u r a l modifications needed t o make the i n s u l a t i n g materials effective. T h i s
is a substantial potential increase i n Federal spending w h i c h could cause
m a j o r budget problems. We do not believe these changes w i l l be either budgetarily prudent or entirely cost-effective. Spending more money per home to
purchase reflective glass, f o r example, w i l l result i n less energy saved t h a n
using the same money to p u t adequate ceiling insulation i n more homes. The
$585 m i l l i o n w h i c h President Carter has proposed to authorize f o r this program
t h r o u g h 1980 would, using the measures i n the House bill, insulate only about
1.1 m i l l i o n homes instead of about 2.5 million. We w i l l consider f u r t h e r
authorization requests a f t e r 1980 based on the program's effectiveness, but we
feel strongly t h a t the $585 m i l l i o n we have requested t h r o u g h 1980 is the
m a x i m u m t h a t can constructively be spent on this program d u r i n g the next
3 years.
NEW
BUILDING
STANDARDS
Today's hearings also address Section 131 of the N a t i o n a l Energy Act. T h i s
Section w o u l d increase the authorization of funds to the Secretary of H U D f o r
grants to the States to help accelerate the implementation of performance
standards f o r energy efficiency i n new buildings.
There are c u r r e n t l y t w o provisions i n l a w w h i c h promote the implementat i o n of new b u i l d i n g standards. Under the Energy Policy and Conservation
16
A c t of 1975, the A d m i n i s t r a t o r of the F E A was authorized to establish a prog r a m of grants to the States f o r energy conservation programs. F i v e p a r t i c u l a r
programs were required as a condition of e l i g i b i l i t y f o r funds. One of the
five programs requires a State to commit itself to adopt and implement by
J a n u a r y 1, 1978, a standard f o r energy efficiency i n new buildings at least as
effective as either the relevant sections of the H U D M i n i m u m Property
Standards, or Standard 90-75, of A S H R A E , the engineering society. $23 m i l l i o n
has been appropriated f o r fiscal year 1977 f o r the State conservation program,
and $50 m i l l i o n has been requested f o r fiscal year 1978. Some of these funds
w i l l be spent on adopting and implementing conservation standards. F E A is
now r e v i e w i n g plans w h i c h States have submitted, and as of June 24 has
made grants to 9 States.
T i t l e I I I of the Energy Conservation and Production A c t of 1976 upon w h i c h
t h i s Committee worked d u r i n g much of the 94th Congress also bears upon
energy efficiency standards. T h i s T i t l e directs the Secretary of H U D to develop
performance standards f o r new buildings no l a t e r t h a n August 1979. These
standards are to become effective at the State level no l a t e r t h a n February
1981.
The President has emphasized the importance of i m p r o v i n g the efficiency of
energy use i n both new and existing housing. H e has directed the Secretary of
H U D to accelerate the schedule f o r development and implementation of the
new b u i l d i n g performance standards by 1 year t o February 1980. We have
requested i n section 313 an a u t h o r i z a t i o n of $10 m i l l i o n f o r each of fiscal year
78 and 79 to make grants to the States to help meet the stringent requirements
of t h i s schedule. These grants w i l l be used p r i n c i p a l l y f o r analysis of the performance standards, f o r development of t r a i n i n g materials relevant to the
State, and f o r actual t r a i n i n g of those officials responsible f o r r e v i e w i n g buildi n g plans and enforcing b u i l d i n g codes. These funds w i l l ease the burden on
the States of our accelerated schedule and make the achievement of our goal
substantially more likely.
CONCLUSION
I n summary, M r . Chairman, we believe t h a t the proposals f o r v o l u n t a r y resid e n t i a l conservation contained i n President Carter's N a t i o n a l Energy A c t
must be viewed as a package whose t o t a l effect w i l l be to achieve our goal of
assuring t h a t 90 percent of the homes i n America are insulated by 1985. We
have relied on Federal financial incentives, i n combination w i t h easily accessible
i n f o r m a t i o n , installation, and financing services, t o reach this goal. A mandat o r y program w o u l d require cumbersome a d m i n i s t r a t i v e mechanisms, and
w o u l d appear to many people t o be inequitable. W e believe we can avoid such
a requirement, b u t only by the t i m e l y enactment of a v o l u n t a r y p r o g r a m w h i c h
is comprehensive. We look f o r w a r d to w o r k i n g w i t h you i n t h a t effort.
I w i l l be happy to answer any questions y o u may have.
GAS COMPANIES MARKETING ATTIC
1977
NEW
ENGLAND
Bay State Gas Co., Springfield, Mass.
The Berkshire Gas Co., Pittsfield, Mass.
Cape Cod Gas Co., Hyannis, Mass.
Gas Service, Inc., Nashua, N . H .
F a l l River Gas Co., F a l l River, Mass.
Valley Gas Co., Cumberland, R . I .
MIDDLE
ATLANTIC
The B r o o k l y n U n i o n Gas Co., B r o o k l y n , N.Y.
Corning N a t u r a l Gas Corp., Corning, N.Y.
Elizabethtown Gas Co., Elizabeth, N.J.
Equitable Gas Co., Pittsburgh, Pa.
N a t i o n a l F u e l Gas Dist. Corp., Buffalo, N.Y.
Philadelphia E l e c t r i c Co., Philadelphia, Pa.
U G I Corp., Valley Forge, Pa.
INSULATION
17
EAST NORTH CENTRAL
Consumer's P o w e r Co., Jackson, M i c h .
M i c h i g a n Consolidated Gas Co., D e t r o i t , M i c h .
M i c h i g a n Gas U t i l i t i e s Co., Monroe, M i c h .
N o r t h e r n I l l i n o i s Gas Co., A u r o r a , 111.
WEST NORTH CENTRAL
M i n n e s o t a Gas Co., Minneapolis, M i n n .
Peoples N a t u r a l Gas, D i v i s i o n of N o r t h e r n N a t u r a l Gas Co., Omaha, Nebr.
SOUTH ATLANTIC
C e n t r a l F l o r i d a Gas Corp., W i n t e r Haven, F l a .
C o m m o n w e a l t h Gas D i s t r i b u t i o n Co., Petersburg, V a .
N o r t h C a r o l i n a N a t u r a l Gas Corp., F a y e t t e v i l l e , N.C.
W a s h i n g t o n Gas L i g h t Co., W a s h i n g t o n , D.C.
EAST SOUTH CENTRAL
U n i t e d Cities Gas Co., Nashville, Tenn.
MOUNTAIN
Cheyenne L i g h t , F u e l & P o w e r Co., Cheyenne, W y o .
C u t B a n k Gas Co., C u t B a n k , M o n t .
G r e a t F a l l s Gas Co., Great Falls, M o n t .
M o u n t a i n F u e l Supply Co., S a l t L a k e C i t y , U t a h
P u b l i c Service Co. of Colorado, Denver, Colo.
PACIFIC
A l a s k a Gas a n d Service Co., Anchorage, A l a s k a
N o r t h w e s t N a t u r a l Gas Co., P o r t l a n d , Oreg.
San Diego Gas & E l e c t r i c Co., San Diego, C a l i f .
S o u t h e r n C a l i f o r n i a Gas Co., Los Angeles, C a l i f .
W a s h i n g t o n N a t u r a l Gas Co., Seattle, Wash.
The CHAIRMAN. Thank you very much. M r . Bardin. Before we go
to questions I ' m going to call on Assistant Secretary Simons who's
also F H A Commissioner. We're happy to have you, M r . Simons.
STATEMENT OF LAWRENCE P. SIMONS, ASSISTANT SECRETARY FOR
HOUSING AND FHA COMMISSIONER, DEPARTMENT OF HOUSING
AND URBAN DEVELOPMENT, ACCOMPANIED BY HARRY K.
SCHWARTZ, ASSISTANT SECRETARY FOR LEGISLATION
M r . SIMONS. Thank you, M r . Chairman.
M r . Chairman, and members of this distinguished committee, I am
very pleased to appear before you today to discuss portions of the
President's National Energy Plan which w i l l affect energy consumption i n housing and the operation of several of our existing H U D
programs. I am accompanied today by H a r r y Schwartz, our Assistant
Secretary for Legislation.
[Complete statement follows:]
S T A T E M E N T OF L A W R E N C E P . S I M O N S , A S S I S T A N T S E C R E T A R Y FOR H O U S I N G A N D
F H A C O M M I S I O N E R , D E P A R T M E N T OF H O U S I N G A N D U R B A N D E V E L O P M E N T
M r . C h a i r m a n a n d members of t h i s d i s t i n g u i s h e d committee, I a m very
pleased to appear before y o u today to discuss p o r t i o n s of the President's
N a t i o n a l E n e r g y Plan, a n d sections of the N a t i o n a l E n e r g y A c t , S. 1469, w h i c h
w i l l affect energy c o n s u m p t i o n i n housing and the o p e r a t i o n of several of
18
existing H U D programs. I am accompanied today by M r . M i l t o n Francis,
A c t i n g Director of the Office of Technical Support i n the Office of Housing, and
M r . Joseph Sherman, Director of the D i v i s i o n of Energy, B u i l d i n g Technology
and Standards, i n the Office of Policy Development and Research.
As you know, the overall goal of the President's proposals f o r energy conservation i n the residential sector is to achieve i n s u l a t i o n of 90 percent of a l l
American homes and a l l new buildings by 1985. A p p r o x i m a t e l y 23 percent of
our Nation's energy use, the equivalent of 8.3 m i l l i o n barrels of o i l per day,
occurs i n the residential sector. J
I n t u r n , three-quarters of t h i s energy is used i n space heating and cooling,
a n d i n the heating of domestic hot water. W e believe t h a t i m p r o v i n g the energy
efficiency of existing residences alone could save more t h a n 500,000 barrels of
o i l per day, and t h a t these savings can and should be realized t h r o u g h prudent
investment i n energy conservation measures. F u r t h e r savings can, of course,
be achieved t h r o u g h adopting a sensible approach to energy use i n the operat i o n of commercial buildings.
T o encourage investment i n residential energy conservation measures the
President has proposed both subsidies and financing programs. T h r e e f o r m s of
subsidies are to be offered.
F i r s t , f o r any i n d i v i d u a l or f a m i l y paying taxes, a t a x credit w o u l d cover
25 percent of the first $800 spent and 15 percent of the next $1,400, f o r a m a x i m u m credit of $410. A n y measures installed a f t e r A p r i l 20, 1977 and before the
end of 1984 w o u l d be eligible, p r o v i d i n g the home was i n existence on A p r i l 20,
and t h a t i t is the taxpayer's p r i n c i p a l residence. E l i g i b l e conservation measures
are identified i n the legislation, and the Secretary of the Treasury may q u a l i f y
other items t h r o u g h regulation.
Second, owners of residential buildings w i l l be eligible f o r a ten percent business energy conservation t a x credit w h i c h w i l l ease the burden of m a k i n g
energy saving investments. T h i s credit w i l l also apply t o commercial and
i n d u s t r i a l users.
T h i r d , the existing low-income weatherization assistance p r o g r a m authorized
i n the Energy Conservation and Production Act, w i l l be expanded. Grants
under t h i s program cover the f u l l cost of i n s u l a t i o n materials. Grantees under
the Department of Labor's Comprehensive Employment and T r a i n i n g A c t
( C E T A ) w i l l be encouraged to provide labor to i n s t a l l these materials.
These incentives w i l l be supplemented by several financing programs. One of
these, the u t i l i t y program proposed i n T i t l e 1, P a r t A, subpart 1 of t h i s b i l l ,
w h i c h w i l l be administered by the F E A ( F e d e r a l Energy A d m i n i s t r a t i o n ) .
I would l i k e briefly to address t w o items i n Section 101, w h i c h sets f o r t h the
definitions which apply to the program.
F i r s t , "residential b u i l d i n g " is defined as any b u i l d i n g developed f o r resid e n t i a l occupancy, the construction of w 7 hich commenced p r i o r to one year a f t e r
the date of enactment of this subpart, w h i c h has a mechanical or electrical
system f o r heating or cooling or both, and w h i c h contains no more t h a n t w o
d w e l l i n g units.
L a r g e r buildings, including m u l t i f a m i l y structures, have been excluded f r o m
the u t i l i t i e s financing program. T h e factors to be considered i n r e t r o f i t t i n g
larger buildings differ significantly f r o m those t h a t p e r t a i n t o one and t w o
f a m i l y residences. I would add t h a t technically speaking, there is comparatively
less need f o r energy conservation measures i n m u l t i f a m i l y buildings t h a n i n the
smaller single-family units. M u l t i f a m i l y buildings tend to use more efficient
equipment by v i r t u e of t h e i r size, have less w a l l area exposed to t h e e x t e r i o r
environment per dwelling unit, and are often b u i l t w i t h more massive materials
w h i c h better r e t a i n energy. Furthermore, three quarters of the Nation's resid e n t i a l energy use occurs i n single f a m i l y dwellings.
Second, the definition of "residential energy conservation measure" specifies
several types of improvements—that can be made to increase the efficiency of
r e s i d n t i a l energy use i n existing buildings. We believe these specified measures
are easy to accomplish, and t h a t the payoff i n energy savings w i l l be r a p i d i n
comparison to other measures and techniques. The enumeration of these special
items—caulking, weatherstripping, clock thermostats and the others—establishes a basic set of measures f o r w h i c h u t i l i t i e s must lend or provide financing,
although u t i l i t i e s may offer financing f o r other weatherization measures w h i c h
they believe are appropriate t o t h e i r areas.
L e t me t u r n now to the financing program.
19
Subpart 2 of P a r t A of S. 1469 proposes a Financing P r o g r a m to assist
residential property owners i n c a r r y i n g out energy conserving measures. These
provisions b u i l d on existing residential financing authorities, specifically H U D ' s
program of F H A - i n s u r e d T i t l e I property imprivement loans and the secondary
market operations of the Federal N a t i o n a l Mortgage Association and the
Federal Home L o a n Mortgage Corporation.
Section 110 provides a u t h o r i t y f o r public u t i l i t i e s to be considered eligible
lenders f o r purposes of m a k i n g energy conserving improvement loans w i t h
T i t l e I insurance. There have been instances i n the past when certain public
u t i l i t i e s d i d i n fact become approved T i t l e I lenders f o r purposes of m a k i n g
improvement loans. The proposed amendment, however, provides clear authorit y f o r w i d e scale p a r t i c i p a t i o n by u t i l i t i e s i n m a k i n g the energy conserving
loans contemplated i n the President's program. The B i l l provides t h a t u t i l i t i e s
must offer t h e i r customers' financing f o r specified residential energy conservat i o n improvements to be repaid t h r o u g h monthly u t i l i t y bills. Since u t i l i t i e s
w i l l have the obligation to make loans or arrange financing f o r these improvements, we expect t h i s expansion of T i t l e I t o be an i m p o r t a n t facet of their
efforts.
Section 111 adds c l a r i f y i n g language i n Section 2 of the N a t i o n a l Housing
A c t concerning the terms "energy conserving improvements" and "solar energy
system." These were included as eligible T i t l e I activities by the Housing and
Community A c t of 1974. The proposed amendment simply requires H U D consultation w i t h the Federal Energy A d m i n i s t r a t i o n w i t h regard to standards
and c r i t e r i a f o r acceptable energy conserving improvements and solar energy
systems.
Section 112 directs the Secretary of H U D t o establish actuarially sound loan
insurance premiums f o r the energy conservation component of the T i t l e I
program. T h i s w o u l d be based on and a c t u a r i a l study to be completed by H U D
w i t h i n t w o years of approval of the legislation. Our F H A a c t u a r i a l staff see
no problems i n complying w i t h this requirement, and we welcome the opport u n i t y to continue the t r a d i t i o n of a c t u a r i a l soundness i n our T i t l e I property
improvement operations.
Section 113 and 114 of the b i l l propose a m a j o r innovation i n the way p r i v a t e
property improvement lending is conducted and are intended to help assure
t h a t funds w i l l be available t o homeowners f r o m private lending institutions.
The secondary m a r k e t facilities of the Federal Home Loan Mortgage Corporat i o n and the Federal N a t i o n a l Mortgage Association could be extended to
those consumer loans w h i c h finance energy conserving improvements, including
both our expanded T i t l e I insured loan program and conventional uninsured
property improvement loans. I would add parenthetically t h a t we believe statutory a u t h o r i t y already exists f o r G N M A secondary market support for T i t l e I
energy loans.
Creation of a secondary market mechanism has the potential of broadening
geographic coverage and i n t e n s i f y i n g the use of the bank and u t i l i t y financed
improvements, i n c l u d i n g both T i t l e I and conventional loans acceptable to
permanent investors. The secondary m a r k e t can open up energy retrofit to a
wider variety of lenders and f a c i l i t a t e a flow of credit f r o m areas of surplus
to areas i n need of funds.
Section 131 of the B i l l increases the authorization f o r the H U D Secretary to
make grants to States and units of general purpose local government to assist
them i n meeting the costs of adopting and implementing energy conservation
performance standards.
Ten m i l l i o n dollars per year w o u l d be authorized f o r t h i s purpose f o r Fiscal
Years 1978 and 1979, i n addition to the $5 m i l l i o n presently authorized f o r
Fiscal Year 1977. These funds w o u l d provide f o r :
Implementation planning at the State and local l e v e l ;
Demonstration of a d m i n i s t r a t i v e approaches t h a t w o u l d allow f o r effect i v e adoption of the performance standards, when they become available;
and
Education and t r a i n i n g of State energy and b u i l d i n g officials, to assure
r a p i d adoption and implementation of the new performance standards.
As t h i s committee knows well, the adoption of new standards and codes f o r
b u i l d i n g construction can be a protracted and controversial process. The
authorization could help to accelerate t h a t process f o r the energy performance
standards.
20
M r . C h a i r m a n , t h i s concludes m y p r e p a r e d r e m a r k s . W e look f o r w a r d t o
w o r k i n g w i t h y o u on t h e complex task t h a t lies before us a n d w e w o u l d be
pleased t o a n s w e r any questions w h i c h t h e c o m m i t t e e m i g h t have.
T h e CHAIRMAN. T h a n k you very much, M r . Simons and M r . B a r d i n ,
f o r t w o very fine and t h o u g h t f u l and h a r d - h i t t i n g statements.
Y o u know, this whole field I t h i n k appeals t o many because i t
should be the easiest area to get conservation, compared to the very
tough problem we have i n proposing taxes on gasoline and a l l these
other things that are so enormously controversial and difficult. A f t e r
all, the person who takes advantage of this is going to be way out
ahead. He's going t o gain. W e know that. So I hope we can get a
vigorous effective program.
Incidentally, we are going to hear f r o m the Federal Trade Commission and the probono groups tomorrow and Wednesday and they of
course have a somewhat different viewpoint than M r . B a r d i n expressed.
M r . B a r d i n , I want to start off by seeing i f I can place i n clear
contrast your position and t h a t of Congressman Ashley, I understand
he's the chairman of the committee i n the House and he has a somewhat different view.
The heart of your program is you w o u l d require u t i l i t y companies
to offer to inspect, install insulation, and lend to residents. No. 2, you
would authorize H U D to insure energy loans made by utilities and,
No. 3, you w o u l d authorize F N M A and F H L M C to buy those loans.
Now whereas you would require a l l utilities as you say to get into the
act and you say this is the effective way to do i t , not voluntary—you
w o u l d require them—the Ashley b i l l would actually p r o h i b i t as I understand u t i l i t y companies f r o m installing or lending f o r insulation
of houses unless the State and F E A approves. They would provide
G N M A financing and subsidies to moderate income households. T h e y
w o u l d expand low-income weatherization grants. They would provide
F H A insurance f o r apartment conservation improvement loans but
they obviously seem to take a different position—a startingly different
position than you do. I s t h a t r i g h t ?
M r . BARDIN. T h a t is correct, M r . Chairman. O n the inspection, as
was i m p l i c i t i n your very accurate recitation, the position of Chairman Ashley and his subcommittee is basically the same position t h a t
I ' m advocating. They don't have any difficulty w i t h the utilities
p r o v i d i n g the i n f o r m a t i o n but they do have difficulty w i t h the u t i l ities p r o v i d i n g the installation service or p r o v i d i n g the financing. I
m i g h t add, i f I may anticipate, M r . Chairman, t h a t another committee of the House, the Committee on Interstate and Foreign Commerce, Subcommittee on Energy and Power, under Chairman
Dingell, has also reviewed the program and i n their case they had
difficulty w i t h the utilities being involved i n the installation but they
d i d n ' t have problems either w i t h the the audit and i n f o r m a t i o n stage
before the installation, or the financing stage after the installation.
So we have, i n effect, three points of view—the administration's, the
Ashley committee's, and the D i n g e l l committee's.
The CHAIRMAN. W h a t projections can you give us concerning the
numbers and types of units and the cost, both Federal and private,
not only the Federal Government costs but the cost to the private
21
sector, that w i l l be involved i n carrying out the administration's
energy conservation program f o r existing houses I f you don't have
that, could you provide that f o r the record ?
M r . BARDIN. Just to give you the order of magnitude, the cost per
household we're looking for is on the order of $500 to $1,000 of w o r k
per household. O f course, i t w i l l vary considerably i n different parts
of the country because of weather. I t w i l l also vary considerably i n
terms of b u i l d i n g types.
The CHAIRMAN. Can you translate that i n t o the total cost, i f you
can, i f you have the number of households t h a t w i l l be affected ?
M r . BARDIN. Let us provide i t i n detail, but it's a good many billions of dollars of effort to be undertaken over a period of years. I t
should be i n the neighborhood of $20 billion.
[ T h e F E A supplied the f o l l o w i n g i n f o r m a t i o n f o r the record:]
have estimated t h a t t h e President's goal of i n s u l a t i n g 90 percent of
A m e r i c a n homes w i l l r e q u i r e $22 b i l l i o n i n p r i v a t e expenditures, i n constant
1977 dollars. T h e T r e a s u r y D e p a r t m e n t has estimated t h a t t h e t o t a l reduction
i n t a x receipts because of t h i s e x p e n d i t u r e w o u l d be $5.4 b i l l i o n , also i n 1977
dollars. Since the p r o g r a m w i l l be spread out over several years, t h e t o t a l s i n
c u r r e n t d o l l a r s w o u l d be $30.5 m i l l i o n i n expenditures a n d $6.9 b i l l i o n i n
revenue losses^>
The CHAIRMAN. Questions have been raised concerning the adequacy
of supply of insulation materials and whether or not this could be a
very inflationary program. I t ' s a fine idea, T h e objective is good, but
the argument is i f you go this fast that you can enormously increase
the price. The home builders i n Rockwell I n d u s t r y predict shortages
of insulation i n storm doors and windows. There are fears that an
active Federal program w i l l result i n h i g h prices i n the near future.
W h a t is your estimate ? W h a t measures would you introduce i n order
to assure the demand doesn't outprice supply ?
M r . BARDIN. The first measure, M r . Chairman, is phasing i n the
program. W e don't propose everything be done i n 1978. W e want a
gradual program. F o r example, the utilities w i l l have a responsibility
to get the w o r d out by the 1st on January, 1980. Thereafter, there
w i l l be time i n which to implement the actual steps. I t won't happen
overnight.
Second, we have investigated the insulation market—again, I refer
to the I C F report which I ' m leaving w i t h you—and we have determined as best we can that i n one of the critical areas, the fiberglass
insulation market where there are only three major manufacturers,
there is substantial increase i n supply capacity already planned. The
time span f o r actually b u i l d i n g a new line or entirely new plant to
manufacture fiberglass insulation is on the order of 18 months to a
m a x i m u m of 3 years, depending on whom you t a l k to. So i n the
9-year t i m e frame that we're t a l k i n g about, even f o r a relatively
capital-intensive activity like manufacturing fiberglass, there is time
f o r major expansion of the productive capacity.
I n the case of cellulose f o r which there are over 200 manufacturers,
supply capacity ought to expand more flexibly and i n shorter time
frames. The estimate we get is 6 to 9 months to increase capacity i n
an existing facility. These are matters, however, that ought to be
monitored carefully by the agencies of Government who specialize i n
protecting the consumer f r o m overcharges, f r a u d or anticompetitive
22
matters, and we would certainly welcome their i n i t i a t i v e and your
w o r k i n g w i t h them and w i t h ourselves t o make sure the needed initiatives are taken.
Now, as to some of the other programs, we have'tried t o t r i m down
the list o f activities mandated t o those which we are convinced are
going t o be cost effective generally around the country. I want t o
make clear we are not deprecating the u t i l i t y of other measures f o r
appropriate places i n the country or particular b u i l d i n g types. F o r
example, the judgment o f our professionals was t h a t storm doors
are not generally going to t u r n out to be a top p r i o r i t y measure i n
most b u i l d i n g types, most places i n the country. Therefore, we l e f t
them out of our list, although there is a proposal by one of the House
committees to add them back i n t o the list. .
The CHAIRMAN. Let me ask you a series of questions. H o w specific
have you been able t o get i n your judgment as t o this proposal:
F i r s t , how much w i l l a u t i l i t y inspection cost; who w i l l pay f o r i t ;
and who w i l l do it?
M r . BARDIN. The estimate we have, on the basis o f w o r k t h a t u t i l ities have done already, is t h a t a single inspection w i l l probably cost
between $20 and $40. I t w i l l be paid f o r by the householder. I t w i l l
not be paid f o r generally through the whole class of consumers.
T h e CHAIRMAN. A n d w h o w o u l d d o i t ?
M r . BARDIN. The u t i l i t y personnel, people hired by the u t i l i t y t o
do the job. They could subcontract i t out or they could do i t in-house
as the u t i l i t y saw fit.
The CHAIRMAN. HOW w i l l you assure t h a t the u t i l i t y company
inspectors don't bias the selection of the contractor?
M r . BARDIN. The proposal i n the b i l l is t o require the u t i l i t y t o
m a i n t a i n not only its own list o f subcontractors who w o u l d do the
w o r k i f the householder wants to go t o the u t i l i t y , but t o have an
additional list that they make available o f independent contractors
i n t h a t area. There w i l l be regulations developed, as I said before,
t h a t should be done i n consultation w i t h the Federal Trade Commission and Better Business Bureau and the rest, to guide the utilities.
B u t i n the administration b i l l as now w r i t t e n it's basically the responsibility o f the u t i l i t y , as a good citizen i n that community, t o
prepare an accurate, comprehensive list o f other independent contractors t h a t the householder m i g h t prefer to deal w i t h on his ow!n.
T h e CHAIRMAN. W h o w i l l be responsible f o r assuring t h a t conservation improvements are adequately performed and be responsible
f o r t a k i n g care of grievances?
M r . BARDIN. I f the u t i l i t y is engaged i n -the financing, then u t i l i t y
inspection would follow through t o make sure t h a t they are adequately performed. I f the householder elects to have purely independent contracting and financing, we do not have a mechanism—a Better
Business Bureau mechanism or the like w r i t t e n into our b i l l . I know
the National Home Improvement Council and perhaps others have
indicated interest i n t r y i n g t o protect the householder-consumer
against unethical abuses.
The CHAIRMAN. W h o w i l l be responsible f o r m a k i n g sure t h a t
frauds are minimized?
M r . BARDIN. The Federal Trade Commission w i l l , I suspect, be the
lead Federal agency and then we w o u l d require -that the State public
23
u t i l i t y commission, the State regulatory agency, provide that k i n d
of protection to the extent t h a t the utilities are involved i n the act i v i t y . T o the extent that the actual activity is conducted not b y
utilities but by private contractors or others, I would assume that
the State attorney general, the State consumer f r a u d bureaus and
the better business bureaus would be the ones that people w o u l d t u r n
to.
The CHAIRMAN. DO yon envision a u t i l i t y being able to include i n
their charges f o r gas and electric costs the cost o f operating a conservation program? W h ^ t problems do you see i n p e r m i t t i n g these
costs to be absorbed ?
M r . BARDIN. L e t me ar.swer t h a t i n two steps, M r . Chairman. The
program that would be mandatory to the utilities as w r i t t e n i n the
b i l l does not provide f o r 3r allow f o r charging the generality of consumers f o r these costs. T o the contrary, i t would be a separately accounted for, separately charged for service. On the other hand, the
program does have flexibility. I f the State u t i l i t y regulatory agency
wants to come to the Federal Government and say, " W e would like to
have an alternative program that is r u n differently f r o m the national one," they could propose to put that into the general cost o f
the service or even the ral e base leading up to the cost of service.
The CHAIRMAN. HOW would you assure t h a t savings i n m u l t i f a m i l y
buildings assisted w i t h A weatherization grants be passed on t o the
tenants and not be made a matter of profit to the landlord?
M r . BARDIN. W e don't have a better answer, M r . Chairman, than
p r o v i d i n g i n regulations that the States do it. I m i g h t say, i f I might
go beyond your question, one of the areas which our program does
not cover ideally is the r i u l t i f a m i l y resident tenant occupied building. W e have struggled with the problem and have come up w i t h
somewhat p a r t i a l answers. I n this regard I have already described
how the business tax credit works, B u t these answers are not nearly
as good as the answers W3 have come up w i t h f o r the private home,
the single- or t w o - f a m i l y home.
F r o m the standpoint o f strict energy conservation, you get your
Btu's where you can. I n ;erms of our goal of equity, i f the committee were able to come up w i t h an additional solution which we haven't
thought of, this certainly is an area c r y i n g out f o r some creative application i n the legislative process.
The CHAIRMAN. I just have one question I ' d like to ask M r . Simons.
M r . Simons, the U.S. League o f Savings Associations has very
serious reservations as } o u know about making u t i l i t y companies
eligible under t i t l e I of the National Housing Act. They say the u t i l ities are not accustomed to the financing function, are not f a m i l i a r
w i t h the legal and regulatory requirements which apply t o credit
g r a n t i n g institutions, and are not f a m i l i a r w i t h u n d e r w r i t i n g procedures used to determine creditworthiness. W h a t do you say about
that?
M r . SIMONS. AS I said in m y testimony, we have had some experience i n the past where u t i l i t y companies have qualified as t i t l e I
lenders. W e feel that the t i t l e I program, w i t h the m o n i t o r i n g and
educational impact w h i c h we could have w i t h i t , would be a viable
tool f o r the u t i l i t y companies t o become qualified t i t l e I lenders.
The use of t i t l e I would also obviate some of the problems raised by the
24
F T C because i n our opinion under t i t l e I they must comply w i t h
t r u t h i n lending which would eliminate the problem.
T i t l e I w o u l d also give us an opportunity to create a viable secondary market f o r insured loans and w i t h our t i t l e I experience and
w i t h its excellent history, we are able to have actuarially sound lending
and monitor effectively any company that wants to enter the field.
The CHAIRMAN. M y time is up but I certainly want to find o u t
f r o m the other witnesses how they feel about letting utilities get i n t o
the banking business.
M r . SIMONS. M a y I make one comment, M r . Chairman ? The practice o f financing such improvements as home improvements is one
which is not classically done by the mortgage concept. Most o f the
financing of home improvements today is done through commercial
banks and the sources of financing are commercial funding. They are
treated as a small loan, like an automobile loan. I n many cases, and
especially i n home improvement, the material suppliers actually act
as a conduit f o r lending, f o r p r o v i d i n g the capital needed to p e r f o r m
these services, o r the installers themselves are more responsible f o r
a r r a n g i n g the lines of credit and financing. So the route is not an unusual route. I t ' s one that's being followed today.
M r . BARDIN. M a y I make a f u r t h e r observation ? The b i l l does not
require the u t i l i t y to become a banker. There is no reason under the
b i l l w h y a u t i l i t y t h a t is involved i n financing couldn't do t h a t
t h r o u g h an established lending organization.
I n fact, I would assume that that would be the normal way utilities
would carry out the measure.
The CHIRMAN. They could, but i t doesn't require them to ?
M r . BARDIN. T h a t is quite true.
Senator BROOKE. They could be i n the banking business, very clearly
the u t i l i t y could actually do the financing. T h i s w o u l d be acting i n
the role o f a financial institution.
Secretary Simons, before we leave t i t l e I , last year we t r i e d to get
F H A to carry out the legislative mandate to increase the p r o p o r t i o n
of t i t l e I home improvement loans used f o r conservation investment.
W h a t has been done ?
M r . SIMONS. A r e you r e f e r r i n g to the $200 m i l l i o n appropriation?
Senator BROOKE. Yes.
M r . SIMONS. A c t u a l l y , i n l i g h t of the program w h i c h the President
is now p u t t i n g f o r t h , we felt that i t was best to delay the implementat i o n of that, and to f o l d that program into the new energy p r o g r a m
we are now t a k i n g up.
Senator BROOKE. W h a t about the conventional F H A Home Improvement L o a n program ?
M r . SIMONS. I really don't understand the question.
Senator BROOKE. Y o u r t i t l e I conventional program, y o u had some
money there. W h a t proportion of these loans have been used f o r the
purposes f o r which they were intended under the mandate the Congress
gave H U D to make loans f o r energy conservation purposes ?
M r . SIMONS. M y i n f o r m a t i o n is a very small amount.
Senator BROOKE. DO you have any figures f o r us?
25
M r . SIMONS. I w i l l be glad t o supply the figures.
Senator BROOKE. W h y are the figures so low ? W h y is such a small
amount used?
M r . SIMONS. I could not give that answer. I w i l l t r y t o get one
and supply i t f o r the record.
[The f o l l o w i n g i n f o r i r ation was received f r o m the Department:]
T h e amount of money lenl f o r items w h i c h can be characterized as conservation-related was significant.
W i t h r e g a r d to the use o f p r o p e r t y improvement loans, a n d p a r t i c u l a r i l y f o r
i n s u l a t i o n a n d other w e a t h e r i z a t i o n improvements, our records indicate we insured 292,011 loans f o r $953,918,847 i n calendar year 1976. O f t h i s total, 45 percent, o r 131,402 loans, and O7.1 percent, o r $353,903,886, were used f o r conservation-related improvements.
A b r e a k d o w n is as f o l l o w s .
Improvement
Insulation
Heating
Exterior finish
Plumbing
Roofing
Number of
loans
10,804
27,449
51,977
18,104
23,068
Percent
3.7
9.4
17.8
6.2
7.9
Amount
Percent
$19,078,376
65,820,399
174,567,147
38,156,753
56,281,211
2.0
6.9
18.3
4.0
5.9
Senator BROOKE. W i l l you do that, because I understood i t was a
small amount as well, and I would just like to know w h y you haven't
been using the money.
M r . SIMONS. Maybe there is an inherent resistance t o using the
money f o r those purpose*).
Senator BROOKE. I f that is the reason, I would like t o know. Does
H U D have evidence of shortages of capital f o r these energy conservation measures ?
M r . SIMONS. I t h i n k as we look at the program, which M r . B a r d i n
was discussing, we w i l l ir ost likely double the use of energy conservation, as f a r as the units; we must face the question of being sure t h a t
the capital w i l l be available f o r these. R i g h t now under the present
demand, there is no shortage o f capital. B u t i f we double what we
are going to do, as f a r a 3 retrofitting, as f a r as energy standards i n
new construction, I t h i n k i t is incumbent upon us to make preparation and be sure capital iis available.
Senator BROOKE. A t ths present time you have no shortage?
M r . SIMONS. NO.
Senator BROOKE. Does H U D have an estimate o f the nature and
dollar value o f energy conservation improvements needed i n public
housing projects?
M r . SIMONS. We feel that $100 m i l l i o n capital improvements f o r
energy conservation w i l l do approximately 200,000 units. Now i f we
break t h a t out, i t is about $500 per unit, the average cost which we
are using.
Senator BROOKE. W h y doesn't the administration give special priori t y and support f o r some emergency energy modernization programs ?
M r . SIMONS. W e are prepared to support the House bill. I n fact,
when I testified before the House committee on this, we discussed one
of the areas where the b i l l at that time was deficient, i n the m u l t i f a m i l y field, and w o r k i n g w i t h the committee we have suggested
26
perhaps that they look a t the public housing and modernization
which is now i n place, the legislative authority is i n place; what is
needed is the additional money.
A s you well know, we are doing modernization, we have about $35
m i l l i o n per year available f o r modernization, w h i c h we are t r y i n g t o
get out and use f o r just general modernization purposes, w h i c h w o u l d
include energy r e t r o f i t t i n g whenever possible.
Senator BROOKE. YOU are using some of that modernization money
f o r energy retrofitting?
M r . SIMONS. Y e s , s i r .
Senator BROOKE. HOW much, do you know ?
M r . SIMONS. I could give you the answer.
Senator BROOKE. W i l l you supply that f o r the record?
M r . SIMONS. I w i l l t r y to. I don't know i f that answer is available
as directly as we would like i t , because as we go into modernization o f
public housing, there are many things t h a t we do t h a t have an effect
on energy consumption. Changing the windows would have an effect
on energy consumption.
[The f o l l o w i n g was received f o r the record:]
T h e D e p a r t m e n t is v e r y concerned about t h e e n t i r e issue o f energy conservation. W h i l e i n s u l a t i o n is i m p o r t a n t , other measures are also needed. F o r instance,
energy savings can also be realized by u p g r a d i n g old o r d e t e r i o r a t i n g h e a t i n g
plants, i n s t a l l i n g s t o r m w i n d o w s a n d doors, a n d by p r o g r a m s conducted by P H A s
t o educate residents on the i m p o r t a n c e of energy conservation.
W i t h respect t o u t i l i t i e s , i n m a n y public h o u s i n g projects the residents a r e
g i v e n a n a l l o w a n c e f o r estimated u t i l i t y consumption. I f t h i s a m o u n t is exceeded,
t h e r e i s no w a y of t e l l i n g h o w m u c h e x t r a u t i l i t i e s were used, by d w e l l i n g u n i t ,
unless i n d i v i d u a l check meters are installed. W i t h check meters, the t e n a n t s a r e
m u c h more l i k e l y to conserve energy, since a n y excess usage w o u l d be b i l l e d dir e c t l y t o the responsible t e n a n t / r h e D e p a r t m e n t published i n the F e d e r a l Register, dated M a y 17, 1976, a F i n a l R u l e r e q u i r i n g Public H o u s i n g Agencies t o
p r o v i d e f o r i n d i v i d u a l u t i l i t y m e t e r i n g to the e x t e n t p r a c t i c a l . Exceptions m a y be
those p r o j e c t s f o r w h i c h such c o i n e r s i o n w o u l d not be cost-effective, or w h e r e the
cpst w o u l d exceed a v a i l a b l e funds7%
A t present w e do not see a n y need f o r a d d i t i o n a l l e g i s l a t i o n i n t h i s area. A l l t h e
measures cited above as examples, i n c l u d i n g i n s u l a t i o n , are eligible e x p e n d i t u r e s
u n d e r t h e M o d e r n i z a t i o n P r o g r a m a n d energy conservation is one of f o u r p r i o r i t y
categories established b y H U D w i t h r e p o r t t o the a l l o c a t i o n o f m o d e r n i z a t i o n
fundsfr^
W h i l e d a t a on h o w m o d e r n i z a t i o n f u n d s are spent is m a i n t a i n e d , i t is done so
on the basis of b r o a d areas, such as d w e l l i n g equipment, site improvements, nond w e l l i n g equipment, a n d the like. W e regret t h a t specific figures are not a v a i l a b l e
on h o w m u c h f u n d s have been expended f o r the purpose of p u r c h a s i n g a n d I n s t a l l i n g i n s u l a t i o n ; the accounts t h a t have been developed are such t h a t i t i s n o t
possible t o i d e n t i f y those i t e m s r e l a t e d t o energy conservation. T o o b t a i n t h i s
i n f o r m a t i o n , each P H A i n the c o u n t r y w h i c h received M o d e r n i z a t i o n f u n d s w o u l d
have t o be contacted. I f the committee desires, a samping could be u n d e r t a k e n
w h i c h w o u l d p r o v i d e the basis f o r m a k i n g a n estimate as t o the p o r t i o n o f
M o d e r n i z a t i o n f u n d s so expended.
Senator BROOKE. T h a t money was not intended f o r energy conservation retrofitting?
M r . SIMONS. I t is not being used f o r the purpose of energy conservation retrofitting, but as you modernize buildings, you have b y the
very nature o f the modernization you have energy conservation
t a k i n g place.
Senator BROOKE. I am equally concerned
The CHAIRMAN. M r . Schwartz, d i d you want to say something?
27
M r . SCHWARTZ. Senator Brooke, the House b i l l provides f o r an
additional $10 m i l l i o n a year f o r modernization, earmarked f o r
energy conservation. T h ^ t would be on top of the present modernization funds.
Senator BROOKE. A r e you using t h a t money f o r retrofitting?
M r . SCHWARTZ. W e ha ven't gotten i t yet, i t is i n the House b i l l .
Senator BROOKE. Wil". you be using some o f the modernization
money for retrofitting?
M r . SIMONS. I f you would define retrofitting as solely b r i n g i n g the
project to energy standards, the answer would be no. B u t i n doing
modernization, you are p e r f o r m i n g certain improvements which result i n better energy consumption, and savings, so the answer is yes.
Senator BROOKE. A l l I am saying, M r . Secretary, is we started this
modernization program before we got the energy retrofit. I just
wanted to know i f you were using modernization money f o r energy
retrofitting. The answer is yes, and you w i l l t e l l us how mudh, i f
you can.
Now I am equally concerned about the management costs imposed
by energy inefficiencies i n federally assisted low and moderate income
housing. Troubled projects i n many areas are a special concern o f
this committee. H o w w i l l the administration deal w i t h this aspect of
the special needs of these units? W e hope f o r a request f o r conservation funds f o r these cases.
M r . SIMONS. W e l l , we are dealing w i t h these units and the quest i o n of b r i n g i n g them up to standard, and whenever money is made
available f o r b r i n g i n g them up to standards, the energy consumption
and characteristics of the b u i l d i n g are studied and improved at the
same time.
Senator BROOKE. W e talked about public housing. Now I am talki n g about 221(d) (3) and 236.
M r . SIMONS. I u n d e r s t a n d .
Senator BROOKE. W e "iave the same problems there. W i l l you be
doing anything as far as retrofitting is concerned there ?
M r . SIMONS. There is no special program f o r retrofitting these.
Senator BROOKE. YOU have no money available f o r that?
M r . SIMONS. NO.
Senator BROOKE. A n d you have no energy conservation f o r 236 or
221(d)(3)?
M r . BARDIN. Senator Brooke, may I a m p l i f y on that answer? I
mentioned the low income modernization program. Congress has
appropriated $27 m i l l i o n to F E A f o r that program this year, and
that is the one the Presiient is proposing be expanded by $385 mill i o n up to a total of $585 million. W e proposed regulations i n A p r i l
and published them jus: the first o f this month, under which the
State and local public housing, m u l t i p l e housing, is eligible f o r
weatherization assistance. T h a t is a program where F E A makes the
grant t o the State and the State subdivides the funds.
Senator BROOKE. B u t that doesn't cover 236 and 221(d) (3) ?
M r . SIMONS. I understand what the Senator is saying. The answer
is no, there are no funds available.
Senator BROOKE. T h a n k you. M r . B a r d i n , what k i n d o f analysis
does F E A have available of the impact and effectiveness of the con-
28
servation improvement programs, some of which are being r u n volunt a r i l y , as you said i n your statement?
M r . BARDIN. Could we supply the answer f o r the record?
Senator BROOKE. Yes, i f you would.
D o y o u know what proportion of customers took advantage of these
offers, or w h a t the typical size of the loan was ?
M r . BARDIN. I don't have t h a t information. W e would be happy to
survey some of the utilities and supply that f o r the record.
Senator BROOKE. W h a t is the typical cost of interest on these loans?
M r . BARDIN. W e w i l l be happy to supply t h a t also.
[ T h e f o l l o w i n g was received f o r the record:]
Based on m a t e r i a l supplied by i n d i v i d u a l u t i l i t i e s a n d by u t i l i t y t r a d e associations, only 20-30 percent of the p a r t i c i p a n t s i n the u t i l i t y p r o g r a m finance
t h e i r r e t r o f i t t i n g . T h e size of the loan generally ranges f r o m $150 to $800.
A n n u a l i n t e r e s t rates range f r o m 9 percent to 18 percent w i t h most rates
a r o u n d 12 percent. T h e repayment period is u p to 36 months.
E R D A a n d F E A a r e c o m p i l i n g under c o n t r a c t a s u m m a r y of i n s u l a t i o n prog r a m s r u n by u t i l i t i e s a n d a m o r e detailed study of t h e operation of f o u r o r
five of these programs. T h i s i n f o r m a t i o n w i l l be available i n t w o phases, t h e
first i n A u g u s t a n d the second l a t e r t h i s year. I n f o r m a t i o n available n o w has
been supplied by the A m e r i c a n Gas Association ( A G A ) and t h r o u g h conversat i o n s w i t h i n d i v i d u a l u t i l i t i e s . W e h a v e attached (1) m a t e r i a l developed i n 1976
f o r a n F E A u t i l i t y conservation p r o g r a m ; a n d (2) a three page s u m m a r y of a
survey conducted i n M a r c h of t h i s y e a r by A G A .
As t h i s m a t e r i a l shows, u t i l i t y programs v a r y g r e a t l y w i t h respect to audits,
financing,
a n d i n s t a l l a t i o n . Some u t i l i t i e s offer free home inspections; others
merely send out i n f o r m a t i o n . Some u t i l i t i e s have established t h e i r o w n p r o f i t o r i e n t e d i n s u l a t i o n subsidies; others merely r e f e r customers to o t h e r contractors. N e a r l y a l l u t i l i t i e s w i t h a p r o g r a m w i l l finance i n s t a l l a t i o n of i n s u l a t i o n ,
most o f f e r i n g u p to 3-year payback terms. I n t e r e s t rates v a r y f r o m 9-18 percent
per year a n d are t y p i c a l l y 12 percent.
F o r most u t i l i t i e s , a r e t r o f i t p r o g r a m is a f a i r l y long t e r m project. Since no
one u t i l i t y has the manpower to r e t r o f i t every home at once, announcements a r e
u s u a l l y r o t a t e d w i t h b i l l i n g cycles i n various geographical areas.
Homeowners are m o t i v a t e d to respond t o u t i l i t y programs t h r o u g h b i l l stuffers
a n d r a d i o / T V spots. Roughly 3 - 7 percent of the people w h o receive a b i l l stuffer
o f f e r i n g i n s u l a t i o n services w i l l respond. Others respond as a r e s u l t of m e d i a
advertisments, conversations w i t h neighbors w h o have p a r t i c i p a t e d , etc. I t is
d i f f i c u l t to estimate the percentage of homes insulated as a result of the u t i l i t y
programs since i t depends on m a n y variables, i n c l u d i n g h o w long the p r o g r a m
has been ongoing and h o w m a n y times customers receive t h e b i l l stuffers. P u b l i c
Service of Colorado, f o r instance, estimates t h a t they have i n s u l a t e d 3 percent
or 22,000 homes i n t h e i r service area. Consumers Power of M i c h i g a n has insul a t e d 8 percent or 74,000 of t h e i r customers, w h i l e W a s h i n g t o n N a t u r a l Gas has
i n s u l a t e d 2 percent or 10,000. These percentages appear to be t y p i c a l of u t i l i t i e s
w h o h a v e strong, ongoing programs.
I n a d d i t i o n to these, t h e u t i l i t i e s estimate t h a t the n u m b e r of people w h o
e i t h e r i n s u l a t e themselves or c a l l t h e i r own contractor a f t e r receiving i n f o r m a t i o n f r o m the u t i l i t i e s is at least as much.
UTILITY
FINANCE
PLAN
Company : Consolidated Edison Co. of New Y o r k .
T e r r i t o r y : C i t y of N e w Y o r k and Westchester County, N.Y.
C o n t a c t : R i c h a r d Arcjari, M g r . Commercial Services, Robert Stevens, Executive D i r e c t o r , Com'l. Services (212) 460-5221.
S t a t u s : Begun i n September 1976; p r o j e c t i o n of 20,000 to 30,000 i m p a c t e d
homes f o r first year ( O f 2.9 m i l l i o n customers).
U t i l i t y role and m o t i v a t i o n : Energy Conservation, D i r e c t m a i l a n d employee
incentive promotions, Contractors field leads, provide estimates a n d t a k e orders
i n c l u d i n g Con. Ed. financing. A v a i l a b l e to gas.
Source of f u n d s : I n t e r n a l .
29
Credit approval and collection: I n t e r n a l ; Separate I n s t a l l m e n t B i l l i n g Delinquent Payment Charge $5.
Loan l i m i t : $150 to $800 ; 3 year l i m i t .
Average l o a n : $500.
Interest r a t e : 1% per m o n l h on Unpaid Balance.
Products: Ceiling insulation, Automatic thermostats, a t t i c fans.
Contractors or i n s t a l l e r s : P a r t i c i p a t i n g contractors. Each lead given three
contractors f o r competitive bids.
Certification and inspection: Company w i l l inspect w i t h i n five days a l l jobs
at first, then w i l l go on a sampling basis.
Regulatory Commission: Company filed a plan, a f o r m a l docket was established and a f o r m a l r u l i n g wasi made by N.Y.P.S.C. approving.
State B a n k i n g Commissior : F i l e d and received certificate—Arcari is " L o a n
Officer."
O i l heat customers: No.
(Source: F E A conversations w i t h u t i l i t y . )
UTILITY
FINANCE
PLAN
Company : B r o o k l y n Union Gas Co.
T e r r i t o r y : P a r t or a l l of thr^e boroughs i n New Y o r k City.
Contact: A1 Jennings, Energy Conservation program leader (212) 643-3884.
Status: Active program, w t ich grew out of the continuing m a r k e t i n g programs
of the past 25 years.
U t i l i t y role and m o t i v a t i o n : Direct inspection of insulation needs and a grant,
or subsidy, provide to the homeowner who installs insulation. Grant equals up
to 25 percent of t o t a l installation cost, but does not exceed $100 per home.
Source of f u n d s : N.A.
Credit approval and collection: Arranged by Homeowner.
Loan l i m i t : N.A.
Average l o a n : N.A.
Interest r a t e : N.A.
Products: I n s u l a t i o n only.
Contractors or i n s t a l l e r s : A :ranged by Homeowner.
Certification and inspection : None.
Regulatory Commission: Nc f o r m a l role.
State B a n k i n g Commission: N.A.
(Source: F E A conversation ? w i t h u t i l i t y . )
LTILITY
FINANCE
PLAN
Company : Washington N a t u r a l Gas Co.
T e r r i t o r y : Western Washington.
Contact: D o n Navarre, V.P., Rod Nelson, Staff Asst. to Don Navarre, (206)
622-6767.
Status : Extension of long standing merchandise finance plant to include energy
conserving products ; 2500 to 3300 jobs have been completed.
U t i l i t y role and m o t i v a t i o n : I n t e r n a l sales force.
Source of f u n d s : I n t e r n a l .
Credit approval and collection: I n t e r n a l ; Installments B i l l e d Separately.
Loan l i m i t : M i n i m u m Payment $ 5 / m o n t h ; M a x i m u m Period 5 years.
Average l o a n : $185-$385.
Interest r a t e : 12% annual r i t e on unpaid balance.
Products: Insulation, Storm Door and Window, Thermostats, Electric I g n i t i o n
replacing pilots of furnaces, furnaces replacing oversized and inefficient furnaces.
Contractors or i n s t a l l e r s : Certified installer—contractor program.
Certification and inspection: Quality control program w i t h random inspection.
Regulatory Commission: No control over merchandising and financing.
State B a n k i n g Commission: No involvement.
(Source : F E A conversation;3 w i t h u t i l i t y . )
LTILITY
FINANCE
PLAN
Company: Pacific Gas and Electric Co.
T e r r i t o r y : N o r t h e r n and Central California.
Contact: Joseph DeYoung, Vice President—Commercial Oper. (415) 781-4211.
94-843 O - 77 - 3
30
Status: Planning Stage, Targeted to Start January 1,1977.
U t i l i t y role and m o t i v a t i o n : Financing, media advertising, t r a i n i n g , some direct selling, liaison w i t h the trade. Desire to increase annual home insulations
f r o m 52,000 i n 1975 and 65,000 i n 1976 w i t h lower cost financing.
Source of f u n d s : I n t e r n a l .
Credit approval b i l l i n g and collection: I n t e r n a l Credit—Separate B i l l s f r o m
gas and electricity.
L o a n l i m i t : $800 M a x i m u m .
Average l o a n : $300.
Interest r a t e : Prime rate + 2 % (or less).
Products: Ceiling insulation and caulking ( s t o r m windows and doors not used
i n C a l i f o r n i a ) (includes do-it-yourself m a t e r i a l s ) .
Contractors of i n s t a l l e r s : Members of I n s u l a t i o n D i v i s i o n of Electric and Gas
I n d u s t r y Association of N o r t h e r n and Central C a l i f o r n i a w h o subscribe to t h e i r
code of ethics. Includes Manufacturers, Wholesalers, Retailers, Contractors,
Installers and the U t i l i t y .
Certification and inspection: Installers certified by the Association and I n spection w i l l be by P. G. & E. on a spot or sampling basis.
Regulatory Commission: No f o r m a l role, but are pleased w i t h the program.
State B a n k i n g Commission: No regulation other t h a n legislated m a x i m u m
finance chiarges.
(Source : F E A conversations w i t h u t i l i t y . )
UTILITY
FINANCE
PLAN
Company : Southern C a l i f o r n i a Edison Co.
T e r r i t o r y : Southern C a l i f o r n i a except C i t y of Los Angeles.
Contact: Robert Robertson, Conservation Manager (213 ) 572-1212.
S t a t u s : N.A. I n a c t i v e finance subsidiary may originate a Finance P l a n f o r
Solar i n 1977.
U t i l i t y r o l e : Small insulation i n s t a l l a t i o n program since A p r i l 1976. No financing, as such.
Source of f u n d s : N.A.
Credit approval and collection: N.A.
L o a n l i m i t : N.A.
Average l o a n : N.A.
Interest r a t e : 90 day Interest-Free Program, also. B a n k A m e r i c a r d and Mastercharge.
P r o d u c t s : Insulation—Only areas where no Southern California Gas Co. Solar
Equipment Late i n '76 or E a r l y '77.
Contractors: Company takes orders, subcontracts to state licensed contractors.
Certification and inspection : F i n a l Inspection—Spot Checks only.
Regulatory Commission: P.S.C. had strongly urged insulation program. Watches
progress.
State B a n k i n g Commission: N.A.
(Source: F E A conversations w i t h u t i l i t y . )
UTILITY
FINANCE
PLAN
Company: Southern C a l i f o r n i a Gas Co.
T e r r i t o r y : Southern California.
Contact: Messrs. Andre, M c M u r r a y and Nemick.
S t a t u s : I n force f o r 18 m o n t h s ; 19,000 homes affect t o date (of 3 m i l l i o n
residential customers).
U t i l i t y r o l e : U t i l i t y field forces determine i n s u l a t i o n needs, provide contractor
l i s t f o r customer selection.
Source of f u n d s : I n t e r n a l .
Credit a p p r o v a l : I n t e r n a l — B i l l e d separately f r o m gas service.
L o a n l i m i t : No m a x i m u m .
Average l o a n : $300.
Interest r a t e : 1 V 2 % per m o n t h on u n p a i d balance.
P r o d u c t s : Insulation.
Contractors or i n s t a l l e r s : Certified or approved contractor list. Retailer stock
equipment f o r do-it-yourself.
Certification and inspection: Company inspects a l l completed w o r k .
31
Regulatory Commission : Approved the Program.
State B a n k i n g Commission : No regulation—Banks were disinterested.
(Source: F E A conversatior. s w i t h u t i l i t y . )
1 9 7 7 T H E R M A L RETROFIT SURVEY
( P E R C E N T OF 1 3 0 R E S P O N S E S )
1. Do you sell and subcontract any of the f o l l o w i n g retrofit services? 23 percent,
Yes; 77 percent, No.
I f yes, please check those t h a t apply. I f no, go to question 9.
100 percent, A t t i c insulation.
53 percent, W a l l insulation.
13 percent, Storm doors a i d windows.
10 percent, Caulking and weatherstripping.
63 percent, Clock thermostats.
2. A r e these r e t r o f i t services offered to (check one) : 40 percent, Your customers only? 60 percent, A l l homeowners i n your service area?
3. Do you arrange f o r finaicing or finance such w o r k checked i n (1) above?
73 percent, Yes; 27 percent, No.
4. Do you guarantee the s u c o n t r a c t o r w o r k checked i n (1) above? 82 percent,
Yes; 18 percent, No.
5. I s your r e t r o f i t m a r k e t i n g service organized (check one) : 67 percent f o r
profit (outside of rate base) ? 33 percent f o r non-profit?
6. Do you m a i n t a i n a sales force? 90 percent, Yes; 10 percent, No. I f yes, how
many? Average 13.5 people—Range 1-90.
7. I s your sales force t r a i r e d to estimate the cost of i n s t a l l i n g (check those
that apply) :
87 percent, A t t i c Insulation.
53 percent, W a l l Insulation.
13 percent, Storm Door and Windows.
7 percent, Caulking and Weatherstripping.
43 percent, Clock Thermostats.
27 percent, Others as noted i n ( 1 ) .
8. W h a t communications media do you use to reach prospective retrofit homeowners (check those t h a t a p p y ) ?
87 percent, B i l l stuffer.
14 percent, T r u c k poster.
70 percent, Newspaper ads.
50 percent, Radio.
23 percent, T V .
33 percent, Other.
9. I s your company p l a n n i n g to sell and subcontract retrofit services d u r i n g
the remainder of this year or d u r i n g 1978? (Base 130 companies) 43 percent,
Yes ; 57 percent, No.
I f yes, w h a t r e t r o f i t services are you planning to sell and subcontract?
100 percent, A t t i c insulation.
46 percent, W a l l insula tic n.
22 percent, Storm doons and windows.
22 percent, Caulking and weatherstripping.
65 percent, Clock thermostats.
32 percent, Other.
10. I s your state regulatory entity or energy oflice u r g i n g u t i l i t i e s to become
involved i n (check those t h a t apply) : (Base 130 companies) :
M a r k e t i n g insulation—3^: percent.
F i n a n c i n g insulation—33 percent.
Other
—18 percent.
11. I f you are c u r r e n t l y selling retrofit services or are interested i n this business, w o u l d you send a representative(s) to a t w o dav, A.G.A. sponsored seminar
on u t i l i t y retrofit services i n Chicago d u r i n g May 1977? (Base 130 companies)
53 percent, Yes.
I f yes, how many ? 69 compf nies.
I f yes, w h a t subjects would y o u l i k e to have covered (check those t h a t apply) ?
(Base 69 companies) :
45 percent, M a r k e t i n g atric insulation.
34 percent, M a r k e t i n g w a l l insulation.
32
27 percent M a r k e t i n g s t o r m doors a n d w i n d o w s .
33 percent, M a r k e t i n g other energy conserving products.
22 percent, Sales t r a i n i n g .
25 percent, Financing.
36 percent, Products available to i m p r o v e t h e r m a l efficiency.
42 percent, Products available to reduce energy consumption.
32 percent, N B S or E R D A research on i n s u l a t i o n .
34 percent, Review o f F E A ' s " f u l l service" r e t r o f i t m a n u a l f o r contractors.
1 percent, Other.
12. I n y o u r c u r r e n t conservation communitions, a r e you u r g i n g customers t o
i n s t a l l : (Check those t h a t a p p l y ) (Base 130 companies) :
94 Percent, a t t i c insulation.
79 Percent, w a l l i n s u l a t i o n .
80 Percent, s t o r m doors a n d w i n d o w s .
84 Percent, c a u l k i n g a n d w e a t h e r s t r i p p i n g .
15 Percent, other.
53 Percent, clock thermostat.
31 Percent, a t t i c v e n t i l a t o r s .
19 Percent, sun shades a n d awnings.
38 Percent humidifiers.
22 Percent w a t e r restrictors.
D o you p r o v i d e names o f subcontractors on request? (Base 130 companies)
39 percent, y e s ; 61 percent, no.
Senator BROOKE. HOW d i d the utilities t r y to promote competition
among insulating and heating contractors?
M r . BARDIN. TO the best of our ability we w i l l supply an answer
f o r the record.
Senator BROOKE. A r e any of the utilities we are discussing subject
to f a i r credit reporting practices, such as those required o f convent i o n a l financing institutions?
M r . BARDIN. W e t h i n k they should be so subject; we are not cert a i n t h a t they are now. I gather f r o m Secretary Simons t h a t the
t i t l e I status would subject utilities to f a i r credit reporting practices.
I n one way or another, t h a t should be an item on the legislative
agenda.
Senator BROOKE. W i l l you check i n t o that, please ?
M r . BARDIN. W e w i l l check into it.
Senator BROOKE. W h a t administrative costs which presumably go
i n the general rate base were experienced by utilities as a result o f
these programs?
M r . BARDIN. Under the President's proposal, that would not be
provided for. I would be glad t o check, i n the voluntary p r o g r a m t h a t
some o f the utilities have undertaken, how t h a t has been handled
and supply i t f o r the record.
[ T h e f o l l o w i n g i n f o r m a t i o n was received f o r the record:]
W e have n o t conducted an extensive r e v i e w o f c u r r e n t u t i l i t y l e n d i n g practices f o r consumer purchases o f conservation m a t e r i a l s . T h e F e d e r a l T r a d e
Commission has stated t h a t t h e T r u t h i n L e n d i n g A c t is ambiguous w i t h respect
t o such l e n d i n g by u t i l i t i e s . E v i d e n t l y most l e n d i n g by u t i l i t i e s i s specifically
exempted by t h a t act, b u t consumer conservation l e n d i n g was n o t contemplated
a t t h e t i m e of i t s passage. T h e F T C has proposed, a n d we agree, t h a t u t i l i t i e s
should be subject to t h e same consumer protection requirements as c o n v e n t i o n a l
lenders. W e w i l l incorporate such a requirement i n t o o u r p r o g r a m r e g u l a t i o n s
g o v e r n i n g u t i l i t y conservation programs, a f t e r c o n s u l t a t i o n w i t h the F T C .
As mentioned i n answer to an e a r l i e r question, E R D A a n d F E A are conducti n g a survey a n d detailed study of i n s u l a t i o n programs c u r r e n t l y r u n b y u t i l i t i e s .
T h e A m e r i c a n Gas Association reports, and our conversations w i t h a gas u t i l i t y
confirm, t h a t most programs are operated f o r p r o f i t by t h e u t i l i t y . T h a t is, none
of t h e a d m i n i s t r a t i v e costs are p a i d b y the rate-payers i n general, a n d t h e
33
profits or losses accrue to t h e stockholders. T h e p r o g r a m r u n by the M i c h i g a n
Consolidated Gas Co. is a n i m p o r t a n t exception. T h a t company provides only
i n f o r m a t i o n a n d c o n t r a c t o r r e f e r r a l s t o i t s customers, and does n o t sell insulat i o n d i r e c t l y . T h e i r a n n u a l a d m i n i s t r a t i v e costs have v a r i e d f r o m $40,000 to
$50,000 since t h e p r o g r a m sta :ted i n 1973.
Senator BROOKE. AS y c u know, M r . B a r d i n , I am skeptical about
the need f o r a massive national program of this nature. I guess you
gathered that.
M r . BARDIN. I caught the d r i f t of your skepticism, Senator Brooke.
Senator BROOKE. B o t h from the statement and f r o m the questioning, I am sure. B u t I would like to see what evidence you have of an
overwhelming need f o r r e w capital f o r this strategy of marketing
services and equipment by convenient packaging which can override
the anticompetitive concerns faced by the Federal Trade Commission
and the consumer groups and committees of Congress who are worried about the protection f r o m consumer credit abuses. Y o u r own
example of voluntary cocperation between State offices and utilities
i n some states seems to me to argue f o r a more flexible strategy.
M r . BARDIN. I would certainly agree w i t h you to the extent of
f a v o r i n g flexibility and an opportunity f o r variations f r o m State to
State. There are constitutional reasons, climatic, reasons, experience
reasons, policy reasons for it.
Also let me say I welcome your skepticism. I t h i n k that is a wholesome aspect of our constitutional system of government. B u t what
we see is the f o l l o w i n g : W e have gone through the t u r m o i l and
trauma of a very substantial increase i n fuel costs i n this country i n
the last few years. I can document that to you, but I don't have to,
you know i t f r o m your cwn home State, I t is obviously i n the interest of people, as the chairman accurately said, to retrofit their
homes, i f only they know exactly how, what measures to take, and
where to get the front-end money, because i n the long r u n i t is money
that w i l l be returned i n the f o r m of lower fuel bills.
B u t we haven't seen t h a ; vast retrofitting which people m i g h t want.
I t a l k to people i n my neighborhood, that is the best evidence f o r
me, and I t a l k to my own wife, and I ask them w h y they have done
things or not done them. There are many people who are basically
home improvement types who w i l l go out and find out the answers
themselves. B u t there arc many others who are just incapacitated,
elderly, l i m i t e d i n their use of tools, or just not the type to do retrof i t t i n g themselves and-whD are looking f o r guidance.
I ask m y w i f e how about getting a contractor, and her reaction
is basically i n favor of Public Service Electric & Gas, our u t i l i t y ,
and the man i n the unifo'^m, whom she trusts. I f he comes, she w i l l
let h i m i n the house and :rust him, where otherwise she m i g h t have
questions. I t h i n k that is pretty suggestive of the answer to your
question Senator Brooke.
B u t there is no substitute f o r experimenting, and I t h i n k the answers to some of the other questions about those utilities who have
tried i t out, promoted i t . a i d how f a r they have gotten, are important.
I f you were to agree w i t h me that we ou^ht to enlist the talents, the
organizations and the presence of utilities i n all of the cities and
towns around the country, then please consider the f o l l o w i n g : W e
34
are asking the p r i v a t e business company, a specialized k i n d o f company, to go out and convince t h e i r customers t o consume less of t h e i r
product. I t is a very h a r d t h i n g f o r companies to do, beyond a certain
point, beyond the p o i n t where i t enables them t o attract new
customers.
I t h i n k t h a t has to be mandatory.
Senator BROOKE. I can't ask y o u any f u r t h e r questions, m y t i m e
is up. I know w h a t y o u are saying, we are a l l agreed o n the need f o r
i t , i t is just a question o f how i t is accomplished.
I just don't t h i n k the vehicle is proper. I just don't t h i n k y o u w i l l
get u t i l i t y companies equipped to do the evaluation, the energy evaluation, equipped t o give the contractor services, equipped to do the
financing. I just t h i n k you chose the w r o n g vehicle f o r i t . I t h i n k t h a t
p r i v a t e enterprise can do i t . I t h i n k the financial institutions can do
the financing and w i l l do the financing. I tlhink the homebuilders and
the contractors can do the packaging o f contractor services. I t h i n k
they can also do the energy evaluation. I just don't t h i n k the u t i l i t i e s
are the proper vehicle to use, and i f y o u w i l l look a t the questions
t h a t I have asked you and t r y to ascertain the answers t o them, even
i n those areas where you say they have been experimenting, I t h i n k
you w i l l f i n d they just can't do the job, and I don't t h i n k they w a n t
to do the job.
I yield, M r . Chairman.
T h e CHAIRMAN. Senator Sparkman.
Senator SPARKMAN. I have enjoyed t h i s testimony very much. I
t h i n k i t has been quite h e l p f u l . I have a few questions I w o u l d l i k e
to ask.
I am not sure I understood clearly whether or not this is applicable
to m u l t i h o u s i n g units a person may own.
M r . BARDIN. T h e u t i l i t y program, Senator Sparkman, is n o t addressed to the m u l t i p l e d w e l l i n g u n i t s ; only the business t a x credit
w o u l d go to that. B u t the answer is no, the proposed u t i l i t y p r o g r a m
does not reach the m u l t i p l e d w e l l i n g situations you are concerned
about.
Senator SPARKMAN. B u t the t a x credit p r o g r a m does?
M r . BARDIN. There is a business tax credit, w h i c h i s a 20-percent
investment tax credit before the Committee on Finance, t h a t w o u l d
be available f o r the owners o f m u l t i p l e d w e l l i n g units. So w o u l d
the residential credit be available f o r the condominium owners.
Senator SPARKMAN. Suppose a person—take a member o f Congress. Suppose he owns a home here i n W a s h i n g t o n and he owns a
home also i n his home city. W h a t is the situation there ?
M r . BARDIN. The proposal goes only to the p r i n c i p a l resident, Senator.
Senator SPARKMAN. I own a home here, and I own a home i n H u n t s ville. E a c h one is a p r i n c i p a l residence. W h e n Congress is out, I am
i n Alabama. W h e n i t is not out, I am here. I o w n a home i n each
place. Where w o u l d I be?
M r . BARDIN. I remember, Senator Sparkman, f r o m l a w school, a
famous case about the estate o f the founder o f the Campbell soup
fortune, w h o l i v e d both i n New Jersey and Pennsylvania, and the
35
final conclusion after years and years of l i t i g a t i o n was t h a t each
State could tax him. H e seemed to be a resident of each of the States.
Senator SPARKMAN. They do tax me both places.
M r . BARDIN. Under our b i l l , the Secretary of the Treasury would
have t o prescribe regulations defining that situation of the p r i n c i p a l
residence, and what the b i l l means by principal residence.
Senator SPARKMAN. W h e n I first came in, Senator Schmitt was
discussing solar energy. I d i d not get the f u l l i m p o r t of what he
had to say or what you said. B u t I am greatly interested i n solar
energy. A s i t happens, a great deal of w o r k being done on t h a t is
being done i n m y home town, by N A S A . I have visited there, I have
seen their display, I have seen how i t works.
T o what extent do you subscribe t o the use of solar energy?
M r . BARDIN. The administration is strongly committed to exploiti n g and expanding the solar energy development i n this country. W e
have shifted funds i n the fiscal 1978 budget toward solar and we are
now beginning the fiscal year 1979 budget cycle. One of the major
issues i n the administration planning f o r the next budget cycle is
the one you raise about solar.
Our impression overall is t h a t solar hot water heating is i n many
cases an appropriate solution today; t h a t solar space heating and
cooling is coming r i g h t up, but on the cost-effective balance, i t is not
as f a r advanced as solar h o t water. Other solar technologies, including
the photocell conversion process and the h i g h intensity solar conversion processes, are seen basically to be i n the research and development stage, rather than the commercial stage, although t h a t is a
matter under intensive discussion and debate.
I t h i n k tthe fiscal year 1979 budget cycle process w i l l probably be
the vehicle by which the administration determines how fast we can
go, and how f a r , i n introducing solar technologies. B u t we are certainly going to want to continue the research effort on that score.
M r . SIMONS. I f I m i g h t add, Senator, the Department has an experimental p r o g r a m f o r solar hot waiter heating, which has just been
implemented and is operating i n approximately 5,000 dwelling units,
and we believe i t is ready today. W i t h i n the framework of the existing
legislation, solar heating devices are eligible f o r t i t l e I loans and are
being encouraged.
M r . BARDIN. I t is not the subject of today's hearing, but solar units
would be eligible f o r tax credits, and i n our program f o r retrofitting
the Federal b u i l d i n g stock of the Department of Defense, G S A , and
all other agencies, solar is one of the technologies which would be
authorized. I have testified on that subject before another committee
and our estimate was i f the Congress approved and funded our t o t a l
program f o r the Federal b u i l d i n g stock, so Uncle Sam would be
practicing w h a t he preaches to others, we m i g h t i n the near term
be p r o v i d i n g something like a 20-percent increase i n the market f o r
solar facilities, the near term being the next fiscal year.
Senator SPARKMAN. W e l l , let me move on to something else. W i t h
reference to h a n d l i n g loans on these projects, some request was made
apparently of the Federal Home L o a n Mortgage Corporation as to
their ability to handle them, and I just w i l l read certain excerpts
36
f r o m a reply f r o m the Home L o a n Mortgage Corporation to M r .
Ashley of the House Committee. The letter was w r i t t e n by Jack
Carter, who is the Vice President of the Corporation.
W e see several p o t e n t i a l l y p r o h i b i t i v e aspects of t h i s p r o g r a m f r o m t h e
Corporation's p o i n t of view. F i r s t , w h i l e i t is d i f f i c u l t to provide an assessment
of any o p e r a t i o n a l o r p r o g r a m m a t i c difficulties t h e C o r p o r a t i o n w o u l d encounter
i n i m p l e m e n t i n g Section 113, t h a t could be substantial. T h e Corporation's staff
has absolutely no p r i o r experience i n p u r c h a s i n g of home i m p r o v e m e n t loans
a n d unsecured loans.
The a l i t t l e f u r t h e r o n : " A credible assessment of our a b i l i t y to
purchase such loans, i n what amounts, and i n what time frame can
not even be made at this time."
I s that going to create some difficulty ?
M r . BARDIN. I know, Senator, that the A d m i n i s t r a t i o n carefully
consulted w i t h the Corporation i n d r a f t i n g the legislation. Obviously
once legislation is passed, its implementation takes w o r k and t r a i n i n g of people all up and down the line, i n m a k i n g sure i t gets done
by people who know what they are doing.
M r . SIMONS. One of the features of the A d m i n i s t r a t i o n program is
the phasing of the requirements f o r the capital that w i l l be needed
f o r it. The other aspect is that as banks seek broader and broader
powers, they w i l l be looking more and more to this type of lending.
Some of the institutions do some of this lending now. I t i t not somet h i n g that cannot be learned t h r o u g h a t r a i n i n g program. T i t l e I
lenders has been doing this extensively. So we are only t a l k i n g now
about the conventional portion of this lending, which w o u l d be the
uninsured.
TThe f o l l o w i n g letters were ordered inserted i n the record at this
point:]
F E D E R A L H O M E L O A N MORTGAGE
Washington
CORPORATION,
D.C., June 21, 1911.
M r . BOB MALAKOFF,
Staff
Director,
Subcommittee
on Housing and Urban Affairs, Senate
Committee
on Banking, Housing and Urban Affairs, Washington,
D.C.
DEAR BOB: I n response to y o u r phone c a l l of June 24th, I a m a t t a c h i n g f o r
y o u r consideration a copy of a l e t t e r dated June 1, 1977 t o Congressman
T h o m a s L . Ashley a n d signed by C h a i r m a n G a r t h M a r s t o n of the F e d e r a l H o m e
L o a n B a n k B o a r d . T h e M a r s t o n l e t t e r was w r i t t e n a t M r . Ashley's request
a n d presents the comments of T h e M o r t g a g e C o r p o r a t i o n a n d t h e B o a r d on
Section 113 of the House b i l l H . R . 6831. As y o u k n o w , Section 113 of S.1469 i s
i d e n t i c a l t o Section 113 of the House b i l l and the comments on the House b i l l
w o u l d be t h e same as those on the Senate b i l l .
I believe t h a t t h e June 1st l e t t e r w i l l be more t h a n adequate t o meet t h e
t e r m s of y o u r request. I f there is a n y t h i n g else w e can do to assist I w i l l be
happy to do so.
Sincerely,
JACK
FEDERAL H O M E L O A N B A N K
Washington,
Hon. THOMAS L.
CARTER.
BOARD,
D.C., June
1,1911.
ASHLEY,
Chairman,
Chairman,
Subcommittee
on Housina and Community
Development,
Committee
on Banking, Currency and Housing, House of Representatives,
Washington,
D.C.
DEAR MR. CHAIRMAN : T h i s i s i n response t o t h e o r a l request of y o u r staff
to t h e F e d e r a l H o m e L o a n M o r t g a g e C o r p o r a t i o n to comment upon Section 113
of H . R . 6831, a b i l l t o establish a comprehensive n a t i o n a l energy policy.
37
Section 113 would amend Section 302(h) of the Federal Home Loan Mortgage
Corporation A c t (12 U.S.C. §1451 ( h ) ) to add a new sentence expanding the
definition of residential mortgage. The operational effect of this expansion is
to p e r m i t The Mortgage Corporation to make a secondary m a r k e t i n energy
conserving home improvement loans pursuant to the corporation's mortgage
operations a u t h o r i t y under Section 305 of The Mortgage Corporation Charter
Act. The expanded definition would cover both secured and unsecured loans
which are insured under T i t l e I of the N a t i o n a l Housing A c t or w h i c h are not
so insured. The expanded definition is l i m i t e d to loans "whose o r i g i n a l proceeds are applied f o r i n order to finance energy conserving improvements to
residential real estate."
A technical review of the t e x t of proposed Section 113 indicates t h a t i t is
legally sufficient to accomplish its purposes. W e can t h i n k of no d r a f t i n g
changes w h i c h we would make to improve the t e x t of the section. A brief review of the statutory a u t h o r i t y of eligible sellers to the corporation indicates
t h a t they have a u t h o r i t y to originate home improvement loans. However, we
do not know the extent to w h i c h these loans w i l l be originated by p r i m a r y
lenders nor to w h a t extent they may be offered f o r sale i n the secondary
market. Assuming t h a t these loans can be originated by p r i m a r y lenders on
a t t r a c t i v e terms, there may be incentives f o r p r i m a r y lenders to hold the loans
i n t h e i r own portfolios. Absent adequate incentives the o r i g i n a l lenders may
make such loans only i f they are assured t h a t they can divest themselves immediately, i.e., sell them, becoming mere brokers generating volumes of loans
to pass on to any i n s t i t u t i o n w h i c h w i l l buy them.
Assuming such loans are made and offered to The Mortgage Corporation,
however, we see several potentially prohibitive aspects of this program f r o m
the corporation's point of view. F i r s t , w h i l e i t is difficult to provide a confident assessment of any operational or programmatic difficulties the corporation w o u l d encounter i n implementing Section 113, they could be substantial.
The corporation's staff has had absolutely no p r i o r experience i n the purchasing of home improvement loans and unsecured loans. A t this point, w e do not
know whether u n i f o r m loan documentation w i l l need to be developed, together
w i t h u n d e r w r i t i n g standards, how extensive the changes i n our operating procedures m i g h t be, or w h a t type of additional employee expertise we may have
to acquire to prudently manage such a program. Indeed, i t is not yet clear
w h a t type of T i t l e I insurance program w i l l be developed by the Department
of Housing and U r b a n Development f o r these energy conserving improvement
loans. A credible assessment of our a b i l i t y to purchase such loans, i n w h a t
amounts, and i n w h a t t i m e frame, cannot even be made now.
Second, i t is envisioned t h a t these loans w i l l be of short maturities (perhaps
no more t h a n five years on the average) and i n small amounts (perhaps between $800 and $1,500). B o t h administrative costs f o r packaging very large
numbers of small, short-maturity loans and subsequent servicing costs probably
w i l l be expensive. We must recognize t h a t these costs are reflected i n the price
at w h i c h these loans are purchased and u l t i m a t e l y i n the loan itself. The
Mortgage Corporation's experience has been t h a t such secondary m a r k e t expenditures are cost effective when spread over an extended period of time (30
years) and f o r relatively large p r i n c i p a l amounts ($30,000), but f o r shorter
m a t u r i t i e s and smaller loan amounts we are not sure t h a t the program w o u l d
be economically viable.
T h i r d , at this time, the resources of the corporation, both financial and personnel, are extended to near capacity. A d d i t i o n a l responsibilities w i l l require
additional resources i n terms of both personnel and capital.
F o u r t h , the corporation funds i t s current purchase programs through aggregating the mortgages i t buys i n t o large pools and selling interests i n these
pools to interested investors. The creation of investor interest i n this type of
investment security has taken years to establish. There is no corresponding
investor m a r k e t f o r home improvement loans and i t w o u l d be necessary to
find or develop investors w i l l i n g and ready to accept the y i e l d and risk, etc.,
peculiar to these loans. The orderly development of such a market may take
years, i f i t could be developed at all. I n the meantime, the corporation's level
of purchases of these loans w o u l d have to remain small to be commensurate
w i t h the level of sales.
As you can see, a number of questions remain to be answered before we can
determine how the corporation could actually purchase and whether we can
38
resell t h e home i m p r o v e m e n t loans t o w h i c h reference is made i n Section 113.
H o w e v e r , the c o r p o r a t i o n stands ready, w i t h i n the p r o p e r scope of i t s f u n c t i o n s ,
t o assist i n a l l e v i a t i n g o u r n a t i o n a l energy problems, a n d f r o m t h a t s t a n d p o i n t ,
w o u l d p r o m p t l y a t t e m p t to develop a l l necessary mechanisms t o i m p l e m e n t
Section 113. W e w i l l be g l a d t o p r o v i d e a n y f u r t h e r i n f o r m a t i o n t h a t y o u m a y
desire.
Sincerely,
GARTH MARSTON.
FEDERAL N A T I O N A L MORTGAGE A S S O C I A T I O N ,
Washington,
Hon. WILLIAM
D.G., June
27,1977.
PROXMIRE,
Ghairman, Gommittee on Banking, Housing and Urban
Affairs,
U.S. Senate, Washington,
D.G.
DEAR MR. CHAIRMAN : Y o u r staff has asked f o r o u r comments on t h e proposed N a t i o n a l W e a t h e r i z a t i o n A c t as embodied i n H . R . 7893, w h i c h is n o w
p e n d i n g i n the o t h e r body.
T h e only p r o v i s i o n of the b i l l d i r e c t l y a f f e c t i n g t h e F e d e r a l N a t i o n a l M o r t gage Association is contained i n section 407, w h i c h w o u l d a m e n d t h e F N M A
C h a r t e r A c t t o a u t h o r i z e t h e c o r p o r a t i o n t o purchase t i t l e I F H A l o a n s m a d e
f o r energy-conserving i m p r o v e m e n t s a n d solar energy systems, a n d s i m i l a r conv e n t i o n a l loans. T h £ c o r p o r a t i o n a l r e a d y has a u t h o r i z a t i o n t o purchase a n y
l o a n i n s u r e d by F H A , so the effect of t h i s p r o v i s i o n w o u l d be t o a u t h o r i z e t h e
purchase of c o n v e n t i o n a l loans t h a t are s i m i l a r t o t i t l e I loans a n d t h a t a r e
made f o r t h e n a r r o w purposes stated. W e recognize the f a c t t h a t t h e b i l l deals
a l m o s t exclusively w i t h aspects of t h e energy crisis, a n d w h i l e w e h a v e no
o b j e c t i o n t o section 407 as w r i t t e n , w e w o u l d p r e f e r t h a t o u r l e g i s l a t i v e aut h o r i z a t i o n s not be d r a w n so n a r r o w l y . W e w o u l d , therefore, suggest t h a t t h e
b i l l be amended by s t r i k i n g o u t lines 3, 4 a n d 5 of page 46 a n d i n s e r t i n g i n
l i e u t h e r e o f " i n loans o r advances of c r e d i t made f o r t h e purposes described
i n section 2 ( a ) of t h e N a t i o n a l " .
Section 4 0 3 ( b ) of t h e b i l l w o u l d amend t h e N a t i o n a l H o u s i n g A c t t o i n crease the i n s u r a b l e amount, u n d e r section 203, of mortgages of p r o p e r t y w h e r e
solar energy systems have been installed. T h i s p a r a g r a p h has t w o sets o f
l i m i t a t i o n s , one based upon t h e n u m b e r of f a m i l i e s f o r w h i c h a d w e l l i n g i s
designed, t h e o t h e r stated i n t e r m s of percentage of t h e value of t h e m o r t g a g e d
p r o p e r t y . A n increase of 20 perecnt i n t h e percent l i m i t a t i o n s w o u l d i n m a n y
cases a u t h o r i z e insurance of loans i n excess of t h e v a l u e of t h e p r o p e r t y ; t h i s
p r o v i s i o n should, therefore, affect o n l y t h e first set of l i m i t a t i o n s . W e w o u l d
suggest t h a t the quoted language to be added t o section 203(b) (2) be amended
to read, " I n case of a m o r t g a g e of p r o p e r t y i n o r u p o n w h i c h a solar energy
system (as defined i n section 2 ( a ) ) has been i n s t a l l e d , t h e applicable d o l l a r
l i m i t a t i o n based upon the n u m b e r of f a m i l i e s f o r w h i c h t h e d w e l l i n g w a s designed i s increased by t h e lesser of ( A ) 20 p e r c e n t u m ( B ) t h e cost of such
installation."
Sincerely,
LESTER C. CONDON,
( F o r OAKLEY HUNTER).
Senator SPARKMAN. T h a n k you. T h a n k you, M r . Chairman.
The CHAIRMAN. T h a n k you, Senator Sparkman. Senator Schmitt.
Senator SCHMITT. T h a n k you, M r . Chairman. I share Senator
Brooke's skepticism, as you are probably aware by now. I have considerable skepticism about the entire national energy policy as proposed by the administration. I don't t h i n k the overall p l a n w i l l
work, I am not even convinced that the administration thinks i t w i l l
work. The resource, economic and philosophical assumptions i n many
cases, are ridiculous. Labor needs jobs, and I don't t h i n k the p r o g r a m
deals w i t h that. I n d u s t r y needs capital and I don't t h i n k your prog r a m deals w i t h t h a t problem. B u t more i m p o r t a n t l y , above all, the
39
homeowners need gas, oil and electricity so they can operate their
homes and automobiles, while we t a l k about conservation. None o f
these things seem to be emphasized i n the p l a n enough.
Y o u r statement that i f the conservation plan doesn't w o r k i n the
area discussed today, then more stringent controls w i l l be necessary
to make i t w o r k disturbs me. Do you mean that you are beginning to
work on plans t h a t would establish mandatory standards f o r homeowners ?
M r . BARDIN. The background, Senator Schmitt, is that i n prep a r i n g this program, the administration carefully considered and
rejected a more stringent proposal, which would be mandatory as to
the homeowners, and the administration proposal is today voluntary,
as originally presented on A p r i l 20.
O n the other hand, the House Subcommittee on Energy chaired
by M r . D i n g e l l has marked up our b i l l and changed i t to p u t i n a
compulsory feature, so that homes transferred after 1982 would, i f
there is a mortgage involved f r o m an institution that enjoys Federal
support, subsidy, insurance or other, have to comply w i t h standards
of insulation and energy conservation. This covers just about every
mortgage i n the country.
So we do have i n the other body a very concrete proposal which
at this time has been approved by one of the subcommittees and has
a f a r more mandatory feature than the administration is proposing
to you at this time.
Senator SCHMITT. DO you t h i n k that is fair? T h a t a loan received
under one set o f circumstances should be tied now (to a new set o f
circumstances?
M r . BARDIN. I may have misspoken. T h a t is not the issue i n the
D i n g e l l committee proposal. I t would deal w i t h new mortgages i n the
future. I t doesn't deal w i t h any existing mortgages.
A s to the wisdom of the House proposal of course our hope is that
we achieve through the congressional process a piece o f legislation
which has a good chance of accomplishing the objectives of the b i l l
before you, w i t h o u t going the mandatory route. W h a t we are t r y i n g
to do is to get a result without any unnecessary governmental intervention. W e have have a b i g complex complicated country and whatever side of the aisle or political spectrum we may happen to w o r k
from, I t h i n k we a l l sense the difficulty of m a k i n g changes. Y o u referred t o t h a t i n your opening statement i n another context, and it' is
true here, too. We are optimistic. W e t h i n k we have a patriotic people
which w i l l respond to the combination o f the patriotic call to conserve and w i l l be interested i n conserving on their fuel bills.
W e do t h i n k , however, that many of our fellow citizens want the
convenience of being able to go to one place, one organization, and
get reasonable answers to the whole bundle of questions, rather than
having to do the home handyman job or the negotiating job of worki n g i t a l l out.
Senator SCHMITT. M r . B a r d i n , do you t h i n k the President would
veto anv b i l l w i t h mandatory standards imposed on the homeowners?
M r . BARDIN. I don't t h i n k i t is m y province, Senator, to speculate
on that score.
40
Senator SCHMITT. HOW f i r m is your position ?
M r . BARDIN. I t h i n k the position is t h a t we have a very serious
problem t h a t has t o be addressed and one o f the areas i n w h i c h t o
address i t t o get cheap Btu's. W e have t o conserve more and we
ought to do i t i n a reasonable time frame.
One way of accomplishing these goals is the package we have before you, w i t h which I am very pleased. N o t h a v i n g been the architect o f the package, but h a v i n g joined the administration since
t h a t time, I am honored to present i t to you. I f the Congress can
achieve the same resiults by another combination of proposals, so be
it. B u t I t h i n k we have a responsibility t o get a job done i n the most
efficient and cost-effective way w i t h the least disruption to the institutions of our political and economic life.
Senator SCHMITT. YOU say these B t u ' s t h a t w i l l be saved t h r o u g h
the program under consideration today w i l l be relatively cheap.
Have you analyzed the energy cost o f the program, what i t costs
to produce the insulation and other materials required i n the program ?
M r . BARDIN. Senator Schmitt, we believe i t is relatively m i n o r ,
even t a k i n g account of the energy t h a t is consumed i n m a n u f a c t u r i n g
such goods as fiber glass.
Senator SCHMITT. Could you supply f o r the record an estinate o f
that energy cost?
M r . BARDIN. C e r t a i n l y .
[ T h e f o l l o w i n g was received f o r the record:]
M i n e r a l w o o l ( t h e generic name f o r fiberglass a n d rock w o o l ) i s made f r o m
m o l t e n glass, f u r n a c e slag, o r rock. T h e m o l t e n m i n e r a l i s subjected t o a
s t r o n g blast o f a i r w h i c h f o r m s long, fine fibers o r threads w h i c h are " s p u n "
i n t o a wool-like m a t e r i a l . T h e key process m a t e r i a l s a n d steps a r e :
Fiberglass
Sand a n d Soda Ash.
M e l t i n g Furnace.
Spinner.
Phenol B i n d e r .
D r y i n g Oven.
V a p o r B a r r i e r Backing.
Rock Wool
Slag.
M e l t i n g Furnace.
Cupola.
Spinner.
Phenol B i n d e r .
D r y i n g Oven.
Paper Backing.
T h i s p r o d u c t i o n process i s energy-intensive. H o w e v e r , f o r each B t u used i n
the p r o d u c t i o n process, 16-20 B t u ' s a r e saved per y e a r i n each home t h a t i n stalls i n s u l a t i o n depending on w h e t h e r o r not t h e home has a i r conditioning.
A s s u m i n g 50 percent o f the homes have a i r - c o n d i t i o n i n g a n d a n i n s u l a t i o n l i f e
of 30 years, 1 B t u consumed i n m a n u f a c t u r i n g i n s u l a t i o n saves about 540 B t u ' s
over the l i f e of the insulation.
Cellulosic i n s u l a t i o n i s made b y shredding a n d m i l l i n g paper p r o d u c t s —
p r i m a r i l y used n e w s p r i n t — o r wood p u l p a n d t r e a t i n g t h e r e s u l t i n g
fluffy
materials w i t h
fire-retardant
chemicals. These c h e m i c a l s — p r i n c i p i a l l y h a v e
a c i d b u t also a m m o n i u m sulfate, c a l c i u m sulfate, a l u m i n u m s u l f a t e and sodium
carbonate—add a p p r o x i m a t e l y 20 percent i n w e i g h t t o t h e p u l v e r i z e d paper.
A l t h o u g h t h e m a n u f a c t u r e of paper is energy-intensive, the paper used i n t h e
p r o d u c t i o n o f cellulose i s excess (waste) a n d w o u l d h a v e been m a n u f a c t u r e d
regardless o f t h e demand f o r cellulose as a n i n s u l a t i n g m a t e r i a l . A l t h o u g h
energy i s consumed i n t h e m i n i n g o f borax, i t i s f e l t t h a t t h e p r o d u c t i o n o f
cellulose i s m u c h less energy intensive t h a n the p r o d u c t i o n o f fiberglass a n d
negligible over all.
A l l i n all, t h e use o f i n s u l a t i o n saves m u c h m o r e energy t h a n expended d u r i n g t h e p r o d u c t i o n process.
41
Senator SCHMITT. Have you considered the capital costs o f the
program ?
M r . BARDIN. Y e s , w e h a v e .
Senator SCHMITT. Have you related t h a t capital cost to other competing demands f o r capital i n the total energy policy proposed by
the administration?
M r . BARDIN. Yes, the national energy plan actually comes out w i t h
dollars per barrel equivalent which range f r o m $2 to $7 per barrel
saved, as contrasted w i t h a w o r l d price today of $13.50 f o r a barrel of
oil imported. T h a t is the price o f an incremental barrel. I f we consume more i n this country, we do i t by i m p o r t i n g an extra barrel of
oil. T h a t is the incentive price the administration program would
offer to the o i l company that goes out and explores and finds new
oil i n this country. I t is the highest incentive price t h a t anybody is
being offered i n the w o r l d today. W e retain more of a price per barrel
under our p l a n t h a n i n many other countries i n the world, where
the Government has expropriated or takes a bigger Government
share.
I have never heard anybody f r o m the oil industry or otherwise say
that $13.50 as proposed by the President f o r new discovery o f oil
i n this country is not an adequate incentive. B u t compare the $13.50
w i t h a saving on the order of $7 or less, and I say i t is much cheaper
to accomplish t h a t increment i n supply by cost effective conservation,
all other things equal, than by the new supply initiatives, which are
also needed and also are p a r t of the national energy plan.
Senator SCHMITT. We could get i n t o another discussion about the
incentives f o r the production o f oil and gas. B u t m y questions has
to do w i t h the capital for this particular program.
Have you estimated the capital requirements f o r this particular
program and how those capital requirements w i l l compete w i t h other
requirements w i t h i n the financial structure o f this country?
M r . BARDIN. W e would be happy to provide you w i t h a calculation.
[The i n f o r m a t i o n f o l l o w s : ]
W e have estimated t h a t t h e President's goal o f i n s u l a t i n g 90 percent o f
A m e r i c a n homes w i l l r e q u i r e $22 b i l l i o n i n p r i v a t e expenditures, i n constant
1977 dollars. T h e T r e a s u r y D e p a r t m e n t has estimated t h a t the t o t a l reduction
i n t a x receipts because o f t h i s e x p e n d i t u r e w o u l d be $5.4 b i l l i o n , also i n 1977
dollars. Since the p r o g r a m w i l l be soread out over several years, t h e t o t a l s i n
c u r r e n t d o l l a r s w o u l d be $30.5 b i l l i o n i n expenditures and $6.9 b i l l i o n i n
revenue losses.
Senator SCHMITT. YOU mentioned earlier t h a t you figured the cost
of each visit by the utilities to provide services i n estimating what
could be done on an i n d i v i d u a l home i n terms of the implementation
of this program at $20 t o $40. Where d i d you get those costs ?
M r . BARDIN. F r o m the experience o f utilities which are r u n n i n g
such programs now.
Senator SCHMITT. T h a t seems extraordinarily low considering the
complexity of the average home i n terms of heat losses and insulation
requirements, the cost of visits to the home, labor costs, and so f o r t h .
M r . BARDIN. I don't t h i n k so, because, Senator Schmitt, we are
not proposing an engineering study of the i n d i v i d u a l home. W e are
proposing a quick k i n d o f study.
42
W h e n I lived i n Washington the last time, I d i d this t o m y own
house myself. T h i s was before the energy crisis shot up. I inspected
the house, saw what k i n d o f insulation I had, I went and talked t o
the people at one of the b i g private supply stores i n t o w n and I concluded I needed more insulation. I t took me about 2 hours w o r t h
of inspecting, t a l k i n g , telephoning and deciding and then I bought
the insulation and I installed i t .
W h e n you t a l k about clock thermostats, i t may take a l i t t l e more
evaluation.
One of the points that Secretary Simons made I t h i n k is very important. Under our proposal there would be a l i m i t e d list w i t h no
catch-all at the end. I t w o u l d be a relatively simple program t o over
administer.
I t is true that we m i g h t mi9S an additional measure which is useful
i n one particular b u i l d i n g i n one part of the country. B u t at least i t
gets y o u a relatively quick answer t o your question. H a v i n g come
here f r o m State government service, where I administered one o f
your major programs, the water pollution facilities program, I can't
overemphasize to you m y personal conviction that clear cut guidelines by the Federal Government, save us so much i n terms o f the
administrative f r i c t i o n of getting the job done. I hope t h a t continues
as a feature of the legislation t h a t is finally approved.
Senator SCHMITT. Could you provide the committee a more detailed breakdown of that $20 t o $40 cost?
M r . BARDIN. Y e s .
Senator SCHMITT. I t h i n k i t would be of interest to us.
M y t i m e is up. M r . Chairman, I don't know whether you have
sensed the number of areas where we are going to be getting informat i o n f o r the record, but to me that continues to indicate how l i t t l e
thought has gone into some of the proposals that the administration
is p u t t i n g before us. I hope i t is a signal to them to start p u t t i n g
that thought i n , i n addition t o t r y i n g t o sell this p r o g r a m t o us
here on the H i l l .
T h a n k you.
[The F E A submitted the f o l l o w i n g i n f o r m a t i o n : ]
Section 1 0 3 ( a ) ( 2 ) ( A ) o f S. 1469 w o u l d r e q u i r e the u t i l i t y t o offer " t o i n spect t h e r e s i d e n t i a l b u i l d i n g t o determine a n d apprise the r e s i d e n t i a l customer o f the estimated cost o f purchasing and i n s t a l l i n g each suggested measu r e . " Section 102 (368-d-3) o f H . R . 7893 w o u l d require t h e u t i l i t y t o offer a
service " t o inspect t h e residential b u i l d i n g f o r purposes o f conducting a n
energy a u d i t a n d d e t e r m i n i n g a n d a p p r i s i n g the r e s i d e n t i a l customer o f t h e
estimated cost a n d savings o f purchasing and i n s t a l l i n g a p p r o p r i a t e approved
energy conservation measures."
E n e r g y inspection costs w i l l v a r y s u b s t a n t i a l l y w i t h t h e degree o f sophisticat i o n a n d a m o u n t o f i n f o r m a t i o n provided by t h e u t i l i t y . W a s h i n g t o n Gas L i g h t
provides home inspections f o r ceiling i n s u l a t i o n t o i t s customers a t no charge.
T h e company has no direct accounting of inspection costs, b u t stated t h a t t h e i r
inspectors average t h r e e t o five a u d i t s per day. Resource Conservation E n g i neers, a home energy conservation firm located i n Cambridge, Massachusetts,
estimated f o r us t h a t the t y p e o f inspection contemplated i n t h e N a t i o n a l
E n e r g y A c t w o u l d cost between $35-$50, w i t h o u t accounting f o r t h e economies
of scale l i k e l y f r o m a large-scale inspection p r o g r a m . I n 1976, t h e M a y o r ' s
E n e r g y Office o f Jacksonville, F l o r i d a , reported t o t h e F E A t h a t a home
energy inspection p r o g r a m r u n i n c o n j u n c t i o n w i t h a C E T A t r a i n i n g p r o g r a m
cost the c i t y $15 per a u d i t i n salaries and t r a v e l .
43
T h e N a t i o n a l E n e r g y A c t proposes a n a u d i t w h i c h w o u l d i n v o l v e cost estimates f o r u p t o t e n home conservation measures, along w i t h less specific savings estimates. W e believe t h a t a n inspection service whose goal w a s t o inspect
a large f r a c t i o n of customer's homes over a 3 to 5-year p e r i o d w o u l d produce
significant economies of scale over e x i s t i n g u t i l i t y or p r i v a t e inspection services
as a r e s u l t of reduced t r a v e l expenses a n d increased experience w i t h s i m i l a r
homes.
F u r t h e r i n f o r m a t i o n about e x i s t i n g a u d i t p r o g r a m s w i l l come f r o m a survey
of u t i l i t y conservation p r o g r a m s n o w being conducted f o r E R D A a n d F E A .
P r e l i m i n a r y results of t h i s survey w i l l be a v a i l a b l e i n A u g u s t .
The CHAIRMAN. Senator Morgan.
Senator MORGAN. M r . B a r d i n , i f I understand the administration's
proposal correctly, you would require that each u t i l i t y company provide inspection services, is t h a t correct?
M r . BARDIN. T h a t is correct.
Senator MORGAN. They would also have to provide installation
service ?
M r . BARDIN. I f the customer desired i t , t h a t is correct.
Senator MORGAN. A n d therefore i n a l l likelihood some customers
would desire i t , so i t would p u t every u t i l i t y i n the country i n the
installation of insulation business, wouldn't it?
M r . BARDIN. I t would probably p u t utilities into the business of
selecting a subcontractor or several subcontractors to do the installation.
Senator MORGAN. E i t h e r doing that or doing i t themselves.
M r . BARDIN. T h a t is correct.
Senator MORGAN. Also your t h i r d requirement is that they provide
financing f o r installation?
M r . BARDIN. I f the customer so desires, yes.
Senator MORGAN. The t h i n g t h a t bothers me, M r . B a r d i n , is first
of all I have no choice i n the u t i l i t y that is going to f u r n i s h me the
electricity or gas or oil. W i t h oil I do, but w i t h gas or electricity, I
don't. I f you are going to put them i n a position where they are
going to be involved i n the insulation business and financing business,
then they have a decided advantage over everyone else, because they
have access to me and my home, because I can't buy electricity or gas
f r o m anyone else.
Isn't this going to do a lot to create monopolies or drive independent businessmen out of business ? I am out i n an area, and the u t i l i t y
has its service and they send their inspector around, as mandated
and he has got to provide me w i t h i n f o r m a t i o n and urge me to do i t .
This gives h i m access to me. Then i f he is going to get i n the insulation business, which he has got to do, because some of his customers w i l l demand i t , he w i l l want t o make a profit on i t , and i f
he has got to get into the financing business, I would t h i n k his
stockholders would demand he make a profit out of i t .
I t seems to me i t puts them i n an u n f a i r position w i t h regard to
other suppliers and contractors, I t h i n k we ought to take another
look at it.
M r . BARDIN. W e l l , obviously there is room to debate this issue. W e
have conscientiously looked at that question. Our conclusion is that
the energy problem is great and the need f o r conservation is immediate. People also need to be aJble t o get answers i n one place, and
44
this need is such t h a t we ought to be w i l l i n g to supervise a program,
b u i l d i n g i n important safeguards, i n order to respond t o i t .
Let's keep i n m i n d that people are likely to be approached by t h e i r
gas u t i l i t y and by their electric u t i l i t y , and i f they are b u y i n g f u e l
oil, they w i l l also be approached by the fuel o i l dealer, i f he wants
to get into i t as several o f the fuel o i l dealers i n the country have.
There is no reason w h y i n d i v i d u a l contractors and home improvement
companies shouldn't be approaching people or even set up a statewide
organization to approach people.
Senator MORGAN. W h e n the Federal law mandates they approach
the people, i t seems to me you are blanketing the area so as to eliminate competition.
Y o u mentioned the fact t h a t you are a lawyer. I am sure you are
aware o f a statement we always say, a bad set o f facts makes bad
law. W e have got a bad crisis i n energy, but i f we adopt a remedy
t h a t w i l l drive out competition i n the insulation and b u i l d i n g business, we may end up worse off.
M r . BARDIN. W e certainly would not want to drive out competition
and I t h i n k we would be more than sensitive to any suggestions the
Congress comes up w i t h , or that you, Senator, based on your legal
experience and State service experience, would come up w i t h t o t e l l
us what ought to be w r i t t e n i n as a safeguard into this program.
O u r objective is the opposite o f stifling competition. W e do not
want to carve up the t e r r i t o r y between the gas and electric companies. W e want a m u l t i p l i c i t y o f offers t o the homeowner so he
can choose among them.
Senator MORGAN. H e is going t o have a m u l t i p l i c i t y o f about t w o
or three, the gas company and the electric company, or the gas company and the o i l company.
M r . BARDIN. I t h i n k — I see on my list, f o r example, the N o r t h
Carolina Gras Corp. is one of the pioneering companies.
Senator MORGAN. T h a t is r i g h t . They are doing i t voluntarily.
M r . BARDIN. Yes. I would be interested to see how these things
w o r k i n your particular State. B u t I don't see w h y we should have
a smothering o f competition because the u t i l i t y ' s major interest is
not going to be home improvement business.
Senator MORGAN. B u t you are going t o require them to t a l k t o
them, so they have t o do that. Then they just happen t o have the
capital to install i t , and then finance i t . A n d the convenience of t h a t
to the homeowners i n my opinion w i l l drive the independent people
out of business.
Let's go t o another question. W h i c h is a better insulation material,
fiberglass o r cellulose?
M r . BARDIN. W e l l , each has its advantages and disadvantages.
Senator MORGAN. W h i c h is the most used?
M r . BARDIN. F o r new homes, fiberglass is overwhelmingly more
popular.
Senator MORGAN. There are only three companies i n the U n i t e d
States t h a t manufacture i t .
M r . BARDIN. Three companies dominate t h a t market.
Senator MORGAN. A r e there any other companies abroad? D o we
i m p o r t fiberglass insulation ?
45
M r . BARDIN. I doubt i t , i t is very bulky, and the transportation
costs would be large.
Senator MORGAN. A r e we doing anything about looking at ways of
p r o v i d i n g more competition i n the supplying of this k i n d of insulation?
M r . BARDIN. Yes, Senator, we have projects underway w i t h the
other agencies o f the Federal Government. W e are interested i n
promoting the appropriate use o f cellulose material w i t h proper
fire retardation qualities. T h a t is a major opportunity which is much
less capital intensive and there are no problems w i t h patents.
There are well over 200 companies i n the cellulose business now.
So we are definitely looking into i t and intend to step up t h a t effort.
I t is a very serious possibility.
Senator MORGAN. W h a t are the three companies that manufacture
fiberglass ?
M r . BARDIN. Owens-Corning Fiberglass, Johns-Manville, and Certain-Teed.
Senator MORGAN. Probably a l l three o f those are i n the top 200
corporations i n the country, aren't they?
M r . BARDIN. I don't know.
Senator MORGAN. Just this past week I met w i t h some home
builders, and there are about five roofing manufacturers i n the whole
country that really dominate the market. There are about five plywood manufacturers, and I have about decided i f we p u t wage and
price controls on the top 200 corporations i n this country, we m i g h t
do something to stop inflation. I n the home b u i l d i n g business, there
is not competition i n suppliers. I t h i n k this is something H U D ought
to look at and not wait f o r the F T C . D u r i n g the recession the price
of these things d i d n ' t come down. U n t i l we do something about
making a free market, we are not going to reduce the cost of housing.
M r . SIMONS. Senator, I t h i n k one o f the p r i m a r y causes o f the
problem of supply has been the severe fluctuations the industry has
been subject t o i n the past. Due to that, there has been lack o f incentive to make major capital investments because of these cycles. This
industry is definitely undersupplied, the facilities f o r supplying i t are
not there. One of the things incumbent upon us, which the Department
realizes, is to take every step possible to even out the production of
housing, so the manufacturers and investors w i l l realize they can
make an investment and know the facilities w i l l be used.
Senator MORGAN. I t h i n k you made a key point. Y o u have a peak,
and then the housing starts stop and they all go bankrupt.
M r . SIMONS. I have been a small home builder myself.
Senator MORGAN. I am opposed to tax credits. These gimmicks are
used f o r people who have a lot of opportunity to invest and to avoid
paying income tax, while those o f us on a salary end up paying a
lot of tax. I s n ' t there another way o f doing this? There must be 25
different tax gimmicks. Last year d u r i n g the tax b i l l , the first quest i o n I asked the corporations is how much taxes d i d you pay last
year. One man who rated i n the top 500 got red i n the face, and said
" Y o u asked a nasty question." I said " H o w d i d you get out of paying
i t ? " and he read off tax credit after tax credit. Unless you change
m y mind, I am not ever going to vote f o r another tax credit. Y o u
94-843 O - 77 - 4
46
have a big landlord, who owns a lot of buildings, or a lot of m u l t i f a m i l y dwellings. H e w i l l get a 20-percent tax credit. So he sees this
year his income is going to be big, so he says I w i l l go down and insulate all of these buildings, and I w i l l get a 20-percent tax credit.
So he ends up paying no taxes while the rest of us on salary pay it.
I s there something we can do about that?
M r . BARDIN. Under the administration proposal, the i n d i v i d u a l
homeowners would have a tax credit that is limited to $410 maximum
on retrofitting of the principal residence. T h a t would mean that i f
he owed $410 of Federal income taxes, i t would be a total wash. The
credit would eliminate the tax liability.
On the other hand, i f somebody who is i n that low a tax bracket
only has a deduction, he would be getting a reduction, o f only 14
percent of the total tax owed the Government, So the poorer person
is helped by the tax credit rather than deduction.
Senator MORGAN. IS there any limitation on the m u l t i f a m i l y ?
M r . BARDIN. NO; there is not. There is a time l i m i t on the business
credit, but not a dollar l i m i t , at least as f a r as the individual home
owner. I t seems td me that the tax credit is a more effective way of
getting people to insulate their homes than a deduction. T h a t doesn't
answer all of your question.
Senator MORGAN. I t is a good way to put more tax on the average
income people.
Thank you, M r . Chairman.
The CHAIRMAN. Gentlemen, I want to thank you very very much
for your testimony. There are a number o f questions t h a t Senator
Brooke said he would like to have answered f o r the record, and I am
sure other Senators may have questions they would like to ask, too.
I want you to know we have known what a competent man Secretary
Simons is. M r . Bardin, this is your first appearance before the committee and I must say I am tremendously impressed. I know we disagreed w i t h you vigorously, but you presented your viewpoint w i t h
great force and intelligence. Some people would say you d i d a superb
job on a hopeless cause, but I hope not.
M r . BARDIN. Aside f r o m the last remark, M r . Chairman, I appreciate the compliment. I am glad the observation is not one shared by
the Chairman. We look f o r w a r d to w o r k i n g w i t h you.
The CHAIRMAN. Our final witnesses are Robert A r q u i l l a , president
of the National Association o f Home Builders, and H a r r y G. E l m strom, president of the National Association of Realtors.
M r . A r q u i l l a , you have a substantial statement here, i t is a fine statement, and i t w i l i be printed i n f u l l i n the record, including the attachments which you made to it. I hope you can summarize i t as much as
possible.
STATEMENT OF ROBERT ARQUILLA, PRESIDENT, NATIONAL ASSOCIATION OF HOME BUILDERS; ACCOMPANIED BY JENNIFER
SAUVE, AND DENNIS O'TOOLE, LEGISLATIVE STAFF
M r . ARQUILLA. I w i l l t r y to. M r . Chairman, w i t h me today I have
Jennifer Sauve, and Dennis O'Toole f r o m our legislative staff.
47
[ M r . A r q u i l l a read the statement as follows:]
S T A T E M E N T OF T H E N A T I O N A L A S S O C I A T I O N OF H O M E B U I L D E R S
M r . Chairman and members of the committee, my name is Robert A r q u i l l a .
I am President of the N a t i o n a l Association of Home Builders. N A H B is the
trade association of America's home building industry. Our membership totals
over 87,000, located i n 649 associations throughout the 50 states and Puerto
Rico. I am accompanied today by J. Denis O'Toole, N A H B ' s Deputy Legislative
Counsel, and Jennifer Sauve, Assistant Legislative Counsel.
We appreciate the opportunity to present our views on S. 1469, the N a t i o n a l
Energy Act.
N A H B recognizes the c r i t i c a l n a t u r e of the energy situation i n the United
States and the home building i n d u s t r y pledges its support and assistance i n
alleviating this problem. As p a r t of this effort, I am pleased to report t h a t our
Association has f o r m e d a Special Committee on Energy.
T h i s committee is composed of builders f r o m every region i n the country,
and i t is charged w i t h the responsibility f o r f o r m u l a t i n g N A H B ' s policy on
energy-related matters. Among the areas of study by the Committee a r e :
energy conservation, alternative sources of energy, progress and technological
improvements i n the area of solar energy, and improved education of both
the public and the builder as to the need and methods of achieving energy
conservation.
A t our recent Spring B o a r d of Directors' meeting, N A H B adopted an Energy
Policy Statement based on the recommendations of our Energy Committee.
(Attachment " A " is a copy of this Statement.) W h i l e this statement is prim a r i l y a general statement of principles supported by N A H B , we expect our
Committee's w o r k to u l t i m a t e l y result i n the development of recommended
thermal standards f o r new residential dwellings.
N A H B has been aware f o r some t i m e of the shortage of energy supplies i n
certain regions of t h i s country and the increasing cost of a l l energy production
to the consumer. B u i l d e r s have attempted to address this situation by the use
of better energy conservation design i n the planning of new homes and apartments, and t h r o u g h the use of improved technological processes i n the actual
construction of the d w e l l i n g unit. N A H B ' s Research Foundation is continuing
its w o r k w i t h Federal agencies, and the private manufacturers and suppliers
of residential and commercial building products, on applied research t h a t w i l l
permit the home builder to improve the energy efficiency of new residential
and commercial structures.
However, since new construction each year accounts f o r the addition of only
about two percent of the t o t a l housing stock—with most new homes generally
being more t h e r m a l l y efficient t h a n older homes—the greatest potential f o r
energy conservation i n buildings lies i n r e t r o f i t t i n g existing homes and buildings w i t h present energy conserving technology. Thus, the President's energy
proposals as set f o r t h i n S. 1469 have correctly placed greatest emphasis on
the r e t r o f i t t i n g of existing buildings. However, one caveat is t h a t i n many
cases the cost of r e t r o f i t t i n g an existing structure may approximate or exceed
the cost of incorporating energy-saving technology into a new structure.
E X I S T I N G STRUCTURES
N A H B supports the President's proposals f o r t a x incentives f o r qualified
residential energy conservation expenditures. The N A H B Research Foundation
estimates t h a t r e t r o f i t t i n g j u s t h a l f of the existing single-family detached
homes w i t h a practical package of energy conserving items such as insulation,
storm windows, storm doors and weather-stripping, w o u l d save up to one million barrels of o i l per day.
One of the n a t i o n a l energy goals stated i n Section 3 of S. 1469 is to insulate
90 percent of a l l American homes and a l l new buildings by 1985. According to
the estimates of N A H B ' s Research Foundation, there w i l l be at least 77 mill i o n units i n our n a t i o n a l housing stock by the end of 1985. I t is our best estimate t h a t i n order to meet the goal of S. 1469, approximately 47 m i l l i o n homes
w i l l have to be retrofitted. (See Attachment " B " . ) Of this total, we believe
t h a t 6.5 m i l l i o n to 7 m i l l i o n homes can be insulated w i t h cellulose fiber and
about 45 m i l l i o n homes could be insulated w i t h m i n e r a l fiber. However, i t
48
must also be taken i n t o account t h a t d u r i n g this period approximately 16 mill i o n new homes w i l l be constructed w h i c h w i l l also require insulation. Consequently, we project a s h o r t f a l l of 15 to 25 percent i n the number of u n i t s t h a t
can be insulated by 1985 given projected source supply. We also project shortf a l l s i n the supply of storm windows and storm doors due to the w i d e l y f r a g mented n a t u r e of t h a t business. There is, however, probably adequate weather
s t r i p p i n g and caulking and sealing capability to satisfy the demand of the n e x t
eight to ten years.
I n a d d i t i o n to the problem of shortages i n insulation m a t e r i a l , another
m a j o r area of concern of N A H B is w i t h the role assigned the gas and electric
u t i l i t y companies i n the r e t r o f i t t i n g process. Under Section 102 of S. 1469, the
F E A A d m i n i s t r a t o r , a f t e r consultation w i t h the Secretary of H U D , is to develop residential energy conservation plans. Under Section 103, these plans are
to require t h a t gas and electric u t i l i t y companies offer t h e i r customers a resid e n t i a l conservation service, w h i c h w o u l d include inspecting the home to apprise the customer of the estimated cost of retrofit, i n s t a l l i n g energy conservat i o n equipment, and providing f o r repayment to the u t i l i t y t h r o u g h additions ro
m o n t h l y u t i l i t y bills. T w o effects of such a program are, one, t h a t a comprehensive u t i l i t i e s weatherization program w i l l excerbate the shortage of i n s u l a t i o n
materials. Secondly, although a customer w o u l d have the option of h a v i n g the
equipment installed by a supplier other t h a n a public u t i l i t y , u t i l i t i e s w i l l have
an advantage over a l l other contractors and suppliers because they have access
to every residential consumer of energy. The result of this u n f a i r advantage
may be to force the independent contractor out of business.
I n an attempt to r e c t i f y this serious problem, Section 102(d) (2) requires
t h a t each State u t i l i t y regulatory a u t h o r i t y submit a plan to F E A A d m i n i s t r a t o r w h i c h "contains an adequate program f o r preventing u n f a i r , deceptive, or
anticompetitive acts". However, even w i t h t h i s provision, N A H B is concerned
t h a t the unique position of a u t i l i t y company and the ease to the consumer of
one-stop shopping w i l l adversely effect competition.
I n its version of the bill, the Subcommittee on Energy and Power agreed to
p r o h i b i t u t i l i t i e s f r o m i n s t a l l i n g or subcontracting the i n s t a l l a t i o n of weatherization materials f o r t w o years. A t t h a t time, the F T C and F E A w o u l d assess
the impact of t h i s program and the u t i l i t i e s could assume such a role i f the
effect w o u l d not be anticompetitive.
N A H B believes, however, t h a t the approach taken i n the N a t i o n a l Weatherization Act, as reported by the House Committee on Banking, Finance and
U r b a n A f f a i r s is preferable. The B a n k i n g Committee's b i l l w o u l d l i m i t public
u t i l i t i e s to an i n f o r m a t i o n a l role. U t i l i t i e s seeking to expand t h e i r role to
include i n s t a l l a t i o n and financing could do so only where the F E A A d m i n i s t r a t o r determined such a role w o u l d be consistent w i t h Federal Trade Commission policies on competition and t h a t the cost of any such service w o u l d be
reasonable. T h i s program is f a r preferable to the mandatory Federal n a t u r e of
the proposal i n S. 1469 w h i c h w o u l d require utilities, w i t h t h e i r protected
monopoly status, to enter a field i n w h i c h they have no special expertise.
Senator Brooke, i n his statement accompanying the i n t r o d u c t i o n of S. 1304,
also raised serious questions about the A d m i n i s t r a t i o n ' s proposal t h a t electric
and gas u t i l i t i e s undertake to insulate the somes of t h e i r customers. One w a y
of dealing w i t h the problem is to make low-interest loans of Federal f u n d s
available f o r insulation and r e t r o f i t t i n g residential and small commercial
buildings, as provided i n S. 1304.
As we stated i n our testimony before the House Subcommittee on H o u s i n g
and Community Development, we believe i t is also i m p o r t a n t to the success of
the retrofit program t h a t there be a tie-in w i t h the secondary mortgage m a r k e t
i n order to encourage m a x i m u m lender participation. Therefore, we support
Section 113 of S. 1469, w h i c h authorizes the Federal H o m e L o a n Mortgage
Corporation and the Federal N a t i o n a l Mortgage Association to purchase residential energy conservation loans.
N A H B recognizes t h a t j u s t as i n the p r i m a r y residential mortgage m a r k e t ,
there are thousands of l o w income families who cannot otherwise a f f o r d to
finance these energy conservation improvements w i t h o u t some f o r m of government assistance. We, therefore, support Section 115 of S. 1469 w h i c h w o u l d
increase f u n d i n g f o r the existing low-income residential conservation p r o g r a m
(weatherization) to $130 m i l l i o n i n fiscal 1978 and $200 m i l l i o n per year i n
fiscal years 1979 and 1980.
49
SOLAR E N E R G Y
As pointed out i n our policy statement, solar energy appears almost certain
to play a m a j o r role i n meeting the nation's long-term energy needs. I n addit i o n to the residential energy t a x credit proposed i n the President's plan, we
support the credit f o r installation of qualified solar equipment.
B y 1985, the goal as stated i n S. 1469 is to have solar energy i n use i n more
t h a n 2.5 m i l l i o n homes. As the members of the Committee are aware, H U D ' s
Office of Policy Development and Research currently has underway a solar
energy residential demonstration program and has funded the costs of solar
equipment f o r over 1,500 dwelling units as of January, 1977, w i t h many home
builders actively p a r t i c i p a t i n g i n the program and anxiously a w a i t i n g the fundi n g of additional new projects.
However, N A H B is advising i t s members to proceed cautiously i n the use
of solar systems on three counts. F i r s t , w h i l e there are a large number of
reputable manufacturers of such systems, the state of the a r t is i n i t s infancy
and many of the devices are unproven. Second, although the solar heating of
domestic hot water is now economically feasible i n many sections of the
country, we believe caution should be exercised both as to the geographical
location suitable f o r such solar heating and the cost effects of the systems
upon the structure of the home necessitated by the inclusion of the solar unit.
And, t h i r d , there are no industry standards or c r i t e r i a f o r residential solar
energy.
The energy saving potential of solar equipment i n residences is great, but so
is i t s potential cost. Therefore, we support the concept of l o w interest loans
to homeowners and small businesses f o r i n s t a l l a t i o n of solar, energy conservation and other renewable energy source equipment and measures, provided
i n S. 805, introduced by Senator M c l n t y r e . T h a t b i l l would also provide grants
to those whose incomes are less than $30,000, to cover-up 20 to 25 percent of
the purchase and i n s t a l l a t i o n costs.
MANDATORY
INSULATION
The general t h r u s t of the N a t i o n a l Energy Act is t o w a r d the use of voluntary
energy conservation measures, except f o r the required p a r t i c i p a t i o n by electric
and gas utilities. I n the area of residential dwellings, of new as w e l l as existi n g houses, we recommend t h a t the Congress pursue the v o l u n t a r y approach
as its first line of action, and only i f these measures prove insufficient to
achieve widespread energy conservation should mandatory measures be resorted to. A type of v o l u n t a r y effort we support is the t a x credit f o r qualified
residential energy conservation expenditures.
On the other hand, we oppose the course of action tentatively recommended by
the House's Subcommittee on Energy and Power, w h i c h w o u l d deny mortgage
financing, effective January 1, 1982, to housing w h i c h f a i l s to meet Federal
energy efficiency standards. W h i l e a few exemptions w o u l d be provided (such
as f o r low-income homeowners), this provision w o u l d apply to v i r t u a l l y a l l
existing p r i n c i p a l residences. Implementation of this provision could be postponed u n t i l January 1, 1985, i f determined to be necessary by the F E A Administrator.
N A H B opposes a mandatory insulation provision on several grounds. F i r s t ,
we indicated i n our recent testimony before the House Committee on Banking,
Finance and U r b a n A f f a i r s on H.R. 6831, we do not believe t h a t there w i l l be
sufficient insulation available to retrofit the volume of existing housing t h a t
would be required under the Subcommittee's proposal and also provide the
necessary insulation f o r new housing. We believe t h a t a serious shortage of
insulation w o u l d occur under the Subcommittee's proposal, and a r t i f i c i a l l y inflate the cost of new housing production as w e l l as of the r e t r o f i t t i n g program.
N A H B also believes this proposal could have an adverse impact on energy
conservation efforts d u r i n g the period of development of standards as a result
of the uncertainty w i t h respect to w h a t standards m i g h t be imposed. Under
the Subcommittee proposal, final energy conservation standards w i l l not be
promulgated u n t i l t w o years a f t e r enactment of the N a t i o n a l Energy Act.
Homeowners w i l l be dissuaded f r o m insulating t h e i r homes f o r the i n t e r i m
period not k n o w i n g whether the devices they plan to i n s t a l l w i l l meet the f u t u r e
standards.
50
T h e House Committee on B a n k i n g , F i n a n c e a n d U r b a n A f f a i r s has also considered t h e proposal added by t h e Subcommittee on E n e r g y a n d P o w e r a n d
decided t h a t m a n d a t o r y F e d e r a l a c t i o n requires i n - d e p t h consideration. N A H B
supports the House B a n k i n g Committee's version, w h i c h a u t h o r i z e s t h e Secret a r y of H U D a n d the A d m i n i s t r a t o r s of V A a n d F E A t o study a p r o v i s i o n req u i r i n g m a n d a t o r y F e d e r a l a c t i o n t h a t a l l r e s i d e n t i a l d w e l l i n g u n i t s meet app l i c a b l e energy efficiency standards. T h e s t u d y is t o focus on t h e need f o r such
a provision, the f e a s i b i l i t y of m a n d a t o r y a c t i o n a n d the problems w h i c h are
l i k e l y t o appear. W e w o u l d p r e f e r t o see t h e approach t o v o l u n t a r y a c t i o n
t h o r o u g h l y pursued before r e s o r t i n g t o coercive g o v e r n m e n t a l action.
NEW BUILDINGS
U n d e r the President's N a t i o n a l E n e r g y P l a n , t h e effective date f o r i m p l e m e n t a t i o n of energy conservation s t a n d a r d s f o r n e w r e s i d e n t i a l a n d commerc i a l b u i l d i n g s w i l l be advanced by one year, t o 1980.
I n t h e i n t e r i m period between n o w a n d 1980, N A H B is t a k i n g t h e i n i t i a t i v e
i n developing tough, b u t reasonable, t h e r m a l efficiency s t a n d a r d s t h a t can be
used t h r o u g h o u t the r e s i d e n t i a l c o n s t r u c t i o n i n d u s t r y a n d p r o v i d e a g u i d e to
t h e consumer as he shops t h e m a r k e t p l a c e f o r housing. W e hope t h a t H U D
a n d t h e n e w D e p a r t m e n t of E n e r g y w i l l c a r r y o u t Congress' d i r e c t i o n u n d e r
Section 309 of the E n e r g y Conservation a n d P r o d u c t i o n A c t a n d consult w i t h
o u r i n d u s t r y i n the development of p e r f o r m a n c e standards. I t is o u r expectat i o n t h a t w h e n 1980 a r r i v e s , the N A H B developed standards w i l l be a g u i d e t h a t
w i l l n o t m a t e r i a l l y d i f f e r f r o m t h e F e d e r a l s t a n d a r d s so t h a t t h e r e w i l l be
m i n i m u m d i s r u p t i o n i n t h e c o n s t r u c t i o n of n e w housing.
I n conclusion, I w o u l d l i k e to r e i t e r a t e t h e closing sentence of o u r p o l i c y
statement t h a t " N A H B w i l l c o n t i n u e i t s leadership role i n t h e area of energy
c o n s e r v a t i o n so v i t a l to o u r c o u n t r y ' s economic h e a l t h a n d g r o w t h . "
T h a n k y o u f o r the o p p o r t u n i t y to present o u r v i e w s on t h i s most i m p o r t a n t
subject.
ATTACHMENT
N A H B
POLICY
ON
ENERGY
APPROVED
A
BY
EXECUTIVE
COMMITTEE
N A H B recognizes the c r i t i c a l n a t u r e of the energy s i t u a t i o n i n t h e U n i t e d
States a n d pledges to p r o v i d e support a n d assistance as i t can t o a l l e v i a t i n g
o u r n a t i o n ' s energy concerns.
W i t h t h e combined a b i l i t i e s of o u r m e m b e r s h i p a n d t h e expertise of o u r research a n d technical staff, w^e assess o u r r e s p o n s i b i l i t y as one of e x p a n d i n g
o u r role f o r a i d i n g energy conservation a n d resource development techniques
r e l e v a n t t o n e w a n d e x i s t i n g r e s i d e n t i a l a n d c o m m e r c i a l b u i l d i n g s . O u r goal
is to reduce energy consumption a n d t h e r e f o r e e x t e n d the t i m e f o r use of a v a i l able resources.
N A H B recognizes the necessity f o r energy conservation, n o t o n l y f o r o u r
c o n t i n u e d h e a l t h y economic g r o w t h as a n a t i o n , b u t also to reduce o u r v u l n e r a b i l i t y to p o t e n t i a l l y h a r m f u l embargos, d r a m a t i c s h i f t s i n o u r balance of
t r a d e a n d possibly o u r f u t u r e p o l i t i c a l p o s i t i o n i n t h e w o r l d of nations.
W h i l e reductions m u s t be made i n a l l categories of energy use, i t is a p p a r e n t
t h a t m a j o r c o n t r i b u t i o n s come f r o m e x i s t i n g a n d n e w r e s i d e n t i a l a n d comm e r c i a l b u i l d i n g s a n d f r o m t r a n s p o r t a t i o n . I n d u s t r i a l use of energy is essent i a l t o the economic w e l l being of t h e c o u n t r y a n d because efficiencies i n prod u c t i o n processes are d i c t a t e d by the c o m p e t i t i v e n a t u r e of o u r society, f u r t h e r
m a i o r reductions i n energy c o n s u m p t i o n i n t h i s category are n o t l i k e l y .
T h e i m m e d i a t e i m p o s i t i o n of t h e most advanced technologies f o r o b t a i n i n g
g r e a t e r gasoline mileage i n m o t o r vehicles is obviously of g r e a t i m p o r t a n c e .
H o w e v e r , the i m m e d i a t e u t i l i z a t i o n of t h e best possible techniques f o r conserv a t i o n i n n e w a n d e x i s t i n g build 1 'ngs is of equal or even greater i m p o r t a n c e because of the r e l a t i v e l i f e of b u i l d i n g s compared t o m o t o r vehicles. A u t o m o b i l e s
have a r e l a t i v e l y short lifespan. B u i l d i n g s , on t h e o t h e r hand, w i l l c o n t i n u e
i n use f o r generations a n d consequently, m u s t be energy efficient as soon as
possible.
We, t h e members of N A H B , recognizing the i m p o r t a n c e of energy conservat i o n i n buildings, have i n t h e past years developed a n d a p p l i e d c o n s t r u c t i o n
practices a n d u t i l i z e d m a t e r i a l s w h i c h h a v e c o n t r i b u t e d g r e a t l y t o increased
energy efficiency i n the homes a n d s t r u c t u r e s w e have b u i l t . W e w i l l c o n t i n u e
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to incorporate i n t o a l l newly constructed homes, apartments and commercial
buildings the requisite components to control the r a p i d l y increasing cost of
home heating and cooling. These costs are i n many areas approaching the trad i t i o n a l monthly costs of home ownership.
N A H B has historically, and correctly, maintained a policy based on performance r a t h e r t h a n specification standards i n dealing w i t h b u i l d i n g codes
and building components. The Department of Housing and U r b a n Development,
is currently developing such performance standards f o r energy conservation
i n response to Public L a w 94-385. I n the i n t e r i m period, we have developed
recommended c r i t e r i a f o r t h e r m a l efficiency to be applied to new single f a m i l y
housing before these H U D standards are f u l l y developed and promulgated.
The c r i t e r i a as developed w i l l insure cost effective t h e r m a l performance
w h i l e m a i n t a i n i n g freedom of choice i n design and selection of energy conserving techniques.
As p a r t of i t s ongoing service to i t s members and as p a r t of its share i n
helping to reduce energy consumption i n our country, N A H B w i l l continue to
provide i n f o r m a t i o n on building techniques, t h e r m a l insulation standards and
the use of innovative devices, a l l designed to reduce energy consumptions or
increase energy efficiency. N A H B w i l l continue to conduct seminars on designing, building, and selling energy conserving homes. These seminars w i l l be
broadened i n scope, and provided a t very nominal costs, to N A H B members,
representatives of a l l levels of government and to the general public.
The N A H B Research Foundation w i l l also continue to study and recommend
new techniques and new technology f o r energy savings i n a l l buildings which
can be accomplished i n the most economical manner possible using products
t h a t meet recognized standards.
I t w i l l abide by i t s present practice of not c e r t i f y i n g p a r t i c u l a r manufacturers or p a r t i c u l a r products unless they have been tested i n its laboratory
and which have obtained its label.
We call upon Congress and the A d m i n i s t r a t i o n to establish a graduated scale
of t a x and investment credits as incentives related to any program of energy
conservation i n new b u i l d i n g construction. Such t a x credit must be available
to the buyers of new homes and investment credits to builders of apartments
and commercial buildings who invest their funds to a t t a i n a n d / o r exceed established energy savings standards before any established deadline date.
This incentive program w i l l operate i n a manner similar to t h a t proposed
by the a d m i n i s t r a t i o n f o r the use of solar energy and the r e t r o f i t t i n g of existi n g buildings. We support the A d m i n i s t r a t i o n ' s proposals f o r t a x incentives f o r
the r e t r o f i t t i n g of such existing buildings.
I n addition, we urge the A d m i n i s t r a t i o n to provide low cost government
guaranteed loans f o r r e t r o f i t t i n g existing structures i n order to f u r t h e r encourage conservation efforts.
I n determining the effectiveness of energy conserving measures, the basis
f r o m which the savings i n energy are to be recognized should be the present
H U D MPS's f o r residential construction and the A S I I R A E 90-75 standard f o r
commercial and i n d u s t r i a l buildings.
N A H B w i l l continue to oppose legislation dealing w i t h energy "labeling" of
homes. We do this because there is no way to properly account f o r differences
i n f a m i l y size, energy needs and l i f e styles. However, we recognize buyers
should be f u l l y i n f o r m e d and builders w i l l provide statements of the calculated
percentage difference i n heat loss or heat gain f r o m the "base" i n order to
determine the level of t a x and investments credits i n the incentive program.
Since residential and commercial buildings are largely dependent, at present,
on fossil f u e l or electricity derived f r o m fossil fuel, f o r their energy needs, we
actively support the expanded use of coal by both the u t i l i t i e s and by industry,
based upon the application of sensible, realistic and economically feasible environmental standards.
N A H B has had a policy to urge the immediate de-regulation of the field
price of new n a t u r a l gas produced f o r inter-state commerce. W e continued to
support those positions w h i c h would result i n the end of price control.
We support such measures as would p e r m i t increased prices on new n a t u r a l
gas i n order to encourage the investment necessary f o r the discovery and development of new gas wells, w i t h the expectation t h a t at such time as there is
a price balancing relationship between gas and oil, t h a t price controls on both
of these fuels be removed.
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Solar energy appears almost certain to play a m a j o r role i n meeting our
nation's needs i n the long term.
However, despite w h a t w i l l be an increased demand f o r the use of solar
energy i n single f a m i l y homes and commercial buildings, we advise our members to proceed cautiously i n t h e i r consideration of solar systems. W h i l e there
are a large number of reputable manufacturers of such systems, the state of
the a r t is i n i t s infancy and many of the devices are unproven.
The N A H B Research Foundation and the Technical Services D e p a r t m e n t
w i l l continue to keep our members advised as solar technology improves. Solar
heating of domestic hot w a t e r is now economically feasible i n many sections
of the country, but again, caution should be exercised both as to the geographical location suitable f o r such solar heating and the costs effects not only f o r
such system b u t also upon the structure of the home necessitated by t h e inclusion of solar heating f o r domestic hot water.
N A H B supports continued research and development by the Federal Government i n t o other energy resources such as w i n d power and geothermal.
S i m i l a r l y , we actively support the efforts of the u t i l i t y companies to increase
the number of nuclear generating plants fueled by u r a n i u m using l i g h t w a t e r
reactors, or other proven nuclear energy.
N A H B urges t h a t a l l b u i l d i n g codes be re-examined to eliminate those requirements t h a t are w a s t e f u l of energy.
N A H B supports increased research and emphasis on local management techniques i n reducing the consumption of electrical energy. Such techniques as
t i m e of day metering and peak load p r i c i n g should be incorporated i n t o comprehensive rate structures w h i c h equitably distribute the cost of electrical generation and transmission w h i l e m i n i m i z i n g the capital outlay necessary to provide safe, dependable and adequate electric power.
As the nation's largest t r a d e association of residential and commercial
builders, N A H B w i l l continue its leadership role i n the area of energy conserv a t i o n so v i t a l to our country's economic health and growth.
ATTACHMENT
B
Our projection of the number of residential units w h i c h must be insulated
to meet the President's goal is based on the f o l l o w i n g statistics and assumptions :
W e estimate t h a t there are standing some 69 m i l l i o n residential u n i t s not
including vacation and mobile homes. F u r t h e r , t h a t new construction w i l l add
approximately 2 m i l l i o n residential units per year f o r the next 8 years. Therefore, at the end of 1985 we envision a gross of 85 m i l l i o n residential u n i t s
minus removals.
N A H B Research Foundation data show a remarkable correlation i n removals
to the existing house inventory at any given time. Very close to 1 percent of
any year's inventory is removed i n t h a t year. We, therefore, estimate t h a t over
the next years slightly less than 8 m i l l i o n units w i l l be deleted f r o m the housing inventory. T h i s w o u l d give us a net inventory at the end of 1985 of a t least
77 m i l l i o n units.
Of t h a t inventory, we estimate 9 m i l l i o n units i n existence today w h i c h w o u l d
not require significant insulation improvement. Most of these are electrically
heated a n d / o r a i r conditioned. F u r t h e r , we assume t h a t the 16 m i l l i o n u n i t s
cited above w i l l have proper insulation. Therefore, f r o m the 77 m i l l i o n u n i t s
we can deduct 25 m i l l i o n units r e q u i r i n g no a d d i t i o n a l insulation at the end
of 1985. T h i s leaves 52 m i l l i o n units r e q u i r i n g some or a great degree of improvement. As the President has referenced a 90 percent figure as the goal of
his program, i t follows t h a t 90 percent of 52 m i l l i o n units is 47 m i l l i o n units.
Assuming today's technology, i t w o u l d seem t h a t the p r i n c i p a l i n s u l a t i n g
products f o r existing homes over the next 8 years w i l l be either cellulose i n
loose fill f o r m or m i n e r a l fiber i n blanket o r loose fill f o r m .
Based on i n f o r m a t i o n received f r o m the N a t i o n a l Cellulose I n s u l a t i o n Manufacturers Association, we estimate an i n d u s t r y production i n 1976 of 300,000
tons per year. Assuming a 15 percent production g r o w t h f o r t h a t i n d u s t r y f o r
each of the next 8 years, we can calculate a t o t a l 8 year production of cellulose
fiber of 8.236 b i l l i o n pounds of cellulose insulation per residential u n i t . T h i s
creates a cellulose insulation capability of 6.5 to 7 m i l l i o n homes f o r the 8
years.
53
T h e m i n e r a l fiber i n d u s t r y ( F i b e r glass a n d rook wool) capacity i n 1974 w a s
on the order of 1.3 b i l l i o n pounds per year. T h i s figure is based on personal
knowledge of t h a t i n d u s t r y . E s t i m a t i n g a 30 percent g r o w t h i n capacity since
t h a t time, w e can e s t i m a t e a p r o d u c t i o n of 1.7 b i l l i o n pounds f o r t h i s year. A t
the same 15 percent per a n n u m g r o w t h r a t e f o r t h e n e x t 8 years, w e can calculate i n d u s t r y c a p a b i l i t y of 23 b i l l i o n pounds f o r the m i n e r a l fiber segment.
W e estimate a r e s i d e n t i a l u n i t need of 500 pounds l e a d i n g t o the conclusion
t h a t the m i n e r a l fiber i n d u s t r y can p r o v i d e i n s u l a t i o n f o r 46 m i l l i o n homes.
W e estimated above t h a t the n a t i o n a l t a r g e t w a s 47 m i l l i o n r e s i d e n t i a l units.
I t m a y be seen t h a t o u r p r o j e c t i o n of the i n d u s t r y c a p a b i l i t y is on t h e order of
52 m i l l i o n u n i t s f o r b o t h cellulose a n d m i n e r a l fiber combined. I f w e subtract
t h e 16 m i l l i o n n e w u n i t s c o m i n g on-stream b o t h n o w a n d a t the end of 1985,
w e find a r e t r o f i t c a p a b i l i t y of about 36 m i l l i o n u n i t s . W h e n t h i s is compared
t o the 47 m i l l i o n u n i t goal w e a n t i c i p a t e a s h o r t f a l l of about 22 percent.
T h e above s h o r t f a l l p r e d i c t i o n is a r t i f i c i a l l y precise. W h e n we t a k e i n t o account the v a r i a b l e s i n o u r g r o w t h assumptions, i n s u l a t i o n problems on a local
basis i n v a r i o u s p a r t s of the c o u n t r y , a n d t h e f a c t t h a t m a n y side-walls cannot
o r w i l l n o t be insulated, w e m u s t conclude t h a t the s h o r t f a l l w i l l probably be
i n t h e range of f r o m 15 to 25 percent.
The CHAIRMAN. Thank you very much. M r . Elmstrom.
STATEMENT OF HARRY G. ELMSTROM, PRESIDENT, NATIONAL
ASSOCIATION OF REALTORS; ACCOMPANIED BY ALBERT E.
ABRAHAMS, VICE PRESIDENT, GOVERNMENT AFFAIRS
[The statement read by M r . Elmstrom follows:]
54
NATIONAL ASSOCIATION OF
m
Harry G. Elmstrom
H. Jackson Pontius
PrMktont
EwcuOv* Vio* Piwidant
REALTORS
Albert E. Abrahams, 8t*rvio»Pi«aMsnt
REALTOR®
Government Affairs
925 15th Street, Washington, D.C. 20005
Telephone 202 628 5300
Statement
of
HARRY G. ELMSTROM, PRESIDENT
NATIONAL ASSOCIATION OF REALTORS®
B e f o r e the Senate Committee on
Banking, Housing and Urban A f f a i r s
on
Title I
of S. 1469,
regarding
Energy C o n s e r v a t i o n i n B u i l d i n g s
June 2 7 ,
1977
The NATIONAL ASSOCIATION OF REALTORS® i s comprised o f more t h a n
1 , 7 0 0 l o c a l boards o f REALTORS® l o c a t e d i n e v e r y s t a t e o f t h e U n i o n , t h e
D i s t r i c t o f Columbia and P u e r t o R i c o .
Combined membership o f t h e s e boards
i s i n excess o f 5 0 0 , 0 0 0 persons a c t i v e l y engaged i n s a l e s , b r o k e r a g e , managem e n t , c o u n s e l i n g , and a p p r a i s a l o f r e s i d e n t i a l , c o m m e r c i a l , i n d u s t r i a l ,
r e c r e a t i o n a l and farm r e a l e s t a t e .
Th/s A s s o c i a t i o n has t h e l a r g e s t members h i p o f any a s s o c i a t i o n i n t h e U . S . concerned w i t h a l l f a c e t s o f t h e r e a l
estate industry.
P r i n c i p a l o f f i c e r s i n c l u d e : H a r r y G. Elmstrom, P r e s i d e n t ,
B a l l s t o n Spa, New Y o r k ; Tom G r a n t , J r . , V i c e P r e s i d e n t , T u l s a , Oklahoma;
and H . Jackson P o n t i u s , E x e c u t i v e ' V i c e P r e s i d e n t .
Headquarters of the
A s s o c i a t i o n a r e a t 430 N o r t h M i c h i g a n Avenue, C h i c a g o , I l l i n o i s 6 0 6 1 1 .
The
Washington o f f i c e i s l o c a t e d a t 9 2 5 - 1 5 t h S t r e e t , N . W . , Washington, D.C. 2 0 0 0 5 .
Telephone 2 0 2 / 6 2 8 - 5 3 0 0 .
REALTOR • it • rvflMarvd collective membership mark wtiMi may
be used only by ml estate professional* who-arc members of
ft* NATIONAL ASSOCIATION OF REALTORS £ and aubacriba to Ha
strict CMa of Ettilca.
55
NR. CHAIRMAN AND MEMBERS OF THE COMMITTEE.
MY NAME IS HARRY ELHSTRON. I AM PRESIDENT OF THE 500>000
MEMBER NATIONAL ASSOCIATION OF REALTORS. WITH ME TODAY IS ALBERT
E. ABRAHAMS, VICE PRESIDENT OF OUR GOVERNMENT AFFAIRS OFFICE. WE
APPRECIATE THE OPPORTUNITY TO COMMENT ON PRESIDENT CARTER'S
PROPOSED NATIONAL ENERGY PLAN.
RESOLVING OUR ENERGY PROBLEM IS KEY TO BOTH THE SECURITY
AND ECONOMIC VIABILITY OF THIS NATION. REALTORS BELIEVE THAT
THE CONTINUED SEVERITY OF OUR NATION'S ENERGY PROBLEM WILL REQUIRE
SUSTAINED ATTENTION FROM BOTH THE PRIVATE AND PUBLIC SECTORS.
THE NATIONAL ASSOCIATION OF REALTORS SUPPORTS THOSE PORTIONS
OF THE PRESIDENT'S E;OGY"PLAH, S . M 6 9 , DEALING WITH ENERGY CONSERVATION IN THE HOME. THE PLANS OFFER HOMEOWNERS AMPLE OPPORTUNITY TO
PURCHASE AND INSTALL ENERGY CONSERVATION MEASURES IN THEIR HOMES.
WE ARE VERY ENCOURAGED BY THE VOLUNTARY APPROACH IN S . M 6 9 .
S.1472, THE TAX PROVISIONS OF THE ADMINISTRATION PROPOSAL, WHICH
IS NOW BEFORE THE SENATE FINANCE COMMITTEE, PROVIDES TAX CREDITS
FOR ENERGY CONSERVATION EFFORTS IN BOTH SINGLE FAMILY HOMES AND
MULTIFAMILY RESIDENCES. WE ARE CONFIDENT THAT, GIVEN THE PROPER
INCENTIVES, THE AMERICAN PEOPLE WILL RESPOND TO THE NEED TO CONSERVE
ENERGY IN THE HOME.
56
MATIOHAI FNFRfiY fflfll S FOR THF BIITIT FNV1RONMFNT
ENERGY CONSERVATION IN BUILDINGS IS AN IMPORTANT ELEMENT
OF THE NATIONAL ENERGY PLAN.
THE PRESIDENT HAS ESTABLISHED AS A
NATIONAL GOAL THE INSULATION OF 90% OF ALL EXISTING AMERICAN HOMES
BY 1985 AND INSULATION OF ALL NEW BUILDINGS.
IN REACHING THIS
GOAL, OVER 7 MILLION HOMES PER YEAR MUST BE BROUGHT UP TO A NEW
LEVEL OF ENERGY EFFICIENCY.
THE MAGNITUDE OF THIS UNDERTAKING
RAISES SOME SERIOUS QUESTIONS.
CAN IT BE DONE AND CAN I T BE DONE
PROPERLY?
GOVERNMENT REPORTS POINT OUT THAT OVER 50 MILLION OF OUR
71 MILLION LIVING UNITS ARE "UNDER INSULATED."
BE PUT INTO PERSPECTIVE.
THESE "UNDER INSULATED" UNITS WERE
BUILT PRIOR TO THE PRESENT CONCERN OVER ENERGY.
DESIGNED TO MEET PREVIOUSLY SET STANDARDS.
CHANGING.
THIS ISSUE SHOULD
THEY WERE
STANDARDS ARE NOW
WILL THEY CONTINUE TO CHANGE IN THE FUTURE?
RE-INSULATING
OLDER BUILDINGS IS NOT AN EASY TASK.
THE NATIONAL ASSOCIATION OF REALTORS IS CONCERNED OVER
SEVERAL POINTS. FIRST OF ALL, WE ARE CONCERNED THAT A LARGE DEMAND
FOR INSULATION MATERIAL MAY CREATE SHORTAGES AND INFLATE PRICES TO
THE EXTENT THAT IT WILL BE DETRIMENTAL TO THE HOMEOWNER AND THE
HOUSING INDUSTRY GENERALLY. FOR MODERATE AND LOW-INCOME INDIVIDUALS,
THE COST OF INSULATING AND WEATHER-PROOFING THEIR HOMES COULD BE
ONEROUS EVEN WITH THE ADOPTION OF THE PROPOSED TAX CREDITS. WE
URGE THE CONGRESS AND THE ADMINISTRATION TO CAREFULLY MONITOR
THIS POTENTIALLY DISRUPTIVE SITUATION.
57
SECONDLY, WE WOULD LIKE TO POINT OUT THAT THE PROPER
INSTALLATION OF INSULATION IS AS IMPORTANT AS THE INSULATION
ITSELF.
AN OVER-ANXIOUS ATTEMPT TO REACH THE 1985 GOAL WITHOUT
REGARD TO THE PROPER INSTALLATION COULD BE SELF-DEFEATING.
IT
CERTAINLY WOULD NOT REFLECT WELL ON THE EFFECTIVENESS OF THE PROGRAM
IF HOMEOWNERS INSULATE THEIR RESIDENCES ONLY TO FIND LATER THEIR
UTILITIES BILLS DO NOT DECREASE BECAUSE OF POOR WORKMANSHIP
INVOLVED.
THIRDLY, WE ARE CONCERNED OVER THE POTENTIAL FOR FRAUD
UNDER THE PROGRAM.
A PROGRAM OF THIS SIZE MUST HAVE SAFEGUARDS
TO INSURE THE WORK WAS ACTUALLY PERFORMED AND PERFORMED
CORRECTLY.
WE DO, HOWEVER, APPLAUD THE PRESIDENT FOR THE VOLUNTARY
ASPECT OF THE ENERGY PROGRAM WHICH IS COUPLED WITH INCENTIVES TO
HELP PROMOTE CONSERVATION.
IT IS OUR BELIEF THAT THIS IS THE
ONLY WAY THAT SUCH A PROGRAM CAN OPERATE.
A MANDATORY PROGRAM
FOR INSULATING EXISTING HOMES WILL NOT WORK, BESIDES, THE FACT
OF EVER RISING UTILITY BILLS IS THE SUREST INCENTIVE FOR THE
HOMEOWNER TO CONSERVE ENERGY.
NO PROGRAM CAN BE MANDATED
SUCCESSFULLY IF UNREASONABLE DEADLINES MUST BE MET.
ENORMOUS
PHYSICAL CHANGES ARE NECESSARY UNDER THIS PROGRAM AT A TIME
WHEN BOTH SKILLED LABOR AND AVAILABLE MATERIALS ARE IN SHORT
SUPPLY.
IF IMPOSSIBLE DEMANDS ARE MADE, EXPECTATIONS WILL FALL
FAR SHORT OF REALITY'.
COSTS WILL ESCALATE.
VAGANCE ARE CERTAIN TO FOLLOW,
WASTE AND EXTRA-
58
THE KEY TO THIS PROGRAM IS PUBLIC ATTITUDE.
BEFORE
ANY ENERGY CONSERVATION PROGRAM CAN BE EFFECTIVELY IMPLEMENTED
IT IS ESSENTIAL THAT HOMEOWNERS ARE CONVINCED OF THE REAL NEED
AND ECONOMIC DESIRABILITY TO INSTALL INSULATION AND OTHERWISE
CONSERVE ENERGY.
TO THIS END, THE NATIONAL ASSOCIATION OF
REALTORS HAS LAUNCHED AN AMBITIOUS ENERGY CONSERVATION PROGRAM
DESIGNED TO RAISE PUBLIC AWARENESS REGARDING THE NEED FOR CONSERVATION IN THE RESIDENTIAL SECTOR.
REALTORS THROUGHOUT THE
COUNTRY WILL PRESENT MATERIAL AND INFORMATION AT THE SETTLEMENT
TABLE TO ENCOURAGE THE NEW HOMEOWNER TO CONSERVE ENERGY.
MATERIAL HAS BEEN SENT OUT AND WILL CONTINUE TO BE SENT OUT TO
OUR OVER 1,750 LOCAL BOARDS OF REALTORS.
ADDITIONALLY, OUR INSTITUTE OF REAL ESTATE MANAGEMENT
(IREM) HAS RECENTLY COMPLETED A JOINT REPORT WITH THE FEDERAL
ENERGY ADMINISTRATION.
THIS'REPORT, "ENERGY COST REDUCTION FOR
APARTMENT OWNERS AND MANAGERS," DETAILS METHODS TO REDUCE ENERGY
USE AND COST IN APARTMENT BUILDINGS.
THIS GUIDE IS BEING DIS-
TRIBUTED TO MEMBERS OF THE INSTITUTE OF REAL ESTATE MANAGEMENT
WHO MANAGE 3.2 BILLION SQUARE FEET OF PROPERTY VALUED AT $77.2
BILLION.
IT IS ESTIMATED THAT THE IMPLEMENTATION OF THESE
MEASURES PROPOSED IN THE IREM STUDY WOULD SAVE UPWARDS OF 30%
IN ENERGY CONSUMPTION AND OPERATION COSTS.
PROVISIONS OF S.1169
TTT1F I . PART A. FNFRGY CONSERVATION PROGRAM FOR FXISTING
59
THIS PROVISION REQUIRES THAT STATE PUBLIC UTILITY
COmISSIONS DIRECT THEIR REGULATED UTILITIES TO OFFER TO ALL
RESIDENTIAL CUSTOMERS AN ENERGY CONSERVATION PROGRAM. THROUGH
THE UTILITY. PROGRAM ALL CUSTOMERS WILL BE PROVIDED WITH INFORMATION ON AVAILABLE CONSERVATION MEASURES, THE SAVINGS LIKELY
TO RESULT FROM CONSERVATION EFFORTS, THE AVAILABILITY OF CONTRACTORS AND LENDERS IN THE AREA THAT CAN PARTICIPATE IN THE
INSTALLATION AND FINANCING OF CONSERVATION MEASURES.
THE NATIONAL ASSOCIATION OF REALTORS BASICALLY SUPPORTS
THIS UTILITY ENERGY CONSERVATION PROGRAM.
WE ARE ENCOURAGED
THAT THE PARTICIPATION IN THIS PROGRAM BY HOMEOWNERS IS VOLUNTARY,
WE WOULD LIKE TO SUGGEST THAT CONSIDERATION BE GIVEN TO
INCLUDING HOMEOWNERS IN THE PROGRAM WHO INSTALL THEIR OWN
CONSERVATION MEASURES.
RESEARCH BY THE OHNES-CORNING CORPORATION
SHOWS THAT 8 MILLION HOMES HAVE BEEN INSULATED BY HOMEOWNERS
THEMSELVES IN THE PAST THREE YEARS,
WE BELIEVE THAT HOMEOWNERS
SHOULD HAVE THE CHOICE OF EITHER USING A CONTRACTOR, THE UTILITY
COMPANY, OR DOING THE WORK THEMSELVES, WHILE STILL RETAINING THE
INSPECTION, INFORMATIONAL AND FINANCING ADVANTAGES OF THE UTILITY
PROGRAM.
THE NATIONAL ASSOCIATION OF REALTORS SUPPORTS SECTION 111,
WHICH WOULD ALLOW, THROUGH AMENDMENTS TO THE NATIONAI HOUSING ACT,
LOANS FOR ENERGY CONSERVATION AND THE ADOPTION OF SOLAR ENERGY
SYSTEMS AS PERMISSIBLE TO QUALIFY FOR FHA TITLE I INSURANCE.
60
THE ASSOCIATION ALSO SUPPORTS OPENING UP THE FEDERAL
HOME LOAN MORTGAGE CORPORATION AND THE FEDERAL NATIONAL MORTGAGE
ASSOCIATION SECONDARY MARKET FOR RESIDENTIAL ENERGY CONSERVATION
LOANS.
SECTIONS 113 AND 114 WOULD PERMIT THE FHLMC & FNMA TO
PURCHASE UNSECURED ENERGY SAVINGS HOME IMPROVEMENT LOANS.
UNDER EXISTING STATUTES, THESE ENTITIES ARE PREVENTED FROM SUCH
ACTIVITIES.
SUBPART 5 -
NEW BUII.MNfi PFRFORMANCF STANDARDS GRANTS
THIS SUBPART EXTENDS FUNDING FOR THE PURPOSES OF MAKING
GRANTS TO STATES AND LOCAL GOVERNMENTS TO ASSIST THEM IN IMPLEMENTING NEW BUILDING ENERGY CONSERVATION STANDARDS UNDER SECTION
305 OF THE ENERGY CONSERVATION AND PRODUCTION ACT.
WE UNDERSTAND
THE PRESIDENT HAS DIRECTED HUD TO ACCELERATE DEVELOPMENT OF THE
PERFORMANCE STANDARDS.
THE NATIONAL ASSOCIATION OF REALTORS
SUPPORTS THE ADOPTION OF REASONABLE ENERGY CONSERVATION PERFORMANCE STANDARDS FOR NEW BUILDING.
CONGRESS WILL BE ASKED BY THE PRESIDENT TO APPROVE THE
USE OF SANCTIONS TO FORCE ADOPTION OF THE HUD DEVELOPED ENERGY
STANDARDS FOR NEW CONSTRUCTION.
ONE OF THE SANCTIONS THAT OUR
ASSOCIATION HAS OPPOSED CONSISTENTLY IS THE PROHIBITION ON
CONVENTIONAL LENDING BY FINANCIAL INSTITUTIONS CHARTERED OR
INSURED BY THE FEDERAL GOVERNMENT.
SANCTION GOES TOO FAR.
WE STRONGLY BELIEVE THAT
WE WOULD, THEREFORE, STRONGLY OPPOSE ANY
PROGRAM THAT ATTEMPTED TO IMPLEMENT BUILDING ENERGY STANDARDS
IN THIS MANNER.
61
AT THIS TIME, MR. CHAIRMAN, WE WOULD LIKE TO BRING TO YOUR
ATTENTION AN ISSUE OF UTMOST CONCERN TO THE NATIONAL ASSOCIATION
OF REALTORS.
RECENT ACTION BY THE HOUSE INTERSTATE AND'FOREIGN COMMERCE
SUBCOMMITTEE ON ENERGY AND POWER BRINGS THE ISSUE OF MANDATORY
HOME INSULATION TO THE FOREFRONT.
THE SUBCOMMITTEE ENERGY BILL
CONTAINS A MANDATORY "TIME OF SALE" ENERGY CONSERVATION RETRO-FIT
PROGRAM,
ESSENTIALLY THE SUBCOMMITTEE PROVISIONS CALL FOR HUD
TO DEVELOP AN ENERGY PERFORMANCE STANDARD FOR EXISTING BUILDINGS
TO BE MANDATED AS EARLY AS 1932.
AT THE TIME OF SALE A HOME
WOULD UNDERGO A FEDERALLY SPONSORED ENERGY AUDIT TO DETERMINE IF
THE DWELLING WAS UP TO THE PERFORMANCE STANDARD.' FAILURE OF
THE HOME TO MEET THE STANDARD WOULD TRIGGER THE IMPOSITION OF
A MORTGAGE FINANCING PROHIBITION, BOTH CONVENTIONAL AND FEDERALLY
ASSISTED.
OUR ASSOCIATION STRONGLY BELIEVES THIS APPROACH TO ENERGY
CONSERVATION IN THE HOME IS EXTREMELY ILL-ADVISED.
AMONG THE
VARIOUS ARGUMENTS AGAINST THIS APPROACH WE FEEL THE FOLLOWING
ARE THE MOST COMPELLING:
1)
ADOPTION OF THIS MANDATORY PROGRAM WOULD SUBSTANTIALLY
DELAY VOLUNTARY ENERGY CONSERVATION EFFORTS IN THE
HOME.
HOW MANY HOMEOWNERS WILL INSULATE NOW ONLY TO
FIND THEMSELVES OUT OF COMPLIANCE WITH THE PROGRAM IN
94-843 O - 77 - 5
62
1982 AND FORCED TO DO IT ALL OVER AGAIN? A
MANDATORY PROGRAM COULD MEAN A DELAY OF FIVE YEARS'
IN OBTAINING SIGNIFICANT ENERGY SAVINGS IN THE
RESIDENTIAL SECTOR.
2)
WE BELIEVE IT IS UNWISE TO MANDATE A FEDERAL ENERGY
STANDARD BEFORE IT IS KNOWN IF THE STANDARD IS EVEN
WORKABLE OR COST-EFFECTIVE.
IT IS QUESTIONABLE I F ,
IN FACT, SUCH A STANDARD COULD EVER BE DEVELOPED
CONSIDERING THE WIDE RANGE OF ARCHITECTURAL DESIGN,
CONSTRUCTION, AND CLIMATIC DIFFERENCES FOUND IN THE
7h MILLION EXISTING RESIDENTIAL UNITS.
3)
A MANDATORY PROGRAM AT THIS TIME WOULD INCREASE
INFLATIONARY TRENDS FOR WEATHERIZATION MATERIALS
AND INSTALLATION SERVICES, THUS WORKING A HARDSHIP
ON HOMEOWNERS.
1)
THE MANDATORY PROGRAM INCLUDED IN THE COMMERCE
SUBCOMMITTEE BILL WOULD REQUIRE AN INORDINATE AMOUNT
OF GOVERNMENT INTRUSION IN THE LIVES OF AMERICAN
HOMEOWNERS.
THE HOUSE BANKING, FINANCE, AND URBAN AFFAIRS COMMITTEE IN
ITS RECENTLY REPORTED ENERGY BILL DEALING WITH HOME INSULATION
HAS TAKEN WHAT WE CONSIDER TO BE A MORE LOGICAL AND REASONABLE
APPROACH TO THE CONCEPT OF A MANDATORY HOME INSULATION PROGRAM.
SPECIFICALLY THE LEGISLATION CALLS FOR A ONE YEAR HUD STUDY.
BECAUSE THE HOUSE BANKING COMMITTEE IS NOT EVEN SURE STANDARDS
63
- 9 FOR EXISTING HOUSING CAN BE DEVELOPED, IT WANTS HUD TO
THOROUGHLY STUDY THE IMPACT AND FEASIBILITY OF THE MANDATORY
"TIME OF SALE" PROGRAM.
THIS STUDY IS TO CONSIDER SUCH
FACTORS AS THE EFFECT OF A MANDATORY PROGRAM ON THE HOUSING
MARKET, THE INDIVIDUAL HOMEOWNER, AND THE ATTAINMENT OF THE
PRESIDENT'S NATIONAL ENERGY GOALS.
IN ADDITION, HUD IS TO CON-
SIDER THE DIFFICULTY OF IMPLEMENTING A MANDATORY HOME INSULAATION PROGRAM TAKING INTO ACCOUNT THE EXPERIENCE OF PAST MANDATORY FEDERAL PROGRAMS, SPECIFICALLY THE REAL ESTATE SETTLEMENT
PROCEDURES ACT OF 1974 AND THE FEDERAL DISASTER PROTECTION ACT
OF 1973.
AS I HAVE STATED EARLIER OUR ASSOCIATION BELIEVES THE
AMERICAN PEOPLE SHOULD BE GIVEN AN OPPORTUNITY TO WEATHERIZE
THEIR HOMES ON A VOLUNTARY BASIS.
THANK YOUR, MR. CHAIRMAN.
64
The CHAIRMAN. T h a n k you. I want to thank both of you gentlemen f o r your statements.
I would like t o start off by asking each of you t o comment on the
position t h a t you have taken.
M r . A r q u i l l a , you say on page 4 that there w i l l be a s h o r t f a l l of 15
to 25 percent i n insulating materials by 1985, and then on page 2, M r .
E l m s t r o m , you say " W e are concerned that a large demand f o r insulation material may create shortages and inflate prices to the extent
t h a t i t w i l l be detrimental t o the homeowner and the housing indust r y generally."
I have a study that was handed to me by M r . B a r d i n before he
l e f t . T h e study is " S u p p l y Response to Residential I n s u l a t i o n Retrof i t Demand," by C.F. Inc. L e t me read a couple of sentences of their
findings.
F i b e r g l a s s i n s u l a t i o n , w h i c h accounts f o r 85 percent of t h e m i n e r a l w o o l i n s u l a t i o n m a r k e t , is one of the most p r o f i t a b l e b u i l d i n g t r a d e items, w i t h a s h o r t
c a p i t a l cycle a n d quick p a y o u t period. T r a d i t i o n a l l y t h e r e h a v e been q u i c k
c a p i t a l a d j u s t m e n t s t o increased demands. Several n e w firms appear t o be
c o n s i d e r i n g e n t r y i n t o the m a r k e t . T h e m a j o r l i m i t i n g f a c t o r s a r e f e a r of t h e
c y c l i c a l f a l l - o f f s i n the n e w housing m a r k e t a n d r e s u l t i n g oversupply.
So the major problem has not been supplies are going u p too fast,
but there w i l l be a fall-off i n demand and they are not sure about
g e t t i n g into i t .
R o c k w o o l a n d cellulose, a l t h o u g h possessing o n l y a s m a l l p a r t of t h e m a r k e t
a t present, should expand r a p i d l y over t h e n e x t f e w years. G i v e n t h e expected
expansion i n fiberglass, i t seems u n l i k e l y t h a t these t w o sources w i l l c a p t u r e
a l a r g e r share of the t o t a l m a r k e t a l t h o u g h t h e absolute level of t h i s s u p p l y w i l l
increase. I n d u s t r y sources have e s t i m a t e d t h a t about 8 m i l l i o n r e t r o f i t s h a v e
o c c u r r e d over the l a s t 3 years. O t h e r estimates suggest t h a t i t is economically
feasible t o r e t r o f i t a n a d d i t i o n a l 25 m i l l i o n homes.
They go on t o say t h a t :
T h e r e w o u l d appear to be no shortage of i n s u l a t i o n capacity f o r r e t r o f i t p u r poses a f t e r 1977. Some p o t e n t i a l f o r a s h o r t f a l l exists i n 1977 i f o w n e r s a d d
a n a d d i t i o n a l h i g h level of i n s u l a t i o n . A t f u l l capacity i n 1977, 4.8 m i l l i o n
r e t r o f i t s can be completed a t average r e t r o f i t levels, a n d 2.75 m i l l i o n a t a h i g h
r e t r o f i t level. Prices f o r i n s u l a t i o n h a v e appeared t o move r o u g h l y w i t h t h e
wholesale price index, regardless of s h o r t t e r m supply-demand s i t u a t i o n . T h e
fiberglass i n d u s t r y , w h i c h is t h e p r i c e leader, is v e r y sensitive about t h e threefirm oligopoly a n d is w o r r i e d about Government i n t e r v e n t i o n . W i t h excellent
c a p a c i t y u t i l i z a t i o n a t c u r r e n t prices, they are u n l i k e l y t o r a i s e prices t o t a k e
advantages of s h o r t - t e r m demand pressures.
T h i s study would seem to rebut the statement both of you gentlemen made t h a t you w i l l have, (a) a serious shortage i f we move
ahead w i t h a vigorous program that gets results, and those results
are a great deal of insulation, and (b) t h a t would mean b i g price
increases. W h a t is your answer to that?
M r . ARQUILLA. W e l l , we are really not sure, M r . Chairman, just
what the final standards are going t o be t h a t w i l l be developed by
FEA and H U D , whoever does end up devising t h a t a u t h o r i t y f o r
housing. So a l l we can assume is what we feel is going to be the requirement. I n retrofit we are not sure just what the requirements are
going to be. T o mandate t h a t these requirements be done before we
know what the requirements are is a difficult t h i n g t o understand
and project.
65
W e do know t h a t there are three manufacturers of fiberglass, the
largest used material i n the country today. W e do know that they
have patents on the creation of that material.
Now i f another f i r m were to come in, i t has been projected that
instead of a plant costing maybe $15 or $20 m i l l i o n , t h a t their costs
would really be between $50 and $70 m i l l i o n , w i t h the necessity of
developing a different process.
Now as f a r as costs are concerned, i f we have a t a x — I know i t is
not here f o r discussion today—a tax on the use of manufacturers not
changing to gasification or gas i n their operations, there is going to
be a surtax, an additional tax placed on the use of t h a t product. I n
the insulation industry the only way the product can be manufactured is through the use of gas. Now i f that tax should go through,
that w i l l immediately increase the cost of the material.
A s f a r as shortages are concerned, we i n our industry f e l t a shortage all over the country d u r i n g the months of December, January,
and February. T h a t may have been due to individuals retrofitting
their homes. I t wa$ not because of h i g h housing production—we
know that was not the case, because of the bad weather i n January
and February. B u t i t indicates to me t h a t we do have a shortage of
material. A n d that is the reason f o r our statement.
I am not t r y i n g to rebut a survey or report t h a t you have there,
not having seen i t . B u t i t would indicate that there are a lot of inthe-field problems that i t perhaps does not refer to.
[ T h e f o l l o w i n g comments were received f o r the record:]
66
Additional Comments by the National Association of Home Builders
to accompany N A H B ' s testimony before the Senate Committee
on Banking, Housing and Urban A f f a i r s , June 27, 1977
The following comments are i n response to C h a i r m a n P r o x m i r e ' s request that
N A H B r e v i e w the study entitled "Supply Response to Residential Insulation
Retrofit Demand", which was submitted to F E A on June 17, 1977.
N A H B called the Home Builders Associations and either builders or insulation
contractors i n the following areas:
Atlanta, Georgia
Suffolk County, Long Island,
Denver, Colorado
New Y o r k
St. Louis, M i s s o u r i
Columbus, Ohio
Philadelphia, Pennsylvania
San Diego, California
D a l l a s , Texas
Los Angeles, California
Miami, Florida
Boston, Massachusetts
Tampa, F l o r i d a
New O r l e a n s , Louisiana
Chicago, Illinois
Phoenix, A r i z o n a
Kansas City, M i s s o u r i
The responses f r o m a l l areas were quite u n i f o r m . T h e r e i s a national p r o b l e m
in shortage of insulation at this t i m e . A s f a r as we can determine, a l l m a n u f a c t u r e r s are shipping on an allocation basis. They a r e taking on no new .
customers. The old customers a r e allocated shipments based on the previous
twelve months shipment. The cutback i n allocation v a r i e s depending on the
customer, but can be as high as f o r t y percent.
T h e r e a r e numerous results f r o m this shortage. Some insulation constractors,
who buy on a carload basis, are ordering thinner blankets so that they get m o r e
insulation cover per carload. Of course, this results i n lesser insulation per
job. T h e r e is also a definite trend toward more production going into batt i n sulation and less into blowing wood. The reason for this is that the manufacturer
gets m o r e R value per pound of insulation and t h e r e f o r e , m o r e profitability.
This is resulting in contractors using batt insulation i n the sidewalls and blowing
cellulose insulation in the attics. Cellulose insulation, up until recently, was
considered a product for use i n r e t r o f i t of existing housing. W i t h cellulose
insulation now being used in new construction to alleviate the shortage of glass
fiber insulation, a further shortage w i l l , i n turn, be created in the r e t r o f i t
business.
67
N A H B spoke t o s e v e r a l i n s u l a t i o n m a n u f a c t u r e r s and t h e y a d m i t to the s h o r t age of i n s u l a t i o n at the p r e s e n t t i m e . W h e n t a l k i n g about planned e x p a n s i o n
f o r i n c r e a s e d p r o d u c t i o n i n the c o m i n g y e a r s , t h e y a r e r a t h e r n o n c o m m i t t a l ,
i n d i c a t i n g that the d e c i s i o n r e s t s on a n u m b e r of v a r i a b l e s . One of the p r i m e
c o n s i d e r a t i o n s i s t h e continued d e m a n d f o r i n s u l a t i o n . T h e y a r e s i n c e r e l y
c o n c e r n e d about g o v e r n m e n t a l actions w h i c h would cause a r a p i d i n c r e a s e i n
i n s u l a t i o n d e m a n d and a subsequent f a l l off i n d e m a n d a f t e r a f e w y e a r s .
This
s o r t of thing w o u l d not w a r r a n t the needed c a p i t a l i n v e s t m e n t .
T h e F E A R e p o r t i n d i c a t e s t h a t i n d u s t r y e x p a n s i o n plans "do not a s s u m e any
additional demand which m a y result f r o m a tax credit or other f e d e r a l i n i t i a t i v e s . " The F E A R e p o r t also projects a twelve percent per annum growth
r a t e i n the g l a s s f i b e r i n d u s t r y t h r o u g h 1980 and eight p e r c e n t t h e r e a f t e r .
A p p l y i n g t h e s e g r o w t h r a t e s t o the d e m a n d f i g u r e s g i v e n i n A t t a c h m e n t B t o
our t e s t i m o n y i n d i c a t e s without any dobut that we w i l l f a c e s h o r t a g e s . I t m a y
be w o r t h w h i l e to note t h a t r e c e n t s h o r t a g e s have caused p r i c e i n c r e a s e s i n
the neighborhood of t h i r t y p e r c e n t i n the l a s t f e w m o n t h s . T h i s e s c a l a t i o n i s
expected t o continue i n the c o m i n g m o n t h s .
T h e F E A R e p o r t contains some a s s u m p t i o n s w h i c h c a n be c h a l l e n g e d , p a r t i c u l a r l y the n u m b e r s of units to be i n s u l a t e d i n the c o m i n g y e a r s both new and
e x i s t i n g . B o t h r e p o r t s have conclusions based on p r o j e c t e d supply and d e m a n d ,
d e m a n d being b a s e d on the n u m b e r of units planned. N a t u r a l l y , a l l these
a s s u m p t i o n s c a n be v a r i e d t o c o m e out w i t h v a r y i n g c o n c l u s i o n s .
I f the i n d u s t r y i s e x p e r i e n c i n g ^ an a v e r a g e of t h i r t y p e r c e n t cutback i n
a l l o c a t i o n s f r o m a y e a r ago, when the d e m a n d at p r e s e n t i s c o n s i d e r a b l y
g r e a t e r t h a n a y e a r ago, the i n d u s t r y w i t h i t s p r o j e c t e d , planned e x p a n s i o n
cannot supply the d e m a n d w h i c h would be c r e a t e d by a g o v e r n m e n t a l i n s u l a t i o n
p r o g r a m w h i c h w o u l d e n c o u r a g e a l l e x i s t i n g units to be i n s u l a t e d by 1 9 8 2 . A l l
of the people we have c a l l e d i n the v a r i o u s s i t e s have i n d i c a t e d that t h i s w o u l d
be a chaotic m o v e . W e s t r o n g l y suggest t h a t the t i m i n g on such l e g i s l a t i o n be
no sooner t h a n 1985 t o a l l o w the i n d u s t r y t o adjust t h e i r supply c a p a b i l i t i e s .
A t t a c h e d a r e r e p o r t s of a f e w of the a r e a s w h i c h w e c a l l e d w h i c h a r e t y p i c a l
of a l l the a r e a s .
68
Myron Black, Denver, Colorado
Supplies are d i f f i c u l t . Manufacturers are trying to meet the demand but
are now three weeks out on shipping cycle. They are normally one week out
so they are presently two weeks d e f i c i e n t . Most manufacturers normally
have two months of stock, but currently none are stocking materials and
i t appears that by early August they may be f i v e to six weeks behind. The
basic problem i n the Denver area is the supply of blowing wool. There are
i n s u f f i c i e n t supplies to handle both new and r e t r o f i t construction. So
batts are now being used i n new work - there seems to be plenty of them
available. The shortage of fiberglas and rock wool has resulted in the use
of cellulose. There are problems i n the quality of cellulose as new
standards do not exist for i t s manufacture. On a comparable basis with
fiberglas, sixty to eighty percent of the cellulose i s to be considered
unsatisfactory. This low-quality cellulose has a real f i r e p o t e n t i a l . I f
there were a major r e t r o f i t program undertaken without a four to f i v e year
t r a n s i t i o n period, a major catastrophe would r e s u l t . There would not be
enough insulation available to do the r e t r o f i t properly, which would mean
that i t would have to be done again sometime in the future at a greatly
increased cost. Additionally, there is a shortage of qualified applicators,
and any major program would further d i l u t e the quality of work in insulation.
There are local promotions for do-it-yourselfers i n the Denver area, but the
supplies are considered marginal.
John Hoffman, St. Louis, Missouri
The area is on allocation for batts. This particular company is getting
about ninty percent of t h e i r needed supplies in the St. Louis area, but i n
other company areas where they have not been so long established, they are
running maybe f i f t y percent of the needed supplies, taking them eight to
nine weeks to get delivery and they need blown wool for two to three hundred
homes. Part of the shortage was generated by the energy c r i s i s , which has
prompted builders to increase from six to eight inches to fourteen to sixteen
inches. I t is not believed the industry could handle a major r e t r o f i t program
which would be t o t a l l y disruptive and prices would go out of sight. He believes
such a r e t r o f i t program should be phased over ten years.
Paul Raia, Suffolk County, Long Island, New York
These people are also on allocation. The normal consumption in the past
was twenty to twenty-two t r a i l e r loads per week. They are now getting f i v e
to eight t r a i l e r loads. They are holding up jobs a l l over because they cannot
supply the needed insulation. He, too, is concerned about price increases
saying that he had a twenty-six percent increase since the f i r s t of the year.
He said between two operations, one in Long Island and the other in New Jersey,
they normally have available forty-four t r a i l e r s of insulation and that today
they have less than a h a l f t r a i l e r and that is a l l odd-sized material. He
believes that i f major r e t r o f i t programs are undertaken absolutely no new work
would proceed. He suggests that supplies to r e t a i l chains be curtailed and
mentioned Rickles Stores, who w i l l take about f i f t y t r a i l e r s for a special
promotion there, having no d i f f i c u l t y getting i t . He does not believe the
situation w i l l improve i n the near future.
69
Charles Carlin, Philadelphia, Pennsylvania
Insulation i n s t a l l e r s are on allocation in this area and are about eight
weeks behind on receipt of delivery. Blown wool is in p a r t i c u l a r l y short
supply. Blankets are not so serious. He mentioned that builders are now
using about double the amount of insulation that they had in the past and,
thus, the supplies are going h a l f as f a r . He, too, mentioned continual
price increases and the loss of discounts. A major r e t r o f i t program would
create real problems because of lack of production. The future looks bleak
largely because chains such as Sears are now getting into the blown wool
business and are thus drawing down on what would be supplies available to
insulation contractors.
Gary Mattula, Dallas, Texas
Everyone is on allocation in the Dallas area. Generally supplies are about
twenty percent less than last year. As an example one company was receiving
four trucks per week three months ago - they are now receiving one and a
h a l f trucks per week with no immediate r e l i e f in sight. Blown wool supplies
have been cut an average of t h i r t y percent and deliveries are running f i v e
to six weeks l a t e . Contractors are recognizing this and have t r i e d to
anticipate their needs, but s t i l l do not receive deliveries when promised.
At least part of the problem is attributed to the increased use of insulation.
For example, builders now put in nine to twelve inches where they had put in
six inches. In the Dallas area, eighty percent of the available material goes
to new construction with something a l i t t l e less than twenty percent for
r e t r o f i t . A major r e t r o f i t program would not work in the Dallas area because
there are no supplies for i t .
B i l l Safreed, Miami, Florida
Everyone is on allocation in the Miami area. The situation is not considered
c r i t i c a l yet, but i t is bad and i t does delay work. The supply situation
even with the addition of a new Johns-Manvilie plant is not expected to
improve within the next year. Any r e t r o f i t program would create chaos in
the area.
Jim Ewing, Atlanta, Georgia
I t is d i f f i c u l t to get insulation products. Delays exist for a l l types. The
situation is not c r i t i c a l , but waiting periods are necessary. General
information is that delays are from a week to a month. The Owens Corning
people say i t is a problem of plant production. They are operating at capacity
now. To avoid the impact of back orders, builders must order early. I f a
major r e t r o f i t program were started, i t would r e a l l y cause serious problems
with unacceptable delays. Do-it-yourself promotions by major chains such as
Sears continue in the area, but the supply available is unknown.
70
T h e CHAIRMAN. M r . E l m s t r o m .
M r . ELMSTROM. Senator, m y statement t h a t I read t o you d i d not
make a definitive statement on this. W e said i t " m a y . " However, I
t h i n k I would like to point out to this committee t h a t the study you
just referred to, i f I heard you r i g h t , refers t o 25 m i l l i o n homes,
when i n fact we are t a l k i n g about 74 m i l l i o n homes i n t h i s country.
However, once again our fear w i t h this is not so much w h a t Owens
C o r n i n g Fiberglas
The CHAIRMAN. W h a t they said is:
I n d u s t r y sources have estimated that about 8 m i l l i o n retrofits have
occurred over the last 3 years. Other estimates suggest t h a t i t is
economically feasible to retrofit an additional 25 m i l l i o n homes.
I n other words, the implication here is that you are r i g h t , there are
74 m i l l i o n homes that need i t theoretically or potentially, b u t apparently the argument there is they are not economically feasible t o
retrofit. Y o u can't do i t everywhere, even though we w o u l d like to.
M r . ELMSTROM. Our research shows about 50 m i l l i o n of the 74 m i l l i o n need r e t r o f i t t i n g to meet any k i n d o f standards, and we don't
know now what the standards are, of course.
I w o u l d point out t h a t our statement on increasing costs is not so
much on the manufacturing end because we don't have too strong a
fear there, but we have a tremendous fear w i t h this mandatory program. No matter how many policemen you hire, no matter how much
p u b l i c i t y is given, we remember back i n the days o f asphalt siding,
the people who sold aluminum on the basis that i t w o u l d cut their
f u e l bills i n h a l f , and do a l l of these other marvelous things, and our
m i n d is on some o f those things. Y o u are not going t o stop the
gypsies, and how you would police i t is our fear i n p u t t i n g this mandate i n here.
T h a t is the point of our t a l k i n g about p r i c i n g and so f o r t h .
The CHAIRMAN. V e r y good. T h a t is a reasonable position. Y o u
say t h a t you are not so concerned about the m a n u f a c t u r i n g supply
as you are about what happens when you t r y to put this i n t o effect.
Senator SCHMITT. W o u l d the chairman yield ?
T h e CHAIRMAN. Y e s .
Senator SCHMITT. DO
you t h i n k i t would be appropirate i f the committee asked these t w o associations t o comment on t h a t report? A s
i t sounds as i f they have never seen the report before.
The CHAIRMAN. Yes; t h a t would be fine. O f course they have had
to do everything i n a rush u p there. T h i s is a temporary report. I t
says other more extensive analyses are being undertaken, and one by
Commerce and one by the Energy Department, and they say these
should provide more detail than is now available. This is just a l l they
have. B u t i t is a temporary report.
T h a t is a good point, we w i l l make t h a t available t o you gentlemen and i f you would like to comment f o r the record, t h a t w o u l d be
very helpful.
M r . ARQUILLA. Y e s ; w e w i l l .
M r . ELMSTROM. Y e s .
The CHAIRMAN. M r . A r q u i l l a , you support credit f o r installing, as
you p u t i t , qualified solar equipment as proposed i n the administra-
71
tion's bill. W h a t does qualified mean? I s this any equipment that is
qualified today ? I understand S. 1469 calls f o r criteria and standards
to be prescribed by H U D w i t h F E A consultation. W i t h the state of
the art s t i l l i n its infancy, as you testified, how quickly do you t h i n k
the standards can be established f o r qualified quipmnt ?
M r . ARQUILLA. I would imagine we could come up w i t h standards
i n 1 year's time at the most. I am surprised, really surprised, they are
not i n the works now. Perhaps they are, but not to my knowledge.
B u t at the present time solar energy is t r u l y i n its infancy. There
aren't really enough companies producing i n such great quantities
that we are really able to get a good feel on its total worth.
The CHAIRMAN. I am questioning you on this, because there is
such enormous public enthusiasm for solar energy and I t h i n k i t is
well placed, i t is clean, i t is inexhaustable, i t has a great future, I
think. B u t your industry is so v i t a l i n this. I f the people i n your industry can see t h a t i t is economically feasible and practical, I t h i n k
we can move ahead and i t would be very helpful.
M r . ARQUILLA. There are a lot o f problems w i t h i t . They have
closed systems, open systems, m i r r o r systems, different types o f collectors, water and air systems. I t is a very complicated and complex
situation. I t is not something that is just black and white on which
you can make a judgment.
I n most instances today we have various manufacturers making
different components and i t is a question o f going to a very knowledgeable engineer to p u t those components together to make a package that w i l l work.
T h a t is the reason we are t e l l i n g our membership to go carefully.
I am sure that you have read as many articles as I have read i n the
Washington Post and New Y o r k Times, and W a l l Street Journal
about the so-called gypsies i n the solar energy field, using solar
energy to heat pools i n F l o r i d a , as an example, and they don't work.
I t has a tremendous potential, and I t h i n k perhaps ten years f r o m
now we w i l l have i t down to where i t w i l l be a realistic product t o
put into a home and where i t w i l l be cost justified. B u t w i t h the
state of the a r t as i t is today, I t h i n k we do have to warn our membership and I t h i n k we should be w a r n i n g the people of the country
that i t is not an answer to all of their problems.
The CHAIRMAN. IS HUD'S demonstration program any help on
this score?
M r . ARQUILLA. I t w i l l be once we start getting some data out of it.
The CHAIRMAN. M r . Elmstrom, on page 6 you say: "Congress w i l l
be asked by the President t o approve the use o f sanctions t o force
adoption of the H U D developed energy standards f o r new construction." Has t h a t already been announced or are you predicting it?
M r . ELMSTOM. I am going to pass that to A l Abrahams.
M r . ABRAHAMS. M r . Chairman, the last Congress passed as a sect i o n of the energy b i l l last year, a proposal to undertake the creation
of performance conservation standards f o r new construction. I believe that the Congress i n the final analysis decided i t would not mandate the creation of those standards. I t h i n k both of these gentlemen
have said they decided t o w a i t u n t i l they saw exactly what stand-
72
ards H U D developed i n 3 years, before approving the standards.
T h a t is also the position of Congress last year. The Congress voted
itself another opportunity to see whether or not those standards have
proved to be cost effective, make sense, simply create a Federal buildi n g code f o r its own sake, or whether i t is a desirable t h i n g to do.
W e don't know what those standards are.
The CHAIRMAN. I n fact each House, both Houses of Congress have
to approve those standards.
M r . ABRAHAMS. T h a t is correct, sir. I believe i n 90 days. The point
I am t r y i n g to make, sir, is t h a t t h a t doesn't, i n our judgment
The CHAIRMAN. S i x t y days.
M r . ABRAHAMS. Pardon me, thank you, 60 days. T h a t means Congress can look at those standards when they come out, before i t decides how to handle the implementation. The President, however,
has t o l d H U D i n his message to* the Congress, t h a t they should step
up t h a t timetable to 18 months, and then said they should be mandated standards.
I t h i n k that is something the Congress has decided to take a look
at i n its consideration of the act at the time when the standards are
finally promulgated. Therefore there is something of a difference between the philosophy of the Congress last year and what the President has indicated he wants to do once the standards are developed.
The CHAIRMAN. W h a t would you gentlemen recommend i f i t becomes clear the present voluntary program does not succeed i n substantial energy conservation ?
M r . ELMSTROM. I w i l l be glad to give you my own opinion. I believe the voluntary program w i l l succeed.
The CHAIRMAN. I hope i t w i l l , too, and I t h i n k obviously t h a t is
the better way. B u t i f i t does not succeed, would you s t i l l feel we
simply have to t h r o w up our hands, we can not have mandatory
standards under any circumstances %
M r . ELMSTROM. I couldn't answer that way at all. I believe then a
new decision would have to be made. B u t I can't help m y own feeling, the feeling of my Association t h a t any mandatory p r o g r a m at
this moment i n history cannot succeed any better than a v o l u n t a r y
program, w i t h the proper emphasis on the proper i n f o r m a t i o n t h a t
goes out on it.
So I have to stand on the voluntary program.
The CHAIRMAN. Senator Schmitt.
Senator SCHMITT. T h a n k you, M r . Chairman. Gentlemen, you were
i n the room I believe d u r i n g the preceding testimony and we heard
a number of expressions, such as let's go ahead and take a chance,
there is no substitute f o r experiment.
I happen to come f r o m a scientific discipline, and experiments
usually are r u n on a small scale, t h a t is, as m y mother w o u l d probably have said i n Tennessee, you don't test the quality of the bacon
by eating the whole hog, you test the bacon.
B u t apparently w i t h S. 1469 we are going to take the whole hog
here and r u n an experiment on the country, on the housing i n d u s t r y
i n particular, and to see i f these k i n d of voluntary standards—to
some degree v o l u n t a r y ; there is a certain amount of coercion involved
73
i n the way the legislation is drafted—see i f t h a t w i l l work, and
actually begin to conserve significant amounts of energy.
W h a t do you f e e l — I w i l l let each o f you answer—what do you
feel would happen i f S. 1469 never became law, Given the situation
you know exists w i t h i n the housing industry, w i t h i n the suppliers to
that industry and the economic situation we have i n this country
w i t h respect to energy costs and capital costs ?
M r . ARQUILLA. W e l l , i t is my feeling t h a t the housing industry,
our membership, is going to continue w i t h its program tx> do a better
job i n conserving energy. W e have an energy program which w i l l
come out i n its final f o r m at our f a l l board meeting and i t w i l l result
i n a performance standard. I t h i n k i n the past 3 or 4 years our members across the country have done a substantially good job i n insulati n g homes. I t h i n k t h a t going f u r t h e r into retrofit, i t is obvious when
we get reports o f that 8 m i l l i o n units have been retrofitted i n the
last 2 years or so, that the people have an urgent need to go up and
retrofit, whether we have a government subsidy or not.
The question comes up, readily, i n the number of homes f o r which
retrofit is almost impossible. A n d even i f you were to have this legislation, and even as a part o f that legislation there was a mandate
t h a t you had to retrofit your house to certain standards, those houses
would either have to be destroyed or p a r t i a l l y t o r n down i n order to
meet those standards.
I don't really feel that we have to mandate this to the people of the
U n i t e d States. I t is obvious that w i t h the cost o f fuel rising that we
have got some smart people out there Who w i l l be insulating their
homes i n order t o reduce their fuel costs. So t h a t is the way I feel.
Senator SCHMITT. DO you t h i n k the President's goals would be
met
The CHAIRMAN. I f the Senator would yield, the lights just went
off. A year ago I asked the lights be turned off to save energy. W e
figured we would save a gallon o f oil a day. A n d we just got the
message through the staff now.
Senator SCHMITT. W e l l , t h a t is f a i r l y r a p i d progress f o r the Government.
D o you feel the President's goals could be met w i t h o u t these t i t l e
I provisions i n S. 1469 ?
M r . ARQUILLA. I am sure there w i l l be a certain number of families,
i n housing units across the country, who really don't care. I t is the
same t h i n g as p u t t i n g i n 6 inches of insulation i n w a l l and 12 inches
i n the ceiling and storm windows and then they leave the f r o n t door
and back door open a l l day. I n many m u l t i f a m i l y dwellings where
there is a central heating unit, and the people have t o have i t very
warm, we have regulations where we have to maintain certain temperatures. O n one of the most severely cold days i n Chicago you can
see thousands and thousands of m u l t i f a m i l y units w i t h windows
open. A r e we going to conserve energy at that end?
Y o u know, i t really depends on how w i l l i n g the American public
is to sacrifice i n the end. T h a t is really the whole story.
Senator SCHMITT. YOU are out there b u i l d i n g homes. A r e they w i l l i n g to sacrifice r i g h t now ?
74
M r . ARQUILLA. Yes; they are, most of the people are l o o k i n g f o r
h i g h insulation, storm windows and insulated glass. They are l o o k i n g
f o r these things and are w i l l i n g to pay a reasonable amount more t o
have that benefit.
I say a reasonable amount. The chairman was asking me about solar
energy. I can't really i n good f a i t h go to a home buyer and say this
is the t h i n g t h a t you should do, i t w i l l cost you $12,000 more to p u t
i t i n w i t h today's technology. I don't really t h i n k that has a costbenefit effect at this point i n time. T w o years f r o m now, I w i l l probably change my tune, when we get more sophistication, we get complete systems, and we have better data on just how well they are
operating, how efficient they are.
Senator SCHMITT. M r . Elmstrom, w o u l d you like to comment?
M r . ELMSTROM. Senator Schmitt, I don't believe i t is necessary to
repeat some of M r . A r q u i l l a ' s statements which I concur w i t h . B u t I
w o u l d like t o point out as long as he is representing the home
builders, which of course is new homes, I am rather confining myself
to the used homes.
I am f r o m the Northeast, by the way, i n a h i g h cost f u e l area, and
so f o r t h , and people are very conscious
Senator SCHMITT. I thought you m i g h t have been one of m y constituents i n New Mexico, and had moved there f r o m the Northeast
by your accent.
M r . ELMSTROM. T h a t is a B r o o k l y n accent, Senator.
Senator SCHMITT. W e have a lot of B r o o k l y n accents there, they are
t i r e d of h i g h heating bills.
M r . ELMSTROM. F o r the past 4 or 5 years, I can't remember when
we could have sold a used home, i n the northern area, Saratoga, where
we have 14 room old victorian houses, new houses and so f o r t h , a
cross section, without answering the first question asked by anyone
who is a legitimate buyer, what the taxes are on the property. T h a t
is a major problem. B u t question No. 2 is what is the heating b i l l .
O u r answer is, of course, f o r 4 years now we w i l l not list a house
unless we have a copy of the fuel bills, i f i t is f r o m an o i l company,
or a copy of the statement f r o m the power company. W e take those
copies and photostat them and we say whether these people h a d f o u r
children, or one child, or whether these people spent a l l winter i n
F l o r i d a and they have no children, or no washing machine, and so on.
I n other words, the b u i l d i n g by itself is useless. A s Bob said, the
windows can be wide open.
So to us r i g h t now, my f r a n k and honest opinion is we are going to
retrofit a l l of the houses we possibly can, because you are t a l k i n g t o
a man and women's pocketbook. Y o u are not selling patriotism, you
are t a l k i n g t o them where i t hurts, i n their pocktbook.
W e are making every effort, and every buyer I know w i t h i n reason
w i l l make an effort t o b r i n g t h a t particular house up t o whatever
particular standards that house can be brought up to. A s Bob says,
f o r many houses, how you would ever make any sense out o f retrofiting them I don't know. W e have some honies up i n our area.
Senator SCHMITT. YOU haven't said i t specifically, but should I
i n f e r f r o m your remarks t h a t you t h i n k t h a t there would be a r a p i d
75
acceleration i n the use of insulation f o r retrofitting and f o r new construction w i t h o u t S. 1469?
M r . ARQUILLA. Y e s , I
do.
M r . ELMSTROM. I feel the same way. I t h i n k the figures already
proved this and i t w i l l accelerate by itself as the fuel costs go up.
Senator SCHMITT. I would like to comment a l i t t l e b i t , actually a
couple of questions about solar energy. I have been involved w i t h that
business f o r a number of years, and I agree w i t h your remarks that
at the present time the first costs and the reliability o f the systems
we can put into place r i g h t now is certainly not attractive f o r the
average home buyer.
O f course i f you happen to be an engineer or know one and want
to design a system, and can afford to p u t i t in, there are some very
attractive opportunities.
W h a t do you feel must be done over the next 4 or 5 years i n order
to see the costs o f the units come down? I estimate by a factor o f
10 is about what is required and the reliability has t o go up b y a
factor o f 10 before they are economical.
I t h i n k the best sign of that is none of the large manufacturers of
house equipment are i n the business. Westinghouse, G E , the Kenmores, Admirals, they are not making integrated solar energy equipment for installation i n homes.
D o you have any insight into when t h a t m i g h t occur and what
would be required to make i t occur more r a p i d l y ?
M r . ARQUILLA. I t h i n k one o f the basic problems that G E and
Westinghouse and a few others m i g h t have is the question o f the
share of the market they m i g h t get. A n d the i n i t i a l investment into
developing packages that could be sold.
I t h i n k that i n order f o r solar energy to ever be successful, we are
going to have to package it. W e have to have a 500 square foot unit,
a 1,000 square foot unit, or areas i n between. A n d we are going t o
have to have standards by which all units can be judged.
As soon as we start getting this packaging, I t h i n k i t would be
very very soon thereafter that we could start making the reductions
that we need to install these units into various parts o f the country.
I n the northeast area i t is economical t o have solar energy f o r
hot water. I t is not economical i n Chicago, because at the present
time the u t i l i t y rates are f a r lower and we have some competition i n
that we do have a good supply o f natural gas and we do have
electricity.
So what is good f o r one area m i g h t not be logical f o r another.
W h a t I am really f e a r f u l of i n solar energy down the road is that
we m i g h t have a mandate that every house has to have a solar energy
u n i t or can not be built. Now that is going t o impose some severe
restrictions i n certain areas on individuals, their ability to buy or not
buy. A n d I don't t h i n k that is really the approach we want t o take.
A s I say, I am beginning to t h i n k , after hearing this gentleman
f r o m F E A this morning, that maybe this is the way their t h i n k i n g
is now, let's t r y i t and see i f i t works. I just don't feel we should be
i n the position to just t r y i t to see i f i t works. I t h i n k we have t o
have factual i n f o r m a t i o n that i t does work.
76
Senator SCHMITT. There is certain pressure on a new administration to look like they are doing something and maybe that is one of
the jurisdictions they have f o r their experimental attitude.
Do you feel that the Federal involvement i n research and development of solar energy systems f o r heating and cooling is adequate at
the present time?
A r e you familiar or involved i n that? I know some associations
are involved i n the establishment o f standards and b u i l d i n g codes,
things like that. Is your association involved w i t h the N A S A - H U D E R D A effort?
M r . ARQUILLA. Our Research Foundation has contracted w i t h those
governmental organizations to participate i n some of the programs.
I do t h i n k that the moneys are enough. I don't necessarily t h i n k that
we have all of the geniuses i n government and all of the engineers
and physicists necessary to produce the ideal situation or ideal unit.
I t h i n k that private enterprise is the best source f o r that. A n d I t h i n k
eventually, that is where we are going to see the greatest improvement i n the quality of the product as a package.
Senator SCHMITT. I agree w i t h that. The one bottleneck we found
i n setting up those programs a few years ago was the private sector
d i d not have the risk capital to provide that kick i n packaging and
reliability and i n decreasing the costs that seemed t o be necessary so
they could enter the market. A t least the N A S position was to t r y
to foster or t r y to provide the kick and see tlhat the private sector
could then pick i t up. I am wondering i f you see any signs of that
happening?
M r . ARQUILLA. I am seeing signs of that happening. Y o u know, i t is
the same t h i n g w i t h the heat pump that came out 15 years ago. I t was
very unsuccessful, because of its unreliability. I t wasn't reliable. B u t
there have been tremendous improvements i n the manufacture of the
heat pump package.
Senator SCHMITT. B u t i t d i d get a bad reputation as a consequence
of that?
M r . ARQUILLA. Y e s .
Senator SCHMITT. A n d was probably delayed by almost that 15year period.
M r . ARQUILLA. Right. I know a builder i n Ohio who has p u t i n
7,000 or 8,000 units and has been using i t now f o r about 8 years and
has not had but two or three problem children. I t h i n k that is a
pretty darn good record.
Senator SCHMITT. I t h i n k the solar systems w i l l come along. I am
not at all convinced yet that everything has been done to make them
available so that the average homeowner that has one installed is not
going to regret it.
I t h i n k that is what we have to insure doesn't happen. A cooperative effort between industry and the Government here I t h i n k is i n
order.
A t the earliest possible time the Government ought to get out of it.
I am t r y i n g to test your feeling o f whether that time has come or
there needs to be a l i t t l e more.
M r . ARQUILLA. Maybe a little bit more. A n engineering group came
into our office a week ago and they gave an hour and a half presenta-
77
t i o n on how we could use solar energy i n our homes. Y o u don't have
to make many changes, maybe just a few roof changes, you know.
W e l l , we had to d i g up the y a r d and put i n some 600 to 800 feet of
p i p i n g i n the yard, i n the ground. W e had to change the p i t c h on the
roof, we had to change the directions of our houses and we had t o
remove windows on one side. When we added i t up, we were t a l k i n g
about a $17,000 or $18,000 package. I can't sell that.
Senator SCHMITT. Per unit?
M r . ARQUILLA. Per unit. There is no way I can sell somehing like
that. Now certainly we are i n a very cold area, and we have to have
additional heating to compensate f o r those cloudy days we do have i n
the Midwest d u r i n g the winter months. I understand that, t h a t is
understandable. I don't t h i n k we have reached that point yet where
we can really package these things and do an adequate, do a more
than adequate job.
Senator SCHMITT. I appreciate your testimony very much. I t h i n k
i t w i l l be useful, i f you have a chance to, t o comment on that prel i m i n a r y report that M r . B a r d i n provided. There seems t o be a tendency i n these h u r r y - u p exercises to do your report inside the Government and then to put i t out as having covered the whole ballpark
as f a r as the various inputs of industry and users and consumers are
concerned.
I hope you w i l l comment, I t h i n k the committee would find i t very
useful,
M r . ARQUILLA. W e w i l l be pleased to.
M r . ELMSTROM. Our association w i l l be most happy t o provide
these comments to the committee.
The CHAIRMAN. T h a n k you very much f o r excellent testimony, you
made a good record.
The committee stands i n recess u n t i l 10 o'clock tomorrow.
[Thereupon, at 1:05 p.m. the hearing was recessed, to reconvene at
10:00 a.m. the f o l l o w i n g day.]
[Copy of the legislation being considered f o l l o w s : ]
94-843 O - 77 - 6
78
96TH C O N G R E S S
1ST SESSION
4
£
JK
^
I N T H E S E N A T E OF T H E
F % F \
^
^
UNITED
STATES
M A Y 5 ( l e g i s l a t i v e d a y , A P R I L 2 8 ) , 1977
Mr. JACKSON (by request) introduced the following b i l l ; which was read twice
and referred to the Committee on Energy and Natural Resources
A
BILL
T o establish a comprehensive n a t i o n a l
1
energy policy.
Be it enacted by the Senate and House of
States of America
Representa-
2
tives of the United
in Congress assembled,
3
T h a t this A c t m a y be c i t e d as the " N a t i o n a l E n e r g y
Act".
T A B L E OF CONTENTS
Sec. 2. Findings.
Sec. 3. National energy goals.
Sec. 4. References to Federal Power Commission and Federal'Energy
Administration.
II—o
79
2
T A B L E O F CONTENTS—Continued
T I T L E I—PRICING, REGULATORY, A N D OTHER NONTAX
PROVISIONS
P A R T A — E N E R G Y CONSERVATION PROGRAMS FOR E X I S T I N G
RESIDENTIAL
BUILDINGS
Subpart 1—Utility Program
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
101.
102.
103.
104.
105.
106.
107.
108.
109.
Definitions.
Residential energy conservation plans.
U t i l i t y programs.
Alternative programs.
Federal standby authority.
Relationship to other laws.
Contract provisions.
Rules.
Authorization of appropriations.
Subpart 2—Financing Program
Sec.
Sec.
Sec.
Sec.
Sec.
110.
111.
112.
113.
114.
Amendment
Amendment
Amendment
Amendment
Amendment
Act.
to
to
to
to
to
National Housing Act.
National Housing Act.
National Housing Act.
Federal Home Loan Mortgage Corporation Act.
Federal National Mortgage Association Charter
Sec. 115. Amendment to Energy Conservation and Production Act.
Subpart 3—New! Buildings Performance Standards Grants
Sec. 131. Amendment to section 307(b) of Energy Conservation and
Production Act.
P A R T B — E N E R G Y E F F I C I E N C Y OF CONSUMER PRODUCTS
Subpart 1—Energy Efficiency Standards for Consumer Products Other
Than Automobiles
Sec. 201. Amendment to the Energy Policy and Conservation Act.
Subpart 2—Disclosure of Automobile Fuel Inefficiency Tax and Disclosure
of Automobile Fuel Efficiency Rebate
Sec. 221. Disclosure in labeling.
Sec. 222. Disclosure in advertising.
PART C — E N E R G Y
CONSERVATION PROGRAM FOR SCHOOLS A N D HOSPITALS
Sec. 301. Amendment to the Energy Policy and Conservation Act.
PART D — N A T U R A L
Sec.
Sec.
Sec.
Sec.
Sec.
401.
402.
403.
404.
405.
GAS
Findings and purposes.
Definitions.
Calculation of the current British thermal unit related price.
Sales of new natural gas.
Sales of old natural gas under existing contracts.
80
3
T A B L E O F CONTENTS—Continued
PART D — N A T U R A L
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
406.
407.
408.
409.
410.
411.
412.
413.
414.
415.
GAS—Continued
Sales of old natural gas under new contracts.
Effective dates of rules w i t h respect to maximum l a w f u l prices.
Special pricing provisions.
Relationship to the Natural Gas Act.
Enforcement and delegation.
Emergency sales.
Special rules.
Coverage.
Incremental pricing of natural gas.
Synthetic gas.
Sec. 416. Amendments to the Emergency Natural Gas Act of 1977.
P A R T E — P U B L I C U T I L I T Y REGULATORY POLICIES
Subpart 1—General Provisions
Sec. 501. Findings and purposes.
Sec. 502. Definitions.
Sec. 503. Antitrust laws.
Subpart 2—National Electric Rate Design Policies
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
511.
512.
513.
514.
515.
516.
517.
Coverage.
Methods for determining cost of providing electric service.
National electric rate design and regulatory policies.
Information and reports.
Nonregulated utilities.
Implementation of national rate design and regulatory policies.
Authorization of appropriations.
Subpart 3—Bulk Power Supply
Sec. 521. Interconnection and wheeling.
Sec. 522. Cogeneration.
Subpart 4—Natural Gas Rate Design Policies
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
541.
542.
543.
544.
545.
546.
547.
548.
Definitions.
Coverage.
Natural gas rate design and regulatory policies.
Gas utility rate design proposals.
Promulgation of gas rate design and regulatory rules.
Information.
Nonregulated utilities.
Implementation.
P A R T F — A M E N D M E N T S TO T H E E N E R G Y S U P P L Y AND E N V I R O N M E N T A L
COORDINATION
ACT
Sec. 601. Revision of coal conversion program.
Sec. 602. Conforming amendments.
Sec. 603. Effective dates.
81
4
T A B L E O F CONTENTS—Continued
PART G—FEDERAL
ENERGY
INITIATIVES
Subpart 1—Federal Vanpooling Program
Sec. 701. Amendment to Energy Policy and Conservation Act.
Subpart 2—Amendment to Section 381 of Energy Policy and
Conservation Act
Sec. 721. Amendment to section 381 of Energy Policy and Conservation
Act.
Subpart 3—Demonstration of Solar Heating and Cooling i n Federal
Buildings
Sec. 741. Definitions.
Sec. 742. Federal solar program.
Sec. 743. Duties of Administrator.
Sec. 744. Transfer of appropriations.
Sec. 745. Submission of proposals.
Sec. 746. Authorization.
1
2
FINDINGS
SEC. 2. The Congress finds that—
3
(1) the United States faces an energy shortage
4
arising from increasing demand for energy, and for oil
5
and natural gas in particular, and insufficient domestic
6
supply of oil and natural gas to satisfy that demand;
7
(2) unless effective measures are taken to reduce
8
the rate of growth of demand for energy, the United
9
States will become increasingly dependent on the world
10
oil market and increasingly vulnerable to interruptions of
11
foreign oil supply;
12
(3) the United States can significantly reduce its
13
demand for oil and its demand for natural gas for non-
82
5
1
essential uses by carrying out an effective conservation
2
and fuel efficiency program in all sectors of energy use,
3
through reform of utility rate structures, and conversion
4
by industrial firms and utilities from oil and natural gas
5
to coal and other fuels; and
6
(4) the United States needs to develop renewable
7
and essentially inexhaustible energy sources to ensure
8
sustained long-term economic growth.
NATIONAL ENERGY GOALS
9
10
H
12
13
14
15
16
17
18
19
20
21
22
SEC. 3. The Congress hereby establishes the following
national energy goals for 1985:
(1) Reduction of annual growth of United States energy
demand to less than 2 per centum.
(2) Reduction of the level of oil imports to less than
six million barrels per day.
(3) Achievement of a 10 per centum reduction i n
gasoline consumption from the 1977 level.
(4) Insulation of 90 per centum of all American homes
and all new buildings.
(5) A n increase in annual coal production to at least
four hundred million tons over 1976 production.
(6) Use of solar energy in more than two and one-half
23 million homes.
83
6
1
REFERENCES TO FEDERAL POWER COMMISSION AND
2
FEDERAL ENERGY ADMINISTRATION
3
SEC. 4. I f the Federal Power Commission or the Federal
4 Energy Administration is terminated, then any reference
5 in this Act (or any amendment made thereby) to the Fed6
eral Power Commission or the Federal Energy Adminis-
7
tration shall be deemed by a reference to the officer, depart-
8
ment, or agency i n which the principal functions of such
9
Commission or Administration (as the case may be) are
10 vested after such termination.
11 T I T L E I — P R I C I N G , R E G U L A T O R Y
AND
OTHER
12
N O N T A X PROVISIONS
13
P A R T A — E N E R G Y C O N S E R V A T I O N P R O G R A M S FOB
14
EXISTING RESIDENTIAL
BUILDINGS
15
Subpart 1—Utility Program
16
DEFINITIONS
17
SEC. 101. AS used in this subpart:
18
(1) The term "Administrator" means the Administra-
19 tor of the Federal Energy Administration.
20
(2) The term "Commission" means the Federal Power
21 Commission.
22
(3) The term "natural gas" means natural gas as that
23 term is defined in the Natural Gas Act.
24
(4) The term "nonregulated utility" means a public
25 utility which is not a regulated utility.
84
7
1
(5) The term "public utility" means any person or
2
State agency which is engaged in the business of selling
3
natural gas or electric energy for purposes other than re-
4
sale; except that such term shall be deemed not to include
5
any such person or agency in any calendar year unless dur-
6
ing the second preceding calendar year either (A) sales of
7
natural gas by such person or agency exceeded ten billion
8
cubic feet, or (B) sales of electric energy by such person
9
or agency exceeded seven hundred and fifty million kilowatt-
10
hours.
11
(6) The term "rate" means any price, rate, charge,
12
or classification made, demanded, observed, or received with
13
respect to sales of electric energy or natural gas, any rule,
14
regulation, or practice respecting any such rate, charge, or
15
classification, and any contract pertaining to the sale of
16
electric energy or natural gas.
17
18
(7) The term "ratemaking authority" means authority
to fix, modify, approve, or disapprove rates.
19
(8) The term "regulated utility" means a public utility
20
with respect to whose rates a Sta/te regulatory authority
21
exercises ratemaking authority.
22
(9) The term "residential building" means any building
23
developed for residential occupancy, the construction of
85
8
1
which commenced prior to one year after the date of enact-
2
ment of this subpart, which has a mechanical or electrical
3
system for heating or cooling, or both, and which contains
4 no more than two dwelling units.
5
(10) The term "residential customer" means any per-
6
son to whom a public utility sells natural gas or electric
7
energy for consumption in a residential building.
8
9
10
11
12
(11) The term "residential energy conservation measure" means—
( A ) caulking and weatherstripping of all exterior
doors and windows;
(B)
13
14
furnace efficiency modifications limited to—
(i)
replacement burners designed to reduce
the firing rate or to achieve a reduction in the
amount of fuel consumed as a result of increased
16
combustion efficiency,
(ii) devices for modifying flue openings which
18
will increase the efficiency of the heating system,
19
and
20
(iii) electrical or mechanical furnace ignition
21
systems which replace standing gas pilot lights;
22
(C) clock thermostats;
23
(D) ceiling, attic, wall, and floor insulation;
24
(E) hot water heater insulation; and
25
( F ) storm windows.
86
9
1
(12) The term "residential energy conservation plan"
2
means a plan approved by the Administrator pursuant to
3
section 102 (c) which is developed by a State regulatory
4
authority or by a nonregulated utility.
5
(13) The term "State" means a State, the District of
6
Columbia, Puerto Rico, and, at the discretion of the Admin-
7
istrator, any territory or possession of the United States.
8
(14) The term "State regulatory authority" means any
9
State agency which has ratemaking authority with respect to
10
the sale of electric energy or natural gas by any public utility
11
(other than by such State agency).
12
(15) The term "suggested measures" means, with re-
13
spect to a particular residential building, the residential
14
energy conservation measures which the Administrator, in
15
the rules prescribed pursuant to section 102 ( a ) , determines
16
to be appropriate for the location and the category of resi-
17
dential buildings which includes such building.
18
19
(16) The term "utility
program"
means a program
meeting the requirements of section 103 carried out by—
20
(A.) a regulated utility pursuant to a residential
21
energy conservation plan developed by a State regula-
22
tory authority;
2
3
(B) a nonregulated utility pursuant to a residential
energy conservation plan developed by such utility; or
2
5
(C) a regulated or nonregulated utility pursuant to
87
10
1
i
3
4
an order of the Administrator issued pursuant to section
105.
RESIDENTIAL ENERGY CONSERVATION PLANS
SEC. 102. (a) The Administrator shall, not later than
5
one hundred and twenty days after enactment of this sub-
6
part and after consultation with the Secretary of Housing and
7
Urban Development and the heads of such other agencies as
8
he deems appropriate, promulgate rules for the content and
9
implementation of residential energy conservation plans.
10
(b) The rules prescribed pursuant to subsection (a) —
11
(1) shall identify the suggested measures for
12
residential buildings, by climatic region and by categories
13
determined by the Administrator on the basis of type of
14
construction or any other factors which the Administra-
15
tor may deem appropriate; and
16
(2) may include—
17
18
( A ) standards for general safety and effectiveness of any suggested measure;
19
20
(B) standards for installation of any residential
energy conservation measure; and
21
(C) such other requirements as the Administra-
22
tor may determine to be necessary to carry out this
23
subpart.
24
(c) Not later than one hundred and eighty days after
25
promulgation of the rules described in subsection ( a ) , each
88
11
1
State regulatory authority may submit, and each nonregulated
2
utility shall submit a proposed residential energy conserva-
3
tion plan to the Administrator. The Administrator may, upon
4
request of a State regulatory authority or nonregulated
5
utility, extend the time period for submission of a plan by
6
such authority or utility. Each such plan shall be reviewed
7
and approved or disapproved by the Administrator not later
8
than ninety days after submission. I f the Administrator dis-
9
approves a plan, the State regulatory authority or non-
10
regulated utility may submit a new or amended plan not
H
later than sixty days after the date of such disapproval, or
12
such longer period as the Administrator may, for good cause,
13
allow. The Administrator shall review and approve or disapprove any such new or amended plan not later than ninety
15
days after submission. After approval of a plan, a State reg-
16
ulatory authority or nonregulated utility may submit an
17
amended plan with the consent of the Administrator.
18
(d) No residential energy conservation plan submitted
19
by a State regulatory authority shall be approved by the
20
Administrator unless such plan—
21
(1) requires each regulated utility over which such
22
State regulatory authority exercises ratemaking author.
.
ity to implement a utility program described in section
OQ
24
103;
25
(2) contains an adequate program for preventing
89
12
1
unfair, deceptive, or anticompetitive acts or practices
2
affecting commerce which relate to the implementation of
3
utility programs within such State;
4
5
6
(3)
contains adequate procedures to assure that
each regulated utility will carry out a utility program;
(4)
contains adequate procedures to assure that
7
each regulated utility will charge fair and reasonable
8
prices and rates of interest to its residential customers in
9
connection with the installation of residential energy
10
11
conservation measures; and
(5)
meets such other requirements as may be
12
prescribed in the rules promulgated pursuant to sub-
13
section ( a ) .
14
(d) No residential energy conservation plan proposed
15
by a nonregulated utility shall be approved by the Admin-
16 istrator unless such plan—
17
18
(1) provides for the implementation by such utility
of a utility program described in section 103;
19
(2) contains procedures pursuant to which such
20
utility will submit a written report to the Administrator,
21
not later than one year after approval of such plan and
22
biennially thereafter, regarding the implementation of
23
such utility program and containing such information
24
as may be prescribed by the Administrator in the rules
25
promulgated pursuant to subsection (a) ; and
90
IB
1
(3) meets such other requirements as may be pre-
2
scribed in the rules promulgated pursuant to subsection
3
(a).
4
5
6
UTILITY PROGRAMS
SEC. 103. (a) Except as provided in subsections (b)
and (c), each utility program shall include—
7
(1) procedures designed to inform, no later than
8
January 1, 1980, each of its residential customers who
9
owns or occupies a residential building in which the
10
suggested measures have not been installed, of—
11
( A ) the suggested measures for the category
12
of buildings which includes such residential build-
13
kg;
14
(B) the savings in costs of home heating and
15
cooling that are likely to result from installation
16
of the suggested measures in typical residential
17
buildings in such category; and
18
(0)
the availability of the arrangements de-
19
scribed in paragraph (2) of this subsection;
20
(2) procedures whereby the public utility, no later
21
than January 1, 1980, will offer each such residential
22
customer the opportunity to enter into arrangements
23
with the public utility under which the public utility,
24
directly or through one or more contractors will—
25
( A ) inspect the residential building to deter-
91
14
1
mine and apprise the residential customer of the
2
estimated cost of purchasing and installing each
3
suggested measure;
4
5
(B)
offer to have the suggested measures
installed;
6
(C) make, or arrange for another lender to
7
make, a loan to such residential customer to finance
8
the purchase and installation costs of suggested
9
measures purchased from and installed by any of
10
the following persons:
11
(i) the public utility, or
12
(ii)
13
contractors, or
14
the public utility and one or more
(iii) one or more contractors,
15
subject to such reasonable requirements as to credit-
16
worthiness as may be permitted by the applicable
17
residential energy conservation plan and to the
18
right of the public utility to inspect the residential
19
building to confirm the installation of suggested
20
measures ;
21
(D)
permit the residential customer to repay
22
the principal of and interest on any loan made pur-
23
suant to subparagraph ( C ) , over a period of not
24
less than three years, as a part of his periodic bill
25
except that a lump-sum payment of outstanding
92
15
1
principal and interest may be required upon default
2
in payment by the residential customer;
3
(3) procedures whereby the public utility prepares
4
and sends to each of its residential customers a list of
5
suppliers and contractors in its service area who sell
6
and install residential energy conservation measures
7
which list is designed to encourage participation by
8
such contractors and suppliers in a nondiscriminatory
9
manner; and
10
(4) procedures whereby the public utility prepares
11
and sends to each of its residential customers a list of
12
banks, savings and loan associations, credit unions, and
other public and private lending institutions in its service area which offer loans for the purchase and installa-
15
16
17
18
19
20
21
22
23
24
25
tion of residential energy conservation measures,
(b) The Administrator may, upon petition of a public
utility, supported in the case of a regulated utility by the
appropriate State regulatory authority, waive in whole or
in part the requirements of paragraphs (1) (c) and
(2)
of subsection (a) with respect to the utility program of
such utility if such utility demonstrates to the satisfaction
of the Administrator that, despite good faith efforts on its
part, it is unable to meet the requirements of paragraph
(2) of subsection (a) because it both lacks the financial
capability to extend loans in accordance with such paragraph
93
16
1
and is unable to arrange with any other suitable financial
2
institution for the making of such loans, except that no
3
public utility may be granted a waiver under this section
4
unless such utility demonstrates to the satisfaction of the
5
Administrator that i t has dedicated all capital reasonably
6
available to i t toward meeting the requirements of para-
7
graph 2 of subsection ( a ) .
8
ALTERNATIVE PROGRAMS
9
SEC. 104. (a) A State regulatory authority or a public
10
utility (supported in the case of a regulated utility by the
11
appropriate State regulatory authority) may apply for an
12
exemption from the requirements of section 103 at any time
13
prior to one year after enactment of this Act. The Adminis-
14
trator shall grant such an exemption if such authority or
15
utility demonstrates to the satisfaction of the Administrator
16
that it has implemented or will implement an alternative pro-
17
gram providing for the installation of residential conservation
18
measures i n the homes of its residential customers which
19
program meets the requirements of this subsection. No ex-
20
emption shall be granted by the Administrator unless the
21 alternative program of such authority or utility includes the
22
following:
23
(1) procedures whereby the utility informs each of
24
its residential customers who owns or occupies a residen-
94-843 O - 77 - 7
94
17
1
tial building in which the suggested measures have not
2
been installed? of—
3
( A ) the suggested measures for the category of
4
residential buildings which includes such building;
5
(B) the savings in costs of home heating and
6
cooling that are likely to result from installation of
7
the suggested measures in typical residential build-
8
ings in such category; and
9
(C) the availability of arrangements for pur-
10
chase and installation of such measures;
11
(2) procedures whereby arrangements are offered
12
for the installation of the suggested measures to such
13
residential customers; and
14
(3) such other requirements as the Administrator
15
determines.
16
(b) A n y application for exemption pursuant to sub-
17
section ( A ) shall contain such information as the Admin-
18
istrator may by rule require.
19
(c) No application pursuant to subsection (a)
shall
20
be approved by the Administrator unless he determines that
21
the alternative program is likely to result in the installation
22
of suggested measures in as large a number of residential
23
buildings as would have been installed had such utility sub-
24
mitted a program which meets the requirements of section
25
103.
S. 1469—0
2
95
18
1
(d) A n y State regulatory authority or public utility
2
may apply for a temporary exemption prior to the promul-
3
gation of guidelines pursuant to section 102. A temporary
4
exemption may be granted from the requirements of section
5
103 for a period not to exceed two years after the date of
6
enactment of this Act, if such authority or utility demon-
7
strates to the satisfaction of the Administrator that i t has
8
implemented or proposes to implement an energy conserva-
9
tion program for residential customers which is likely to
10
result i n the installation of suggested measures i n a sub-
11 stantial proportion of residential buildings.
12
FEDERAL STANDBY AUTHORITY
13
SEC. 105. (a) I f a State regulatory authority has not
14
had a plan approved under section 102 (c) within two hun-
15
dred and seventy days after promulgation of rules under
16
section 102 (a), or within such additional period as the Ad-
17
ministrator may allow pursuant to section 102 (c) ( 1 ) , or if
18
the Administrator determines that such State regulatory au-
19
thority has not adequately implemented an approved plan,
20
the Administrator shall, by order, require each public utility
21 in the State to offer to its residential customers a utility pro22
gram prescribed in such order which meets the requirements
23
specified in subsection (a) of section 103.
24
(b) I f a nonregulated utility has not had a plan ap-
25
proved under section 102 (c) within two hundred and sev-
96
19
1
enty days after promulgation of rules under section 102 (a)
2
or within such additional period as the Administrator may
3
allow pursuant to section 102 ( c ) , or if the Administrator
4
determines that such nonregulated utility has not adequately
5
implemented an approved plan, the Administrator shall, by
6
order, require such nonregulated utility to offer its customers
7
a utility program prescribed in such order which meets the
8
requirements specified in subsection (a) of section 103.
9
(c) I f the Administrator determines that any public
10
utility to which an order has been issued pursuant to subsec-
11
tion (a) or (b) has failed to comply with such order, he
12
may either order that such public utility may not increase
13
any at which i t sells natural gas or electric energy until such
14 time as he determines that such utility has implemented a
15
utility program meeting the requirements of the order issued
16
pursuant to subsection (a) or ( b ) , or petition the district
17
courts of the United States to enjoin such utility from violat-
18
ing an order issued pursuant to this subsection.
19
(d) A n y public utility which violates an order under
20
subsection (b) shall be subject to a civil penalty of not more
21 than $25,000 for each violation. Each day that such violation
22
continues shall be considered a separate violation.
23
24
RELATIONSHIP TO OTHER LAWS
SEC. 106. The Administrator may by order upon petition by a public utility and for good cause, supersede $ny
97
20
1
law or regulation of any State or political subdivision thereof,
2
to the extent that such law or regulation prohibits a public
3
utility from taking any action required to be taken under
4
section 103 of this Act.
5
CONTRACT PROVISIONS
6
SEC. 107. No public utility shall be subject to any
7
liability under any provision in any contract which restricts
8
any public utility from lending, borrowing, or entering a new
9
line of business, if such lending, borrowing, or entering a new
10 line of business is required under section 103 of this Act.
11
RULES
12
'SEC. 108. The Administrator is authorized to promulgate
13
such rules as may be necessary to carry out this subpart.
14
AUTHORIZATION OF APPROPRIATIONS
15
SEC. 109. There are hereby authorized to be appropri-
16 ated to the Administrator such sums as may be necessary to
17
carry out his responsibilities under this subpart.
18
Subpart 2—Financing Program
19
AMENDMENTS TO NATIONAL HOUSING ACT
20
SEC. 110. Section 2(a) of the National Housing Act
21 is amended by adding at the end of the first paragraph there22 of the following sentence: "For the purpose of this section,
23
the terms 'financial institution' and 'lending institution' shall
24
be deemed to include any public utility which is engaged
in making loans or advancing credit for energy conserving
98
21
1
improvements as defined in subparagraph (2) of the fourth
2
paragraph of this section only for the purposes of such loans
3
or advances of credit. The term 'public utility' means any
4
person or State agency which is engaged in the business of
5
selling natural gas or electric energy for purposes other than
6
resale.".
7
SEC. 111. Subparagraphs (2) and (3) of the fourth
8
paragraph of section 2 (a) of the National Housing A c t are
9
amended to read as follows:
10
"(2)
The term 'energy conserving improvements'
11
means (i) energy conservation measures as defined in
12
section 101 of the National Energy Act, or (ii) any
13
addition, alteration, or improvement to an existing or
14
new structure which is designed to reduce the total en-
15
ergy requirements of that structure, and which is i n con-
16
formity with such criteria and standards as shall be pre-
17
scribed by the Secretary in consultation with the Ad-
18
ministrator of the Federal Energy Administration; and
19
"(3)
the term 'solar energy system' means any
20
addition, alteration, or improvement to an existing or
21
new structure which is designed to utilize solar energy
22
to reduce the energy requirements of that structure from
23
other energy sources, and which is in conformity with
24
such criteria and standards as gball be prescribed by the
99
22
1
Secretary in consultation with the Administrator of the
2
Federal Energy Administration.".
3
SEC. 112. Section 2 (f) of the National Housing Act is
4
amended by adding the following at the end thereof: "The
5
Secretary shall conduct a study within two years after the
6
enactment of the National Energy Act in order to deter-
7
mine an actuarially sound premium rate for loans for energy
8
conserving improvements authorized under section 2 (a) of
9
this subchapter, and shall, based on this study, no earlier than
10
two years after date of enactment of the National Energy
11
Act, set an actuarially sound premium rate for such loans,
12
which rate may exceed the otherwise applicable 1 per centum
13
limitation of this subsection.".
14
SEC. 113. Section 302(h) of the Federal Home Loan
Corporation
Act
(121 U.S.O.
15
Mortgage
1451 ( h ) )
is
16
amended by adding at the end thereof a new sentence, to
17
read as follows: "The term 'residential mortgage' is deemed
18
to include a loan or advance of credit insured under title I
19
of the National Housing Act whose original proceeds are
20
applied for in order to finance energy conserving improve-
21 ments to residential real estate. The term 'residential mort22
gage' is also deemed to include a loan or advance of credit
23
for such purposes not having the benefit of such insurance
24
and to include loans made where the lender relies for pur-
100
23
1
poses of repayment primarily on the borrower's general
2
credit standing and forecast of income, with or without other
3
security/'.
4
AMENDMENT TO FEDERAL NATIONAL MORTGAGE
5
ASSOCIATION CHARTER ACT
6
SEC. 14. Section 302 (b) of the Federal National Mort-
7
gage Association Charter Act is amended by adding at the
8
end thereof the following new paragraph:
9
"(3)
The corporation is authorized to purchase,
10
service, sell, lend on the security of, and otherwise deal
11
i n loans made for the energy conservation purposes
12
described in section 2 (a) of the National Housing Act,
13
whether or not insured under such section. To be eligible
14
for purchase, any such loan not so insured may be se-
15
cured as required by the corporation.".
16
AMENDMENT TO ENERGY CONSERVATION AND PRODUCTION
17
18
19
ACT
SEC. 115. Section 422 of the Energy Conservation and
Production Act is amended to read as follows:
20
"AUTHORIZATION OF APPROPRIATIONS
21
"SEC. 422. There are authorized to be appropriated for
22
purposes of carrying out the weatherization program under
23
this part, not to exceed $55,000,000 for the fiscal year end-
24 ing September 30, 1977, not to exceed $130,000,000 for the
25 fiscal year ending September 30, 1978, not to exceed
101
24
1
$200,000,000 for the fiscal year ending September 30, 1979,
2
and not to exceed $200,000,000 for the fiscal year ending
3
September 30, 1980, such sums to remain available until
4
expended.".
5
Subpart 3—New Building Performance Standards Grants
6
AUTHORIZATION FOR SECTION 307 (B) OF ENERGY
7
CONSERVATION AND PRODUCTION ACT
8
9
10
SEC. 131. Section 307(b) of the Energy Conservation
and Production Act is amended to read as follows:
" (b) There is authorized to be appropriated for the
11 purpose of carrying out this section, the following amounts—
12
13
14
15
16
17
" ( 1 ) for the fiscal year ending September 30,
1977, not to exceed $5,000,000;
" (2) in the fiscal year ending September 30, 1978,
not to exceed $10,000,000; and
" (3) in the fiscal year ending September 30, 1979,
not to exceed $10,000,000.
18
Any amount appropriated pursuant to this subsection shall
19
remain available until expended.".
NATIONAL ENERGY CONSERVATION POLICY ACT
T U E S D A Y , J U N E 28, 1977
U . S . SENATE,
C O M M I T T E E ON B A N K I N G , H O U S I N G , AND
U R B A N AFFAIRS,
'Washington,, D.C.
The committee met at 10 a.m., i n room 5302, Dirksen Senate Office
Building, Senator W i l l i a m Proxmire, chairman of the committee,
presiding.
Present: Senators Proxmire and Schmitt.
Also present: Senator Ernest F . Hollings.
The C H A I R M A N . The committee w i l l come to order.
I understand the distinguished Senator f r o m South Carolina,
Senator Hollings, has an introduction. W h a t I ' m going to ask is
that he introduce President H a r d i n of the U.S. League of Savings
Associations and then we w i l l hear f r o m M r . Reich of the Federal
Trade Commission and then we w i l l go back to the panel including
M r . H a r d i n i f that's acceptable.
STATEMENT 0E ERNEST F. HOLLINGS, U.S. SENATOR FROM THE
STATE OF SOUTH CAROLINA
Senator H O L L I N G S . Thank you, M r . Chairman, and that w i l l be
acceptable.
M r . Chairman, I w i l l appreciate the privilege. I asked for this
opportunity. I was a former member of this committee and I have
worked i n the field of conservation i n buildings both i n our Commerce
Committee and i n housing on the $10 m i l l i o n loan guarantees i n the
Senate. W o r k i n g i n this field, I thought that the principal Committee
of Banking, Housing and Urban Affairs should know a little bit
about the background of this new president of the U.S. Savings and
Loan League. He's not just one of those that comes along as a representative w i t h i n the Washington scene, but instead f r o m the grass
roots, starting back 30 years ago w i t h his own savings and loan
association at Rock H i l l , S.C. we were t a l k i n g w i t h our former
colleague a minute ago, T o m Gettys, who was on the Housing Committee i n the House of Representatives representing the 5th District
of South Carolina, which includes Rock H i l l .
John H a r d i n has come up through the ranks. More recently he has
served as a director of the Federal Home Loan Bank Board i n
Atlanta, and now he is the national president and a member of the
housing commissioner of South Carolina's housing authority as the
commissioner there and has been i n every particular field w i t h respect
to housing and w i t h respect to savings and loan.
(103)
104
Even more, i n South Carolina we remember h i m as one of the most
dynamic mayors we have ever had. H e was the mayor of the city of
Rock H i l l f o r a long time and then the State president of the
M u n i c i p a l Association. So he's been w o r k i n g i n this particular field
and comes w i t h a heck of a lot of m a r l a r k y — y o u w i l l enjoy listening
to h i m — b u t a heck of a lot of commonsense too w i t h his outstanding
background and experience i n this field. I don't know of any better
a u t h o r i t y i n the savings and loan association to be a spokesman and
a national president. A n d I don't say t h a t just to get his vote. I
don't r u n again u n t i l 1980 and he w i l l be long gone by then as
national president, but i n all candor, i t is a privilege to present h i m
to this distinguished committee and I ' m sure you w i l l appreciate
his testimony. I wanted to come here this first time because he w i l l
be t e s t i f y i n g before you f r o m time t o time, I ' m sure, d u r i n g the next
few years. T h a n k you very much.
The C H A I R M A N . T h a n k you, Senator Hollings. I m i g h t say i f M r .
H a r d i n has anything like the m a r l a r k y and commonsense and
chutzpah like you have, he w i l l be a real star.
Senator H O L L I N G S . T h a n k you very much.
The C H A I R M A N . W e w i l l now hear f r o m Director Robert Reich of
the Office of P l a n n i n g and Evaluation, Federal Trade Commission.
STATEMENT OF ROBERT B. REICH, DIRECTOR, OFFICE OF POLICY
PLANNING AND EVALUATION, FEDERAL TRADE COMMISSION
M r . REICH. M r . Chairman, I w i l l submit f o r the record m y prepared testimony and h i g h l i g h t i t f o r the committee.
The C H A I R M A N . W e w o u l d appreciate t h a t because we do have a
number of witnesses this m o r n i n g and we w o u l d like to ask some
questions and other Senators w i l l be here. T h e entire statement w i l l
be p r i n t e d i n f u l l i n the record.
M r . R E I C H . I also b r i n g to the committee's attention a report,
as an appendix to m y testimony, w h i c h was prepared by the F T C
staff i n response to a request f r o m the House Subcommittee on
Energy and Power. The report i n greater detail addresses several of
the concerns both i n the consumer protection and i n the competition
area w h i c h the Federal Trade Commission has w i t h regard to the
proposed legislation.
Most of our concerns involve p a r t A of the President's proposed
legislation w h i c h places utilities i n the business of advising customers
of the need f o r insulation, supplying the insulation and financing
the purchase.
F i r s t of all, public utilities are exempt f r o m the T r u t h - i n - L e n d i n g
A c t and the F a i r Credit B i l l i n g A c t f o r most services that they now
perform. W e t h i n k it's advisable to add a provision i n the legislation
w h i c h expressly makes the T r u t h - i n - L e n d i n g A c t and F a i r Credit
B i l l i n g A c t applicable to transactions entered into between home
owners and utilities which involve financing.
The Federal Trade Commission does construe these acts t o pertain
to utilities t h a t are now offering to finance home insulation b u t
several utilities throughout the country have not construed i t t h a t
way. There is some confusion, and clarification is i n order.
105
Second, we are concerned that utilities, unlike other financers, have
at their disposal a potentially coercive debt collection technique,
which is simply the termination of service. W e would recommend that
a provision be inserted i n the legislation which expressly prohibits
utilities f r o m terminating service f o r failure to pay moneys due to
the home insulation portion of that u t i l i t y b i l l , assuming t h a t utilities
w i l l be getting into the home financing business.
T h i r d , we propose that the legislation be clarified to expressly save
the Federal Trade Commission's existing statutory enforcement aut h o r i t y , particularly w i t h regard t o consumer protection rules that
are already i n effect. A s the committee may know, the home improvements industry has been a constant source of problems f o r
consumers i n terms of shoddy workmanship and simply bad performance.
The holder i n due course rule, the 3-day cooling off rule and the
various other rules that the Federal Trade Commission has promulgated and is now promulgating should be made applicable to all
these transactions whether or not they are facilitated by public
utilities.
F o u r t h , I wish to h i g h l i g h t a t r o u b l i n g aspect of the legislation
w i t h regard to competition. The President's proposal w i l l give u t i l i ties three functions: The inspection, the selling of home insulation
either directly or through subcontractors, and also the financing of
these measures. Since i n most locales each of these functions could be
achieved by private parties other than utilities, the question does arise
whether the unregulated sector can do the job or ought t o be displaced by utilities.
W e are concerned about several potential competitive abuses that
arise under the President's proposal. F i r s t , the inspection role m i g h t
not be carried out in a neutral manner i f the u t i l i t y can profit f r o m
overselling conservation measures or f r o m charging business to i t self or to its favorite subcontractors. I t may simply overstate the
need f o r insulation i f it's both appraising and also supplying.
Second, the u t i l i t y m i g h t be able to take u n f a i r advantage of its
unique position as a regulated monopoly w i t h easy access to consumers, w i t h direct access, which no other competitor i n the home insulation business also would have, to w i n business away f r o m independent contractors and also to charge a higher price f o r the insulation.
A n d , t h i r d , i f a u t i l i t y can cross-subsidize its sales and services
through increases i n electric or gas rates, i t m i g h t drive competing
contractors out of the market while i n the long r u n overcharging
consumers, even though i t would appear that its price f o r conservat i o n measuers taken alone are relatively low. T h i s w i l l be a very
difficult t h i n g to police.
W e recommend, therefore, t h a t the role of the utilities i n the sale,
installation, and financing of insulation be strictly circumscribed.
A t most, i f a u t i l i t y wants to enter this field, i t should participate
directly rather than through subcontractors to avoid the possibility
that the u t i l i t y w i l l tie up the local contractors and thereby minimize the competition.
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W e recommend additional safeguards i n the report we submitted
to the House Subcommittee on Energy and Power.
F i n a l l y , we recommend that utilities should be prohibited f r o m recovering any of the cost i n p r o v i d i n g these services w i t h i n u t i l i t y
rates charges across the board t o a l l customers.
Now the last problem t h a t I wish to h i g h l i g h t f o r the committee
this m o r n i n g concerns the insulation industry itself. A p r e l i m i n a r y
analysis of the home insulation industry showed that the fiberglass
insulation industry, which occupies about 80 percent of the home insulation industry r i g h t now, is quite concentrated. There are only
three major manufacturers of fiberglass insulation.
W e also discovered, again i n a p r e l i m i n a r y analysis, t h a t there is
not a great deal of capacity; t h a t there are people and firms t h a t
w o u l d like to enter the fiberglass industry but cannot because the
technology is tied up i n licenses which are owned by the three major
firms i n the fiberglass insulation industry. There is some t a l k and
some speculation about whether other forms of home insulation
m i g h t take up the slack, such as cellulose. A preliminary investigat i o n by the F T C staff indicated that cellulose would not be able to
take up the competitive slack, p r i m a r i l y because the substance w i t h
which cellulose must be treated i n order to make i t both fire resistant and also efficacious—that is a Borax solution—is itself i n very
short supply. I n short, our p r e l i m i n a r y analysis showed t h a t there
may be some severe competitive problems i n the short run, t h a t there
may be a substantial price rise i n the area of home insulation i f the
tax rebate provisions and the incentives b u i l t into the President's
proposals are i n fact enacted.
T h a t concludes, M r . Chairman, the concerns t h a t the Federal
Trade Commission has, at least the h i g h l i g h t e d version of those concerns, and, again, I draw the committee's attention to a report t h a t
goes into those concerns i n greater detail. I would be happy to answer
any questions that the committee may have.
The C H A I R M A N . V e r y good. I want to thank you very much f o r a
fine statement and f o r a remarkable summary of the statement t h a t
you have.
L e t me just start off w i t h the last point that you made w i t h respect
to the availability of supply of insulation materials p a r t i c u l a r l y
fiberglass. A r e you f a m i l i a r w i t h the I C F report?
M r . K E I C H . Yes, I have seen it.
The C H A I R M A N . T h a t report seems to contradict what you have
just t o l d us. The report indicates t h a t this industry is—it is true
t h a t it's concentrated. I t ' s true t h a t there are only three major producers. I t ' s an ogligopoly situation. There's no question about that.
B u t the report finds that because of the nature of the industry t h a t
i t should be able to expand quickly and easily.
I t says there are no major supply constraints—this is p a r t of the
summary on page 2 of the report—beyond the approximate 18 months
leadtime f o r new equipment installation. The major l i m i t i n g factor
is the fear of cyclical falloff i n the housing market. I t goes on to say
t h a t it's a very profitable industry w i t h a short capital cycle and
quick payout periods. I n d u s t r y sources have estimated they w o u l d be
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able to expand effectively and there would be no lack of capacity
after 1977, and so f o r t h .
A t any rate, this study which is admittedly a very temporary or
at least abbreviated and limited study and they say f u r t h e r details
w i l l be forthcoming i n about a month, suggests t h a t the industry can
expand and they say as f a r as the price angle is concerned they are
very conscious of their vulnerable position because they are under
careful scrutiny now. There are only three companies. They have to
be careful about increasing prices and for that reason there's some
reason here to suggest t h a t they m i g h t be able to expand rather
quickly without a b i g increase i n price.
What's your response to that?
M r . REICH. I have t w o responses, M r . Chairman. F i r s t , our study
of the fiber glass industry also is preliminary and our conclusions
that there is not excess capacity r i g h t now are also tentative. W e are
at this very moment c a r r y i n g on a more f o r m a l and intensive investigation. B u t I t h i n k that the committee should be aware t h a t i n a
concentrated industry such as this, i f the demand f o r the product is
f a i r l y inelastic, although there may be excess capacity, there also
would be a great incentive on the p a r t of a very few manufacturers
to w i t h h o l d supplies for the sake of increasing the price. I f the demand is sufficiently inelastic, i t w i l l be profitable f o r -the manufacturers to w i t h h o l d supplies.
The C H A I R M A N . Except here is an industry which should be extrao r d i n a r i l y vulnerable to criticism because of the energy crisis because
of the great attention the President and others are calling to it. I f
they t r y to exploit i t by increasing prices when they are already
making a substantial profit, i t seems to me that the possibility of a
crackdown, including price controls, would be a serious threat to
them.
M r . REICH. M r . Chairman, we have already received complaints
f r o m several customers i n this industry that manufacturers were
holding back supplies at this very time perhaps out of anticipation
of a pending price rise.
Senator SCHMITT. Excuse me. Y o u have received complaints. Have
you analyzed these complaints ? Do you know that they are factual ?
M r . REICH. Yes, Senator, A s p a r t of our f o r m a l investigation of
the insulation industry, we are r i g h t at this moment analyzing the
complaints. B u t I wish to add that
The C H A I R M A N . Senator Schmitt's question was
Senator S C H M I T T . Y O U made a charge here
The C H A I R M A N . Can you v e r i f y the complaints ? A r e they actually
w i t h h o l d i n g supply?
M r . R E I C H . N O . I can only say f o r the public record t h a t we have
received several complaints and we are checking them out. B u t the
interrorem effect of public scrutiny to which you refer may be quite
powerful i n the short run, but as a matter of economics and antitrust
law I f o r one am not confident that over the long run, at least over
the next 3 or 4 years, i t w i l l be possible to police the industry to such
an extent that we can attribute a shortage of supplies to willfulness
or simply to lack of excess capacity. I t ' s difficult enough r i g h t now to
measure that on a preliminary analysis.
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The CHAIRMAN. W i l l you make available to the committee whatever
study the F T C has made of this so we can have t h a t along w i t h
this, and then you say that's a preliminary study. W h e n w i l l you have
f u r t h e r documentation ?
M r . REICH. The preliminary study is f o u n d at attachment B of
the report submitted to the committee as an appendix to m y prepared
testimony. The f o r m a l investigation normally runs about 60 days.
T h e Bureau of Competition i n the Federal Trade Commission
The C H A I R M A N . A n y additional i n f o r m a t i o n you can give us that
w o u l d flesh out the preliminary study w o u l d be very welcome.
M r . REICH. C e r t a i n l y .
T h e C H A I R M A N . N O W the administration testified yesterday the
F T C would, under their proposal, be the lead federal agency i n assuring t h a t the energy program is being carried out under the f a i r
trade laws. I s the F T C experience such that i t can do this job on
such a broad scale? W h a t problems do you foresee, No. 1, i f Congress
does not make the changes you suggest or Congress does make the
changes ?
M r . REICH. I t w i l l be very difficult, given the present manpower i n
the F T C , f o r the F T C to police the multivarious type o f potential
problems i n this area. Again, i f utilties are both financing and supp l y i n g the insulation and also appraising, t h a t alone is a m a j o r enforcement effort t o insure that that conjoining role is not
The C H A I R M A N . H O W much manpower w o u l d you have to have i n
order to effectively enforce that?
M r . R E I C H . I ' l l take a guess and then I ' l l get back to the committee,
w i t h your permission, w i t h a more specific figure. M y guess w o u l d be
t h a t we would need about, i n terms of auditors, 350.
The C H A I R M A N . W h a t would be the cost of that? $15,000 a job
or $20,000 a job?
M r . R E I C H . Yes, i t can be figures. I t w o u l d be $ 1 5 , 0 0 0 to $ 2 0 , 0 0 0 a
job and anyone who's able i n mathematics can figure t h a t faster t h a n
I can s i t t i n g here off the top of my head. B u t let me emphasize, M r .
Chairman, t h a t i n order to police those transactions and to avoid
anticompetitive impacts f r o m that conjoining of roles, we are really
t a l k i n g about an auditing and enforcement effort t h a t is very similar
to the k i n d of very elaborate auditing and the enforcement effort now
undertaken by the F E A w i t h regard t o oil prices land many of t h e i r
other activities. I t is not simply a matter of going over books because
i t also entails or would entail an investigation of competitive markets.
The C H A I R M A N . Could i t be done by state public service commissions?
M r . REICH. The Federal Trade Commission has not addressed this
issue. M y judgment is t h a t the public u t i l i t y commissions' t r a c k
record i n the competition area is not all t h a t strong. I ' m not aware i n
the past of any referral by State public u t i l i t y commissions to either
state or Federal antitrust agencies, and I t h i n k it's f a i r t o say t h a t
public confidence—I'm not t r y i n g t o disparage State public u t i l i t y
commissions because many are doing excellent jobs—but public confidence i n their ability to police both w i t h regard to competition and
consumer protection is not high.
The C H A I R M A N . The administration has testified t h a t the States
w i l l play the key role i n l i m i t i n g abuses under the proposed program.
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I s this a p r i n c i p a l problem that you see, t h a t the public service commissions have a poor track record i n enforcing effective competition ?
M r . REICH. W e l l , quite f r a n k l y , M r . Chairman, yes, they do have
a poor track record. I t h i n k they would need to be beefed up considerably i f they were going to effectively meet some of the potential
abuses both i n the competition and consumer protection areas.
The C H A I R M A N . W e heard testimony yesterday t h a t the insulation
industry is characterized by a significant degree of concentration. We
have already handled that.
W i l l you explain the problem relating to the holder i n due course
i n a court decision and how this could affect the energy improvements program?
M r . REICH. Assuming that the holder i n due course rule would
apply to transactions undertaken by the utilities i n financing home
insulation, the holder i n due-course rule would apply i f there is a
business connection between the financer and the seller of the home
insulation. I f a u t i l i t y finances the transaction and refers the customer to a t h i r d g a r t y contractor to do the actual installation or insulation, the holder i n due-course rule would apply. I f the contractor
handed the u t i l i t y a note and the u t i l i t y became the direct creditor
i n that situation, the consumer would preserve all its claims and defenses vis-a-vis the u t i l i t y financer.
I f the insulation or installation were defective, the customer m i g h t
withhold payments and assert any v a l i d legal claims and defenses
under his contract.
The C H A I R M A N . H O W would that differ f r o m lending institutions ?
M r . REICH. I t would be exactly the same. The u t i l i t y would be no
more and no less vulnerable than any other lending institution under
the holder i n due course system.
The C H A I R M A N . W o u l d there be a secondary market? Supposing
they sold t h e — F N M A picked up the obligation.
M r . REICH. I f a t h i r d - p a r t y financer were to do the financing and
a t h i r d - p a r t y contractor were to do the contracting so t h a t the u t i l i t y
d i d nothing more than supply lists of potential financers and potent i a l contractors and played a completely neutral part i n supplying
those lists, then I would doubt t h a t the holder i n due-course rule
would apply. B u t i f the u t i l i t y were to screen those lists of financers
and the list of contractors and make recommendations as to which
financers and which contractors were the most reliable or reasonable,
then the holder i n due-course rule presumably would apply and the
consumer m i g h t assert those claims and defenses. The screening
function itself would probably create enough of a potential business
relationship between financer and seller to trigger the holder i n due
course rule.
Now I would like to emphasize f o r the record t h a t the Federal
Trade Commission is at this very moment scrutinizing a similar set
of arrangements and has not definitively ascertained whether and to
what extent the holder i n due-course rule would apply. The rule is
new, implementation of the rule is now underway, and the very
factual circumstances are being scrutinized by staff. I ' m g i v i n g you
my best judgment.
The C H A I R M A N . One more question before I yield t o Senator
Schmitt. Our discussion of the holder i n due-course doctrine raises
94-843 O - 77 - 8
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the whole question about the experience and competence of the u t i l i t y
to act as a banker or a financier. Does this give you concern or
trouble, their competence i n the field? A f t e r all, this is something
that's usually been financed by bankers who have experience i n
h a n d l i n g credit and we are now asking the u t i l i t y t o do something
foreign or different f r o m their experience.
M r . REICH. I t does give us pause, not f r o m the standpoint of the
utilities ability to carry out internally and profitably these functions,
because that's not w i t h i n our expertise—but i t does give us pause
f r o m the standpoint of the utilities' a b i l i t y t o carry out both the
s p i r i t and the direction of consumer protection laws and also act
as an effective policeman of these transactions. Bankers and other
lending institutions have under the holder i n due-course rule and
several other related measures been very effective i n policing such
transactions. There was a great deal of fear I understand when the
holder i n due-course rule was promulgated t h a t the secondary credit
market would almost d r y u p i n many of these areas. T h a t has not,
so f a r as I ' m aware, come t o pass. Instead, just the opposite is true.
The lending institutions have been enormously effective and much
better at monitoring these markets t h a n consumers. They have the
comparative advantage the consumers don't have. The question remains whether utilities would be as effective as other lending institutions. I t h i n k that's a serious question.
The C H A I R M A N . Senator Schmitt.
Senator SCHMITT. Thank you, M r . Chairman.
I appreciate the testimony. This was an issue yesterday t h a t came
up time and time again and it's good to have the horse's mouth
present.
Y o u paint a somewhat bleak picture of possible noncompetitive
and consumer oriented problems i f the President's proposals were
instituted. Let's assume that they were not. W e d i d have some testimony yesterday saying that the industry and the people are m o v i n g
quite r a p i d l y toward more conservative homes w i t h respect to energy.
Maybe we can just let those trends continue and reach the same goal.
I f we d i d that, what would you recommend as the Federal Trade
Commission's new role or expanded role, or would you just continue
the way you are ?
M r . REICH. Senator, i f there's no change i n the status quo as to
insulation and financing of insulation, I t h i n k the Federal Trade
Commission, given its present resources, is probably f a i r l y well
equipped to police the marketplace as i t has done i n the past. I hasten
to add that the parade of horribles to which I referred i n m y testimony is purely hypothetical. W e are undertaking research and investigations r i g h t now to f u r t h e r flesh out these problems. I also
want to add that the bleak picture t h a t I paint of potential competitive abuses obviously must be weighed against the very, very critical
issues presented i n the energy proposals. I have not done t h a t weighi n g and the Federal Trade Commission is incompetent to do t h a t
weighing. That's weighing t h a t you must do.
W h a t I can do is point out ways i n which those competitive abuses
m i g h t either be alleviated or mitigated. One possible measure that
Congress may want to consider w i t h regard to the home insulation
Ill
industry and the fiberglass industry is mandatory licensing of that
technology. The main barrier to entry into the fiberglass industry
seems to be, again i n our preliminary investigation, the licensing of
the technology that is i n the hands of the three large fiberglass manufacturers. A l l o w i n g others to use that same technology m i g h t be one
way of avoiding some of this anticompetitive t r a p to which I referred.
Senator S C H M I T T . A r e there any precedents f o r such an activity?
M r . R E I C H . There are analogies. The Federal Trade Commission
recently scrutinized a trademark and determined t h a t to remedy
anticompetitive consequences the trademark would have to be licensed
to others. That's an extreme remedy.
Senator S C H M I T T . A r e there any constitutional questions i n such
a remedy ?
M r . R E I C H . There may be some constitutional questions. They
would of course need to be addressed. I offer this possibility only as
one that may merit f u r t h e r examination.
A s to the utilities' role as financer and supplier and appraiser of
home insulation, there are other ways to which I referred of mitigati n g competitive abuses.
Senator S C H M I T T . W i t h respect to the insulation industry's ability
to produce at a capacity required by the assumptions i n the legislation, do you see any mechanisms by which—other than the licensing
proposal, by which that industry could be assured of the capacity
necessary ?
M r . R E I C H . I n m y limited expertise and given our preliminary
investigation, no, Senator. I ' m not aware of any other expedients that
would allow others to enter into that industry and f a i r l y well insure
adequate supplies.
Senator S C H M I T T . W h a t are the main patent limitations? I s i t on
the process ?
M r . R E I C H . I t ' s p r i m a r i l y concerning the process. The i n i t i a l
patents, as f a r as I ' m aware, on fiberglass and on development of
fiberglass have r u n out and that process is generally available; but
there has been a second round of patents that concern the manufact u r i n g process. I t ' s those second round of patents that our prel i m i n a r y analysis shows have created a substantial barrier to entry.
I n our preliminary analysis of this situation, we interviewed several manufacturers—not of fiberglass, but manufacturers who would
like to get into the fiberglass area, and who t o l d us that they would
not get into i t at least f o r 10 years unless they had access to that
technology. B u t i f they d i d have access to the technology, they would
be able to get into i t they thought i n about 2 years. Now that 2-year
lag time
Senator S C H M I T T . Were these small companies or large companies ?
W h a t was the capital resource of these companies ?
M r . R E I C H . I ' m sorry, Senator. I don't know.
Senator S C H M I T T . T h a t would have some effect on t h a t k i n d of
decision.
M r . R E I C H . B u t whatever the capital resources, they assured us,
given capital resource, given capital markets, they could and would
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have entered the fiberglass market i f they had t h a t technology. A g a i n ,
this is a preliminary view of t h a t industry.
Senator S C H M I T T . Y O U realize, of course, t h a t one aspect of this
problem that we discussed some yesterday is the use of solar equipment. Has the Federal Trade Commission had any experience yet i n
the solar equipment industry and whether or not t h a t industry is
expanding along legitimate grounds? I s there any sign of abuses to
the consumer in t h a t industry at this time?
M r . REICH. W e have had very l i m i t e d experience. The Bureau of
Competition has prepared and w i l l release shortly a report on the
solar industry and potential competitive problems i n t h a t solar industry. I believe that the report focuses on photovoltaic cell usage
w h i c h is a technology unique to the solar industry, but I believe t h a t
the report does not focus on solar heating and cooling systems which
is more pertinent f o r the particular energy legislation at issue.
Senator SCHMITT. W o u l d you examine your records and reports
f o r t h a t and i f there is some i n f o r m a t i o n I t h i n k the committee
w o u l d appreciate having it.
M r . REICH. C e r t a i n l y .
Senator SCHMITT. F i n a l l y , you mentioned the poor track record of
the State public u t i l i t y commissions. I s t h a t something t h a t can be
documented, t h a t there's a poor track record? Could you expand a
l i t t l e b i t on what you mean by poor track record ?
M r . REICH. W e have received complaints going back many years
f r o m u t i l i t y customers who feel that they have somehow been mistreated either because their u t i l i t y service was cut off u n f a i r l y or
because they don't feel they have the safeguards procedurally to
contest u t i l i t y bills. These are not utilities i n the home insulation
industry or offering financing. T h i s is just the straight provision of
u t i l i t y services. Those complaints over a period of years are not overwhelming, and again I don't want t o i n any way disparage the public
u t i l i t y commissions because many of them are doing an outstanding
job, but I t h i n k they do reflect a lack of public confidence i n State
public u t i l i t y commissions. I t h i n k we also need to face the fact t h a t
many of those public u t i l i t y commissions at this moment are not well
staffed. They don't have the resources to undertake the k i n d of pol i c i n g t h a t m i g h t be necessary under the proposed legislation.
Senator S C H M I T T . D O you t h i n k we could give them the resources
so they could implement it?
M r . REICH. T h a t certainly is a possibility, Senator.
Senator SCHMITT. I ' m not sure public confidence is much higher i n
certain Federal agencies t h a n i t is i n State public u t i l i t y commissions, i f m y m a i l is any indication. Public confidence is p r e t t y low i n
a l l of them and I t h i n k what we have to do is search out a way
t h a t can be effective and hopefully by doing i t properly we can restore some public confidence.
M r . R E I C H . I agree w i t h you.
Senator SCHMITT. Centralization is not necessarily good f o r public
confidence.
M r . R E I C H . I agree w i t h you, Senator. I t h i n k there are t w o questions. One, do you want t o give public utilities the responsibility of
113
financing and appraising and also supplying this insulation ? Second,
i f you do, who is going to have the resources to adequately police
this market to make sure they are not anticompetitive and there is
consumer protection ?
Senator SCHMITT. I gather by what you're saying t h a t you and
the Commission would prefer to have a competitive home insulation
environment much like we have now rather than concentration of
activity i n the utilities. I s that a correct assessment?
M r . REICH. I t h i n k yes. I t ' s also f a i r to say that utilities do have
economies of scale w i t h regard to undertaking the appraisal and the
energy a u d i t i n g function.
Senator SCHMITT. B u t w i t h that comes a competitive advantage
also.
M r . REICH. I t becomes a competitive advantage only i f you t a g on
to that a u d i t i n g function the financing and installing. I f you take
away the financing and installing and supplying and just leave the
economies of scale t h a t adheres i n doing the audit, that doesn't raise
the same k i n d of potential problems. I n fact, that may be a good
balance. T h a t may maximize both what the energy proposals are
intended to accomplish and also minimize the anticompetitive
dangers.
Senator S C H M I T T . D O you agree w i t h the F E A ' s estimate yesterday that each appraisal would cost $20 to $40 per home on the
average ?
M r . REICH. I ' m i n no position to assess that dollar figure, Senator.
Senator SCHMITT. That's interesting. I would have thought you
might be able to assess that. I f you have any information at the
Commission that would help us understand better the cost to an ind i v i d u a l homeowner of the provisions of this b i l l , i t would help.
There are not many visits to a home by anybody these days that
can be done f o r $20 or $40, particularly i f you're going to do a legitimate assessment of the insulation or conservation needs of a home.
I find myself a l i t t l e b i t skeptical of that figure, but we would like
your i n p u t i f you have some.
T h a n k you, M r . Chairman.
The C H A I R M A N . I just have two questions relating to the Federal
Trade Commission that I missed on the first round.
Yesterday M r . B a r d i n of the Federal Energy A d m i n i s t r a t i o n had
a rather strong criticism of the position the F T C has taken. L e t me
read f r o m the transcript of what he said:
W e s t r o n g l y oppose the F e d e r a l T r a d e Commission's proposals to n a r r o w t h e
r e q u i r e m e n t t h a t u t i l i t i e s offer to i n s t a l l i n s u l a t i o n . I n l i g h t of the u r g e n t need
t o save energy, u t i l i t i e s m u s t be m a n d a t e d we believe to offer b o t h the i n s t a l l a t i o n a n d the financing services proposed. As I u n d e r s t a n d i t , the F e d e r a l T r a d e
Commission's concerns are l i m i t e d only t o t h e i n s t a l l a t i o n services. T h e Fede r a l T r a d e Commission is understandably anxious t o preserve a m a x i m u m
choice, c o m p e t i t i v e choice, f o r each householder. W e share t h a t concern, b u t
we urge t h e c o m m i t t e e to look c a r e f u l l y a t t h e p i c t u r e t h a t some w o u l d p a i n t
to y o u of p r e d a t o r y u t i l i t i e s w h o w i l l take u n f a i r advantage of t h i s p r o g r a m .
They t h i n k i f we had predatory utilities they w o u l d have acted
now. They could act now and act on a voluntary basis and they
114
would do so. This would mandate them t o come in. H e goes on to
say t h i s :
T h e s o l u t i o n advocated by t h e F e d e r a l T r a d e Commission is s i m p l y u n r e a l istic, even schizophrenic, a n d is addressing the h y p o t h e t i c a l , t h e alleged probl e m of t h e p r e d a t o r y u t i l i t y , because t h e i r solution is t o m a k e the p r o g r a m
v o l u n t a r y t o a l l o w those u t i l i t i e s , such as the three dozen o r so gas u t i l i t y a n d
o t h e r electric u t i l i t i e s a l r e a d y d o i n g t h i s p r o g r a m — a l l o w t h e m t o p r o m o t e cons e r v a t i o n a n d i n s t a l l a t i o n of r e t r o f i t a n d financing of r e t r o f i t i f t h e y so elect.
N o w i f t h e r e is a p r e d a t o r y u t i l i t y out there, i t c e r t a i n l y is g o i n g t o elect
to t a k e advantage of t h i s o p p o r t u n i t y . W h a t w e w a n t to do is t o e n l i s t t h e
good services of a l l t h e u t i l i t i e s w i t h the m a n a g e r i a l c a p a b i l i t y t o reach t h e
p u b l i c t o get a j o b done i n a reasonable n u m b e r of years, a j o b w h i c h w i l l
t a k e a g r e a t deal of k n o w - h o w a n d o r g a n i z a t i o n i f i t is to be accomplished.
Now what's your answer?
M r . R E I C H . I respectfully disagree on t w o counts. I had not heard
t h a t testimony, but f r o m your rendition, M r . Chairman, i t sounds as
i f one of the assumptions is that predatory utilities, i f there are such
things, would have come i n already. B u t I would direct the committee's attention to the fact t h a t p o w e r f u l tax incentives are i n the
offing t h a t are going to radically change the nature of t h a t market
and presumably increase public demand. A t least that's the intent.
So t h a t while i t m i g h t not be profitable f o r a u t i l i t y to come i n and
act i n a predatory fashion at this stage, a year f r o m now or 2 years
f r o m now when these tax incentives are i n fact i n place, i t may unfortunately be very profitable f o r a u t i l i t y to act i n a predatory
manner.
B u t there's a second p o i n t t h a t I wish to raise. Our concern is not
w i t h o u t r i g h t predatory practices necessarily
The C H A I R M A N . Let me just i n t e r r u p t here because i t seems to me
that this aspect of a u t i l i t y ' s operation would not be governed b y the
usual regulatory restraints. T h a t is, any profit t h a t they made i n
this area w o u l d not be governed by the l i m i t a t i o n on what they can
earn on their invested capital. I s n ' t that correct?
M r . R E I C H . Yes; that's m y understanding.
The C H A I R M A N . Therefore, they would have an incentive f o r maxim i z i n g their profit here w i t h o u t any feeling that they w o u l d therefore have to take a lower rate of return on their other business.
M r . R E I C H . Exactly. You're absolutely r i g h t .
B u t second, our concern is not w i t h o u t r i g h t predatory practices
w h i c h tend to be quite visible and which are difficult to police. O u r
concern also extends to other sub rosa activities that a u t i l i t y m i g h t
engage in, such as cross-subsidization. T h a t is, a t t r i b u t i n g the cost of
these supply or financing functions to its normal rate structure that's
spread over the cost of everybody's u t i l i t y services, thereby g i v i n g i t
a major competitive advantage over other financers or suppliers;
second, merely t a k i n g advantage of its economies of scale and access
not i n any predatorv way but simply charging a higher price f o r
insulation and f o r financing than the consumer could obtain elsewhere. The consumer knows the u t i l i t y and gets a b i l l f r o m the
u t i l i t y every month, and therefore may be unable or u n w i l l i n g or
maybe simply too t r u s t i n g to go out and undertake the k i n d of comparative shopping necessary to discover that there are f a r cheaper
ways of insulating and financing.
115
A g a i n I b r i n g the committee's attention to the fact t h a t the energy
appraisal or auditing role seems to me to be the critical one i n terms
of t a k i n g advantage of the economies of scale inherent i n the utilities'
access to every customer. We don't see the same competitive problems w i t h those economies of scale. I f the customer is apprized by the
u t i l i t y of certain needs w i t h regard to insulation, the customer then
is on notice t h a t he or she can save perhaps substantial funds by
finding a contractor and getting financing. I t doesn't seem to me to
be critical that the u t i l i t y , i n addition to the appraisal or auditing
roles, also provide financing and direct supply, particularly inasmuch
as there are other alternative sources of financing and supply.
The C H A I R M A N . L e t me ask you just one other question. A subsequent witness—and I hope I ' m not being u n f a i r to h i m — b u t he
w i l l follow you, M r . Nash, says i n his statement something that I
would like very much to get your comment on.
H e says:
W e are concerned w i t h w h a t appear to us t o be some serious omissions i n
the proposed legislation. I n the past, i n d i v i d u a l companies have been conf r o n t e d w i t h a n t i t r u s t allegations i n v o l v i n g t h e i n s u l a t i o n of homes w h e r e the
u t i l i t y l i s t e d or selected t h e c o n t r a c t o r . Consequently, w i t h any l e g i s l a t i o n of
the type n o w before the committee, i m m u n i t y f r o m such a n t i t r u s t l i a b i l i t y
should be provided.
H o w do you feed about that?
M r . REICH. I disagree. Congress is already beseiged w i t h requests
for i m m u n i t y f r o m the antitrust laws and my general view is that
the public is not well served by p r o v i d i n g t h a t k i n d of immunity.
Even i f you provide i m m u n i t y f r o m antitrust
The C H A I R M A N . B u t you can see their viewpoint. I f we're asking
them to do this job and select a contractor and be as vigorous and
h e l p f u l as possible to persuade home owners to insulate, i f we're
going to get their enthusiastic participation, we are going to have
to give them some k i n d of protection. I f I were a u t i l i t y I would
be very concerned about that—or a u t i l i t y official.
M r . REICH. Presumably, M r . Chairman, we don't want to give
them a license to charge extraordinarily h i g h prices nor do we want
to give them a license to essentially transfer the tax credits, the tax
incentives into their pockets.
The C H A I R M A N . B u t we want to give them an incentive. W e want
to give them—after all, i f you're going to get them to move, you've
got to provide that somebody makes money along the way. I have no
objection to that. Profits is what makes our system work.
M r . REICH. B u t again, the name of the game and the heart of our
concern is
The C H A I R M A N . The purpose of tax incentives is to get action.
M r . REICH. That's r i g h t , but the price you pay f o r getting action
may be excessive profits or anticompetitive tendencies i n this indust r y . I t seems to us, given our concerns, it's too h i g h a price to pay.
The legislation considers placing p r i m a r y responsibilities upon the
u t i l i t y and w i t h those responsibilities I would say goes other responsibilities including adherence to the antitrust laws. I f you give an
exemption to the antitrust laws, i t seems to me t h a t increases the
116
necessity to regulate very carefully the rates and the charges and the
profits of these entities. You're simply switching the focus of regulat i o n f r o m antitrust enforcement to minute a u d i t i n g of those books,
unless you're w i l l i n g to take the accepted price of excessive profits.
Senator SCHMITT. M r . Chairman, one followup question about
something you said, M r . Reich. Do you believe that the Government
has an obligation to make the consumer shop around f o r bargains ?
M r . R E I C H . N O ; but one cardinal principle, Senator, w i t h w h i c h
we operate at the Federal Trade Commission is t h a t we want to
maximize the opportunities f o r consumers to undertake comparative
shopping and that principle is at the heart of our concerns about a
whole battery of abuses—bait and switch, unavailability of advertised specials, ficticious pricing. The fundamental notion is t h a t you
want to facilitate comparative shopping. W e don't want to force anybody ; but by the same token, you want t o give people a f a i r opport u n i t y to undertake comparative shopping.
I f the utilities under the patina of the President's energy legislation, w i t h that k i n d of authority and that k i n d of backing, undertake
the financing or direct servicing of home insulation, there may be
very l i t t l e incentive to undertake comparative shopping. I n fact,
consumers may simply not feel i t necessary to undertake comparative
shopping. They may assume that the u t i l i t y , as a regulated vehicle, is
going to charge a f a i r rate. They are not used to undertaking comparative shopping f o r energy supplies, f o r electricity or gas that's
supplied by the public u t i l i t y .
I t may be t h a t the reasonable assumption of a customer of a public
u t i l i t y , whatever the public u t i l i t y is selling, is t h a t just like gas and
electricity, this is not a product t h a t necessitates comparative
shopping.
Senator S C H M I T T . Y O U don't t h i n k t h a t the competitors to the
u t i l i t y would ensure that their potential customers knew t h a t there
was somebody else out there to shop f r o m ?
M r . REICH. A g a i n , we must take account of the special access t h a t
utilities have to their customers, an access t h a t is p a r t of their rate
structure. Other competitors would have to overcome t h a t barrier i f
they were to alert customers of their cheaper price f o r other capital
or supplies.
Senator SCHMITT. W e l l , I ' m a l i t t l e b i t concerned about how you
draw some of these boundaries. W e have to be careful of not overprotecting the consumer and that's something t h a t I was a l i t t l e b i t
concerned about i n one of your statements. A s a matter of fact, I
w o u l d like to know your opinion i n a related matter. D o you t h i n k
we are being u n f a i r to those individuals who have already taken upon
themselves to insulate their homes w i t h o u t a Government credit or
assistance ?
M r . REICH. Presumably, those individuals are enjoying the advantage of foresight i n that they are going to have to endure a price
rise i n the home insulation industry. The disadvantage of being too
quick to take advantage of the tax incentives may be more t h a n
balanced by the advantage of getting i n there early enough to take
advantage of low prices.
117
Senator S C H M I T T . D O you t h i n k it's possible to document that
possibility ?
M r . REICH. I t w i l l be possible to document after the fact, once we
know the scope and direction of the price rise. I t h i n k at this point
i t would be difficult because we don't know to what extent consumers
who have already insulated their houses really are going to reap
that k i n d of advantage.
Senator SCHMITT. W e l l , it's something that's a l i t t l e b i t subtle for
some constituents t h a t we may have who have patriotically or otherwise decided that i t was time we start t o save energy. M a n y have
over the last several years or decade. Suddenly the Government is
going to come i n and help a l l of those people who didn't act w i t h
such foresight and you have to admit that there's a feeling that the
Government is being a l i t t l e b i t u n f a i r .
The C H A I R M A N . O f course, every day t h a t passes they may be able
to save money on heating and cooling their house.
Senator SCHMITT. B u t they s t i l l feel like they are being had by
having foresight.
The C H A I R M A N * I know that.
Senator SCHMITT. T h a n k you, M r . Chairman.
[Complete presentation of Robert B . Reich f o l l o w s : ]
118
THESE REMARKS REPRESENT THE VIEWS OF FEDERAL TRADE
COMMISSION STAFF. THEY ARE NOT INTENDED TO BE,
AND SHOULD NOT BE CONSTRUED AS, REPRESENTATIVE OF
OFFICIAL FEDERAL TRADE COMMISSION POLICY.
STATEMENT OF
ROBERT B. REICH
DIRECTOR
OFFICE OF POLICY PLANNING AND EVALUATION
FEDERAL TRADE COMMISSION
BEFORE THE
SENATE COMMITTEE ON BANKING, HOUSING
AND URBAN AFFAIRS
ON
NATIONAL ENERGY CONSERVATION POLICY ACT
JUNE 28,
1977
119
I
am Robert B. R e i c h , D i r e c t o r o f t h e O f f i c e o f
P o l i c y P l a n n i n g and E v a l u a t i o n o f t h e F e d e r a l Trade
Commission, and Co-Chairman o f the Commission's Energy
Task Force.
I am happy t o be here today t o discuss
c e r t a i n p r o v i s i o n s o f t h e proposed N a t i o n a l Energy
Conservation A c t .
A t t h e o u t s e t I should emphasize t h a t I am h e r e as a
s t a f f member and t h a t my views do not n e c e s s a r i l y
represent
the views of t h e Commission o r any Commissioner.
Recently
t h e Chairman o f t h e FTC, M i c h a e l P e r t s c h u k , a p p o i n t e d an
energy t a s k f o r c e t o examine the l i k e l y impact o f
the
proposed N a t i o n a l Energy Act upon consumers and c o m p e t i t i v e
m a r k e t s , and t o propose s p e c i f i c i n i t i a t i v e s
to protect
consumers from f r a u d and t o ensure t h a t c o m p e t i t i o n
unimpaired.
is
I n response t o a r e q u e s t by t h e House Subcommittee
on Energy and Power, t h e Task Force prepared a r e p o r t which
focuses upon p o t e n t i a l consumer and c o m p e t i t i v e problems
i n t h e proposed l e g i s l a t i o n ,
and recommends
amendments t o remedy those problems.
specific
My testimony
today
w i l l h i g h l i g h t t h a t r e p o r t , which i s appended.
Most of our concerns i n v o l v e p a r t A o f t h e
President's
proposed l e g i s l a t i o n , which puts p u b l i c u t i l i t i e s
into
the
business o f a d v i s i n g t h e i r customers of t h e need f o r home
insulation,
purchase.
consumer
supplying the i n s u l a t i o n ,
and f i n a n c i n g t h e
T h i s amalgam of r o l e s r a i s e s p o t e n t i a l
issues.
troubling
120
Public u t i l i t i e s
a r e exempt from t h e
Truth-in-Lending
A c t and F a i r C r e d i t B i l l i n g A c t f o r most s e r v i c e s
now p e r f o r m .
If
they
t h i s exemption a p p l i e s as w e l l t o
f i n a n c i n g o f home i n s u l a t i o n ,
their
consumers w i l l n o t be i n f o r m e d
o f i n t e r e s t r a t e s they a r e b e i n g charged f o r t h i s
service,
and w i l l n o t be a b l e t o d i s p u t e a l l e g e d b i l l i n g e r r o r s as
t h e y would i f
t h e y had o b t a i n e d t h e i n s u l a t i o n and f i n a n c i n g
from t h i r d p a r t i e s .
The consumer may have no way o f
deter-
mining what p o r t i o n o f h i s u t i l i t y b i l l i s a t t r i b u t a b l e
payments f o r home i n s u l a t i o n ,
interest,
or u t i l i t y
to
service.
By t h e same t o k e n , p u b l i c u t i l i t i e s w i l l enjoy t h e comp e t i t i v e advantage o f immunity from t h e
administrative
burdens o f these l e g i s l a t i v e schemes r e l a t i v e t o o t h e r
s u p p l i e r s and f i n a n c e r s o f home i n s u l a t i o n .
The F e d e r a l Trade Commission does n o t construe
104(4)
Section
o f t h e T r u t h i n Lending Act t o a u t h o r i z e an exemp-
t i o n f o r e x t e n s i o n s o f c r e d i t by u t i l i t i e s
o f home i n s u l a t i o n or r e t r o f i t t i n g .
f o r t h e purpose
Some u t i l i t i e s
currently
sponsoring programs s i m i l a r t o t h e u t i l i t y program r e q u i r e d
i n the b i l l ,
however, have f a i l e d t o comply w i t h
consumer c r e d i t p r o t e c t i o n laws.
therefore,
is
Explicit
applicable
clarification,
warranted.
A second p o t e n t i a l problem a r i s e s because
utilities,
u n l i k e o t h e r f i n a n c e r s , have a t t h e i r d i s p o s a l a p o t e n t i a l l y
c o e r c i v e debt c o l l e c t i o n t e c h n i q u e :
- 2 -
if
t h e i n s u l a t i o n or
121
i t s i n s t a l l a t i o n i s d e f e c t i v e and t h e consumer
therefore
chooses t o w i t h h o l d payment, t h e u t i l i t y might a t t e m p t
t o r e t a l i a t e by t e r m i n a t i n g s e r v i c e and t h e r e b y
i n g t h e h e a l t h and s a f e t y o f t h e d e b t o r .
where t h e debt t o t h e p u b l i c u t i l i t y
jeopardiz-
Accordingly,
i s a r e s u l t o f energy
c o n s e r v a t i o n measures purchased or f i n a n c e d by t h e
t e r m i n a t i o n should not be p e r m i t t e d f o r
Thirdly,
utility,
nonpayment.
t h e proposed l e g i s l a t i o n should be
t o e x p r e s s l y save t h e F e d e r a l Trade Commission's
clarified
existing
s t a t u t o r y and enforcement a u t h o r i t y t o remedy d e c e p t i v e
or u n f a i r t r a d e p r a c t i c e s i n t h e p r o v i s i o n o f
or r e t r o f i t t i n g under a u t i l i t y program.
In
insulation
particular,
the FTC's r u l e s p r e s e r v i n g consumer claims and defenses
a g a i n s t h o l d e r s - i n - d u e - c o u r s e and mandating a t h r e e - d a y
c o o l i n g - o f f p e r i o d f o r d o o r - t o - d o o r s a l e s , should be
a p p l i c a b l e t o these
transactions.
The home improvement business has g e n e r a t e d a l a r g e
number of consumer c o m p l a i n t s .
v i c t i m i z e d by poor m a t e r i a l s ,
Consumers have been
improper i n s t a l l a t i o n ,
workmanship, and incomplete work.
shoddy
Low income consumers
have been p a r t i c u l a r l y v u l n e r a b l e t o exaggerated o r decept i v e ^claims and m a r k e t i n g techniques i n t h i s a r e a .
problems a r e a t t r i b u t a b l e ,
in part,
to the lack of
These
standard
measures f o r j u d g i n g t h e e f f i c a c y , o f home improvement
materials,
such as i n s u l a t i o n or s o l a r d e v i c e s .
-3-
Moreover,
122
because home improvements o f t e n c o n s t i t u t e
substantial,
n o n - r e p e a t purchases, t h e average consumer has
little
market e x p e r i e n c e upon which he can r e l y i n making
decisions.
Finally,
it
is often d i f f i c u l t
f o r t h e consumer
t o a s c e r t a i n whether t h e work has been completed p r o p e r l y ;
t h e consumer may suspect t h a t home i n s u l a t i o n b u r i e d b e h i n d
t h e w a l l s i s u n s a t i s f a c t o r y o n l y when he s c r u t i n i z e s
u t i l i t y b i l l s over an extended p e r i o d o f
his
time.
The abuses which have o c c u r r e d have been r e n d e r e d
t h e worse by t h e p r a c t i c e o f t a k i n g second mortgages
all
to
secure c r e d i t o b l i g a t i o n s a r i s i n g from t h e home improvements,
and t h e a p p l i c a t i o n o f s t a t e laws c r e a t i n g mechanics and
m a t e r i a l m e n ' s l i e n s i n t h e improvements and p r o p e r t y
in
which t h e y a r e made.
The r e t r o f i t t i n g and w e a t h e r i z a t i o n i n i t i a t i v e s
i n t o t h e N a t i o n a l Energy A c t can be expected t o
s u b s t a n t i a l l y t h e demand f o r such s e r v i c e .
increase,
built
increase
I n l i g h t of
t h e H o l d e r - i n - D u e - C o u r s e Rule and t h e
this
"Cooling-
O f f " Rule should be a v a i l a b l e t o consumers.
I wish t o h i g h l i g h t a f o u r t h t r o u b l i n g aspect o f
proposed l e g i s l a t i o n .
utilities
The p r e s i d e n t ' s p r o p o s a l w i l l
three clear functions:
selling
and i n s t a l l i n g c o n s e r v a t i o n measures, e i t h e r d i r e c t l y
and f i n a n c i n g such measures.
-4-
give
i n s p e c t i n g homes t o
recommend r e s i d e n t i a l r e t r o f i t t i n g i n v e s t m e n t s ;
through s u b c o n t r a c t o r s ;
the
or
123
S i n c e , i n most l o c a l e s ,
each o f these f u n c t i o n s c o u l d be
achieved by p r i v a t e p a r t i e s o t h e r t h a n u t i l i t i e s ,
the
q u e s t i o n a r i s e s whether t h e u n r e g u l a t e d s e c t o r can do t h e
j o b or ought t o be d i s p l a c e d t o a l a r g e e x t e n t by
We a r e concerned about s e v e r a l p o s s i b l e
abuses under t h e P r e s i d e n t ' s p r o p o s a l .
utilities.
competitive
First,
the
inspec-
t i o n r o l e might n o t be c a r r i e d out i n a n e u t r a l manner,
if
the u t i l i t y
can p r o f i t from o v e r s e l l i n g
conservation
measures or from c h a n n e l i n g business t o i t s e l f
favored subcontractors.
or
its
Second, t h e u t i l i t y might be
a b l e t o t a k e u n f a i r advantage o f i t s unique p o s i t i o n as
a r e g u l a t e d monopoly w i t h easy access t o consumers,
win business away from independent c o n t r a c t o r s .
third,
if
the u t i l i t y
to
And
can c r o s s - s u b s i d i z e i t s s a l e s and
s e r v i c e s through i n c r e a s e s i n e l e c t r i c or gas r a t e s ,
it
might d r i v e competing c o n t r a c t o r s out o f t h e market w h i l e
i n t h e l o n g - r u n o v e r c h a r g i n g consumers, even though
it
would appear t h a t i t s p r i c e s f o r c o n s e r v a t i o n measures,
taken alone, are r e l a t i v e l y
low.
We recommend, t h e r e f o r e ,
utilities
i n t h e s a l e and i n s t a l l a t i o n a r e a be
circumscribed.
it
t h a t the r o l e of
If
strictly
a u t i l i t y wants t o e n t e r t h i s
should p a r t i c i p a t e d i r e c t l y ,
contractors,
the
field,
r a t h e r than through sub-
t o a v o i d the p o s s i b i l i t y t h a t t h e
utility
w i l l t i e up t h e l e a d i n g l o c a l c o n t r a c t o r s and t h e r e b y
minimize independent c o m p e t i t i o n .
-5-
T h i s l e a v e s open t h e
124
p o s s i b i l i t y o f c o m p e t i t i o n from u t i l i t i e s
i n areas where
t h e r e i s l i t t l e o r no independent c o m p e t i t i o n ,
it
o r where
seems u n l i k e l y t h a t e x i s t i n g c o n t r a c t o r s would be a b l e
t o i n c r e a s e t h e i r s c a l e o f s e r v i c e s t o meet t h e
demand over t h e r e l a t i v e l y
short term of the
increased
President's
program.
A d d i t i o n a l safeguards should be c o n s i d e r e d t o assure
that u t i l i t i e s
e n t e r i n g t h e market d i r e c t l y do n o t
u n f a i r advantage o f t h e i r a p p r a i s a l r o l e .
One such s a f e -
guard would be a r e q u i r e m e n t t h a t u t i l i t i e s
i n f o r m customers
o f a l l companies w i l l i n g t o p e r f o r m an i n i t i a l
inspection
and a p p r a i s a l o f r e s i d e n t i a l needs, supply a n d / o r
c o n s e r v a t i o n measures, o r p r o v i d e
Finally,
utilities
take
install
financing.
should be p r o h i b i t e d from r e c o v e r i n g
any o f t h e c o s t o f p r o v i d i n g t h e s e s e r v i c e s w i t h i n
r a t e s charged a c r o s s - t h e - b o a r d t o a l l
customers,.
Our s t a f f r e p o r t on t h e proposed l e g i s l a t i o n
o u t one f i n a l a r e a of concern.
utility
A preliminary
pointed
analysis
of t h e home i n s u l a t i o n i n d u s t r y showed t h a t t h e
fiberglass
i n s u l a t i o n i n d u s t r y , which produces a s u b s t a n t i a l amount
o f t h e i n s u l a t i o n m a t e r i a l used i n homes,is
concentrated.
unusually
Three f i r m s c o n s t i t u t e t h e e n t i r e
industry,
and t h e r e appear t o be v e r y h i g h b a r r i e r s t o e n t r y
t h e manufacture o f f i b e r g l a s s i n s u l a t i o n ,
particularly
m e e t i n g h i g h c a p i t a l r e q u i r e m e n t s and o b t a i n i n g
- 6 -
into
in
competitive
125
technology and t e c h n i c a l know-how.
Our s t a f f has been
t o l d t h a t t h e t h r e e e x i s t i n g f i b e r g l a s s i n s u l a t i o n manuf a c t u r e r s have been r e l u c t a n t t o conclude p a t e n t
and t e c h n i c a l know-how agreements which might
licensing
facilitate
new e n t r y and i n c r e a s e d c o m p e t i t i o n d u r i n g t h e l i f e o f
P r e s i d e n t ' s program.
W h i l e t h e r e may be s u b s t i t u t e s
the
for
f i b e r g l a s s i n some i n s u l a t i o n uses, our s t a f f has been
t o l d t h a t a l l i n s u l a t i o n manufacturers a r e o p e r a t i n g a t or
near
capacity.
Accordingly,
t h e A d m i n i s t r a t i o n p l a n promises a r a p i d
s h o r t - t e r m i n c r e a s e i n demand f o r home i n s u l a t i o n which may
r e s u l t i n s u b s t a n t i a l p r i c e i n c r e a s e s unless new sources o f
supply a r i s e .
Our s t a f f i s now a n a l y z i n g t h e i n d u s t r y
in
g r e a t e r d e t a i l t o determine what steps would be necessary
t o f a c i l i t a t e new e n t r y and t h e a v a i l a b i l i t y o f
adequate
c a p a c i t y i n t h e f i b e r g l a s s i n s u l a t i o n i n d u s t r y a t competitive
prices.
I hasten t o add t h a t the problems I have h i g h l i g h t e d
are h y p o t h e t i c a l ,
and each of them r e q u i r e s
f u r t h e r examination.
extensive
The proposed l e g i s l a t i o n does r e q u i r e
t h a t each s t a t e r e g u l a t o r y a u t h o r i t y submit a p l a n , t o be
approved by t h e FEA A d m i n i s t r a t o r , which " c o n t a i n s an
adequate program f o r p r e v e n t i n g u n f a i r ,
d e c e p t i v e , or
anti-
c o m p e t i t i v e a c t s or p r a c t i c e s . . . w h i c h r e l a t e t o the
i m p l e m e n t a t i o n o f the u t i l i t y programs."
-7-
94-843 O - 77 - 9
But t h e q u e s t i o n
126
remains:
Are s t a t e r e g u l a t o r y a u t h o r i t i e s
sufficiently
e x p e r t i n c o m p e t i t i o n and consumer p r o t e c t i o n m a t t e r s
a d e q u a t e l y m o n i t o r these
to
transactions?
Mr. Chairman, t h a t concludes my p r e p a r e d t e s t i m o n y .
I w i l l be happy t o answer any q u e s t i o n s you may have.
-8-
127
ATTACHMENT A
Comments on T i t l e I ,
PART A,
NATIONAL ENERGY ACT BILL,
H.R.
6831
CONTENTS
I.
F e d e r a l Trade Commission
Jurisdiction
II.
Utility
IV.
Program
A.
C
ofo m
Upt ei lt ii ttiivees P o s i t i o n
3
B.
Consumer C r e d i t
Protection
7
F e d e r a l Energy Adminis t r a t i o n Rulemaking
9
C.
III.
1
FTC R e s p o n s i b i l i t i e s
A.
Rulemaking
20
B.
Product Standards
31
C.
Increased Authorizations
. .
.34
Other Programs
A.
Automobile D i s c l o s u r e s
B.
Energy E f f i c i e n c y
Standards f o r Consumer
Products Other Than
Automobiles
39
C.
Federal I n i t i a t i v e s
41
D.
Energy Conservation
Program f o r Schools
and H o s p i t a l s
43
. . .
.36
128
I.
FEDERAL TRADE COMMISSION JURISDICTION
PROBLEM:
Subsection 1 0 2 ( d ) ( 2 )
of t h e N a t i o n a l Energy Act
bill
r e q u i r e s p a r t i c i p a t i n g s t a t e s t o submit f o r F e d e r a l Energy
A d m i n i s t r a t i o n approval programs " f o r p r e v e n t i n g
d e c e p t i v e or a n t i c o m p e t i t i v e a c t s or p r a c t i c e s "
implementation of u t i l i t y programs.
unfair,
i n the
Because t h i s
language
m i r r o r s t h a t of S e c t i o n 5 o f t h e F e d e r a l Trade Commission
Act,
15 U . S . C .
§45, i t
i s a t l e a s t arguable t h a t § 1 0 2 ( d ) ( 2 )
e f f e c t i v e l y t r a n s f e r s j u r i s d i c t i o n over such a c t s o r
p r a c t i c e s from the Commission t o t h e FEA.
argument p r e v a i l e d i n FTC v . M i l l e r ,
1977).
Alternatively,
A v a r i a n t of
549 F . 2 d 452 ( 7 t h C i r .
a r e g u l a t e d u t i l i t y might argue t h a t
so long as i t s conduct conforms t o a § 1 0 2 ( d ) ( 2 )
imposed by a s t a t e u t i l i t y
program
commission, t h e F e d e r a l Trade
Commission may not preempt s t a t e a c t i o n by f i n d i n g such
conduct v i o l a t i v e of S e c t i o n 5 of t h e F e d e r a l Trade Commission A c t .
C f . Parker v . Brr -m, 317 U . S .
341
(1943).
A l s o , i t might be argued t h a t the b i l l a u t h o r i z e s
F e d e r a l Energy A d m i n i s t r a t i o i
t o exempt p u b l i c
the
utilities
from complying w i t h e x i s t i n g or f u t u r e Trade R e g u l a t i o n
Rules i n t h e i r implementation of u t i l i t y
programs.
Although these arguments may not be l e g a l l y sound,
s t a t u t e should e f f e c t i v e l y p r e c l u d e them.
this
the
129
SOLUTION:
A saving p r o v i s i o n
protect
the Commission's
authority.
there
s h o u l d be a d d e d t o S e c t i o n 106
is
It
existing
should assure t h a t
a conflict
statutory
enforcement
i n the u n l i k e l y
b e t w e e n an FEA r u l e u n d e r t h e
p r o g r a m and a F e d e r a l T r a d e Commission r u l e
applicability,
and
of
event
utility
general
t h e F e d e r a l Trade Commission r u l e w i l l
LANGUAGE:
Add t h e f o l l o w i n g
new s u b s e c t i o n
106(b):
"(b)
N o t h i n g i n t h i s A c t s h a l l be c o n s t r u e d
as r e s t r i c t i n g t h e j u r i s d i c t i o n o f t h e F e d e r a l
T r a d e Commission under any p r o v i s i o n o f l a w ,
i n c l u d i n g t h i s A c t , t o p r e v e n t u n f a i r methods
o f c o m p e t i t i o n and u n f a i r o r d e c e p t i v e a c t s o r
p r a c t i c e s by p u b l i c u t i l i t i e s i n c o n n e c t i o n
w i t h u t i l i t y programs under t h i s P a r t , i n c l u d ing j u r i s d i c t i o n to enforce a l l applicable
Trade R e g u l a t i o n Rules i s s u e d under t h e F e d e r a l
T r a d e C o m m i s s i o n A c t 15 U . S . C . § 4 1 e t . s e q . a n d
a l l a p p l i c a b l e p r o v i s i o n s o f t h e Consumer
C r e d i t P r o t e c t i o n A c t , as amended, 15 U . S . C .
§ 1601 e t . s e q . "
- 2 -
to
apply.
130
II.
UTILITY PROGRAM
A.
COMPETITIVE POSITION OF UTILITIES
PROBLEM:
The p r e e m i n e n t r o l e o f p u b l i c u t i l i t i e s
i n the
National
Energy A c t b i l l ' s program f o r r e t r o f i t t i n g e x i s t i n g homes
c r e a t e s s e r i o u s c o m p e t i t i v e problems.
Utilities
have
e s t a b l i s h e d channels o f c o n t a c t , v i a s e r v i c i n g and b i l l i n g ,
w i t h almost e v e r y American home.
Unless t h e r e i s a maximum
d e g r e e o f c o m p e t i t i o n a t each l e v e l o f t h e program,
con-
sumers may f i n d t h a t t h e u t i l i t y monopoly, however w e l l regulated,
has expanded t o i n c l u d e t h e
business.
The r e q u i r e m e n t t h a t p u b l i c u t i l i t i e s
home a p p r a i s a l s ,
devices,
retrofitting
arrange
for
i n s t a l l a t i o n o f energy-saving materials o r
and. f i n a n c i n g o f w e a t h e r i z i n g c o s t s may d r i v e
s m a l l e r businesses t h a t l a c k t h e economic r e s o u r c e s o f
utilities
from t h e m a r k e t .
Independent businesses t h a t do
not s u b - c o n t r a c t w i t h u t i l i t i e s
and l a c k s i m i l a r access and
exposure t o consumers w i l l be u l a b l e t o compete
The r e s u l t may be i n c r e a s e d c o n c e n t r a t i o n ,
tial
effectively.
a greater
poten-
f o r development o f o l i g o p o l i e s o r monopolies i n
i n d i v i d u a l geographic r e g i o n s ,
overcharging for supplies,
and r e l a t e d problems o f
services,
o t h e r hand, d i r e c t e n t r y by u t i l i t i e s
and c a p i t a l .
i n t o the
On t h e
retrofit
b u s i n e s s i n some markets may i n c r e a s e c o m p e t i t i o n w i t h
e x i s t i n g businesses,
l a r g e and s m a l l .
-3-
131
SOLUTION:
Public u t i l i t i e s
should not be r e q u i r e d t o o f f e r
i n s t a l l suggested e n e r g y - s a v i n g measures.
Public
to
utilities
should be a l l o w e d t o e n t e r the supply and i n s t a l l a t i o n
business, but o n l y i f
s u b - c o n t r a c t o r s are not u t i l i z e d .
If
a u t i l i t y e l e c t s t o e n t e r t h e supply and i n s t a l l a t i o n
business, i t
should e n t e r as a d i r e c t c o m p e t i t o r o f
businesses, i f
ible.
existing
c o m p e t i t i v e c o n d i t i o n s make such e n t r y
Otherwise, u t i l i t i e s
feas-
should stay out o f t h e d e v e l o p -
ing e n e r g y - c o n s e r v a t i o n supply and i n s t a l l a t i o n
field,
a l l o w i n g independent businesses t o compete on e q u a l
footing.
A d d i t i o n a l safeguards should be considered t o assure
that u t i l i t i e s
e n t e r i n g the market d i r e c t l y do not t a k e
u n f a i r advantage o f t h e i r a p p r a i s a l r o l e .
One such s a f e -
guard would be a requirement t h a t u t i l i t i e s
of a l l companies
i n f o r m customers
( p o s s i b l y i n c l u d i n g themselves) w i l l i n g
perform an i n i t i a l
i n s p e c t i o n and a p p r a i s a l o f
residential
needs, supply a n d / o r i n s t a l l c o n s e r v a t i o n measures,
provide
or
financing.*
SUGGESTED LANGUAGE:
The u t i l i t y program should be r e v i s e d as f o l l o w s :
1.
e l i m i n a t e Section 1 0 3 ( a ) ( 2 ) ( B )
subsections
and r e l e t t e r
(C) and (D) as (B) and (C)
respectively;
* Proposals t o address a d d i t i o n a l c o m p e t i t i v e problems by
rulemaking appear i n s e c t i o n I I I . C . , i n f r a .
-4-
to
132
2.
revise Section 102(d)(4)
by o m i t t i n g
" i n s t a l l a t i o n of r e s i d e n t i a l energy cons e r v a t i o n measures" and adding i n
its
p l a c e " u t i l i t y program d e s c r i b e d i n s e c t i o n
103?"
3.
omit from s e c t i o n 104(a)
the words
"providing
f o r the i n s t a l l a t i o n o f r e s i d e n t i a l
t i o n measures i n t h e homes o f i t s
conserva-
residential
customers;"
4.
amend s e c t i o n 1 0 4 ( a ) ( 1 ) ( C )
t o r e a d "the
list
of s u p p l i e r s and c o n t r a c t o r s who can arrange
f o r purchase and i n s t a l l a t i o n o f such measures;"
5.
delete section 104(a)(2)
and renumber
section
104(a)(3);
6.
r e v i s e s e c t i o n 104(d) by s u b s t i t u t i n g f o r
"a
s u b s t a n t i a l p r o p o r t i o n " the words "as l a r g e a
number" and adding a f t e r t h e word " b u i l d i n g "
the words "as would h i v e occurred under a
program which meets the
requirements.of
s e c t i o n 10 3 . "
U t i l i t i e s may be p r o h i b i t e d from e n t e r i n g t h e supply
and i n s t a l l a t i o n business through s u b - c o n t r a c t o r s by making
the f o l l o w i n g
revisions:
1.
reletter
s e c t i o n 103(b)
2.
add a new s e c t i o n 103(b) w i t h t h e
language:
-5-
as 1 0 3 ( c ) ;
following
133
"Any u t i l i t y e l e c t i n g t o s u p p l y a n d i n s t a l l
r e s i d e n t i a l energy c o n s e r v a t i o n measures s h a l l
n o t s u b - c o n t r a c t w i t h any i n d e p e n d e n t b u s i n e s s
o r company t o p r o v i d e s u c h s e r v i c e s , e x c e p t
t h a t b y r u l e t h e FEA A d m i n i s t r a t o r s h a l l make
p r o v i s i o n f o r any u t i l i t y w h i c h was p a r t y t o a
c o n t r a c t w i t h a s u b - c o n t r a c t o r as o f A p r i l 2 0 ,
1977, t o c o n t i n u e t o p r o v i d e such s e r v i c e s
pursuant to t h a t contract f o r the term of the
c o n t r a c t , e x c l u s i v e o f any r e n e w a l p r o v i s i o n ,
o r one y e a r , w h i c h e v e r i s s h o r t e r . "
3.
delete
from the f i r s t
sentence of
103(a)
t h e words
and" and change
"subsections"
"(b)
to
section
"subsection."
The f o l l o w i n g c h a n g e s a r e recommended as s a f e g u a r d s
ensure t h a t
i n the
1.
consumers r e c e i v e
inspection,
s u p p l y and i n s t a l l a t i o n
add t o t h e end o f
the phrase
2.
this
insert
Section
described i n
businesses:
suppliers,
paragraph-(3)
subsection;"
t h e words
"an<\
ire w i l l i n g
to
perform a r e s i d e n t i a l
i n s p e c t i o n and
an e s t i m a t e o f
between the
"measure"
costs
and " w h i c h "
-6-
in Section
to
competitors
103(a)(1)(C)
"and the i n s p e c t o r s ,
and c o n t r a c t o r s
of
i n f o r m a t i o n about
give
words
103(a)(3).
134
B.
CONSUMER CREDIT PROTECTION
PROBLEM:
The Consumer C r e d i t P r o t e c t i o n A c t , 15 U . S . C .
et.
§ 1601,
seq. P u b l i c Law 9 0 - 3 2 1 , as amended, c o n t a i n s seven
s e p a r a t e t i t l e s e s t a b l i s h i n g minimum f e d e r a l
f o r consumers
(and i n some cases businessmen)
credit transactions.
protections
involved
in
The s e p a r a t e t i t l e s i n c l u d e t h e
T r u t h i n Lending Act w i t h i t s F a i r C r e d i t B i l l i n g Amendments.
S e c t i o n 104 of t h e T r u t h i n Lending A c t , 15 U . S . C .
§1603, exempts c e r t a i n t r a n s a c t i o n s under p u b l i c
tariffs if
utility
the F e d e r a l Reserve Board determines t h a t t h e
s t a t e r e g u l a t o r y body r e g u l a t e s t h e charges i n v o l v e d .
In
the c o n t e x t o f t r a d i t i o n a l u t i l i t y a c t i v i t i e s t h i s exempt i o n i s s e n s i b l e since t h e A c t ' s primary purposes —
f a c i l i t a t e comparative shopping f o r c r e d i t and t o
p r i c e c o m p e t i t i o n — w i l l not be s e r v e d .
In
to
foster
contrast,
extensions of c r e d i t under u t i l i t y programs should not be
exempted since t h e r e a r e a l t e r n a t i v e sources o f both t h e
s e r v i c e s t o be performed and t h e f i n a n c i n g t h a t w i l l be
available.
Compliance w i t h t h e T r u t h i n Lending A c t w i l l
encourage consumer shopping and c r e d i t p r i c e
In addition,
competition.
t h e T r u t h i n Lending A c t p r o v i d e s a t h r e e - d a y
p e r i o d d u r i n g which a consumer may c a n c e l a l o a n .
-7-
This
135
p r o v i s i o n may be important i n home improvement t r a n s a c t i o n s
i n which a s e c u r i t y i n t e r e s t i s t a k e n i n t h e p r i n c i p a l
residence of t h e consumer.
The F e d e r a l Trade Commission does not construe S e c t i o n
104(4) of the T r u t h i n Lending Act t o a u t h o r i z e an exempt i o n f o r extensions of c r e d i t by u t i l i t i e s
of home i n s u l a t i o n or r e t r o f i t t i n g .
f o r t h e purpose
Some u t i l i t i e s
currently
sponsoring programs s i m i l a r t o t h e u t i l i t y program r e q u i r e d
i n the b i l l ,
however, have f a i l e d t o comply w i t h a p p l i c a b l e
consumer c r e d i t p r o t e c t i o n laws.
therefore,
Explicit
clarification,
i s warranted.
The a p p l i c a t i o n o f t h e F a i r C r e d i t B i l l i n g Act t o
u t i l i t y programs which o t h e r w i s e meet the A c t ' s
definition
of "open end c r e d i t " a l s o r e q u i r e s c l a r i f i c a t i o n .
The F a i r
C r e d i t B i l l i n g Act
iy,
(15 U . S . C .
S 1666-1666j)
(Supp.
1 9 7 4 ) ) , provides a mandatory d i s p u t e r e s o l u t i o n procedure
f o r a l l e g e d b i l l i n g e r r o r s appearing on p e r i o d i c
statements sent t o consumers.
billing
U t i l i t y b i l l i n g systems which
meet t h e d e f i n i t i o n of "open end c r e d i t o r " should be r e q u i r e d
to comply w i t h the F a i r C r e d i t B i l l i n g Act d i s p u t e
resolution
procedures.
SOLUTION:
A provision c l a r i f y i n g the a p p l i c a b i l i t y , of the Truth
i n Lending Act t o extensions o f c r e d i t by u t i l i t i e s
u t i l i t y programs should be added t o S e c t i o n 106.
- 8 -
It
under
is
136
a n t i c i p a t e d t h a t FEA i n i t s r u l e s a p p l i c a b l e t o
e n e r g y c o n s e r v a t i o n p l a n s under S e c t i o n 1 0 2 ,
p l a n s u n d e r S e c t i o n 104 and u t i l i t y
residential
alternative
programs under
Section
105 w i l l p r o v i d e g u i d e l i n e s f o r compliance w i t h t h e
Truth
i n Lending A c t and t h e o t h e r t i t l e s o f t h e Consumer
Credit
Protection
Act.
LANGUAGE:
Add t h e f o l l o w i n g new s u b s e c t i o n
106(c):
"(c)
Nothing contained i n §104(4) of the T r u t h
i n Lending A c t , P u b l i c Law 9 0 - 3 2 1 , as amended,
15 U . S . C . § 1 6 0 3 ( 4 ) , o r t h e r e g u l a t i o n s i s s u e d
p u r s u a n t t h e r e t o s h a l l be deemed t o exempt s a l e s
o r c r e d i t e x t e n s i o n s by p u b l i c u t i l i t i e s under
§ 103 o f t h i s A c t . "
C.
FEDERAL ENERGY ADMINISTRATION RULEMAKING
PROBLEM:
Programs by s t a t e u t i l i t y
"unfair,
commissions t o
d e c e p t i v e or a n t i c o m p e t i t i v e a c t s or
under subsection 1 0 2 ( d ) ( 2 )
Administrator,
prevent
practices"
w i l l be g r e a t l y improved i f
as p a r t o f h i s r u l e m a k i n g under S e c t i o n
p r o v i d e s s t a n d a r d s f o r such programs,
meaning t o a s i m i l a r
s t a t u t o r y mandate,
i n v o l v e d i n t h e development, o f
unfair,
should be
such s t a n d a r d s .
-9-
specific
directly
Further,
should p r o m u l g a t e r u l e s d e s i g n e d t o
deceptive or anticompetitive
102,
The F e d e r a l T r a d e
C o m m i s s i o n , which has e x t e n s i v e e x p e r i e n c e i n g i v i n g
Administrator
the
the
prevent
acts or p r a c t i c e s
in
137
the implementation of u t i l i t y programs under Sections
102(e),*
104 and 105.
There i s a growing body of
Federal
Trade Commission Trade R e g u l a t i o n Rules which would apply
t o sales and f i n a n c i n g under u t i l i t y programs.
Thus, i t
important t h a t the A d m i n i s t r a t o r promulgate r u l e s f o r
is
these
u t i l i t y programs i n close c o o p e r a t i o n and c o o r d i n a t i o n w i t h
the F e d e r a l Trade Commission.
SOLUTION:
S e c t i o n 102 should be amended t o r e q u i r e t h e FEA Adminis t r a t o r t o i n c l u d e s p e c i f i c standards f o r the program r e q u i r e d
by subsection 1 0 2 ( d ) ( 2 ) , and t o promulgate r u l e s i n c o o p e r a t i o n
and c o o r d i n a t i o n w i t h the FTC t o p r e v e n t u n f a i r , d e c e p t i v e or
a n t i c o m p e t i t i v e a c t s or p r a c t i c e s under Sections 1 0 2 ( e ) ,
104
and 105.
The f o l l o w i n g a r e examples of a c t s or p r a c t i c e s which
should be p r o s c r i b e d by r u l e :
1.
T e r m i n a t i o n o f U t i l i t y S e r v i c e f o r Nonpayment on
R e s i d e n t i a l Energy Conservation Measures.
Utility
s e r v i c e t e r m i n a t i o n could be an
extremely c o e r c i v e debt c o l l e c t i o n
technique,
because i t might endanger t h e s a f e t y and h e a l t h
of the d e b t o r .
utility
Where the debt t o the p u b l i c
i s $ r e s u l t of r e s i d e n t i a l energy con-
s e r v a t i o n measures purchased from or
financed
* The b i l l i n a d v e r t e n t l y c o n t a i n s two s e c t i o n s d e s i g n a t e d
as 1 0 2 ( d ) .
The second s e c t i o n so designated 102(d) w i l l
be r e f e r r e d t o as 102(e) i n t h i s submission.
-10-
138
by t h e u t i l i t y ,
t e r m i n a t i o n should not be
p e r m i t t e d f o r nonpayment.
Other companies
o f f e r i n g t h i s s e r v i c e cannot employ t h i s
c o l l e c t i o n technique and the consumer would
not expect s e r v i c e t e r m i n a t i o n s t o occur
where the debt does not a r i s e from t h a t
vice.
In addition,
FEA standards should
e s t a b l i s h a uniform method of
allocating
consumer payments between u t i l i t y
and energy c o n s e r v a t i o n
2.
Security
ser-
services
services.
interests.
One area of the home improvement business
t h a t has caused g r e a t concern t o consumers and
r e g u l a t o r s i n the past has been t h e p r a c t i c e
of t a k i n g second mortgages t o secure c r e d i t
o b l i g a t i o n s a r i s i n g from t h e improvements,
and
the a p p l i c a t i o n of s t a t e laws c r e a t i n g mechanics
and m a t e r i a l m e n ' s l i e n s i n the improvements and
p r o p e r t y i n which they a r e made.
Low income
consumers have been t h r e a t e n e d w i t h loss o f
homes f o r work not completed by t h e
their
contractor.
See Slaughter v . J e f f e r s o n F e d e r a l Savings,
361
F . Supp. 590 (D. D.C. 1973), rev^d, 538 F . 2 d 39
(D.C. C i r .
1976).
A r e c e n t newspaper
article
d e t a i l s how a home was t o be p l a c e d f o r
- 1 1 -
sheriff's
139
s a l e even though the consumer had p a i d cash
f o r t h e improvements.
The c o n t r a c t o r had
employed subcontractors t o perform t h e work,
but l e f t town w i t h the consumer's cash.
the work was completed, the
After
subcontractors
o b t a i n e d a l i e n a g a i n s t the consumer's home f o r
the v a l u e of t h e i r work.
Similar incidents
in
Southern C a l i f o r n i a have l e d t o l i c e n s i n g and
bonding requirements i n t h a t s t a t e .
The problem
has been so s e r i o u s t h a t a separate s e c t i o n o f
t h e T r u t h i n Lending A c t ,
15 U . S . C . § 1635, was
created to deal with i t .
The statement o f
basis
and purpose of t h e F e d e r a l Trade Commission's
r u l e concerning the p r e s e r v a t i o n of consumer
claims and defenses a l s o r e f e r s t o t h i s problem.
40 Fed. Reg. 53511 (Nov. 18,
1975).
A c c o r d i n g l y , no f o r e c l o s u r e should be p e r m i t t e d as a r e s u l t of a mcrtgage on a consumer's
p r i n c i p a l r e s i d e n c e a r i s i n g from purchase of
r e s i d e n t i a l energy c o n s e r v a t i o n measures under a
u t i l i t y program.
The o n l y a l t e r n a t i v e would seem
t o be a s t r i c t performance bonding r e q u i r e m e n t
f o r c o n t r a c t o r s and/or a guarantee by
t h a t perform the work d i r e c t l y .
- 1 2 -
utilities
140
'dispute
Resolution
Procedures.
The F a i r C r e d i t B i l l i n g A c t o n
§ 1666-1666j(Supp.
IV,
1974)
1974
(15 U . S . C .
i n c l u d e s a mandatory
d i s p u t e r e s o l u t i o n procedure designed t o
billing
e r r o r s under "open end" c r e d i t
correct
accounts
w h i c h a r e composed p r i m a r i l y of c r e d i t card and
d e p a r t m e n t s t o r e r e v o l v i n g charge accounts.
Utility
b i l l i n g systems may not meet t h e
t e c h n i c a l d e f i n i t i o n of open iend c r e d i t o r ,
however,
and t h e r e f o r e w i l l not be r e q u i r e d t o comply w i t h
the F a i r C r e d i t B i l l i n g A c t ' s dispute
procedures.
Therefore,
resolution
the FEA g u i d e l i n e s
r e q u i r e a b i l l i n g e r r o r d i s p u t e procedure
should
identical
t o § 167 o f t h e F a i r C r e d i t B i l l i n g Act f o r any
amounts b i l l e d on the consumer's r e g u l a r
utility
bill
periodic
f o r t h e purchase of r e s i d e n t i a l
energy
c o n s e r v a t i o n measures.
4.
Acceleration
Charges.
Where t h e u t i l i t y
are t r a d i t i o n a l
provides
that
"a
program's c r e d i t
i n s t a l l m e n t contracts,
lump sum p a y m e n t
of
transactions
§ 103(a)(2)(D)
outstanding
p r i n c i p a l and i n t e r e s t may be r e q u i r e d upon d e f a u l t
i n payment by the r e s i d e n t i a l customer."
This
c l a u s e r a i s e s the q u e s t i o n of whether a c r e d i t o r
e n t i t l e d t o c o l l e c t unearned f i n a n c e charges on a
pce^omput«*d loan, o r whether recovery should be
-13-
is
141
l i m i t e d t o earned f i n a n c e charges determined
e i t h e r a t the time of d e f a u l t or a t the time a t
which a judgment i s o b t a i n e d .
The q u e s t i o n
should be r e s o l v e d by an FEA r u l e
limiting
recovery t o earned f i n a n c e charges.
5.
Public p a r t i c i p a t i o n before s t a t e regulatory
commissions
Some form of p u b l i c p a r t i c i p a t i o n i n t h e
formulation,
implementation and p o l i c i n g of
state
r e s i d e n t i a l energy c o n s e r v a t i o n programs under
S e c t i o n 102 should be r e q u i r e d by FEA r u l e .
L e f l e r & Rogol,
"Consumer P a r t i c i p a t i o n i n t h e
R e g u l a t i o n of P u b l i c U t i l i t i e s , "
235
(1976).
See
13 Harv. J .
Legis.
The F e d e r a l Trade Commission has
pioneered p u b l i c p a r t i c i p a t i o n on t h e
federal
l e v e l through i t s p i l o t program under t h e F e d e r a l
Trade Commission Improvements A c t ,
PL 9 3 - 6 3 7 ,
15 U . S . C .
§ 58(h),
§ 202(h).
Unless a s t a t e c u r r e n t l y p r o v i d e s f o r
public
p a r t i c i p a t i o n i n i t s proceedings, FEA r e g u l a t i o n s
should r e q u i r e t h a t a program be implemented t h a t
would, a t a minimum, apply t o t h e
formulation,
implementation and p o l i c i n g of s t a t e
residential
c o n s e r v a t i o n programs under S e c t i o n 102.
The
Subcommittee, however, may consider amending
Title I,
P a r t E, of the b i l l t o i n c l u d e consumer
-14-
94-843 O - 77 - 10
142
p a r t i c i p a t i o n p r o v i s i o n s s i m i l a r t o those
proposed i n H.R. 6660, which should t h e n be made
a p p l i c a b l e t o r e g u l a t o r y proceedings
6.
utility
programs.
Neutral
Inspection.
As long as u t i l i t i e s
involving
are r e q u i r e d t o o f f e r
an a p p r a i s a l and a r e a l s o allowed t o p r o v i d e and
i n s t a l l e n e r g y - s a v i n g measures, t h e p o t e n t i a l
for
c o n f l i c t s o f i n t e r e s t and o t h e r abuses
exists.
FEA g u i d e l i n e s should r e q u i r e t h a t t h e
appraiser/
i n s p e c t o r sent by a u t i l i t y pursuant t o
103(a)(2)(A)
section
n e i t h e r recommend nor d i s p a r a g e any
p a r t i c u l a r brand or company.
may be d i f f i c u l t ,
Although enforcement
t h e r u l e s would h e l p g i v e
in-
dependent supply and i n s t a l l a t i o n companies an
equal o p p o r t u n i t y t o compete w i t h a u t i l i t y .
They
would a l s o tend t o discourage o v e r - s t a t e m e n t
consumers
7.
1
needs by t h e
of
irspector.
Cross-Subsidization.
Utilities
should not be p e r m i t t e d t o compete
u n f a i r l y by u n d e r p r i c i n g s u p p l i e s ,
services,
c a p i t a l and r e c o v e r i n g t h e d i f f e r e n c e
h i g h e r energy r a t e s .
through
C r o s s - s u b s i d i z a t i o n can
a l s o occur i f a u t i l i t y
s h i f t s the cost of
t i o n s t o the r a t e base, thereby e n a b l i n g i t
or
-15-
inspecto
143
charge less f o r a c t u a l i n s t a l l a t i o n than an
independent competitor who must absorb the c o s t
of " f r e e " i n s p e c t i o n s and e s t i m a t e s i n h i s
price.
A c c o r d i n g l y , FEA g u i d e l i n e s should r e q u i r e
s t r i c t c o s t - a c c o u n t i n g and s e p a r a t e
financial
records f o r every u t i l i t y ' s r e s i d e n t i a l
c o n s e r v a t i o n program.
that
energy
The r u l e s should s p e c i f y
(1) any u t i l i t y e n t e r i n g t h e supply and
i n s t a l l a t i o n business i s f o r b i d d e n from passing
the costs of t h a t business t o t h e r a t e - p a y e r s ?
and (2) a l l expenses of the u t i l i t y ' s
supply and
i n s t a l l a t i o n business, i n c l u d i n g a p r o p o r t i o n a t e
share of overhead and a d m i n i s t r a t i v e c o s t s , must
be a l l o c a t e d t o t h a t b u s i n e s s . *
The FEA r u l e s
*
The issue of whether u t i l i t i e s should be r e q u i r e d t o
o f f e r a " f r e e " i n s p e c t i o n i s not addressed i n t h e b i l l .
An argument can be made t h a t u t i l i t i e s should be r e q u i r e d
t o recover t h e cost of i n s p e c t i o n by charging fees f o r
the s e r v i c e .
T h i s would have the advantage o f p l a c i n g
costs upon t h e p a r t y who b e n e f i t s , r a t h e r than on a l l r a t e payers.
I n a d d i t i o n , t h i s would r e q u i r e u t i l i t i e s t o
compete on an e q u a l b a s i s w i t h p r i v a t e i n s p e c t i o n f i r m s .
The major drawback t o t h i s would be t h a t some consumers
might not o b t a i n i n s p e c t i o n s i f they a r e aware t h a t a f e e
w i l l be charged.
The Committee may wish t o recommend a t a x c r e d i t t o
reimburse homeowners f o r p a r t of the c o s t of r e s i d e n t i a l
inspections.
A l t e r n a t i v e l y , the cost of a p p r a i s a l s and
e s t i m a t e s made i n connection w i t h t h e purchase and i n s t a l l a t i o n of e n e r g y - c o n s e r v i n g devices could be considered t o
be p a r t of t h e cost of such devices and e l i g i b l e f o r any
appropriate tax c r e d i t .
- 1 6 -
144
should a u t h o r i z e a u t i l i t y
to recover
its
i n s p e c t i o n costs from t h e r a t e base only i f
the
u t i l i t y commits i n i t s u t i l i t y p l a n submitted
t o t h e FEA A d m i n i s t r a t o r f o r a p p r o v a l t h a t
it
does not and w i l l not o f f e r supply and i n s t a l l a tion
8.
services.
L i s t s o f S u p p l i e r s and C o n t r a c t o r s
FEA g u i d e l i n e s should e s t a b l i s h s t r i c t
fair
standards f o r u t i l i t i e s
but
to f o l l o w i n compil-
i n g and m a i n t a i n i n g f u l l and complete
supplier
and c o n t r a c t o r l i s t s as r e q u i r e d by S e c t i o n
103(a)(3).
Although t h e b i l l does r e q u i r e
t h e l i s t be "designed t o encourage
that
participation
. . . i n a n o n - d i s c r i m i n a t o r y manner," t h e r e i s no
a d d i t i o n a l requirement t h a t t h e l i s t be e x t e n s i v e
or complete.
The g u i d e l i n e s should assure
t h e l i s t s c o n t a i n t h e names o f a l l
that
qualified,
bona f i d e companies, a r e updated p e r i o d i c a l l y ,
and f o l l o w a random order or method o f
presentation.*
* The minimum standards t h a t a c o n t r a c t o r or i n s p e c t o r must
meet t o q u a l i f y f o r l i s t i n g should be s e t by FEA. A u t i l i t y
should not pass judgment on a c o n t r a c t o r ' s q u a l i f i c a t i o n s
or bear r e s p o n s i b i l i t y f o r a l i s t e d c o n t r a c t o r ' s f a i l i n g s .
To a v o i d a complicated l i c e n s i n g process which could r a i s e
unnecessary b a r r i e r s t o e n t r y i n t o t h e c o n s e r v a t i o n program,
we would suggest t h a t any c o n t r a c t o r seeking t o be l i s t e d
by the u t i l i t y must c e r t i f y , under p e n a l t y of p e r j u r y , t h a t
i t meets the standards.
The u t i l i t y would l i s t any s e l f c e r t i f i e d contractor requesting l i s t i n g .
Data t o be
i n c l u d e d on t h e l i s t should be determined by r u l e , w i t h
p a r t i c u l a r a t t e n t i o n t o t h e a d v i s a b i l i t y o f i n d i c a t i n g which
companies a r e bonded and which o f f e r f r e e i n s p e c t i o n s and
estimates.
-17-
145
C o n s i d e r a t i o n should be g i v e n t o r e q u i r i n g an
appeal process f o r companies t h a t a r e excluded
from the l i s t under the standards t o be enacted.
Finally,
if
the b i l l i s amended as proposed i n
Section I I . A .
supra t o r e q u i r e u t i l i t i e s
to
i n f o r m t h e i r customers which companies a r e w i l l i n g t o perform r e s i d e n t i a l i n s p e c t i o n s ,
then r u l e s
should be promulgated t o c r e a t e standards and
procedures a p p l i c a b l e t o the c o m p i l a t i o n ,
main-
tenance, and r e v i s i o n of t h i s p o r t i o n of t h e
9.
list.
Overlapping U t i l i t y S e r v i c e Areas
Where two u t i l i t i e s have o v e r l a p p i n g s e r v i c e areas
( f o r example where one u t i l i t y p r o v i d e s gas f o r
h e a t i n g purposes and another provides
t o t h e same r e s i d e n c e ) ,
electricity
the u t i l i t i e s may attempt
t o j o i n f o r c e s t o o f f e r the mandated s e r v i c e s ,
or
one u t i l i t y may r e l y on the o t h e r t o p r o v i d e t h e
s e r v i c e s f o r t h a t geographic area and r e l i e v e
it-
s e l f of the o b l i g a t i o n of o f f e r i n g a f u l l - f l e d g e d
u t i l i t y program.
S p e c i f i c r u l e s should be promul-
gated t o p r e v e n t j o i n t e f f o r t s o f t h i s s o r t and t o
ensure t h e maximum degree of p a r t i c i p a t i o n
competition)
by
utilities.
- 1 8 -
(and
146
10.
Tying Arrangements
A utility
t h a t engages i n t h e supply and i n s t a l l a t i o n
business might a t t e m p t t o l i n k i t s p r o v i s i o n o f energy
t o customers t o t h e supply and i n s t a l l a t i o n
p a r t i c u l a r energy-saving^measures.
p r o h i b i t such t i e - i n
of
FEA r u l e s
should
arrangements.
LANGUAGE;
The c u r r e n t subsection 1 0 2 ( b ) ( 2 )
to
(b)(3),
subsection
should be renumbered
and the f o l l o w i n g p r o v i s i o n be i n s e r t e d as
(b)(2):
" ( 2 ) s h a l l i n c l u d e standards f o r t h e program
r e q u i r e d by subsection ( d ) ( 2 ) and standards
designed t o p r e v e n t u n f a i r , d e c e p t i v e or a n t i c o m p e t i t i v e a c t s o r p r a c t i c e s which a f f e c t
commerce i n the implementation o f r e s i d e n t i a l
energy Conservation programs under S e c t i o n
1 0 2 ( e ) , a l t e r n a t i v e programs under S e c t i o n 104
and u t i l i t y programs under S e c t i o n 105, which
t h e A d m i n i s t r a t o r s h a l l develop i n c l o s e
c o o p e r a t i o n and c o o r d i n a t i o n w i t h t h e F e d e r a l
Trade Commission; and . . . . "
-19-
147
III.
FTC RESPONSIBILITIES
A.
RULEMAKING
PROBLEM:
Numerous p o t e n t i a l consumer p r o t e c t i o n and anticomp e t i t i v e problems can be a n t i c i p a t e d t o r e s u l t from t h e
massive programs c o n t a i n e d i n both T i t l e s I and I I o f
N a t i o n a l Energy Act b i l l .
the
There a r e a t l e a s t 70 m i l l i o n
r e s i d e n t i a l d w e l l i n g s i n t h e U n i t e d S t a t e s ; 40 m i l l i o n o f
them could b e n e f i t from r e t r o f i t w i t h energy saving d e v i c e s .
The t i m e t a b l e c o n t a i n e d i n t h e Act f o r r e t r o f i t o f homes
i s very s h o r t ; according t o t h e n a t i o n a l goals
in the b i l l ,
established
by 1985 i n s u l a t i o n w i l l be i n s t a l l e d i n 90
percent of a l l American homes and a l l new b u i l d i n g s ,
and
s o l a r energy w i l l be used i n more than two and a h a l f
m i l l i o n homes.
Elements o f t h e home improvement i n d u s t r y i n
this
country have o f t e n been a source o f s e r i o u s consumer abuses.
Such problems may be exacerbated by t h e i n c r e a s e d demand
f o r home i n s u l a t i o n and r e t r o f i t t i n g spawned by t h e
utility
Title
programs i n T i t l e I
and t h e r e b a t e p r o v i s i o n s o f
II.
The F e d e r a l Trade Commission i s t h e
agency possessing the broadest
federal
responsibility
f o r p r e v e n t i n g u n f a i r , d e c e p t i v e and anticomp e t i t i v e p r a c t i c e s i n the m a r k e t p l a c e .
If
adequately monitor the m a r k e t i n g p r a c t i c e s
- 2 0 -
it
is
to
associated
148
w i t h the manufacture,
s a l e and i n s t a l l a t i o n of energy
s a v i n g s d e v i c e s , and e n f o r c e i t s g e n e r a l S e c t i o n 5 a u t h o r i t y
under the F e d e r a l Trade Commission A c t , t h e Commission w i l l
require significantly
increased resources.
Problem areas
a l r e a d y i d e n t i f i e d by t h e Commission i n c l u d e t h e
1.
following:
W a r r a n t i e s and Consumer Remedies.
Warranty and consumer remedies f o r breach of
w a r r a n t y p r e s e n t p a r t i c u l a r l y troublesome problems
w i t h r e s p e c t t o home i n s u l a t i o n and o t h e r energy
saving d e v i c e s ,
including solar products.
The
absence of adequate or proven t e s t and performance
standards f o r s o l a r equipment i t s e l f makes w a r r a n t y
and w a r r a n t y enforcement p a r t i c u l a r l y i m p o r t a n t
t h e consumer.
it
With r e s p e c t t o i n s u l a t i n g
i s o f t e n extremely expensive,
i f not
to
devices,
impossible,
t o determine whether the product purchased meets
the standards r e p r e s e n t e d by e i t h e r t h e s e l l e r
or
the m a n u f a c t u r e r .
attic
insulation,
Simple v i s u a l i n s p e c t i o n o f
f o r example, o f t e n w i l l not d i s c l o s e
improper i n s t a l l a t i o n a r i c e r t a i n l y w i l l not t e l l a
consumer whether he has r e c e i v e d t h e
"R-value"
promised.
The N a t i o n a l Bureau of Standards under
w i t h the FEA r e c e n t l y had i n s t a l l e d t h r e e
contract
different
types of i n s u l a t i o n i n a b u i l d i n g a t the NBS's
- 2 1 -
149
Center f o r B u i l d i n g Technology.
It
subsequently
t e s t e d the b u i l d i n g and found t h a t a l l
three
installations resulted in significantly
less
"R-value" than r e p r e s e n t e d by t h e m a n u f a c t u r e r .
The only method f o r d e t e r m i n i n g t h e e f f i c a c y of
i n s t a l l e d i n s u l a t i o n i s through t h e use o f
"thermography."
Thermography equipment costs
approximately $45,000 t o purchase.
graphy s e r v i c e i s a v a i l a b l e ,
Where thermo-
i t costs between
$50 and $80.
The t r a d i t i o n a l problem of
undercapitaliza-
t i o n i n the home r e p a i r i n d u s t r y i s
particularly
severe i n the s o l a r h e a t i n g and c o o l i n g
industry,
where many of t h e s m a l l , p i o n e e r i n g companies a r e
undercapitalized.
S o l a r equipment i s
expensive,
r e p r e s e n t i n g a major investment by t h e homeowner.
If
it
i s improperly i n s t a l l e d or d e f e c t i v e ,
the equipment may a l s o pose a r i s k of
harm t o the home.
however,
structural
Indeed, an argument could be
made based on t h i s type o f r i s k ,
for requiring
that
s o l a r p r o p e r t y be i n s t a l l e d w i t h a minimum
performance bond i f
it
c r e d i t under T i t l e I I .
i s to q u a l i f y for a tax
Such a r e q u i r e m e n t ,
however,
would r a i s e s e r i o u s b a r r i e r - t o - e n t r y q u e s t i o n s ,
and
might have an unduly s t i f l i n g impact upon i n n o v a t i o n
i n the nascent s o l a r
industry.
- 2 2 -
150
These problems o f w a r r a n t y and consumer
remedies can b e s t be addressed through t h e
making process.
Accordingly,
rule-
t h e Commission
should be d i r e c t e d t o i n i t i a t e rulemaking t o
address w a r r a n t i e s and w a r r a n t y p r a c t i c e s i n connection w i t h the sale of r e t r o f i t t i n g
including insulation,
solar
2.
devices,
energy saving devices and
property.
Product Claims.
A consumer must have t r u t h f u l ,
relevant
product
i n f o r m a t i o n r e a d i l y a v a i l a b l e i n o r d e r t o make
i n t e l l i g e n t purchase d e c i s i o n s .
This
information
must be a v a i l a b l e i n a form t h a t i s r e a d i l y
standable.
under-
I t must f a c i l i t a t e t h e comparison o f
energy savings v a l u e s between both products and
brands.
Most consumers w i l l be unable t o purchase
a l l t h e recommended energy savings devices f o r
homes.
T h e i r purchases,
t h e r e f o r e , ought t o
result
i n the g r e a t e s t energy savings f o r t h e d o l l a r .
g o a l can be accomplished b e s t i f
their
This
t h e products and
those who market them u t i l i z e e a s i l y understood and
comparable energy c l a i m s .
The Commission has a u t h o r i t y t o monitor energy
savings claims and t o t a k e a c t i o n on a c a s e - b y - c a s e
b a s i s a g a i n s t those who make u n f a i r , d e c e p t i v e o r
f a l s e claims.
The c a s e - b y - c a s e approach,
-23-
however,
151
i s expensive, and can only stop t h e most b l a t a n t
abuses.
Accordingly,
the Commission should be
given a u t h o r i t y t o i n s t i t u t e a^rulemaking p r o ceeding t o e s t a b l i s h requirements f o r t h e d i s c l o s u r e
of energy savings i n f o r m a t i o n and claims w i t h r e s p e c t
t o energy savings devices and products.
3.
M a r k e t i n g and a d v e r t i s i n g
claims.
The most d i f f i c u l t types of u n f a i r and d e c e p t i v e
acts and p r a c t i c e s t o c o n t r o l a r e those t h a t
take
p l a c e everyday i n thousands o f l o c a l i t i e s around t h e
country.
Yet,
the home improvement i n d u s t r y
p r i m a r i l y composed of thousands of
small businesses.
is
locally-based,
These businesses a d v e r t i s e
in
l o c a l papers and on l o c a l media, or s o l i c i t
business
through t h e l o c a l m a i l or d o o r - t o - d o o r .
t h e FTC
i s t o monitor much o f t h i s a c t i v i t y ,
substantial additional
If
it will
require
resources.
Again, the most e f f i c a c i o u s approach t o p r e v e n t ing u n f a i r and d e c e p t i v e a c t s or p r a c t i c e s i n t h e
m a r k e t i n g , a d v e r t i s i n g and i n s t a l l a t i o n o f energy
savings devices and s o l a r energy p r o p e r t y i s
the rulemaking process.
through
A c c o r d i n g l y , t h e Commission
should be d i r e c t e d t o i n i t i a t e a rulemaking proceedi n g w i t h r e s p e c t t o energy savings i n f o r m a t i o n and
claims and u n f a i r methods of c o m p e t i t i o n or
-24-
unfair
152
or d e c e p t i v e a c t s or p r a c t i c e s by those who
market, a d v e r t i s e and i n s t a l l energy saving
devices and s o l a r energy p r o p e r t y , and t o
r e q u i r e such o t h e r d i s c l o s u r e s as a r e necessary
t o a i d consumers i n p r e s e r v i n g scarce
fuel
supplies.
4.
Expedited Rulemaking
At present,
t h e F e d e r a l Trade Commission
i s a u t h o r i z e d t o promulgate Trade R e g u l a t i o n
Rules under S e c t i o n 18 o f t h e FTC A c t , 15 U . S . C .
§ 58.*
S e c t i o n 18 c o n t a i n s a broad g r a n t o f
a u t h o r i t y f o r t h e F e d e r a l Trade Commission t o
prescribe rules
(commonly known as "Trade
R e g u l a t i o n Rules") which " d e f i n e w i t h
specificity
*
S e c t i o n 18 was added t o tY . FTC A c t i n 1975 by T i t l e I I ,
S e c t i o n 202 of t h e Magnuson-Moc s Warranty — F e d e r a l Trade
Commission Improvement A c t , Pub. L . No. 9 3 - 6 3 7 (January 4 ,
1975) .
The F e d e r a l Trade Commission a l s o has i n h e r e n t
a u t h o r i t y t o promulgate r u l e s under s e c t i o n 6 ( g ) o f t h e
F e d e r a l Trade Commission A c t t o i n t e r p r e t and e n f o r c e
the p r o h i b i t i o n s contained i n Section 5 of the A c t .
See N a t i o n a l Petroleum R e f i n e r s A s s o c i a t i o n v . FTC, 482
F . 2 d 672 (D.C. C i r . 1 9 7 3 ) .
-25-
153
a c t s or p r a c t i c e s i n or a f f e c t i n g commerce" and
f u r t h e r s t a t e s t h a t such r u l e s may " i n c l u d e
requirements p r e s c r i b e d f o r t h e purpose o f p r e v e n t i n g such a c t s or p r a c t i c e s . "
When a r u l e
becomes e f f e c t i v e , a subsequent v i o l a t i o n cons t i t u t e s an u n f a i r or d e c e p t i v e a c t or
i n v i o l a t i o n of S e c t i o n 5 ( a ) ( 1 )
- 2 6 -
practice
o f t h e FTC A c t .
154
However, from 1975 t o t h e p r e s e n t t h e median
elapsed time from p u b l i c a t i o n o f t h e
initial
n o t i c e of proposed rulemaking pursuant t o S e c t i o n 18
t o t h e Commission's c o n s i d e r a t i o n o f whether t o
promulgate a f i n a l r u l e i s c u r r e n t l y e s t i m a t e d t o be
31 months.*
Thus, r u l e s t o p r o t e c t a g a i n s t
unfair,
d e c e p t i v e and a n t i c o m p e t i t i v e a c t s o r p r a c t i c e s
r e l a t e d t o the m a r k e t i n g o f energy saving components,
i f promulgated under S e c t i o n 18 o f t h e F e d e r a l Trade
Commission Improvements A c t , w i l l become e f f e c t i v e
o n l y a f t e r many o f t h e purchases prompted by t h e
N a t i o n a l Energy Act b i l l a r e completed.
Under t h e
u t i l i t y program i n T i t l e I ,
utilities
f o r example,
a r e r e q u i r e d t o have c o n t a c t e d a l l o f t h e i r
by January 1, 1980.
Under T i t l e I I ,
customers
t a x r e b a t e s and
c r e d i t s are'made r e t r o a c t i v e t o A p r i l 20, 1977, and
d e c l i n e over time t o encourage e a r l y purchase.
Accordingly,
the Commission should be r e q u i r e d t o
use e x p e d i t e d rulemaking procedures under 5 U . S . C .
S553 i n promulgating t h e r a l e s p r e v i o u s l y
discussed.
* By way of comparison, pursuant t o T i t l e I o f t h e MagnusonMoss Warranty — F e d e r a l Trade Commission Improvement A c t ,
the Commission has promulgated t h r e e " w a r r a n t y " r u l e s
implementing p r o v i s i o n s of T i t l e I .
These rulemaking p r o ceedings were conducted under 5 U . S . C . S553 w i t h t h e a d d i t i o n a l
requirement t h a t o r a l p r e s e n t a t i o n s be a l l o w e d .
A l l three
r u l e s were promulgated w i t h i n s i x months o f t h e n o t i c e o f
proposed rulemaking and r e q u i r e d an average o f t w o - t h i r d s o f
an FTC a t t o r n e y workyear per r u l e .
-27-
155
The p o s s i b i l i t y of c i v i l p e n a l t i e s under
Section 5(m)(1)(A)
of t h e FTC Act and "consumer
r e d r e s s " under S e c t i o n 19 of t h e FTC Act has
been a s i g n i f i c a n t f a c t o r i n g a i n i n g compliance
w i t h FTC Trade R e g u l a t i o n Rules.
For t h e
Commission's r u l e s on energy t o be e f f e c t i v e
law
enforcement t o o l s , t h e Commission must a l s o be
a b l e t o sue r u l e v i o l a t o r s f o r c i v i l p e n a l t i e s and
"consumer r e d r e s s . "
Moreover, t h e a v a i l a b i l i t y
a consumer redress remedy f o r v i o l a t i o n s of
r e l a t e d r u l e s could prove t o be t h e o n l y
of
energy-
effective
means o f r e s o l v i n g t h e d i f f i c u l t w a r r a n t y and
consumer remedy problems discussed above.
Accord-
i n g l y , v i o l a t i o n s o f t h e r u l e s promulgated by t h e
Commission under t h e N a t i o n a l Energy A c t should be
s u b j e c t t o c i v i l p e n a l t i e s and consumer r e d r e s s as
if
they were v i o l a t i o n s under Sections
5(m)(l)(A)
or 19 of t h e FTC A c t .
SOLUTION:
Add a new Subpart 4 t o T i t l e I ,
P a r t A.
LANGUAGE;
"Subpart 4 — F e d e r a l Trade Commission Sec. 140:
(A) The F e d e r a l Trade Commission s h a l l i n i t i a t e
a rulemaking proceeding d e a l i n g w i t h :
- 2 8 -
156
B.
(1)
requirements a p p l i c a b l e t o manufacturers
of b u i l d i n g i n s u l a t i o n , s o l a r energy
h e a t i n g or c o o l i n g p r o p e r t y and o t h e r
energy c o n s e r v a t i o n d e v i c e s , products o r
systems, w i t h r e s p e c t t o d i s c l o s u r e o f
energy use and savings i n f o r m a t i o n or
claims;
(2)
requirements a p p l i c a b l e t o any person
m a r k e t i n g , a d v e r t i s i n g or i n s t a l l i n g
b u i l d i n g i n s u l a t i o n , s o l a r energy h e a t i n g
or c o o l i n g p r o p e r t y and o t h e r energy
c o n s e r v a t i o n d e v i c e s , products o r systems,
w i t h r e s p e c t t o d i s c l o s u r e o f energy use
and savings i n f o r m a t i o n or c l a i m s ;
(3)
any o t h e r requirements necessary t o p r e v e n t
u n f a i r methods of c o m p e t i t i o n and u n f a i r o r
d e c e p t i v e a c t s or p r a c t i c e s under S e c t i o n
5 ( a ) ( 1 ) of t h e F e d e r a l Trade Commission
Act i n the manufacture, m a r k e t i n g , a d v e r t i s i n g , d i s t r i b u t i o n and i n s t a l l a t i o n
o f b u i l d i n g i n s u l a t i o n , s o l a r energy
h e a t i n g or c o o l i n g p r o p e r t y and o t h e r
energy c o n s e r v a t i o n d e v i c e s , products o r
systems; or such o t h e r d i s c l o s u r e s as may
be necessary t o a i d consumers i n p r e s e r v i n g scarce f u e l s u p p l i e s .
The F e d e r a l Trade Commission s h a l l i n i t i a t e a
rulemaking proceeding d e a l i n g w i t h w a r r a n t i e s
and w a r r a n t y p r a c t i c e s i n connection w i t h t h e
s a l e and i n s t a l l a t i o n of b u i l d i n g i n s u l a t i o n ,
s o l a r energy h e a t i n g or c o o l i n g p r o p e r t y and
o t h e r energy c o n s e r v a t i o n d e v i c e s , products or
systems; and, t o t h e e x t e : i t necessary t o
supplement p r o t e c t i o n s o f f e r e d t h e consumer
by any o t h e r p r o v i s i o n o* law,, s h a l l p r e s c r i b e
r u l e s d e a l i n g w i t h such w a r r a n t i e s and p r a c t i c e s .
I n p r e s c r i b i n g r u l e s under t h i s p a r a g r a p h , t n e
Commission may e x e r c i s e any a u t h o r i t y i t may
have under o t h e r laws, and i n a d d i t i o n , i t may
require:
(1)
d i s c l o s u r e t h a t such items a r e s o l d
w i t h o u t any w a r r a n t y and s p e c i f y t h e
form and c o n t e n t of such d i s c l o s u r e ;
-29-
157
(2)
a w r i t t e n w a r r a n t y as t o t h e i n s u l a t i o n
v a l u e and proper i n s t a l l a t i o n of such
items;
(3)
e s t a b l i s h m e n t of i n f o r m a l d i s p u t e
ment mechanisms.
settle-
The F e d e r a l Trade Commission s h a l l p r e s c r i b e
the r u l e s r e q u i r e d by paragraphs (A) and (B) i n
accordance w i t h S e c t i o n 109(a) o f t h e MagnusonMoss W a r r a n t y — F e d e r a l Trade Commission Improvement A c t , 15 U . S . C . 2309, except t h a t S e c t i o n
1 8 ( e ) ( 3 ) ( A ) of such Act s h a l l n o t apply t o
j u d i c i a l review under S e c t i o n 1 8 ( e ) .
I n p r e s c r i b i n g r u l e s under paragraphs (A) and
( B ) , the F e d e r a l Trade Commission s h a l l consider
—
(1)
the N a t i o n a l Energy Goals contained
S e c t i o n 3 of the A c t ,
(2)
the need t o reduce unnecessary consumer
costs r e s u l t i n g from i n e f f e c t i v e or
i n e f f i c i e n t i n s u l a t i o n , s o l a r energy h e a t i n g or c o o l i n g p r o p e r t y and o t h e r energy
c o n s e r v a t i o n d e v i c e s , products or systems,
(3)
ease o f a d m i n i s t r a t i o n and enforcement,
and
(4)
industry
(1)
The F e d e r a l Trade Commission s h a l l have
p r o c e d u r a l , i n v e s t i g a t i v e , and enforcement
powers, i n c l u d i n g the power t o issue p r o c e d u r a l r u l e s i n e n f o r c i n g compliance w i t h
t h e r u l e s p r e s c r i b e d pursuant t o t h e
requirements of t h i s Subsection, and t o
r e q u i r e t h e f i l i n g of r e p o r t s , the
p r o d u c t i o n o f documents and p h y s i c a l
e v i d e n c e , and the appearance o f w i t n e s s e s ,
as though t h e a p p l i c a b l e terms and c o n d i t i o n s o f t h e F e d e r a l Trade Commission Act
were p a r t of t h i s Subsection.
(2)
A s u b s t a n t i v e amendment t o , or appeal o f , a
r u l e promulgated under paragraphs (A) and (B)
s h a l l be p r e s c r i b e d , and s u b j e c t t o j u d i c i a l
r e v i e w , i n the same manner as a r u l e p r e s c r i b e d under such paragraph.
practices.
-30-
94-843 O - 77 - 11
in
158
P.
B.
(1)
When any r u l e p r e s c r i b e d under paragraphs
( A ) , ( B ) , and (E) takes e f f e c t , a subsequent
v i o l a t i o n t h e r e o f s h a l l c o n s t i t u t e an
u n f a i r or d e c e p t i v e a c t o r p r a c t i c e i n
v i o l a t i o n of Section 5 ( a ) ( 1 ) of the Federal
Trade Commission A c t , unless t h e F e d e r a l
Trade Commission o t h e r w i s e e x p r e s s l y p r o v i d e s i n such r u l e .
(2)
For t h e purposes o f S e c t i o n 5 ( m ) ( l ) and
S e c t i o n 19 o f t h e F e d e r a l Trade Commission
A c t , r u l e s p r e s c r i b e d under paragraphs
( A ) , (B) or (E) s h a l l be deemed " r u l e s
under t h i s A c t r e s p e c t i n g u n f a i r o r decept i v e a c t s or p r a c t i c e s . "
PRODUCT STANDARDS
PROBLEM:
P r i v a t e l y developed product and m a t e r i a l
standards
a p p l i c a b l e t o energy saving d e v i c e s and s o l a r energy
p r o p e r t y w i l l p l a y a major r o l e i n t h e i m p l e m e n t a t i o n o f
-31-
159
the N a t i o n a l Energy Act b i l l . *
Y e t these p r i v a t e l y
developed standards have t h e p o t e n t i a l t o r e s t r a i n
trade,
deceive consumers or t o expose them t o h e a l t h and s a f e t y
hazards.
Unduly r e s t r i c t i v e standards may exclude v a l u a b l e
energy saving devices from t h e m a r k e t p l a c e .
Consumers may
be deceived by i n d u s t r y " s e a l s o f a p p r o v a l , " i f
the stand-
ards r e l i e d upon f o r such a p p r o v a l a r e inadequate t o
e s t a b l i s h claimed energy saving p o t e n t i a l s .
Private
standards may a l s o tend t o f r e e z e t h e s t a t e of t h e
art
around e x i s t i n g energy c o n s e r v a t i o n products and m a t e r i a l s
s t i f l i n g in
innovation.
The F e d e r a l Trade Commission s t a f f i s
currently
i n v e s t i g a t i n g p r i v a t e l y developed standards and standard
s e t t i n g mechanisms.
I n h i s testimony b e f o r e t h i s Sub-
committee on March 3, 1977, Chairman C o l l i e r
described
t h i s i n v e s t i g a t i o n and t h e Commission's concerns about t h e
* Numerous p r o v i s i o n s i n t h e b i l l r e l a t e t o product or m a t e r i a l
standards.
Under Sec. 1101 of T i t l e I I , t h e S e c r e t a r y o f
Treasury must d e f i n e t h e term " i n s u l a t i o n , " t o i d e n t i f y i n
r e g u l a t i o n s " s o l a r energy p r o p e r t y " and t o d e t e r m i n e , upon
request of t h e A d m i n i s t r a t o r of FEA, what o t h e r "devices o r
measures" should q u a l i f y f o r a t a x c r e d i t .
Under S e c t i o n 102,
of T i t l e I , t h e A d m i n i s t r a t o r of FEA i s a u t h o r i z e d t o e s t a b l i s h
"standards f o r g e n e r a l s a f e t y and e f f e c t i v e n e s s o f any suggested
[ c o n s e r v a t i o n ] measure" and " f o r i n s t a l l a t i o n o f any r e s i d e n t i a l
energy c o n s e r v a t i o n measure."
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160
a n t i t r u s t and consumer p r o t e c t i o n i m p l i c a t i o n s o f
developed standards.
privately
One o f these concerns i s t h e degree
t o which government agencies r e l y upon p r i v a t e l y
developed
s t a n d a r d s , o c c a s i o n a l l y adopting them as government s t a n d a r d s .
The e x t r e m e l y t i g h t time l i m i t a t i o n s imposed by t h e
N a t i o n a l Energy Act b i l l f o r p r o m u l g a t i o n o f u t i l i t y
programs,
t a x r e b a t e r u l e s and o t h e r programs v i r t u a l l y assures
that
the A d m i n i s t r a t o r of FEA and the S e c r e t a r y o f t h e T r e a s u r y
must r e l y upon p r i v a t e i n d u s t r y standards i n
the A c t .
implementing
Though many, perhaps most, o f t h e p r i v a t e l y
developed
standards w i l l be s u i t a b l e f o r use i n implementing t h e A c t ,
there i s ,
abuse.
as i n d i c a t e d above, s i g n i f i c a n t p o t e n t i a l
for
The F e d e r a l Trade Commission has developed v a l u a b l e
e x p e r t i s e i n e v a l u a t i n g p o t e n t i a l a n t i c o m p e t i t i v e and consumer
p r o t e c t i o n impacts of p r i v a t e l y developed s t a n d a r d s .
If
c o n s u l t e d by t h e FEA A d m i n i s t r a t o r or t h e S e c r e t a r y o f
the
T r e a s u r y , t h e F e d e r a l Trade Commission could p o i n t o u t
p o t e n t i a l adverse impacts of s p e c i f i c s t a n d a r d s , and recommend methods of e i t h e r a v o i d i n g those impacts or
disclosing
them t o consumers.
SOLUTION:
The A d m i n i s t r a t o r o f FEA and t h e S e c r e t a r y of
the
Treasury should c o n s u l t w i t h t h e F e d e r a l Trade Commission
w i t h r e g a r d t o any product or m a t e r i a l s t a n d a r d t h a t
r e l i e d on i n implementing t h e A c t .
-33-
is
161
LANGUAGE:
Add a new subsection 141 t o the proposed new Subpart 4 ,
as f o l l o w s :
"Sec. 141: The S e c r e t a r y of Treasury and
the A d m i n i s t r a t o r of FEA s h a l l c o n s u l t w i t h t h e
F e d e r a l Trade Commission w i t h r e g a r d t o any
product or m a t e r i a l standard which i s r e l i e d on
i n implementing t h i s Act as a b a s i s f o r j u d g i n g
the e f f i c a c y , energy e f f i c i e n c y , s a f e t y or o t h e r
a t t r i b u t e s of energy c o n s e r v a t i o n m a t e r i a l s ,
products or d e v i c e s , f o r t h e purpose of i n s u r i n g
t h a t such standards do not o p e r a t e t o deceive
consumers or unreasonably r e s t r i c t consumer or
producer o p t i o n s , and t h a t such standards (where
a p p l i c a b l e ) a r e s u i t a b l e as a b a s i s f o r making
t r u t h f u l and r e l i a b l e d i s c l o s u r e s t o consumers
r e g a r d i n g performance and s a f e t y a t t r i b u t e s o f
energy c o n s e r v a t i o n p r o d u c t s , m a t e r i a l s and
devices."
C.
INCREASED AUTHORIZATIONS
PROBLEM:
I n order t o undertake the a d d i t i o n a l
responsibilities
imposed under the N a t i o n a l Energy Act b i l l ,
the Federal
Trade Commission w i l l r e q u i r e s u b s t a n t i a l l y
increased
budgetary
authority.
SOLUTION:
A u t h o r i z e a p p r o p r i a t i o n s tc
the F e d e r a l Trade Commission
t:o c a r r y out i t s r e s p o n s i b i l i t i e s under t h e N a t i o n a l Energy
-34-
162
LANGUAGE:
Add a new s e c t i o n 142 t o t h e proposed new s u b p a r t
as
follows:
"Sec. 142:
There a r e hereby a u t h o r i z e d t o
be a p p r o p r i a t e d t o t h e F e d e r a l T r a d e Commission
such sums as may be necessary t o c a r r y o u t i t s
r e s p o n s i b i l i t i e s under t h i s s u b p a r t . "
-35-
4,
163
IV.
OTHER PROGRAMS
A.
AUTOMOBILE DISCLOSURES
PROBLEM;
S e c t i o n 222 o f t h e b i l l a u t h o r i z e s t h e Commission t o
p r e s c r i b e r u l e s r e q u i r i n g t h a t t h e amount o f any t a x o r
t a x r e b a t e under t h e Act be d i s c l o s e d i n
which:
(1)
mobile or
advertisements
s t a t e t h e p r i c e or f u e l economy o f any a u t o -
(2)
f e a t u r e an i d e n t i f i a b l e model.
As p r e s e n t l y
d r a f t e d , however, t h i s p r o v i s i o n a p p l i e s o n l y t o
advertisements,
and a d v e r t i s e m e n t s i n w r i t i n g .
"televised"
Moreover,
t h e purpose o f t h e N a t i o n a l Energy A c t would be f u r t h e r e d
if
t h e FTC were a u t h o r i z e d t o r e q u i r e t h a t c e r t a i n
additional
f a c t s r e l a t e d t o automobile e f f i c i e n c y be d i s c l o s e d i n any
advertisement.
SOLUTION:
The FTC should be a u t h o r i z e d t o promulgate r u l e s
the f o l l o w i n g a d d i t i o n a l
1.
disclosures:
Standard F u e l Economy I n f o r m a t i o n .
D i s c l o s u r e o f EPA m i l a a g e r a t i n g s i n
a d v e r t i s e m e n t s would rem- id consumers t o
not only the advertised
n o d e l ' s c o s t of
t i o n , b u t a l s o the c o s t o f
ownership.
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all
consider
acquisi-
requiring
164
2.
Octane R a t i n g s .
D i s c l o s u r e of octane r a t i n g s a t
point-of-sale
and a l s o i n owner's manuals would enable consumers
t o a v o i d purchasing g a s o l i n e w i t h e x c e s s i v e octane
levels.*
More crude o i l i s r e q u i r e d t o produce
h i g h octane g a s o l i n e than t o produce
relatively
lower octane g a s o l i n e .
"overbuying"
Thus, octane
causes a s u b s t a n t i a l waste of energy r e s e r v e s
which should, i f
3.
p o s s i b l e , be e l i m i n a t e d .
Recommended Maintenance and Use.
Many new car purchasers may not
appreciate
the e x t e n t t o which p a t t e r n s of automobile use
( e . g . choice of l e n g t h and frequency o f
shopping, s o c i a l a c t i v i t i e s )
a f f e c t f u e l economy.
trips,
and maintenance
D i s c l o s u r e i n owners'
manuals of recommended maintenance and use would
enable consumers b e t t e r t o conserve
fuel.
* The House t h i s session overwhelmingly approved H.R. 130,
T i t l e I I of which mandates octane p o s t i n g on d i s p e n s i n g
pumps and r e q u i r e s the Commission t o develop r u l e s f o r
d i s c l o s u r e of a c a r ' s octane needs i n i t s owner's manual.
A s i m i l a r b i l l , S. 18, has been i n t r o d u c e d i n t h e Senate.
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165
LANGUAGE:
S t r i k e Section 222(a).
following:
I n s e r t i n l i e u thereof
the
" S e c t i o n 222:
(a)
The F e d e r a l Trade Commission
is authorized to prescribe rules requiring
disclosure —
(1)
(2)
i n any advertisement whether i n p r i n t ,
broadcast or p o i n t - o f - s a l e , w i t h r e s p e c t
t o any i d e n t i f i a b l e new automobile model
t h a t makes any r e p r e s e n t a t i o n , express or
i m p l i e d , w i t h r e s p e c t t o f u e l consumption,
cost o f a c q u i s i t i o n or o p e r a t i o n :
(a)
the a p p l i c a b l e f u e l economy r a t i n g
f o r each such model which i s r e q u i r e d
t o be d i s c l o s e d by the manufacturer
or importer pursuant t o s e c t i o n 506 (a)
of the Motor V e h i c l e Cost Savings A c t ,
as amended; and
(b)
the t a x imposed under S e c t i o n 4064 o f
the I n t e r n a l Revenue Code of 1954 or
r e b a t e payable under S e c t i o n 6429 o f
such code.
i n t h e owner's manual of every new automobile
beginning w i t h FY 1979:
(a)
the octane r a t i n g of such new
automobile;
(b)
i n f o r m a t i o n t o a s s i s t t h e owner
saving f u e l by
i.
ii.
iii.
improved d r i v i n g
techniques
improved t r i p s e l e c t i o n ,
proper s e l f - m a i n t e n a n c e
-38-
in
and
procedures
166
B.
ENERGY EFFICIENCY STANDARDS FOR CONSUMER
PRODUCTS OTHER THAN AUTOMOBILES
PROBLEM:
S e c t i o n 201(a) o f t h e b i l l would amend S e c t i o n 3 2 5 ( a )
o f the Energy P o l i c y and Conservation Act
(EPCA) o f
1975 t o r e q u i r e t h e A d m i n i s t r a t o r o f t h e F e d e r a l Energy
A d m i n i s t r a t i o n t o p r e s c r i b e by r u l e energy
efficiency
standards f o r c e r t a i n types o f consumer p r o d u c t s , such as
f r e e z e r s , water h e a t e r s , and room a i r
conditioners.
The A d m i n i s t r a t o r would a l s o have t h e o p t i o n under
s e c t i o n t o e s t a b l i s h by r u l e such standards f o r
types of products, i n c l u d i n g ,
c l o t h e s d r y e r s , and t e l e v i s i o n
inter alia,
dishwashers,
sets.
The A d m i n i s t r a t o r may p r e s c r i b e standards o n l y
those i n s t a n c e s where t h e standards would b e , i n t e r
economically j u s t i f i e d .
themselves must be " .
this
other
Similarly,
in
alia,
t h e standards
. . designed t o a c h i e v e t h e
maximum improvement i n energy e f f i c i e n c y which t h e
A d m i n i s t r a t o r determines i s
justified
. .
economically
. . . . "
I n d e t e r m i n i n g whether an energy e f f i c i e n c y
i s economically j u s t i f i e d ,
standard
t h e A d m i n i s t r a t o r must c o n s i d e r
•the economic impact and any n e g a t i v e e f f e c t s on c o m p e t i t i o n
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167
l i k e l y t o r e s u l t from t h e i m p o s i t i o n o f t h e s t a n d a r d .
economic and c o m p e t i t i v e impacts of an energy
The
efficiency
standard are i m p o r t a n t f a c t o r s i n d e t e r m i n i n g whether such
a standard i s economically j u s t i f i e d .
For example,
unreasonably high standards might be too expensive
for
small f i r m s t o meet, and a l s o could a c t as a b a r r i e r
e n t r y i n t o t h e market by new f i r m s .
to
The Commission can
provide v a l u a b l e advice t o the A d m i n i s t r a t o r
regarding
these impacts.
SOLUTION:
The A d m i n i s t r a t o r should c o n s u l t w i t h t h e F e d e r a l Trade
Commission.
SUGGESTED LANGUAGE:
Add a new Paragraph (6) t o S e c t i o n 2 0 1 ( a ) , P a r t B,
T i t l e 1, which r e a d s :
"(6)
I n d e t e r m i n i n g t h e economic impact o f
t h e standard pursuant t o paragraph
( 5 ) ( A ) and i n d e t e r m i n i n g any n e g a t i v e
e f f e c t s on c o m p e t i t i o n l i k e l y t o r e s u l t
from t h e i m p o s i t i o n of t h e standard
pursuant t o paragraph (:5) ( E ) , t h e
Administrator s h a l l consult w i t h the
F e d e r a l Trade Commission."
Renumber remaining paragraphs
accordingly.
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168
C.
FEDERAL INITIATIVES
PROBLEM;
S e c t i o n 721 of the N a t i o n a l Energy Act
bill
a u t h o r i z e s funding f o r development of e x i s t i n g
federal
r e t r o f i t t i n g and c o n s e r v a t i o n programs, and S e c t i o n s
741 t o 746 e s t a b l i s h and a u t h o r i z e funding f o r a new
program t o encourage t h e demonstration and use o f
solar
h e a t i n g and c o o l i n g devices i n f e d e r a l b u i l d i n g s .
The
funds a u t h o r i z e d under both plans w i l l a l l o w t h e
federal
agencies t o use t h e money i n t e r n a l l y t o develop proposals
and t o c o n t r a c t out t h e r e s e a r c h , development and
i n s t a l l a t i o n o f these e n e r g y - r e l a t e d measures.
Since
a s u b s t a n t i a l p o r t i o n o f the funding w i l l p r o b a b l y be
used f o r independent c o n t r a c t o r s ,
t h e government should
t a k e c a r e t h a t a l l a v a i l a b l e money does not go o n l y
to
l a r g e , e s t a b l i s h e d f i r m s or businesses.
SOLUTION:
A p r o v i s i o n should be i n s e r t e d i n t h e b i l l t o ensure
t h a t s m a l l businesses r e c e i v e a f a i r
share o f t h e c o n t r a c t
and c o n t r a c t funds f o r r e s e a r c h , development,
manufacture
and i n s t a l l a t i o n of s o l a r h e a t i n g and c o o l i n g d e v i c e s
and o t h e r e n e r g y - r e l a t e d measures.
-41-
169
SUGGESTED LANGUAGE:
Add the f o l l o w i n g as new subsection
of the b i l l ,
and as a new subsection
(g) i n S e c t i o n 721
(b) t o S e c t i o n 746:
"Each agency e n t e r i n g i n t o c o n t r a c t s t o develop
or complete the plans or p r o j e c t s a u t h o r i z e d
by t h i s subpart s h a l l ensure t h a t small business
concerns a r e g i v e n a f u l l and f a i r o p p o r t u n i t y
t o compete f o r and e n t e r i n t o such c o n t r a c t s
w i t h each agency, i n accordance w i t h a p p l i c a b l e
F e d e r a l Procurement R e g u l a t i o n s . "
-42-
170
D.
ENERGY CONSERVATION PROGRAM FOR SCHOOLS
AND HOSPITALS
PROBLEM:
S e c t i o n 301 of t h e b i l l would add s e v e r a l new s e c t i o n s
(Sections 3 0 3 - 3 0 9 ,
Act
(EPCA) of 1975.
391) t o t h e Energy P o l i c y and C o n s e r v a t i o n
The new EPCA S e c t i o n 3 0 i a u t h o r i z e s
the
A d m i n i s t r a t o r of the F e d e r a l Energy A d m i n i s t r a t i o n t o make
g r a n t s t o t h e s t a t e s which would be used as p a r t i a l
financing
f o r c e r t a i n s p e c i f i e d energy c o n s e r v a t i o n p r o j e c t s f o r
public
and n o n p r o f i t schools and h o s p i t a l s .
S t a t e s must f o r m u l a t e and submit f o r FEA a p p r o v a l
plans d e s c r i b i n g t h e i r proposed energy
conservation
program f o r p u b l i c and n o n p r o f i t school and h o s p i t a l
grants.
Although t h e A d m i n s i t r a t o r appears t o have t h e
a u t h o r i t y t o p r e s c r i b e any g u i d e l i n e s f o r s t a t e p l a n s
t h a t he deems necessary, he i s s p e c i f i c a l l y d i r e c t e d t o
p r e s c r i b e o n l y g u i d e l i n e s i n d i c a t i n g t h e types o f energy
c o n s e r v a t i o n measures a p p r o p r i a t e f o r each r e g i o n o f
the c o u n t r y .
SOLUTION:
The A d m i n i s t r a t o r should be r e q u i r e d t o promulgate
g u i d e l i n e s designed t o ensure t h a t t h e s t a t e s spend t h e
g r a n t monies i n a manner l i k e l y t o promote c o m p e t i t i o n
and t o a f f o r d s m a l l businesses a f u l l and f a i r
to
participate.
-43-
opportunity
171
The A d m i n i s t r a t o r should a l s o be r e q u i r e d t o c o n s u l t
w i t h the F e d e r a l Trade Commission p r i o r t o promulgating
r u l e s designed t o ensure t h a t the s t a t e s spend t h e g r a n t s
they r e c e i v e i n a manner l i k e l y t o promote c o m p e t i t i o n .
The Commission and i t s s t a f f could p r o v i d e v a l u a b l e
i n p u t t o t h e A d m i n s t r a t o r i n t h e f o r m u l a t i o n o f such
guidelines.
LANGUAGE:
I n proposed S e c t i o n 304(a) o f t h e EPCA ( S e c t i o n 301
of the b i l l ) ,
i n s e r t t h e words "and g u i d e l i n e s designed
t o ensure t h a t s t a t e plans c o n t a i n measures designed
t o promote c o m p e t i t i o n , which were p r e s c r i b e d
after
c o n s u l t a t i o n w i t h t h e F e d e r a l Trade Commission."
between t h e words " n a t i o n " and "The".
I n proposed
S e c t i o n 304(a) o f t h e EPCA, a l s o d e l e t e the " . "
"nation".
-44-
after
172
HOME INSULATION INDUSTRY
ATTACHMENT B
Response t o r e q u e s t f o r i n f o r m a t i o n c o n c e r n i n g t h e e f f e c t
o f i n c r e a s e d demand w i t h i n a r e l a t i v e l y s h o r t p e r i o d o f
t i m e on t h e f i b e r g l a s s home, i n s u l a t i o n i n d u s t r y . *
Background
The f i b e r g l a s s home i n s u l a t i o n i n d u s t r y , w h i c h
for approximately
80% o f home i n s u l a t i o n ,
centrated industry,
is a highly
composed o f t h r e e f i r m s .
Owens-Corning F i b e r g l a s ,
Johns-Manville,
accounts
These
firms,
and C e r t a i n - t e e d ,
have n a t i o n a l domestic m a r k e t shares o f a p p r o x i m a t e l y
25%, and 25%, r e s p e c t i v e l y .
In addition,
c o s t of. t r a n s p o r t i n g i n s u l a t i n g m a t e r i a l s ,
due t o t h e
high
different
market.
Evidence necessary t o e v a l u a t e t h e c o m p e t i t i v e
conduct
and performance o f t h i s i n d u s t r y i s n o t a v a i l a b l e a t
time.
50%,
t h e r e may be a
s e r i e s o f r e g i o n a l m a r k e t s whose s t r u c t u r e may be
from t h e n a t i o n a l
con-
this
The r a t e o f r e t u r n f o r t h e t h r e e f i r m s has been o n l y
a v e r a g e o r below average f o r t h e l a s t 15 y e a r s .
However,
t h i s r a t e of r e t u r n i s not n e c e s s a r i l y r e f l e c t i v e of
f i b e r g l a s s home i n s u l a t i o n p r o d u c t
line.
. T h e r e a r e severe b a r r i e r s t o e n t r y i n t o , t h e
home i n s u l a t i o n i n d u s t r y .
the
These b a r r i e r s
consist of
c o m p e t i t i v e t e c h n o l o g y and t e c h n i c a l know-how.
e x i s t i n g p a t e n t s f o r t h e b a s i c p r o c e s s e s have
t h e t h r e e f i b e r g l a s s home i n s u l a t i o n
c u r r e n t l y h o l d new p a t e n t s which have
fiberglass
cost,
Although
expired
manufacturers
significantly
* T h i s response was p r e p a r e d on t h e b a s i s o f a b r i e f , i n f o r m a l
s t a f f survey.
I t should n o t be c o n s t r u e d t o s t a t e an o f f i c i a l
p o s i t i o n o f t h e . F e d e r a l Trade Commission o r any i n d i v i d u a l
Commissioner.
.
173
increased
Without
cannot
the e f f i c i e n c y
access
to
this
economically
by an o f f i c i a l
of
of
the manufacturing
new t e c h n o l o g y ,
compete.
a large
It
a new
has b e e n
home-building
products
w h i c h has shown some i n t e r e s t
the industry
that
investment of
entrant
estimated
manufacturer
it
process.
in
entering
w o u l d t a k e a b o u t 10 y e a r s and a n
approximately
$80 m i l l i o n
at
today's
for
h i s company t o d e v e l o p t h e n e e d e d t e c h n o l o g y
the
industry
w i t h one
also extremely
a f i r m were t o a c q u i r e
technology
it
the t e c h n i c a l
an e f f i c i e n t
t h e needed c o s t
know-how t o d e s i g n a n d o p e r a t e
economic p r o c e s s .
It
enter
While
it
technology
in
is
2 to
likely
licensing
a single plant
impact
market.
home-building
insulation
industry.
it
industry
$30 t o
$50
c o u l d have a
products
94-843 O - 77 - 12
in entering
Capital
for
as
by
his
t h e needed
cost
could
with
million.
with
significant
manufacturers,
two o f w h i c h have w e l l - k n o w n n a t i o n a l d i s t r i b u t i o n
have e x p r e s s e d an i n t e r e s t
if
f i r m s would enter
more t h a n one p l a n t ,
At least four
that
know-how,
a cost of
t h a t most l a r g e
in a regional
for
home i n s u l a t i o n
3 years at
without
has been e s t i m a t e d
and t e c h n i c a l
the f i b e r g l a s s
into
one p l a n t
to obtain
competitive
a plant
t h e same h o m e - b u i l d i n g p r o d u c t s m a n u f a c t u r e r
competitive
enter
important.
could not operate competitively
company w e r e a b l e
and
plant.
T e c h n i c a l know-how i s
Even i f
cost
the
these four
systems,
fiberglass
companies
174
does not appear t o be a b a r r i e r .
But e n t r y w i t h o u t
l i c e n s i n g of the cost c o m p e t i t i v e technology and w i t h o u t
access t o t e c h n i c a l know-how i s considered by these f i r m s
as i n f e a s i b l e .
Consequently, attempts have been made t o
a c q u i r e t h e needed p a t e n t l i c e n s i n g and t e c h n i c a l know-how.
The t h r e e e x i s t i n g f i b e r g l a s s manufacturers have been
r e l u c t a n t t o e n t e r i n t o such agreements.
It
i s not known whether t h e t h r e e e x i s t i n g manufacturers
have excess c a p a c i t y .
J o h n s - M a n v i l i e has r e c e n t l y announced
plans t o double i t s c a p a c i t y and C e r t a i n - t e e d i s i n t h e
process of b r i n g i n g a new p l a n t i n t o o p e r a t i o n .
s i o n plans of Owens-Corning F i b e r g l a s and the
The expan-
further
expansion plans of C e r t a i n - t e e d a r e not known.
Other i n s u l a t i n g m a t e r i a l s such as rock wool, macerated
paper and foam p l a s t i c s l i k e polyurethane do not appear t o
be c o m p e t i t i v e s u b s t i t u t e s f o r f i b e r g l a s s as a home i n s u l a t ing m a t e r i a l .
Rock wool has lower i n s u l a t i n g v a l u e and,
consequently, r e q u i r e s more product t o meet i n s u l a t i n g needs.
Rock wool has been on the d e c l i n e and i s p r o j e c t e d by
Predicasts,
Inc.,
i n i t s S p e c i a l Study of Glass and Other
Advanced F i b e r s , February 22, 1973, t o account f o r o n l y 2.0%
of the s t r u c t u r a l i n s u l a t i o n m a t e r i a l s market
c i a l and r e s i d e n t i a l )
by 1985.
(both commer-
Moreover, e x i s t i n g rock wool
manufacturers f o r the most p a r t a r e s i n g l e p l a n t
operations
c u r r e n t l y o p e r a t i n g a t 100% c a p a c i t y and l a c k i n g the
needed t o expand c a p a c i t y .
-3-
capital
175
Macerated paper
inherent
is
not a v i a b l e
s u b s t i t u t e due t o
flammability.
P o l y u r e t h a n e c a n n o t be c o n s i d e r e d a
substitute
at
between i t
and f i b e r g l a s s .
this
t i m e because o f
insulating quality,
it
highly
is approximately
m a t e r i a l may be
Imports
because o f
a bulky,
light-weight
short-term
prices
of
for
polyurethane
insulating
before
a sudden upward s h i f t
fiberglass
i n demand f o r
a r e made a v a i l a b l e
to potential
-4-
be
fiberglass
fiberglass
The
wool
minimal.
material
home
insulation
existing
and t e c h n i c a l
entrants.
expected to
(when t h e p r o p o s e d t a x c r e d i t
i n demand
plan.
the technology
a u g m e n t e d demand i s
have
competitive.
s u c h as r o c k
h a v e t o be m e t by t h e t h r e e
unless
such
home i n s u l a t i o n .
have on t h e m a r k e t w i l l
t o meet t h e e n e r g y c o n s e r v a t i o n
will
transporting
i m p o r t s c o u l d be
T h e r e may be s h o r t - t e r m s h o r t a g e s o f
The i n c r e a s e
manufacturers
Domestic p r i c e s would
insulating materials
and p o l y u r e t h a n e w i l l
of
since
more
i n c r e a s e d demand
effect
e f f e c t which other
manufacturers
three times
u s e as a home
high cost of
product.
substantially
be h i g h e r
materials
superior
are not competitive w i t h domestic
The o b v i o u s
will
its
has
differential
limited.
the r e l a t i v e l y
to r i s e very
E f f e c t of
Moreover,
t o x i c when b u r n e d ,
competitive
the vast p r i c e
Although i t
expensive than f i b e r g l a s s .
is
its
last
Since the
only
terminates),
know-how
through
new
level
1985
entrants
176
w i t h o u t access t o the technology and t e c h n i c a l know-how
w i l l not a f f e c t the energy c o n s e r v a t i o n p l a n .
if
However,
p o t e n t i a l e n t r a n t s a r e a b l e t o a c q u i r e l i c e n s i n g of
t h e technology and t e c h n i c a l know-how, de novo e n t r y can
be accomplished w i t h i n 2 t o 3 y e a r s .
New e n t r y , o r perhaps
even the t h r e a t o f new e n t r y , could be expected t o
result
i n i n c r e a s e d c o m p e t i t i o n , a d d i t i o n a l needed s u p p l i e s ,
and
lower p r i c e s t o consumers.*
S t a f f p r e l i m i n a r y i n v e s t i g a t i o n of home i n s u l a t i o n
industry
These p r e l i m i n a r y comments were prepared on s h o r t
n o t i c e w i t h o u t b e n e f i t of an i n d u s t r y - w i d e
investigation.
Since t h e impact of l e g i s l a t i v e l y f o s t e r e d
increased
demand on the home i n s u l a t i o n i n d u s t r y i s o f
public i n t e r e s t ,
the Bureau of Competition i s
significant
undertaking
f u r t h e r a n a l y s i s of the issues r a i s e d h e r e , and may
recommend s p e c i f i c l e g i s l a t i o n t o f a c i l i t a t e new e n t r y
and the a v a i l a b i l t i y o f adequate c a p a c i t y a t
competitive
prices.
* I n a d d i t i o n t o the questions f o r which i n f o r m a t i o n
i s p r o v i d e d hereinabove, Congressman Brown asked (1)
whether t h e r e are o t h e r comparable examples o f i n d u s t r i e s
which have r e c e i v e d sudden, s h o r t - t e r m boosts o f demand,
and
(2) whether the s h o r t - t e r m n a t u r e o f t h e demand
i n c r e a s e w i l l discourage de novo e n t r y .
We have not
been a b l e t o i d e n t i f y u s e f u l p a r a l l e l s , and a r e unable
t o p r e d i c t t h e e f f e c t o f the s h o r t t i m e p e r i o d , per s e ,
on e n t r y .
-5-
177
The C H A I R M A N . Thank you, sir.
I ' m going to ask Mr. Hardin, who's been introduced so ably by
Senator Hollings, and Mr. Nash to come forward i f they wouid as
our next witnesses.
Mr. Hardin, as you know, is the president of the U.S. League of
Savings Associations. Mr. Nash is chairman of the Energy Management Committee, Edison Electric Institute, New York, N.Y. We are
honored to have both of you here.
Gentlemen, unfortunately, I am going to have to leave. I have an
amendment coming up on the floor which I ' m going to call up shortly. I ' m going to ask Senator Schmitt to chair the committee in my
absence.
Senator S C H M I T T . I guess, i f it makes no difference to you, Mr.
Hardin, we w i l l proceed with your testimony and you can read it or
summarize depending on your inclinations. I t w i l l be made a part of
the record, however.
STATEMENT OF JOHN A. HARDIN, PRESIDENT, U.S. LEAGUE OF
SAVINGS ASSOCIATIONS
Mr. H A R D I N . Thank you very much, Senator, and I ' d first like to
comment on how much I appreciate the glowing remarks from our
Senator from South Carolina, Mr. Hollings, and i f I might just say
a personal word, being from South Carolina, one of the 13 original
colonies, we are proud to have a man of his stature representing us
in this august body.
I am delighted to be here today representing the Savings and Loan
League of the United States, representing 4,400 members with 15,000
offices throughout the United States, and that means that we actually
serve every city and small town and hamlet in this nation for their
housing needs.
We feel that we have had some responsibility to seeing that this
nation is a nation of home owners. 63 percent of our people in this
country now own their own home or are buying them, we feel, mainly
through our efforts. Last year, for instance, we had the opportunity to make nearly 80 percent of the single family mortgage loans
privately held in this nation. So we are in a position and want to
give our congratulations to President Carter for his foresight and
his efforts toward conserving energy in this Nation in every way. We
feel that many of his proposals have been those that we have had an
opportunity—along with Harold Olin who's with me who works in
charge of our energy effort in the U.S. League—we are here to work
with many of the President's advisers in forming some of the energy
recommendations such as tax incentives and we have been delighted
that some of those have been in his proposal.
It's been recommended that all residences must be certified as
energy efficient by July 1—the House Committee has recommended
that all residences be certified as energy efficient by January 1, 1982,
i f they are to receive "Federal financial assistance" defined to include
home loans by federally-chartered and insured financial institutions,
as well as Government-backed mortgages.
We would like to, i f it's possible, give a strong statement of opposition to this for many reasons. We most strongly question the wisdom
178
of legislation that w i l l make i t v i r t u a l l y impossible f o r many A m e r i can families to sell their homes without Government permission. N o w
this at the time, M r . Chairman, when i t comes when we're m a k i n g
every effort to do our p a r t to see t h a t the cities of this country are
rehabilitated. W e are encouraging our members to make more loans
i n the inner-city and i n the cities of this Nation. They are doing i t .
I n 30 cities, f o r instance, we have a neighborhood housing service
p r o g r a m that goes through the Federal Home L o a n B a n k t h r o u g h
savings and loans t o b r i n g the various groups together. N o w this
would, i n effect, we believe, absolutely cut off sale of homes i n the
inner-cities i f these older houses had to meet a l l the specifications of
some type of governmental permission. Really, it's a type of redlini n g i n reverse; where we are t r y i n g t o b r i n g loans to the inner-city
and t o the cities, this particular proposal we believe w o u l d stop people and we are p a r t i c u l a r l y disturbed about the use of a financing
cut-off to enforce compliance w i t h energy standards. The lender and
the credit function is a poor choice to police energy efficient goals
and we hope t h a t this particular feature w i l l not be included i n the
final legislation.
W e have been t e l l i n g our people to get involved i n m a k i n g loans
to the cities and m a k i n g loans f o r purposes of u p g r a d i n g houses. W e
have had a conference w i t h M r . Olin's group. I have appointed a
special committee on energy. W e met here i n Washington some
months ago and we met w i t h people f r o m the Carter administration
and we are also having a meeting i n Denver i n the next few weeks
t o t r y t o b r i n g our people together because we feel t h a t we are f o r t u nate really to be i n a business where we can do something positive i n
regard to energy savings, and i f we had certain types of business—
say the soft d r i n k business or the f u r n i t u r e business—there w o u l d be
very l i t t l e we could do. B u t i n the savings and loan business we happen to be the ones t h a t are m a k i n g the loans f o r practically 80 percent and there is a definite p a r t t h a t we can play and we are, i n m y
own institution, g i v i n g a reduced rate on home improvement loans
and many associations t h a t we have throughout the country are doi n g just that.
I ' d like to just show you a newspaper ad t h a t recently r a n a few
days ago i n Phoenix where i t says " A s k your house these eight questions," and then here's the energy m a r k on the F i r s t Federal i n
Phoenix. T h i s type of t h i n g is being done a l l over the country t o
encourage people to come to our associations and get this type of loan
f o r insulation, installment of storm windows or what have you.
Senator SCHMITT. Does t h a t include solar equipment?
M r . HARDIN. A n d solar, yes, i t does.
Senator S C H M I T T . I S there any qualification t o t h a t w h i c h you
w o u l d make?
M r . HARDIN. Some of our institutions are saying only up to $2,000
f o r the reduced rate, which would be the smaller things l i k e installment of storm windows and so f o r t h as an incentive t o get them
started, but what we are saying on solar heating and the more major
expenditures would be t h a t we t r y to encourage them t o p u t these
features into the house when they buy i t , whether i t be an o l d house
or a new house because what's happening is i f you buy a home and
179
then come back 6 moi iths later and say, " I want to p u t i n storm windows or insulation or solar heat," then we make a home improvement loan or they gee i t f r o m us or a commercial bank or whoever,
and they have t w o payments. W e feel that we are i n a position to
advise—not require—but to advise purchasers that at the time of
purchase, whether old or new, that the energy conserving features
should be i n the houso and we w i l l lend the additional funds at that
time spreading the payment over 30 years instead of a small five or
seven year payment w i t h a home improvement loan. This is w o r k i n g
i n many cases.
Senator SCHMITT. A r e you p r o v i d i n g the consulting services on
what is necessary f o r improved insulation or solar equipment?
M r . HARDIN. T h a t is w h y we are having these particular meetings
that M r . O l i n is t o t r y to get our appraisers and our loan officers
throughout the U n i t e d States, and through our educational w i n g of
the Savings and L o a n League—we would have—how many clinics
M r . OLIN. W e are going t o have a clinic probably i n every part
of the country.
M r . H A R D I N [continuing]. T o t r y and educate our people.
M r . O L I N . T O t r a i n people to go into a house and do an audit,
preaudit and post-audit, to determine what k i n d of improvements
are necessary and that they have been installed properly.
Senator SCHMITT. Basically, to do what S. 1469 would mandate
that the utilities do. I s that correct ?
M r . OLIN. Essentially, r i g h t .
Senator SCHMITT. T h a n k you.
M r . H A R D I N . SO actually the energy conservation is something that
we can step out i n f r o n t and do something about and we feel that
that we are.
Y o u r committee has done something about i t already, also. Y o u
have approved an increase i n our home improvement ceilings which
we appreciate which w i l l help us serve the f a m i l y m a k i n g major
energy improvements. Y o u have i n conference legislation t o up the
$55,000 ceiling which inhibits the Federal savings and loans to finance the new homes w i t h long-range, though expensive, energy
saving features.
O u r statement also talks about the need f o r more flexible mortgage
instruments like a line-of-credit to permit improvements to be financed at a special bargain rate below usual home improvement
loan rates, and a "skip payment" privilege are examples of changes
which w i l l help families cope w i t h rising u t i l i t y bills to make improvements which w i l l pay off over a period of years.
The Tower-Cranston resolution would encourage the development
of these and other changes i n the fixed rate, fixed term, f u l l y amortized mortgage loan.
O n specific language i n S. 1469, we have serious reservations about
portions of the National Energy A c t mandating that regulated u t i l i ties provide certain services regarding energy conservation. They
are asked t o measure the improvements needed i n homes, to sell them,
and then finance them t h r o u g h this monthly bill. W e feel that u t i l i t y
companies should provide u t i l i t y services.
180
I n preparation f o r this particular testimony this m o r n i n g I have
asked our people i n Chicago to make a survey and f i n d out just
where we do stand i n this home improvement business and I am
delighted t o f i n d out myself and to t e l l you and the committee t h a t
savings and loans have increased their loans of this type at a 44 percent a year rate since 1972 where they now provide one-third of the
home improvement loans that are made i n this country and they do this
at a rate below what some of the few utilities now p r o v i d i n g this service charge.
W e make both conventional and F H A t i t l e I home improvement
loans. U t i l i t i e s which have been discussed previously here are j
exempt f r o m the truth-in-lending and other consumer protection laws
and are not necessarily accustomed to coping w i t h the holder i n due
course and similar rules. They may need specialized personnel and I
equipment to enter the financing area and this implies rate increases'
f o r all customers, including those w i t h efficient homes already.
I n short, we feel that we are i n a position where we are i n the
finance business and u t i l i t y companies have a specific role t h a t they
can play and should play. Take the electric u t i l i t y as an example
Duke Power i n my area of the country w i l l t e l l the customers spe
cifically what they need and then we are i n a position to financ
t h a t need and the contractors that do t h a t type of w o r k are the one
that are already available t h a t we know that we can w o r k w i t h then
I t h i n k we a l l have a specific p a r t to play and t r y i n g to l u m p
under the one u t i l i t y group t h a t has not been i n this type of w o i
we do not believe is necessary or appropriate.
W e also approve of the amendments t o the law governing t l
secondary market agencies t h a t enable them to backstop increase
activities i n home improvement lending.
I n short, we believe t h a t private enterprise is meeting this cha
lenge. W e are doing all i n our power. W e are m a k i n g i t our n u m b
one objective this year and we are already seeing the benefit ai
the results. W e are proud t o have this opportunity to be of servi
to the American people and we feel t h a t t h r o u g h w o r k i n g w i t h £
u t i l i t y companies and w i t h the contractors that do this type of wo
and w i t h our far-flung institutions nationwide t h a t we can me
this need. T h a n k you.
[Complete statement and additional i n f o r m a t i o n f o l l o w : ]
181
WRITTEN STATEMENT OF JOHN HARDIN
ON BEHALF OF THE UNITED STATES LEAGUE OF SAVINGS ASSOCIATIONS
TO THE SENATE BANKING COMMITTEE, REGARDING
S . 1 4 6 9 , THE NATIONAL ENERGY ACT
June 28,
MR. CHAIRMAN:
1977
My name i s J o h n H a r d i n .
S a v i n g s and Loan A s s o c i a t i o n o f
I
Rock H i l l ,
t o d a y i n my c a p a c i t y a s P r e s i d e n t o f
am P r e s i d e n t o f F i r s t
South C a r o l i n a ,
Federal
and a p p e a r
t h e U n i t e d S t a t e s League o f
Savings
Associations.*
The U. S . L e a g u e , a n d i t s
associations nationwide,
o f S. 1469, t h e N a t i o n a l Energy
conservation
to t e s t i f y
have a v i t a l
s o u r c e o f home m o r t g a g e
stake i n the r e s i d e n t i a l
d r a m a t i z i n g our n a t i o n ' s
realistic
credit,
energy
effort.
The U. S . L e a g u e a p p l a u d s P r e s i d e n t C a r t e r ' s
problems.
on P a r t A
Act.
As t h e n a t i o n ' s p r i n c i p a l
o u r member i n s t i t u t i o n s
4 , 4 0 0 member s a v i n g s and l o a n
appreciate t h i s opportunity
critical,
yet
somewhat i n v i s i b l e ,
We commend h i s e m p h a s i s o n r e s i d e n t i a l
way o f
confidence that
achieving substantial
do much t o e n c o u r a g e e n e r g y - s a v i n g
in
energy
c o n s e r v a t i o n as a
energy savings.
the voluntary e f f o r t s of private
initiative
We a p p r e c i a t e
financial
improvements i n
his
institutions
can
homes.
*The U n i t e d S t a t e s League o f S a v i n g s A s s o c i a t i o n s ( f o r m e r l y t h e U n i t e d
S t a t e s S a v i n g s a n d L o a n League) h a s a m e m b e r s h i p o f 4 , 4 0 0 s a v i n g s and
l o a n a s s o c i a t i o n s , r e p r e s e n t i n g o v e r 98% o f t h e a s s e t s o f t h e s a v i n g s
and l o a n b u s i n e s s .
League membership i n c l u d e s a l l t y p e s o f a s s o c i a t i o n s —
The
F e d e r a l and s t a t e - c h a r t e r e d , i n s u r e d and u n i n s u r e d , s t o c k and m u t u a l .
p r i n c i p a l o f f i c e r s a r e : J o h n H a r d i n , P r e s i d e n t , Rock H i l l , S o u t h C a r o l i n a ;
S t u a r t Davis, Vice P r e s i d e n t , Beverly H i l l s , C a l i f o r n i a ; Lloyd Bowles,
L e g i s l a t i v e C h a i r m a n , D a l l a s , T e x a s ; Norman S t r u n k , E x e c u t i v e V i c e P r e s i d e n t ,
C h i c a g o , I l l i n o i s ; A r t h u r E d g e w o r t h , D i r e c t o r - W a s h i n g t o n O p e r a t i o n s ; and
Glen Troop, L e g i s l a t i v e D i r e c t o r .
League h e a d q u a r t e r s a r e a t 1 1 1 E . Wacker
D r i v e , C h i c a g o , I l l i n o i s 6 0 6 0 1 ; and t h e W a s h i n g t o n O f f i c e i s l o c a t e d a t
1709 New Y o r k A v e . , N . W . , W a s h i n g t o n , D. C. 2 0 0 0 6 ; T e l e p h o n e : (202)
785-9150.
182
As P r e s i d e n t o f
t h e U. S . L e a g u e ,
I
formed a s p e c i a l Energy
Committee
i n F e b r u a r y i n p a r t t o r e s p o n d t o t h e W h i t e House i n v i t a t i o n
participation prior
H o n o r a b l e James S c h l e s i n g e r
a number o f
specific
i s attached to t h i s
recognized the importance of
years through a r t i c l e s
t h e U. S . L e a g u e ' s D i r e c t o r
I d e a s i n Home B u i l d i n g "
I
energy e f f i c i e n c y
It
to
the
contains
incorpor-
i n h o u s i n g f o r a number
and t h e w o r k o f M r . H a r o l d
of Architectural
and C o n s t r u c t i o n
(One e x a m p l e i s o u r " C l i p b o o k o f
of
Olin,
Research,
Energy-Saving
w h i c h we h a v e d i s t r i b u t e d w i d e l y a n d h a v e
You may a l s o r e c a l l
a statement f o r your hearings l a s t
t h a t our o r g a n i z a t i o n
available
submitted
summer o n t h e E n e r g y C o n s e r v a t i o n
Act
1976.
T h e r e a r e some o b v i o u s b e n e f i t s
t o our i n s t i t u t i o n s
n a t i o n a l program t o promote energy c o n s e r v a t i o n .
s t a b i l i z e d our present borrowers w i l l
obligations;
families w i l l
will
from a
costs
be b e t t e r a b l e t o meet t h e i r
be enhanced;
have t h e p o t e n t i a l o f a t t a i n i n g homeownership;
have more d i s p o s a b l e income t o i n v e s t i n t h e i r
conservation
savings
i n t h e success o f t h e
loan
more
and, our
savers
accounts.
national
effort.
W i t h t h i s backgrQund,
greater d e t a i l the Administration's
and a l t e r n a t i v e s
S.
W i t h energy
the value of our s e c u r i t y p r o p e r t y w i l l
T h u s we h a v e a f u n d a m e n t a l i n t e r e s t
of
public
s h o u l d n o t e t h a t t h e League has
in i t s publications
who a c c o m p a n i e s me t o d a y .
here t h i s morning,)
statement.
s u g g e s t i o n s w h i c h we w e r e g r a t i f i e d t o see
a t e d i n the P r e s i d e n t ' s approach.
of
for
t o t h e P r e s i d e n t ' s A p r i l messages; our l e t t e r
I w o u l d now l i k e t o a d d r e s s
approach t o r e s i d e n t i a l
s u g g e s t e d by o t h e r s ,
1469.
in
conservation,
and t h e n t h e p r o v i s i o n s o f P a r t A
183
Cut-Off of Financing for Failure to R e t r o f i t
Residences
When P r e s i d e n t C a r t e r a d d r e s s e d t h e C o n g r e s s and t h e
nation in April
he s e t a g o a l o f b r i n g i n g
90% o f a l l
minimum F e d e r a l e n e r g y s t a n d a r d s by 1985.
be o v e r l y o p t i m i s t i c ,
target—
of
individuals
the voluntary
and p r i v a t e - s e c t o r
As y o u may b e a w a r e , M r . C h a i r m a n ,
that a l l
1982 i f
energy c o n s e r v a t i o n .
It
r e s i d e n c e s m u s t be c e r t i f i e d
they are t o receive
institutions.
a House Commerce
as e n e r g y e f f i c i e n t
—
financial
mortgages.
w o u l d s t r o n g l y u r g e t h a t Congress r e j e c t
virtually
such a
i m p o s s i b l e f o r most American f a m i l i e s t o
home w i t h o u t G o v e r n m e n t p e r m i s s i o n .
e s t a b l i s h i n g minimum e f f i c i e n c y
drastic
sell
W h i l e t h e r e may be some m e r i t
by l a s t y e a r ' s E n e r g y C o n s e r v a t i o n a n d P r o d u c t i o n A c t — i t
is
i m p o s s i b l e t o a p p l y such r e q u i r e m e n t s t o m i l l i o n s o f e x i s t i n g
unsalable —
property
is
that
their
s t a n d a r d s f o r new r e s i d e n c e s — a s
To d e n y f i n a n c i n g t o e x i s t i n g p r o p e r t i e s
1,
defined
We m u s t s t r o n g l y q u e s t i o n t h e w i s d o m o f e n a c t i n g l e g i s l a t i o n
makes i t
in
provided
virtually
structures.
t o make t h e m g e n e r a l l y
t h u s d e p r i v i n g e x i s t i n g homeowners o f
t h e i r most
fundamental
rights.
We a r e p a r t i c u l a r l y
cut-off
to
by J a n u a r y
"Federal f i n a n c i a l assistance"
as w e l l as Government-backed
We
step.
approach
has recommended
t o i n c l u d e home l o a n s b y F e d e r a l l y - c h a r t e r e d and i n s u r e d
institutions,
this
cooperation
S u b c o m m i t t e e was n o t s a t i s f i e d w i t h t h e A d m i n i s t r a t i o n ' s
residential
within
we a p p l a u d h i s b a s i c a p p r o a c h t o a c h i e v i n g
i n c e n t i v e s and encouragement f o r
of m i l l i o n s
residences
Though t h e 90% f i g u r e may
d i s t u r b e d a b o u t t h e use o f a
t o e n f o r c e compliance w i t h energy standards.
the c r e d i t
f u n c t i o n i s a poor choice t o " p o l i c e
financing
The l e n d e r ,
and
government programs;
it
184
is
a little
like
responsible
for
a s k i n g t h e b a n k w h i c h makes a u t o l o a n s t o
compliance w i t h seat b e l t ordinances.
was u t i l i z e d w i t h t h e F l o o d D i s a s t e r P r o t e c t i o n A c t o f
h a s now s e e n f i t
t o amend t h a t
i n Conference).
At least
flood plains
law
be
This
mechanism
1973, and Congres,
( i n the housing b i l l s
now p e n d i n g
t h e f l o o d l a w was l i m i t e d t o r e s i d e n c e s
and i n c o m m u n i t i e s n o t c o m p l y i n g w i t h t h e F e d e r a l
insurance program;
t h e language o f
in
flood
t h e House Commerce S u b c o m m i t t e e
apply t o every e x i s t i n g residence i n the United
T h e House S u b c o m m i t t e e a t t e m p t e d t o c r e a t e a number
exceptions to
its
financing cut-off
afford retrofitting,
for
conditional
for
homes o f
homes i n d e c r e p i t c o n d i t i o n ,
be " l o c k e d i n t o "
repairs
their
satisfactory
1982 d a t e a p p r o a c h e s ,
costs w i l l
the handicapped,
and
ordinary
p r e s e n t d w e l l i n g because o f
to permit
sale of
we w o u l d p r e d i c t
their
B u t we
with
families
inability
property.
i n an e f f o r t
M r . C h a i r m a n , we h a v e a g r e a t d e a l m o r e c o n f i d e n c e
conservation
energy waste,
and i t s
Budget O f f i c e ' s June,
in
insulation
of
There i s a
cost to families
1977 s t a f f
growing
call
for
awareness
and t h e n a t i o n .
and
energy
about
The C o n g r e s s i o r L
w o r k i n g paper n o t e d a marked
s a l e s b e g i n n i n g w i t h t h e A r a b O i l embargo
to
than
the American people
community t o respond t o t h e P r e s i d e n t ' s
i n housing.
January,
installation
residences.
t h e House S u b c o m m i t t e e i n t h e w i l l i n g n e s s
our f i n a n c i a l
could
t o make
And,as t h e
t h a t m a t e r i a l s and
s k y r o c k e t a s s h o r t a g e s o c c u r i n some l o c a l e s
m e e t t h e d e a d l i n e f o r o l d a n d new
to
and a mechanism
s a l e s w h e r e t h e b u y e r i s t o make t h e r e p a i r s .
The e l d e r l y ,
of
f a m i l i e s unable
s e r i o u s l y d o u b t t h a t c o m p e n s a t i n g p r o v i s i o n s c a n be f o r m u l a t e d
equity.
would
States!
in
increase
1973/74.
185
It
c i t e d a 1976 s u r v e y f o r
which indicates
the National I n s u l a t i o n Tracking
Study
t h a t p e r h a p s 20% o f o w n e r - o c c u p i e d homes w e r e
b e t w e e n 1973 and 1 9 7 6 .
The t a x c r e d i t
i n c e n t i v e s which our
endorses,
and w h i c h a r e b e i n g r e v i e w e d by o t h e r Committees o f
Congress,
should sustain —
if
not accelerate — t h i s
trend.
I n my own t r a v e l s
throughout the country
for
L e a g u e , o u r members r e p o r t a k e e n i n t e r e s t
in cost-saving
features.
t h e r e a r e s t o r m d o o r s and windows.
for
homes w h i c h w i l l
haul.
insulation
i s adequate,
Buyers a r e w i l l i n g
save on t h e i r
utility
i s already
activities.
groups f o r
for
over the
energy
long
few
efficient
the
energy-
sanction.
i n d i c a t e d a b o v e , t h e U. S . League has i n i t i a t e d
among s a v i n g s and l o a n a s s o c i a t i o n s
and
M r . O l i n has b e e n w o r k i n g w i t h p r o f e s s i o n a l
a number o f y e a r s t o s p r e a d t h e g o s p e l o f
"life
energy-saving; improvements — w h i c h d e p a r t s from t h e
present-value analysis
for
devote i t s
Summer C l i n i c
affiliated
Institute
home c o m p o n e n t s .
an
allied
appraisal
cycle"
costing
traditional
The U. S . L e a g u e
t h i s year t o energy c o n s e r v a t i o n ,
will
and o u r
f o r F i n a n c i a l E d u c a t i o n i s d e v e l o p i n g course work
t o t r a i n mortgage l o a n o f f i c e r s
initiative,
of
whether
i n the past
"discounting"
h o g g i n g home w i t h o u t t h e n e e d f o r d i r e c t g o v e r n m e n t
As I
S.
t o pay premium
bills
bills
to the importance of
The h o u s i n g m a r k e t p l a c e
extensive e f f o r t
t h e U.
on t h e p a r t o f home b u y e r s
Rapidly r i s i n g u t i l i t y
y e a r s have educated f a m i l i e s
dwellings.
the
People are asking about the e f f i c i e n c y
h e a t i n g and c o o l i n g s y s t e m s , w h e t h e r
prices
re-insulated
organization
individual
at our associations.
institutions
l e n d i n g programs t o encourage borrowers t o r e t r o f i t
On t h e i r
have d e v e l o p e d a v a r i e t y o f
their
own
special
residences.
186
At t h i s point,* I
t h e members o f
g r e a t value t o our o v e r a l l
I'm referring,
Act
should mention t h a t
of
course,
f i n a n c i n g program f o r
and l o a n a s s o c i a t i o n s )
Development A c t o f
enable our
t h e H o u s i n g a n d Community
Your a c t i o n r a i s i n g t h e c o n v e n t i o n a l
institutions
e n e r g y - s a v i n g improvements
t o provide funds f o r
home
Conference,
the kinds of
( e . g . , modernized h e a t i n g systems)
reduction
Loan
savings
t o $ 1 5 , 0 0 0 , w h i c h i s n o t an i s s u e i n
c o u l d make a s i g n i f i c a n t
of
conservation.
Federally-chartered
i n c l u d e d i n S. 1523,
1977.
improvement l o a n l i m i t
energy
weeks
changes
t o t h e amendments t o t h e Home O w n e r s '
( g o v e r n i n g t h e i n v e s t m e n t powers o f
will
i n recent
t h i s Committee have approved l e g i s l a t i v e
i n e n e r g y w a s t e i n many
major
which
residences.
What t h e C o n f e r e n c e d e c i d e s o n t h e $ 5 5 , 0 0 0 c e i l i n g o f S e c t i o n 5 ( c )
has e n e r g y - s a v i n g
recognition
value of
implications.
As I
have n o t e d ,
i n b o t h o u r b u s i n e s s and t h e p u b l i c o f
energy-efficient
there is
the " l i f e
cycle"
f e a t u r e s o f new a n d u s e d homes, t h o u g h
f e a t u r e s may i n i t i a l l y
increase the price of
a home.
limit
accounting treatment,
which places every
of
and i t s
peculiar
l o a n s above t h e c e i l i n g
percent-of-assets
to provide the credit
and r e g u l a t o r y
conservation e f f o r t s
public
over
remain,
h o w e v e r , a number o f o t h e r
which i n h i b i t
i n f i n a n c i n g energy improvements.
non-conforming
20
associations
The t o t a l o f
tight
our p a r t i c i p a t i o n
and t h e o p t i o n s open t o o u r i n s t i t u t i o n s
lending area.
dollar
penny
housing.
limitations
( i n c l u d i n g t h e FHA's)
these
The $ 5 5 , 0 0 0
of our Federal
and
F o r e x a m p l e , FHA T i t l e
$ 7 , 5 0 0 m u s t be a c c o m p a n i e d b y a s e c o n d l i e n ,
beyond r e g u l a r
loans
retards the a b i l i t y
t o buy such
There s t i l l
statutory
i n our p a r t i a l l y - f i l l e d
"basket",
also
growing
in
the
I
loan
a n d c a n n o t be made
home i m p r o v e m e n t a n d
cannot exceed 2 0 % - o f - a s s e t s .
We a r e
equipping
also
187
e f f e c t i v e l y prevented from o f f e r i n g
improvements f o r
conforming r e s i d e n t i a l
2%-of-assets.
ceilings w i l l
second mortgages t o f i n a n c e
e x i s t i n g customers,
"spillover"
category t y p i c a l l y
Though y o u r " $ 5 5 , 0 0 0 r e l i e f "
be i m m e d i a t e l y h e l p f u l ,
l o a n - t o - v a l u e and m a t u r i t y
S.
1666
restricted
a n d h i g h e r home
FHLBB r u l e s
l i m i t s which r e s t r i c t
w i t h expensive energy saving f e a t u r e s .
contained i n our b i l l
major
since these are l i m i t e d t o a non-
still
to
improvement
contain
tight
f i n a n c i n g o n homes
The r e w r i t e o f
Section
5(c)
( w h i c h was d i s c u s s e d a t h e a r i n g s o f
your
S u b c o m m i t t e e o n F i n a n c i a l I n s t i t u t i o n s a week ago) w o u l d s o l v e many o f
t h e s e r i g i d i t i e s i n p r e s e n t law and r u l e s .
The a l m o s t u n i v e r s a l
amortized mortgage instrument
impediment t o
instance,
fixed-rate,
itself
fully-
innovative energy-saving financing f o r the public.
a very appealing financing opportunity
be t h e e x e r c i s e o f
a line-of-credit
home i m p r o v e m e n t l o a n r a t e s .
for
"bargain"
Another p o s s i b i l i t y
is the
provide for
equity
in their
home.
"savings"
A n o t h e r change m i g h t
a " s k i p p a y m e n t " p r i v i l e g e when home o w n e r s a r e
such as t h a t
e x p e r i e n c e d b y much o f
usual
"reverse
unexpectedly
f a c e d w i t h t e m p o r a r y unemployment i n d u c e d by a "deep f r e e z e "
crisis
might
permit
r a t e below
c o n c e p t w h i c h w o u l d p e r m i t homeowners t o t a p t h e
r e p r e s e n t e d by t h e b u i l t - u p
For
t h e consumer
or open-end clause t o
i m p r o v e m e n t s t o be f i n a n c e d a t a s p e c i a l
annuity"
fixed-term,
i s u n d u l y c o n f i n i n g and an
the nation l a s t
utility
winter.
We w o u l d s t r o n g l y recommend t h a t y o u r C o m m i t t e e p r o v i d e a s i g n a l
to
t h e F e d e r a l Home L o a n Bank B o a r d t o p r o c e e d t o e x p e r i m e n t w i t h a
variety of
of
f l e x i b l e mortgage i n s t r u m e n t s .
S e n a t o r s Tower a n d C r a n s t o n
t h i s Committee have i n t r o d u c e d l e g i s l a t i o n
e n d , a n d we i n c o r p o r a t e d t h e i r
( S . Con. R e s . 9 )
to
l a n g u a g e i n t h e U. S. L e a g u e ' s S .
this
1666.
188
Comments o n P a r t A , S .
1469
M r . C h a i r m a n , we h a v e s e r i o u s r e s e r v a t i o n s
of
t h e N a t i o n a l Energy A c t mandating t h a t
about
portions
regulated u t i l i t i e s
provide
c e r t a i n s e r v i c e s r e g a r d i n g energy c o n s e r v a t i o n .
S e c t i o n 103(a)
if
have r e s i d e n t i a l
enacted,
would r e q u i r e p u b l i c u t i l i t i e s ( w h i c h
i n excess o f
another
stated theshhold f i g u r e ) t o
lender
t o make, a l o a n t o
"...make,
or arrange
such r e s i d e n t i a l
t h e p u r c h a s e and i n s t a l l a t i o n c o s t s o f
utility"
t o r e c e i v e Federal Housing A d m i n i s t r a t i o n
the f a m i l i a r
"Title
I"
of
home i m p r o v e m e n t
f i n a n c i a l and
Section
institutions
for
utilities
s a v i n g s and l o a n a s s o c i a t i o n s
i n home i m p r o v e m e n t
leans;
I
improvement l e n d i n g a r e a ,
the past f i v e years,
all
such l o a n s .
am p a r t i c u l a r l y
$8.5 b i l l i o n
increase of
and have d o u b l e d t h e i r
44% s i n c e 1972 i n
share of
implies t h a t those
already
for
all
customers,
in
of
utilities
need t o a c q u i r e
i z e d p e r s o n n e l and equipment a t c o n s i d e r a b l e expense.
S&Ls
the
the market
t o t h e p o i n t w h e r e t h e y now make o v e r 1 / 3
S . 1469 c e r t a i n l y
annually
pleased to report t h a t
u n a c c u s t o m e d t o home i m p r o v e m e n t f i n a n c i n g w i l l
increases
established
C o m m e r c i a l b a n k s and
already provide over
have d e m o n s t r a t e d an a n n u a l r a t e o f
insurance
important
i n S . 1469 d u p l i c a t e s w e l l
services already available to the public.
lending
loans.
Adding the f i n a n c i n g f u n c t i o n t o the other
assignments of p u b l i c
finance
suggested measures..."
to the l i s t
(C),
sales
for
customer t o
110 t h e n a d d s " p u b l i c
eligible
(2)
special-
T h i s means
i n c l u d i n g t h o s e whose r e s i d e n c e s
rate
are
energy-efficient.
Although public u t i l i t i e s
thermal e f f i c i e n c y
of
are w e l l equipped t o assess
homes a n d p e r h a p s p e r f o r m an a c c r e d i t a t i o n
of
the
189
materials
and c o n t r a c t o r s
for
installation
n o t p a r t i c u l a r l y f a m i l i a r w i t h (and i n
e x t e n s i v e l e g a l and r e g u l a t o r y
requirements
Lending,
which apply
Fair
Credit
Opportunity
Acts.
("Seller's"
rule)
course"
lending.
the
seller
promulgated
is
a recent
financial
The i m p a c t
same c l a i m s
of
a
function.
their
last
year
altering
must contend
is
Credit
regulation
"holder
rules
i n home
to
Truth-in-
and t h e E q u a l
trade
the
are
the
such as t h e
specialized
FTC r e g u l a t i o n
they
from)
in
with
due
which
improvement
expose l e n d e r s
against
to
the
product.
financial
experience
that
so t h a t
pay.
is
in
the public
institutions
to
continue
protection
to
interest
companies
they
institutions
contained
to
provide
available
to
for
are accustomed t o
i n § 103(a)(4)
their
energy c o n s e r v a t i o n measures would
to
their
S.
1469 e n t i r e l y .
to
finance
financing
lenders
beyond
which
their
requires
t h e p u r c h a s e and
, however,
is
counselling
customers w i t h a l i s t i n g
finance
of
the
perform the
p r o v i d e d by t r a d i t i o n a l
t h e y do n o t u n d e r t a k e o b l i g a t i o n s
The p r o v i s i o n
utility
it
in underwriting;
ability
financial
—
Billing,
a n d d e f e n s e s w h i c h a c o n s u m e r may r a i s e
borrowers,
public
Credit
example o f
this
One i m p o r t a n t
to
institutions
Fair
institutions
of
We b e l i e v e
traditional
lending
such m a t e r i a l s ,
The F e d e r a l T r a d e C o m m i s s i o n ' s
doctrine
traditional
to
Reporting,
of
some c a s e s e x e m p t
prove most
of
installation
beneficial
customers/consumers.
As a r e s u l t ,
residential
three
years
vised
financial
we r e c o m m e n d t h a t
Those p o r t i o n s
be l i m i t e d
customers
instead
institutions
94-843 O - 77 - 13
to
of
Section
Section
and a c c e p t
repayment over
e n c o u r a g i n g use o f
to provide
110 b e d e l e t e d
103 c o m p e l l i n g
financing
no l e s s
traditional
services.
from
utilities
than
super-
190
I n t h e i n t e r e s t o f c u r r e n t and p r o s p e c t i v e
homeowners who w i l l
American
be a f f e c t e d b y t h e t e r m s o f S . 1 4 6 9 , we a l s o
s u g g e s t m i n o r changes i n two d e f i n i t i o n s
found i n S e c t i o n 101 o f
the
bill:
1)
the d e f i n i t i o n of " r e s i d e n t i a l b u i l d i n g " found i n
S e c t i o n 1 0 1 ( 9 ) s h o u l d be amended t o i n c l u d e
r e s i d e n t i a l b u i l d i n g s w h i c h c o n t a i n no m o r e t h a n
f o u r d w e l l i n g u n i t s , r a t h e r than two d w e l l i n g u n i t s
as t h e p r e s e n t l a n g u a g e o f t h e b i l l s p e c i f i e s .
Such
a change would b r i n g t h i s d e f i n i t i o n o f " r e s i d e n t i a l
dwelling" into conformity with similar definitions
o f t h a t t e r m commonly f o u n d i n F e d e r a l h o u s i n g
legislation.
2)
t h e l i m i t e d d e f i n i t i o n o f " r e s i d e n t i a l energy
c o n s e r v a t i o n measure" found i n S e c t i o n 101(11)
be e x p a n d e d t o p r o v i d e f l e x i b i l i t y f o r f u t u r e
t e c h n o l o g i c a l advancements i n t h i s a r e a .
Sections
113 a n d 114 a r e c o n s t r u c t i v e
additions
should
to
N a t i o n a l E n e r g y A c t a n d i n l i n e w i t h a s u g g e s t i o n we s u b m i t t e d
Mr.
Schlesinger.
T h e s e s e c t i o n s amend t h e s t a t u t e s g o v e r n i n g
this
to
the
F e d e r a l Home L o a n M o r t g a g e C o r p o r a t i o n a n d t h e F e d e r a l N a t i o n a l
A s s o c i a t i o n t o p e r m i t the purchase o f unsecured energy-saving
improvement l o a n s .
provide,
These e s t a b l i s h e d
secondary market
facilities
as y o u know, a mechanism f o r m o v i n g a v a i l a b l e f u n d s
capital-surplus
to capital-short
a r e a s i n t h e economy.
home l o a n b u s i n e s s w i t h FNMA o r t h e FHLMC t y p i c a l l y
Mortgage
home
from
Lenders
doing
package a b l o c k
l o a n s , w h i c h t h e a g e n c y t h e n b u y s — m a k i n g new f u n d s a v a i l a b l e
originator.
for
its
The s e c o n d a r y m a r k e t f a c i l i t y
own p o r t f o l i o ,
resale to other
then e i t h e r
o r repackages them ( o r i n t e r e s t s
institutions
w i t h excess f u n d s .
holds the
i n them)
I n the mortgage
t h e r e p a c k a g i n g i n s t r u m e n t can be d e s i g n e d t o a p p e a l t o o t h e r
institutions,
or
e v e n t o new k i n d s o f
investors
to
of
the
loans
for
field,
financial
— pension funds,
for
191
i n s t a n c e — t h u s t a p p i n g new s o u r c e s o f c a p i t a l .
we b e l i e v e ,
The same m e c h a n i s m ,
c a n be a p p l i e d t o e n e r g y - s a v i n g home i m p r o v e m e n t
loans.
W h i l e t h e s e c o n d a r y m a r k e t s e c t i o n s may n o t be a m a j o r
component o f
financial
the President's
institutions
f i n a n c i n g approach,
to offer
they w i l l
encourage
home i m p r o v e m e n t l e n d i n g f o r
retro-
fitting.
The f i n a l
for
s e c t i o n o f Subpart 2 provides a d d i t i o n a l
the "weatherization"
legislation
p r o g r a m e s t a b l i s h e d by y o u r S u b c o m m i t t e e
i n t h e l a s t Congress.
the President
funding
Our A p r i l
i n c l u d e t h e comment:
7 recommendations
"The w e a t h e r i z a t i o n
in
to
program
a u t h o r i z e d u n d e r t h e E n e r g y C o n s e r v a t i o n and P r o d u c t i o n A c t
should
be a d e q u a t e l y f u n d e d i n o r d e r t o h e l p l o w - i n c o m e p e o p l e s a v e
energy
and c o s t s " .
in
R e s i d e n t i a l energy l o s s
and a p a r t m e n t s o f
w o r t h y and l e a s t
many i n t h i s
credit
low-income f a m i l i e s —
t h e p o p u l a t i o n pay l i t t l e
therefore support the increased funding for
Policy
improvements.
o r no t a x e s ,
c a l l e d f o r by t h e P r e s i d e n t a r e o f
as a n e c e s s a r y p a r t o f o u r n a t i o n ' s
homes
y e t these are the l e a s t
able to undertake r e t r o f i t t i n g
segment o f
incentives
i s undoubtedly greatest
total
little
the
help.
the weatherization
residential
creditSince
tax
We
program
conservation
effort.
Considerations
We w o u l d f u l l y
e x p e c t t h a t t h e Congress w i l l
r e v i e w a wide v a r i e t y o f approaches t o m o d i f y i n g t h e
N a t i o n a l Energy A c t .
with a brief
With t h i s
i n m i n d , we w o u l d l i k e t o
discussion of policy considerations
as home l e n d i n g
specialists.
carefully
Administration's
from our
conclude
perspective
192
First
of a l l ,
are never p a r t i c u l a r l y
real
savings
In last
for
we w o u l d o b s e r v e t h a t c r e d i t
for
small p r i n c i p a l
subsidized interest
"bargain"
to r e t r o f i t
were
structures.
a m o u n t s f o r many e n e r g y - s a v i n g
l o a n s i m p l y o n l y v e r y modest d o l l a r
use o f
there
G o v e r n m e n t - s u b s i d i z e d and g u a r a n t e e d l o a n s
i n d u c e homeowners a n d c o r p o r a t i o n s
relatively
of
t h e f a m i l y b u d g e t a n d t h e m e r i t o f new p r o d u c t s .
y e a r ' s Energy Conservation A c t d e l i b e r a t i o n s
recommendations
incentives
e f f e c t i v e u n l e s s consumers a r e c o n v i n c e d
costs.
o f f e r e d by s u c h s u b s i d i e s
to
Yet
the
improvement
s a v i n g s t o consumers t h r o u g h
It
is
the
i s open t o q u e s t i o n whether
s u c h a s t o make s u c h
the
retrofitting
"irresistible".
The P r e s i d e n t ' s
income s t r a t a
credits
this
program,
we f e e l ,
recognizes
i n the population require d i f f e r e n t
s h o u l d a p p e a l t o many f a m i l i e s w i t h s i g n i f i c a n t
approach a l s o involves
consumer,
the greatest
spaed i n i m p l e m e n t a t i o n ,
freedom o f
and s i m p l i c i t y
utilize
The m i d d l e
income g r o u p s ,
then,
different
tax
Tax
choice for
the
administratio.
"weatherization"
are those most l i k e l y
to
t h e f i n a n c i n g programs o f f e r e d t h r o u g h o u r s a v i n g s and
loan
associations.
We a r e c o n c e r n e d ,
sponsored program o f
for
disreputable
of course,
t a x and c r e d i t
t h a t a n y new
incentives
Federally-
c o u l d become a
businessmen and shoddy m e r c h a n d i s e .
I n our
target
view,
one p r o t e c t i o n a g a i n s t
f a m i l i e s overextending themselves
through
p u r c h a s e s on c r e d i t
t o encourage t h e p a r t i c i p a t i o n
supervised
financial
w i t h our
is
institutions
—
of
s u c h as s a v i n g s and l o a n a s s o c i a t i o n s
sound u n d e r w r i t i n g
procedures.
^
liabilities;
o f program
T h e m o s t d i s a d v a n t a g e d i n c o m e g r o u p s a r e s e r v e d by t h e
program.
that
incentives.
—
193
We a r e e n c o u r a g e d b y t h e P r e s i d e n t ' s d e c i s i o n t o
our involvement,
a "voluntary"
and t h a t o f o u r b o r r o w i n g c u s t o m e r s ,
basis.
As d i s c u s s e d e a r l i e r
s t r o n g l y oppose t h e Government
on t h e p u b l i c
efficiency"
t h r o u g h use o f
or p r o h i b i t i o n s
"forcing"
in this
testimony,
energy-saving
homes n o t m e e t i n g
We b e l i e v e s u c h an a p p r o a c h w o u l d be a t e r r i b l e m i s t a k e .
home i s a p r e c i o u s r e s o u r c e — o f
society.
upon
we
improvements
such s a n c t i o n s as " c e r t i f i c a t e s
on l e n d i n g f o r
leave
basically
of
energy
standards.
The
family
fundamental importance i n our
Anyone who has e x p e r i e n c e d t h e e x e r c i s e o f
eminent
free
domain
o r c o n d e m n a t i o n p o w e r s c a n a p p r e c i a t e t h e d i s r u p t i o n c r e a t e d by
depriving citizens
of t h e i r
i s what happens i f
y o u make an e x i s t i n g home u n s a l a b l e t h r o u g h
property rights;
on l e n d e r s .
We a l s o p o i n t o u t t h a t
institution,
i n business
poor choice t o
materials,
"police"
installation,
for
and h i s l e g i s l a t i v e
this
the purpose of
effect,
sanctions
financial
providing credit,
is
or
again our p r a i s e f o r President
t h e n a t i o n t o t h e consequences o f
improve upon t h a t
have a p p r e c i a t e d t h i s
Carter's
energy
We know t h a t y o u r
waste,
for
Committee
beginning.
opportunity
t h e U. S. L e a g u e a n d l o o k f o r w a r d t o y o u r
#
#
#
a
for
performance.
package t o assure adequate energy r e s o u r c e s
and t h e C o n g r e s s w i l l
of
the Federally-insured
and f u t u r e g e n e r a t i o n s o f A m e r i c a n s .
I
in
c o m p l i a n c e w i t h any m a n d a t o r y s t a n d a r d s
T h u s , we r e p e a t
b o l d program t o a l e r t
and t h i s ,
to present the
questions.
views
194
IffcTf t,
UNITED STATES LEAGUE of SAVINGS ASSOCIATIONS WASHINGTON OFFICE
1709 NEW YORK AVENUE, N.W. / WASHINGTON. D.C. 20006 / TEL. (202) 785-9150
April
7 , 1977
i e H o n o r a b l e James R . S c h l e s i n g e r
Assistant t o the President
The W h i t e House
W a s h i n g t o n , D . C . 20500
Dear Mr.
Schlesinger:
The U . S . League o f S a v i n g s A s s o c i a t i o n s a p p r e c i a t e s
the opportunity t o present i t s suggestions regarding our
n a t i o n ' s energy p o l i c y .
We f e e l t h a t t h e e n e r g y s i t u a t i o n
r e p r e s e n t s a s e r i o u s a n d f a r - r e a c h i n g p r o b l e m a n d we commend
P r e s i d e n t C a r t e r and t h e A d m i n i s t r a t i o n f o r s o l i c i t i n g t h e
v i e w p o i n t s o f the American p u b l i c before announcing a program.
The U . S . League o f S a v i n g s A s s o c i a t i o n s has a n a t i o n a l
membership o f 4,400 s a v i n g s and l o a n a s s o c i a t i o n s ,
representing
o v e r 98% o f t h e a s s e t s o f t h e s a v i n g s a n d l o a n b u s i n e s s .
Savings a s s o c i a t i o n s a r e t h e second l a r g e s t t y p e o f f i n a n c i a l
i n s t i t u t i o n i n t h e n a t i o n , w i t h a s s e t s a t y e a r - e n d 1976 o f
$3 9 8 . 7 b i l l i o n .
Savings associations are the major source
of residential credit i n the United States.
The E x e c u t i v e Committee o f t h e U . S . League a t a m e e t i n g
yesterday developed s e v e r a l recommendations f o r the Federal
Government r e g a r d i n g t h e energy i s s u e .
Our League a l s o
recognizes t h a t t h e housing i n d u s t r y i t s e l f can i n i t i a t e
v a r i o u s g u i d e l i n e s and programs i n o u r e v e r y day o p e r a t i o n s
which w i l l promote energy conservation i n r e s i d e n t i a l
structures.
Our a n a l y s i s o f t h e e n e r g y p r o b l e m has l e d u s t o
conclude t h a t t h e f o l l o w i n g recommendations should be c a r e f u l l y c o n s i d e r e d b y t h e F e d e r a l Government i n t h e d e v e l o p ment o f a n a t i o n a l energy p o l i c y .
Recommendations t o t h e
Government
1)
Mandatory F e d e r a l standards f o r thermal performance
i n e x i s t i n g housing should not be adopted.
Instead
F e d e r a l and S t a t e a g e n c i e s s h o u l d c o o p e r a t e w i t h
t h e s a v i n g s b u s i n e s s and r e l a t e d h o u s i n g groups i n
t h e i r v o l u n t a r y e n e r g y c o n s e r v a t i o n and e d u c a t i o n
programs.
2)
E f f o r t s o f various Federal agencies i n the area o f
h o u s i n g p r o d u c t i o n and energy c o n s e r v a t i o n s h o u l d b e
coordinated t o eliminate c o n f l i c t s . *
•Special attention i s directed t o inconsistencies i n qualifying
b o r r o w e r s u n d e r HUD a n d FNMA/FHLMC r e g u l a t i o n s , a n d i n e l i g i b i l i t y
of s o l a r energy loans f o r s a l e t o these secondary market e n t i t i e s .
195
The H o n . James S c h l e s i n g e r
-
2 -
April
7,
3)
The a p p r a i s e r s h o u l d t a k e t h e e n e r g y e f f i c i e n c y o f
a house i n t o c o n s i d e r a t i o n on t h e l o a n a p p r a i s a l
form.
4)
The F e d e r a l Power C o m m i s s i o n a n d t h e p u b l i c u t i l i t i e s
should cooperate t o devise r a t e s t r u c t u r e s which
reward conservation of energy.
5)
The w e a t h e r i z a t i o n p r o g r a m a u t h o r i z e d u n d e r t h e
E n e r g y C o n s e r v a t i o n and P r o d u c t i o n A c t s h o u l d be
adequately funded i n order t o help low-income people
save e n e r g y and c o s t s .
6)
The IRS Code s h o u l d be amended t o p r o v i d e d i r e c t
F e d e r a l i n c o m e t a x c r e d i t s t o homeowners who i m p r o v e
t h e e n e r g y e f f i c i e n c y o f t h e i r homes and i n s t a l l
energy s a v i n g equipment o r systems.
S t a t e and l o c a l
governments s h o u l d adopt t a x laws w h i c h encourage
home i m p r o v e m e n t s o r i n s t a l l a t i o n s f o r e n e r g y c o n servation.
7)
The e n a b l i n g l e g i s l a t i o n o r a d m i n i s t r a t i v e r e g u l a t i o n s
g o v e r n i n g s a v i n g s a s s o c i a t i o n a c t i v i t i e s s h o u l d be
amended t o p e r m i t t h e f o l l o w i n g :
a)
S e l l i n g o f s o l a r and e n e r g y - c o n s e r v i n g home
improvement loans t h r o u g h e x i s t i n g secondary
market e n t i t i e s .
b)
Extending additional c r e d i t to existing
on t h e o r i g i n a l mortgage i n s t r u m e n t .
c)
I n v e s t i n g by a s s o c i a t i o n s
ducing u t i l i t i e s .
d)
D e v i s i n g a l t e r n a t i v e mortgage p l a n s w h i c h
e s c a l a t i o n of energy c o s t s .
e)
Making l o a n s f o r s o l a r systems and o t h e r r e n e w a b l e
energy improvements i n excess o f $10,000, 15-year
s t a t u t o r y l i m i t f o r home i m p r o v e m e n t l o a n s .
f)
Making l o a n s f o r s o l a r and o t h e r e n e r g y - c o n s e r v i n g
improvements i n excess o f t h e $55,000 c u r r e n t
s t a t u t o r y l i m i t f o r permanent l o a n - t e r m l o a n s .
g)
R e f l e c t i n g expected energy savings through
h i g h e r l o a n / v a l u e r a t i o s and t e r m s .
in local
borrowers
energy
proreflect
1977
196
The H o n . James
3
Schlesinger
April
7,
1977
I f y o u h a v e a n y q u e s t i o n s r e g a r d i n g t h e s e recommendat i o n s , we w i l l be g l a d t o d i s c u s s t h e m f u r t h e r w i t h y o u o r
your s t a f f .
The U. S . L e a g u e r e c o g n i z e s t h e d i f f i c u l t y o f
t h e t a s k i n v o l v e d i n e s t a b l i s h i n g a n a t i o n a l energy p o l i c y
a n d h o p e t h a t y o u w i l l f i n d o u r s u g g e s t i o n s t o be b e n e f i c i a l .
Sincerely
John Hardin
President
JH:pc
197
U . S . L E A G U E OF SAVINGS ASSOCIATIONS,
W a s h i n g t o n , D.C., J u l y 5, 1977.
H o n . W I L L I A M PROXMIRE,
Chairman, Committee on Banking, Housing and Urban Affairs,
D i r k s e n Senate Office Building,
Washington, D.C.
DEAR MR. CHAIRMAN : D u r i n g m y o r a l t e s t i m o n y on Tuesday, J u n e 28, on
the N a t i o n a l E n e r g y A c t , S. 1469, y o u requested t h a t I s u b m i t a s u m m a r y of
the F e d e r a l H o m e L o a n B a n k B o a r d ' s r e p o r t on the progress of t h e Neighborhood H o u s i n g Services programs. Please find attached one copy of t h i s summ a r y w h i c h appeared i n t h e A p r i l 1977 e d i t i o n of t h e B a n k B o a r d ' s " J o u r n a l
'77".
W e respectfully request t h a t t h i s s u m m a r y be made p a r t of the record on
S. 1 4 6 9 .
Sincerely,
JOHN A . HARDIN,
President.
[From FHLBB Journal, April 1977]
URBAN AFFAIRS
I n each of our l a s t t h r e e a n n u a l reports, t h e Office of H o u s i n g a n d U r b a n
A f f a i r s has chronicled the steady advance of concern f o r t h e f a t e of m a n y of
o u r older u r b a n neighborhods. I n 1976, a t t e n t i o n focused p r i m a r i l y on implem e n t i n g F e d e r a l l e g i s l a t i o n w h i c h requires depository i n s t i t u t i o n s to disclose
c e r t a i n k i n d s of i n f o r m a t i o n about t h e i r r e s i d e n t i a l l e n d i n g practices a n d on
developing a n d encouraging c o n s t r u c t i v e approaches to the complex problems
c o n f r o n t i n g m a n y older u r b a n areas.
R e g u l a t i o n C, issued by t h e B o a r d of Governors of the F e d e r a l Reserve
System t o i m p l e m e n t t h e H o m e M o r t g a g e Disclosure A c t , took effect on J u n e
30, 1976, I n i t i a l disclosure under t h i s s t a t u t e was r e q u i r e d by September 30,
a n d the Office of H o u s i n g a n d U r b a n A f f a i r s has assisted t h e B o a r d i n monit o r i n g e a r l y experience u n d e r t h i s r e g u l a t i o n . O H U A also assisted the Office
of E x a m i n a t i o n s a n d Supervision i n t a k i n g the necessary steps to i n s u r e t h a t
compliance w i t h these requirements w o u l d be d e t e r m i n e d d u r i n g each r e g u l a r l y
scheduled e x a m i n a t i o n . A t the end of 1976, O H U A was w o r k i n g w i t h the Office
of Economic Research to investigate research proposals to analyze a n d evaluate
the i n f o r m a t i o n made a v a i l a b l e as a r e s u l t of the H o m e M o r t g a g e Disclosure
Act.
D u r i n g the year, t h e Office of H o u s i n g a n d U r b a n A f f a i r s also guided the
establishment by t h e F e d e r a l H o m e L o a n B a n k System of the Office of Neighborhood R e i n v e s t m e n t to assist the B o a r d a n d the Members of the B a n k Syst e m i n u r b a n preservation. O N R also provides staff support f o r the U r b a n Reinvestment T a s k Force, a j o i n t e f f o r t by the B o a r d , H U D , a n d t h e
financial
r e g u l a t o r y agencies. A phased expansion of T a s k Force a c t v i t i e s w a s begun i n
August, c u l m i n a t i n g i n December i n the a p p r o v a l of a combined budget f o r the
T a s k Force i n excess of $5 m i l l i o n f o r p r e s e r v a t i o n a n d r e i n v e s t m e n t efforts
d u r i n g t h e c o m i n g year.
A l s o i n December, a f t e r several m o n t h s of c a r e f u l development, O H U A executed a n e w g r a n t agreement between the B o a r d a n d O N R to t r a n s f e r H U D
d e m o n s t r a t i o n f u n d s to O N R , u n d e r a p p r o p r i a t e controls, to s u p p o r t Neighborhood H o u s i n g Services a n d Neighborhood P r e s e r v a t i o n a c t i v i t i e s .
A t t h e end of 1976, the U r b a n Reinvestment T a s k F o r c e h a d Neighborhood
H o u s i n g Services p r o g r a m s o p e r a t i n g i n 28 cities a n d u n d e r development i n
a n a d d i t i o n a l 12 cities a n d also h a d accepted 7 new Neighborhood P r e s e r v a t i o n
P r o j e c t s f o r f u n d i n g . T h e efforts of the Office of Neighborhood Reinvestment
a n d the U r b a n R e i n v e s t m e n t T a s k Force to encourage neighborhood reinvestment a n d p r e s e r v a t i o n are c l e a r l y g r o w i n g i n i m p o r t a n c e a n d represent a sign i f i c a n t d e m o n s t r a t i o n of the a b i l i t y of the savings a n d l o a n i n d u s t r y , i n conj u n c t i o n w i t h c o m m u n i t y representatives a n d l o c a l government officials, to
respond to the needs of u r b a n neighborhoods i n a responsible a n d constructive
fashion.
G r o w i n g concern f o r the l e g i t i m a t e interests of consumers, i n c r e a s i n g efforts
t o ensure n o n d i s c r i m i n a t i o n i n housing finance, c o n t i n u i n g a c t i v i t y to encourage o p p o r t u n i t i e s f o r m i n o r i t y enterprise i n the savings a n d l o a n i n d u s t r y ,
198
a n d steady expansion of t h e efforts of t h e Office of Neighborhood R e i n v e s t m e n t
a n d the U r b a n Reinvestment T a s k Force thus were t h e h a l l m a r k s of 1976 f o r
the Office of H o u s i n g a n d U r b a n A f f a i r s . These i m p o r t a n t areas w i l l continue
t o present us w i t h challenges i n 1977, w h e n we w i l l have a n o p p o r t u n i t y t o
b u i l d on the solid f o u n d a t i o n of progress achieved d u r i n g the previous year.
Senator SCHMITT. T h a n k you. Since we have M r . Nash here, i n a
panel type environment, w h y don't we proceed w i t h t h a t testimony,
and then we w i l l have some questions f o r both of you.
STATEMENT OF HERBERT D. NASH, CHAIRMAN, ENERGY MANAGEMENT COMMITTEE, EDISON ELECTRIC INSTITUTE, NEW YORK,
ACCOMPANIED BY PAUL GREINER, VICE PRESIDENT, CONSERVATION AND ENERGY DIVISION
M r . NASH. T h a n k you, Senator. M y name is H e r b e r t Nash, and I
am vice president of Pennsylvania Power & L i g h t Co., and chairman
of the energy management committee of Edison Electric Institute.
I have testimony which has been submitted f o r the record. I w i l l
excerpt f r o m t h a t statement, and make some other comments.
Senator SCHMITT. Fine.
M r . NASH. E E I is the p r i n c i p a l national association of investorowned electric u t i l i t y companies. The member companies of E E I
serve 99 percent of all of the customers of the investor-owned segment of the electric u t i l i t y industry, and 77 percent of the Nation's
electricity users.
I am accompanied today by Paul Greiner, who is vice president of
E E I ' s conservation and energy management division.
E E I and its member companies has f o r sometime been active i n
conservation, and have made inroads i n t o communicating w i t h consumers on this whole concern of energy and its efficient utilization.
W e have testified before, that i t is not difficult f o r E E I t o give its
f u l l support to the concept and intent of S. 1469 as i t relates to
energy conservation i n the home.
E E I has recently announced a nationwide program to encourage
conservation which we have chosen to call the national energy watch.
W e are encouraging the N E W program, t o be adopted by utilities
all over the country. I t w i l l be voluntary p r o g r a m on the p a r t of the
u t i l i t y and their involvement w i l l , of course, be voluntary.
T h i s program has three p r i n c i p a l objectives. A t the national level,
to help minimize the d r a i n on d w i n d l i n g fossil fuels; i n the public
u t i l i t y area, to reduce the need f o r costly new generating facilities;
and f o r the homeowner or consumer, t o help restrain the r i s i n g impact of energy bills on consumer's budgets.
A product of N E W w i l l be a number of energy efficiency guidelines, dealing w i t h both the thermal efficiency of residential structures and the efficiency of the heating-cooling systems and the appliances w i t h i n those structures.
The details of the program are included i n m y testimony and I
w i l l not go into those at this time.
The p r i n c i p a l points I would like t o emphasize is t h a t we i n E E I
support the voluntary aspects of the proposed legislation as opposed
to its mandatory aspects. I suppose I could say as a witness here t h a t
199
perhaps everyone will put his hands on his pocketbook since he is in
the presence of a couple of public utility representatives, after some
of the comments that have been made before my testimony.
We don't grow horns, we are people, we are concerned about our
customers, and consumers, and I assure you that we are interested
in promulgating the free enterprise system in this country.
We feel that flexibility is a key part that should to be included in
any legislation that relates to an extensive wide-ranging insulation
program.
Speaking for my company, we are interested in conducting home
surveys and audits. We are not interested in doing the insulation
work. We think we have in place competent installing contractors
who can do this work. We are not interested in financing insulation,
because we are not in the financing business. This is to be left, in our
judgment, to the banks and lending institutions of our country who
are adequately staffed and have a good track record in providing this
kind of service to consumers.
We are not interested either in having the cost of the financing on
insulation work put on customers' utility bills, because we have
enough problems with our customers now about complaints of large
bills, without adding an additional dollar amount to those bills, for
which the customer will not see any reflection of a reduced cost.
For example, we have 50 percent of the customers which we serve
heating with oil, 16 percent heat with natural gas, and 10 percent
heat with coal. None of these customers would see any reduction in
their electric bill for any insulation work that was done in their
home and at the same time they would be paying in their electric bill
for the added cost of the insulation, i f the legislation were approved
and the utilities had to in fact finance insulation and put i t on the
bill.
So we do not at all appreciate that aspect of the proposed legislation which would force us to increase our customers' perception of
what their electricity costs are when in fact those costs are related to
something else, in this case insulation.
I would like to talk about a couple of other things that have come
up here in the discussion today, because I think they are essential.
First of all, the issue of public confidence. I think we in the industry are concerned about conservation, we want to see it happen,
we think it is important as a national issue, and also we think it is
important as a consumer issue. So conservation must happen. I don't
think the climate in which we find ourselves in this country now is
conductive to voluntary public action, because the consumer does not
know who to believe about the whole issue of energy. The Senator
made a comment about questioning whether the credibility of government is very high. We have heard accusations by the Federal
Trade Commission about credibility of utilities. The consumer questions the energy suppliers as to their credibility at all angles.
I think i f we are to have any kind of forward motion on the part
of consumers to respond to what we perceive to be a national crisis,
we have got to develop some air of confidence by working together
as government-business-industry in order to develop a concerted
story here that fits together, where we can really convince people that
200
this crisis exists, and that action needs to be taken, and rather than
pointing the finger at one another, we need to lend support to one
another and develop programs and systems which w i l l be productive,
so we get the kind of results we want.
After all, what we are really interested in is getting consumers to
install conservation measures, which w i l l help reduce their bills, and
contribute to the national objective of reduced fuel consumption.
As far as the cost of an audit is concerned, my company has been
involved in an audit program for the last several months, and I can
give you some statistics on that, i f you would like.
We have run two advertisements in one of our company divisions
in an attempt to offer to consumers a free home energy audit.
Senator S C H M I T T . Excuse me. D i d you say free ?
Mr. N A S H . Free; no charge to the consumer.
Senator S C H M I T T . H O W do you pick up the tab ?
Mr. N A S H . Well, when you say it is free, there isn't any such thing
as free. We had this discussion in our company and the first ad did
not say free, it said "at no cost to the consumer." Of course we have
a cost associated with this, it is in the manpower and payroll costs of
the people employed by the company.
Senator S C H M I T T . They don't volunteer their services?
Mr. N A S H . N O , they are not doing i t after hours on a voluntary
basis.
But we ran the ad in the paper
Senator S C H M I T T . SO that goes into your overhead, is that it, as
part of the rate structure ?
Mr. N A S H . I t goes into the operating cost.
Senator S C H M I T T . I t becomes part of your rate structure?
Mr. N A S H . Right, part of the operating cost in the rate structure.
We ran this ad in the Harrisburg, Pa., newspaper on two occasions,
first on a Sunday in April, just about the time that the President
was about to make his proclamation with respect to the whole energy
policy. This was Sunday the 17th of April, the weekend before. The
newspaper has a circulation of 140,000, and we got something less
than 200 responses to the advertisement, people asking us to come
out and survey their homes.
We subsequently ran the ad on a weekday in an attempt to see
whether there would be more response, and in this case we did say
free in the banner in the ad, to try to get their attention and see i f
that would stir up greater public response.
I t did not. To date, as of June 16, we have had a total of 343
responses to the ads. We have completed 209 of the 337 requested
surveys. And we have found that these surveys take an average of
to 2 hours to complete.
Senator S C H M I T T . Excuse me. Say that again?
Mr. N A S H . I t takes i y 2 to 2 hours to complete each survey. This is
a top to bottom survey of the home. We leave a copy of the report
with the consumer as to the proposed measures that can be taken to
conserve energy in all energy utilization in the structure, and then
the customer is encouraged to contact someone in the contracting field
to get an estimate to have the work actually performed.
Senator S C H M I T T . D O you make any recommendations?
201
Mr. N A S H . The antitrust aspects of life forbid us from making any
specific recommendations. We refer the customer to the yellow pages
of the phone book. This is one of the reasons why some of the testimony that has appeared before speaks specifically to the antitrust
issue. We do not feel that in the present legal climate that we can
name specific contractors to the exclusion of others, because we run
the risk of antitrust suits. This is upon advice of our counsel.
These audits, of course, as I say, are top to bottom audits. We feel
that it is an effective way to try to produce for the consumer an indication of what potential conservation actions can be taken.
I will repeat, we are not interested in becoming a insulation contractor or financer for these actions.
Senator S C H M I T T . D O you have any followup on the 2 0 9 audits
that you did ?
Mr. N A S H . I t is a little too soon to followup. One of our concerns
of course is the question of our customers now waiting for this carrot,
which has been dangling in front of them in the way of a tax incentive before they take action to move forward with actually doing
the physical work of installing the insulation.
Our indications are that this is in fact holding the customers back
from taking action, the fact that there is potential tax advantages or
tax incentives for them, so they are waiting. This is a result of actual
interviews with these customers, they will wait until something more
substantive is developed with respect to the tax incentive program.
Senator S C H M I T T . SO this experience is showing you that even with
mandatory audits to be performed by utilities, it would not have an
effect?
Mr. N A S H . This is a voluntary response to an offer for audits. We
don't know how many customers really read the newspaper, we don't
know how many read the ads in the newspaper unless they are look
ing for something specific.
We have intentions to try other ways to reach customers to offer
this service to them, to see whether we can get a better response, a
billing insert or a direct mail piece to customers, or what have you.
The concern, of course, is that we will get deluged with these requests and can't respond because we do have a limited number of
people available to do this service.
Senator S C H M I T T . Have you estimated the cost per visit ?
Mr. N A S H . Well, I would say somewhere in the range of $ 2 5 to $ 5 0 .
Senator S C H M I T T . SO you would agree with the figure given yesterday of $ 2 0 to $ 4 0 ?
Mr. N A S H . Yes. There is about a 2-hour-per-inspection time involved, and when you figure transportation costs, payroll, plus overhead, fringe benefits, and so on, I think we are talking in that range
of $ 2 5 to $ 5 0 .
I n addition, we have had a rather concentrated effort going on in
our company now for over 1 year to try to get the lending institutions involved in the home renovation business, particularly as it
relates to energy conservation actions.
I have copies of ads here which have been run by banks in our
service area. Here is one from an Allentown bank that offers a 9y2
percent rate on a 36-month loan; another one from a bank in Harrisburg that is offering such loans.
202
We have had a series of meetings around with these leaders of
lending institutions, to apprize them of our evaluation of the energy
situation, to encourage them to get involved in the whole picture, to
become knowledgable, to offer them whatever expertise we have
about energy.
We have generated a lot of information, and we think home improvement work that is done on a do-it-yourself basis is a potential
here, and we have run clinics to train people how to install insulation
in their homes, and we w i l l continue to do this. There are many actions that are going on.
May I speak for a moment about the question of insulation contractors and the capabilities that exist for this business as far as we
are concerned from my company's point of view.
I have a copy of a survey made among insulating contractors in
northeastern Pennsylvania in one of our divisions. This survey was
made in February 1977, and it relates to 1976 activity. We contacted
24 insulating contractors in this division. They did 3,515 homes totally, and 1,434 homes partially. Most of these homes were involved in
retrofit types of insulation, because in most cases in new construction
the building contractor himself installs the insulation, rather than
calling in an insulation contractor; 22 of the 24 contractors do their
own financing, or have an arrangement with financial institutions
to do the financing. I n other words, financing is no problem for them.
We have had a good relationship with this group, and we feel that
we can work with them and as business opportunities expand in this
area, that they w i l l be willing to respond with the necessary added
equipment and necessary added installers in order to accomplish the
work that needs to be done.
I n addition to the work done by these contractors, we have cooperated with the Department of Community Affairs i n Pennsylvania, who are using Federal funds in the winterization program. I n
this particular portion of our service territory, 1,405 homes were
insulated under this federally sponsored winterization program in
1976.
So here is one small, relatively small, geographic area in Pennsylvania, and almost 5,000 homes were retrofitted with insulation in
1976.
I submit that the free enterprise system, the agencies which exist
in that system in the form of contractors and lending institutions,
are capable of doing the job that needs to be done on a national basis.
What we need is to build up public confidence in our systems, and
also to give people the incentive, so they w i l l move forward and
actually install the insulation that is so badly needed i n order to
accomplish the conservation we all want to see.
Thank you.
[The complete statement of Mr. Nash follows:]
203
TESTIMONY ON BEHALF OF THE EDISON ELECTRIC INSTITUTE
ON
S. 1469 - TO ESTABLISH COMPREHENSIVE NATIONAL ENERGY
POLICY
BEFORE THE
SENATE COMMITTEE ON BANKING, HOUSING AND URBAN AFFAIRS
JUNE 28, 1977
My name i s H e r b e r t D. Nash.
I am V i c e P r e s i d e n t
of
P e n n s y l v a n i a Power & L i g h t Company, and Chairman o f t h e Energy
Management Committee o f t h e E d i s o n E l e c t r i c
Institute,
p r i n c i p a l n a t i o n a l association of investor-owned
utility
companies.
the
electric
The member companies o f EEI s e r v e some
99 p e r c e n t o f a l l customers o f t h e i n v e s t o r - o w n e d segment o f
the e l e c t r i c
utility
e l e c t r i c i t y users.
o u r v i e w s on S.
industry,
and 77 p e r c e n t o f t h e
We a p p r e c i a t e t h i s o p p o r t u n i t y t o
nation's
present
1469.
EEI and most o f i t s member companies have been a c t i v e i n
a r e a o f c o n s e r v a t i o n and e n e r g y management f o r a number o f
The I n s t i t u t e ' s o f f i c i a l l y
years.
s t a t e d v i e w i s t h a t c o n s e r v a t i o n and
t h e e l i m i n a t i o n o f waste must be a t t h e base o f a l l
policy.
the
energy
204
-2E a r l i e r t h i s y e a r , E E I ' s Board o f D i r e c t o r s a d o p t e d a r e s o l u t i o n
which states t h a t ,
"EEI and i t s member companies s h o u l d
further
d e v e l o p a c t i o n programs t o s u p p o r t a f u l l commitment t o
conservation.
EEI s u p p o r t s t h e c o n c e p t o f t h e p r o p o s e d Energy Department and t h e
o b j e c t i v e s o f e l i m i n a t i n g w a s t e and p r o v i d i n g an adequate e n e r g y
s u p p l y f o r A m e r i c a ' s needs - u t i l i z i n g t o t h e f u l l e s t e x t e n t
c o a l and u r a n i u m r e s o u r c e s . "
our
R e c e n t l y , E E I ' s P r e s i d e n t , W. Donham
Crawford, pledged p u b l i c l y t h a t the investor-owned e l e c t r i c
utility
i n d u s t r y would take a l e a d e r s h i p r o l e i n h e l p i n g the n a t i o n
conserve
i t s dwindling supplies of f o s s i l
fuels.
Thus, as we have t e s t i f i e d b e f o r e ,
to give i t s
full
it
i s not d i f f i c u l t
s u p p o r t t o t h e c o n c e p t and i n t e n t o f
for
EEI
S. 1469 as
it
r e l a t e s t o e n e r g y c o n s e r v a t i o n i n t h e home.
On June 13 i n P h i l a d e l p h i a ,
t h e EEI Board o f D i r e c t o r s
officially
a p p r o v e d a n a t i o n a l e n e r g y c o n s e r v a t i o n p r o g r a m f o r b o t h new and
existing residential units.
In i t s conception,
t h e program t a k e s
a c c o u n t t h e c o n s i d e r a b l e e x p e r i e n c e i n d i v i d u a l companies have
g a t h e r e d i n t h e development and a d m i n i s t r a t i o n o f l o c a l
utility
t o m a r k e t c o n s e r v a t i o n and e n e r g y manage-
ment t h a t we had i n t h e F i f t i e s
I
already
programs.
We i n t e n d w i t h t h i s p r o g r a m t o d e v e l o p w i t h i n t h e e l e c t r i c
i n d u s t r y t h e same c a p a b i l i t y
into
and S i x t i e s t o m a r k e t k i l o w a t t
t h i n k you m i g h t be i n t e r e s t e d i n a b r i e f
review of i t s
hours.
major
features.
For
our
purposes
program under
of
the
stimulating
name o f
the
public
participation,
"National
Energy
we w i l l
Watch."
promote
205
-3N.E.W. w i l l
have t h r e e b a s i c o b j e c t i v e s .
At the n a t i o n a l
level,
t h e o b j e c t i v e w i l l be t o h e l p m i n i m i z e t h e d r a i n o n
dwindling
fossil
help
fuels.
At the industry
level,
it
will
be t o
reduce t h e need f o r
c o s t l y new g e n e r a t i n g f a c i l i t i e s ,
t h e homeowner l e v e l
t h e p r i m a r y o b j e c t i v e w i l l be t o
r e s t r a i n r i s i n g energy
and a t
help
bills.
The b a s e p l a t e o f N.E.W. w i l l be a number o f e n e r g y
efficiency
guidelines dealing w i t h both the thermal e f f i c i e n c y of
residential
structure
itself
- insulation,
- and a l s o w i t h t h e e f f i c i e n c y o f e l e c t r i c
within i t .
utility
periodically
s i n c e t h e n - most r e c e n t l y
Each i n d i v i d u a l
industry
compliance w i l l
80% o f
the t o t a l
as s u c h by t h e l o c a l u t i l i t y
be
to
at
and w i l l
company.
become members
be a p p r o p r i a t e l y
recognized
Owners o f e x i s t i n g homes
f o r N . E . W . membership i f
their
homes s c o r e a t l e a s t
or i f
they improve t h e i r
p r o p o s e many o f t h e same i n c e n t i v e s
following:
94-843 O - 77 - 14
will
80% o f
existing
20%.
To s t i m u l a t e homeowner p a r t i c i p a t i o n
i n c l u d i n g the
numbers
Homeowners whose homes s c o r e
t o t a l number o f p o s s i b l e p o i n t s ,
s c o r e by a t l e a s t
year.
value
earn lesser
number o f p o s s i b l e p o i n t s w i l l
o f the " N a t i o n a l Energy Watch,"
qualify
this
f o r t h e homeowner, o f c o u r s e , w i l l
s c o r e as many p o i n t s as p o s s i b l e .
least
i n February of
be g i v e n an a s s i g n e d p o i n t
Fractional
The o b j e c t i v e
by
t w e n t y y e a r s a g o , and u p g r a d e d
guideline w i l l
compliance.
of points.
appliances
t h a t were d e v e l o p e d i n i t i a l l y
the e l e c t r i c
full
systems and
etc.
These t h e r m a l i n s u l a t i o n g u i d e l i n e s a r e b a s e d on
All-Weather Comfort Guidelines
for
the
infiltration,
that
i n t h e N . E . W . p r o g r a m , we
are o u t l i n e d i n
S. 146 9 ,
the
206
-10-
1 . FINANCIAL ASSISTANCE
A number o f
financing plans of
different
types
a l r e a d y b e e n e s t a b l i s h e d b y many u t i l i t y
across the country.
works w i t h
banks a n d / o r o t h e r
financial
the development of
plans which the
independently
t o the
homeowner
the
institutions
in
latter
can
homeowner.
+Programs i n w h i c h t h e u t i l i t y
as a c a t a l y s t
companies
Among t h e m :
•Programs i n which t h e u t i l i t y
offer
have
simply
t o b r i n g t h e banks and
serves
the
together.
+Programs i n w h i c h t h e u t i l i t y
company
negotiates
t h e n o t e w i t h t h e homeowner a n d t h e n s e l l s
to the
+Programs i n w h i c h t h e u t i l i t y
itself
at
a reasonable r a t e of
c h a r g e t o t h e homeowner e i t h e r
monthly u t i l i t y
Many v a r i a t i o n s
not prescribe
participating
their
of
the
Federal
needs.
financing
interest with
on o r o f f
the
the
f u n d s as t h e y become
foregoing plans are
any s i n g l e p l a n ,
companies have a p l a n o f
individual
does t h e
bill.
+Programs u t i l i z i n g
N.E.W. w i l l
it
bank.
but w i l l
their
available.
possible.
require
own t h a t
is
that
suited
to
207
- 3 -
2.
REMODELING ASSISTANCE
As i n t h e c a s e o f
a local u t i l i t y
handle h i s
financing,
t h e r e a r e numerous ways
company c a n h e l p t h e o w n e r o f
an e x i s t i n g
c o n t r a c t i n g and c o n s t r u c t i o n p r o b l e m s .
Among some
t h a t have a l r e a d y been p u t i n t o e f f e c t by one o r more
are the
home
companies
following:
•Plans
i n which the u t i l i t y
paperwork b u t subcontracts
t o an independent
handles the
the actual
contractor.
+Plans i n which the u t i l i t y
with a reputable
works i n
franchised or
who assumes r e s p o n s i b i l i t y
carries
for
assistance
"partnership"
licensed
actual
t h e p a p e r a n d assumes a l l
+Plans i n which the u t i l i t y
other practical
necessary
construction
contractor
construction,
liability.
gives i n s t r u c t i o n
to the
and
"do-it-yourself"
homeowner.
+Plans i n which the u t i l i t y
own w o r k i n g c a p a b i l i t y
Again,
company e s t a b l i s h e s
t o do t h e r e m o d e l i n g
t h e r e a r e many v a r i a t i o n s
And a g a i n , NEW w i l l
not prescribe
3.
such as
individual operating
assistance
that
these.
parti-
is
circumstances.
MATERIAL AND LABOR ASSISTANCE
Predictably,
will
plans
work.
any o n e p l a n a s l o n g a s
c i p a t i n g c o m p a n i e s d e v e l o p some p l a n o f
suited to their
of
its
the a v a i l a b i l i t y
be a g r o w i n g p r o b l e m a t
utilities
material
will
endeavor
and l a b o r
the expeditious
of materials
the l o c a l
and q u a l i f i e d
level.
to maintain a current
sources i n order
handling of his
to assist
needs i n t h e s e
labor
Participating
review of
both
t h e homeowner
areas.
in
208
-104.
TAX CREDIT
P r e s i d e n t C a r t e r has p r o p o s e d t h a t
their
homes be g i v e n a t a x c r e d i t o f
invested i n remodeling,
this
plan,
c o r p o r a t e d as p a r t o f
Thus,
I.
a n d 15% f o r
o r one s i m i l a r ,
in brief
homeowners who
25% f o r
the next
i s enacted i n t o
t h e N.E.W.
"weatherize"
the next
$800
$1,400.
If
law,
it
will
be
package.
summary:
The o b j e c t i v e s
of
t h e N.E.W. program a r e
these:
For the Nation:
To h e l p m i n i m i z e t h e d r a i n o n f o s s i l
For the U t i l i t i e s :
To h e l p r e d u c e t h e n e e d f o r
generating capacity.
F o r Homeowners:
To r e s t r a i n r i s i n g e n e r g y c o s t s .
To p r o v i d e a d d i t i o n a l home c o m f o r t
To i n c r e a s e p r o p e r t y v a l u e s .
fuels.
increased
levels.
The way N . E . W . p r o p o s e s t o a c h i e v e t h e s e o b j e c t i v e s
o f f e r i n g t h e homeowner t h e
- Assistance
- Assistance
- Materials
-
Tax
financing
in
construction
and l a b o r
for
We b e g a n i m m e d i a t e l y
its
"National
Energy Watch"
not only
first
Board approval
and l o c a l l y .
nationally
it
t h a t we h a v e a l r e a d y
a voluntary
its
public
this
should note,
exists.
for
companies
this
c o n s e r v a t i o n program.
I
year,
promotion,
o u r member
We a r e p r o u d t h a t
program.
r e v i e w e d N.E.W.
activity
as l o n g as t h e n e e d
We e x p e c t m o s t o f
i n the e f f o r t .
a major
the balance of
t o develop procedures
and f o r
organized r e s i d e n t i a l
is
for
s e v e r a l y e a r s t o come after
t o become p a r t i c i p a n t s
are proud t h a t
by
assistance
i m p l e m e n t a t i o n and a d m i n i s t r a t i o n
both nationally
is
package:
credits
member c o m p a n i e s ,
but p r e d i c t a b l y ,
following
in
We i n t e n d t o make t h e
f o r EEI and i t s
in-
is
the
A n d we
finally,
i n c o n c e p t w i t h a number
of
209
-3-
utility
industries
trade a l l i e s
to obtaining their
implementation of
encouraging.
and o t h e r
active participation
it.
fuel
suppliers w i t h a view
i n both national
The r e s p o n s e f r o m t h e m so f a r
and
local
has been
very
Among t h e o r g a n i z a t i o n s we a r e w o r k i n g w i t h a r e
the
following:
A m e r i c a n P u b l i c Power
Association
National Rural Electric
Cooperative
N a t i o n a l M i n e r a l Wool I n s u l a t i o n
N a t i o n a l Home I m p r o v e m e n t
National Cellulose
L e t me s a y t h a t
easy.
I
Association
Association
Council
I n s u l a t i o n Manufacturers
do n o t p r e d i c t
A t P e n n s y l v a n i a Power & L i g h t ,
t h a t t h e j o b ahead w i l l
we h a v e b e e n t r y i n g
homeowners t o i m p r o v e t h e t h e r m a l i n s u l a t i o n o f
last
five years.
advertisements
We f i n d i t
Association
very d i f f i c u l t .
their
be
to
stimulate
homes f o r
Recently,
we r a n
the
two
i n o n e o f o u r l o c a l n e w s p a p e r s o f f e r i n g a f r e e home
e n e r g y s u r v e y t o be c o n d u c t e d by p e r s o n n e l i n my d e p a r t m e n t .
The
ads w e r e a q u a r t e r
paper
o f a page i n s i z e .
w h i c h has a c i r c u l a t i o n
of over
They r a n i n t h e Sunday
140,000 p e o p l e .
t h e weekend b e f o r e
the President
was much p u b l i c i t y
on t h e whole s u b j e c t o f
t h e most severe w i n t e r
this,
illustrates
interest
the present
time.
a n d we n e e d an a g g r e s s i v e m a r k e t i n g p r o g r a m .
following
be one v a l u a b l e
incentive.
All
h i g h energy b i l l s .
343 c o u p o n r e s p o n s e s .
t h e low l e v e l o f p u b l i c
of energy c o n s e r v a t i o n a t
p r o g r a m , we b e l i e v e
there
energy c o n s e r v a t i o n
on r e c o r d i n n o r t h e a s t e r n P e n n s y l v a n i a .
t h e ads d r e w o n l y
would c e r t a i n l y
appeared
g a v e h i s e n e r g y message when
o f our customers were f a c e d w i t h e x c e p t i o n a l l y
with a l l
The a d s
This
Yet
t o me
on t h e whole
subject
We n e e d more
incentives,
The p r o p o s e d t a x
As t o t h e
credits
marketing
t h e N a t i o n a l E n e r g y W a t c h p r o g r a m we h a v e
described
210
-10-
here w i l l
adequately
f i l l
that
With regard to specific
have t h e s e
need.
d e t a i l s o f S.
1469,
I b e l i e v e we
concerns.
Section
102 p r o p o s e s t o g i v e t h e F e d e r a l E n e r g y
broad a u t h o r i t y
the o v e r a l l
to establish rules,
program.
guidelines
We w o u l d hope t h a t
this
and s t a n d a r d s
industry
i n d i v i d u a l member c o m p a n i e s maximum f l e x i b i l i t y
their
and
to develop
We a r e c o n v i n c e d t h a t
such v o l u n t a r y
c a n be i n i t i a t e d much s o o n e r a n d a d m i n i s t e r e d much more
operating circumstances
we b e l i e v e t h a t S e c t i o n 103
in that
"procedures w h e r e b y . . . , "
this
(a)
"Utility
of
local
with
section begins w i t h
or,
the methodologies
efficiency
for
manpower.
L e t us
one o f
to..."
agree
but then - i n
a c h i e v i n g t h o s e e n d s be l e f t
to us.
those procedures
of
the
a n d economy - we w o u l d s u g g e s t
g i v e y o u an example o f what j u s t
cost i n terms o f
Each
"procedures designed
f o c u s e s more o n " h o w " t h a n " w h a t . "
time,
Programs,"
t h a n end r e s u l t s .
o n t h e i n s u l a t i o n e n d s we a r e t r y i n g t o a c h i e v e ,
interest
of
a n d t h a t may become w e i g h t e d down
the f o u r main subparagraphs
We b e l i e v e
programs
detail.
i s preoccupied w i t h procedures r a t h e r
language,
I
efficiently
t h a n i m p o s e d F e d e r a l p r o g r a m s t h a t may l a c k a p p r e c i a t i o n
Further,
its
voluntary
own s u c h as t h e N a t i o n a l E n e r g y W a t c h p r o g r a m
o u t l i n e d a moment a g o .
administrative
for
a u t h o r i t y w o u l d be
e x e r c i s e d i n s u c h a way a s t o g i v e t h e u t i l i t y
programs o f
Administration
the
that
L e t me
would
211
-3-
Paragraph
directly
(2)(A),
S e c t i o n 103 r e q u i r e s
that
o r t h r o u g h one o r more c o n t r a c t o r s
residential
building
customer o f
the estimated cost of
suggested
(conservation)
force
m e a s u r e no l a t e r
follows
that
it
translates
residential
than January
57 m i l l i o n
40,
In fact,
entire
it
into
family
and
1980.
train
figuring
to
F i g u r i n g a 40 h o u r
an i n s p e c t i o n w o r k f o r c e o f
week,
2 8 , 5 0 0 men t o
A t my company a l o n e ,
I
house,
get
do
estimate
Since I
now
t h a t means a d d i n g t e n t i m e s t h e number now e m p l o y e d .
w o u l d mean a 6% i n c r e a s e
i n t h e employment o f
the
company.
That's
When i t
t h e e s t i m a t e d manpower r e q u i r e m e n t s
comes t o a c t u a l l y
doing the work,
difficult.
Paragraph f o u r ,
establishes
it
homes b y
as one o f
Section three,
•we e s t i m a t e
If
for
inspection.
becomes e v e n more
" N a t i o n a l Energy
the goals to i n s u l a t e
that
it
takes
90% o f
all
57 m i l l i o n
low-rise
that
there are
homes i n t h e U . S . ,
it
Goals,"
American
companies,
homes i n t h e y e a r s
residential
approximately
figures
1 0 2 , 6 0 0 men w o r k i n g f o r t y
90% t h e 57 m i l l i o n
inclusive.
some o f E E I ' s member
f o u r man-days t o i n s u l a t e one
you take the estimate
need a work f o r c e o f
insulate
it
just
1985.
Based on t h e e x p e r i e n c e o f
unit.
1980.
two hours p e r
I w o u l d h a v e t o a d d 400 p e o p l e t o my s t a f f .
have o n l y
1,
each
low-rise
t h a t many u n i t s ,
f o u r houses p e r day a t
the job i n the proposed time.
that
the
the
w o u l d t a k e 1 1 4 , 0 0 0 , 0 0 0 man h o u r s j u s t
t h e i n s p e c t i o n done b y J a n u a r y 1 ,
that
inspect
Omitting the time required to
to inspect
t h a t one man c a n i n s p e c t
companies,
p u r c h a s i n g and i n s t a l l i n g
There are a p p r o x i m a t e l y
a competent work
will
t o d e t e r m i n e and a p p r i s e
homes i n t h e U n i t e d S t a t e s .
it
utility
o u t t h a t we w o u l d
h o u r s a week
1978 t o
1985
to
212
-10Clearly,
the inspection requirement establishes
power r e q u i r e m e n t s t h a t ,
t o say t h e l e a s t ,
are
man-
substantial.
M o r e o v e r , we s u g g e s t t h a t any m a n d a t o r y i n s p e c t i o n p r o g r a m i m p o s e d
on u t i l i t i e s
c o u l d be c o n s t r u e d as an i n v a s i o n o f p r i v a c y
many r e s i d e n t i a l
customers would r e s i s t .
are
unpopular
e n o u g h w i t h o u t h a v i n g t o be t h e G o v e r n m e n t ' s i n s u l a t i o n
policeman
w i t h no c h o i c e i n t h e m a t t e r .
Utilities
that
We a r e s u r e t h e r e i s a b e t t e r
way
t o a c h i e v e t h e same e n d .
Beyond t h e s e t h i n g s ,
we a r e c o n c e r n e d w i t h w h a t a p p e a r
us t o be some s e r i o u s o m i s s i o n s i n t h e p r o p o s e d
I n the past,
anti-trust
individual
allegations
the u t i l i t y
companies have been c o n f r o n t e d
with
i n v o l v i n g t h e i n s u l a t i o n o f homes w h e r e
l i s t e d or selected the contractor.
Consequently,
w i t h any l e g i s l a t i o n o f t h e t y p e now b e f o r e t h e c o m m i t t e e ,
f r o m such a n t i - t r u s t
the u t i l i t y
liability
s h o u l d be p r o v i d e d .
s h o u l d n o t be l i a b l e
o f a poor i n s u l a t i o n
Additionally,
In
j o b i n s t a l l e d by a
event
contractor.
s i n c e homeowner p a r t i c i p a t i o n
a d v e r t i s i n g o f t h a t p r o g r a m , we b e l i e v e
immunity
addition,
t o t h e homeowner i n t h e
c o n s e r v a t i o n p r o g r a m depends s u b s t a n t i a l l y
i n any
energy
on t h e p r o m o t i o n
that a l l
and
such programs
s h o u l d be e x e m p t e d f r o m any and a l l
state restrictions
a d v e r t i s i n g and p r o m o t i o n f r o m r a t e
computation.
that
exclude
We b e l i e v e a l s o t h a t t h e c o s t o f p r o g r a m a d m i n i s t r a t i o n
the a d d i t i o n a l personnel required d i r e c t l y
implement energy c o n s e r v a t i o n programs o f
h e r e s h o u l d be a r e c o v e r a b l e
to
legislation.
cost.
and e x c l u s i v e l y
the type
and
to
contemplated
213
- l i -
Finally,
we a r e c o n c e r n e d b y t h e p r o v i s i o n i n t h e
legislation
that
stipulates
that
residential
customers by u t i l i t y
remodeling loans arranged
bill.
To d a t e ,
plaints
greatly
aggrevates
language i n the b i l l
to permit
o t h e r payment a r r a n g e m e n t by t h e l e n d i n g
to
including
high b i l l
submit copies of
points.
these suggestions
We w o u l d
separate b i l l i n g
in
I w o u l d be
to
com-
or
agency.
h a v e b r o u g h t w i t h me s u g g e s t e d m o d i f i c a t i o n s
covering the foregoing s p e c i f i c
a
customer's
and t h u s adds t o o u r a d m i n i s t r a t i v e w o r k l o a d .
much p r e f e r
I
the
o u r e x p e r i e n c e has been t h a t
t h e s e charges on m o n t h l y b i l l s
for
companies s h a l l be r e p a i d o v e r
p e r i o d o f n o t l e s s t h a n t h r e e y e a r s as p a r t o f
periodic
proposed
the
bill
happy
the committee i f
it
is
interested.
I
would l i k e
program t o a l e r t
I
t o c o n c l u d e by p r a i s i n g P r e s i d e n t C a r t e r ' s
t h e n a t i o n t o t h e consequences o f
am p l e a s e d t o o f f e r
our suggestions
t h a t y o u r g r o u p and t h e Congress w i l l
b e g i n n i n g and i n i t i a t e
to a l l
energy
to your committee,
i m p r o v e on t h e
action that w i l l
be e f f e c t i v e
bold
waste.
knowing
President's
and
equitable
Americans.
I n summary,
electric
utility
and i n t e n t
of
a l l o w me t o s a y a g a i n t h a t
industry
gives
a n d we s t a n d r e a d y t o o f f e r
this
you.
the
investor-owned
support
to the
relates
to
concept
energy
We b e l i e v e o u r N a t i o n a l E n e r g y
help materially
way t o f u r t h e r
Thank
full
t h e N a t i o n a l E n e r g y A c t as i t
c o n s e r v a t i o n i n t h e home.
program w i l l
its
i n the attainment of
additional
critically
assistance
important
effort.
those
in
any
Watch
objectives,
practical
214
Senator SCHMITT. T h a n k you, gentlemen. I w i l l be asking a number of questions here directed to one of you, but feel free to raise
your hand or w i n k at me or something and let me know y o u w o u l d
like to comment also.
F i r s t , M r . Nash, d i d you ask these contractors i f they anticipated
a shortage of insulation supply under the present trend, or under
the impetus of Federal legislation?
M r . NASH. W e d i d not ask that question w i t h respect to supply.
W e do know that they are very busy, they have t o l d us w i t h i n the
last month or so that they are booked solid as f a r as w o r k is concerned, on into November of this year.
So there is activity i n certain segments of the marketplace w h i c h
is i n fact producing a lot of workload f o r those contractors.
Senator SCHMITT. A r e there new contractors appearing, getting
into this game?
M r . NASH. There are occasionally new contractors. I n fact, I had
a call f r o m a gentleman w i t h i n the last month who was interested i n
establishing himself i n this contracting business, asking f o r some
guidance f r o m us to help h i m get established.
Senator SCHMITT. M r . H a r d i n , at the present time, mortgage
money is f a i r l y available, capital is available?
M r . HARDIN. Y e s , s i r , y o u are r i g h t .
Senator SCHMITT. I f i t started to tighten up, under the demands
f o r capital that w i l l come f r o m any national energy program, do
you see t h a t these kinds of loans that you have been t a l k i n g about
would be discouraged relative to the broader home ownership loans?
M r . H A R D I X . N O , sir, I don't, because we have gone through some
of those periods, and I t h i n k this i n f o r m a t i o n that I gave you earlier was very revealing to me, that showed that our associations had
increased their home improvement lending 44 percent each year
since 1972.
Back i n those days the money was not readily available. So home
improvement lending has increased through feast and famine. So I
do not see t h a t that would be any hinderance i n us p r o m o t i n g these
loans.
T h e other t h i n g you just asked M r . Nash about, are more people
going into that business, we do see more contractors t a k i n g on this
type of work, and we are delighted, because we see fnore h i g h l y regarded contractors doing this type of improvement.
Senator SCHMITT. A c c o r d i n g to the publication the American
Banker, of June 10, a lot of bankers believe they would be better
off l e t t i n g the utilities have the business, since the small short-term
transactions have a h i g h overhead cost and b r i n g a lot of headaches
and no profit.
W o u l d you agree w i t h that statement
M r . H A R D I N . Y O U have quoted the American Bankers, and I am
representing the American savings and loans. W e t h i n k t h a t is our
responsibility and we are perfectly w i l l i n g to accept i t , and want to.
M r . NASH. M a y I
respond?
Senator SCHMITT. Surely.
M r . NASH. W e have had contact w i t h many bankers, as I said, i n
fact, we have discussed w i t h some of them on a private basis their
215
willingness to participate i n some sort of financial program to t r y
to explore what are their interests, and how can we cooperate i n
this sort of endeavor.
There is some reluctance on the part of the bankers to get involved i n some of these loans because i n some cases we are only
t a l k i n g about perhaps, w i t h ceiling insulation, maybe $250 as the
cost. Experience seems to indicate that not many of those jobs get
financed. Most of the people either pay cash f o r i t , or they make
some short-term arrangement. I t doesn't go through a regular home
improvement loan process.
One of the suggestions that was made i n order to overcome this
was the possibility of pooling loans, where the u t i l i t y would play a
role i n gathering together a number of home improvement prospects or jobs, and then the bank would loan the money on a pooled
basis for maybe 5 or 10 homes.
I don't know what the mechanics of that process would be, but
that has been a proposal.
Another proposal that has been made w i t h respect to the possib i l i t y of encouraging f o r w a r d motion would be to offer lower interest rate loans through a tax incentive to the banks, whereby the
bank would be exempt f r o m p a y i n g Federal income tax on loans
which were made f o r this purpose, which would i n effect allow them
to loan the money at 5 or 6 percent to the ultimate borrower, and
they would still be able to realize their 9 or 10 percent, whatever the
amount of money is they normally realize f r o m home improvement
loans.
Senator SCHMITT. I have just been winked at. Go ahead.
M r . HARDIN. Senator, I would just like to respond to that, and
say that most of the people that get a home improvement loan t h i n k
of the savings and loans, because they have their home loan w i t h a
savings and loan. Banks as such have not specialized i n home lending, and we have.
So when they t h i n k of anything connected w i t h their home, they
t h i n k normally first of a savings and loan. We do specialize in this
type of lending, and as I have shown, we are increasing i t every
year. So we foresee no problem whatsoever i n our industry t a k i n g
on this role nationwide.
Senator SCHMITT. A r e you meeting the demand presently, and can
you meet i t i f i t is increased significantly
M r . HAROTN. Y e s ;
we can and we
are.
Senator SCHMITT. M r . B a r d i n , of F E A , presented the Administration's views yesterday and obviously they are recommending
that the utilities offer lending services, financial services. H e said he
would expect that utilities would contract w i t h lenders.
H e argued the Federal Trade Commission and the State u t i l i t y
commissions could assure adequate access and f a i r trade.
D o you agree w i t h those statements?
M r . H A R D I N . I agree w i t h M r . Nash, saying that thev have a
specific p a r t they can play. Thev can make the survey of the house,
which they are doing, and offering to do free and so f o r t h . A n d as
I said, i n my particular part of the countrv, Duke Power is doing
the same thing. This is the role they should play.
216
Then when i t is f o u n d out what is necessary to b r i n g the house
up to standards, they, themselves, pick a qualified contractor, and
then the lending institution, and i n 90 percent of the cases we t h i n k
i t would be savings and loans that would come into the picture. T h a t
is where we are prepared. W e have loan officers who are trained.
Here is a book we have just gotten up, i t goes f r o m A to Z about
insulation, solar heating, what-have-you, f o r our own people to
educate them i n this very aspect of our lending.
So I t h i n k we a l l have a specific p a r t here, and we shouldn't be
i n the u t i l i t y business.
B u t by w o r k i n g together we can solve this national problem.
Senator SCHMITT. I see a nod of agreement f r o m M r . Nash.
I t was acknowledged yesterday by both H U D and F E A t h a t
financing of improvement loans f o r m u l t i f a m i l y dwellings, apartments, is a b i g gap i n the program that has been proposed by the
administration.
D o you have any suggestions, M r . H a r d i n , on how financing f o r
m u l t i f a m i l y dwellings could be accomplished?
M r . HARDIN. W e l l , we are financing a l l types of loans f o r any
type of mortgage. The b u l k of our lending of course is single-family
and the b u l k of the home improvement has been aimed at single fami l y , because of the amounts of the home improvement loans, the restrictions, although they have been raised. I n many cases, i f we as
a savings and loan, have the first mortgage on the m u l t i f a m i l y
unit, then we can make an additional advance f o r this type of retrofitting. A n d we are doing so.
Senator SCHMITT. M r . Nash, d i d you find any m u l t i f a m i l y dwelli n g owners t a k i n g advantage of your services?
M r . NASH. W e haven't specifically offered the service to m u l t i f a m i l y , not i n this advertising campaign. B u t we have been w o r k i n g w i t h many m u l t i f a m i l y installations w i t h respect to g o i n g
f r o m a master meter to i n d i v i d u a l meters f o r the units i n an attempt to encourage conservation, because we find when a consumer
pays the b i l l directly, rather than h a v i n g i t included i n the rent,
they tend to use less energy.
A s p a r t of t h a t program, we have been m a k i n g inspections and
we do have a number of m u l t i f a m i l y apartment type units which
are being reinsulated or f u r t h e r insulated above and beyond what
was o r i g i n a l l y installed. H o w i t is being financed, I am not f a m i l i a r
w i t h that.
I t h i n k i n many of the cases, the larger of these apartment complexes and so on are financed other than through banks or savings
and loans, they are i n many cases financed by large insurance companies and those k i n d of institutions. Whether the savings and loans
and banking institutions are w i l l i n g to get into a second mortgage
position or a second position of some sort of f o r improvements, I
don't know.
M r . HARDIN. W e can't under our present restrictions. I w o u l d
t h i n k i t would be in order f o r some additional liberalization under
5(c) to raise the limits, p a r t i c u l a r l y as i t would apply to m u l t i f a m i l y . A s i t now stands, we are very limited. I f that could be raised,
I am sure our members would make use of it.
217
Senator SCHMITT. T h a t is a recommendation w o r t h looking into.
M r . H a r d i n , continuing on here, i f we deleted the section that
deals w i t h u t i l i t y financing, are there any areas where the financial
institutions, such as the ones you represent, cannot provide lending
services such as i n r u r a l areas, f o r example? I s there a deficiency
of lending services there ?
M r . H A R D I N . N O , sir. T h a t was i n my opening remarks. I believe
that we cover every small town and hamlet i n this U n i t e d States.
Senator SCHMITT. W h a t about the interior of the large cities, the
so-called urban b l i g h t areas?
*
M r . HARDIN. T h i s is the area I was previously speaking about,
where we are t r y i n g to have neighborhood housing services, where
you b r i n g together a person f r o m the city council, a person f r o m
the police department, a person f r o m the fire department, and a person f r o m a savings and loan, and we feel some of our savings and
loans are doing this, they are the catalyst to b r i n g these people
together.
Then you take a neighborhood and start f r o m there w i t h that
group to upgrade it. A n d w i t h the savings and loans and the banks
w o r k i n g together, to furnish the funds. B u t you can't do it, M r .
Chairman, by just pouring money into a given area like H U D has
done i n the past, a b i g t a l l b u i l d i n g and then they tear them down.
I t has to be done w i t h the cooperation of the people. A n d we are the
ones, I believe, that can b r i n g those people together and we are
doing i t i n 30 different cities r i g h t now, and we are very proud of
that, and hope to do i t i n many more.
Senator S C H M I T T . I S there a summary report of that effort?
M r . HARDIN. Yes, sir, we would be delighted to give that to you.
Senator SCHMITT. W o u l d you make that available to the committee?
M r . HARDIN. Yes; we certainly w i l l .
M r . N A S H . Y O U b r i n g up a very interesting issue, and I t h i n k
perhaps there is a need to take a look at what is really the market
f o r installation of retrofit insulation. I t h i n k we can characterize
i t i n probably a series of categories. No. 1, many of the home owners i n this country are elderly people, people who have bought homes
i n the past and are now l i v i n g on a fixed income. They have one set
of circumstances as f a r as financing, and borrowing money and so
forth.
So I t h i n k there are opportunities to deal w i t h the elderly, fixed
income people, many of whom live i n urban areas, possibly through
volunteer kinds of activities.
I am f a m i l i a r , f o r example, w i t h the fact that the B o y Scouts of
America have a new energy conservation thrust. Conceivably volunteerism could be used here to engage those people to come i n as part
of a, Boy Scout merit badge or something, and volunteer some time
to install ceiling insulation, or the k i n d of things that can be done
simply i n those structures.
There is the J u n i o r Chamber of Commerce, and there are volunteer groups of people who can possibly provide services to meet the
needs of one class of homeowners who may benefit most f r o m this
k i n d of activity.
218
O f course the Federal winterization program, which I mentioned,
goes to the low income people. M a n y of those live i n the urban areas
of our cities.
Then, of course, I t h i n k the blue collar worker i n many cases is
capable of the do-it-yourself approach to this, the person who can
be trained, and i n his spare time put a l i t t l e insulation i n the ceiling,
what-have-you.
A n d then the white collar worker, who was f o r m e r l y a blue collar worker, maybe he can do some of that, too, and so on down the
scale of where people are, what they can afford, and how they can
manage to accomplish this job.
Senator S C H M I T T . I S your u t i l i t y or any other utilities t r y i n g to
act as a focus f o r such volunteer efforts w i t h i n the communities?
M r . NASH. I don't know of any u t i l i t y that is involved i n this
r i g h t now, b u t i t is certainly something we are considering.
Senator SCHMITT. A r e you considering t r a i n i n g programs f o r
people also ?
M r . NASH. W e have conducted t r a i n i n g programs, and w i l l continue to do this. W e have had reasonably good success w i t h response
f r o m consumers f o r an opportunity to come out where we conduct
hands-on training. W e have a section of w a l l construction w i t h 2
by 4's and insulating materials and a ceiling section and a water
heater they can wrap insulation around to save energy losses f r o m
the u n i t , and the whole range of things that we offer to people to
t r y to teach them how to do i t themselves.
M r . HARDIN. T h a t is exactly the same t h i n g we have i n this booklet here.
The other thing, speaking of the elderly
Senator SCHMITT. W i l l that booklet be made available?
M r . HARDIN. Yes; we have a number of copies here f o r the committee.
Speaking of the elderly, I have recommended—and we are t r y i n g
to get some legislation on this started now—that we be able to make
a reverse mortgage f o r the elderly. M a n y times a person w i l l retire
w i t h n o t h i n g but social security, and the only t h i n g he w i l l own of
any substance w i l l be his home. They have no mortgage on i t . A t
this time he can't borrow on i t , he barely has enough to live on. So
he is faced w i t h the problem of selling the t h i n g that means the
most to him, his home.
W e should be able to make a reverse mortgage, lend h i m $10,000
or $20,000, and instead of h i m m a k i n g payments, we send h i m payments, don't give h i m the whole $20,000 but the first month we send
h i m $120, he gets social security plus a check f r o m us.
T h i s is a t h i n g that I have had thousands of letters f r o m elderly
people i n every State i n the U n i o n on since I made this recommendation. There are certain restrictions now, we have got to get some
State laws changed, but this is the point where, take the elderly i n
a city, that would need to have this w o r k done, and they are not i n
a position to finance it, w i t h us or anybody else. B u t this would give
them an opportunity to have some 'money to finance not only to
b r i n g the home up to standards, but f o r additional l i v i n g expenses.
Senator SCHMITT. Interesting.
219
Mr. Nash, on the question of your inspections, the free inspections, i f this becomes a mandatory effort, what is your estimate of
the engineers or the availability of the type of qualified people to do
this kind of work?
. .
Mr. N A S H . I think the written testimony includes some statistics
on that. I n my company we estimate if the legislation as written is
passed, we would have to do this inspection job in a 2-year period,
and we would have to hire some 400 people to do the inspection
work. I now have 40 people in my department working on the residential market, in total. That would mean I would have to increase
my staff 10 times. We have a total of 7,000 employees in my company. So you are talking about a 6-percent increase in the level of
employment in the company just to accomplish this 2-year job of
inspecting homes, assuming we inspected them all.
On a national basis, assuming 57 million homes to be looked at,
and we do 90 percent of them, we would need 28,500 people just to
do the inspection work within 2 years.
iSo it is a considerable effort for the utilities to respond and get
the job done as it is outlined. We just could not do it physically, I
don't believe.
Senator S C H M I T T . One final question before I have to run over
and vote, and we will be in recess at that time until I get back or
until Senator Proximire gets back.
Mr. Nash, on page 10 you suggest that the promotion of energy
saving measures should be exempted from any and all State restrictions that exclude advertising and promotion from rate computation.
Do you want to comment a little further on that?
Mr. N A S H . I n some jurisdictions the public utility commission has
passed regulations which say that no utility advertising shall be
charged against the ratepayer, that it shall become a part of the
charge against share owners. What we are suggesting here is that
in the case of conservation measures, that an utility should be allowed to charge this as an operating cost, rather than charge it
against the share owner.
Senator S C H M I T T . Because it is in the public interest to do so?
Mr. N A S H . Right. Ultimately really it costs a customer more i f it
is charged below the line, rather than above the line, because it only
takes $1 of revenue to pay an operating cost, and it takes $2 of revenue to produce a dollar of earnings below the line, because of the
tax implications. A n operating expense, you divide in half, because
of the tax implication. But a charge that goes against the share owner, and is not subject to that tax benefit, requires $2 of revenue to
produce the same earnings.
So ultimately it is in the best interests of the consumer as far as
the actual cost in rates is concerned.
Senator S C H M I T T . D O your efforts distinguish clearly between
operational or procedural conservation and that that requires capital investment?
Mr. N A S H . I don't know that I understand the question.
Senator S C H M I T T . When you go into a home, do you distinguish
for the homeowner what they can do to save energy without any
capital investment, versus what capital investment can do for them?
220
Mr. N A S H . Yes. The survey forms includes all of the activities,
things that they can do themselves, things which they would have
to hire somebody to do, materials they would have to buy.
Senator S C H M I T T . I am thinking of actual operation, where there
is no investment, versus that in which there is some investment of
capital, money.
Mr. N A S H . Yes, there is a distinction of what action they can take,
which represents no capital investment, like living habits, the way
they utilize appliances.
Senator S C H M I T T . Exactly. Have you made an estimate of the
average savings in homes that could come from just the procedural
methods, the operational methods?
Mr.
NASH. NO
Senator S C H M I T T . And compared that with investment ?
Mr. N A S H . N O , we haven't made that kind of calculation. I t varies,
it depends on the appliance mix, it depends on the lifestyle of the
people. There are too many variables so we didn't attempt that. We
have estimated for future forecasting of plant capacity needs and
factored into our future forecast the impact of improved appliance
efficiency based on proposed Federal regulation and its implementation at some time in the future.
We have included this kind of data in our forecasting techniques,
in order to recognize potential reductions in energy consumption as
a result of those kinds of things taking place.
But I can't give you a specific number.
Senator S C H M I T T . We will be in recess here for about 10 minutes,
gentlemen. And i f you can stay, there are a few more questions I
have. Otherwise we can submit them to you to answer for the record. Are you able to stay?
Mr.
HARDIN.
Yes.
Senator S C H M I T T . We have two more witnesses this morning also.
["Short recess.]
Senator S C H M I T T . Let's try again. Mr. Hardin, you say in your
testimony that credit incentives are never particularly effective unless consumers are convinced of real savings. You question whether
subsidies will make retrofitting irrestible, and you strongly oppose
the mandatory features.
What would you suggest i f homeowners can't be readily convinced and the demand for home improvement loans falls significantly below targets, because a 12-percent loan is still too expensive
for many Americans ?
Twelve percent I am not sure is exactly the loan rate we are dealing with here, but would you care to comment on that?
Mr. H A R D I N . Yes, sir, many of our associations do set a rate specificallv just for these types of loans, and they are trying to encourage
people to make these additions.
Our experience is, with the promotions that we are making, that
most people, by reading the newspaper and looking at television, are
realizing that we do have an energy crisis, and that they are responding.
This business has been greatly increased for this particular thing.
And we are anticipating that this won't happen, that there w i l l be a
221
great response to it. I t will take some time, of course. I think as Mr.
Nash said, it will take him 2 years to make these estimates of what
is needed in his area.
So it can't be done overnight, but we anticipate that it will be
successful.
...
Senator S C H M I T T . Mr. Nash, one charge made against the utilities
having a major role in the energy program is that the utilities have
not exhibited sufficient interest in solar development.
Would you care to comment on that?
Mr. N A S H . Oh, I suppose you could accuse us of that. My company happens to be involved in nine solar research installation
projects. We built an energy conservation home back in 1973, finished it in 1974, equipped with solar collectors supplementing a heat
pump heating system. A l l kinds of energy collection systems were
in it, even collecting waste water from the tubs and so forth, to try
to take the energy out of the water stream going down to the septic
system, as part of an energy conservation attempt.
I n fact, we even wrapped the septic tank with plastic pipe to see
if we could get any biological energy out of the septic tank, and
capture it for the exotic system which we designed.
We are in a contract with Lehigh University for solar research
and wind research on the availability of both solar energy and wind
power in eastern Pennsylvania. I t is a 3-year project, 2 years are
completed, and we know what the average wind speeds are, we know
how much solar energy is available in that area.
We have contracted with five builders to build homes in our area,
we paid the cost of the exotic systems, solar collection devices for
domestic water heating purposes, and also for supplemental space
heating purposes. The data is being collected on these homes now
that they are occupied.
I think some of us have demonstrated we are interested in solar
energy, we are interested in its potentialities. We are not ns wild
eyed, perhaps, as some people in supporting solar energy, because
at least at this point in history it doesn't look a good economic
choice in our area for consumers for home heating, at least. We
think that perhaps for domestic water heating supplement it has a
better economic potential in the short term. But we haven't given up
on the whole issue of solar. We continue to move forward and are
actively involved now in the Federal program on solar water heating, I think there are 2,800 installations in Pennsylvania, and we
are cooperating with the Governor's Energy Council to try to get
those systems installed properly and monitored, so we can collect
factual data on what they are capable of producing, what the costs
are and what the potential benefits are to the consumer. So we are
involved.
Senator S C H M I T T . Have you looked into the economic pros and
cons of a lease arrangement, the utility owning the solar equipment,
installing it, and leasing it for a monthly fee to the homeowner?
Mr. N A S H . NO, we have not looked at this at all. We have looked
at a lease arrangement on the heat recovery equipment for industry
and businesses. But we have not looked into leasing arrangements
on solar equipment.
94-843 O - 77 - 15
222
Senator S C H M I T T . D O you know of anybody in the country, any
utilities that have looked into this?
M r . N A S H . Not to my knowledge, no. There lias been a study
conducted by Franklin Institute in cooperation with my company
and Philadelphia Electric, on the impacts of solar energy on the
electric utility industry, a study which is available from the National Science Foundation. But this does not speak at all to the
issue of leasing.
Senator S C H M I T T . M r . Hardin, we have a few more questions
having to do with the details of the effect of this legislation on your
industry. Rather tha.i keeping you here, we w i l l submit these questions to you and we would appreciate an answer at your convenience.
M r . H A R D I N . We would be glad to do that.
Senator S C H M I T T . A n d M r . Nash, there may be a couple more
also for you to answer.
Mr. N A S H . Certainly.
Senator S C H M I T T . We appreciate very much your testimony.
We w i l l call now on M r . Peter Epstein, Regional and Urban
Planning Implementation, Cambridge, Mass.
STATEMENT OF PETER B. EPSTEIN, PRESIDENT, REGIONAL AND
URBAN PLANNING IMPLEMENTATION, INC., CAMBRIDGE, MASS.
Senator S C H M I T T . M r . Epstein, Senator Brooke sends his personal regrets that he could not be here today. He, as are many of
us, is deeply involved in the Labor—HEAV bill that is now on the
floor of the Senate. A n d he, I am sure, w i l l read your testimony
with interest, as I w i l l listen to it with interest. You may summerize, i f you wish.
M r . E P S T E I N . I have a copy of my statement that I would like to
submit for the record.
Senator S C H M I T T . Fine. Mr. Nichols, i f you are in the room, and
would like to join us at the table, that w i l l be all right also.
Please proceed, Mr. Epstein.
[The statement read by M r . Epstein follows:]
223
STATEMENT OF
PETER B . EPSTEIN, PRESIDENT
REGIONAL AND URBAN PLANNING IMPLEMENTATION,
INC.
I am d e l i g h t e d t o be here today and t o have the o p p o r t u n i t y
m a k i n g a few b r i e f
comments on t h e p r o p o s a l s
servation currently
I
before the
am P r e s i d e n t
for residential
of
energy
con-
Congress.
o f R e g i o n a l and Urban P l a n n i n g
Implementation,
a r e s e a r c h and c o n s u l t i n g f i r m l o c a t e d i n C a m b r i d g e , M a s s a c h u s e t t s .
p e r s o n a l background i s
development p o l i c i e s ,
problems of
present
i n the areas o f housing,
and i t
from t h i s
time,
I
am d i r e c t i n g a s t u d y f o r
(HUD) o f
homeowners t o a d o p t s o l a r
the past year,
I
financial
that
entitled
both these s t u d i e s ,
from homebuilders,
I
view
sector.
At
t h e D e p a r t m e n t o f H o u s i n g and
incentives
that might
encourage
During
David
Barrett
F i n a n c i n g t h e S o l a r Home, w h i c h e x a m i n e d
to t h i s
p r i v a t e mortgage i n s u r e r s ,
real
federal
supports for
solar
estate
m o r t g a g e m a r k e t and b y v a r i o u s s e g m e n t s o f
There a r e f o u r b a s i c p o i n t s
i n t h e c o u r s e o f my r e m a r k s
First,
a direct
the
e n e r g y u s e must b e s e n s i t i v e
incentives w i l l
that
to
a c t u a l l y b e made w i t h i n
the housing
I would l i k e
In
obtained
a n d h o u s i n g c o n s u m e r s t h e m s e l v e s and t o e m p h a s i z e t h a t
way d e c i s i o n s on t h e u s e o f
the
p r o m i s i n g new t e c h n o l o g y .
we h a v e a t t e m p t e d t o i n c o r p o r a t e i n s i g h t s
bankers,
the
the
s p a c e h e a t i n g and h o t w a t e r s y s t e m s .
response o f mortgage l e n d e r s
design of
perspective
c o - a u t h o r e d a s t u d y w i t h two c o l l e a g u e s ,
and C h a r l e s H a a r ,
appraisers,
l a n d use, and u r b a n
r e d u c i n g energy use i n t h e r e s i d e n t i a l
Urban Development
likely
is
My
the
the
industry.
to elaborate
upon
today:
f e d e r a l l o a n o r secondary market program
for
Page 1
224
e n e r g y c o n s e r v a t i o n l o a n s w o u l d n o t meet a n y r e a l n e e d t h a t
ready b e i n g served by t h e p r i v a t e market and,
i s not
i n e i t h e r case, would be
b o t h a cumbersome a n d a c o s t l y a p p r o a c h t o h e l p i n g t h e o r d i n a r y
o w n e r t o f i n a n c e e x p e n d i t u r e s o n home i n s u l a t i o n o r t o
poorer
al-
home-
subsidizing
families.
Second,
i n terms o f market impact —
that
a d d i t i o n a l households prompted to weatherproof
chase s o l a r energy systems —
a tax credit
is,
t h e number
t h e i r homes o r
o r some f o r m o f
of
to
pur-
rebate
or
/
grant w i l l
subsidy
b e t h e most e f f e c t i v e
federal support.
l e v e l s may h a v e t o be s e t r e l a t i v e l y
while l e v e l of
federal
financial
may n o t be n e e d e d a t a l l ,
for multi-family
available,
except
incentives
for
high to e l i c i t
any
p r o p e r t y owners.
If
f o r home
subsidies
they should take the form of
m i g h t be r e s t r i c t e d
weatherization
direct
t o homeowners m e e t i n g s t r i c t
proposals to achieve various
a r e t o b e made
credits
financial
income
types of
i n terms o f
the p r a c t i c a l i t y
r i s k o f u n i n t e n d e d and u n d e s i r a b l e e f f e c t s
landlords
and o t h e r h o u s i n g m a r k e t
of
their
perhaps
univers-
or rebates
that
limitations.
energy
conserving
skepticism,
enforcement
upon t h e b e h a v i o r
of
and
the
developers,
participants.
*
R e f u n d a b l e means t h a t someone w i t h l i t t l e o r n o f e d e r a l i n c o m e t a x
l i a b i l i t y would s t i l l receive the f u l l value of the c r e d i t r e b a t e .
are
support
improvements by f e d e r a l mandate s h o u l d be v i e w e d w i t h e x t r e m e
particularly
worth-
l o w e r income h o u s e h o l d s and
b o t h t a x a b l e and r e f u n d a b l e ; * a l t e r n a t i v e l y ,
Fourth,
However,
response.
Third,
ally
form of
225
Impracticality
o f D i r e c t L o a n and S e c o n d a r y M a r k e t
To b e g i n ,
I would l i k e
Options
t o comment on t h e d i r e c t
l o a n and second-
a r y m a r k e t t y p e a p p r o a c h e s w h i c h h a v e b e e n p r o p o s e d by some as a n
n a t i v e o r supplement
t o t h e enactment o f
tax c r e d i t s .
Here,
Congress w o u l d b e w e l l a d v i s e d t o r e f r a i n f r o m a c t i o n
First
of a l l ,
there is
good r e a s o n t o b e l i e v e
t o a p p l y f o r a government l o a n ,
rates
t h e few hundred d o l l a r s
t y p i c a l energy conserving improvement.
believe
altogether.
t h a t f e w homeowners w o u l d
take the trouble
t o pay f o r
I
alter-
below-market
even a t
involved i n carrying out
In fact,
a
l e s s t h a n 20% o f
all
t
home i m p r o v e m e n t s a r e f i n a n c e d w i t h l o a n s o f any k i n d , w i t h t h e
paid for
i n cash, or w i t h merchant c r e d i t or cre.dit cards.
t h e r e w e r e demand f o r
such l o a n s ,
ordinately high,
in relationship
Most b a n k s d o n ' t
like
$1,000 t o $1,500.
the housing f i e l d
the transactions
Secondly,
c o s t s w o u l d be
t o t h e s m a l l d o l l a r amounts
Nor can I
that
typically
deals i n the small d o l l a r
$7,000 i n s i z e ;
involved.
t o v e r y low income f a m i l i e s
i n amounts t y p i c a l l y
programs have o n l y a t o k e n l e v e l o f a c t i v i t y
government's major involvement
One e l e m e n t o f
purchase o f r e s i d e n t i a l
about
I
amounts
that
HUD's
l o a n s and
$2,000.
the present
i n home i m p r o v e m e n t
t h r o u g h t h e FHA's T i t l e
the average l o a n i s over
at
in
t h e F a r m e r s Home
S e c t i o n 504 p r o g r a m o f f e r s home r e p a i r
in-
t h i n k o f any g o v e r n m e n t l o a n p r o g r a m
S e c t i o n 312 Rehab l o a n s a v e r a g e o v e r
course,
even
t o make home i m p r o v e m e n t l o a n s b e l o w a minimum o f
w o u l d be i n v o l v e d i n a n e n e r g y c o n s e r v a t i o n l o a n p r o g r a m .
Administration's
rest
Both
time.
financing i s ,
Co-insurance Program.
grants
Here
The
of
again,
$3,000.
the P r e s i d e n t ' s Energy P l a n would f a c i l i t a t e
e n e r g y c o n s e r v a t i o n l o a n s by t h e
the
Federal
Zage
3
if
226
N a t i o n a l Mortgage A s s o c i a t i o n
Corporation
(FHLMC).
In fact,
(FNMA) a n d t h e F e d e r a l Home L o a n M o r t g a g e
t h e r e i s g o o d r e a s o n why no o n e i n
p a s t has b o t h e r e d t o c r e a t e a secondary m a r k e t
loans:
p r i v a t e l e n d e r s p e r c e i v e no r e a l n e e d f o r
is neither
of
a shortage of
commercial l e n d i n g .
home i m p r o v e m e n t l o a n s ,
funds nor a problem of
home i m p r o v e m e n t
such a m a r k e t .
liquidity
for v i r t u a l l y
any p u r p o s e ,
the r e t r o f i t
including
i n s t a l l a t i o n of solar
r a t e s on such l o a n s a r e q u i t e l o w ;
There
in this
I n d e e d , banks welcome t h e o p p o r t u n i t y
c o n s e r v a t i o n and e v e n f o r
fault
for
the
area
t o make
energy
systems:
the borrowers generally
the
have
/
a credit
ities,
history
of orderly
have b u i l t - u p
where c o l l a t e r a l
is
equity
loan repayment,
in their
required.
sponsored purchase program f o r
are attached to
their
homes, a n d h a v e s e c u r a b l e
There i s one p r e c e d e n t
for
a
commun-
assets
government-
s m a l l c o n s u m e r l o a n s i n S a l l i e Mae,
was c r e a t e d t o a c q u i r e l o a n s w r i t t e n b y p r i v a t e l e n d e r s u n d e r t h e
m e n t ' s Guaranteed Student Loan Program.
l i m i t e d relevance to the d e s i r a b i l i t y
of
energy c o n s e r v a t i o n l o a n s ;
i n g and h o l d i n g s t u d e n t
However,
precedent
o f i n v o l v i n g FNMA i n t h e
p r i v a t e l e n d e r s had l i t t l e
t h a n t h e l o a n amounts b e i n g s p o k e n o f
energy hot w a t e r
for
conventional
mak-
Moreover,
loaned are s u b s t a n t i a l l y
larger
systems.
namely,
if
energy
Congress s h o u l d
l o w - i n c o m e h o u s e h o l d s who w o u l d n o t
financing.
in
i n c o n n e c t i o n w i t h home w e a t h e r i z a -
c o n s e r v a t i o n l o a n s w o u l d be n e c e s s a r y :
qualify
has
interest
T h e r e i s one s i t u a t i o n i n w h i c h a s e c o n d a r y m a r k e t f o r
a s u b s i d i z e d l o a n program f o r
govern-
purchase
l o a n s , w h i c h a r e n o t o r i o u s l y bad r i s k s .
e v e n h e r e t h e a v e r a g e amounts o f p r i n c i p a l
t i o n o r even s o l a r
this
which
The m o s t p r a c t i c a l means f o r
enact
normally
carry-
Page 4
de-
227
i n g o u t such a program, w o u l d p r o b a b l y be t o have t h e
N a t i o n a l Mortgage A s s o c i a t i o n
(GNMA) p u r c h a s e t h e l o a n s , w i t h T i t l e
a p p r o v e d c o m m e r c i a l l e n d e r s a c t i n g as i t s
i n g F a r m e r s Home A d m i n i s t r a t i o n ' s
a mechanism f o r
network of
Nevertheless,
t h a n l o a n s as a means f o r
with escalating
agents.
fuel
county
some t y p e o f
I n respect
there is
is
and h e r e I w o u l d u n d e r l i n e " n e t "
that
investment,
Preliminary
35% t o 40% o f
results
first
tool at
an i m p o r t a n t
any a p p r o a c h a l o n g t h e s e l i n e s
quired.
to
more
to
s u c h as
— be i t
or a grant or
the f e d e r a l government's
caveat
to t h i s
net
f r o m o u r consumer
costs defines
of
disIf
energy equipment.
This roughly
tax
rather
I
s u s p e c t — and h e r e I
t h a n d r a w i n g upon a c t u a l r e s e a r c h f i n d i n g s —
for
to the percentage
c o s t s f o r s o l a r h o t w a t e r h e a t i n g t h a t w o u l d be c o v e r e d by
C a r t e r ' s proposed t a x c r e d i t .
re-
HUD i n d i c a t e
the threshold at which a
corresponds
—
making
s u b s i d y may be
survey f o r
of
President
am s p e c u l a t i n g
that
the
rebate
effect
— o n t h e number o f homeowners
high levels
in
conclusion.
t o have a s i g n i f i c a n t
fairly
solar
c r e d i t w o u l d i n d u c e any s i z a b l e movement i n t h e r e s i d e n t i a l m a r k e t
solar
deal
encouraging
technologies
as p r o p o s e d by t h e P r e s i d e n t ,
seems t h e m o s t p o t e n t
any g i v e n t y p e o f
of
Issue
s i m p l e c a s h payment o r r e i m b u r s e m e n t
form of a tax c r e d i t ,
However,
exist-
provides
a s s i s t i n g poorer households
home w e a t h e r i z a t i o n o r t h e u s e o f a l t e r n a t i v e
posal.
the
g r a n t s o r r e b a t e s seem f a r
T h i s b r i n g s me t o my s e c o n d p o i n t .
— clearly
offices
I
bills.
S u b s i d y L e v e l s and W i n d f a l l
energy,
In addition,
r e a c h i n g t h e 35% o f homeowners who r e s i d e o u t s i d e
major m e t r o p o l i t a n areas.
appropriate
Government
t h e same may
Page 5
228
be t r u e o f
tax credits
f o r home i n s u l a t i o n ,
a r e o b v i o u s l y more e c o n o m i c and f a r
placing solar
collectors
even though such
less r i s k y at
on o n e ' s r o o f .
the present
I n dealing w i t h the
who has n o t a l r e a d y w e a t h e r p r o o f e d h i s home, o r i s u n l i k e l y
h i s own i n i t i a t i v e ,
t o arouse h i s
The most r e c e n t
precedent
h o m e b u i l d i n g i n d u s t r y — one s t i l l
around the country —
is
for
than
homeowner
t o do so o n
butter
appetite.
T h i s r a i s e s an i m p o r t a n t a n d r e l a t e d
lenders
time
t h e f e d e r a l c a r r o t may h a v e t o be s a u t e e d i n
and g a r n i s h e d w i t h p a r s l e y
windfalls.
improvements
issue:
the question
a tax credit
of
directed at
f r e s h i n t h e minds of b u i l d e r s
the f i a s c o o f
t h e $2,000 c r e d i t
the
and
for
new home p u r c h a s e s made d u r i n g 1 9 7 5 .
One s t u d y b y t h e F e d e r a l Home
Loan Board i n d i c a t e d
those r e c e i v i n g the c r e d i t
t h a t o n l y 10% o f
a c t u a l l y m o t i v a t e d t o p u r c h a s e a home by i t s
90% r e c e i v e d
the b e n e f i t
of
the c r e d i t
as a w i n d f a l l
t h e y w o u l d h a v e made a n y w a y , e v e n w i t h o u t
if
a credit
is worth enacting at a l l ,
achieve v i s i b l e
This leads
benefit
will
from i t ?
of
pay f o r
to the t h i r d
or rebate for
ready b e l i e v e
an
other
investment
a federal subsidy.
Clearly,
s h o u l d be s e t h i g h e n o u g h
f o r Home
Insulation
namely,
home i n s u l a t i o n a c t u a l l y n e e d e d a n d who w o u l d
t h a t an i n v e s t m e n t
t h a t many, i f
n o t m o s t , homeowners
i n s t o r m windows o r i n s u l a t i n g an
in a relatively
l o w income f a m i l i e s ,
Credit
question I wish to address:
My i m p r e s s i o n i s
itself
to
weatherized
installed.
Q u e s t i o n a b l e N e c e s s i t y and E q u i t y o f
a credit
it
for
the
g a i n s i n t h e r a t e a t w h i c h homes a r e a c t u a l l y
o r a t w h i c h s o l a r systems are
is
availability;
were
short
period of
i n e r t i a and i g n o r a n c e r a t h e r
time; with
the
than cost are
al-
attic
exception
quite
Page 6
229
likely
t h e most i m p o r t a n t
a c t i n t h e absence o f
tax credit
—
nothing for
factors
t h o s e who a r e u n l i k e l y
o u t s i d e encouragement o r c o e r c i o n .
unless i t
i s made r e f u n d a b l e — w o u l d p r o v i d e
homeowners e a r n i n g g r o s s
p e r y e a r , have t a x l i a b i l i t i e s
a $500 t a x c r e d i t .
incomes o f
little
less
too small to enjoy the f u l l
s u b s i d y f o r home i n s u l a t i o n -
a
or
By my
than
$8,000
benefit
T h i s w o u l d e x c l u d e t h e b o t t o m 27% o f a l l
a federal
to
Moreover,
t h o s e s u f f e r i n g most f r o m i n c r e a s e d e n e r g y c o s t s .
rough c a l c u l a t i o n ,
If
inhibiting
of
homeowners.
available
t o any home-
it
probably
/
owner r e g a r d l e s s
of
income —
is justified
at a l l ,
should
take the form of a s o - c a l l e d
taxable rebate or a taxable
credit.
r e c i p i e n t s would t r e a t
Under t h i s
approach,
as t a x a b l e i n c o m e .
again,
Thus,
value of
the c r e d i t ,
would r e t a i n only
On t h e b a l a n c e ,
ordinary
would receive
while a relatively
marginal tax bracket,
credit
$435 o r n e a r l y
affluent
homeowner,
or
the
credit
rebate
full
i n a 45%
$275.
I would favor l i m i t i n g d i r e c t
energy c o n s e r v i n g improvements
o f m o d e s t means, w h i l e
the rebate or
t o u s e t h e e x a m p l e o f a $500
someone e a r n i n g $ 5 , 0 0 0
refundable
subsidies
to grants or rebates
for
for
families
taking s p e c i a l care to avoid the c r e a t i o n of
l y elaborate procedures
for
certifying
income e l i g i b i l i t y .
over-
One a p p r o a c h ,
m i g h t be t o h a v e e l i g i b l e homeowners f o r w a r d a p r o o f o f p u r c h a s e and a
copy o f
their
i n order
to obtain
audited after
credits,
families,
previous year's
their
the f a c t
Form 1040 t o t h e I n t e r n a l
on a random s a m p l i n g b a s i s .
the subsidy i s
Service,
r e b a t e , w i t h the accuracy of a p p l i c a t i o n s
r e b a t e s have t h e i m p o r t a n t
that
Revenue
advantage,
Compared w i t h
especially
for
being
tax
poorer
r e c e i v e d on o r a b o u t t h e t i m e t h a t
the
Page 7
ex-
230
p e n d i t u r e i s made, r a t h e r
returns
are
t h a n i n t h e s u b s e q u e n t y e a r when i n c o m e
filed.
I n t h e case o f r e s i d e n t i a l
a totally
different
ment —
s o l a r e n e r g y s y s t e m s , we
s i t u a t i o n where c o n s i d e r a t i o n s
income r e d i s t r i b u t i o n a r e f a r
options.
less relevant
confront
of v e r t i c a l
t o a c h o i c e among
equity
typically
invest-
$1,000 t o $2,000 f o r s o l a r h o t w a t e r systems;
$12,000 f o r
space h e a t i n g — i n a t e c h n o l o g y
that
and
incentive
H e r e we a r e e n c o u r a g i n g homeowners t o make a s i z a b l e
$8,000 to
tax
as much as
is
just
/
emerging from the experimental
uncertainties
s t a g e and t o b e a r a v a r i e t y
t h a t have b e n e f i t s
for
c o n t r a s t w i t h the proposed tax c r e d i t
of
a tax c r e d i t
for
solar
t h e n a t i o n as a w h o l e .
f o r home i n s u l a t i o n ,
e n e r g y use i s a m o d e s t o n e , a t
t a r g e t e d volumes o f a c t i v i t i e s .
The p u r p o s e o f
c o n c e i v e d as h e l p i n g t o k i c k o v e r
the market
e s t a b l i s h the c r e d i b i l i t y
fledgling
of
this
t h e homes i n A m e r i c a w i t h s o l a r
e v e n as f e w as f i v e
The P i t f a l l s
o f Mandatory
Finally,
of
trying
mandate.
industry,
over
Moreover,
the
in
t o make one b r i e f
residential
understand that
any e x i s t i n g r e s i d e n t i a l
code s t a n d a r d b e f o r e i t
is
the next
of
properly
to
t o e q u i p 50% o f
f i v e years,
point
about
the
or
pitfalls
e n e r g y c o n s e r v a t i o n by
l e g i s l a t i o n has been
p r o p e r t y be i n s u l a t e d
c o u l d be s o l d t o a new o w n e r .
federal
introduced
to
a
Here,
a n a l o g y c a n be d r a w n f r o m t h e e x p e r i e n c e we h a v e h a d
terms
e q u i p m e n t and
not
in
objective
least
such a c r e d i t
solar
and
Actions
to achieve goals f o r
instructive
collectors
for
risks
percent,
I would l i k e
For example, I
requiring that
higher
or ten
of
an
in
Page 8
231
Massachusetts w i t h a s t a t e law t h a t
tried
h e a l t h problem of o l d e r apartment u n i t s
on t h e i r w a l l s .
an e x t r e m e l y
moving i n .
The l a w r e q u i r e d
to deal w i t h the
still
of
refused to rent
children,
that
for
fear
this
apartments
The r i s k o f
this
s h o u l d be t a k e n i n t o account by Congress,
before i t
of
tyith
the
young
result
extreme
procedures,
existing
homes
buildings.
i n respect
to f i n a n c i a l
e n e r g y c o n s e r v a t i o n and s o l a r
to approaches
energy use,
loan servicing,
And,
d i v i d u a l homes, c a r e f u l
support
the very bottom of
is
residential
I would urge Congress t o
and t h a t
and t o k e e p t h e g o v e r n m e n t
t h e c o s t l y and p r o t r a c t e d c o m p l e x i t i e s o f
of l e n d i n g program.
support both f o r
t h a t are l a r g e l y v o l u n t a r i s t i c
t o i m p l e m e n t and t o phase o u t ,
inspections,
tenant
complaints
type of unintended
along
d e v i s i n g any k i n d o f w o r k a b l e e n f o r c e m e n t
To sum u p ,
financial
to f i l e
—
sizable
to households w i t h
a c t s on a m a n d a t o r y a p p r o a c h t o w e a t h e r p r o o f i n g
and a p a r t m e n t
itself
t o a n y new
s t a t u t e was t h a t a
t h e y w o u l d be more l i k e l y
and h a v e t h e r u l e e n f o r c e d .
paints
t h a t any s u c h w a l l s be s c r a p e d c l e a n
number o f r e a l t o r s
difficulty
having lead-based
e x p e n s i v e p r o c e s s — and r e p a i n t e d p r i o r
An u n f o r e s e e n r e s u l t
serious
credit
removed
appraisals,
and d e f a u l t management i n h e r e n t
i n connection w i t h
are
limit
simple
from
property
i n any
of
in-
c o n s i d e r a t i o n s h o u l d be g i v e n t o w h e t h e r o r
not
needed and a p p r o p r i a t e ,
t h e income
the weatherproofing
type
except
for
those f a m i l i e s
at
spectrum.
Page
9
232
Senator S C H M I T T . Thank you very much. Let's go on w i t h M r .
Nichols' testimony.
STATEMENT OF J. D. NICHOLS, VICE PRESIDENT, NATIONAL
APARTMENT ASSOCIATION
M r . N I C H O L S . Mr. Chairman, I am J. T>. Nichols, representing the
National Apartment Association.
The National Apartment Association's interest in this bill is primarily in urging adoption of a program to promote the conversion
of existing apartments from a situation where they have master
meters, which means the landlord pays the utilities, to a situation
where they are individually metered and the burden of the utilities
is transferred to the resident.
The reason for this is probably well-known. A study produced by
a-joint effort of F E A and I R E M shows in situations where the resident pays his own utility bill, the energy consumption is some 30
percent less than in a situation where the landlord is paying the
bill.
Apparently the administration's energy bill recognizes this situation, in that it provides that in new construction individual meters w i l l be required as opposed to the master meter.
The National Apartment Association would like to get some form
of help in converting the existing units that are now master-metered.
According to this same study, approximately one-third of the existing multifamily units, somewhere in the area of 7 million units,
are now served by master meters. We would like to promote this
help in the form of extending the investment credit for the cost of
converting these from a master meter to an individual meter.
We would also like to see some form of Federal loan assistance,
with a cost conversion.
You got into a little discussion on how this was financed earlier.
I would like to come back to that. I have had a little personel experience with that, and I might be able to relate some things.
House bill 7893 provides for some loan assistance in this area. I n
the opinion of the National Apartment Association, House b i l l
7893]s approach will not work. The reason we feel this is there is a
requirement that i f you secure a loan under this bill, and you have
it conventionally financed, you have to submit your apartment units
to what in essence amounts to rent controls and profit controls. Not
having had the benefit of federally assisted financing in the first
place, owners will not submit to rent and profit controls.
We endorse S. 13.04 by Senator Brooke although we would like
to see an extension of the coverage to include the cost of converting
from master meters to individual meters. We also would like to see
it extended, where practical, to include the cost of converting from
central hot water heating systems to individual hot water heating
systems. This w i l l vary from project to project; so we must be aware
of the practical situation.
233
The National Apartment Association also endorses some program
to prevent utility companies from discouraging conversion to individual meters. The utility companies, we have been exposed to, discourage these conversions in several ways. First of all, the rules and
codes make conversion so expensive it is basically prohibitive. Secondly, they prohibit or discourage submetering which is often the
only practical approach to attaining an individually metered situation.
Their argument on the submetering issue is prevention of profiteering on the part of the landlord in passing through^ in other
words, in actually tacking a profit on top of what the utility company charges them. However, we feel that legislation could prohibit
any increase in cost; in other words, whatever the landlord pays to
be passed on to the tenant, with no profiteering.
Basically that is our position on this issue.
I f you would like to go back to the financing problem
Senator S C H M I T T . Please do.
Mr. N I C H O L S . I believe all federally insured S . & L.'s are prohibited from taking a second mortgage position.
That gentleman from the savings and loan industry indicated that
a great number of large multifamily projects are funded by institutional lenders, such as large insurance companies.
From our exposure to the institutional lenders, most of them have
been burned so badly with apartment loans over the last 2 or 3
years that they are not interested in discussing any form of increased loan, even though it will result in lower energy costs.
Realistically it would appreciate the value of their security. They
just, from our exposure to them, are not interested at this time in
pursuing this in a number of areas. I am sure there are some markets in the country where they have a different opinion.
Consequently, the only practical way I know of to fund conversion or any type of energv improvements in apartments today is
either fund it out of cash flow, if you are fortunate enough to have
cash flow in an apartment project, or infusion of cash by the owners, or i f he has bank credit available.
That is why we feel that some form of Federal assistance in obtaining these funds is imperative.
Senator S C H M I T T . I appreciate that point. Does that complete your
statement ?
M r . NICHOLS. Y e s , s i r .
[The prepared statement of Mr. Nichols follows:]
234
Statement of J.D. N i c t o l s , Vice President, National Apartment Association, *
before the Senate Conmittee on Banking, Housing and Urban A f f a i r s i n regard t o
pending l e g i s l a t i o n r e l a t i n g t o r e s i d e n t i a l energy conservation.
June 28, 1977
Mr. Chairman and Members of the Ccranittee:
My name i s J.D. Nichols and I appear before you as apokp-snan f o r the National
Apartment Association.
I am also Chairman o f the Board o f Nichols,Hiornton &
Sturgeon o f L o u i s v i l l e , Kentucky, which b u i l d s , operates and manages apartments i n
several states.
I n 1975 o f the 77.6 m i l l i o n year-round housing u n i t s i n the U i i t e d States
approximately 30.7 m i l l i o n were r e n t a l u n i t s , o f which 23.6 mi 11 Ann u n i t s vere
included i n m u l t i - f a m i l y structures.
Since 1970 the use o f e l e c t r i c i t y as a source
of heating and cooling has increased from 7.7% t o approximately 37,6%, and t h e use
o f u t i l i t y gas has become the heating and cooling source f o r 44*7% o f housing u n i t s .
At the same time reliance on o i l has decreased from 26% to 9.4%.
However, the
increased reliance on e l e c t r i c i t y requires the use o f seine form o f energy - o i l ,
hydro, coal or nuclear power - t o generate e l e c t r i c i t y .
According t o a report by the Real Estate Research Corporation under contract
w i t h HUD,EPA, and CEQ, released i n 1974, 22.4% o f a l l energy consumed i s f o r
housing; and 57% of t h i s i s f o r space haating and a i r conditioning, 35% f o r operat i o n a l equipment, and 10% f o r l i g h t i n g .
The report also concluded t h a t 24% o f the
t o t a l annual energy consumed i n the Baltimore-Washington area, f o r exaiqple, could
be saved without s i g n i f i c a n t change i n l i f e s t y l e .
*
The National Apartment Association i s an association o f apartment ovaiers,
managers, and developers who are members o f approximately s i x t y - f i v e l o c a l
a f f i l i a t e s . I t s national o f f i c e r s are President Don B. Lawrence (Los Angeles), F i r s t
Vice-President Henry Shane (New Orleans), Secretary Robert Ross (San Antonio),
and Treasurer James Stygall (Indianapolis). I t s national o f f i c e s are located
i n Suite 604, 1825 K Street, N.W., Washington, D.C. 20006.
235
Nevertheless, the increased use o f e l e c t r i c i t y and gas i n apartments has
focused a t t e n t i o n on conversion from master meters t o i n d i v i d u a l meters as a major
factor i n conserving energy.
Master meters became popular i n the 1950's and
today one-third of a l l apartment buildings - mostly i n the urban areas - have master
meters.
This trend must be reversed i f we are t o have any meaningful conservation
program because master metered tenants use approximately 30% more gas and e l e c t r i c i t y
than tenants w i t h i n d i v i d u a l meters who psy t h e i r own u t i l i t y b i l l s .
We note t h a t the M m i n i s t r a t i o n 1 s energy b i l l (S. 1469) would require state
public u t i l i t y commissions generally t o p r o h i b i t master meters i n new construction.
New building standards under development by the Department o f Housing and Urban
Development, pursuant t o the 1975 Ehergy Conservation A r t , w i l l probably include
a p r o h i b i t i o n against master meters.
I n t h i s connection we note t h a t the Federal
Housing A3ministration, which has taken the i n i t i a t i v e i n developing minimum
property standards on a national scale, has yet t o inpose an i n d i v i d u a l meter
requirement i n any o f i t s n u l t i - f a m i l y programs.
Yet the cost o f i n s t a l l i n g
individual meters i n new construction i s estimated t o involve an addi t i o n a l modest
cost of $200 per u n i t .
The p r i n c i p a l t h r u s t of t h i s statement i s t o urge adoption o f a program t o
encourage the conversion o f e x i s t i n g apartments t o i n d i v i d u a l meters.
The cost
of such conversion i s estimated t o be frcm $100 t o $1200 per apartment u n i t
depending on a v a r i e t y o f factors r e l a t i n g p a r t i c u l a r l y t o the type o f construction and
r e s t r i c t i o n s imposed by l o c a l u t i l i t y companies and building codes.
The Administration's energy b i l l provides f o r c e r t a i n tax c r e d i t s f o r hone-owners
and renters but these do not lend themselves t o the conversion issue.
Also, there
i s some question vfoether the proposed investment c r e d i t f o r the i n s t a l l a t i o n o f
energy saving devices would include conversion t o individual meters.
We believe t h a t seme form of loan assistance t o apartment owners f o r t h i s type
of conversion should be considered.
The House b i l l , H.R. 7893, approved by the
House Conmittee on Banking, Finance, and Urban A f f a i r s , would provide assistance
- 2 -
236
through an amendment t o FHA Section 241.
The proceeds o f such insured loan, which
could be 100% of cost, would be used f o r the i n s t a l l a t i o n o f energy saving equipment
as w e l l as the conversion from master meters t o i n d i v i d u a l meters, w i t h a maximum
of 90% insurance against loss t o the holder o f the note.
The note may o r may not
be secured.
The program would be available for apartments which are FHA insured o r are
conventionally financed.
With respect t o the l a t t e r , t h e b i l l provides t h a t the
apartment be subjected t o regulation as t o rents, r a t e o f r e t u r n , c a p i t a l s t r u c t u r e
and methods o f operation.
meaningless.
This l a t t e r provision makes the program completely
I cannot conceive o f any apartment owners who would subject h i s
project t o Federal rent and p r o f i t c o n t r o l t o obtain thfe benefits o f a Federal
energy conservation program.
U i i s i s an economic f a c t o f l i f e i n the apartment
industry, and has no bearing on the merits of Congressional motives t o pass through
any f i n a n c i a l assistance t o the tenants i n the form o f reduced rents.
I would l i k e t o mention one additional area of p o t e n t i a l energy savings i n
apartments which could be f a c i l i t a t e d i n conjunction w i t h conversion t o i n d i v i d u a l
meters.
I n many areas o f the country the energy consumed t o heat hot water f a r
exceeds the energy consumed f o r heating space.
Et>r exanple, i n L o u i s v i l l e ,
Kentucky, approximately 59% o f the energy consumed goes f o r heating hot water while
29% i s consumed f o r space heating, awl 12% f o r p i l o t l i g h t s .
We recommend t h a t consideration be given t o extending any f i n a n c i a l assistance
program t o conversion from central hot water heating systems t o i n d i v i d u a l systems.
This may not be p r a c t i c a l i n many buildings, but t o the extent t h a t i t i s f e a s i b l e ,
substantial savings i n energy could be accomplished.
An additional energy savings
wDuld be achieved through i n d i v i d u a l tenant r e s p o n s i b i l i t y f o r the energy consumed
t o meet h i s f a m i l y ' s needa.
I have had only a b r i e f opportunity t o study S. 1304 by Senator Brooke which
provides f o r low-interest Federal loans f o r the i n s u l a t i o n and r e t r o f i t t i n g o f
-3-
237
r e s i d e n t i a l and small commercial buildings.
We believe t h a t t h i s approach has
d i s t i n c t advantages over the assistance afforded i n the House b i l l .
However/ the
purposes o f the loan should be broadened t o include the conversion of e x i s t i n g
apartments t o i n d i v i d u a l meters.
While we may appear biased toward apartment l i v i n g , we believe t h a t the imperatives
dictated by t h i s energy c r i s i s require a re-evaluation o f the bias, rooted i n
t r a d i t i o n , t h a t the single family detached home deserves a r e f e r e n t i a l r o l e i n our scale
of values.
The report of the Real Estate Research Corporation e n t i t l e d , "Hie Costs of
Sprawl," referred t o e a r l i e r i n t h i s statement, produced a revealing cost analysis.
Sane of i t s findings:
high density housing uses 50% less transportation, 55%
less roads and u t i l i t i e s , 44% less energy, 35% less water, and r e s u l t s i n 45% less
a i r p o l l u t i o n and 35% less water p o l l u t i o n .
I r e c i t e t h i s only t o underscore the
importance of i n s u l a t i n g and r e t r o f i t t i n g apartments i n the development o f a
national energy program.
We also reccxtmend t h a t the Comnittee r e j e c t any sanctions against s e l l e r s o r
purchasers whose d u e l l i n g u n i t s may not meet yet-to-be imposed Federal standards
f o r energy efficiency-
Such sanctions, according t o one House version, would
take the form of denying financing from Federally-insured depository i n s t i t u t i o n s .
We should wait a t least u n t i l we have tested the mechanisms, not yet i n the
formative process, before concluding t h a t t h e i r f a i l u r e t o accomplish t h e i r goals
merits punishment of those who do not a v a i l themselves of t h e i r supposed b e n e f i t .
The determination as t o whether an e x i s t i n g building complies w i t h yet-to-be
designed energy performance standards involves areas o f judgment t h a t are inconsistent
w i t h the concept o f sanctions, which because they are punitive mast require a
maximum degree of c e r t a i n t y .
We are convinced of the urgency of the national energy e f f o r t and we believe
that the American people share t h i s concern.
Nothing i s more calculated t o cool
t h i s sense of urgency, i n our opinion, than the i n s e r t i o n o f the j a r r i n g note o f
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94-843 O - 77 - 16
238
sanctions i n a program t h a t could o n l y reach f r u i t i o n through t h e v o l u n t a r y
e f f o r t s o f a l l Americans.
Cn t h e r o l e o f p u b l i c u t i l i t i e s i n t h i s energy conservation e f f o r t , we
a r e not c e r t a i n whether t h i s Gomnittee has t h e r e q u i r e d j u r i s d i c t i o n .
Nevertheless,
we question t h e d e s i r a b i l i t y o f imposing on p u b l i c u t i l i t i e s t h e r o l e o f
and i n s t a l l i n g energy saving inprqvements and equipment.
financing
However, p u b l i c
u t i l i t i e s a r e i n a p o s i t i o n t o advise home and apartment owiers and t e n a n t s on
a p p r o p r i a t e methods o f conserving energy, i n s p e c t i o n s e r v i c e s , and i n f o r m a t i o n
on m a t e r i a l s , c o n t r a c t o r s and f i n a n c i n g .
We suggest t h i s a s a more a p p r o p r i a t e r o l e
f o r u t i l i t i e s a t l e a s t i n t h e i n i t i a l phases o f t h e n a t i o n a l energy e f f o r t .
P u b l i c u t i l i t i e s have played a major r o l e i n d i s c o u r a g i n g t h e s h i f t from
master meters t o i n d i v i d u a l meters i n t h a t t h e y o f t e n i s s u e r u l e s making such
conversion t o i n d i v i d u a l meters e x t r e m e l y expensive and sometimes impossible.
U t i l i t i e s a l s o g e n e r a l l y p r o h i b i t sub-metering which i s o f t e n t h e o n l y p r a c t i c a l
method o f c o n v e r t i n g t o i n d i v i d u a l m e t e r i n g .
A p p r o p r i a t e language should be
employed t o prevent owners frcm o v e r - c h a r g i n g t e n a n t s .
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239
Senator S C H M I T T . First of all, Mr. Nichols, you mentioned that
you favored individual hot water heaters. Is there experimental evidence that that will save?
Mr. N I C H O L S . Well, there are two things. The same situation that
the F E A and the I R E M study showed, where the landlord is paying
for the hot water, people are not as inclined to save.
Just to relate a personal experience, we found a number of residents in one of the areas in which we operate, Louisville, where
the winters are very dry, some of our residents got the bright idea
that they turn their shower on hot and let it run all day while they
were at work and that would humidify the air and put moisture
in it.
I t didn't cost them anything, so they didn't care. I t is that simple.
Second, you have in a central hot water heating system a circulating system which is just a pump that circulates the hot water to the
various units.
The heat loss created by that circulation amounts, as an average—again there is a lot of variance in the situation—but generally
speaking, from our own investigation, about 25 percent of the cost
of heating hot water is involved in the heat loss in the circulation
system.
A good portion of the time you don't need to circulate it, during
the evening hours, for example. We found that it is not practical to
cut the system off. I f you do, you may have one individual out of
a hundred who works the night shift, and he wants to take a shower
at 3 o'clock in the morning. I f it takes him 20 minutes to get hot
water, he is not very happy. So you can't turn it off.
The individual system would eliminate that problem.
Senator S C H M I T T . What is the relative capital investment? I t is
considerably larger, isn't it, over-all?
Mr. N I C H O L S . I n initial construction, no, that is not necessarily
true.
When you get into high rise structure, which I am not familiar
with, I am not capable of commenting on that.
The type of apartment structures I am familiar with, the garden
type, in buildings ranging from 16 to 36 units, it is probably less
expensive to install individual systems. However, because of code
regulations, once you pass a certain size, it increases the cost considerably.
The big savings, again, would be in the resident paying for his
own hot water and then he has a considerable interest in not wasting hot water.
Senator S C H M I T T . Mr. Epstein, is the thrust of your testimony
that you would like to see an increasing role, Federal role, in the
investment in solar equipment by home owners?
Do you think that will provide a sufficient kick over the next few
years to develop a viable industry, to bring the GE's and Westinghouse's and Admiral's and Kenmore's into the business?
Mr. E P S T E I N . I believe there is a legitimate Federal role, but that
it should be subject to realistic expectations. What we are trying to
accomplish in the shortrun through solar energy is not an instant
reduction in barrels of oil consumed per day on a national basis;
240
rather the objective is to generate sufficient market activity that the
industry can obtain some degree of credibility, that service and installation capabilities begin to emerge in the prime local markets,
and that, 5 years from now the industry finds itself pretty well able
to sustain its own growth.
Senator S C H M I T T . Were you here this morning when the F T C testified?
M r . EPSTEIN. I w a s , yes.
Senator S C H M I T T . D O you
have any comments relative to their concerns about unrestrained activity or relatively unrestrained activity
by the utilities in home assessment, installation, and financing of
conservation measures?
Mr. E P S T E I N . I am not really competent to speak about the intricate issues of regulations, consumer protection, and possible restraint
of trade which are raised by the prospect of getting the utilities
involved in these activities. You might be interested to know, however, that in the course of our current survey work, we have taken
a peripheral look at the question you raised earlier, Senator, about
the possibility of getting the utilities involved in the leasing and
installation of solar energy systems.
Many of the developers with whom we talked around the country, emphasized that they would love to see this happen; i f the utilities were actively marketing solar systems, the builder would have
an intermediary to whom he could look to really assess the technology, and whom he could rely upon to still be around to service and
maintain the equipment should problems develop down the road. A
number of developers pointed out to us that it was originally the
utilities who sold the home-builders on electric heat, by offering special discounts for equipment and actually designing mechanical layouts for the builder to incorporate into his plans.
On the other hand, there is a serious question about whether utilities will perceive residential solar use as a threat or as a potential
business opportunity The picture appears to be a mixed one, with
the compatibility of solar with the operation of any given utility
basically being a function of the utility's load characteristics. As
you probably know, most solar systems require some kind of conventional auxiliary back-up system for extended periods of bad
weather. The key issue, from the utility's perspective, is whether or
not the backup systems of the solar users will draw electric power at
periods of peak demand. Here, the answer depends in large part on
whether the utility's demand peaks during the summer or the winter
months, during the evening or during the day, and whether its customers are predominately commercial, agricultural, or residential.
It's also important to note that a strong motive for consumer interest in solar energy systems is to attain some degree of independence from utilities. Preliminary results from our survey work indicate that consumers would be skeptical about utility involvement in
this area.
Senator S C H M I T T . I S that a general skepticism about utilities?
Does that apply to the individual utility that a consumer deals
with, the fellow who comes by and reads the meter or services the
appliance they may have?
241
You know we find in the surveys about public opinion of Congress, everybody hates Congress, but they generally like their Congressman.
Do you see that kind of thing in your survey work?
Mr. E P S T E I N . I have to admit that here my opinions are more impressionistic. I t is quite possible that if an individual utility actually involved itself in merchandizing solar equipment, promoted it
in a credible way, offered good service contracts, that the type of
skepticism to which I referred would prove to be an irrelevant
factor.
I n fact, there has been a history of utility involvement in leasing
appliances to homeowners, although I gather that a lot of them
have retreated from that involvement. However, in the case of solar,
you are in effect asking someone to lease the roof of his house from
the utility—a totally different proposition from leasing a hot water
heater or a refrigerator.
Senator S C H M I T T . Finally, I guess, Mr. Epstein, this is most appropriately asked of you. Would you comment on whether you think
that the proposed Federal program and the incentives that go with
that program are a windfall for those who fail to act on their own
to provide for better conservation or solar equipment. Is it unfair
to those who have acted through patriotism or through their own
initiative ?
Mr. E P S T E I N . I n my prepared testimony, I referred to the recent
experience with the 1975 tax credits for new home purchase, a precedent that certainly alerts us as to the risk of unjustifiable windfalls. The actual outcome will have a lot to do with what the actual
level or subsidy provided is, and with whether or not it is sufficient
to get any real movement in the market.
I f you set an incentive at a level that is so low that you only
attract another 10 or 15 percent of consumers who wouldn't ordinarily have made the purchase, then you are rewarding the bulk of
the recipients for something they planned to do in any event. There
is obviously some level of support at which you will see a large degree of movement, but that level might involve the Government in
exorbitantly high levels of subsidy.
I also would emphasize again that the question of windfalls is really
less germane to the appropriateness of an incentive for solar energy
than it is to a credit for home insulation, which is widely regarded
as economic at the present time. I n my view, there is little reason to
be concerned about a windfall going to somebody who is basically
willing to experiment with something new and try it out, to be the
first on his block and lead the way for the less venturesome to follow
in the years to come.
Senator S C H M I T T . I tend to agree with that, Mr. Chairman.
The C H A I R M A N . First, I want to thank Senator Schmitt for his
graciousness and generosity in spending his time here. I know it
was difficult for him because there are demands on his time.
Senator S C H M I T T . I found it quite enlightening and quite enjoyable. I hope we can do it more often.
The C H A I R M A N . I t was very helpful to the committee.
242
Mr. Epstein, you indicate inertia and ignorance are the major
problems we face as a nation with respect to the energy program. I
would agree with you wholeheartedly. I think most of the witnesses
that have appeared here would agree. Certainly the F E A people
agreed with that notion. That is why they feel it is necessary to
mandate some action, i f you are going to get action, you can't rely
on the volunteristic, as you put it, procedures if you need action
urgently and need it now.
And that is why they would require utilities to take the kind of
initiative they have suggested in the legislation we have before us.
Why do you feel that that kind of an approach is counterproductive, and that we simply can't do anything except rely on the volunteer good will of people, since their voluntary response to the President's pitch for energy conservation has gotten such feeble results
so far?
Mr. E P S T E I N . I didn't mean to be categorical on the subject of
mandatory approaches, but simply to note that the history of the
housing industry provides examples of numerous attempts by Federal
or state governments to accomplish a very desirable result simply by
fiat, only to produce very undesirable side effects—the "cure is worse
than the disease" syndrome. You have to be very alert and sensitive
to this.
The C H A I R M A N . The example you gave of the lead paint situation
is very good. The trouble is in that situation, of course, the landlords behaved, or the owners behaved as you would expect them to
behave to maximize profits. I n this case i f people want to maximize
profits, utilities, it seems to me they would get vigorously into the
insulation business. They have access to the buyer, which is superior
to their competition. For another, they would be exempted from the
regulations that hold down their return on their electricity or gas,
whatever they sell. On this there would be no limit, they wouldn't
be subject to regulations.
So they would have a sharp incentive for getting into the business
in a vigorous way.
The Federal Government is telling them to go right ahead and do
it, requiring them to do it.
Mr. E P S T E I N . I n commenting on the utilities, I speak with some
trepidation, since I am venturing beyond any area of expertise to
which I can lay claim.
A number of witnesses today have already indicated the complex
issues in terms of the regulatory status, rate bases, and competition
that are involved. I would only say there well may be a very desirable role for the utilities in terms of educating the public to energy
conservation; quite possibly they should be required to conduct
energy audits of their customers' homes and provide estimates of
the costs and savings of carrying out various types of improvements.
But I would be very skeptical of involving them in the banking business and the whole range of activities involved in credit appraisal,
loan servicing, and claims management, especially when the dollar
amounts may range from several hundred dollars up to, at most, a
thousand dollars. And, in any event, they may not be needed in the
majority of cases, since the typical homeowner, once he is educated
243
to the payoffs of weatherproofing his home, is perfectly capable of
paying for the improvements from his own resources, and in many,
i f not most, cases, will probably prefer this to an expensive type of
debt financing.
The C H A I R M A N . I notice you say there is no shortage of funds,
nor of liquidity at the present time. You say that in your statement.
We have heard, however, that a new demand for loans will increase
the need for a secondary market and that if we are going to have a
vigorous effective national program, in which tens of millions of
homes that are not insulated get into the act, we may well need this
kind of secondary market.
What is your response to that?
Mr. E P S T E I N . I believe it would be premature to enact legislation
merely on the basis of what is a remote possibility. As I indicated in
my testimony, and as I believe the gentlemen from the Edison Electric Institute and the League of Savings Associations also noted
earlier, there is good reason to believe that most people will pay for
the typical energy conservation improvement with cash rather than
going to a bank for financing.
The C H A I R M A N . Because the amount is so small?
Mr. E P S T E I N . The amount is relatively small, and I am not sure
of these figures, but I think some figures I have seen from the Federal Reserve Board indicated it costs $30 to $50 for a private lender
to put a loan on the books, and as much as $2 to $3 a month to service it. So you really are running into a substantial overhead cost for
a very small transaction.
The C H A I R M A N . That is a good point.
Mr. Nichols, you say that F H A has yet to require the use of individual utility meters in any of its multifamily apartments.
Have you discussed the reason for this policy with F H A and do
you know the reason they have not acted yet to ban the use of master
meters in new construction?
Mr. N I C H O L S . N O ; I have not discussed it with the F H A .
The C H A I R M A N . Y O U say that the utilities have played a major
role in discouraging the installation of individual meters and often
prohibit submeters.
Could you be more explicit on that, about what the utilities have
done, and their rationale?
Mr. N I C H O L S . Basically they have just said you can't submeter in
a number of areas, just made a blanket statement that that is not
permissible. Their rationale, I assume, would be a fear that owners
would be profiteering on the submeter situation.
I n our area they say we are not permitted to submeter under any
circumstances. I n many many cases that is the only practical way, the
only economically feasible way to get a situation where the resident
pays his own bill.
The C H A I R M A N . Then you have a real incentive for holding down
costs and acting so that you do, keeping the thermostat turned down
in the winter and up in the summer.
Mr. N I C H O L S . I don't know whether you were here when I commented on the experience we had with some residents in our area,
where we are subject to very dry winters.
244
The C H A I R M A N . Where is that?
Mr. N I C H O L S . This is in Louisville.
The C H A I R M A N . They had a terrible winter last year in Louisville.
Mr. N I C H O L S . Yes, very expensive, terrible. But anyhow someone
had the bright idea that they would moisturize their apartment by
turning their shower on during the day and letting it run. That was
their humidifier. That was very expensive. But i t didn't cost them,
so they didn't think about it, it was free humidity.
The C H A I R M A N . The administration witnesses yesterday acknowledged several times that the multifamily area is one of the weak
points in their energy proposals.
Do you know why they decided not to include conversion of existing buildings to individual meters in their program?
Mr. N I C H O L S . I have no idea.
The C H A I R M A N . We will check it out; I am glad you brought i t
up. You have made a good case.
Thank you very much, gentlemen. I apologize for having to be
absent, I had an amendment that I had to call up on the floor.
I appreciate very much your testimony.
The committee will stand in recess until 10 o'clock tomorrow
morning.
[Thereupon, at 12:55 p.m. the hearing was recessed to reconvene
at 10:00 a.m. the following day.]
NATIONAL ENERGY CONSERVATION POLICY ACT
WEDNESDAY,
J U N E 29,
1977
U . S . SENATE,
C O M M I T T E E ON B A N K I N G , H O U S I N G A N D U R B A N A F F A I R S ,
"Washington,
D.C.
The committee met at 10:10 a.m., in room 5302, Dirksen Senate
Office Building, Senator John Sparkman presiding.
Present: Senators Sparkman, Mclntyre and Brooke.
Senator S P A R K M A N . Let the committee come to order, please.
Senator Proxmire was not able to be here this morning. He asked
me i f I would substitute for him. The Senate is already in session.
We don't know how soon we may be called over, so I think we'd
better get started.
First we start off with a panel: Mr. Henry Lee, director, Energy
Policy Office, Commonwealth of Massachusetts; Mr. John Stevens,
vice president, New England Electric Systems, West'borough, Mass.;
and Mr. Michael Johnson, assistant chief of congressional liaison,
National Association of Regulatory U t i l i t y Commissioners, Washington, D.C.
We're very glad to have these gentlemen with us and we'll just
start right off. Each one of you I believe has filed a statement. Let
me say your statement w i l l be printed in f u l l in the record of the
hearings. You may proceed as you see fit. You can read, summarize,
or discuss your statements.
First, we w i l l hear from Mr. Lee, director of the Energy Policy
Office in Massachusetts.
STATEMENT OF HENRY LEE, DIRECTOR, ENERGY POLICY OFFICE,
COMMONWEALTH OF MASSACHUSETTS
Mr. LEE. Thank you, Senator. I want to thank you for the opportunity to come here to Washington today to speak in favor of the
President's energy plan as it affects buildings in general and housing in particular.
As we have said earlier before other congressional committees, we
in Massachusetts have a few changes to suggest in the President's
energy plan, but we have absolutely no quarrel with the philosophy
and goals of the President's proposals.
What I ' d like to do is to go over some of the items that are contained not only in that plan but also in some of the other bills that
have been presented, particularly the bill presented by our Senator
from Massachusetts, Senator Brooke, S. 1304, and some of the provisions in the House bill which I will call the Ashley bill, House
bill 7893.
(245)
246
I n terms of the utility-insulation program, we suggest that you
authorize the Governors of each State to choose which agency or
agencies they think should administer the residential energy conservation program as proposed both in Representative Ashley's bill and
Senator Brooke's bill. Such authorization will add flexibility and
efficiency to the program to meet the needs of each State.
Congress has already mandated two State energy conservation
programs and a State-run low-income housing weatherization program. I t is essential that you now give to the Governors the ability
to mesh these programs with new ones proposed by the President in
order to eliminate duplication of effort and to address the unique
problems of each State effectively.
Our most serious energy problem in Massachusetts is our excessive reliance on oil for home heating—70 percent of our homes are
heated by oil, which is delivered by over 1,000 local oil dealers. I f
our State is to seize the opportunity for energy savings which could
result from a program of oil furnace tuneups and insulation, our
oil dealers must be included. We can accomplish this entire task
more easily under the supplemental State plan approach of H.R.
7893 or the State coordinated energy auditor program suggested in
Senator Brooke's legislation, S. 1304. The utility program should
be part of the program, not the whole program.
Lieutenant Governor O'Neill has already recommended to the Senate
Subcommittee on Energy Conservation and Regulation that the EPCA
and ECPA program authorization be merged and given a joint
appropriation level of $100 million through 1980. This is an increase
of what we would logically expect of only $10 million a year from'
1979 to 1980. I t is essential that the State obtain adequate funding
to complete the work we have already begun to these programs. I
believe the States could also accept the task of drafting and coordinating the insulation program by simply channeling the ECPA
supplemental moneys to the program and providing a special discretionary fund for the administration of the program, either H U D
or F E A , to be used where needed.
I have two caveats to that point. One, I ' m making the abovestatement in line with the type of program that was outlined by the
President, not the kind of program that I ' m going to talk about
later. Second, I would think the discretionary funds could be used
not only for special projects that need discretionary money but also
to centralize some of the costs that can be centralized such as training and computer work.
The role of utilities—I think Mr. Stevens will talk about some
problems that utilities face. I would just like to state that we would
greatly prefer to develop a State insulation plan to incorporate the
participation of all energy suppliers in the publicity campaign. We
have no problem with the idea of mandating that each State plan
include provisions which require the utilities to offer audits and to
offer to arrange financing. We would agree with the House Subcommittee on Power and Energy that restrictions should be placed
on the utilities getting into the actual installation of insulation.
However, we agree with Senator Brooke that the utilities do not
247
have the experience or expertise in home improvement loans to warrant draping the entire program on their shoulders and we think the
approach taken in the Ashley bill to allow utilities to arrange lowinterest loan activities, if the utility qualifies as a "loan service administration agency," is a more flexible, constructive approach than
banning the utilities' participation.
The third point I ' d like to make is about the definition of buildings
covered by the insulation program. We would advocate that definitions in the Brooke bill, which includes small commercial establishments and the definition in the Dingell bill which includes multifamily homes, should be put into the legislation passed by Congress.
On weatherization, I would just like to reiterate that Massachusetts
continues to support Federal weatherization programs. The approach of uniform standards for the three existing weatherization
programs, combined with a guarantee of sufficient labor to perform
the work, and an eligibility criteria on 125 percent of the poverty
level, would be a significant improvement.
I n terms of rental homes, we don't have any brilliant remedy to
offer that will provide irresistible incentives to landlords and tenants alike to use less energy. I n fact, it's a problem we have been
mulling over for 2 years and we are so stumped by the problem that
I think mandatory insulation and fuel burner efficiency standards
may be necessary eventually to spur weatherization of rental units.
However, these standards should not be put into effect until sufficient financial incentives are available and until the impact of such
standards on the urban housing stock is evaluated. I also would hope
that rental units would be made eligible for most every program we
come up with. I'm not sure this will be enough, but I think we have
to do at least this.
Financial incentives. Massachusetts has previously advocated the
creation of low interest loans to help homeowners who may earn
too much to qualify for weatherization assistance but who still
earn too little to benefit from tax credits. The Ashley and Brooke
bills offer financial incentives for the moderate income resident. We
would like to suggest, as well, yet another approach to aiding the
homeowner. The concept of the housing improvement program, H I P ,
could be expanded to offer urban homeowners an opportunity to
make energy-conserving improvements in their home and be eligible
for direct reimbursement of a percentage of the value of the improvements done. The program requires an expert appraisal of what improvements are worth the investment and a followup visit to check
that the improvements were properly done before the homeowner
receives reimbursement. The advantages of the H I P approach are:
(1) close supervision of the improvements; (2) opportunity for the
homeowner to make the improvements him or herself, and receive
financial credit for the work; and (3) a direct payment of money
that people can receive in hand as a reward for their labors. We recommend that the committee take a close look at the H I P program
as a potential vehicle for consideration along with other suggested
financial incentive programs. I think if we did adopt a program like
this you would need to appropriate some more money because I
248
think it has to be enforced and run at the local level. I don't think
that you can run it at the State level. The State can coordinate the
program but I don't think they can run it. I think the program
also has the advantage of being directed at our urban areas for one
of the problems we have come across is that it's in the urban areas
where conservation hasn't caught on at least in comparison to the
suburban or rural areas.
I would like to make two more comments. Massachusetts can devise and implement a strong consumer protection plan i f the Federal Government will help us to distinguish between the good guys
and the bad guys. I n our opinion, none of the existing legislation
places enough emphasis on the development of product quality and
installation standards for energy conservation materials and equipment. Hot disputes are raging over the definition of what constitutes insulation, what are the proper techniques for installing insulation, and what gadgets actually do save energy. I f we are to embark
on a massive campaign to convince people to save energy, we must
be ready with some good answers to these thorny questions. We recommend that the F E A be required to develop at least product quality ratings for insulation materials and equipment, as well as guidelines on proper installation methods.
I would like to make a final observation. There is presently a fascination in energy conservation circles with the audit concept. I
think this obsession suffers from overkill and there is no need to
audit each home. The project conserve model of written material,
individualized for each home is about as in depth as you need in
most cases. This may not be the case with commercial buildings. The
reason many people have not insulated has little to do with whether
they have received a $50 personalized audit. I t has to do with market
incentives. I t has to do with the lack of a media campaign. A $50
personalized audit program in Massachusetts will cost a minimum of
approximately $100 million and could run as high as $150 million.
For this reason financing mechanisms and tax credits, along with a
good public education program and the type of audits I have mentioned before, are so critically important.
I think I will stop right there and allow either questions or my
colleagues to present their testimony. Thank you for this opportunity.
Senator S P A R K M A N . Well, thank you, Mr. Lee.
[Complete statement follows:]
S T A T E M E N T OF H E N R Y
L E E , DIRECTOR OF T H E M A S S A C H U S E T T S
POLICY OFFICE
ENERGY
M r . C h a i r m a n , I t h a n k you f o r t h i s o p p o r t u n i t y t o t e s t i f y i n f a v o r of t h e
President's energy plan, as i t affects buildings i n general, a n d h o u s i n g i n p a r t i c u l a r . A s w e have said earlier, before other congressional committees, w e
i n Massachusetts have a f e w changes t o suggest i n the President's energy
plan. B u t we have absolutely no q u a r r e l w i t h the philosophy a n d goals of t h e
President's proposals.
Massachusetts advocates more efficient use of energy wherever economically
feasible. W e have applied early and o f t e n f o r f u n d i n g under energy conservat i o n p r o g r a m s created by Congress, and I a m p r o u d to say t h a t o u r State
energy conservation p r o g r a m is one of the most advanced i n t h e N a t i o n . S t i l l ,
t h e President's proposals, w i t h c e r t a i n i m p o r t a n t amendments, can enhance
o u r e x i s t i n g w o r k enormously.
249
UTILITY/INSULATION
PROGRAM
We suggest t h a t you authorize the Governors of each State to choose w h i c h
agency or agencies they t h i n k should administer the residential energy conservation program, as i n H.R. 7893 and S. 1304. Such authorization w i l l add
flexibility
and efficiency to the program, to meet local needs, w i t h o u t elimin a t i n g the role of public u t i l i t y commissions.
Congress has already mandated t w o State energy conservation programs,
and a State-run low income housing weatherization program. I t is essential
t h a t you now give Governors the a b i l i t y to mesh these programs w i t h new
ones, proposed by the President, i n order to eliminate duplication of effort and
to address the unique problems of each State effectively.
Our most serious energy problem i n Massachusetts is our excessive reliance
on o i l f o r home heating. Seventy percent of our homes are heated by oil,
which is delivered by hundreds of local o i l dealers. I f our State is to seize
the opportunity f o r energy savings which could result f r o m a program of o i l
furnace tune-ups and insulation. Our oil dealers must be included i n this program, i n order f o r i t to w o r k i n Massachusetts. We can accomplish this entire
task more easily under the supplemental-State-plan approach of H.R. 7893,
or the State-coordinated energy auditor program suggested i n Senator Brooke's
legislation, S. 1304. The u t i l i t y program should be p a r t of the program—not
the whole program.
L t . Governor O'Neill has already recommended to the subcommittee on
energy conservation and regulation t h a t the EPCA and E C P A program authorizations be merged, and given a j o i n t appropriation level of $100 m i l l i o n
through 1980. He made this recommendation i n order to obtain adequate fundi n g to complete the w o r k t h a t States have agreed to do under those programs.
I believe the States could also accept the task of d r a f t i n g and administering
the insulation p r o g r a m , b y simply channeling the ECPA supplemental moneys
to the program and p r o v i d i n g a special discretionary f u n d f o r the administrat i o n of the program (either H U D or F E A ) . to be used where needed.
ROLE OF T H E
UTILITIES
U t i l i t i e s i n our State have expressed reluctance to assume the responsibilities given to them i n the President's energy plan. The electric u t i l i t i e s i n
Massachusetts heat very f e w of the residences to w h i c h they supply electricity.
As auditors, they could be placed i n the t i c k l i s h position of evaluating a competing energy supplier's heating equipment. A n d i f customers w i t h o u t electric
heat were to pay back an energy conservation loan via t h e i r electric bill, they
w o u l d see their electricity b i l l rise, while an o i l or gas company would reap
any benefit of goodwill associated w i t h the reduced heating bill.
We would greatly prefer to develop a State insulation plan to incorporate
the p a r t i c i p a t i o n of a l l energy suppliers i n the publicity campaign. We have
no problem w i t h the idea of mandating t h a t each State plan include provisions which require the u t i l i t i e s to offer audits and to offer to arrange financing.
We would agree w i t h the House subcommittee on power and energy t h a t
restrictions should be placed on the u t i l i t i e s getting i n t o the actual i n s t a l l a t i o n
of insulation. However, we agree w i t h Senator Brooke t h a t the u t i l i t i e s do
not have the experience or expertise i n home improvement loans to w a r r a n t
draping the entire program on t h e i r shoulders and we t h i n k the approach
taken i n H.R. 7893, to allow u t i l i t i e s to arrange low-interest loan activities,
i f the u t i l i t y qualifies as a loan service administration agency is a more flexible, constructive approach t h a n banning the u t i l i t i e s ' participation.
D E F I N I T I O N OF B U I L D I N G S COVERED B Y I N S U L A T I O N
PROGRAM
We advocate changing the definition of "residential b u i l d i n g " contained i n
the President's energy plan. We support the inclusion of small commercial
establishments, and we support the definition recently adopted by the House
subcommittee on power and energy. T h a t definition would include the double
and t r i p l e deckers w h i c h constitute such a large p a r t of our urban housing
stock. These units, and small commercial buildings, are excluded f r o m the
definition i n the energy plan.
250
WEATHERIZATION
Massachusetts continues to support Federal weatherization programs. The
approach of u n i f o r m standards f o r the three existing weatherization programs,
combined w i t h a guarantee or sufficient labor to p e r f o r m the w o r k , and an
e l i g i b i l i t y c r i t e r i a on 125 percent of the poverty level, w o u l d be a significant
improvement. B o t h Federal and State funded public housing should be included i n the weatherization programs, unless a separate program, such as is
suggested i n S. 1304 and H.R. 7893, is established to a i d public housing.
RENTAL
HOUSING
W e have no b r i l l i a n t remedy to offer t h a t w i l l provide irresistable incentives
to landlords and tenants alike to use less energy. I n fact, we are so stumped
by the problem t h a t I t h i n k mandatory i n s u l a t i o n and f u e l burner efficiency
standards may be necessary, to spur weatherization of r e n t a l units. However,
these standards should not be p u t i n t o effect u n t i l sufficient financial incentives are available and u n t i l the impact of such standards on the urban
housing stock is evaluated.
F I N A N C I A L INCENTIVES
Massachusetts has previously advocated the creation of low interest loans
to help homeowners who may earn too much to q u a l i f y f o r weatherization
assistance, b u t who s t i l l earn too l i t t l e to benefit f r o m t a x credits. The Ashley
and Brooke bills offer financial incentives f o r the moderate income resident.
W e w o u l d l i k e to suggest, as well, yet another approach to a i d i n g the homeowner. The existing housing improvement p r o g r a m ( H I P ) could be expanded
to offer u r b a n homeowners an opportunity to make energy-conserving improvements i n t h e i r home and be eligible f o r direct reimbursement of a percentage
of the value of the improvement done. The p r o g r a m requires an expert appraisal of w h a t improvements are w o r t h the investment, and a follow-up v i s i t
to check t h a t the improvements were properly done, before the homeowner
receives reimbursement. The advantages of the H I P approach a r e : (1) Close
supervision of the improvements; (2) O p p o r t u n i t y f o r the homeowner to make
the improvements h i m or herself, and receive financial credit f o r the w o r k ;
and (3) A direct payment of money t h a t people can receive i n hand, as a
r e w a r d f o r their labors. W e recommend t h a t the committee take a close look
at the H I P program as a potential vehicle f o r consideration along w i t h other
suggested financial incentive programs.
CONSUMER PROTECTION
Massachusetts can devise and implement a strong consumer protection plan
i f the Federal Government w i l l help us to distinguish between the good guys
and the bad guys. I n our opinion, none of the existing legislation places
enough emphasis on the development of product q u a l i t y and i n s t a l l a t i o n
standards f o r energy conservation materials and equipment. H o t disputes are
r a g i n g over the definition of w h a t constitutes insulation, w h a t are the proper
techniques f o r i n s t a l l i n g insulation, and w h a t gadgets actually do save energy.
I f we are to embark on a massive campaign to convince people to save energy,
we must be ready w i t h some good answers to these t h o r n y questions. We
recommend t h a t the F E A be required to develop a t least product q u a l i t y r a t i n g s
f o r i n s u l a t i o n materials and equipment, as w e l l as guidelines on proper install a t i o n methods.
I w o u l d l i k e to make a final observation. There is presently a fascination
i n energy conservation circles w i t h the a u d i t concept. I t h i n k t h i s obsession
suffers f r o m o v e r k i l l and there is no need to a u d i t each home. The project
conserve model of w r i t t e n material, individualized f o r each home is about as
i n depth as you need i n most cases. The reason many people have not insnlat^d
his l i t t l e to do w i t h whether they h i v e received a $50 personalized a u d i t — i t
has to do w i t h m a r k e t incentives. I t is f o r t h i s reason t h a t financing mechanisms and t a x credits are so i m p o r t a n t .
I believe t h a t the a u d i t provisions of E C P A w i t h some chansres to induce
u t i l i t y involvement, w i l l avoid duplication, save money and w i l l be effective.
251
Senator S P A R K M A N . Mr. John Stevens, vice president, New England Electric Systems, Westborough, Mass., we would be glad to
hear from you.
STATEMENT OF JOHN STEVENS, VICE PRESIDENT, NEW ENGLAND
ELECTRIC SYSTEMS, WESTBOROUGH, MASS.
Mr. STEVENS. Thank you, Senator.
I appreciate the opportunity to be with you today because this is
a subject area that's going to affect the utilities greatly.
I would like to say at the outset that, like Mr. Lee, we do support
the concept of the insulation proposals as outlined in the National
Energy Act. We believe that conservation must be the keystone of
any energy plan. I would add, after listening to Mr. Lee, that I
agree with about 95 percent of what he had to say.
The National Energy Act, as written, would require a utility to
inspect one or two family residences to determine i f the designated
insulation standards are being met; and, if not, arrange for the installation by either doing the job or having the job done. We would
also have to make or arrange for a loan to finance the installation
and to permit repayment of the loan over a period of time as part
of the normal utility bill. The act provides that the State regulatory bodies would determine the guidelines for each area and that
any utility that failed to comply could be heavily fined or barred
from rate increases until full compliance has been achieved.
I n the case of utility financing, several problems exist. First, the
utility would need adequate funds either produced by loans from
banks or the Federal Government since we don't have that kind of
cash simply laying around. W i t h the utility then acting as the lender, a large amount of business would be pulled from the lending institutions designed to handle such situations and, in most cases, more
than willing to get into this business. We would be forced into competition with them, a competition that could be unfair to consumers,
as probably any losses which we incurred from the program would
probably be rolled into service rates or picked up by the Government.
The act would force a utility into the position of general contractor, a role undesirable to my company, the fuel oil dealers of Massachusetts, and I ' m sure insulation contractors and banks.
The existing insulation contractors are well qualified to carry out
this work and need only to be brought together with the customer to
get the iob done. The same holds true for existing financial institutions. They have been and are capable of completing their obligation without the interference of a utility.
Furthermore, under the act, the utility company will be required
to carry out the inspection of existing dwellings. As Mr. Lee points
out, a significant amount of dollars in manpower additions would be
needed. I n our system alone in Massachusetts, we estimate that 146
additional employees would be needed to complete half of our customer surveys prior to the January 1, 1980 date. Such surveys are
now provided at a minimal cost by insulation contractors or at no
cost as part of the installation cost. However, the costs of these
people would be passed on to the rate payers.
252
The approach we see outlined in the bill sponsored by Senator
Brooke, S. 1403, is more desirable, primarily because it allows for
a lot more flexibility at the local and state level. I t takes the role of
surveying and places it with the appropriate local or State agency
certified to enforce current building codes. I t allows the individual
to deal with a contractor of his choice, and quite important, since
much of it is done this way, it allows the individual consumer to
perform the insulation work himself. I t lets the Federal Government
provide funds and then appropriate agencies carry out the financing
arrangements. As part of this, we would, as a utility, be integrally
involved in training surveyers that were needed. We can provide
them with our knowledge gained during the promotional period of
the 1960's on how inspection should be done and what benefits w i l l
be realized by the consumer because of added insulation, storm windows, doors, et cetera. We will, if necessary, be a catalyst to bring
the contractor and prospective home owner together by either direct
contact or providing lists of known reliable contractors and material
suppliers.
As noted in my longer prepared statement, we have done some
surveying of our customers' knowledge on insulation and attitudes
toward the proposed program. As a brief summary of the results, I
would say four things stood out.
First, people as individuals don't think they are wasting energy.
They believe energy is being wasted, but they think it's being done
by somebody else and not them.
Second, a lot of people, almost half the people who now either
own or have a house of their own through a mortgage, are now planning on adding to their existing insulation. Many people perceive,
and wrongfully so in most cases, that they now have adequate insulation because of a lack of education that Henry referred to earlier, not knowing what good insulation is. Fourth, they don't like
the idea of a mandatory program. We asked the question based upon
the Federal Government and the utilities getting into the act together, and they don't know at this point in time whether it's the
Federal Government or the utilities that they object to, but at least
the combination thereof is something they don't look forward to.
Herein, I think, lies the basis for valuable utility participation in
a national insulation program. As Henry pointed out, we can,
through advertising and educational programs, raise the public's
knowledge and concern regarding what good insulation can do for
them. We have been doing this and are willing to step up our efforts.
I n summary, the utility companies do not belong in the finance
business or the contracting business. I f needed, we are willing to be
a go-between by providing information relative to where such loans
may be arranged and, i f absolutely necessary, incorporate the payments into our bill.
We believe that any program for national insulation must accomplish the following—most of these points are included in S. 1304.
They must provide good surveys either onsite, or as Henrv points
out, by mail, for consumers without adversely affecting a utility who
does not supply the heating medium.
Second, they must provide a means for low interest capital for
the poor.
253
Third, they should allow good policing by an agency with the
existing authority for consumer protection.
Fourth, they should provide for easy payback as part of the mortgage or other normal payment.
Fifth, they should provide a way to keep the utilities out of the
competition with contractors and financial institutions.
And, sixth, they should allow the utilities to carry the message
for the need of adequate insulation to the public, and this means
probably advertising, and we have to look at some of the State regulations which in fact prohibit all forms of advertising by some
utilities in some States. This is not true in Massachusetts. I f they
are not allowed to advertise, it would be very difficult for them to
carry the message.
I thank you for the opportunity to be here. I would be glad to
take a shot at any questions.
Senator S P A R K M A N . Thank you very much.
[Complete statement follows:]
S T A T E M E N T OF J O H N R . STEVENS, V I C E PRESIDENT, I N F O R M A T I O N A N D
A F F A I R S , N E W E N G L A N D ELECTRIC S Y S T E M
CONSUMER
I a m John R. Stevens, D i r e c t o r of Consumer and I n f o r m a t i o n Services f o r
New E n g l a n d E l e c t r i c System, w h i c h t h r o u g h i t s subsidiaries provides r e t a i l
electric service to over 1,000,000 customers i n Massachusetts, Rhode I s l a n d
and New Hampshire.
I w o u l d l i k e to state at the outset t h a t we support the concept of the insulat i o n proposals i n the N a t i o n a l Energy Act. W e believe t h a t conservation m u s t
be the keystone of any energy plan.
The N a t i o n a l Energy A c t , as w r i t t e n , w o u l d require a u t i l i t y to inspect one
or t w o f a m i l y residences to determine i f the designated i n s u l a t i o n standards
are being m e t ; and, i f not, arrange f o r the i n s t a l l a t i o n by either doing the job
or h a v i n g the j o b done, to make or arrange f o r a loan to finance the instantiat i o n and to p e r m i t repayment of the loan over a period of t i m e as p a r t of the
n o r m a l u t i l i t y b i l l . T h e A c t provides t h a t the state r e g u l a t o r y bodies w o u l d
determine the guidelines f o r each area and t h a t any u t i l i t y t h a t f a i l e d to
comply could be h e a v i l y fined or b a r r e d f r o m r a t e increases u n t i l f u l l compliance has been achieved.
I n the case of u t i l i t y financing, several problems exist. F i r s t , the u t i l i t y
w o u l d need adequate funds either produced by loans f r o m banks or the Fede r a l Government. W i t h the u t i l i t y , then a c t i n g as the financer, a large a m o u n t
of business w o u l d be p u l l e d f r o m the lending i n s t i t u t i o n s designed t o handle
such situations and, i n many cases, more t h a n w i l l i n g to get i n t o the act. W e
w o u l d be forced i n t o competition w i t h them, a competition t h a t could be
u n f a i r to consumers, as any losses f r o m the p r o g r a m w o u l d probably be rolled
i n t o service rates or picked up by the government.
The A c t w o u l d force a u t i l i t y i n t o the position of General Contractor, a role
undesirable to my Company, the f u e l o i l dealers, and I a m sure the i n s u l a t i o n
contractors and banks.
The e x i s t i n g i n s u l a t i o n contractors are w e l l qualified t o c a r r y o u t t h i s w o r k
and need only to be brought together w i t h the customer to get the j o b done.
The same holds t r u e f o r e x i s t i n g financial i n s t i t u t i o n s . They have been and
are capable of completing t h e i r obligation w i t h o u t the interference of a u t i l i t y .
F u r t h e r m o r e , under the act a u t i l i t y company w o u l d be r e q u i r e d to c a r r y
out the inspection of e x i s t i n g dwellings, significant manpower additions w i U
be needed. New E n g l a n d E l e c t r i c System w i l l r e q u i r e a p p r o x i m a t e l y 156 addit i o n a l representatives to accomplish the surveys p r i o r to 1/1/80. However,
the costs of these people w o u l d be passed on to the r a t e payers.
The approach we see, as o u t l i n e d i n a b i l l sponsored by Senator Brooke,
S. 1304, is more desirable. I t takes the role of surveying, and places i t w i t h
the a p p r o p r i a t e local or state agency certified to enforce c u r r e n t b u i l d i n g codes.
c
94-843 O - 77 - 17
254
I t allows the i n d i v i d u a l to deal w i t h a contractor of his choice, or perform
the installation himself. I t lets the Federal Government provide funds and
then appropriate agencies carry out the financing arrangements. Except f o r
low income people, we would hope this would be a last resort and p r i m a r y
financing would be done by existing financial institutions. As p a r t of this, the
u t i l i t y may be integrally involved i n t r a i n i n g surveyors. We can provide them
w i t h our knowledge gained d u r i n g the promotional period of sixties 011 how
inspection should be done and what benefits w i l l be realized f r o m any increased insulation, storm windows and doors. We w i l l , i f necessary, be a
catalyst to b r i n g the contractor and prospective homeowner together by either
direct contact or providing lists of known reliable contractors and m a t e r i a l
suppliers.
As noted i n my longer prepared statement, we have done some surveying
of our customers' knowledge on insulation and attitudes t o w a r d the proposed
program. As a brief summary of the results, I would say:
1. People don't t h i n k they are wasting energy.
2. A lot of people plan voluntarily to add insulation.
3. They don't like the idea of a mandatory program.
4. Many perceive, and wrongly so i n some cases, t h a t they have adequate
insulation.
Herein I t h i n k , lies the basis f o r valuable u t i l i t y participation i n a national
insulation program. We can, through advertising and education programs,
raise the public's knowledge and concern regarding w h a t good insulation can
do f o r them. We have been doing this and are w i l l i n g to step up our efforts.
I n summary, the u t i l i t y companies do not belong i n the finance business or
the contracting business. I f needed, we are w i l l i n g to be a go between by
providing information relative to where such loans may be arranged and, i f
absolutely necessary, incorporate the payments i n t o our bill.
We believe t h a t any program must accomplish the f o l l o w i n g :
1. Provide good surveys w i t h o u t adversely affecting a u t i l i t y who does not
supply the heating medium.
2. Provide a means f o r low interest capital f o r the poor.
3. A l l o w good policing by an agency w i t h the existing authority.
4. Provide f o r easy payback as p a r t of a mortgage or other normal payment.
5. Provide a way to keep the utilities out of the competition w i t h contractors and financial institutions.
6. Allows the u t i l i t i e s to carry the message f o r the need of adequate insulat i o n to the public.
Senator S P A R K M A N . N O W , M r . Michael Johnson, Assistant Chief
of Congressional Liaison, National Association of Regulatory U t i l ity Commissioners, Washington, D.C.
STATEMENT OF MICHAEL JOHNSON, ASSISTANT CHIEF OF CONGRESSIONAL LIAISON, NATIONAL ASSOCIATION OF REGULATORY
UTILITY COMMISSIONERS, WASHINGTON, D.C.
Mr. J O H N S O N . Thank you, Mr. Chairman.
M r . Chairman, I want to express on behalf of the National Association of Regulatory U t i l i t y Commissioners our gratitude for an
opportunity to present our views here today before this committee.
We have filed with you a statement, a rather brief statement, and
I ' m not going to read it since i t w i l l be entered in the record as you
indicated. We have also filed with the committee as an appendix to
the testimony some amendments which we propose be considered
favorably by the committee.
I must depart from some of the views expressed here, and i n so
doing I find myself in an anomolous position. N A R U C is a voluntary association of the regulatory utility commissioners of the 50
255
state and territories, and the District of Columbia. These are individual commissions. Each of them has its own set of problems, its
own set of biases and prejudices, political origins, views and so forth.
They exist in climates where insulation is not as necessary as i t is
elsewhere and in certain States where insulation and where home
heating are absolutely essential. The State I come from—and I ' m a
member of the Public U t i l i t y Commission of Pennsylvania—is very
eager to have some kind of program that will work adopted at the
earliest possible time and implemented with a great sense of
urgency.
I n Pennsylvania, for example, and in many of the Middle Atlantic
States who share with us the rigorous climates, 55 percent of the
residential homes are heated by natural gas. I regret that our Senator, Senator Heinz, is not here this morning, but in his home area,
Allegheny County of which Pittsburgh, the State's second largest
city, is the county's principal city, almost 95 percent of the homes
are heated by natural gas. We had a dreadful experience this winter. Added to the already high unemployment that we did have was
another 750,000 unemployed at one point or another during this recent crisis last winter. So we know what the shortage of such a
critical fuel as gas can do to a community, to a society, to an economy, to the health and welfare of the people.
Now for many years the utilities of Pennsylvania, and indeed
other States in our area, have preached the gospel of insulation and
pointed out its virtues. I dare say that the impact upon the public
awareness was de minimus. I t was very minimal. And we believe—
some of us believe—and in this instance I speak for Pennsylvania
perhaps—that there must be some mandatory features incorporated
in this legislation. Otherwise, it will be a very glorious effort with
a result hardly commensurate with the oratory that went into its
passage.
I differ with my colleague from Massachusetts representing the
utilities who speaks of the industry, the home improvement industry, as i f it were a well established bona fide, ongoing industry that
recognized its social responsibilities as well as its legal responsibilities.
Mr. Chairman, I want to point out that in Pennsylvania, for example—and we have checked and found that this is true of many
other states—the home improvement industry is one of the most difficult, perhaps dangerous industries to deal with. It's an industry
which reauires in the main little skill for many of the functions that
are performed. I t is an industry which in Pennsvlvania has ripped
off the consumer to a degree that is almost unbelievable. Ten years
ago we enacted for the first time in Pennsvlvania, far after most
other States already had done so, our first Installment Credit Control Act, the Goods and Services Installment Credit Act of 1967. I n
preparation for this we investigated many of the practices being
carried on. We found that in the home improvement industry, particularly after the war when servicemen had bonuses and separation
pay, when wages were relatively high compared to previous times, it
was a simple matter to convince a home owner, particularly in the
rural areas, that he needed siding, that he needed to have storm
256
windows and so forth. We discovered that not only was the work
shabbily performed; in many instances it was never even completed
and the people were without recourse. We discovered something else
that is quite frightening since both of my colleagues have referred
to the great cost involved in this program. I n the home insulation
business—and I say that this perhaps exists today in the home improvement industry, out of every dollar, 50 percent, and in some
instances more than that—goes for the payment of promotion and
commissions to the salesman and the balance then is applied to the
work that's to be performed.
Now there need to be safeguards against this kind of thing and
where the states are unwilling to do it—and as it is, the states in
many instances have been unable to do it—these practices, these vicious abuses still continue. A program which contemplates dealing
with some 15 million homes in the United States that are underinsulated according to the information that's provided to us represents a marvelous opportunity for those who seek to abuse citizens
who are defenseless, in great need, without adequate resources, to
sign on the dotted line and then be stuck with work that isn't adequate. So, indeed, standards do need to be prepared.
But I want to point out, Mr. Chairman, that the bill is perhaps a
little overambitious. We have in Pennsylvania, for example, through
the devices of a very innovative Secretary of Community Affairs,
Mr. Wilcox, and with the use of Federal funds from 13 different
programs, insulated or weatherized or winterized some 25,000 homes
over the past 3 or 4 years. And two simple things were done. We had
attics insulated and we had the homes made secure against the invasion of cold air through cracks in the walls and caulking of windows and doors, etc. The program did not involve day-night thermostats nor retrofitting the furnaces. I t did not contemplate replacing
constantly burning pilot lights with electrical ignition of the flame.
I t did none of these things and yet in these homes that had a minimal amount of work done our records indicate—and the research was
minimal because only 25,000 homes were involved—that savings in
the utilization of gas—and that's what was involved—ranged from
25 to 55 percent with an average of almost 40 percent savings in the
amount of fuel used.
The program is really necessary. I t will improve the quality of
life. I t will improve opportunities for better health and comfort. I t
will conserve badly needed scarce energies and it will—something
that hasn't been stressed—open opportunities for the employment of
many people. I n Pennsylvania alone we estimate that over a 7-year
period we would add approximately 30,000 jobs in the State which
has a 9 to 10 percent unemployment rate. I n other States it would
result in even greater employment benefits.
This, of course, includes the manufacturing of the insulation. When
you begin to add other devices such as thermostats, you increase
opportunities for even greater employment.
One thing troubles us a great deal, though. The savings of natural
gas, the only energy source outside of electricity which is regulated
by any regulatory body, would apparently become part of a national
257
pool. We think that unless we can have added to the bill provisions
to let the States that do an effective job keep the gas allocations that
they can save by insulation, the Government would be depriving the
States with the necessary incentives—indeed, they would be depriving the utilities with the incentives to go ahead.
Now as to who ought to do this. While the Federal Government
must adopt standards, set them forth and provide for their enforcement, the implementation must be carried out by the States. Where
you're dealing with regulated utilities and fuels, the State regulatory bodies are naturally the ones to do this job.
I understand that I have exceeded my time, but I do hope that
the committee will pay some regard to the amendments that we have
proposed, particularly the development of an advisory committee
which would incorporate representation from major States so that
they could have input into this program. Thank you, Mr. Chairman.
Senator S P A R K M A N . Thank you very much.
[Complete statement follows:]
S T A T E M E N T OF T H E N A T I O N A L A S S O C I A T I O N OF REGULATORY
COMMISSIONERS
UTILITY
M r . C h a i r m a n a n d members of the committee, m y name is M i c h a e l Johnson.
I a m the Assistant Chief of Congressional L i a i s o n f o r the N a t i o n a l Associat i o n of Regulatory U t i l i t y Commissioners, commonly k n o w n as the " N A R U C . "
I a m also a Commissioner of the Pennsylvania Public U t i l i t y Commission.
I a m accompanied a t the witness table by P a u l Rodgers, N A R U C General
Counsel.
The N A R U C is a quasi-governmental, nonprofit o r g a n i z a t i o n founded i n
1889. W i t h i n i t s membership are the governmental agencies of the fifty States
and of the D i s t r i c t of Columbia, P u e r t o Rico and the V i r g i n Islands engaged
i n the r e g u l a t i o n of u t i l i t i e s and carriers. T h e mission of the N A R U C is to
improve the q u a l i t y a n d effectiveness of public r e g u l a t i o n f o r the benefit of
the A m e r i c a n consumer.
The members of the N A R U C appreciate y o u r i n v i t a t i o n to make t h e i r views
k n o w n on P a r t A of T i t l e I of S. 1469, a b i l l proposing the N a t i o n a l Energy
A c t , w h i c h concerns energy conservation programs f o r e x i s t i n g residential
buildings.
The N A R U C f u l l y supports energy conservation programs f o r residential
buildings.
T h e N A R U C as early as September 20, 1973, a t i t s 85th A n n u a l Convention
i n Seattle, W a s h i n g t o n , unanimously adopted a resolution endorsing a n d supp o r t i n g " t h e i n i t i a t i v e of the M i c h i g a n Public Service Commission t o encourage
gas and electric u t i l i t i e s t o offer the i n s t a l l a t i o n of home i n s u l a t i o n as p a r t
of t h e i r gas service" and f u r t h e r resolving t h a t " a n y p r o g r a m to better insulate A m e r i c a n homes, w h i c h are generally under-insulated, be applicable t o
e x i s t i n g and new homes and be available to consumers on the broadest possible basis; a n d where technically feasible, gas a n d electric u t i l i t i e s should
i n c u r cost of service and investments to conserve, as well as d i s t r i b u t e , existi n g supplies of n a t u r a l gas and electricity, respectively. . .
Convention Proceedings, pp. 195-197.
The N A R U C position on t h i s m a t t e r was expanded by a resolution unanimously adopted by the N A R U C E x e c u t i v e Committee on F e b r u a r y 28, 1974,
u r g i n g " t h a t , as a f u r t h e r step i n the n a t i o n w i d e energy conservation program,
the a p p r o p r i a t e agencies of the F e d e r a l and State governments concerned w i t h
conservation of energy should promote the use of i n s u l a t i o n i n homes t h a t are
heated by oil, coal, or other fuels not subject to r e g u l a t i o n by the State regul a t o r y u t i l i t y commission t o no less degree t h a n they have been p r o m o t i n g the
i n s u l a t i o n of homes heated by n a t u r a l gas or electricity. . . ." N A R U C Bullet i n No. 11-1974, p. 20.
258
T h e N A R U C w a s one of t h e first p u b l i c bodies t o endorse i n p r i n c i p l e t h e
p r o p o s a l of December 17, 1976, by W i l l i a m G. Rosenberg, t h e n A s s i s t a n t A d m i n i s t r a t o r f o r E n e r g y Resource Development o f t h e F e d e r a l E n e r g y A d m i n i s t r a t i o n , t h a t Conservation I n v e s t m e n t s by Gas U t i l i t i e s be Considered a Gas
Supply Option. 1
T h e P e n n s y l v a n i a P u b l i c U t i l i t y Commission has also endorsed i n p r i n c i p l e
t h e Rosenberg proposal and, accordingly, has i n s t i t u t e d a n i n v e s t i g a t i o n i n t o
t h e f e a s i b i l i t y of f u e l conservation plans by electric gas a n d steam h e a t companies, i n c l u d i n g one f o r u t i l i t y financed i n s u l a t i o n of customer homes heated
w i t h gas. N A R U C B u l l e t i n No. 13-1977, p. 26, a n d 20-1977, p. 2.
T h e Southeastern Association of R e g u l a t o r y U t i l i t y Commissioners ( a reg i o n a l a f f i l i a t e of t h e N A R U C ) , a t i t s 61st S p r i n g Conference i n B i l o x i ,
M i s s i s s i p p i on M a y 18, 1977, u n a n i m o u s l y adopted a r e s o l u t i o n r e q u e s t i n g
S t a t e commissions t o d i r e c t a l l electric a n d gas u t i l i t i e s i n t h e i r respective
S t a t e s : t o develop cost-effective h o m e - i n s u l a t i o n practices a p p r o p r i a t e f o r climates i n t h e i r geographical a r e a s ; a n d t o aggressively p r o m o t e i n s u l a t i o n
practices by p r o v i d i n g case-by-case assistance t o consumers seeking i n f o r m a t i o n r e g a r d i n g recommended i n s u l a t i o n levels a n d sources f o r i n s u l a t i o n loans.
N A R U C B u l l e t i n No. 22-1977, p. 21.
I n v i e w of t h i s State a c t i v i t y as w e l l as t h a t of o t h e r i n d i v i d u a l State commissions, t h e N A R U C does not believe t h a t t h e r e is j u s t i f i c a t i o n f o r t h e Fede r a l G o v e r n m e n t t o prescribe r e s i d e n t i a l energy c o n s e r v a t i o n p l a n s t o be
offered by u t i l i t i e s subject t o State r e g u l a t i o n . I n s t e a d , w e r e s p e c t f u l l y u r g e
t h a t F e d e r a l p a r t i c i p a t i o n i n t h i s area be r e s t r i c t e d t o :
( 1 ) T h e enactment of "finders-keepers" l e g i s l a t i o n w h i c h w i l l p e r m i t a
State t o r e t a i n the n a t u r a l gas saved by i t s c o n s e r v a t i o n efforts, t h e r e b y
p r o v i d i n g a p o w e r f u l i n c e n t i v e f o r States t o p r o m p t l y devise a n d v i g o r o u s l y
i m p l e m e n t conservation p r o g r a m s ; a n d
( 2 ) T h e enactment of Subparts 2 a n d 3 of P a r t A of T i t l e I of S. 1469 a n d
such o t h e r l e g i s l a t i o n as is necessary: t o a f f o r d t a x c r e d i t s t o homeowners
t o i n s t a l l i n s u l a t i o n a n d o t h e r approved c o n s e r v a t i o n m e a s u r e s ; t o s t i m u l a t e
r e s i d e n t i a l energy conservation loans a n d o t h e r f o r m s of assistance; a n d t o
establish a d a t e i n t h e f u t u r e beyond w h i c h r e s i d e n t i a l b u i l d i n g s m a y n o t be
sold o r r e n t e d unless they are energy efficient.
H o w e v e r , i f t h e Congress decides on F e d e r a l p a r t i c i p a t i o n as proposed by
S u b p a r t I o f P a r t A o f T i t l e I of S. 1469, w e r e s p e c t f u l l y u r g e t h a t i t be<
amended t o p r o v i d e f o r close c o n s u l t a t i o n between t h e A d m i n i s t r a t o r a n d t h e
S t a t e r e g u l a t o r y c o m m u n i t y w h o w i l l bear t h e b u r d e n of i m p l e m e n t a t i o n a n d
a d m i n i s t r a t i o n . T h i s m a y be best achieved by t h e e s t a b l i s h m e n t of a State
R e g u l a t o r y A d v i s o r y C o m m i t t e e as proposed i n t h e appendix t o t h i s statementR u l e s adopted by t h e A d m i n i s t r a t o r f o r energy efficient h o u s i n g s h o u l d o n l y
prescribe m i n i m u m s t a n d a r d s so t h a t t h e y w i l l n o t i m p a i r State
flexibility
i n i m p l e m e n t i n g energy conservation measures w h i c h are responsive t o l o c a l
conditions. W e have p r o v i d e d a n a m e n d m e n t f o r t h i s purpose.
Also, i f a State r e g u l a t o r y a u t h o r i t y does n o t p a r t i c i p a t e i n t h e n a t i o n a l
energy conservation p r o g r a m i n the b e g i n n i n g a n d t h e A d m i n i s t r a t o r is f o r c e d
t o assume c o n t r o l , t h e A c t should p e r m i t subsequent State p a r t i c i p a t i o n by
t h e filing of a n approved plan. A n amendment f o r t h i s purpose is also s t a t e d
i n t h e appendix.
I n conclusion, w e believe t h a t the orders of t h e A d m i n i s t r a t o r should be
subject t o j u d i c i a l r e v i e w by a n aggrieved p a r t y .
T h a n k you f o r your attention.
APPENDIX
T h e N A R U C r e s p e c t f u l l y proposes t h e f o l l o w i n g amendments t o S u b p a r t I ,
P a r t A , T i t l e I , o f S. 1469, a b i l l proposing t h e N a t i o n a l E n e r g y A c t .
( 1 ) Section 1 0 2 ( a ) , page 10, l i n e 7, is hereby amended by s t r i k i n g " a n d t h e
heads of such o t h e r " a n d i n s e r t i n g i n l i e u t h e r e o f , " t h e State R e g u l a t o r y
A d v i s o r y C o m m i t t e e a n d t h e heads of such o t h e r F e d e r a l a n d S t a t e . "
( 2 ) A n e w sentence is hereby added a t t h e end of Section 1 0 2 ( a ) , page 10,
l i n e 9, t o r e a d as f o l l o w s : " S u c h rules s h a l l n o t i m p a i r t h e flexibility of a n y
State r e g u l a t o r y a u t h o r i t y t o f o r m u l a t e a n d i m p l e m e n t r e s i d e n t i a l energy
1
See letter from NARUC President J. Kalinski to Mr. Rosenberg, dated Jan. 3, 1977,
as reported In NARUC Bulletin No. 2—1977, pp. 21-22.
259
conservation measures w h i c h are responsive t o local conditions, so long as
there is compliance w i t h such rules w h i c h s h a l l prescribe only m i n i m u m
standards."
(3) A new Subsection ( e ) , page 13, is hereby inserted a t the end of Sect i o n 102 t o read as f o l l o w s :
" ( e ) The A d m i n i s t r a t o r s h a l l establish a State R e g u l a t o r y A d v i s o r y Committee. T h e Committee s h a l l be appointed by the A d m i n i s t r a t o r , a n d s h a l l be
composed of five State commissioners f r o m different States each of w h o m s h a l l
be experienced i n energy conservation programs f o r r e s i d e n t i a l buildings,
nominated by the n a t i o n a l o r g a n i z a t i o n of the State commissions, as r e f e r r e d
to i n sections 2 0 2 ( b ) ( 2 ) and 2 0 5 ( f ) of the I n t e r s t a t e Commerce A c t , as
amended, and f o u r other members representing other interested groups. A
vacancy i n the membership of the Committee s h a l l be filled by the same
process of selection as applied to the last member h o l d i n g such membership.
The A d m i n i s t r a t o r s h a l l s u b m i t to the Committee a l l rules, regulations, policies, programs a n d amendments to same w h i c h are proposed p u r s u a n t t o
Subpart I , P a r t A, T i t l e I of t h i s A c t and a f f o r d such Committee a reasonable o p p o r t u n i t y t o prepare a report on the f e a s i b i l i t y , reasonableness and
p r a c t i c a b i l i t y of each such proposal. Each r e p o r t by the Committee, i n c l u d i n g
any m i n o r i t y views, s h a l l be published by the A d m i n i s t r a t o r a n d f o r m a p a r t
of t h e proceedings f o r t h e p r o m u l g a t i o n of such proposals. I n t h e event t h a t
the A d m i n i s t r a t o r rejects the conclusions of the m a j o r i t y of the Committee,
he s h a l l p u b l i s h h i s reason f o r rejection thereof. T h e Committee may propose
to the A d m i n i s t r a t o r , f o r his consideration, rules, regulations, policies and
programs w h i c h are w i t h i n his j u r i s d i c t i o n to adopt. Members of the Comm i t t e e shall be compensated a t a r a t e to be fixed by the A d m i n i s t r a t o r not
i n excess of the m a x i m u m d a i l y r a t e prescribed f o r GS-18 under section 5332
of t i t l e 5 of the U n i t e d States Code f o r each day they are engaged i n the
a c t u a l performance of t h e i r duties ( i n c l u d i n g t r a v e l t i i n e ) as members of the
Committee, and pay such members t r a v e l expenses and per diem i n l i e u of
subsistence a t rates a u t h o r i z e d by section 5703 of t i t l e 5 of the U n i t e d States
Code f o r persons i n Government service employed i n t e r m i t t e n t l y . Payments
under t h i s section s h a l l not render members of the Committee employees or
officials of the U n i t e d States f o r any purpose."
J u s t i f i c a t i o n : T h e o p p o r t u n i t y f o r Federal-State cooperation w i l l be m a x i mized by the establishment of the State Regulatory A d v i s o r y Committee.
Analogies to t h i s proposal are f o u n d i n the Technical Pipeline Safety Standards Committee created by Section 4 of the N a t u r a l Gas Pipeline Safety A c t
of 1968 (49 U.S.C.A., Sec. 1673), and the Federal-State J o i n t B o a r d created
by P u b l i c L a w 92-131 w h i c h amended the Communications A c t of 1934, as
amended [47 U.S.C.A., Sec. 4 1 0 ( c ) ] .
(4) Section 1 0 4 ( a ) , page 16, l i n e 13, is hereby amended by s t r i k i n g " p r i o r
to one year a f t e r enactment of t h i s A c t . " ( N o t e : W h a t advantage i s there t o
c u t t i n g off the submission of a l t e r n a t i v e programs?)
(5) Section 1 0 5 ( a ) , page 18, l i n e 23, is hereby amended by a d d i n g a t the
end t h e r e o f : " S u c h order s h a l l r e m a i n i n effect u n t i l such t i m e as the State
r e g u l a t o r y a u t h o r i t y obtains a p p r o v a l of i t s p l a n under section 1 0 2 ( c ) . " .
(6) Section 105, page 19, is hereby amended by a d d i n g a t the end thereof n
new Subsection (e) to read as f o l l o w s :
" ( e ) A l l approvals, disapprovals and other orders of t h e A d m i n i s t r a t o r shall
be subject to r e v i e w by a n a p p r o p r i a t e U n i t e d States D i s t r i c t C o u r t upon petit i o n by a n aggrieved p a r t y . "
Senator S P A R K M A N . I ' m going to ask Senator Brooke to interrogate
the witnesses. He's going to have to leave very shortly and it seems
that a lot of this testimony is centered in Massachusetts. I think it
would be fitting for him to lead off the questioning.
Senator BROOKE. Thank you, Mr. Chairman.
Let me first thank all three members of this panel, the very distinguished members of the panel. They have been very helpful and
very informative and I assure them that their testimony will be of
great assistance to us as we mark up this important legislation.
260
M y first question would be to Mr. Lee, director of the Massachusetts State Energy Office. Mr. Lee, the very useful testimony that
you have offered this committee will probably help explain to my
colleagues on the committee why I seem to have a slight bias in
favor of relying on State energy offices. It's because I ' m chiefly
familiar with the work of your office which is clearly capable of
managing and creating an effective energy conservation effort that
I feel confident that this is the proper vehicle for this program.
Now I ' m eager to pursue several points with you. First, given your
skepticism about the need for full-scale audits, what information
role would you foresee under a State-run program for utilities, home
heat suppliers or even bankers? As some testified here yesterday
there are trained property inspectors on some savings and loan payrolls.
Mr. LEE. First of all, I want to thank you for your kind words. ^
I n answer to your question, when we tried Project Conserve in
Massachusetts, we reached 15 percent of the homes. This was a questionnaire which asked about specific characteristics of the home and
then sent back to them in the mail a printout as to what they could
do to save energy and how much these actions save in terms of
dollars and cents and finally how much they would cost. We backed
this program up with a very good media campaign to get people
interested in it and over 150,000 homeowners in the State participated, out of about a million single family home owners.
I n followup surveys we found that approximately half of them,
or 75,000 took action to further insulate or conserve energy.
I think one of the things you have to do with information is find
out where are the areas conservation is not taking place. We found
those areas to be primarily the urban or semiunban locations such as
Greater Boston or some areas like our economically declining cities.
We should aim the information program at two areas initially, attic
insulation—we found a lot of people have storm windows in our
State but a lot of people don't have sufficient attic insulation—and
also aim the program at oil furnace tuneups. We used the media,
specifically television, utilizing public spots; we did it and we did a
good job. We think the consumer has to be informed of the kind of
actions they should take. We found many people who wanted to
insulate their attics but they didn't know where to buy the material.
This type of information dissemination can be done by integrating the existing State programs with some of the private deliverers
of energy. We have talked with the oil retailers and they are very
interested in doing this. We are also going to try a pilot program to
do this in the southeastern part of our State, hopefully with E R D A
funding—if E R D A doesn't come through, we'll do it with our F E A
money next year. We want to try to have the private energy deliverers and the State working together and distributing information
on specific conservation techniques which have to be followed to
save energy. Maybe the crux of the program should be furnace tuneups and attic insulation, emphasized through a media campaign. I
think by working with the broadcasting associations you can establish a media campaign that will cost you a minimum amount of
money.
261
Senator B R O O K E . N O W i f this committee were to channel any Federal funds or subsidies, including secondary financing, only to existing lending institutions, could your office design a satisfactory loan
program using, i f the Government so chose, a partnership between
conventional lenders and other agencies or businesses that you might
wish to have distribute funds?
Mr. LEE. I think that a provision which—it was in your bill—
could work, and I think that the State could coordinate it. I think
that our response from the banking industry has been favorable except on the aspect of low-interest loans. We are finding in urban
areas 14 to 15 percent interest fees for every conserving investment,
while in more wealthy suburban areas we'll find interest charges of
10 to 12 percent. There is a form of redlining on home improvement
loans. We could get the banks to participate but whether we can get
them to participate at the level we want them to is the key question.
Senator B R O O K E . H O W could you assure proper consumer protection in credit practices i f you did create this partnership?
Mr. LEE. Well, I think that's a very good question and it's something that we have been doing a lot of thinking about, especially in
the area of wall insulation, such as blown-in insulation. We have
had a number of serious complaints in oojr State of abuses, where
manufacturers don't put in the fire retardant material, or the ureaformaldehyde is installed at temperatures which are too cold. .
I think you should start off with a strong consumer education program. I think you should begin to set up regulations and standards
and I think those standards should be incorporated in the State
building codes, and i f these do not work, then you're going to have
to get on the job of trying to get the States—to regulate the industry.
I don't think the States want to be forced into such a regulating role
by the Federal Government. I hope we don't get to that point.
Senator B R O O K E . I was going to address that to something Mr.
Johnson said, but I really was talking about consumer protection
for loans.
Mr. LEE. Excuse me. Well, I think that the question is can you
provide sufficient financial incentives to that group of people above
the 125 percent of the poverty line and below the level impacted by
the tax credit bills, and I don't think there's been anything in the
President's program that addresses that group. I think there is a
provision in your program that addresses this problem. I was in
Canada last week and they have undertaken a rebate type of program and a loan program. The loan program does not work at all
and they are offering 8 percent loans. While the rebate program has
been very successful.
I think unless you get interest levels down, and unless you promote these loans, you will have some problems. I don't think people
are going to buy 14 percent loans. We see that some of the programs like this run in other States or cities—such as in the city of
Seattle and in Michigan—about 80 percent of the people didn't even
take the financing. They just went and bought the stuff from the
utilities.
Senator B R O O K E . That was because of the high loan interest rate?
Mr. LEE. Right.
262
Senator BROOKE. Could an office like yours set up and administer
a statewide program like the direct reimbursement program t h a t
you suggest?
Mr. LEE. We could coordinate it. I think it should be administered primarily on the local level because I think they have a better
knowledge of the problems in their area. I think that when you
get down to dealing with individual homes, which you have to do
in such a program, you're going to have to administer at the local
level and you're going to have to provide funds to help the local
people do that. I think my office can coordinate such a program and
I think we could do it effectively. I n fact we are trying to set up a
system to do i t right now.
Senator B R O O K E . N O W I , too, t h i n k we should set up a certification
system to guide state business and i n d i v i d u a l consumers, and w o u l d
you be w i l l i n g to give us f o r the record your detailed proposals as
to what items or services should be included under such a program ?
Mr. LEE. I will.
Senator B R O O K E . I n general, I would like to know what i t is you
feel is needed to motivate homeowners to insulate or retrofit, and I
think high prices and tax credits we anticipate will not suffice, except for all but the poor and the near poor.
Mr. LEE. I will provide* that for the record.
Senator B R O O K E . Mr. Stevens, I ' m particularly pleased that the
New England System is represented here today because the more I
work with the utility industry, the more I realize the extent to
which your company represents the most progressive in the conscience sector of your industry. Your thoughtful testimony this
morning bears out my continuing good impression and I ' m sure the
committee will find your views very helpful.
It's not often that we can get the State energy policy agency and
the utilities working together and agreeing on 90 percent of almost
anything, but it's heartening to see that you do in this area.
I would like to know whether in the event the utilities are asked
to participate in a plan of energy audits the New England Electric
Svstem could recruit and train the needed inspectors and, i f so, I ' d
like to know how long it would take you to gear up.
Mr. STEVENS. There's no question that we could, but I think the
question is how long it would take. Back in the sixties when we
were promoting electric heat we had enough people around to handle roughly 90 percent of the homes that are collectively heated in
our service area. To do a major job like this it would probably take
us 6 months to recruit, train, and have adequate inspectors in their
operating field. The cost of that would be very large. I t would not
be permanent employment. I t would be temporary employment and
I think something we'd probably prefer not to do.
Senator BROOKE. Could a self-administered questionnaire be as
useful as a f u l l inspection f o r energy a u d i t i n g purposes?
Mr. STEVENS. I think from an economic point of view, yes, i t
could. I think in covering all the bases, the answer is "No." But it's
our estimate that a good, full, in-house inspection will probably cost
the consumer somewhere between $50 and $75.
263
One of the things that we found—and this gentleman from Pennsylvania referred to a program which had attic insulation and
caulking of homes—the average cost of that is only running $300
to $500 and when you add a $75 tab for an inspection on top of that
the consumer has the tendency to feel he's being ripped off and rightfully so, because you really don't need an inspection to do that. What
you need is to sell the public on the value of those kind of simple
steps.
Senator B R O O K E . I f a full-scale inspection were charged to homeowners, how much do you estimate it would cost?
Mr. STEVENS. Well, I guess my estimate would be in that $50 to
$75 range per home.
Senator BROOKE. Would that vary regionally?
Mr. STEVENS. Yes. There's no question it would. I n areas with
newer construction, I think it would be somewhat easier to do the
inspections than it would be in some of the older construction in the
cities that Henry mentioned such as Boston and Bedford which are
very difficult to get in the crawl space and get around and find out
what's in there. So I would think in new areas such as Arizona and
California, it would be easier.
Senator B R O O K E . Because we have old stock housing in New England generally, where in Alabama they have all the new housing in
the country and where the economy is booming and ours is not, it
probably costs still less so they would benefit even more by this.
That's correct.
Now you indicate some resistance to being charged with responsibility for consumer credit procedures now required of conventional financial institutions. WTiy is that?
Mr. STEVENS. Well, it's two-fold. First of all, we are not in that
business. We don't know anything about it and we have to develop
an expertise to get involved. Secondly, some set of standards would
have to be developed to protect the consumer for our consumer
financing which is in fact I don't think is the proper role for the
existing regulatory commissions. I t is a more proper role for the
existing banking commissions because it is not a utility business any
longer; it's a banking business. We also have—many companies
have objections simply based on use of capital for this rather than
for the necessary construction that has to go on.
Senator BROOKE. N O W I was very much interested in the survey
results that you reported in your statement. Given the disappointing results of your survey, can you elaborate on the kind of information you believe we need to motivate home owners to make energy
conservation investments ?
Mr. STEVENS. Yes. I think through a combined media program
supporting the efforts of the energy policy office or whoever in fact
is the state agency involved in this program that an economic message as to the benefits to the individual consumer is the story that
we've got to get before the public and that I think is the one thing
thflt will make the public act, when they actually see some value in
doing this. Some of this has been done. Henry has already proved
that he could get 15 percent of the people to fiil out his conservation
264
form and that form by the way was a very thick, time-consuming
document to fill out. I f that can be simplified in an insulation program only, I think that the 15 percent can be dramatically improved upon.
Senator B R O O K E . D O you see any problem in assuring quality in
the conservation materials and labor that may be supplied by the
free market i f there's a rapid increase in insulation and retrofit
activity ?
Mr.
STEVENS. Y e s , I
do.
Senator B R O O K E . What consumer protection measures do you recommend ?
Mr. STEVENS. I think we've got to have standards developed as to
the quality, quantity and methods of application. I think that we've
got to have spot checks of the industry as to installation. I think
we have to have rapid followup to consumer complaints and i t may
be that i f that does not work we need a licensing process for home
insulation installers.
Today, in the service area of Massachusetts that we serve, we have
some 70-plus insulation contractors, all of whom have been and for
quite a while—at least the 70 that we have worked with—since the
1960's. There are others there that we could not comment on the
quality of their work, but there are at least 70 that we feel relatively confident in their ability to do their job and protect the
consumer.
I think it's like any expanding market. I n a way it's like the solar
market. There's a great potential for fraud on the public and some
kind of checking system must be developed and I think that standards and spot inspections are probably the way to begin.
Senator BROOKE. Finally, Mr. Johnson, I'm familiar with some
of the abuses that you mentioned in your testimony and some of
your fears and your admonitions of counsel to this committee as to
what it ought to do. When I served as attorney general i t was somewhat after th*t period where we had a lot of G I purchases of homes
and I remember the period of home insulation contractors that you
mentioned and there were some abuses. I n fact, that was one of the
reasons that I instituted in Massachusetts a consumer protection division within the attorney general's office because people, as you
say, were being ripped off. But I think it's not a blanket or general
indictment of the insulation construction business or contracting
business. I think we have seen a lot of improvement in that area and
I don't have the same fears now, but I do believe that we ought to
do everything possible, as you suggest, to assure that the consumer
is protected against possible rip-off by contractors and protect the
consumer in every way we possibly can.
Do you have any specific measures that you would want to suggest to this committee that they ought to utilize or include in this
legislation for that protection?
Mr. J O H N S O N . We have a number, and one of the recommendations that we offer is setting up an advisory committee in which the
States would be able to participate. We think that there can be
input or specific safeguards, Senator.
265
Senator B R O O K E . Don't you think the State energy policy agencies could do that?
Mr. J O H N S O N . I beg your pardon?
Senator B R O O K E . Don't you think the State energy policy agencies in the various States could do that?
Mr. J O H N S O N . I do not, sir. We have in Pennsylvania, and I know
in other States, perhaps 8 to 10 different agencies concerned with
this problem. I n Pennsylvania we have a Governor's Energy Council. That is fragmentation of responsibility. The chief problem that
the consumer w i l l be confronted with is having some place to go
with his complaint. That's one of the reasons why we look with
favor upon a strong role played by the utility. The utility is not
going to go away, but the home improvement company may disappear tomorrow.
Senator B R O O K E . The State is not going to go away either in most
States and I can't—I'm sure they vary. I think we are fortunate in
Masschusetts to have an exceptionally well qualified and committed
State agency that handles these problems, but you all still have
attorney generals in your States. Most of you have consumer protection agencies. You have better business bureaus. You have many
other agencies that are established to protect the consumer against
the kind of fraud and abuse that you mention. I don't see why you
feel that utilities can better do that job of protecting the consumer
than would a duly constituted authority of the State.
Mr. J O H N S O N . Y O U need all of these agencies, including a State
energy program and facility, but you need somebody to implement
this. Now there's no one closer to the customer than the utility. I'm
not a particular defender of the glory of the public utilities because I don't have that reputation on our commission, but nevertheless, I do know the role that they can play.
Senator B R O O K E . I hope you're not, because you told me you were
a regulator of a utility. I don't like to see the regulator so closely
tied to the regulatee that they are one and the same. So when you
tell me you're a commissioner who regulates a public utility in Pennsylvania and you have a national organization, I can't expect that
you would be one and the same. I think you do regulate those utilities; is that not correct?
Mr. J O H N S O N . Well, we endeavor to, sir. It's not easy, though.
Now may I point out, Senator—this may not be directly responsive
Senator B R O O K E . Your charges are bad in Pennsylvania and your
regulators are bad in Pennsylvania and your agencies are bad in
Pennsylvania? I'm sorry Senator Heinz could not be here. I just
want to say for Senator Heinz that he regrets he couldn't be here
this morning, Mr. Johnson, but unfortunately he did have a conflict. There are so many different things going on at the same time,
but he is very much interested in this problem.
Mr. J O H N S O N . Yes, we know. We talked with the Senator and we
appreciate his support of the program.
Senator B R O O K E . Good.
Mr. J O H N S O N . I guess that maybe we have been hurt so badly this
past winter that we are already driven with a sense of urgency from
266
which we can't escape. We want it done right away. When we have
11 people in Western Pennsylvania dying because of the curtailment and termination of gas and electricity, you become quite aware
of the great problems. When you have 500,000 people inside of 2
weeks time or 3 weeks time being thrown out of work and you
find that your unemployment compensation debt rises from $800
million to a billion and a half in just over the span of one winter,
our State recognizes the great need for some immediate action.
Now, sir, the F H A , through its auxiliary programs on home improvement, did make available very readily moneys for the improvement of homes, but that is not to say that the homes were improved.
The money was expended. The people had to pay those bills. And
we estimate in Pennsylvania—and I don't want to knock Pennsylvania because I know that this is true of many other States that
perhaps don't want to admit it—a very large portion of the work
that was done was wasteful, poorly done, and in many instances
never completed. This is in spite of the safeguards, consumer protection and so on.
Now as we are able in the various jurisdictions throughout the
country to regulate the kind of pipe which can carry water into a
home, the kind of electric wiring that must be utilized in new construction and many other building codes which are mandatory, we
believe that standards dealing with insulation can just as easily be
adopted and embedded into the building codes of the communities
i f done by the community or by the county or by the State or i f
need be by the Federal Government. But I submit, sir, some protection must be embedded in this act. Otherwise, we will have been
spending an awful lot of money with very, very little reward.
Now I want to say further to Mr. Stevens, we have resistance and
this goes to the whole question of education. My good friend, the
energy director for Massachusetts, places so much dependence upon
a vigorous educational program, where we have resistance from the
utilities, from the banking institutions, from Wall Street itself
which is afraid that they w i l l be siphoned off from the general
moneys that are available to finance the building programs of utilities—that siphoning off that money for weatherization will impede
the construction of new facilities, electric and gas works and water
works.
So we have this resistance and that resistance is expressed throughout the State, throughout the country by these agencies. I t ' s all
r i g h t to come here and say they support this, but back home they
resist the efforts. W e have an ongoing procedure now adopted by
our State commission and thus f a r the testimony offered by the
utilities is we can do this on a voluntary basis and by education and
so on. The record does not support success f o r the efforts that they
have put i n t o i t thus f a r and they have spent hundreds upon thousands of dollars i n education, stuffers i n bills, and full-page ads
which the rate payers are p a y i n g for. I t ' s got to be something much
more than just t h a t alone.
Senator BROOKE. Thank you, Mr. Johnson. My time has long since
expired, and the chairman has been most generous in allowing me to
interrogate out of order because of another commitment.
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I would just like again to thank the panelists, Mr. Chairman, and
to say that I think they again have been very helpful.
I would like to point out that we are not trying to thrust upon
the utilities nor should we thrust upon the utilities a responsibility
that they really are not, in my opinion, equipped to do.
The utilities can do what they do best, and that is provide utilities at a reasonable cost, hopefully, to the consumer, and educate the
consumer as to the need for conservation. I think then they will
have performed their job, and performed their role well.
I just do not see the utilities in the banking business, for example.
I can't see them in the financing business; I can't see them in the
home insulation contracting business. I can't see them packaging the
services for the consumer. But I do think they have a role. The mere
fact you said, Mr. Johnson, the utilities will always be there, we
hope they will always be there. But that doesn't necessarily mean
that they are the ones that should do this particular job. I think the
State agencies and other agencies can do it, I think they are
equipped to do it, and I think they can do i t best. But I do agree
that we have got to build into this legislation every possible protection for the consumer, protection on loans, protection on the insulation, right down the line. I don't think anyone disagrees with that
at all.
Maybe your advisory committee might be good, but we might even
need more, we may need to go further than just an advisory committee in insuring protection for the consumer.
But we have got to get on with this job of conversation. I commend the administration for submitting the plan. We need a national energy policy, and the root of that policy has got to be conservation. I think we are agreed on that. Having said that, it is just
a question of who can do it best as far as the actual insulation of
homes, and I am not only talking about the poorer homes, but the
middle-class and upper-class homes as well as the poor, the high cost
homes as well. I think we can do this, one, through education by
the utilities, and then working through state agencies, but that is a
matter the committee will ultimately have to decide.
Your testimony has been very helpful, I am very grateful-for it.
Senator S P A R K M A N . Thank you, Senator Brooke. I knew you
would do a thorough job and I appreciate your doing that.
The way I view this situation is that it calls for cooperation among
the Federal Government, the State government and the local governments. Do you agree with that?
M r . JOHNSON. Y e s , sir.
Senator S P A R K M A N . I t
seems to me, I am thinking back now, do
you remember the old home improvement loan plan?
Mr. J O H N S O N . I certainly remember them. I don't know about my
colleagues, but I do.
Senator S P A R K M A N . They are too young.
Mr. J O H N S O N . A S a matter of fact, I have neighbors who are still
paving off these loans that they took 30 years ago.
Senator S P A R K M A N . I thought that was a very fine program.
Mr. J O H N S O N . From the financing point of view, sir.
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Senator S P A R K M A N . A n d i t seems to me that some such p l a n as
that could be worked out w i t h reference to conservation of energy.
I f I remember correctly, the i n d i v i d u a l arranged the loan w i t h
the bank, made application to the Federal Government, and i f the
Federal Government approved, i t would guarantee to the bank t h a t
t h a t loan would be repaid. I t was a very useful program.
T h a t was i n the days of F . D . R., wasn't it?
M r . JOHNSON. Y e s , sir.
Senator S P A R K M A N . I t was i n the early p a r t of his administration,
i f I remember correctly, probably about the time of the Home Owners L o a n Corporation, one of the greatest institutions t h a t the New
Deal brought into being.
I was a young lawyer at that time, practicing law, and the t w o
Senators f r o m my State were called upon to designate two persons
i n each county, one to look after the t i t l e research, the other to be
the appraiser.
One day I received a wire f r o m my two Senators asking me to
serve as county appraiser. W e l l , I was brandnew at the job, they d i d
give us some instructions, but I often t h i n k back to those days and
I t h i n k what a terrific job was done at a time when the country was
i n the depth of a depression, and I have often thought t h a t was the
number one t h i n g that President Roosevelt d i d soon after he came
into office that helped p u l l us out. I t was most instrumental i n p u l l i n g us out of the depression.
A n d I remember the home improvement loans, I saw a great many
of them go through, and have the w o r k done w i t h the Government
guaranteeing it.
I t seems to me we could develop a program somewhat of t h a t
type. T o my way of t h i n k i n g , i t would be a better type than calling
on the utilities themselves to set up a lending agency w i t h i n their
companies.
A n y h o w I t h i n k i t can certainly be worked out, I t h i n k i t ought
to be worked out. I also believe that there ought to be a tax incentive given to people. M y understanding is the Finance Committee is
considering that. I believe someone t o l d me i t is under consideration
there now. W i t h that, I t h i n k a good program can be worked out.
B u t getting back to the two bills that are really before us, the b i l l
that Senator Jackson introduced in the Senate and the b i l l t h a t L u d
Ashley, w i t h a host of cosponsors, introduced i n the House. I have
not studied them carefuly but I do understand t h a t they take a d i f ferent approach.
A s between the two bills, which would you prefer, or do you t h i n k
there ought to be something worked out i n consolidating the two?
D o you have any opinion?
M r . S T E V E N S . I n my opinion, having read both bills, I would cert a i n l y prefer the Ashley b i l l , which is a less mandatory, less structured program than the Jackson b i l l , and runs much more along the
lines of Senator Brooke's b i l l , 1304.
I t h i n k this is the method that the utilities, and mine i n particular, would prefer to see. I t gives the States a great deal more flexib i l i t y i n the implementation of the program, i t also gives the i n d i vidual a good deal more
flexibility.
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Senator SPARKMAN. W h a t would be your opinion?
M r . LEE. I t h i n k that we would also tend to favor the Ashley proposal i n terms of the structure, and how the program would be
administered. I t h i n k there are provisions i n the President's plan
that can be merged w i t h the Ashley proposal.
I t h i n k your suggestion, Senator, of b r i n g i n g those two bills together is a very good suggestion. I just t h i n k i t is very important
that the Governors be given the flexibility to set up the program
and r u n the program as they see fit to meet the needs of their particular State.
Massachusetts, for example, is 70 percent heated by oil, and is
very different f r o m Allegheny County, which is 95 percent heated
by natural gas.
The only way you can get that consideration is to w o r k the program through the governors.
M r . JOHNSON. I am inclined to believe that the major b i l l ought
to be the administration's b i l l , introduced by Senator Jackson, w i t h
modifications taken f r o m the Ashley b i l l , and the b i l l reported by
Congressman Dingell's subcommittee.
No one has a totally perfect approach to this problem and" there
are many suggestions that have not been incorporated into either Bill.
Y o u were very h e l p f u l i n reminding me of the great work done
d u r i n g the New Deal days.
L e t me add, sir, I am sure you d i d not forget, because you were
there, as I was, the great work done i n the public works programs,
where people who were unemployed were pressed into work.
S e n a t o r SPARKMAN. T h e W P A ,
PWA.
M r . JOHNSON. A n d one f u r t h e r one, the CCC program. I remember as a young man marching i n protest w i t h some college students,
colleagues of mine, against the CCC program, because we considered i t a f o r m of militarism.
B u t today as I ride around the beautiful country that we live in,
there is evidence abounding today of the great contributions done
bv those boys who were taken f r o m the slums, brought out to the
country, parks, highways, and playgrounds to the benefit of people
and tliis Nation forever, perhaps.
I remember protests against the P W A and the W P A being held
on the steps of city h a l l i n Pottsville, Pa., and r i g h t next to that city
hall is a beautiful post office b u i l t by the P W A . I t is still there servi n g the people. I t is perhaps one of the nicest buildings i n that city
today.
So the one t h i n g that neither b i l l really provides is the utilization
of a mass of unemployed people who can easily be trained to do this
work.
W e have done i t i n Pennsylvania. The 25,000 homes were winterized w i t h this k i n d of labor that was recruited among the unemployed. The w o r k has been regarded on the floor of the House at
least by the Congressman f r o m Pittsburgh, M r . Moorehead, as one
of the outstanding examples of a crash effort to save the homes and
the lives of people.
One further thing, Senator, that we have overlooked i n our discussion here today, and that is the savings i n fuel costs to the people.
94-843 O - 77 - 18
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O u r Governor estimates, w i t h his economic advisers and his energy people, t h a t the costs of a home insulation p r o g r a m on a lesser
scale than the one recommended by the Jackson b i l l , can be amortized, w i t h i n the first 3 years by savings i n f u e l bills alone. So w h i l e
on the one hand we do p u t a burden on the person who is going to
have his home weatherized, we nevertheless provide h i m , t h r o u g h
the savings i n his bills, w i t h a way of p a y i n g f o r i t .
The final t h i n g I would like to stress is t h a t indigenous to any
p r o g r a m t h a t is going to work, p a r t i c u l a r l y where n a t u r a l gas is
concerned, is the i n t e g r i t y of the finder's keeper's program. I f the
billions of cubic feet of gas that could have been conserved i n Pennsylvania could have been diverted to i n d u s t r i a l use, h a l f the people
t h a t were unemployed would not have been unemployed. A n d that
to me, sir, is a very i m p o r t a n t consideration, equal to almost anyt h i n g that we have i n either proposal.
Senator SPARKMAN. L e t me say I remember the CCC days. I n
fact there were three OCC camps at m y home, two were placed upon
the mountain where they b u i l t parks, a very fine p a r k system. A n other one was placed down i n the lower areas, just outside the city
limits, f o r the purpose of doing f a r m work, terracing and drainage,
things of t h a t k i n d . They d i d a tremendous job.
I remember the W P A and the P W A . I remember the jokes t h a t
used to be t h r o w n at the W P A . B u t there was also a program t h a t
M r . Ickes developed, along w i t h the President, and t h a t was the
combined P W A and W P A programs.
Y o u may not know i t , but the very fine National A i r p o r t t h a t we
have here i n Washington was b u i l t by that k i n d of a program.
B y the way, the engineer who designed the b u i l d i n g was a good
f r i e n d of mine f r o m Alabama, Sumter Smith, and I t h i n k you w i l l
find his name over the door out there.
W h i l e I am reminiscing, I m i g h t say I remember very well when
President Roosevelt announced his intention, his order, to b u i l d
National A i r p o r t , by dredging i t out of the Potomac River. There
had been a great deal of discussion around here on the question of
getting an airport. They advocated Congress select a site out pretty
close to where Andrews A i r Force Base is now and another one i n
the Dulles area. B u t one m o r n i n g the country was rather startled,
Congress particularly, and the Republican side of Congress especially, when they woke up to find out that President Roosevelt had
issued an Executive order to dredge the Potomac River, fill in, and
b u i l d National A i r p o r t there. There was a great deal of g r u m b l i n g
and g r o w l i n g about it. H e answered t h a t by saying that he d i d i t
almost on the spur of the moment, because he woke up i n the n i g h t
drenched i n perspiration and chilled because he said he had a terrible nightmare. Now i n those days, where the marina is near the
Pentagon, that was the airport, Hoover A i r p o r t , and there was a
road that ran through i t , and i f a plane was coming i n you had to
close the gate to keep the automobiles out. I t was just k i n d of a dishpan thing. So I can see w h y he would have that terrible dream.
B u t anyhow, i t was based on that, and we have the National A i r port as a result of it. B u t i t was a tremendous program. School
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buildings went up a l l over the country as a result of the P W A ,
sometimes tied i n w i t h the W P A .
W e had a Secretary of I n t e r i o r named H a r o l d Ickes. I am sure
you remember him. A n d he really pushed that combined program,
and that d i d a tremendous amount of good.
So the Federal Government, particularly when you tie i t i n w i t h
the State government and w i t h local governments, can do a tremendous job, and I t h i n k they can do a tremendous job i n b r i n g i n g into
effect a program relating to conservation.
W e have another panel we want to hear from, and that is a consumer panel. So i f you gentlemen w i l l give up the table, we w i l l ask
Susannah Lawrence, executive director of Consumer A c t i o n Now,
and T o m Stanton, Housing Kesearch Group to come up to the table,
please.
Ms. Lawrence, we have your statement. I t w i l l be p r i n t e d i n the
record. Y o u may handle i t as you see fit, either read i t or summarize
i t or discuss i t .
STATEMENT OF SUSANNAH LAWRENCE, EXECUTIVE DIRECTOR
CONSUMER ACTION NOW, WASHINGTON, D.C.
Ms. L A W R E N C E . I t h i n k what I w i l l do is go through and h i g h l i g h t
the main points this morning, and then be open f o r questions.
F i r s t of all, I would like to tell you a l i t t l e b i t about our organization.
W e have been w o r k i n g since 1970 p r i m a r i l y i n the area of consumer i n f o r m a t i o n and f o r the last 2 years we have concentrated
our efforts on energy conservation, and renewable energy resources.
Senator SPARKMAN. Excuse me. I have been w a i t i n g for Senator
M c l n t y r e to come. H e is really supposed to be h o l d i n g these hearings, and I am going to have to leave. Senator M c l n t y r e , this is the
second panel. W e have just finished w i t h the first panel.
Senator M C I N T Y R E . I just finished w i t h the first panel i n small
business, and now they are doing the second panel there.
Senator SPARKMAN. Good.
Senator M C I N T Y R E [presiding]. Thank you very much, M r . Chairman.
Senator SPARKMAN. T h a n k you.
Senator MCINTYRE. Today we conclude 3 days of hearings on several proposals to assist citizens i n f u l l y insulating their homes, and
to make financing available f o r solar energy systems.
The President has proposed that 90 percent of all existing homes
be f u l l y weatherized by 1985. I t has been estimated that by achievi n g this insulation goal, we can save the equivalent of 500,000 to
1 m i l l i o n barrels of oil per day. I n addition, Federal officials have
projected that 1.2 m i l l i o n to 2.5 m i l l i o n homes can be equipped w i t h
solar energy by 1985.
One witness, F E A Deputy A d m i n i s t r a t o r D a v i d B a r d i n , testified
before this committee on Monday t h a t a large proportion of energy
conservation can be achieved at a cost equal to a range of $2 to $7
per barrel of oil saved. A t these costs, conservation is the least ex-
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pensive increment we can gain i n domestic energy supply. I t is a
p a i n f u l and inescapable fact that we need more domestic energy,
and that we w i l l have to pay a higher price for t h a t energy i n the
future. B u t while we are investing $13 per barrel f o r needed new
oil, we would be foolish not to invest $2 to $7 f o r each barrel we
can save.
I n the long run, the solutions to our energy problems lie i n renewable sources of energy. Therefore, the solar energy provisions of this
legislation may, i n time, t u r n out to be the most i m p o r t a n t topic of
these hearings.
Last week I introduced S. 1760, which includes most of the provisions of a b i l l introduced i n the House by Congressman Ashley,
H . R . 7893. The Ashley b i l l is the most comprehensive b i l l t h a t I
have seen so f a r to provide financing mechanisms f o r energy conservation and solar energy. I t closely parallels, but improves upon,
the residential energy conservation provisions of the President's energy plan. I t s cost to the Federal Government is very small, but its
potential f o r energy conservation and energy production t h r o u g h
solar energy is substantial.
However, I f i r m l y believe this committee must consider the additional step of p r o v i d i n g direct grants or interest subsidies f o r solar
energy, i n tandem w i t h financing mechanisms. A n y subsidy p r o g r a m
should be structured so that the benefits are delivered to consumers
at l i t t l e cost and w i t h l i t t l e paperwork and redtape. The p r o g r a m
should be aimed at the broadest possible segment of the public, w i t h
emphasis on those who are most heavily burdened by r i s i n g energy
costs, and should prevent any double d i p of benefits f o r those who
m i g h t use a Federal tax credit f o r solar energy.
One b i l l before this committee, S. 395, introduced by Senator H a r t ,
would provide interest subsidies for solar energy systems. A n o t h e r
b i l l , introduced by Congressman D r i n a n i n the House and w h i c h I
have introduced i n the Senate, would provide direct grants f o r solar
energy i n combination w i t h loans.
I hope those witnesses who are f a m i l i a r w i t h solar energy w i l l
address these issues.
W i l l you proceed, please, Ms. Lawrence. A g a i n the constraints of
time are heavy upon us, so t r y to h i t the h i g h spots and all of your
statements w i l l be included i n the record i n their entirety.
Ms. L A W R E N C E . I w i l l continue f r o m where I l e f t off.
O u r feeling about the u t i l i t y aspects of the administration's proposal and the^ Ashley proposal is that we do t h i n k that the utilities
provide a unique way of getting h i g h quality i n f o r m a t i o n to consumers about what makes sense i n terms of conservation, what
makes sense i n terms of pricing, i n terms of available technology,
i n terms of the order i n which conservation measures should be implemented to make the best use of their money.
W e do feel, however, that i t is not logical to b r i n g utilities i n t o
the direct financing of conservation investments. I t sets up problems
of competition w i t h local contractors, great regulatory burdens f o r
the local public u t i l i t y commissions, and we are not sure t h a t all of
those public u t i l i t y commissions are able to deal w i t h that regulatory
burden.
273
I t h i n k that the key point here is information, the dissemination
of information. I don't mean blurbs i n u t i l i t y bills t h a t say "Conservation is good f o r you," but specific i n f o r m a t i o n as to how to conserve and what to do and who the consumer can t u r n to.
W e would like to also encourage the committee to follow the
House's lead i n p r o v i d i n g low interest loans through the Government National Mortgage Association f o r conservation investments.
We are f a m i l i a r w i t h a program i n Dayton, Ohio, which has had
great succes w i t h a low interest loan program. The program began
i n 1975. I n 1976 private lenders i n that community made $900,000
worth of loans f o r improvements, home improvements, whereas the
city made $1.6 m i l l i o n i n loans, and 50 percent of those loans were
for energy conservation investments.
Since that time, because of that program, at least one Dayton
bank is now offering home improvement loans at 7.5 percent interest.
I t h i n k that is an interesting point to underline, the possibility of,
through programs like this, actually encouraging lower interest rates
f o r conservation loans f r o m the private investment community.
We would also, however, like to point out that the administration
proposal and the House B a n k i n g Committee proposal overlooked
what we (believe is an important goal or important strategy, and that
is low interest loans f o r solar energy investments.
Almost every study that I have seen on this subject pinpoints the
problem of the high cost of capital as being a major stumbling block
to the use of solar energy.
I t h i n k at the very least i t would be logical to expand the program proposed f o r G N M A for conservations loans to include solar
loans as well.
B u t I would say this is only h a l f a strategy. I t h i n k much more
logical would be to structure a more far-reaching low interest loan
program that would provide loans not only f o r residences, but f o r
neighborhood and community projects as well. I say this because I
t h i n k solar energy, particularly bioconversion and wind, is suitable
f o r systems that service neighborhoods and communities. A n d there
is a lot of w o r k going on now among small communities around the
country who have taken a lead on this and are starting to do some
very interesting things i n this area.
I t h i n k i t would be a good idea to go back and look at the token
program that was passed last year as p a r t of E C P A , and use that as
a basis, amend it, make i t into a really far-reaching low interest
loan program.
There is another flaw i n all of the proposals I have seen i n terms
of energy conservation and solar i n new buildings; there is a total
lack of attention paid to the issue of passive design.
B y that I mean using the structure itself, through proper ventillation, through proper siting, through south-facing windows, to cool
and to heat the b u i l d i n g as much as possible by natural means, w i t h out mechanical assistance.
There has been very l i t t l e attention paid to this i n all government
programs, and basically i t is a problem not so much of technology,
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but of lack of education and awareness on the p a r t of builders and
local home owners, cities and municipalities as to what the real possibilities are f o r energy construction by design.
There should be a system of t r a i n i n g seminars, courses i n passive
design f o r builders and local officials. H U D should include these i n
every program they have f o r g i v i n g loans or g i v i n g assistance to
communities. They should be obligated to emphasize the need f o r
conservation and passive design.
There should be a system of grants, perhaps, or low interest loans
to builders f o r demonstration homes using passive techniques, and
also solar technology. A n d perhaps even a national contest of some
sort f o r innovative passive design, just to ' b r i n g this whole concept
to the attention of the public.
W e are also concerned t h a t adequate consumer protection is provided. The only t h i n g available now i n terms of solar systems is a
H U D m i n i m u m property standard. I t h i n k that is available now,
and I am not sure i t has been published yet, but i t w i l l be shortly.
B u t at present the only people who are going to be trained to use
that program are the F H A inspectors. Now i f i t is to be used, i t has
to be made available f o r mortgage assessors, local b u i l d i n g code officials, and State energy offices.
I would hope there would be some attention given to that by the
committee. I don't t h i n k H U D is opposed to doing i t , but no one has
done a n y t h i n g to see that this t r a i n i n g is provided to others besides
F H A inspectors.
I also share the concerns of the panel that preceded me as to
where the consumer is going to find the installer who knows what he
is doing i n terms of insulation, how is the consumer going to know
what is good insulation versus bad insulation, or whether this contractor is good or not.
I t h i n k the State energy offices at the very least should have lists
of licensed contractors. They d i d that i n Dayton, O h i o ; perhaps
other cities do not have that k i n d of licensing, but I t h i n k t h a t
method ought to be examined and promoted. There should be a l i censing procedure f o r home insulation and other conservation measures. I can't stress enough how much we feel that one of the best
ways of protecting consumers is a really aggressive Federal information outreach program. T h a t really has never gotten off the ground.
The seeds have been there, the Project Conserve, which they are
using i n Boston, the energy extension service idea, the agricultural
extension service, but there has to be really an aggressive effort to
go out to consumers and to present them w i t h i n f o r m a t i o n t h a t tells
them what is good, that tells them what to look f o r , and really sets
out i n a logical fashion and i n understandable terms what they need
to know when purchasing conservation or renewable resources energy
measures.
[ T h e complete presentation of Ms. Lawrence f o l l o w s : ]
STATEMENT
OF
SUSANNAH LAWRENCE, EXECUTIVE
CONSUMER ACTION NOW, INC.
DIRECTOR,
T h a n k you f o r the opportunity to t e s t i f y before you today.
Consumer A c t i o n Now has been w o r k i n g since i t s inception i n 1970 to provide consumers w i t h i n f o r m a t i o n and suggestions f o r action w h i c h assist them
275
i n m a k i n g choices i n the marketplace w h i c h positively affect t h e i r environment. W h i l e i n the past our efforts have covered a wide range of topics, f o r
the last t w o years we have concentrated the efforts of our Washington office
on energy conservation and renewable energy resources. Our sister organization, the Council on E n v i r o n m e n t a l Alternatives, is engaged i n research and
educational projects on energy, consumer health care, and n u t r i t i o n .
There are t w o key ingredients to successful adoption of a n a t i o n a l energy
plan by consumers: i n f o r m a t i o n and the proper economic signals. The economic signals include not only higher prices f o r energy but also the w i l l i n g ness of the government to ease the burden of high first costs of investments
i n conservation and renewable energy resources.
The A d m i n i s t r a t i o n ' s proposed u t i l i t y plan attempts to meet these needs i n
p a r t ; i t brings up, however, a host of other problems. I t can p r o v i d e :
Access to consumers;
an established financing mechanism; and
an entity w i t h a continuing interest i n rented properties and properties
w h i c h change hands frequently.
The attendant problems are more complex. As u t i l i t i e s are presently structured, energy conservation 011 the p a r t of customers is i n conflict w i t h their
profit m a k i n g requirements. To surmount this obstacle they must either charge
h i g h rates of interest or put their conservation program i n t o the rate base.
E i t h e r of those tacks puts the consumer on the defensive. There must be adequate assurance t h a t the consumer has access to other forms of financing i f
high interest rates are charged. A l l o w i n g costs i n t o the rate base raises real
equity questions about those who have already insulated or are i n s u l a t i n g 011
their own.
The A d m i n i s t r a t i o n proposal puts a l l of the burden f o r policing this prog r a m on to the local Public U t i l i t y Commissions. I t seems to us t h a t this
regulatory f u n c t i o n is both ponderous and d i f f i c u l t ; we are d o u b t f u l as to its
possible success. The comments of the FTC, yesterday, have reinforced those
doubts.
We t h i n k t h a t the approach taken by the N a t i o n a l Weatherization A c t
reported out of the House B a n k i n g Committee makes more sense. I t uses the
unique capability of the u t i l i t y to reach thousands, millions of people w i t h o u t
p u t t i n g them i n competition w i t h local contractors and w i t h o u t r a i s i n g a l l the
specters of the financing schemes. There is real evidence t h a t i n f o r m a t i o n is
the key ingredient here as shown i n the Michigan experience where the u t i l i t y
was required to supply i n f o r m a t i o n to consumers and to offer a
financing
arrangement. Many people d i d follow the advice given, but very f e w used the
financing program.
I t seems logical and advantageous to make use of the i n f o r m a t i o n dissemination possibilities open to u t i l i t i e s to provide consumers w i t h the most up to
date i n f o r m a t i o n on conservation measures, renewable resource measures, and
011 the n a t i o n a l programs t h a t are being set up to encourage consumers to
conserve. 1
We encourage the committee to f o l l o w the House lead i n p r o v i d i n g lowinterest loans t h r o u g h G N M A f o r conservation investments. I t is our hope
t h a t those loans w o u l d be offered at 7 percent to 7y 2 percent or lower. The
city of Dayton, Ohio, has had great success w i t h a low-interest home improvement loan program. Since 1975, the city has operated a revolving f u n d f o r
low-interest home improvement loans using Community Block G r a n t funds.
I n 1976 p r i v a t e lenders made $900,000 i n such loans w h i l e the city program
processed $1.6 m i l l i o n i n loans. 50 percent of those loans were f o r energy
conservation investments. Since t h a t time, because of the success of the program, at least one D a y t o n bank is now offering home improvement loans at
7.5 percent. The loans offered by the city ranged f r o m 1 percent to 7 percent
or 8 percent interest depending on need.
B o t h the A d m i n i s t r a t i o n proposal and the House B a n k i n g Committee proposal overlook a t r u l y i m p o r t a n t area f o r low-interest loans, specifically solar
energy. Almost every study t h a t has been done on the subject, the latest being
t h a t completed f o r the J o i n t Economic Committee, p i n point lack of low* W e also urge the committee to seriously consider mandatory conservation standards
at point of sale. These would not go into effect right away but would be the stick to
accompany all the Federal carrots.
276
interest c a p i t a l as being a m a j o r stumbling block to the use of solar energy.
We approve the t a x credit proposals t h a t seem to be moving easily t h r o u g h
the House, b u t t h a t is only a small p a r t of w h a t is needed. I do not t h i n k
t h a t anyone w o u l d dispute t h a t t a x credits are only available to a small p a r t
of the population, p a r t i c u l a r l y i f they are not refundable, yet applications
of solar energy make sense f o r moderate and low-income investors. A t the
least, the program proposed f o r G N M A purchase of conservation loans should
be expanded to include low-interest loans f o r solar investments. I have subm i t t e d w i t h my testimony a proposal f o r such a program and a schedule of
w h a t monthly payments w o u l d be i n 9 cities based on the figures of the J E C
report. I n 5 out of 9 cities the f u e l savings a t today's prices w o u l d more t h a n
cover additional costs due to the solar system. T h i s is using electric heat
pumps f o r comparison, the cheapest alternative i n most locations.
T h i s strategy w o u l d also lock out, however, another p r o m i s i n g area of
f u n d i n g f o r solar projects, t h a t is the neighborhood or community scale systems. W i n d and bioconversion w o u l d seem p a r t i c u l a r l y applicable to this sized
project. The 519 East 11th Street project i n New Y o r k is an example of w h a t
m i g h t be done on the community level w i t h low-interest monies. T h a t effort
combined r e h a b i l i t a t i o n of a tenement, energy saving investments i n conservation measures, solar hot water heating and w i n d generated electricity,
and w i l l soon include a solar greenhouse. A t the very least there must be an
a l l out effort on the p a r t of H U D to t r a n s m i t successful experiences of t h i s
k i n d to municipalities seeking Block Grant funds and to encourage them i n
s i m i l a r programs.
Another possibility would be to go back to the token p r o g r a m t h a t was
finally passed last year i n ECPA to examine various incentives to encourage
renewable energy technologies and amend t h a t , m a k i n g i t a full-fledged prog r a m to provide low-cost financing.
There is another serious flaw i n a l l the proposals being considered. There
is no attempt to hasten the adoption of design features which could begin now
i n a l l new construction to significantly cut energy costs. I am r e f e r r i n g to
w h a t is called "passive design" w h i c h means t h a t the structure itself, t h r o u g h
i t s position on the site, through ventilation, addition of areas of t h e r m a l mass,
south f a c i n g windows and other features uses sun and w i n d to n a t u r a l l y heat
and cool the building. T h i s concept is inseparable f r o m energy conservation
and should be a consideration i n a l l H U D assistance programs. There should
be seminars and t r a i n i n g courses to b r i n g together 'passive' experts and
builders. We would suggest a system of grants of low-interest loans to builders
f o r demonstration homes using passive techniques and active solar technologies. A n a t i o n a l contest f o r innovative passive design wTould also help
b r i n g t h i s concept to public attention.
Consumer protection is another area of m a j o r concern to us. The only available solar systems standard is the H U D M i n i m u m Property Standard. A t
present only F H A inspectors are scheduled f o r t r a i n i n g i n the use of these
standards. I f these standards are to be useful outside of federally funded
buildings, such programs should be offered to mortgage assessors, State
Energy Offices, and b u i l d i n g code inspectors.
State Energy Offices should also be directed to make lists of licensed cont r a c t o r s who are competent to i n s t a l l insulation. T h i s is the procedure followed by the city of Dayton. Licensing procedures should be examined to see
t h a t they are adequate.
I cannot stress enough our conviction t h a t there must be a well-organized
f e d e r a l outreach program f o r consumer i n f o r m a t i o n on conservation and renewable energy investments. Some of the programs t h a t began i n this area
have died—others s t i l l are not under way—Project Conserve and the Energy
E x t e n s i o n Service i n particular. Much greater attention needs to be given to
this area.
Such programs must address a l l aspects of the problem, must include not
only i n f o r m a t i o n about on the shelf technology b u t also systems t h a t can be
b u i l t by homeowners, co-operative groups, community projects. Passive design
must be stressed and regional differences taken i n t o account. Local demonstrat i o n of systems is of prime importance, of course; and i t w o u l d be effective
to provide assistance to m u n i c i p a l and state governments f o r such demonstrations on t h e i r public buildings much i n the same way as the A d m i n i s t r a t i o n proposes f o r Federal Buildings.
277
C O N S U M E R A C T I O N N O W R E C O M M E N D S : SOLAR I N C E N T I V E S
BUILDERS /DEVELOPERS
INDIRECT INCENTIVES
CREATE A BETTER M A R K E T FOR SOLAR
FOR
HOUSES
1. A c t i v a t e a t a n d e m p l a n t o p r o v i d e low-interest mortgages f o r buyers o f
solar homes. 1 T h i s w o u l d encourage builders/developers because they w o u l d be
more confident of a good m a r k e t f o r the houses they b u i l d .
T a n d e m p l a n involves :
( a ) G i n n i e Mae ( G N M A , o r Government N a t i o n a l Mortgage A s s o c i a t i o n ) ,
w h i c h is p a r t of H U D a n d is financed by f e d e r a l funds.
(&) F a n n i e M a e ( F N M A , or F e d e r a l N a t i o n a l Mortgage A s s o c i a t i o n ) ,
a mortgage i n v e s t m e n t c o r p o r a t i o n t h a t is f e d e r a l l y c h a r t e r e d b u t p r i v a t e l y
owned a n d managed.
U n d e r a t a n d e m p l a n f o r solar housing, Ginnie Mae makes a c o m m i t m e n t to
buy mortgages on solar-heated homes f o r 7y 2 percent or t h e c u r r e n t F H A interest
rate, w h i c h e v e r is l o w e r . F a n n i e Mae makes a c o m m i t m e n t to buy these m o r t gages f r o m G i n i n e Mae a t a p r i c e t h a t w i l l y i e l d F a n n i e Mae the m a r k e t r a t e
of r e t u r n on i t s investment.
I n effect, f o r mortgages on solar houses, Ginnie Mae subsidizes the difference
between the 7y 2 i n t e r e s t r a t e a n d the going m a r k e t rate. ( F o r details, see
page 3.)
Results.
( a ) H o m e b u y e r s are encouraged t o b u y solar houses because (1) they can
get l o w e r i n t e r e s t rates, a n d (2) f u e l savings w o u l d result. See page 4 f o r
estimated savings i n 9 cities.
(&) H o m e b u i l d e r s a n d developers are encouraged to b u i l d solar since they
k n o w t h a t the a t t r a c t i v e i n t e r e s t rates a n d fuel-cost savings w i l l m a k e t h e houses
easy to sell.
(c) T h e o n l y cost t o the f e d e r a l government is t h e i n t e r e s t r a t e d i f f e r e n t i a l
( a t present about 1 percent) d u r i n g the period w h e n the solar house is owned
by i t s i n i t i a l purchaser, a n average of about 8 years. Subsequent purchasers of
the house w o u l d pay the r e g u l a r m a r k e t interest rates f o r t h e i r mortgages.
( d ) B o t h G i n i n e Mae a n d F a n n i e Mae, organizations w i t h experience i n
past t a n d e m programs, are active p a r t i c i p a n t s i n a p r o g r a m t h a t helps the U.S.
save energy.
(e) No n e w a d m i n i s t r a t i v e m a c h i n e r y is required.
DIRECT
INCENTIVES
GIVE
F I N A N C I A L H E L P TO
B U I L D SOLAR
BUILDERS /DEVELOPERS
IF
THEY
2. M a k e l o w - i n t e r e s t c o n s t r u c t i o n loans available to builders/developers w h o
b u i l d solar-heated housing. M o s t r e g u l a r c o n s t r u c t i o n loans are f o r r e l a t i v e l y
short periods of t i m e ( 6 - 9 m o n t h s ) a n d earn r e l a t i v e l y h i g h interest rates
( c u r r e n t l y 10-15 percent per a n n u m ) .
SOLAR T A N D E M P L A N : H O W
WOULD I T
WORK ?
1. B u y e r of a solar-heated home w o u l d get a l o a n f r o m a l e n d i n g i n s t i t u t i o n
(savings a n d l o a n association, c o m m e r c i a l bank or mortgage b a n k e r ) f o r 7y 2
percent, a r a t e w h i c h t o d a y is a p p r o x i m a t e l y 1 percentage p o i n t below the
c u r r e n t m a r k e t f o r home mortgages.
2. L e n d i n g i n s t i t u t i o n w o u l d t h e n sell t h e mortgage to G i n n i e Mae a t face
value. ( T h e lender r e t a i n s the loan-servicing f u n c t i o n , w h i c h is profitable enough
i n i t s e l f t o be a n i n c e n t i v e f o r m a k i n g the l o a n i n t h e first place.)
" 3. Ginnie Mae m a y sell the m o r t g a g e or h o l d i t . I f Ginnie Mae decides t o sell
( u s u a l l y a t a u c t i o n ) , the mortgage w i l l be sold t o the highest bidder, w h i c h m a y
or may not be F a n n i e Mae. I n past t a n d e m programs, F a n n i e M a e has purchased
a r e l a t i v e l y m i n o r share of the mortgages.
4. F a n n i e Mae w o u l d , however, be r e q u i r e d t o b u y t h e mortgages f r o m G i n n i e
Mae i f other buyers do not come f o r w a r d . The p r i c e p a i d by F a n n i e M a e w o u l d be
below face value, a n d w o u l d be l o w enough t o a l l o w i t t o e a r n t h e m a r k e t - r a t e
y i e l d on i t s investment.
5. Since t a n d e m p r o g r a m s have been used before, no new a d m i n i s t r a t i v e
mechanism or experience w o u l d be required.
1
Based on a suggestion by Norman Lutkefedder of FEA's Task Force on Solar Energy
Commercialization.
278
HOW WOULD A SOLAR TANDEM PROGRAM AFFECT MONTHLY PAYMENTS AND FUEL SAVINGS IN RESIDENCES?
[Basic house: 1,500 ft 2 , well insulated, 10 pet down payment, $40,000 average national price]
Monthly payments (principal
plus interest)
City
Miami, Fla
Phoenix, Ariz
Charleston, S.C
New York City
Columbia, Mo
Manhattan, Kans
Burlington, Vt
St. Cloud, Minn
Bismarck, N. Dak
Degree
days 1
Nonsolar
house 3
Solar
house 1 3
Additional
monthly
payment
due to solar
Fuel savings
per month 1 ®
214
1,785
2,033
4,871
5,046
5,182
8,269
8,382
8,851
$289.89
289.89
289.89
289.89
289.89
289.89
289.89
289.89
289.89
$280.82
295.60
306.69
347.33
339.94
339.94
380.59
365.81
362.11
*$9.07
5.71
16.80
57.44
50.05
50.05
90.70
75.92
72.22
$1.20
11.76
13.63
55.62
35.10
30.56
98.84
76.78
89.54
1 Based on data in the Economics of Solar Home Heating, prepared for the Joint Economic Committee, Congress of the
United States, Mar. 13,1977. Detailed calculations available upon request. Total price of solar house varies from $42,000
in Miami to $57,500 in Burlington, Vt.
2
$36,000 mortgage (national average); m percent interest for 25 yr.
a 75 percent of heat supplied by solar system; 1)4 percent interest for 25 yr.
* Less.
« Electric heat pump, 1977 rates.
CONCLUSION
I n 5 out of 9 locations, f u e l savings at today's prices (using electric heat pumps,
w h i c h are least expensive alternative f o r new houses i n most locations today)
w o u l d more t h a n cover the a d d i t i o n a l m o n t h l y payments required f o r the solar
house.
I n the other 4 locations, a d d i t i o n a l monthly payments exceed f u e l savings
by only $1.82 to $19.49. B u y e r w i l l have more valuable house, and i f f u e l prices
increase a t 10 percent per year (as assumed i n the M I T R E study, among others),
f u e l savings w i l l take up this slack w i t h i n 5 years or less.
T h e r e f o r e : Tandem p l a n is a good idea. I t w i l l make solar mortgages very
a t t r a c t i v e to homebuyers, and w i l l therefore be a strong incentive to builders
and developers.
W H A T
H o w
CAN
IT
IS
PROVIDE
T H E
FEDERAL
LOW-INTEREST
HOME
LOANS
LOAN
TO
B A N K
SOLAR
SYSTEM?
BUILDERS/DEVELOPERS?
F H L B S was created by act o f Congress i n 1932 t o provide a source o f secondary housing credit f o r the savings and loan industry. I t is supervised by the
Federal Home L o a n B a n k B o a r d ( F H L B B ) and includes 12 Federal Home L o a n
D i s t r i c t Banks. Each o f these banks is owned by i t s members; included i n the
membership are a l l federally-chartered and over 2,000 state-chartered savings
and loan associations, some m u t u a l savings banks and a f e w l i f e insurance companies.
There are t w o ways t h a t the F H L B S structure could be used to provide lowinterest loans t o builders/developers:
(1) Pass legislation p r o v i d i n g t h a t S&Ls w h i c h make low-interest solar cons t r u c t i o n loans w i l l be able to obtain those funds t h r o u g h t h e i r Federal Home
L o a n D i s t r i c t Banks. The U.S. Treasury reimburses these D i s t r i c t Banks f o r
the income they lose when they provide the low-interest funds to the S&Ls. Congressional appropriations are required to pay t h e interest subsidies. Interest
rate on S & L loans to be determined j o i n t l y by H U D and F H L B B .
(2) Issue an executive order m a n d a t i n g t h a t t h e F H L B B shall borrow f r o m
the U.S. Treasury money t h a t w o u l d be used exclusively as a revolving f u n d
f o r low-interest construction loans to solar builders/developers. ( F H L B B is
authorized to borrow up to $4 b i l l i o n f r o m the Treasury, subject to executive
order. T h i s capability has been used only once: $1.5 b i l l i o n f o r a temporary
housing stimulus p r o g r a m i n 1975. The $1.5 b i l l i o n has been repaid t o the
Treasury.)
Under t h i s proposal, F H L B B borrows f r o m the Treasury at the government
rate, i.e., the rate of interest p a i d by Treasury when i t borrows. ( T h i s r a t e is
279
c u r r e n t l y about 5 percent f o r 6-month T r e a s u r y b i l l s . ) These f u n d s are t h e n
made a v a i l a b l e t o t h e 12 F e d e r a l H o m e L o a n D i s t r i c t B a n k s , w h i c h i n t u r n
l e n d t h e m t o t h e i r member S&Ls on c o n d i t i o n t h a t t h e y ( a ) use t h e money only
to m a k e c o n s t r u c t i o n loans t o solar builders/developers, a n d ( 2 ) charge a n i n terest r a t e t h a t is n o t more t h a n 1 % above the government rate. F H L B B a d j u s t s
t h i s r a t e m o n t h l y ( o r more f r e q u e n t l y , i f desired) to reflect changes i n the money
market.
. A s the s h o r t - t e r m c o n s t r u c t i o n loans are repaid, the r e v o l v i n g f u n d is replenished a n d the cycle continues.
L i k e other incentives proposals, t h i s one should have a " s u n s e t " — 3 - 5 years,
a t w h i c h t i m e t h e money i n the r e v o l v i n g f u n d w o u l d be r e p a i d t o the T r e a s u r y .
Senator M C I N T Y R E . A S a homeowner, I t h i n k the utilities seem to
be doing the best job on that. The l i t t l e brochures they send w i t h
their bills, w h i c h is very readable. Just last week I made sure i t
didn't get t h r o w n away and took i t i n and studied i t . I t showed the
hot water heater, i t showed what the real b i g users are.
Ms. L A W R E N C E . I t h i n k there is a real opportunity to funnel new
i n f o r m a t i o n t h r o u g h the utilities. A s the F E A evaluates conservation measures, as E R D A develops and demonstrates new measures,
that i n f o r m a t i o n should be disseminated. The utilities can be used f o r
more sophisticated i n f o r m a t i o n than they are p u t t i n g out now.
Senator MCINTYRE. The effort seems fragmented to you?
M s . LAWRENCE. Y e s .
Senator M C I N T Y R E . A S
an organization, are you p r i m a r i l y interested i n solar, or the more exotic types of energy ?
Ms. LAWRENCE. O u r p r i m a r y interest at this point is energy conservation, coupled w i t h solar.
Senator MCINTYRE. T h a t is interesting, because yesterday and today we are h a v i n g meetings w i t h the small business people, and
yesterday we talked about the well-head tax, the fact that the House
was floundering around as to whether or not they were going to let
that rebate go down the drain, and we wouldn't get the benefit i n the
areas that use a lot of heating oil. Time after time the people out i n
the field are t e l l i n g us there are so many things that could be done
to improve the operation of a home heating oil system. I don't quite
understand what they are t a l k i n g about, the flame, the size of the
boiler, but you would t h i n k that industry would be h a r d at i t to
improve and make their boilers more efficient, make the whole process more efficient, but apparently they are not. A n d these people are
not able to get their voices heard, they are not able to get through
to F R D A at all.
One of the problems is E R D A doesn't know how to treat one man
w i t h an idea. I would hope you wouldn't let that get out of your
sight either.
Now, M r . Stanton.
STATEMENT OF TOM STANTON, HOUSING RESEARCH GROUP,
CENTER FOR STUDY OF RESPONSIVE LAW, WASHINGTON, D.C.,
ACCOMPANIED BY CHARLIE DONALDSON, COUNSEL
M r . STANTON. M r . Chairman, thank you f o r the invitation to
testify today on part A of the National Eriergv Act. I am Thomas H .
Stanton, director of the Housing Research Group, Center f o r the
280
Study of Responsive L a w . W i t h me is Charlie Donaldson, an attorney w i t h our group.
W e are pleased that the administration is serious about energy
conservation. The President has set a goal of b r i n g i n g 90 percent of
American households up to m i n i m u m Federal insulation standards
by 1985, and this is an impressive goal. B u t the administration has
not done its homework. A f t e r last winter the problem is not to encourage consumer demand, but rather to assure we have the necessary
supply of insulation materials.
I n our w r i t t e n testimony, we make three basic points. F i r s t , to
meets its goals, the administration must break the existing bottlenecks i n production of insulation materials without increasing insulation prices to exorbitant levels.
Second, given that the p r i m a r y bottleneck is i n production, rather
than distribution of insulation, and given the special need f o r quality
control i n a market of great demand and short supply, utilities
should be used to provide quality control rather than actual sales or
financing of insulation.
T h i r d , the shortage of insulation materials at least u n t i l the end
of 1978 provides an opportunity to devise an effective energy conservation program, including essential safety and consumer protect i o n measures.
M r . STANTON. M r . Chairman we would like to introduce into the
record the testimony given by the National Bureau of Standards
witnesses before other congressional committees and other materials
to be printed.
Senator MCINTYRE. W i t h o u t objection i t is so ordered.
[Complete presentation of M r . Stanton f o l l o w s : ]
STATEMENT OF THOMAS H . STANTON, DIRECTOR, HOUSING RESEARCH GROUP*
M r . C h a i r m a n , members of t h e Senate B a n k i n g Committee, t h a n k y o u f o r
t h e i n v i t a t i o n t o t e s t i f y today on P a r t A of S. 1469, the N a t i o n a l E n e r g y A c t .
T h e new A d m i n i s t r a t i o n is impressive i n i t s d e t e r m i n a t i o n t o act t o conserve energy i n A m e r i c a n homes. T h e President has set the goal of b r i n g i n g
90 percent of a l l A m e r i c a n households u p t o m i n i m u m F e d e r a l i n s u l a t i o n
s t a n d a r d s by 1985.
O u r t e s t i m o n y w i l l m a k e three basic p o i n t s : (1) T o meet i t s goals, t h e
A d m i n i s t r a t i o n m u s t break e x i s t i n g bottlenecks i n p r o d u c t i o n of i n s u l a t i o n
m a t e r i a l s w i t h o u t increasin g i n s u l a t i o n prices t o e x o r b i t a n t l e v e l s ; ( 2 ) G i v e n
t h a t t h e p r i m a r y bottleneck is i n p r o d u c t i o n r a t h e r t h a n d i s t r i b u t i o n of i n s u l a t i o n , a n d given the special need f o r q u a l i t y c o n t r o l i n a m a r k e t of g r e a t
d e m a n d a n d s h o r t supply, u t i l i t i e s should be used t o p r o v i d e q u a l i t y c o n t r o l
r a t h e r t h a n a c t u a l sales or financing of i n s u l a t i o n ; a n d ( 3 ) T h e shortage oi :
i n s u l a t i o n m a t e r i a l s a t least u n t i l the end of 1978 provides an o p p o r t u n i t y
t o devise a n effective energy conservation p r o g r a m , i n c l u d i n g essential safety
a n d consumer p r o t e c t i o n measures.
I . THE NATIONAL ENERGY ACT MUST TAKE ACCOUNT OF SCARCITY AND H I G H PRICE
OF INSULATION MATERIALS
Fiberglass i n s u l a t i o n amounts t o about 80 percent of home t h e r m a l i n s u l a t i o n m a t e r i a l s . A s t h e F e d e r a l T r a d e Commission a n d other have p o i n t e d out,
t h e fiberglass i n d u s t r y is h i g h l y concentrated, d o m i n a t e d by t h r e e firms.
I n a d d i t i o n t o fiberglass, cellulose i n s u l a t i o n is also i m p o r t a n t . T h e Comm u n i t y Services A d m i n i s t r a t i o n , f o r example u t i l i z e s cellulose i n the low• Members of the Housing Research Group contributing to this testimony were Charlie
Donaldson, Donaldson. Peter Maier, David Browne, and Curt Troutman.
281
income weatherization program. To serve as an insulating material, cellulose
must be treated with a flame retardant, generally boric acid. Many observers
point out the multiplicity of cellulose firms and ease of entry into the cellulose
insulation market.1 These observers neglect to point out, however, that the
production of borates is concentrated in the hands of three firms, of which
U.S. Borax occupies about 75 percent of the market.
Our brief survey of markets in California, Colorado, Virginia, and Georgia,
reveals shortages of both fiberglass insulation and of the borates essential
for cellulose insulation. I f the Administration is to meet its home insulation
goals—without artificially creating exorbitant prices for insulation—the bottlenecks in the fiberglass and borate industries must be broken. The Administration has failed to address this issue squarely.
A.
The production of
fiberglass
(the most
is d o m i n a t e d b y t h r e e c o m p a n i e s
common
home
insulating
material)
Three companies, Owens-Corning Fiberglass, Johns-Manville, and CertainTeed, dominate the fiberglass industry. Owens-Corning is the largest, with
about half of the domestic market, while Johns-Manville and Certain-Teed
each have about 25 percent of the market. Because of difficulties in transporting fiberglass, imports are negligible.
As the Federal Trade Commission points out, there are serious barriers to
entry into the fiberglass home insulation industry, including cost, competitive
technology and technical know-how. The FTC quotes one potential entrant to
the market, who calculated it would take about ten years and investment of
about $80 million for his company to develop the needed technology and enter
the industry with one plant.2
The fiberglass industry is operating at or near full capacity. Our brief survey of the market indicates that in fact fiberglass insulation may already be
unavailable to smaller users. Both industry and government observers agree
that fiberglass producers will be unable to increase their production significantly before the end of 1978.3
Predictions of expansion of production after 1978 depend on at least two
important assumptions. First, fiberglass production is dependent upon access
to energy sources, and natural gas in particular. Stanley Matthews, President
of the National Rock Wool Insulation Association, testified that 40 percent of
the industry's capacity was shut down this past winter due to the natural gas
shortage.4 The fiberglass industry cannot expand unless access to natural gas
is assured, except on the basis of costly and time-consuming conversion to
other energy sources.
The second assumption is even more important: Predictions of expansion
of fiberglass capacity to meet sharply increased demand assume that fiberglass
companies want to greatly expand capacity. The industry witnesses before the
House Housing and Community Development Subcommittee themselves raised
this issue.5 Excess production capacity plagued the fiberglass industry in the
early 1970s. Industry has no desire to invest in greatly expanded capacity,
only to face a sagging market a few years later (when the tax credit expires
and the Administration reaches its 1985 retrofit goals). This fear of a temporary "surge" in demand for insulation products also deters potential market
entrants from taking advantage of the Administration's program.
As the Congressional Budget Office points out:
. . manufacturers* will not want to build to meet a sudden demand and
then have their factories idle after the demand is met. A more efficient strategy
(from the producers' point of view) is to build capacity sufficient to satisfy
the new demand over a period that corresponds to the useful life of the plants
1
"Supply Response to Residential Insulation Retrofit Demand," submitted to the
Federal
Energy Administration by I C F Incorporated, June 17, 1977, p. 11.
2
Testimony of Robert Reich before the Housing and Community Development Subcommittee of the Ho^se Committee on Banking, Finance, and Urban Affairs, May 25,
1977
p. 809 of the Hearings.
3
Testimony of Guy O. Mabry, Vice President of the Insulation Operating Division of
Owens-Corning, and Stanley L. Matthews, President of the National Mineral Wool
Insulation Association, Inc., before the House Housing Subcommittee, Ibid., pp. 588
and 618 ; Report of the Council on Wage and Price Stability, p. 9. I C F Incorporated,
in a report to the Federal Energy Administration, cites unnamed industry sources for
a slighty more optimistic prediction, op. cit., "Supply Response," p. 17.
*6 Hearings, Ibid., p. 619.
Ibid, pp. 588. 618.
284
consumer with an idea of the quality of installation, and can also give the
utility company an assessment of contractors' work. A method must also be
devised to allow utilities a means of testing insulation for flamability and
general conformity to safety and quality standards.
B.
Given insulation production bottlenecks, utility companies
vide installation and
financing
services to c o n s u m e r s
should
n o t pro-
The Administration proposes that utility companies offer installation and
financing of insulation as well as quality control. Given the dominant position
of utility companies in the market of most communities (because of their
unique direct access to all households), this anti-competitive step should not
be taken unless there is a good reason.
The apparent justification for utilities to distribute and finance insulation
(and other energy conservation measures) is that only the resulting extensive
market coverage will allow the nation to meet energy conservation goals by
1985. We find this justification as yet unproven. Indeed, the impending bottleneck, as we have seen, is in production of insulation materials, not in distribution or financing. The Congressional Budget Office, staff of the Congressional
Joint Committee on Taxation, and the Council on Wage and Price Stability
all question the proposed insulation tax credit because of its stimulation of
demand in the face of insufficient supply. The shortage of supply is accurately
projected to the end of 1978; no evidence has been provided that the shortage
will not continue, possibly fostered artifically by producers seeking to maximize profits in an oligopolistic market.
I f the bottleneck is in production of insulation, and not in distribution,
there is no sound reason to allow utilities to provide insulation and financing
to consumers. This is especially true given the lack of evidence that utilities
will in fact find distribution of insulation to be in their best financial interests, except a£ very high prices.
Finally, the utility as distributor destroys much of the value of the utility
as quality controller if a utility has a stake in selling insulation, it has a
stake in energy audit revealing great consumer need for insulation, as well
as an interest that energy audits after installation reveal no defects in materials or workmanship. I n short, the utility would certainly lose its valuable
role as an independent controller of quality. So long as supply bottlenecks
remain, the utility should promote conservation, but not actually sell or finance installation.13
I I I . THE PROJECTED SHORTAGE OF INSULATION MATERIALS PROVIDES AN OPPORTUNITY
TO DESIGN AN EFFECTIVE ENERGY CONSERVATION PROGRAM, INCLUDING ESSENTIAL
CONSUMER PROTECTION
A.
T h e administration should m a n d a t e safety a n deffectiveness standards f o r
insulation; the National B u r e a u of Standards must develop testing methods
The National Bureau of Standards (NBS) is currently studying possible
side effects of a national insulation program: fire hazards, moisture, and material degradation. We attach for the Committee's consideration testimony prepared by NBS officials for other committees of Congress, in which these issues
are raised.
The NBS Recommended Criteria for retrofit insulation materials 14 are insufficient to protect the public against fire langer. As .Tack Snell, manager of
the NBS energy conservation program, has testified: "There are some presently marketed materials for which existing standards and test methods are
not available or adequate."15
Foamed plastic insulation presents probably the most serious deficiency in
the NBS "Recommended Criteria' 'fire safety requirements. Foamed plastics
such as polyurethane and polystyrene can burn intensely once ignited and can
produce significant amounts of flammable gases, toxic fumes, and smoke. When
installed in an exposed fashion for non-insulation purposes, these plastics
13
The House Housing and Community Development Subcommittee has made a reasonable exception to this rule for rural utilities.
14
NBS, "Recommended Criteria for Retrofit Materials and Products Eligible for Tax
Credit,
N B S I R 75-795 (updated April 1977).
15
Testimony before the House Energy and Power Subcommittee, May 9, 1977.
285
have resulted in a number of fatal fires. The tragic 1970 dance hall fire in
France in which 145 teenagers died is one notable example. Toxic gases from
foamed plastic materials (used in the exposed cell padding) are believed responsible for the 42 deaths in the recent cell block fire in a Tennessee jail.
Despite these known hazards, existing fire testing methods and standards do
not adequately measure the fire safety of foamed plastic materials. NBS Acting Director Ernest Ambler has recognized this fact in recent Congressional
testimony.18
For another example of inadequate safety criteria. Consider the question of
permanency of fire retardants. The NBS "Recommended Criteria" for retrofit
materials include the important caveat: "No general test method exists for
evaluating the flame resistance permanency of all chemical retardant insulations." 17 And even where a test method does exist, for example for cellulosic
insulation, it may not assure adequate performances.
ERDA tests demonstrate that fire retardant additives often separate from
the cellulose materials. Fully 13 of 19 analyzed samples of the fire retardant
chemical had separated from the cellulosic matrix; quantities of the additives
were found at the bottoms of the containers."18 Therefore there is a need for
standards concerning permaneny of flame retardant in all types of insulation,
based upon tests of actual installation conditions.
To its credit, NBS publicly states the need for developing these (and other)
test methods and standards for insulation materials. I t is working with both
industry and other government agencies to develop the necessary fire performance criteria. NBS has recently estimated that "[p]lanned studies can produce
interim acceptance fire performance criteria in one year." 19 In our view, however, NBS's one-year estimate is unduly optimistic unless Congress instructs
NBS to place a far higher priority on developing the needed fire safety criteria.
I n view of the potential fire hazard, we urge the Committee to make fire
safety standards mandatory for insulation installed under the residential
energy conservation plans.20 We also urge a greatly accelerated NBS research
program to develop testing methods and standards that will assure the permanent fire safety of all types of insulation. In this regard, it would be useful
for the Congress to set a timetable for a series of progress reports from NBS,
as well as a final deadline.
B. T h e a d m i n i s t r a t i o n s h o u l d c o n d u c t a t h o r o u g h e v a l u a t i o n o f h o m e s w e a t h e r i z e d ~by t h e C o m m u n i t y S e r v i c e s A d m i n i s t r a t i o n , t o a s s u r e t h a t g e n e r a l
standards ofsafety are met
In our interviews with Community Services Administration (CSA) weatherization program officials, we were impressed with their dedication. Yet the
problems of fire safety with cellulose insulation appear serious enough to
warrant an in-depth technical evaluation of the insulation provided by the
CSA weatherization program. We urge this Committee to mandate such an
assessment, and to call for a complete report to Congress within six months.
C. T h e a d m i n i s t r a t i o n s h o u l d utilise t h ep e r i o d o f i n s u l a t i o n
vise a neffective p r o g r a m f o r a p a r t m e n t buildings
shortage
to de-
The nation's 30 million rental units should not be ignored in the energy
conservation program. Yet, the proposed conservation incentives are not wellsuited to many apartment situations. The individual tenant has little enthusiasm for insulating a landlord's building, even with the tax credit. The landlord, on the other hand, is often able to pass energy costs onto tenants, and
may have little incentive to insulate. Moreover, the energy conservation investment tax credit, available to commercial building owners, may be unenticing to landlords with large depreciation deductions or otherwise already
sheltering taxable income.
16
NBS, "Outline of Talking Points for Dr. Ambler's Summary Remarks" (before the
Subcommittee on Energy Conservation and Regulation, Senate Committee on Energy
and
Natural Resources, June 21, 1977), p. 2.
17
Ibid., p. 11.
w Survey of Cellulosic Insulation Materials," January 1977 (ERDA 77-23, U C - 9 5 d ) ) .
19
NBS Acting Director before the Senate Subcommittee on Energy Conservation and
Regulation,
June 21, 1977, p. 8.
20
At present, the Administration's National Energy Act leaves to the discretion of
the Federal Energy Administration whether to mandate safety and effectiveness requirements for measures taken under the residential energy conservation plans. [See
Section 102(b) ( 1 ) ] .
94-843 O - 77 - 19
286
One proposed solution has been individual metering of tenants, to discourage energy consumption. Yet, while discouraging energy consumption, the
meters will do little to promote improvements in the energy efficiency of the
apartment building itself.
The Committee may wish to instruct the Administration to report 011 the
implications of mandatory energy conservation standards for apartment
buildings. I f the relevant production bottlenecks are broken, and if mandatory standards are to be applied (as proposed by the House Energy and
Power Subcommittee), apartment buildings may be a good place to start.
D . T h e administration should prepare a strategy for preventing shortages and
p r i c e i n c r e a s e s c a u s e d by t h e a n t i c o m p e t i t i v e m a r k e t p o s i t i o n o f i m p o r t a n t
producers ofenergy conservation materials
While some producers of energy conservation materials apparently operate
in a competitive market (for example manufacturers of storm windows and
thermostats), others do not. Above, we have given the examples of the fiberglass and borate producers. Further research and the passage of time may
reveal more.
Needed is a concentrated effort to assess possible bottlenecks in production
and artificially high prices before they become the hallmark of the Administration's energy conservation program. Then there must be a careful and
effective strategy for countering those problems, through anti-trust actions,
by subsidizing entrants to the market, or other government actions. We urge
this Committee to mandate development of such research and countermeasures, and to insist upon them before embarking on further incentives to jucrease consumer demand. I f bottlenecks persist, much of the tax credit and
other subsidies will flow out of consumers' pockets into the hands of the concentrated producing industry, and the Administration will be prevented from
meeting its energy conservation goals.
O U T L I N E OF T A L K I N G P O I N T S FOR D R . A M B L E R ' S S U M M A R Y
INTRODUCTION A N D OVERVIEW
REMARKS
The National Bureau of Standards (NBS) supports the President's National
Energy Plan and the energy conservation measures contained in the Committee print we are discussing this morning. We observe that uniform measurement technology, standards, and accurate technical information are essential
bases for the millions of decision makers upon whose actions the very success
of these measures depends.
The mission of NBS, expressed in its enabling legislation, is the development and use of measurement technology, standards, and data for the public
benefit. Our laboratory and field researches support consumers, industry, and
Government alike. We have had considerable experience in the area of energy
conservation over the last six years. Much of what we have done is described
in my written testimony, and with the Chairman's permission I would like to
submit that for the record and briefly summarize a few points.
Each of the measures being discussed this morning—existing residential
buildings, consumer products, schools and hospitals, and Federal buildings and
operations—deals with a significant element of the national economy. The proposed conservation measures are based on technology of demonstrated effectiveness for saving energy. I n general, the overall picture regarding standards
for materials and installation practices is adequate. However, it is our general
experience that whenever specific changes are made such as more or new insulation in housing, we have to be careful to avoid unintended side effects.
For example, again considering insulation, let me share our concerns with
several side effects that could result from increased insulation requirements
and use. These concern fire safety, moisture, and degradation.
The fire hazard due to exposed foam plastic insulation has been amply
demonstrated in laboratory tests. The situation has been recognized and as a
result all model building codes now require that foam plastic insulation materials installed in walls or ceilings of residences be covered with at least a half
inch of gypsum board or its equivalent. However, the situation with respect
to installation under floors, such as in basements or crawl spaces is not clear
287
and may require further remedial actions in codes and/or standards. Relevant
to this, new test methods remain to be developed to replace the tunnel test
procedures in the existing American Society of Testing and Materials (ASTM)
Standards E-84 to accurately and adequately characterize the fire hazard of
these materials.
Further, fire risks in a building can be increased significantly by almost any
insulation material if improperly installed, for instance in contact with a
source of heat. For example, the City of Denver has petitioned the Consumer
Product Safety Commission (CPSC) to examine this hazard. They have cited
18 cases where they believe improper installation of insulation materials has
caused fires. Also, the National Fire Incident Reporting System of the National
Fire Prevention and Control Administration (NFPCA) reports a number of
cases where insulation was the first material ignited in a chain of events
leading to a fire.
A second possible side effect of these measures is potential moisture buildup
and the requirement for greater protection against condensation by use of
ventilation or vapor barriers. Otherwise, there are unwanted consequences of
fungal growth, odors, and harmful effects to interior and exterior finishes and
furnishings. A typical family of four in a three-bedroom house disperses into
the air about 3 gallons of moisture a day. Obviously, serious damage and potential hazards to health can result if no provision is made for this moisture
to escape.
Another example of unwanted consequences concerns material degradation.
Our own studies of a particular foam insulation represent a good case in point.
In situ measurements of this foam in the NBS test house showed a constant
linear rate shrinkage over a period of 26 months and it had not leveled off.
Total linear shrinkage at that time was 8.1 percent. Although this material
had very low thermal conductivity when measured in the laboratory, under
the conditions of shrinkage experienced in the field its effectiveness in use is
seriously diminished.
We are presently working with the Federal Energy Administration ( F E A ) ,
the Energy Research and Development Administration ( E R D A ) , the Department of Housing and Urban Development ( H U D ) , the Federal Trade Commission), the American Society of Heating, Refrigerating and Air Conditioning
Engineers (ASHRAE), industry, State governments, model code groups, standards organizations, and others in addressing these technical issues and in
developing the needed standards and implementation mechanisms such as
model codes, test methods, field inspection tools, training materials, and so
forth.
I do not regard these problems as insuperable. They will require the cooperation of many different groups which I am confident will be achieved.
This concludes my summary remarks. Thank you.
STATEMENT
OF E R N E S T
AMBLER,
A C T I N G DIRECTOR,
STANDARDS
NATIONAL
BUREAU
OF
Mr. Chairman and members of the subcommittee, thank you for this opportunity to testify here today on S. 1469, the President's energy proposal, known
as the National Energy Act. I am accompanied this morning by Dr. Jack
Snell, Manager of our Energy Conservation Programs at the National Bureau
of Standards (NBS).
The National Bureau of Standards urges enactment of the President's
energy conservation proposals as contained in the National Energy Act, and
stands prepared to contribute significantly to their implementation.
Each of the areas under discussion this morning—existing residential buildings, consumer products, schools and hospitals, and Federal buildings and
operations—deals with a significant element of the national economy. Effective
implementation of the measures proposed by the President for these areas will
require an intensified effort by all concerned.
By way of overview, I would like first to say a few words about NBS and
the history of our involvement in energy conservation, and then review Parts
A, B, C and G of Title I in light of our experience.
288
N a t i o n a l B u r e a u of S t a n d a r d s . — E n e r g y conservation has been a priority
program at NBS for most of this decade.
NBS has developed, over a period of years, technical competences in many
areas of technology germane to energy conservation. Specifically, these include
building research, fire safety, and consumer products. NBS is chartered (15
USC 272) to provide technical bases for standards, performance criteria,
measurement technology, and technical assistance to other agencies of Government—local, State, and Federal—to industry, and to consumers. NBS serves
as the Department of Housing and Urban Development's ( H U D ) technical
arm by Secretary-to-Secretary agreement; has a Memorandum of Understanding with the Energy Research and Development Administration ( E R D A ) ; and
Interagency Agreements with the Federal Energy Administration ( F E A ) ,
Community Services Administration (CSA), and the Department of Defense
( D O D ) for support of programs in energy conservation.
I n F Y 1977 we expect this program to be a roughly 150 work-year effort including some $13 million, principally other agency funds.
PART
A—ENERGY
CONSERVATION
PROGRAMS
FOR
EXISTING
RESIDENTIAL
BUILDINGS
Part A of Title I of S. 1469 is entitled Energy Conservation Programs for
Existing Residential Buildings. Nearly 20 percent of the total energy used in
the United States is for heating and cooling buildings. Many buildings needlessly waste as much as half of the energy they consume. Provisions aimed at
reducing energy waste in buildings are essential elements of a comprehensive
national energy policy.
I shall comment only on Subpart 1 of Part A entitled Utility Program. The
Utility Program is built around the voluntary installation by residential utility customers of suggested "residential energy conservation measures." The
success of this program will depend on the energy savings and cost-effectiveness of the suggested measures; the availability of standards and good installation practices to apply them properly and safely; and the availability of
the technical data and other promotional and educational materials needed for
communicating convincingly to the Nation's 74 million householders the personal benefits and national importance of their investing in these voluntary
measures.
E f f e c t i v e n e s s of E n e r g y C o n s e r v a t i o n M e a s u r e s . — S e c t i o n 101 lists "residential energy conservation measures" from which the Administator of F E A may
by regulation suggest for buildings by category and location. All these measures have demonstrated effectiveness in reducing energy waste in existing
buildings. For example, NBS has conducted a series of experiments on a wood
frame residence here in Washington to evaluate actual energy savings from
several of these measures. These included reducing aid leakage through caulking and weatherstripping; adding storm windows; and installing insulation in
the floor, ceilings, and walls. The addition of storm windows reduced heating
energy requirements by 25.2 percent. The installation of insulation in the
walls, ceilings, and floor reduced heating energy consumption by 33 percent.
The total reduction in heating energy achieved by all stages of the retrofit on
this house was 58.5 percent.
NBS has also conducted field studies of the furnace efficiency modifications
specified in the Act. These studies on oil burners in New England showed fuel
savings potentials of 14 percent from firing rate reductions with modifications
made to burner installation and firing rate reductions to properly match heating requirements. NBS computer analyses have indicated energy savings ranging from 4 to 13 percent by substitution of automatic ignition for a pilot light
in gas-fired furnaces. Energy savings of 4 to 8 percent are achievable by blanketing gas and electric hot water heaters with appropriate types of additional
insulation.
W i t h regard to another specified measure, the clock thermostat, NBS in
1973 measured energy savings of 10 percent from nighttime thermostat setback from 75°F (24°C) to 65°F (18°C) in a townhouse in our environmental
chamber. Several computer studies and field experiences of others have shown
similar findings.
These and other experiences attest to the effectiveness of the measures proposed in Section 101.
289
With regard to installation of solar components and systems, standards are
being developed in the context of the National Solar Heating and Cooling
Demonstration Program. Our laboratory and field studies confirm the statement made recently by Sheldon Butt, President of the Solar Energy Industries
Association, that determined conservation efforts should accompany the development of solar energy for buildings. Obviously, smaller heating and hot
water demands would require smaller and less expensive solar hardware.
The principal thrust of the President's program is to achieve major reductions of energy use in existing buildings between now and 1985. Nonetheless,
the need for reduction of energy waste in new and existing buildings and the
rise of energy prices are expected to continue through the end of the century.
I t will be very important to develop improved efficiency energy conservation
measures and the criteria needed to assure their effectiveness. NBS is working
closely with E R D A and others in this regard. We must assure that these programs do not discourage innovation. Guidelines or special provisions for innovative technologies need to be developed. We expect the F E A procedures for
the Utility Program will take advantage of the potential benefits of these new
technologies.
Applying t h eTechnology: Availability
of S t a n d a r d s , K n o w - H o w ,
a n d Prac-
t i c e s . — A s I pointed out earlier, the success of this program will depend upon
how effectively the available conservation measures are applied. Do-it-yourselfers, contractors, technicians, architects, and engineers must have guidelines, procedures, and standards to apply these techniques successfully.
I n assessing the state of the art in applying energy conservation measures
it is convenient to consider four elements in the application of such measures.
These are: (1) guidelines or standards to which materials or equipment are
designed and manufactured; (2) the means an industry or the building community uses to be assured that materials and equipment produced meet these
requirements; (3) the procedures and mechanisms to assure that energy
conservation materials and equipment are properly installed and tested; and
(4) adequate knowledge, practices, and test methods to assure the continued
effectiveness of these measures over their useful lives.
NBS has been working with FEA, ERDA, and others for several years in
addressing needs in each of these areas. Let me say a word about each of them
relating this experience specifically to Section 102 of Part A. This section requires the Administrator to develop rules for the content and implementation
of residential energy conservation plans defined in Section 101.
I n anticipation of proposed legislation concerning retrofit tax credits in
1975, FEA requested NBS to recommend the criteria to be used for considering materials and products eligible for tax credit. As a result, in November
of 1975, NBS published N B S I R 75-795, Recommended Criteria for Retrofit
materials and Products Eligible for Tax Credit. There are several things I
should mention about this report. I t represents a snapshot of a rapidly changing situation in terms of materials standards and practices. NBS is presently
under contract to revise and expand this set of criteria for the FEA weatherization program. The availability of the revised criteria for public review and
comment has been announced in the Federal Register. Later this week NBS
is holding a public meeting to review public and industry response to these
criteria. These and other materials will be used in establishing a final suggested measures list to be published by FEA in developing the rules specified
under Section 102 of the proposed legislation.
Unquestionably, available insulation materials and procedures can be used
to meet much of the demand that will be stimulated by the President's goals.
Existing standards are adequate for many of these materials, particularly
certain types of mineral fiber, mineral cellulose, and organic fibrous materials
as noted on Table 2 of N B S I R 75-795. Further, materials which meet the
American Society of Testing and Materials (ASTM) standards for organic
fiber and organic cellular insulations and which also conform to the fire safety
requirements outlined in N B S I R 75-795 are suitable for use. Materials meeting these standards meet minimum requirements for heat flow resistance, fire
safety, and quality.
Unfortunately, many currently marketed materials and insulation practices
do not meet these requirements. Moreover, the fire safety recommendations in
N B S I R 75-795 were not based on extensive test data and need to be evaluated.
290
For example, the fire hazard due to exposed cellular plastic insulation has
been amply demonstrated at the University of California and the Underwriters' Laboratories among others, even for materials that pass the presently
accepted fiammability test. There have also been some fires involving loss of
life in buildings resulting from exposed cellular plastics. Because of these
fires and due to Federal Trade Commission (FTC) action, the foam j)lastic
industry now recommends that cellular plastics be covered by a fire barrier
equivalent to V2 inch of gypsum board. The model building codes have also
been changed either to accept this prescription or to validate the use of the
chosen material based on its performance in a room fire test.
There is a need to provide a technical base on which to establish the significant fire risks due to the installation of the various kinds of insulation in new
and existing housing, to determine the laboratory test methods best suited to
evaluate the material with respect to these hazards, and to specify the test
criteria which the material must pass before it can be approved for insulation
of buildings.
Insulation may increase the fire risk by (1) increasing ignition possibilities,
including smoldering ignition; (2) contributing to fire growth in an enclosure;
(3) providing a path for fire to spread throughout the building; (4) reducing
the fire endurance of a fire rated wall if it is combustible; or (5) adding to
the generation of smoke and toxic gases. The extent to which the insulation
can potentially contribute to any of these hazards depends on the type of
material, method of application, location, and whether it is exposed or protected. For example, cellulosic, glass fiber, and plastic foam insulation materials can undergo smoldering combustion. Underwriters' Laboratories currently recognizes this problem for loose fill shredded wood and paper materials, although no generally acceptable test method is available to determine
this important property.
The main types of insulation that need to be considered are: (1) mineral
wool, (2) glass fiber, (3) shredded wood and paper, (4) urea formaldehyde,
(5) polyurethane, and (6) polystyrene. The material may be in any of the
following forms: boards, blocks, sheets, blankets, batts, felts, loose fill (poured
or blown), or foamed in place (poured or sprayed). The insulation may also
have combustible or noncombustible facing. The insulation may be concealed
or exposed.
Planned studies can produce interim acceptance fire performance criteria
for questionable materials in one year. Presently, NBS scientists and engineers
are working with ASTM Committee C-16, a special committee of the Building
Bfesearch Advisory Board, and colleagues in FEA, ERDA, the General Services Administration (GSA) and industry in reviewing current standards and
outlining efforts required to assure effective materials standards, test methods,
and recommended practices are available for thermal insulating materials.
This effort parallels and will contribute substantially to subsequent revision
of NBSIR 75-795. Also in response to recent requests from industry, NBS is
developing plans for a joint NBS/ERDA study of the thermal, fire, and durability performance of insulating materials. This program will include development of test methods and measured data on the response of various insulation materials to moisture and to degradation, and will provide performance
criteria for innovative insulating materials and systems. Further, these efforts wrill involve development and use of facilities to produce data on the
"as-built" performance of complete wall, floor, or ceiling sections. I n November 1975, NBS published Building Science Series No. 77, a report on the
Acoustical and Thermal Performance of Exterior Residential Walls, Doors,
and Windows. This document reported laboratory tests conducted by OwensCorning Fiberglas Corporation on thermal transmission, air leakage, and
sound transmission losses of a limited number of full-scale wall sections. The
planned studies will result in development of commercial test methods for
all types of insulating materials and systems and their effectiveness in actual
building elements.
N B S I R 75-795 presents criteria for the other energy conservation measures
listed in Section 101 with the exception of furnace retrofit devices. Standards
for these either presently exist or are under development, and should be available in time for reference in this program.
291
The next major area of concern in assuring effective application of energy
conservation measures are the technical practices and institutional mechanisms for assuring that manufactured materials and products meet these
standards. I n the area of thermal insulation, industry has requested the Department of Commerce (DoC) to provide a program for the accreditation of
testing laboratories that furnish technical data or facilitate certification for
its products. Under its National Voluntary Laboratory Accreditation Program
( N V L A P ) , DoC has published (March 10, 1977) its preliminary finding that
a need for accredited laboratories exists in this area. The N V L A P process
(15 CFR Part 7) would result in the establishment of criteria and procedures
for laboratory accreditation within 15 months and with the expectation that
most testing laboratories in this field would be accredited by DoC inside 2
years. NVLAP provides the means of effective implementation of standards
and test methods and for their extension and improvement as operating experience is fed back to standards-writing bodies. NBS is presently exploring
possible opportunities for acceleration of this program in helping the insulation industry respond responsibly in this critical period of greatly increased
demand for their products.
Further, NBS is working with A S T M Committee E-06 and its Subcommittees in developing improved test methods for the thermal and air leakage performance of windows and as well for air infiltration in new and existing
buildings.
The third important area of concern in assuring effective implementation of energy conservation measures is installation practices. Technical
information on proper installation of most insulation materials is available.
However, the effectiveness of most insulation materials is highly dependent
upon how faithfully these procedures are followed in practice. There are few
simple or effective mechanisms for field quality assurance of insulation effectiveness in retrofit. Installation of attic insulation can be inspected visually
Bag or wrapper counts can be used to assure that appropriate quantities of
material have been applied. However, exterior wall and often crawl space installations pose more difficult problems. Available thermographic techniques
are costly. Heat flow meters are very time consuming and highly subject to
operator error interpretation.
Under FEA sponsorship NBS has developed and F E A is soon to release n
serviceman's guide for nozzle size modifications on oil burners. NBS and
others have developed handbooks with suggested practices for a variety of
others of the retrofit measures being considered. Further, the American Soci
ety of Heating, Refrigerating and Air Conditioning Engineers is developing a
standard for energy conservation in existing buildings. I believe that document should include, at least, suggested procedures for installation quality
assurance of energy conservation retrofit measures.
I n the final analysis the most effective means of assuring satisfactory results from retrofit measures is the good name and integrity of the installing
contractor.
The last major area in assuring effectiveness of energy conservation measures is actual in-service performance over the lifetime of the energy conservation measure. Most materials or products contained on the list of suggested
measures in Section 101 have been in use for many years and a great deal is
known about the durability and reliability of these items. This is not the case
for innovative materials or new insulating systems or equipment. NBS will be
working closely with FEA, ERDA, and others in developing performance
measures and collecting laboratory and field data to assure that the intensive
application of building retrofit measures in the coming decade does not itself
stimulate major repair or reinsulation requirements.
P u b l i c I n f o r m a t i o n and E d u c a t i o n . — D a t a , illustrative examples, and general information and educational materials will need to be made available to
building owners and occupants for their use in decisionmaking about these
various energy conservation measures. Few people will be willing to invest
or even apply for the incentives being suggested unless or until the benefits
to them have been demonstrated clearly. This points to an essential need for
measured data on actual achieved energy savings (and cost reductions) from
installation of suggested energy conservation measures. We believe this is an
area where the credibility of Federal information is extremely important.
292
Another important area of sensitivity in this regard is the information provided to building owners and occupants for their use in actual decisionmaking
about these measures. I am referring specifically to the means used by homeowners in determining which combinations of these energy conservation measures makes most sense for his particular household or home. We have abundant data demonstrating the wide range of energy usage in identical dwellings
resulting from differences in occupancy and behavioral patterns as well as the
particular details of design and construction. Further, individual families will
have their own preferences and comfort ideocyncrasies. Simple national 01
even regional prescriptive solutions may not be effective in meeting individual
needs.
The NBS, HUD, and others have in recent years published documents aimed
at consumers and intended for their use in making these decisions. Two specific examples are the NBS Consumer Information Series document, "Making
the Most of Your Energy Dollars," and the H U D publication, "In the Bank or
Up the Chimney." Further, FEA has experimented with a variety of other
mechanisms for assisting homeowners in making choices about energy conservation measures.
PART B — E N E R G Y E F F I C I E N C Y
S T A N D A R D S FOR C O N S U M E R
PRODUCTS
Part B of Title I is entitled Energy Efficiency Standards for Consumer Products. I t would amend Part B of Title I I I of the Energy Policy and Conservation Act (EPCA) to substitute reliance on voluntary efforts to meet industrywide average energy efficiency targets for consumer products other than automobiles with a program of mandatory energy efficiency standards prescribing
minimum levels of performance.
NBS has had considerable experience in the area of energy efficiency of
consumer products. I n late 1973, the Department of Commerce launched a
program which sought the voluntary labeling for energy efficiency and cost
of operation of major appliances by manufacturers. The program had been
finalized for four appliances, room air conditioners, refrigerators, refrigeratorfreezers, and freezers.
I n 1975, the Department of Commerce, in addition to this labeling program,
proposed energy efficiency targets to be voluntarily achieved by 1980.
The Department programs for voluntary labeling and voluntary compliance
with energy efficiency standards were for all practical purposes terminated
by the enactment of EPCA on December 22, 1975, which established a new
program to be managed by FEA and FTC. At the present time we have provided FEA with test procedures for all products listed in EPCA except for
furnaces and certain vented space heating devices which by nature are related
to furnaces. They will be forthcoming soon. I n all, taking into account that
different test procedures are required for given products having different fuel
sources, we have supplied about 30 test procedures.
FEA was given responsibility in the area of energy efficiency targets. Similarly, in the present efficiency target program we have supplied targets to
FEA for the first 10 product areas, a total of 26 targets. We will supply them
for the remaining 3 product areas in the near future.
Under EPCA as amended by P.L. 94-385, the Energy Conservation and Production Act (ECPA), the National Bureau of Standards was assigned a responsibility in addition to developing and recommending test procedures. That
responsibility was to develop the energy efficiency improvement targets. While
no final targets have yet been published, the EPCA maintains a target compliance date of 1980. This target date means that all tooling changes, design
modifications, etc., necessary to produce products which could meet the voluntary standards would have to be in place by the end of 1979. Industry needs
time to redesign, retest, and retool; three years not being uncommon. The
delays caused by the enactment of EPCA and the absence of published final
targets at this date make the time available for significant changes by industry to meet the energy saving requirements perilously close.
Further, it is essential that consumer demand for more efficient products,
usually at a higher cost, be sufficient to warrant compliance with the voluntary efficiency improvement targets. No company would be willing to voluntarily produce products that it cannot sell.
293
Consumer demand can be enhanced by the labeling of consumer products
that display their energy efficiency and cost of operation, thereby creating a
market for more efficient products. Since no labels are yet available, this cannot be done and time continues to pass. For these reasons we feel the President's proposal for leaving the time schedule up to the Administrator and
providing him with the option of including certain products is excellent.
The amendment to EPCA proposed by the President leaves intact the responsibility of NBS to provide FEA with test procedures. We welcome this
continuing responsibility. We have been informed by officials at FEA that they
will continue to use NBS assistance.
PART C — E N E R G Y
CONSERVATION
PROGRAM FOR SCHOOLS A N D
HOSPITALS
Part C of Title I is entitled Energy Conservation Program for Schools and
Hospitals. I t would amend Title I I I of the Energy Policy and Conservation
Act by including a new part which provides Federal assistance for energy
conservation retrofit of existing schools and hospitals through State energy
conservation programs. There are very significant opportunities for energy
savings in these types of institutional buildings. Schools and hospitals account for roughly 1/3 of commercial building energy use. Our own work gives
some evidence of the potentials.
The list of energy conservation measures included in Section 391 of proposed Part C contains a number of important means for reducing energy use
in such buildings. However, this is not an inclusive list. There are numerous
other measures that could have as significant impacts on reducing energy use.
NBS stands prepared to assist FEA in developing suitable performance criteria for the measures on the list as well as for other energy conservation
measures States may wish to adopt.
Also, the FEA guidelines should include standards for general safety and
effectiveness of suggested measures, standards for installation of these measures, and other such requirements as the Administrator determines to be necessary to assure the effectiveness of energy conservation measures included in
State plans. We believe such provisions with respect to schools and hospitals
are as important as such provisions are to residential applications (see Subsection 102(b) of Part A ) .
The American Society of Heating, Refrigerating and Air Conditioning Engineers (ASHRAE) is developing a standard for energy conservation in existing
institutional buildings (ASHRAE 100.5P). A draft for public review and
comment is scheduled for publication in July. NBS would be pleased to assist
FEA, ERDA, and others in reviewing and possibly adapting this standard for
use or reference in the Administator's guidelines.
PART G—FEDERAL
ENERGY
INITIATIVES
Part G of Title I is entitled Federal Energy Initiatives and contains proposals for energy efficiency in Federal buildings and operations. Certainly, the
Federal Government should set an example in the use of new technologies
such as solar heating and cooling, as well as other energy conservation measures. Subpart 3, entitled Demonstration of Solar Heating and Cooling in Federal Buildings, provides a mechanism for FEA to assist Federal agencies in
undertaking solar heating and cooling demonstrations in their buildings.
We presume this program will be coordinated closely with ERDA's efforts in
implementing P.L. 93-409, the Solar Heating and Cooling Demonstration Act.
That program has already supported a number of Federal building solar heating and cooling demonstrations. This provision will extend that experience to
embrace a broader number and range of such demonstrations.
Further, we assume that many of the products of and experience from the
ERDA demonstration program would be useful to FEA in implementing this
program. For example, several such demonstrations that we at NBS have
been involved with include the GSA Demonstration Office Buildings in Manchester, New Hampshire, and in Saginaw, Michigan, and technical assistance
to the Veterans Administration.
NBS has the responsibility, under P.L. 93-409, to develop definitive performance criteria for solar hot water, heating, and combined heating and cooling systems as part of the National Solar Heating and Cooling Demonstration
294
Program for ERDA and HUD. NBS has already produced interim criteria for
solar hot water and heating systems and test methods for rating of solar collectors and storage devices. ASHRAE has just recently approved standards
for the latter based on this NBS work. Further, NBS has developed interim
performance criteria for solar heating and cooling systems in commercial
buildings that should be useful to both FEA and other Federal agencies applying for assistance under this program.
NBS is prepared to support FEA in developing guidelines for this program
and in providing technical assistance to FEA if requested in assessing the
performance of demonstration systems. This may be important since a number
of significant problems have occurred with several solar heating and hot water
systems currently in operation.
Most of these problems involve durability/reliability. For example, five oul
of seven collector types being used to heat a commercial building at the National Aeronautics and Space Administration Langley, Hampton, Virginia,
showed more than a ten percent deterioration in collector thermal performance
after exposure (under "no-flow*' conditions) for three to nine weeks. Other
problems include outgassing of materials inside collectors which causes reduced heat output, glass breakage, and leakage in liquid systems; and the
possibility of health and safety problems associated with toxicity or flammability of heat transfer fluids used.
Problems of this sort typically are encountered in the early phases of development of a new industry. Demonstrations such as this one are useful in
shaking out these problems and developing effective standards and guidelines
for practice for more rapid commercialization of new technologies.
SUMMARY
The principal thrust of my comments is that the proposed energy conservation measures are badly needed, they are of demonstrated effectiveness and,
with prompt attention to certain inadequacies of available technology, they
can be implemented to contribute substantially in meeting the President's
goals for energy conservation. The National Bureau of Standards has solid
competences in measurement and standards technology, particularly in the
areas of building research, fire safety, and consumer products needed in resolving the technical problems I have identified. I t will take intensified efforts
on the part of all of us—Government, industry, and energy end users—to get
this job done.
S T A T E M E N T OF J A C K E . S N E L L , M A N A G E R , E N E R G Y C O N S E R V A T I O N
PROGRAMS,
I N S T I T U T E FOR A P P L I E D T E C H N O L O G Y , N A T I O N A L B U R E A U OF S T A N D A R D S
SUMMARY
The National Bureau of Standards (NBS) supports the Administration's
proposals for energy conservation in existing buildings contained in the National Energy Act and can contribute significantly to their implementation.
The proposed conservation measures are based on available technology of
demonstrated effectiveness. Provision can and should be made to encourage
use of other available measures, and to stimulate innovation of even more
efficient technology as well.
Effective application of available technology is essential. This requires, and
my testimony reviews: (1) suitable materials and product standards, (2)
means to assure marketed products meet them, (3) proper installation and
quality assurance of retrofit measures, and (4) known or predictable life cycle
performance of them in use. NBS has drafted for the Federal Energy Administration ( F E A ) and will shortly be submitting for public review and comment criteria for retrofit materials and products based on available standards
and experience. The Department of Commerce National Voluntary Laboratory
Accreditation Program will assist industry in meeting its responsibilities.
NBS, the Energy Research and Development Administration ( E R D A ) , and
others are working with industry in meeting needs for installation quality
assurance and continued effectiveness and durability of retrofit measures.
Householder decisions are key to program effectiveness. They have varied
requirements for data on the need for savings from and alternative options
295
for retrofit and the choices they must make. Simplistic prescriptive solutions
may not be convincing to them. The Department of Housing and Urban Development, FEA, the General Services Administration, ERDA, NBS, industry,
and others are contributing to available literature in meeting these needs.
I t will take intensified efforts by all of us to assure the success of the Administration's program.
STATEMENT
Mr. Chairman, members of the subcommittee, thank you for this opportunity to testify here today on the utility program and existing buildings energy
conservation provisions of the President's proposed National Energy Act. "The
cornerstone of National Energy Policy," as set forth in the President's National Energy Plan, "is that the growth of energy demand must be restrained
through conservation and improved energy efficiency." Nearly 20 percent of
the total energy used in the U.S. is used to heat and cool buildiiigs. Many
buildings needlessly waste as much as half of the energy they use. Provisions
aimed at reducing energy waste in buildings are essential elements of a comprehensive national energy policy. The utility program, which is the principal
focus of this hearing, is one of eight specific measures in this Act aimed at
reducing waste of energy in existing buildings. These eight measures are
tailored to motivate and responsibly assist building owners and occupants
to act in their self interest as well as in the national interest through a
variety of financial mechanisms and incentives. Each of these complementary
measures can be met with available technology. The success of these efforts
is dependent on effective application of this technology. These measures relate
to the President's goals for 1985 of reducing the annual growth of U.S. energy
demand to less than 2 percent, and insulating 90 percent of all American
homes and new buildings. These goals can be met.
The National Bureau of Standards (NBS) has been active in building technology for many decades. As the Nation's standards and measurement technology laboratory, NBS has been working for most of this decade in developing
data, performance criteria, and measurement technology directly related to
the technical problems this program confronts.
The purpose of my testimony is to share with you the perspective we have
developed on energy conservation technology for existing buildings. Specifically, I will use a set of criteria to demonstrate to you within the areas of
our expertise that the Administration's program indeed offers a most effective
means of reaching the stated goals. We fully recognize that there is a broad
range of factors you must consider in reviewing a program such as this one.
These would most certainly include the following:
1. Is the technology in hand to do the job?
2. Are there suitable standards, practices, and know-how available to effectively and safely apply this technology?
3. Are the data, testimonial evidence, general information, and educational
materials available to communicate effectively to the Nation's 74 million householders and other building owners and occpants the information they must
have to do their part in meeting the President's goals?
4. Are there sufficient industrial capacity and professional and skilled work
power available to meet the goals by 1985?
5. Is there willing leadership and cooperation within both industry and
government as well as effective organizational and institutional mechanisms
in place to make these programs work?
6. Are there adequate mechanisms to stimulate and motivate building owners and occupants, industry and labor, and utilities to act in meeting these
goals?
As a technologist and representative of NBS, I will speak to the first three
of these criteria.
TECHNOLOGY
FOR E N E R G Y
CONSERVATION I N
EXISTING
BUILDINGS
The utility program, like most of the other 7 measures for existing buildings,
is built around a list of "residential energy conservation measures." The measures cited in the proposed legislation include those which have demonstrated
effectiveness in reducing energy waste in existing buildings. For example, NBS
has conducted a series of experiments on a wood frame residence here in
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Washington to evaluate actual energy savings from several of the retrofit
measures suggested in the Act. These included reducing air leakage through
caulking and weather stripping; adding storm windows; and installing insulation in the floor, ceilings, and walls. The addition of storm windows reduced heating energy requirements by 25.2 percent. The installation of insulation in the walls, ceiling, and floor reduced heating energy consumption by
33 percent. The total reduction in heating energy acquired achieved by all
stages of the retrofit on this house was 58.5 percent.
Similarly, NBS has conducted field studies of furnace efficiency modifications on oil burners in New England. These studies showed fuel saving potentials of 14 percent from firing rate reductions with modifications made to
burner air handling equipment and 30 percent from new burner installation
and firing rate reductions. NBS computer studies in the appliance efficiency
improvement and labeling program have indicated energy saving ranging
from 4 to 13 percent by substitution of automatic ignition for a pilot light ::n
gas-fired furnaces. Energy savings of 4 to 8 percent are achievable by blanketing gas and electric hot water heaters with appropriate types of additional
insulation.
I n 1973, NBS measured energy savings of 10 percent from nighttime thermostat setback from 75° F (24° C) to 65° F (18° C) in a townhouse in its environmental chamber. Several computer studies and field experiences of others
have shown similar findings. Nighttime setback from 65° F (18° C) to 55° F
(13° C) would result in slightly lower savings, particularly in very well insulated buildings.
We are presently conducting studies on our own buildings in Gaithersburg
to obtain verification of computer predicted savings of some 20 percent of site
energy use through the installation of computerized control systems to provide space conditioning only when and where actually required.
I n addition to these and other evidences of the energy saving potentials of
available technology there is an abundance of emerging or innovative materials, equipment, systems, and practices which offer potentials for similar or
greater energy savings. Examples include residential electronic control systems, new foam insulations, insulated sheathings, and flat roof insulating
systems. We expect the Federal Energy Administration (FEA) procedures for
the utility program will take advantage of the potential benefits of these new
technologies.
Also, there are a number of available energy conservation measures not
presently included in the list in Section 101 of the utility program, or in the
list in Section 1101 of the residential energy tax credit program. For example,
NBS has demonstrated the energy cost effectiveness of retrofitting a frame
residence with a heat pump to replace an obsolescent oil-fired furnace. Similarly, calculations suggest there may be numerous instances where replacement of electric central air furnaces will heat pumps may be desirable.
Technically from a householders viewpoint it makes little sense to separate
and distinguish between energy conservation measures and solar energy installations in residences. Our laboratory and field studies confirm the statement made recently by Sheldon Butt, President of the Solar Energy Industries Association, that determined conservation efforts and the development of
other alternatives should accompany the development of solar energy for
buildings. Obviously, smaller heating and hot water demands would require
smaller and less expensive solar hardware. I t may well be that a number of
the utilities in this program may wish to include solar and other non-listed
energy conservation measures in their programs. Standards for solar components and systems are being developed in the context of the National Solar
Heating and Cooling Demonstration Program.
Another possible addition to the list of suggested energy conservation measures would be the purchase and installation of residential ventilating fans.
Many people find these fans to be a suitable substitute for air conditioning.
I n my own house in Washington we have been able to limit use of our central
air conditioning system to only the hottest summer days. However, I should
hasten to add that this procedure sometimes results in peak indoor temperatures of as high as 80° F (27° C) or more for short intervals yet, generally,
we find it reasonably comfortable.
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The principal thrust of the President's program is to achieve major reductions of energy use in existing buildings between now and 1985. Nonetheless,
the need for reduction of energy waste in new and existing buildings and the
rise of energy prices are expected to continue through the end of the century.
It will be very important to develop improved efficiency energy conservation
measures and the criteria needed to assure their effectiveness. NBS is working closely with the Energy Research and Development Administration
(ERDA) and others in this regard. We must assure that these programs do not
discourage innovation. Guidelines of special provisions for innovative technologies need to be developed.
APPLYING THE
TECHNOLOGY:
KNOW-HOW,
PRACTICES,
STANDARDS
As I pointed out earlier, achievement of the President's goals for saving
energy in existing buildings will depend upon how effectively the available
technology is applied. Do-it-yourselfers, contractors, technicians, and professionals must have guidelines, procedures, and standards to apply technology
successfully.
I n assessing the state of the art in applying energy conservation technology,
it is convenient to consider four elements in the life cycle of a typical energy
conservation measure. These are: (1) guidelines or standards to which materials or equipment are designed and manufactured; (2) the means an industry
or the building community uses to be assured that materials and equipment
produced meet these requirements; (3) the procedures and mechanisms to
assure that energy conservation materials and equipment are properly installed and tested; and (4) adequate knowledge, practices, and test methods
to assure the continued effectiveness of these measures over their useful lives.
NBS has been working with FEA, ERDA, and others for several years in
addressing needs in each of these areas. Let me say a word about each of
them relating this experience specifically to Section 102, which requires the
Administrator to develop rules for the content and implementation of residental energy conservation plans.
I n anticipation of proposed legislation concerning retrofit tax credits in
1975, FEA requested NBS to recommend the criteria to be used for considering
materials and products eligible for tax credit. As a result, in November of
1975, NBS published NBSIR 75-795, Recommended Criteria for Retrofit Materials and Products Eligible for Tax Credit. Mr. Chairman, a copy of this
report has been submitted for the record. There are several things I should
mention about this report. I t represents a snapshot of what is a fairly rapidly
changing picture in terms of materials standards and practices. NBS is presently under contract to FEA to revise and expand this set of criteria as a
part of its weatherization program. We expect to announce later this month
in the Federal Register the availability of the revised criteria for public review and comment. At that time we will be happy to forward a copy of them
to your Subcommittee. These and other materials will be used in establishing
a final suggested measures list to be published by FEA in developing the
rules specfiied under Section 102 of the proposed legislation.
Unquestionably, available insulation materials and procedures can be used
to meet much of the demand that will be stimulated by the President's goals.
Existing standards are adequate for many of these materials, particularly
certain types of mineral fiber, mineral cellulose, and organic fibrous materials as noted on Table 2 of NBSIR 75-795. Further, materials which meet
the American Society of Testing and Materials (ASTM) standards for organic
fiber and organic cellular insulations and which also conform to the fire safety
requirements outlined in NBSIR 75-795 are suitable for use. Materials meeting these standards meet minimum requirements for heat flow resistance, fire
safety, and quality. There are some presently marketed materials for which
existing standards and test methods are not; available or adequate. NBS scientists and engineers are working with ASTM Committee C-16, a special committee of the Building Research Advisory Board, and colleagues in ERDA,
the General Services Administration, and industry in reviewing current standards and outlining efforts required to assure effective materials standards,
test methods, and recommended practices are available for thermal insulating
298
materials. This effort parallels and will contribute substantially to subsequent
revision of N B S I R 75-795.
I n response to recent requests from industry, NBS is developing plans for
a joint N B S / E R D . \ study of the thermal, fire, and durability performance of
insulating materials. This program will include development of test methods
and measured data on the response of various insulation materials to moisture
and to degradation, and will provide performance criteria for innovative!
insulating materials and systems. Further, these efforts will involve development and use of facilities to produce data on the "as-built" performance of
complete wall, floor, or ceiling sections. I n November 1975, NBS published
Building Science Series No. 77, a report on the Acoustical and Thermal Performance of Exterior Residential Walls, Doors, and Windows. This document
reported laboratory tests conducted by Owens-Corning Fiberglas Corporation
on thermal transmission, air leakage, and sound transmission losses of a
limited number of full-scale wall sections. The planned studies will result in
development of commercial test methods for all types of insulating materials
and systems and their effectiveness in actual building elements.
N B S I R 75-795 presents criteria for the other energy conservation measures
listed in Section 101 with the exception of furnace retrofit devices which your
Committee has already reviewed.
The next major area of concern in assuring effective application of energy
conservation measures are the technical practices and institutional mechanisms for assuring that manufactured materials and products meet these
standards. I n the area of thermal insulation, industry has requested the
Department of Commerce (DoC) to provide a program for the accreditation
of testing laboratories that furnish technical data or facilitate certification
for its products. Under its National Voluntary Laboratory Accreditation Program ( N V L A P ) , DoC has published (March 10, 1977) its preliminary finding
that a need for accredited laboratories exists in this area. The N V L A P process
(15 C F R Part 7) would result in the establishment of criteria and procedures
for laboratory accreditation within 15 months and with the expectation that
most testing laboratories in this field would be accredited by DoC inside 2
years. N V L A P provides the means of effective implementation of standards
and test methods and for their extension and improvement as operating
experience is fed back to standards-writing bodies. NBS is presently exploring
possible opportunities for acceleration of this program in helping the insulation industry respond responsibly in this critical period of greatly increased
demand for their products.
Further, NBS is working with A S T M Committee E-06 and its Subcommittees in developing improved test methods for the thermal and air leakage
performance of windows and as well for air infiltration in new and existing
buildings.
The third important area of concern in assuring effective implementation
of energy conservation measures is installation practices. Technical information on proper installation of most insulation materials is available. However,
the effectiveness of most insulation materials is highly dependent upon how
faithfully these procedures are followed in practice. There are few simple or
effective mechanisms for field quality assurance of insulation effectiveness in
retrofit. Installation of attic insulation can be inspected visually. Bag or
wraper counts can assure that appropriate quantities of material have been
applied. However, exterior wall and often crawl space installations pose more
difficult problems. Available thermographic techniques are costly. Heat flow
meters are very time consuming and highly subject to operator error or
interpretation.
Under F E A sponsorship NBS has developed and F E A is soon to release a
serviceman's guide for nozzle size modifications on oil burners. NBS and
others have developed handbooks with suggested practices for a variety of
others of the retrofit measures being considered. Further, the American Society of Heating, Refrigerating, and Air Conditioning Engineers is developing
a standard for energy conservation in existing buildings that I believe should
include at least suggested procedures for installation quality assurance of
energy conservation retrofit measures.
I n the final analysis the most effective means of assuring satisfactory results from retrofit measures is the good name and integrity of the installing
299
contractor. I n my opinion installer certification and/or warranty requirements
would strengthen the utility program guidelines.
The last major area in assuring effectiveness of energy conservation measures is actual in-service performance over the lifetime of the energy conservation measure. Most of the materials or products contained on the list of suggested measures in Section 101 have been in use for many years and a great
deal is known about the durability and reliability of these items. This is not
the case for innovative materials or new insulating systems or other equipment. NBS will be working closely with FEA, ERDA, and others in developing
performance measures and collecting laboratory and field data to assure that
the intensive application of building retrofit measures in the coming decade
does not itself stimulate major repair or reinsulation requirements.
PUBLIC INFORMATION
AND
EDUCATION
The third criteria I would like to address in supporting the proposed legislation relates to the need for data, testimonial evidence, and general information and educational materials available to building owners and occupants for
their use in decisionmaking about these various energy conservation measures.
Few people will be willing to invest or even apply for the incentives being
suggested unless or until the benefits to them have been demonstrated clearly.
This points to an essential need for measured data on actual achieved energy
savings (and cost reductions) from installation of suggested energy conservation measures. We believe this is an area where the credibility of Federal
information is extremely important. As we have indicated earlier, there is
adequate testimonial evidence of the effectiveness of most of these energy conservation measures.
Another important area of sensitivity in this regard is the information provided to building owners and occupants for their use in actual decisionmaking about these measures. I am referring specifically to the means used
by the homeowner in determining which combinations of these energy conservation measures makes most sense for his particular household or home.
We have abundant data demonstrating the wide range of energy usage in identical dwellings resulting from differences in family size, age composition, and
behavioral patterns as well as the particular details of design and construction.
Further, individual families will have their own preferences and comfort
idiosyncrasies. Simple national or even regional prescriptive solutions may
not be effective in meeting individual needs.
The NBS, the Department of Housing and Urban Development ( H U D ) , and
others have in recent years published documents aimed at consumers and
intended for their own use in making these decisions. Two specific examples
are the NBS Consumer Information Series document, "Making the Most of
Your Energy Dollars," and the H U D publication, "In the Bank or Up the
Chimney." Further, FEA has experimented with a variety of other mechanisms for assisting homeowners in making choices about energy conservation
measures.
SUMMARY
I n summary we have suggested several criteria for reviewing the state of
application in existing technology in achieving the President's goals for energy
conservation in existing buildings. This review shows that in general these
goals can be met. Intensified efforts by all of us involved with the application
of technology in the building community will be required in assuring that
these programs are successful.
These comments conclude my prepared statement. I would be pleased to
answer any questions.
[News
release]
COUNCIL FEARS PRICE INCREASE
IN
FIBERGLASS
INSULATION
The Council on Wage and Price Stability fears that passage of legislation
granting tax credits to encourage home insulation would place added pressure on
an already tight supply of fiberglass insulation manufacturing for the next 18
months, unless the program is phased in gradually.
300
This concern is expressed in a study released by the Council today.
I t is the view of the Council that production of fiberglass insulation could
not be increased enough to meet rising demand in the next year if the legislation is approved without provisions to prevent production bottlenecks. There
are few satisfactory substitutes for fiberglass in home insulation. Thus, the result would be that the chief beneficiaries of the tax credit this year would be
manufacturers of fiberglass insulation. The Council has no quarrel with the idea
that encouraging home insulation is necessary for the conservation of energy.
Its concern is only in avoiding sudden price pressures in an industry already
operating close to capacity.
Three firms produce 80 to 85 percent of all fiberglass insulation material:
Owens-Corning, Johns Manville, and Certain-Teed. While two of the firms expect
to have additional capacity available to produce insulating materials by the end
of 1978, they are now operating near peak utilization.
According to the Council study, the demand for fiberglass insulation could increase as much as 50 percent if the full tax credit were immediately available.
Right now, insulating manufacturers expect to increase their production 10 to
15 percent over 1976. However, private housing starts are expected to increase
20 percent this year and this will leave capacity extremely tight in the industry,
even without passage of the measure.
The Council examined other options to increase the supply of fiberglass insulation and found them lacking. The possibility of switching the production of
fiberglass textiles and plastic reinforcement plants to the production of fiberglass insulation products has been considered, but it is not possible to do so this
year. The United States has imported only $1.5 million worth of fiberglass materials, mostly from Canada. The Canadian plants are operating at capacity thus
increasing imports cannot meet the expected demand. Finally, the manufacturers
appear to have little, if any, excess inventory of their product.
A copy of the report is attached.
COUNCIL ON WAGE AND PRICE STABILITY,
Washington, D.C.
To : the members and adviser members of the Council on Wage and Price Stability.
Consistent with the Council's mandate to "review and analyze industrial capacity, demand, and supply . . . in various sectors of the economy," we have conducted a study of the adequacy of capacity in the fiber glass insulation industry.
This study was initiated to ascertain whether adequate short-run supply increases would be available to meet an expected increase in the demand for fiber
glass insulation products as a result of the various home insulation tax rebate
bills now before the Congress.
The Report's findings indicate that the possibility of a shortage of fiber glass
insulation products is real. Manufacturers of insulation products are currently
utilizing their capacity at peak levels, and no additional capacity is scheduled
to come on stream until the third quarter of 1978. Estimates of increased demand
for insulation products resulting from a tax rebate law indicate a substantial
shortfall in supply unless the tax incentives can be spread out or phased in
gradually. Serious upward price pressures on fiber glass insulation products in
1977 could result from the immediate imposition of an insulation tax rebate.
This Report was prepared by James F. Mongoven, Senior Staff Economist,
under the direction of Jack Meyer, Acting Assistant Director for Wage and
Price Monitoring.
ROBERT W . CRANDALL,
Acting Director.
THE INSULATION MARKET
The market for insulation materials is of moderate size in the United States.
Depending on definition and source, yearly sales of thermal insulation materials
total between $700 million and $1,200 million.1 Approximately two-thirds of insulation production is used in residential structures (Table 1). Most of the residual output is used to insulate industrial structures and machinery.
1
Finding adequate and consistent statistics seems to be a particular problem in this
industry. No trade association collects data, academic treatises are dated, and the government has no timely collection of data, except for wholesale prices.
301
Two nonmetallic mineral products account for the bulk of the thermal insulation market. The production of asbetos insulation products is less than $200
million a year (Table 2). Approximately 90 percent of the asbestos insulation
products used in the United States each year are imported and 90 percent of the
imports come f r o m Canada. Most of the asbestos insulation products are used in
commercial and industrial applications.
Home thermal insulation products for ceilings, floors, and walls are almost
entirely made from fiber glass materials. Some paper insulating products are
available but questions have been raised regarding their reliability and safety.2
These questions, along with the relatively small percentage of the market held
by these products, make it impossible for cellulosic products to capture a significant share of the home insulation market in the next year to eighteen months.
Thus, adequate substitutes for fiber glass insulation products are not available
in the short run.
The focus of this paper is on fiber glass insulation products for the home.
The Administration has proposed a tax credit for 25 percent of the first $800
of home insulation expenditures and 15 percent of the next $1,400. The passage
of such a bill owuld presumably add some increment to the demand for insulation products as soon as the tax credit is available. The timeliness of the reaction of insulation suppliers to the increased demand then becomes crucial to
determining the effect of the tax package. I f there is a supply bottleneck in the
production of i n s u l a t i o n p r o d u c t s , the loss in tax revenue will accrue to the producers of these materials in the form of higher prices, and no additional homes
will be insulated. I f additional supply is immediately available, then the tax
program will have its intended effect of encouraging the insulation of more homes.
TABLE 1.—End u s e o f i n s u l a t i o n m a t e r i a l s ,
1975
Use
Percent
Structural
I n d u s t r i a l and equipment
Pipe and other
65. 3
32. 3
2. 4
SOURCE—Standard & Poor's, Industry Survey, 1976.
TABLE 2.—U.S. ASBESTOS INSULATION CONSUMPTION, 1971-75
[Dollar amounts in millions]
Total consumption 1
Year
Thousands of
tons
812
868
942
878
637
197 1
197 2
197 3
197 4
197 5
1
Dojestic products
Amount
Thousands of
tons
$92.3
101.1
115.2
137.6
125.2
131
132
150
112
99
Imports
Amount
Thousands of
tons
Amount
$12.2
13.4
16.3
13.8
14.2
681
736
792
766
538
$80.1
87.7
98.9
123.8
111.0
Exports were less than 70,000 tons in any year and have been ignored in these calculations.
Source: Department of the Interior, Bureau of Mines, Mineral Yearbook.
Structurally, the fiber glass insulation industry is a highly concentrated oligopoly. Table 3 shows the value of shipments and concentration ratios for the
SIC four-digit mineral wool industry and the five-digit classification of mineral
wool for home insulations. Mineral wool producers of industrial insulation show
similar concentration levels. Almost all mineral wool products are fiber glass
products, manufactured from molten glass.
2
Federal Trade Commission, comments on N a t i o n a l Energy A c t B i l l , "Macerated paper
is not a viable substitute due t o i t s inherent
flammability."
The Energy Research and
Development A d m i n i s t r a t i o n disagrees i n a statement by Maxine Savitz, Director, D i v i s i o n
of Buildings and Community Systems, " I t is our position t h a t cellulose produced
under . . . Ta s t r i c t q u a l i t y control procedure] . . .
is an acceptable t h e r m a l i n s u l a t i o n
i n some applications."
94-843 O - 77 - 20
302
TABLE 3.—MINERAL WOOL PRODUCTS
Value of
Year
SIC 3296—Mineral wool:
1963
1967
1972
SIC 32961—Mineral wool for structural
insulation:
1963
1967
1972
Percent of value of shipments accounted for by the
largest-
Companies
(millions)
4 firms
8 firms
20 firms
50 firms
89
77
66
$391.9
454.4
755.4
67
71
75
83
84
89
95
95
97
99
99
99+
NA
NA
NA
107.7
119.8
364.3
77
85
88
88
93
97
98
99
100
100
100
100
NA—Not available.
Source: U.S. Department of Commerce, 1972 Census of Manufactures.
The five-digit concentration level understates the actual market shares commanded by the largest firms. The three largest fiber glass insulation producers—
Owens^Corning, Johns Manville, and Certain-Teed—have 80-85 percent of the
market.
The three largest firms had total sales of approximately $3 billion in 1976/ I t
is impossible to say what percentage of sales belongs to fiber glass thermal insulation products, but a rough estimate would be less than one-third. When the
smaller firms are added in, "the total market in 1976 was approximately $1 billion.
Table 4 shows the sales and profit figures for the three leading firms for the past
five years. The figures show rather substantial sales growth in 1973 and 1974, as
one would expect from companies that produce energy-saving products. The recession appears to have temporarily delayed the continuation of those high
growth rates. I n 1976, thermal and acoustical insulating products accounted for
58 percent of Owens-Corning's total sales; thermal insulation accounted for 31
percent of Johns-Manville's sales; and insulation products accounted for approximately 30 percent of Certain-Teed's sales volume.4 Eliminating Owens-Corning's
acoustical products and Johns-Manville's asbestos products would give us an
estimate of fiber glass thermal insulation sales. The available information only
allows us to rank the largest fiber glass thermal insulation producers in the order:
Owens-Corning, Johns Manville, and Certain-Teed.
The prices of fiber glass insulation materials varied in direction and magnitude with the same pattern seen in many other industrial products in the past
five years. Table 5 shows the movement in wholesale prices of insulation materials and fiber glass insulation materials since 1971. The two price movements
are similar. A small or nonexistent price increase was followed by double-digit
increases in 1974 and 1975. Price increases moderated in 1976, but remain high
by long run standards. (A comparison with all industrial products shows that
the prices of insulation products have lagged the rest of the economy). The years
1974 and 1975 were an inflationary period for the entire economy and producers
suffered severe cost pressures in those years. Fiber glass manufacturers were no
exception. Fiber glass products are spun from molten glass, and the two principal
raw materials in the manufacturer of glass—sand and soda ash—experienced
wholesale price appreciation of 23.9 and 52.1 percent respectively, between December of 1973 and December of 1975.5 The 1974-1975 price increases cannot be
explained in terms of demand pressures. The recession and the construction
collapse of 1975 resulted in fiber glass insulation productive capacity being utilized at the 50-60 percent level during 1974 and 1975.®
3
4
5
6
Securities and Exchange Commission, 10K Reports.
Securities and Exchange Commission, 10K Reports.
Bureau of Labor Statistics, Wholesale Price Index.
Estimated by Standard & Poor's, Industry Survey, 1976.
303
TABLE 4.—SALES AND PROFIT FIGURES FOR MAJOR FIBER GLASS THERMAL INSULATION PRODUCERS, 1972-76
Year
Net sales
(million)
Stockholders
equity
(million)
$615.3
729.0
828.5
884.9
1,079.2
$309.8
344.2
364.3
393.0
455.5
$35.8
46.1
34.7
41.8
71.8
5.8
6.3
4.2
4.7
6.6
796.3
905.4
1,105.5
1,107.0
1,309.0
477.7
505.9
561.4
580.5
672.0
49.3
55.8
50.6
38.4
53.4
6.2
6.2
4.6
3.5
4.1
392.6
476.2
559.1
553.0
665.0
175.1
198.3
206.1
216.4
245.7
23.7
25.2
-7.4
19.5
36.6
6.0
5.3
-1.3
3.5
5.5
Owens-Corning Fiberglas:
1972
1973
1974
1975
1976
Johns Manville:
1972
1973
1974
1975
1976
Certain-Teed:
1972
1973
1974
1975
1976
Net income
Net income
(million) over net sales
Net income
over
stockholders
equity
11.6
13.4
9.5
10.6
15.8
10.3
11.0
9.0
6.6
7.9
13.5
12.7
-3.6
9.0
14.9
Source: Securities and Exchange Commission, 10K Reports.
TABLE 5.—WHOLESALE PRICE INDEX-INSULATING MATERIALS, 1971-76
11967 = 100]
Year
1971
1972
1973
1974
1975
1976
Insulation
materials
Percentage
change
Mineral
wool, batts
Percentage
change
Ail
industrial
commodities
Percentage
change
3.9
.4
13.9
25.4
8.2
130.8
135.9
135.2
154.6
195.7
211.3
3.9
-.5
14.3
26.6
8.0
114.1
117.9
125.9
153.8
171.5
182.3
3.3
6.8
22.2
11.5
6.3
131.7 _
136.9
137.4
156.5
196.2
212.3
Source: Bureau of Labor Statistics, Wholesale Price Index.
THE
CURRENT
SITUATION
The housing recovery and the continuing large price increase in all forms of
energy have combined to form a high demand situation for fiber glass insulation
materials. The utilization of fiber glass insulation capacity at the end of 1976 was
at the 80-85 percent level.7 The three largest producers are currently operating
at capacity levels and expect to continue to do so for the remainder of 1977.8 As
expected in such a situation, pricing is strong, with increases of approximately
6-8 percent in the past three months on the West Coast and in the Rocky Mountain area.9
The production of fiber glass insulation can be increased 10-15 percent in
1977 due to the higher utilization of capacity and the extra capacity that can be
squeezed out of a plant at peak production. This increased production will still
leave capacity very tight in trying to accommodate the additional insulation
demand that will result from a 20 percent increase in private housing starts.10
7
E s t i m a t e d by S t a n d a r d & Poors', I n d u s t r y Survey, 1976.
8
Owens-Corning, Johns Manville, Certain-Teed, 1976 A n n u a l Reports.
® E n g i n e e r i n g N e w s R e c o r d , A p r i l 2 8 , 1 9 7 7 a n d V a l u e L i n e , M a y 13, 1 9 7 7 .
10
C h a s e E c o n o m e t r i c s a n d D a t a Resources, I n c . , M o n t h l y F o r e c a s t s , A p r i l , 1 9 7 7 .
304
An insulation tax credit law would result in an additional large increase in
the demand for fiber glass products. Estimates of the number of persons who
would attempt to take advantage of the tax credit suggest that one to six million
households per year will be reinsulated.11 The estimated tax revenue losses per
year from the tentative insulation credit bills are: House version, $800 million;
Senate Finance Committee version, $300 million; and Administration version,
$488 million.13 The maximum tax credit from any of the tentative bills is $410.
Estimates of the cost of insulating an existing structure range from $400 to $800.
Therefore, the tax revenue loss may be doubled or tripled to estimate the total
additional consumer spending on insulation products attributable to to the tax
credit in 1977. Thus, the Administration's estimate of a $488 million tax revenue
loss could translate into roughly a $1 billion increase in consumer spending. As
mentioned previously, there is no product that is currently a good substitute for
fiber glass for home insulation. A large portion of this extra consumer demand
would accrue to this one billion dollar per year industry. We should mention
that the are static estimates, based on current price levels. I n physical terms, this
extra consumer demand could range from 300 million to 1,200 million pounds per
year (based on 300 pounds of insulation material per housing retrofit and one to
four million jobs completed), which could add 12 to 48 percent to final demand
in 1977.
Industry sources indicate that production can be increased 10-15 percent in
1977 with the current physical plant. Other sources of supply do not appear likely
to make up the gap between supply and demand that would occur if the tax program is enacted. I t takes a minimum of 18 months to expand capacity at a fiber
glass insulation plant and 36 months to construct a greenfield plant.13 Fiber glass
producers have been heavy spenders on capacity additions since 1973. OwensCorning doubled fiber glass insulation capacity between 1970 and 1976, but it
has no scheduled increase in physical capacity at present. However, OwensCorning expects to be able to increase production by 5 to 8 percent per year the
next few years due to greater operating efficiencies.14 Johns Manville has committed $200 million to increase fiber glass insulation capacity in the next four
years by adding to 10 existing plants and building one new plant, which should
result in a doubling of capacity. However, no new capacity will be available
until late 1978.15 Certain-Teed is also building a new insulation plant, but does
not expect to begin production until the fourth quarter of 1978 at the earliest.16
The Council estimates 1977 industry capacity to be 2.3-2.5 billion pounds. The
three largest firms plan to increase their capacity by 40 percent by 1980.17 I f the
rest of the industry expands at the same pace, productive capacity will be 3.2 to
3.4 billion pounds at the end of 1980. However, no new physical capacity will be
available until the end of 1978.
The possibility of switching the production of fiber glass textiles and plastic
reinforcements plants to the production of insulation might be considered, but
technological considerations apparently make this option infeasible. Insulation
production requires a different and more complicated technological process than
other fiber glass production, and also a larger plant is required in order to achieve
a minimum efficient size. The conversion of a fiber glass textile or plastic plant
to insulation production would produce no time advantage over the expansion of
an existing insulation plant.
Imports of fiber glass insulation have never been large, accounting for less
than $1.5 million in 1976.18 Canadian insulation plants are currently operating at
the same capacity levels as U.S. plants and cannot be a ready source of new
supply.
11
The Congressional Budget Office uses 1 million households per year as their low
estimate of compliance and 4 million as their high estimate. The Federal Energy Administration estimates that 6 million households per year would reinsulate. The F E A also
estimates that 18 million single family homes in the United States are inadequately
insulated.
13
Beniamin Okner, Congressional Budget Offi.ce, Tax Credit for Home Insulation and
John Pierson, "Tax Credit for Home Insulation Is Cleared in Narrow Vote by Ways and
Means Panel," W a l l Street Journal, June 8. 1977.
13
Owens-Corning testimony before Housing Banking Committee, May 27, 1977.
14
Owens-Corning, Annual Report, 1976.
15
Johns Manville, Annual Report, 1976.
16
Certain-Teed, Annual Report, 1976.
17
Confidential data supplied to the Council.
18
U.S. Department of Commerce, Schedule A Imports, 1976.
305
Increased supply from inventories will likewise be unavailable in 1977. Table
6 shows the dollar value of inventories for the large producers over the past
three years. These are company inventories; therefore, they include more than
fiber glass insulation products. They are used here as the best available proxy
for fiber glass inventories. Despite substantial price increases, the dollar value
of inventories has edged downward for the three large producers as a group.
Thus, it is apparent that these firms have been reducing inventories substantially.
There is no evidence of withholding finished products in anticipation of higher
prices.
TABLE 6.—TOTAL INVENTORIES OF ALL PRODUCTS FOR FIBER GLASS INSULATION MANUFACTURERS, 1974-76
[In millions of dollarsl
OwensComing
Johns
Manville
CertainTeed
Total
88.3
81.3
80.3
160.7
145.5
144.4
79.3
80.4
86.6
328.3
307.2
311.3
1974
1975
19761
1
As of December 31.
Source: Value Line, May 13,1977.
SUMMARY
I n the short run, there is no source of readily available increased supply of
home insulation products to accommodate a large increase in demand. Over time,
substitute products might be developed, and within 18 months new sources of
fiber glass insulation will be available. I n the interim, only modest demand increases can be accommodated without creating inflationary pressures. I f the
increased demand from tax inducements to retrofit existing homes with insulation can be spread out or phased in, these inflationary pressures will be avoided.
Moreover, the spreading of this increased demand over a few years will provide a
more secure climate for new investment and would therefore be more likely to
induce capacity expansion.
306
BUREAU OF MINES
Preprint from BULLETIN 667
BORON
A Chapter from
Mineral Facts and Problems,
1975 Edition
Latest information is published annually in MINERAL INDUSTRY SURVEYS on "Boron" available free upon request from
the Publications Distribution Branch, Bureau of Mines, 4800
Forbes Avenue, Pittsburgh, Pa. 15213.
UNITED STATES DEPARTMENT OF THE INTERIOR
307
BORON
By K. P. Wang1
Virtually all U.S. boron production and about
three-fifths of the world production comes from
bedded deposits and lake brines in California (5,
6) 2 . Although U.S. reserves are adequate to
support designed production levels, borates became scarce in 19/3-74, mainly because of the
sharp increase in demand for boron-containing
glass wool for insulation that was created by the
energy shortage (2). Subsequently world demapd
eased somewhat because of the general decline
in economic activity in 1975. A foreign-based
company that has its major production facilities
in tne United States accounts for a large percentage of world production. This company has
initiated a program to expand production by
one-third in a few years.
Turkey, the only boron-producing country of
great significance besides the United States, is
likely to gain importance as a competitor for
international markets. Turkey completed two
new beneficiation plants in recent years, and is
building a downstream facility to produce refined sodium borates. Future world trade patterns may change somewhat and favor increased
imports from Turkey into the United States.
Over the long term such competition will tend
to stabilize prices rather than greatly affect U.S.
production and consumption growth rates.
However, U.S. boron compound exports, which
comprise about half of the overall production,
may be reduced in the future.
The possibility of employing boron and boron
compounds as substitutes for other substances
that are less abundant or more costly, or that
promise better performance, has inspired much
research in bom the producing and potential
consuming sectors. This interest is expected to
be sustained without added incentives.
INDUSTRY STRUCTURE (/)
Compounds of boron were used for many
centuries before the element was identified as
such. Three chemists, Joseph Louis Gay-Lussac
and Louis Jaques Thenard of France and Sir
Humphrey Davey of England, discovered the
element almost concurrently in 1808 (4).
Borax, the most common boron compound,
was first used by Asian artisans for welding and
brazing precious metals and for glazing pottery.
Importation of Tibetan borax into Europe in
the 13th century was the start of the modern
trade in boron compounds. Around the 1750's,
sassolite or boric acid (H3BO3) was discovered in
the hot springs of Tuscany, Italy, and by 1828
this became the world's main source of boric
acid. Mining of borax began in Chile in 1852,
and soon thereafter that country became the
principal world producer. At that time the chief
use for borax was for pharmaceutical purposes.
Borax production in the United States began
in 1864 when crystals were recovered from
certain mineral springs and lakes north of San
Francisco (6). I n 1870, "cottonball" (ulexite) was
found in quantity on the arid lake beds of
Columbus Marsh, Nevada. Soon after, the
Searles Lake deposits were discovered in California. Between 1887 and 1907, colemanite from
the Calico Mountain district of California was
worked. I n 1913, colemanite was discovered in
Kern County. Subsequent deep drilling revealed
extensive sodium borate deposits in the area of
the county now called Boron. Underground
mining began here in 1927, and conversion to
open pit operations followed in 1957. U.S.
Borax & Chemical Corp.'s Boron pit now produces nearly half of tne world's borates, and
plans to increase output by about one-third in
three or four years.
Size, Organization, Geographic Distribution (8)
T h r e e companies produced borax in the
United States during 1975, all operating in
southern California. U.S. Borax & Chemical
Corp., by far the most important producer,
mined borax (or tincal) and kernite at a large
'Supervisory physical scientist. Division of Nonmetallu Minerals.
»Italicized numbers in parentheses refer to items in the list of references at
the end of the chapter.
1
308
12 M I N K R A L FACTS
AN©
PROBLEMS
Table 1.—World boron production, 1973, and capacity, 1973, 1974, and 1980 1
(Short tons boron content)
Production
Capacity
in 1 9 7 3
Western Hemisphere:
United States
• Argentina
Chile
East Europe: U.S.S R.
Asia:
Turkey
People's Republic of China
World total
1
1973
207,000
10,000
0
40,000
210,000
10,000
0
40,000
1974
220,000
10,000
0
40,000
250,000
15,000
5,000
60,000
130,000
20,000
80,000
5,000
90,000
5,000
90,000
5,000
342,000
355,000
365,000
Except for the United States, estimates on other countries denote only a general order of magnitude.
open pit mine at Boron. Previously, U.S. Borax
had mined colemanite f r o m the Gerstley underg r o u n d m i n e a n d ulexite f r o m the D e Bely
mine, both in I n y o County. U.S. Borax also
owns a n d operates r e f i n e r i e s a n d products
plants at Boron in K e r n County, at Wilmington
in Los Angeles County, Calif., and at Burlington, Iowa.
K e r r - M c G e e Chemical Corp., which took over
Stauffer Chemical Co.'s nearby Westend plant in
late 1974, extracted borax, soda ash, and sodium
sulfate f r o m Searles Lake brines. I n addition,
Kerr-McGee was producing coproducts such as
lithium carbonate, potassium sulfate, potassium
chloride, a n d even bromine. K e r r - M c G e e was
also building a new soda plant at T r o n a (the
existing plant site), although additional borates
will not necessarily be produced. I n 1970 T e n neco O i l Co. became the newest producer when
it o p e n e d u p a colemanite mine near Ryan,
Calif., a n d a calcining plant n o r t h o f Death
Valley Junction in nearby Nevada.
Prior to 1968, U.S. Borax was a direct subsidiary of the British-registered f i r m Borax (Holdings) Ltd., which subsequently was taken over by
the Rio-Tinto Zinc Corp. ( R T Z ) . T h r o u g h this
purchase a n d others, Rio-Tinto gained control
of most of the major market economy boron
operations because die firm also obtained an 80percent interest in the T u r k i s h , T u r k Boraks
Madencilik, which discovered the extensive deposits of tincal in the Kirka area around 1964.
T h e T u r k i s h Government subsequently canceled
previously issued exploration permits, with the
t h o u g h t o f possibly w o r k i n g the K i r k a area
under T u r k i s h auspices. Rio-Tinto further maintains controlling interest in various other organizations and facilities as follows: Borax Francais,
S.A., with refining and marketing facilities at
Coudekerque, France; Boroquimica Limitada,
with mining facilities in the Andes and refining
facilities in the lowlands o f Argentina; refining
plants in London, Belvedere, and Chesington,
United Kingdom; a refining plant in Barcelona,
Spain; a refining plant in Stadlau, Australia; and
other facilities in West Germany and Belgium.
M u c h o f Turkey's boron operations are under
the Government corporation Etibank. A large
washing plant was recently completed at Hisarcik to process colemanite, a n d another large
washing plant was being constructed to upgrade
tincal from Kirka. Etibank was also planning to
construct a large new refining plant to produce
numerous boron products.
Definitions, Grades, Specifications
Many minerals contain boron, but only a few
are commercially valuable. T h e principal boron
minerals are tincal, N a 2 B 4 0 7 • 1 0 H 2 0 ; kernite,
N a 2 B 4 0 7 • 4 H z O ; colemanite
(borocalcite),
C a 2 B 6 O n • 5 H 2 0 ; ulexite (boronatrocalcite),
CaNaB509 • 8HzO;
priceite
(pandermite),
5 C a O • 6 B 2 O s • 9 H 2 0 ; boracite (stassfurite),
Mg^ljB^O-jo; and sassolite (natural boric acid),
H3BO3.
Borax pentahydrate ( N a 2 B 4 0 7 • 5 H z O ) and its
derivative anhydrous borax ( N a B 4 0 7 ) are the
most c o m m o n refined borates manufactured.
These could be superpure (such as "technical"
a n d U.S.P. grades), very p u r e ( 9 9 . 5 - p e r c e n t
purity or better), or slightly impure. Actually,
m o r e slightly i m p u r e or "crude" borates are
produced than very pure borates. U.S. Borax
calls its crude pentahydrate rasorite 4 6 and its
crude anhydrous borax rasorite 65. Most o f the
company's rasorite 4 6 is sold abroad. Lesser
quantities
of
borax
decahydrate
( N a 2 B 4 0 7 • 1 0 H 2 0 ) are also p r o d u c e d in the
United States, mostly in the pure form. All these
products can be in the crystalline, granular, or
powder forms.
Some o f the impure borates of various forms
are made into boric acid ( H 3 B 0 3 ) or its anhydrous derivative boric oxide (B 2 Og). Boric acid is
a colorless, odorless, crystalline solid sold in
309
BORON
Figure 1.—Main uses of boron compounds.
technical U.S.P. and special-quality grades. It is
also available in crystalline, granular, or powder
forms. Boric oxide is a hard, brittle, and colorless solid resembling glass.
T h e B 2 0 3 contents of various boron-containing minerals follow, in percent: borax decahydrate 36.5; borax pentahydrate 47.8; anhydrous
borax 69.2; boric acid 56.3; boric oxide 100; and
colemanite 50.8. Boron content of B 2 0 3 is 31.1
percent.
Elemental boron is a black or brownish powder in the amorphous form and a black, hard,
brittle solid in the crystalline form. It melts at
about 2,300° C and has an atomic weight of
10.82. Boron is marketed in several grades
ranging from 90 to 9 9 + percent purity.
Ferroboron is a boron iron alloy containing
0.2 to 24 percent boron. T h e alloys are marketed in various grain sizes.
Typical of the boron hydride series of compounds are diborane (B 2 Hg), a gas; pentaborane
(B 5 H 9 ), a liquid; and decaborane (B 1 0 H 1 4 ), a
solid. Heating values of these compounds range
from 31,200 British thermal units per pound for
diborane to 29,200 for decaborane.
Boron nitride (BN) is a white solid with a
waxy surface which crystallizes in thin hexagonal
plates somewhat analogous to graphite. It withstands temperature to 850° C m inert environments. Produced in fiber form, boron nitride
equals glass fibers in strength and modulus
values while being lighter and much more
resistant to high temperatures. When subjected
to extremely high pressure and temperature,
boron nitride crystallizes in the cubic form. Its
hardness rivals that of diamond.
Boron carbide (B 4 C) is produced by reacting
coke and boric oxide at 2,600° C. T h e product,
which is about 99 percent pure, is one of the
hardest substances known.
USES A N D C O N S U M P T I O N (5)
U.S. consumption of boron compounds, measured in terms of B 2 O a , was about 333,000 tons
in 1974. Two-Fifths or m o r e o f the boron
compounds consumed were used in the manufacture of various kinds of glasses within the
United States. Boron materials account for 5 to
10 percent of many special glasses by weight and
310
12
M I N K R A L FACTS AN© PROBLEMS
50 to 75 percent by value. About 15 percent <
all boron consumed went into insulating fiberglass, 10 percent into textilefiberglass,and 15 to
20 percent into all other glasses. The energy
shortage has created a further demand for
insulating fiberglass. Manufacture of enamels,
frits, and glazes for protective and decorative
coatings on sinks, stoves, refrigerators, and many
other household and industrial appliances accounted for another 10 percent of the boron
consumption. Approximately one-sixth of the
boron compounds consumed in the United
States went into soaps and cleansers.
Possibly 5 percent of boron used went into
agriculture and another 2 to 3 percent into
herbicides. Minor amounts of boron compounds
were consumed as fluxing materials in welding,
soldering, and metal refining. Some elemental
boron was used as a deoxidizer in nonferrous
metallurgy, as a grain refiner in aluminum, as a
thermal neutron absorber in atomic reactors, in
delayed-action fuses, as an ignitor in radio tubes,
and as a coating material in solar batteries. Use
of boron compounds in abrasives gained
ground, particularly cubic boron nitride produced by synthetic diamond producers. Use of
boric aad as a catalyst in the air oxidation of
hydrocarbons accounts for possibly 1 to 3 percent of boron consumption. Boron materials also
went into direct consumption in chemicals, conditioning agents or precursors to chemicals,
plasticizers, adhesive additives for latex paints,
fire retardants, antifreeze, textile and paper
products, biocides in jet fuels, photography, and
composite materials. Figure 1 illustrates the
many end uses of various boron chemicals.
Western Europe consumed possibly 500,000
tons of equivalent B t O s . West Germany, France,
the United Kingdom, Belgium, Italy, and the
Netherlands were the leacung consumers. Virtually all the supply came from the United States
and Turkey. Tne West European pattern of
boron consumption has been slightly different
from that of the United States. For example,
sodium perborate detergents used primarily in
high-temperature washing account for more
than a quarter of all boron consumed, whereas
this particular use is only about 5 percent in the
United States. Use in insulating fiberglass has
been less than 10 percent of the total in Western
Europe, textile fiberglass possibly 5 percent, and
borosilicate glass (for example, for Pyrex) perhaps 10 percent. On the other hand, use in
enamels and ceramics has been nearly onefourth of the total.
Japan's consumption of borates and boric acid
(roughly 100,000 tons of B s O a annually), imported from the United States, Turkey, and the
Tabte 2.—World boron rosorvot
(Million short ton* of boron content)
Reserves1
North America:
United States: California
South America:
Argentina
Chile
Europe: U.S.S.R.
Asia:
Turkey
China
World total
1
20
5
5
20
20
10
SO
Order of magnitude only.
U.S.S.R., has been about equal to that of West
Germany, the leading consumer in Western
Europe, and is increasing. Consumption of borates by the U.S.S.R. may be about 100,000 tons
of equivalent B2Oa per year, and the country has
had a surplus for exports. Other countries
consume only a small part of the world's borates.
RESERVES—RESOURCES
U.S. reserves of boron minerals are fairly well
known. Virtually all the domestic reserve is in
California, the primary deposit is at Boron, and
other deposits occur at Searles Lake and in the
Furnace Creek district of Inyo County. Also, the
waters of the Great Salt Lake, Utah, analyze 20
to 35 parts per million of boron. Reserves of
sodium borate in the deposit at Boron are over
100 million tons of 25- to 40-percent B 2 0 3 ore.
Searles Lake reserves can support an annual
production of 100,000 to 200,000 tons of contained B 8 0 3 in the form of sodium borates
indefinitely. Furnace Creek has calcium borates,
and ore reserves may be several tens of million
tons.
Turkey's reserves of boron minerals apparently are at least as large as U.S. reserves, and
perhaps much larger. Calcium borate (colemanlte) ore reserves in the Emit district exceed 10
million tons, and sodium borate ore reserves in
the Kirka district of Eskisehir are many tens of
million tons, if not hundreds of million tons.
Commercial quantities of colemanite also occur
in the Bigadic and Bursa areas.
Borate ore reserves in the U.S.S.R. may be on
the same order as those of the United States.
Several dozen deposits have been discovered in
the Inder district, 150 miles north of the
Caspian Sea, and in Kazakhstan, in the Caucasus, and near Lake Baikal.
South-central China, northern Tibet, and
Tsinghai in China possess semidry playa lakes
which yield moderate supplies of borates. One
important example is the Iksaydam Lake area of
311
BORON
the Tsaidan basin of Tsinghai Province. Borate
mineralization is fairly widespread in northwestern Argentina; the most important location is
Tincalayu in the Salta region of the Salar del
H o m b r e M u e r t o basin. Chile has a ulexite
deposit at Salar de Ascotan in western Antofagasta Province.
Geology
T h e large Kramer deposit at Boron is a highgrade, predominantly crystalline tincal ore body
overlying kernite. Mineralization occurs in a flatlying irregular tubular mass 2 miles long, half a
mile wide, and 80 to 250 feet thick. T h e deposit
was formed in a Miocene lake, fed in part by
thermal streams. Fairly pure borax was deposited in alternating sequences with clays and
siltstone. Overburden consists mainly of layers of
shale, sandstone, conglomerate, and tufts. Secondary kernite is derived from "borax" or tincal.
T h e Searles Lake deposit formed in Pleistocene times is 41 square miles in area a n d
comprises a 75-foot upper layer, 12 feet of
impervious mud, and a 35-foot lower layer.
Two-fifths of the beds consist of voids which are
permeated by saturated brines analyzing 3 to 4
percent each of soda ash and sodium sulfate,
and 16 to 17 percent plain salt, with contents
varying according to the layer.
T h e Furnace Creek deposits have both ulexite—the primary mineral containing sodium as
well as calcium borates—and colemanite, the
secondary mineral from which sodium has been
leached out. Massive faults occur in the area,
and beds of up to 40 feet can be very steep. Ore
bodies can also be fairly flat or somewhat
tabular, occurring both near the surface and at
considerable deprns underground.
Theories on the geologic origin of Turkey's
colemanite and tincal deposits vary from area to
area. However, the major host rocks for the
borate mineralization are shales, marl, and to a
lesser extent, bentonite, volcanic tuffs, and limestone. T h e Bigadic deposits may have been
formed by boron-rich exhalations associated with
Tertiary volcanic activity, and deposits in the
Emet and Kirka areas appear to have been
formed f r o m saturated brines together with
accompanying shales.
T h e I n d a r deposits of the U.S.S.R. occur
along a fracture zone on the periphery of a 100square-mile Permian salt dome which has been
thrust up through Mesozoic and Tertiary sedimentary rocks. Borates occur above the salt and
replace gypsum and clay. T h e country also has
lake ana skarn deposits, sometimes associated
with volcanics.
TECHNOLOGY
U.S. Borax mines its Kramer ore body at
Boron by open pit methods, having converted
from underground methods in 1957. T h e pit is
down to a 1,000-foot depth. Ore is brought up
by inclined conveyor. T h e crushed tincal ore is
shipped to an 80-acre refining plant near the
mine site for dissolving at about the boiling
point of water, thickening and washing to remove impurities, and vacuum crystallization.
Refined decahydrate, pentahvdrate, and anhydrous borax of various grades, totaling about
4,500 tons of B 2 0 3 daily, are produced by
repeated recrystallization, drying, and dehydration processes. N o basic changes have been
made in extraction processes, except that anhydrous boric acid, anhydrous borax, and anhydrous rasorite are now produced. High-purity
and specialty products are produced at Wilmington, Calif., and secondarily at Burlington, Iowa.
Wilmington is also the company's port of export.
U.S. Borax also has a large terminal in Botlek,
Rotterdam, to distribute borates in Europe.
K e r r - M c G e e employs the evaporative or
"trona" process at its Trona plant on the shore
of Searles Lake. Brines from the upper and
lower structures are treated separately. T h e basic
process is sequential in nature. Potash, borax,
dilithium sodium phosphate, soda ash, and sodium sulfate are separated at different stages
through crystallization based upon complex
phase-rule chemistry. Soda ash, mainly from the
lower structure brines, is recovered through the
carbonation process. Sodium chloride and waste
brines are sent back to the lake. Kerr-McGee has
a daily B 2 O a capacity o f 3 0 0 to 4 0 0 tons
(including 150 tons of anhydrous borax" and 80
tons of boric acid) and processes 10,000 gallons
of brine per minute pumped from a series of
wells.
Stauffer Chemical's Westend plant, which was
bought by Kerr-McGee in late 1974, primarily
employs the carbonation process, whereby carbon dioxide from calcining limestone is used to
precipitate soda ash from the mixed brines. T h e
stripped brine passes through thickeners and
heat exchangers, and borax is crystallized by
neutralization with incoming cool brines. Anhydrous borax, decahydrate, and pentahydrate are
the principal borate products. Brine intake is
about 4,000 gallons per minute. Daily capacities
for the Westend plant are as follows: soda ash,
350 tons; equivalent decahydrates, 200 tons; and
sodium sulfate, 450 tons. Sodium and potassium
chloride are not recovered at all, and liquids are
returned to the lake.
Tenneco Oil Co.'s colemanite-ulexite open pits
near Ryan supply colemanite ore to a calcining
312
12 MINKRAL FACTS AN© PROBLEMS
REFINING AND PRODUCTION OF BORON COMPOUNDS
SOLVENT
EXTRACTION
AND
ACIDIFICATION
Figure 2.—Refining and production of boron compounds.
plant near Death Valley Junction and ulexite to
a mill at D u n n for upgrading to 26 to 28
percent B 2 0 3 . Colemanite is calcined to raise the
B a 0 3 content f r o m about 22 percent to 48
percent.
Turkey's Hisarcik open pit colemanite mine in
the Emet district was recendy transformed from
a hand-sorting operation to a fairly modern
mine plant. T h e new washing and screening
plant is rated at 660,000 tons per year of feed
(28 percent B 2 0 3 ) and 330,000 tons per year of
p r o d u c t (43 percent B 2 0 3 ) . M i n i n g is now
somewhat mechanized.
Turkey's open pit tincal deposits at Kirka,
Eskisehir Province, are being developed in a
systematic manner to provide 26- to 27-percentB 2 0 3 ore to a washing plant rated at 440,000
tons per year of upgraded tincal concentrates.
Eubank was working on a plan to construct a
refinery with 35-percent-B 2 0 3 tincal as the raw
material. T h e plant, which is much like the U.S.
Borax refinery at Boron, would produce annually 200,000 tons of crude pentahydrate borax
(rasorite 46), 55,000 tons or crude anhydrous
borax (rasorite 65), and 11,000 tons of refined
anhydrous borax. Meanwhile, the crude ore is
sent to a smaller refinery at Bandirma built in
1968 that has a yearly capacity to manufacture
60,000 tons of borax and 28,000 tons of boric
acid. Most boric acid in the United States is
manufactured by acidulating a saturated sodium
tetraborate solution with hot, concentrated sulfuric acid. I n Turkey and Europe, the boric acid
has been made mainly from reacting sulfuric
acid with calcium borates. Kerr-McGee's process
recovers boric acid from process filtrates and
weak brines, with kerosine and dilute sulfuric
acid. Stauffer Chemical's small boric acid plant
in San Francisco uses U.S. Borax's rasorite as
raw material.
Elemental boron may be produced by several
processes including fused-salt electrolysis, reduction of boron compounds with hydrogen, and
reduction o f boron halogens witn sodium or
magnesium. U.S. Borax has a new process to
produce less pure (95 percent) boron. T h e
process consists of spraying sulfuric acid on a
moving bed o f sodium pentaborate passing
through a gas furnace, whereby a layer of boron
forms at the bottom.
313
BORON
BORON
SUPPLY-DEMAND RELATIONSHIPS-1973
WORLD PRODUCTION
I
'
1
PEOPLE S REPUBLIC
"U
WORLD TOTAL
t ESTIMATED
SIC: STANDARD INDUSTRIAL CLASSWCATWN
UNIT THOUSAND SHORT TONS OF BORON (B)
BUREAU OF MINES
U.S. DEPARTMENT OF INTERIOR
Figure 3.—Supply-demand relationships for boron, 1973.
SUPPLY-DEMAND R E L A T I O N S H I P S
Components of Supply
World production of boron increased 9 percent in 1973 to 342,000 short tons. The United
States produced 61 percent, followed by Turkey
with 23 percent and the U.S.S.R. with perhaps
12 percent. U.S. output increased by 9.5 percent, whereas Turkish output gained possibly 5
to 7 percent. More than four-fifths of U.S.
production in 1974 came from the U.S. Borax 8c
Chemical Corp. open pit operation at Boron,
Calif.; most of the remainder came from Searles
Lake and Ryan, also in California.
The United States has long had a surplus of
boron minerals, and nearly half of the U.S.
output, or roughly 90,000 short tons of contained boron, was exported in 1974 to many
countries especially West Germany, the United
Kingdom, France, and Japan. The Netherlands
was the main transshipment point in Europe.
This pattern was not too different from that of
years past. Turkey, however, offered increasing
competition to the United States in world markets, because most of its output was shipped to
Europe.
During 1964-73, U.S. production increased by
about 64 percent, whereas rest-of-the-world output almost tripled. I n the same period, U.S.
consumption rose by about 65 percent to perhaps 114,000 short tons of boron, compared
with about 120 percent to some 228,000 tons for
the rest of the world. Thus, both production
and consumption of boron have risen much
more sharply outside the United States than
within it.
The U.S. boron mineral industry, dominated
by U.S. Borax, has traditionally been export
oriented, with roughly half of the production
shipped to foreign countries in recent years. I n
fact, U.S. Borax is really an international company with worldwide interests. O f the U.S.
exports, approximately 40 percent represent
refined borates and the rest crude borates. The
Netherlands is the main distribution point for
U.S. exports to European countries. Turkey sells
nearly all its borates abroad in the form in which
they are produced—colemanite, boracite, sodium
borates, and boric acid. U.S.S.R. output basically
remains within the country and Eastern Europe,
Argentine production is sold in South America,
and Chinese output is still small.
Borates are not stockpiled by the U.S. Government, nor by the private producers except as
operating stocks. The same is true of Turkish
supplies.
The essential components of domestic boron
supply-demand relationships for 1973 are shown
in figure 3; those for the past 11 years appear in
table 3.
BYPRODUCTS A N D COPRODUCTS
Over four-fifths of U.S. production comes
from borax mineral deposits mined only for
their boron content. The remainder was produced mainly f r o m lake brines, which also
8
M I N K R A L FACTS A N D PROBLEMS
Tabla 3.—Boron aupply-damand relationships, 1964-74
(Short tons of boron content)
1964
1965
1966
1967
1966
1969
1970
1971
1972
1973
1974
World production:
United States
Rest of world
125.955
45,900
132.175
57,100
143.662
65,400
147,103
73,500
161.409
70,300
171.361
79.741
175.000
62,400
176,500
107,200
189,000
125,000
207,000
135,000
193,000
135,000
Total
171,655
169,275
209,062
220.603
231,709
251,102
257.400
263.700
314.000
342,000
326,000
125,965
4,000
1,045
132,175
5,000
1,000
143,662
4,000
1,300
147.103
4,352
1,000
161.409
2,932
1,000
171,361
3,675
1,200
175.000
3,661
1,500
176.500
1.000
2,000
169,000
2,000
10,000
207,000
2,000
10,000
193,000
2,000
10,000
131,000
136.175
146,962
152,455
165,341
176,236
160.161
179,500
201,000
219,000
205,000
1,000
61,000
69.000
1,000
62.675
74,300
1,000
70.962
77.000
1,000
67.006
84,449
1,200
77,141
87,000
1,500
66.872
85,864
2,000
90.000
88,181
2,000
90,000
87,500
10,000
86,000
93,000
10,000
95,000
114,000
10,000
90,000
105,000
U.S. demand pattern:
Ceramics and glass
20.700
Coating and plating (enamel)
9,660
Agriculture
9,660
Soaps and detergents
10,281
Fabricated metal products (fluxes) . . 1,380
Other
17.319
22.200
10.360
10,360
11,000
1.460
18,900
23.100
10.780
10.780
11,500
1,540
19,300
25,335
11.823
11,823
12,000
1,689
21,779
29.200
11,900
11,900
13,600
1,700
18,700
29.194
12,021
12,021
13,738
1,717
17,173
30.000
12,300
12,300
14,000
2,000
17,581
35,000
8,800
8,700
13,000
2,000
20,000
40,000
9,000
7,000
14,000
2.000
21,000
50,000
11,000
8,000
17,000
3,000
25,000
45,000
10,000
7,000
16,000
3,000
24,000
74,300
77,000
84,449
87,000
85,864
88,181
87,500
93,000
114,000
105,000
Components of U.S. supply:
U.S. mines
Estimated imports
Industry stocks, Jan. 1
Total U.S. supply
Distribution of U.S. supply.
Industry stocks. Dec. 31
Estimated exports
Industrial demand
Total U.S. primary demand
69,000
provide soda ash a n d sodium sulfate, and, in the
case o f one company, lithium carbonate, potassium sulfate, potassium chloride, a n d bromine.
T u r k i s h colemanite a n d tincal ores are worked
only for boron. Most Soviet borates are standard, but the Lake Baikal ore is azoproit which
contains t i t a n i u m a n d magnesium. A r g e n t i n e
ores have n o byproducts, w i t Chinese complex
salts provide many coproducts.
STRATEGIC CONSIDERATIONS
K n o w n U.S. reserves can satisfy domestic and
e x p o r t markets f o r at least several decades.
However, gready increased U.S. demand, particularly for borates in insulating glass, has put
pressure o n the distribution a n a sale o f U.S.
output, because the largest producer is Britishowned and much o f its product is traditionally
exported. Western Europe and Japan are also
competing for U.S. a n a T u r k i s h supplies. Although only nominal tonnages o f T u r k i s h borates are i m p o r t e d by the U n i t e d States, a n d
T u r k s may find it worthwhile to expand facilities
to meet potential U.S. d e m a n d o n the east coast.
Small surpluses o f borates exist in the Soviet
U n i o n a n d China. Whereas the borate potential
in T u r k e y appears excellent, prospects for finding additional large reserves in the U n i t e d States
are less favorable. T h e United States does not
have a stockpile program on borates.
E C O N O M I C FACTORS A N D PROBLEMS
Boron minerals are produced in the U n i t e d
States to satisfy both the domestic market and
the international market. D u r i n g 1954-73 world
production a n d consumption roughly tripled,
whereas real price was nearly cut in half (table
4) o w i n g i n part to steady i m p r o v e m e n t s i n
operation. However, between yearend 1973 a n d
November 1974, the price o f anhydrous borax
(bulk) rose f r o m $ 1 1 0 per short ton to $203 for
U.S. Borax, and the price o f boric acid increased
f r o m $134 to $199. These increases reflect steep
rises in energy cost, inflation, a n d strong demand. T h e sharper rise in costs o f anhydrous
products, compared with costs o f products with
water, can be explained by the more intense use
o f e n e r g y i n fusion t h a n i n distillation a n d
chemical processing. T h i s fact has also caused
producers to shift some production o f anhydrous products to hydrated borates. Originally,
the anhydrous products were introduced to cut
down on freight. D e m a n d for borates weakened
slightly in the spring o f 1975 but f i f m e d u p
subsequently; prices r e m a i n e d steady d u r i n g
most o f 1975.
U.S. Borax with a high-grade, relatively pure
ore has h a d less o f a n energy difficulty than
Kerr-McGee using Searles Lake brines. I m p u r e ,
mixed-salt brines require more distillation a n d
crystallization runs. Kerr-McGee may not install
its borate recovery cycle in the new soda ash
plant being built adjacent to the old facilities.
Kerr-McGee envisages some overall economies
by taking over Stautfer Chemical's plant.
Despite inflation and rising costs, U.S. companies are c o m p e n s a t e d by h i g h e r prices a n d
increased demand. T h e borate shortage continued into yearend 1974. T h e r e was no problem
315
BORON
Tabla 4.—'Tima-prica relationship for boron
Average annual price, dollars per short ton
Year
Actual prices
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
Constant 1973 dollars
630
653
500
565
565
565
557
560
540
543
543
532
505
500
470
470
510
510
510
520
640
1,064
1,109
821
894
872
857
833
826
787
781
770
741
684
656
593
566
582
557
539
520
582
selling the borates, except for a brief period in
the last spring o f 1975.
Whereas the U n i t e d States cannot e x p a n d
output much m o r e than a third, because ot lack
o f large assured new reserves a n d the nature o f
the k n o w n deposits a n d processes, T u r k e y ' s
problem is mainly a matter o f
timing—establishi n g steady new markets, converting to m o r e
finished products, a n d arranging capital to build
additional facilities. Various borate buyers and
producers a r o u n d the w o r l d are vitally interested i n t h e question o f w h e t h e r the borate
industry o f T u r k e y will eventually be nationalized. However, it is axiomatic that the country
must e x p o r t . T h e r e f o r e , the p r o b l e m facing
consumers i n the U n i t e d States, Western Europe, J a p a n , a n d o t h e r countries is to m a k e
suitable, long-term commercial arrangements.
9
duces boric arid, potassium sulfate, and sodium
sulfate f r o m weak brines which could not be
processed by conventional methods. Energy costs
are high. K e r r - M c G e e must coordinate activities
o f its old plant at T r o n a , the recently acquired
Westend plant, a n d the new soda plant now
being built, for m a x i m u m efficiency and economy.
T h e problems with Tenneco's colemanite operations are that reserves at the old Boraxo pit
a r e b e i n g d e p l e t e d , o r e is low g r a d e , a n d
calcining o f wet ore by rotary kilns is difficult
a n d expensive. These problems are offset however by recovery and sale o f ulexite and discovery o f new reserves at two other locations.
Overall, nearly 2,000 persons are employed
within the U.S. boron extraction industry. T h e r e
is no secondary recovery a n d reuse o f boron
compounds, since almost all o f this goes into
dissipative uses.
I n T u r k e y much more exploration needs to
be done«to select the best areas for mining. T h e
shortage o f capital makes it difficult to develop
new mines, m e c h a n i z e o l d ones, a n d b u i l d
additional refineries. Selective mining a n d hand
cobbing are being supplanted by shovels, trucks,
a n d beneficiation plants. Increasing quantities o f
offgrade materials are being upgraded mechanically and chemically. W h e n the Emet deposit
was first d e v e l o p e d , h a n d - p i c k e d colemanite
concentrates were as high as 4 5 percent B 2 O a ;
waste of raw materials and sharp grade decline
forced Etibank to build the present mill. Tincal
f r o m Kirka is beneficiated to marketable concentrates, a n d the long-range plan is to construct a
very m o d e r n r e f i n e r y to process 35-percent
concentrates into high-purity borates ana rasorite.
OUTLOOK
OPERATING FACTORS
U.S. boron m i n e r a l producers have been
adopting conservation practices to lower costs
and extend the life o f deposits. U.S. Borax, for
example, changed f r o m u n d e r g r o u n d to open
pit m i n i n g at B o r o n to increase recovery o f
reserves. T h e company has also adopted new
practices for beneficiation o f lower grade ores.
T h e r e was a dust control problem Decause o f
the o p e n pit m e t h o d o f extraction in a d r y ,
desert type o f environment, but this has been
substantially overcome by a $ 1 0 million effort. A
o n e - t h i r d o u t p u t increase p r o g r a m by U . S .
Borax got underway by yearend 1974.
Searles Lake has n o dust problem, but the
brines in the ponds give o f f rather strong odors.
Kerr-McGee employs a special process tnat pro-
Demand
Based u p o n contingency analysis o f components o f d e m a n d , total boron consumption in
t h e U n i t e d States f o r 2 0 0 0 is e s t i m a t e d at
3 4 0 , 0 0 0 tons (table 5). Interpolating f r o m the
same growth rate, total U.S. boron consumption
for 1985 is estimated at 185,000 tons. Forecasts
for U.S. boron d e m a n d by end use are shown in
table 6.
D u r i n g t h e last d e c a d e , actual g r o w t h i n
b o r o n consumption has been slightly greater
outside t h e U n i t e d States t h a n domestically.
Assuming this trend will continue, it is estimated
that probable boron consumption for the rest o f
the work! would be 3 7 5 , 0 0 0 tons in 1985 a n d
690,000 tons i n 2000. (See also table 5.)
316
12
M I N K R A L FACTS
AN©
PROBLEMS
Table 5.—Summary of forecasts of U.S. and rest-of-world boron demand, 1973-2000
(Thousand short tons of boron content)
Forecast range
Probable
1973
United States:
Total
Cumulative
Rest of world:
Total
Cumulative
World:
Total
Cumulative
High
1985
2000
114
....
238
4,600
405
6,100
185
1,800
340
5,700
4.1
228
450
8,900
705
11,700
375
3 600
690
11 500
4.2
342
....
688
13,500
1,110
17,800
560
5,400
1,030
17,200
4.2
T h e future o f the boron industry is closely
tied u p with that of the glass industry, since the
latter is by far the principal market. All three
major use categories in glass manufacture show
good promise. T h e r e is a boom in use o f borates
in insulating glass, as a result o f the energy
crisis. D e m a n d for textile fiberglass to reinforce
plastics, tires, industrial fabrics, a n d paper is
expected to continue its steep growth. Consumption of borosilicate glass is related to economic
growth and industrial adjustments. Possible U.S.
shortage o f borates and conversion to substitutes
were considerations for the low forecasts, and
probable greatly expanded output abroad
p r o m p t e d the high forecasts.
D e m a n d for borates in coating and painting
appears to have a correlation with gross national
product ( G N P ) . A n affluent society r e q u i r i n g
more and better coated appliances and possible
greater use of porcelain enamel for decorating
building panels were considerations for the high
forecasts, and competition f r o m plastic coatings
p r o m p t e d the low forecasts. T h e summary view
is that the positive factors outweigh the negative.
This explains why probable demand was placed
nearer the high side.
Borates for agriculture seem to have a relationship with population growth. T h e positive
factor of possible use of borates in herbicides
and as soil sterilant apparently is balanced by the
negative factor o f competition f r o m other organic compounds. This explains why probable
d e m a n d i n this category has been placed a r o u n d
the forecast base.
Use of borates in soaps and detergents can be
correlated with population growth. However, it
is likely that per capita consumption will increase
slightly faster. While certain alternate materials
are available, the generally favorable price o f
borates discourages w i d e s p r e a d substitution.
T h u s , probable d e m a n d has been estimated on
the high side o f the range.
T h e outlook for borate consumption in miscellaneous categories could be correlated with
overall evolutionary technology a n d G N P
Probable average
annual growth rate
1973-2000 (percent)
Low
growth. Probable demand was arbitrarily placed
midrange, because of uncertainty of many components o f demand.
Supply
T h e U n i t e d States is in a relatively favorable
position with regard to borates. Although boron
minerals are neither overly plentiful nor widely
distributed worldwide, a significant part of the
known reserves are located in southern California, primarily at Boron. A rough estimate places
potentially minable U.S. reserves at 20 million
short tons of contained boron. O u t p u t can be
expanded somewhat to meet domestic and export requirements.
T u r k e y , the principal future competitor to the
U n i t e d States, can be expected to satisfy a n
increasing share of world d e m a n d for borates.
I n fact, its reserves m i g h t t u r n o u t to be
considerably larger than those o f the U n i t e d
States. However, both countries will share in the
expanding markets, and more than likely there
will be greater understanding between the two
countries rather than competition.
D u r i n g 1954-73, U.S. production rose f r o m
about 72,000 short tons o f contained boron in
1954 to 115,000 tons in 1963 and 207,000 tons
in 1973 (table 7). Based upon the historical 20year trend, future U.S. output is projected at
275,000 tons in 1985 and 380,000 tons in 2000.
Practical estimates would place f u t u r e o u t p u t
considerably h i g h e r . Such greatly e x p a n d e d
rates of production could cut deeply into known
reserves. However, actual U.S. output could be
kept at more constant levels if T u r k e y and other
countries could supply more to world markets.
Possible Supply-Demand Changes
Domestic production d u r i n g 1972-74 totaled
approximately 559,000 short tons o f contained
boron, whereas exports a d d e d u p to perhaps
273,000 tons. Thus, exports were nearly half of
production. This traditional pattern could
317
BORON
Table 6.—U.S. projections and forecasts for boron demand by end use, 1973-2000
(Thousand short tons of boron content)
Contingency forecasts for United States
End use
Ceramics and glass
Coating and plating
Agriculture
Soaps and detergents
Fabricated metal products
Other
Total
1973
50
11
8
17
3
25
150
25
17
30
8
53
120
20
15
28
5
50
200
50
20
35
10
90
170
40
17
35
8
70
114
....
238
405
340
change somewhat, i f a larger share o f U.S.
output is sold domestically and/or imports become sizable. I n both contingencies, Turkey's
role will be controlling, either by selling more to
Europe and hence cutting down U.S. exports to
Europe or by selling more to the United States.
T o t a l probable U.S. d e m a n d for b o r o n in
2 0 0 0 is projected at 3 4 0 , 0 0 0 short tons, U.S.
domestic p r o d u c t i o n in 2 0 0 0 is projected at
500,000 tons, on the basis o f present knowledge
of resources. Unless new boron-bearing deposits
or dry lakes are found, or more supplies are
kept at home or imported, U.S. consumption
may even have to be cut down.
Cumulative domestic requirements for boron,
using probable composite demand, will be 5.7
million short tons d u r i n g 1973-2000. Theoretically, this is m u c h less t h a n estimated U.S.
reserves. A sizable p o r t i o n o f the so-called
reserves, however, is not fully dependable. Also,
a continued growth in d e m a n d after 2000 would
cut into the available supply at an accelerated
rate. L o w e r i n g the grade o f ore m i n e d a n d
i m p r o v i n g technology would not extend U.S.
borate reserves substantially.
T h e cumulative d e m a n d for boron in the rest
of the world has been estimated at 11.5 million
short tons, bringing the probable world demand
for boron throughout the forecast period to 17.2
million tons. T h e estimated world supply o f 110
million short tons o f boron, even discounting
what will not be extracted by 2000, is more than
adequate to meet world d e m a n d for decades.
Moreover, additional large reserves undoubtedly
will be delineated abroad, notably in T u r k e y .
T h e principal geographical shift expected in
future supply is for western T u r k e y to gain on
southern C a l i f o r n i a i n p r o d u c t i o n a n d even
more so in exports. U.S. demand will steadily
grow, whereas T u r k i s h d e m a n d is unlikely to be
large. T h u s , export o f boron compounds is the
main outlet for the T u r k i s h industry. Most of
the U . S . S . R . supply m a y well be i n t e r n a l l y
consumed, but the future Chinese supply might
94-843 O - 77 - 21
Table 7.—Comparison of domestic boron production
and demand, 1954-74, and projected production in
2000 based upon historical trends
(Thousand short tons)
Year
U.S.
demand
Domestic
production
41
44
46
52
48
60
56
57
61
64
69
74
77
84
87
86
88
88
92
114
105
72
76
83
84
83
98
101
97
105
115
126
132
144
147
161
171
175
177
189
207
193
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974 1
1985
2000
2
2
185
340
3
3
275
380
- 350
- 500
• Estimated,
1
Not used in forecasts.
2
Probable forecasts from table 5.
3
20-year trend.
become substantial in world markets. T h e most
important geographical shift in future demand
is that more countries will consume increasing
Quantities o f b o r o n compounds; thus, world
e m a n d will be m o r e evenly divided a m o n g
countries rather t h a n concentrated in a few.
Present markets for boron compounds are relatively secure in terms o f competition with substitutes, and the pattern may not change radically
in the future.
Possible Technological Progress
Processes for recovering usable boron compounds either f r o m bedded deposits or f r o m
u n d e r g r o u n d brines or b r i n e lakes a r e not
318
12
M I N K R A L FACTS A N ©
expected to change significandy by 2000. T h e
solution phase is a n i m p o r t a n t part o f boron
recovery technique, a n d some improvements in
evaporation o f the solutions may be expected as
the chemistry o f various brine systems becomes
better known.
REFERENCES
1. Blue, T. A. Boron Minerals and Chemicals. Ch. in
Chemical Economics Handbook. Stanford Research
Institute. Menlo Park, Calif.. May 1970, pp. 7175011A to 717-5020B.
2. Industrial Minerals (London). Borates Supplies Still
Tight Despite Rising Capacity, No. 79, April 1974,
pp. 11-29.
3. Mining Journal (London). Mining Annual Review. June
1974, pp. 108-109.
4. Nies, N. P. Boron Oxides, Boric Acid, and Borates. Ch.
in Kirk-Othmer Encyclopedia of Chemical Technol-
PROBLEMS
ogy. John Wiley 8c Sons, Inc., New York, v. 3, 2d
ed., 1964, pp. 608-652.
5. Stauffer Chemical Company (Westport, Conn.). Borax
& Boron Products. 1974, pp. 1-24.
6. U.S. Borax 8c Chemical Corp. (Los Angeles, Calif.).
The Story of Borax. V. 7, 4th ed. 1972, pp. 1-48.
7. Wang, K. P. Boron. BuMines Minerals Yearbook 1973.
v. 1-2, 1974, pp. 1-4 (preprint).
8. Watt, K. A. L. G. The Borate Industry. The British
Sulphur Corp. Ltd., No. 12, March/April 1973, pp.
5-12.
SOURCES OF C U R R E N T
INFORMATION
U.S. Bureau o f Mines publications:
Boron. Ch. in Commodity Data Summaries, annual.
Boron. Ch. in Minerals Yearbook, annual.
Boron. Reported annually in Mineral Industry Surveys.
319
minibail j m e w d w
U. S. DEPARTMENT OF THE INTERIOR
BUREAU OF MINES
WASHINGTON, D.C. 20241
T h o m a s S. Kleppe, S e c r e t a r y
T h o m a s V. Falkie, Director
For i n f o r m a t i o n c a l l Jean W. P r e s s l e r
Telephone:
(202) 634-1206
Annual, P r e l i m i n a r y
BORON IN 1976
The e s t i m a t e d 1976 U.S. p r o d u c t i o n o f boron minerals and compounds, based upon
9-month f i g u r e s , was 1.2 m i l l i o n s h o r t t o n s , compared w i t h 1,172,000 tons i n 1975,
a c c o r d i n g t o t h e Bureau o f Mines, U.S. Department o f the I n t e r i o r .
C o n t i n u i n g demand
f o r b o r a t e s i n glass products was s t i m u l a t e d by the use o f glass wool f o r i n s u l a t i o n
purposes. The modest increase i n new housing s t a r t s i n 1976 a l s o increased t h i s
demand. P r i c e s h e l d f i r m throughout the y e a r , w i t h some e n e r g y - i n t e n s i v e anhydrous
v a r i e t i e s a t h i g h e r p r i c e s . O v e r a l l o u t p u t v a l u e was $170 m i l l i o n as compared w i t h
$159 m i l l i o n i n 1975. Combined exports o f crude and r e f i n e d borates and b o r i c a c i d
increased s l i g h t l y as compared w i t h 1975. The U n i t e d States and Turkey are now
competitors i n t h e w o r l d market, e s p e c i a l l y i n Europe, where Turkey has some t r a n s p o r t a t i o n cost advantage.
C a l i f o r n i a s u p p l i e d v i r t u a l l y a l l o f the boron m i n e r a l s produced i n the U n i t e d
S t a t e s . The l a r g e t i n c a l mine and r e f i n i n g f a c i l i t i e s a t Boron, C a l i f . , owned by
the major U.S. p r o d u c e r , U.S. Borax, now processes over 10,000 tons o f ore per day.
During t h e y e a r , i t s $ 5 4 - m i l l i o n expansion p r o j e c t continued on s c h e d u l e , w i t h most
o f the new c a p a c i t y t o be onstream i n 1977. This p r o j e c t w i l l p r o v i d e a 25% increase
i n the output o f primary p r o d u c t s . The second l a r g e s t p r o d u c e r , Kerr-McGee Chemical,
c o n s o l i d a t e d i t s two o p e r a t i o n s a t Searles Lake and i s b u i l d i n g a l a r g e soda ash
p l a n t nearby, b u t i t w i l l not have a b o r a t e c y c l e u n t i l o p e r a t i o n s have determined
the economic f e a s i b i l i t y .
The t h i r d U.S. p r o d u c e r , Tenneco O i l , w i t h colemanite and
u l e x i t e p r o p e r t i e s i n and near Death V a l l e y , Increased t h e i r p r o d u c t i o n s i g n i f i c a n t l y .
They developed a d d i t i o n a l reserves and approved a p l a n t o double t h e i r p r o d u c t i o n i n
3 y e a r s , which w i l l r e q u i r e a c a p i t a l investment o f $20 m i l l i o n .
However, a t yearend and because o f the environmental concern f o r mining i n the
N a t i o n a l Parks, Congress passed a b i l l , PL 94-429, t o r e g u l a t e and c o n s t r a i n a l l
mining a c t i v i t i e s w i t h i n the N a t i o n a l Park S e r v i c e and repealed the m i n e r a l e n t r y
p r o v i s i o n f o r c e r t a i n u n i t s . This law a l s o a p p l i e d t o Death V a l l e y N a t i o n a l Monument
which i s c u r r e n t l y t h e s o l e commercial source o f colemanite and u l e x i t e i n the United
S t a t e s . Because o f t h i s environmental i m p a c t , i n October Tenneco O i l s o l d i t s t o t a l
boron mining and m a r k e t i n g assets t o the American Borate C o r p o r a t i o n , who w i l l
continue the present o p e r a t i o n s .
Imports o f colemanite d u r i n g the f i r s t 9 months, a l l from T u r k e y , were 22,000
s h o r t tons v a l u e d a t $1.4 m i l l i o n , as compared w i t h 27,641 tons valued a t $1,560,000
i n 1975.
Prepared i n the D i v i s i o n o f N o n m e t a l l i c M i n e r a l s
4
WTT
320
ERDA 7723
OC-95d
Energy Conservation
Survey of Cellulosic Insulation
Materials
January 1977
Robert W. Anderson
Energy Research & Development Administration
Division of Industrial Energy Conservation
Washington, D.C.
Paul Wilkes
Naval Weapons Support Center
Crane, Indiana
321
Survey o f Cellulosic
Insulation Materials
I. INTRODUCTION
The properties of commercially available cellulosic thermal insulation materials were evaluated to obtain base level data on the materials and
to assess existing specification standards commonly used for testing and
purchasing. Cellulosic material has been used for residential building insulation for several decades and currently represents an estimated 30-40
percent of that market (second only to fibrous glass insulation). Nevertheless, very little data about the properties of the product have been published.
The results of this survey provide guidance to the manufacturer in the design and manufacturing control of the material; to specification organizations in re-evaluating and improving specifications; and to the consumer in
selecting a product.
Cellulosic insulation is manufactured from waste paper products,
such as newspaper. Its manufacture is simple, requiring only shredding and
milling to convert it into a low-density, fluffy material and the addition of
chemicals to provide flame retardancy. When bagged, the material is ready
to be installed. Even installation is simple; it can either be poured or blown
in place. Because of the relatively low capital cost required for production
and the large profitable market for the material, it is estimated that there
are over one hundred manufacturers operating throughout the country.
Cellulosic insulation has several advantages which could produce even
greater future demand for the product. On the other hand, it has several
potential disadvantages which could seriously affect the industry, if not corrected. When properly applied, cellulosic insulation has excellent thermal
resistance properties, is manufactured from an inexpensive and readily available waste material, and requires little energy or petroleum base materials
in its manufacture. It can currently compete favorably on a cost/performance
basis with other insulation materials, and, as future energy costs increase, its
competitive position will be enhanced. However, on the negative side, cellulosic insulation has received criticism alleging poor flame retardancy, overstated thermal resistance values and poor manufacturing quality control.
Although it is suspected that some of these criticisms are justly deserved,
there has been a lack of reliable data to refute or substantiate many of them.
In consideration of the above, this survey of cellulosic insulation properties, though limited in scope, provides base data which will prove valuable
in providing a better understanding of the material, in improving the qual-
322
icy of the product, and in promoting the conservation of energy. The specific
cellulosic properties addressed in this survey include:
• composition and quantity of fire retardant
• moisture absorptivity
• fire retardance
• thermal conductivity
• corrosiveness, and
• resistance to fungal growth.
f. E X P E R I M E N T A L APPROACH
A total of nineteen different off-the-shelf samples of cellulosic insulation were obtained from four geographic areas: Colorado, Minnesota, Indiana, and Pennsylvania. All tests, except for thermal conductivity and fire
retardancy, were performed under direct E R D A contract at the laboratories
of the Naval Weapons Support Center, Crane, Indiana. The thermal conductivity and fire retardance test data were supplied to E R D A by an independent organization, and the sample materials used in their tests were
also used in the Naval Laboratory tests.
Whenever possible, tests were performed in accordance with the
American Society for Testing Materials (ASTM) specifications C739-73;
Cellulose Fiber (Wood Base) Loose-Fill Thermal Insulation. The A S T M
C7S9-73 specification is referenced in the Federal specification H H - 1 - 5 1 5 C
Insulation Thermal (Loose-Fill for Pneumatic or Poured Application) Cellulosic or Wood Fiber, and is the basis for the National Cellulose Insulation
Manufacturers Association ( N C I M A ) specification N - l 0 1 - 7 3 , Standard Specification for Cellulosic Fiber (Wood Base) Loose Fill Thermal Insulation.
I n some tests, conditions were modified to gain additional information which
will be discussed later in the text.
Because it was realized that one sample from each manufacturer might
not fairly represent that manufacturer's product, manufacturers' identifications were not given in the report: the data were evaluated as a whole to
determine trends and patterns.
I. EXPERIMENTAL RESULTS
A
FIRE RETARDANT
ADDITIVES
Samples of cellulosic insulation were analyzed to identify the additives and their relative proportions. This was done by extracting the water
soluble content of 5 gram samples and subjecting the residue to a series of
analytic procedures described in Appendix A. No attempt was made to
analyze for possible water insoluble additives. The analysis scheme included
use of X-ray diffraction, atomic absorption, spectrographs and X-ray fluorescence and differential thermal analysis techniques. The analyses were considered to be semiquantitative because:
1. the samples contained various unknown compounds that were also
water soluble, such as starches, inks and adhesives;
323
2. the degree of hydration of the original fire retardant compound
was not known (the most probable was assumed); and
3. only that quantity retained within or on the cellulose was analyzed. As will be discussed in the next section, it was observed that
some of the fire retardant had separated in most of the samples.
T h e results of the analyses did provide a measure of the kinds and
relative proportions of fire retarding additives as shown in Table I. Also
included in Table I are the p H * values of the samples when contacted with
water. T h e procedure for measuring p H is given in Appendix B.
These analyses showed that boric acid * * and ammonium sulfate were
the most common additives and were used singly or in various combinations
with other additives,such as calcium sulfate, aluminum sulfate and sodium
carbonate. Comparison of the p H values of the respective samples showed
that the resulting p H was not always in accordance with the kind and quantity of the additives. Whereas this could be, in part, a result of inaccuracies
in the quantitative analyses, it is also possible that impurities in the cellulose
stock material contributed to the final p H .
B.
SEPARATION OF FIRE
RETARDANT ADDITIVES
C. MOISTURE
ABSORPTIVITY
Of the nineteen samples received for analyses, thirteen showed visible
evidence that some of the fire retardant chemical had separated from the cellulosic matrix; quantities of the additives were found 'at the bottoms of the
containers. Because each sample had undoubtedly been handled differently
from the time of its manufacture, no attempts were made to measure the
quantity of the separated material nor to determine the effects such separations may have on the properties of the samples. T h e referenced standard
specifications ( A S T M , Federal and N C I M A ) do not include a test or requirement for non-separation of the fire-retardant additive.
T h e nineteen samples were tested for water absorption in accordance
with A S T M C739-73, section 10.5. According to that specification, weight
gain should not exceed 15 percent. For the standard test, samples of approximately 100 grams were pre-conditioned at 50 percent relative humidity
( R . H . ) and 120°F to a constant weight. T h e samples were then explosed to
90 percent R . H . at 120°F for 24 hours and the weight gain recorded. I n addition to the standard 24 hour tests, cumulative weight gain data were also
obtained after 8 days and 15 days.
Since the A S T M C-7S9-73 procedure does not specify the sample configuration during testing, the samples were contained in 9" x 12" x 2
open containers to allow a low-packing density similar to that found in attic
installations. For several of the sample materials, additional test specimens
were packed in either 1000 ml or 2000 ml beakers to evaluate the effect of
different packing densities and configurations.
• A measure of the relative acidity of samples; 7.0 indicates a neutral solution
and decreasing values indicate increasing acidic activity.
• • The boron contents were reported .•>$ boric *cid; however, the orii»iml compound may have been other boron compounds such as "borax."
TABLE I
Composition and pH of Cellulosic
Insulation Samples
Sample
Identification
Solubles
%
526-1
526-5
527-A
527-B
527-C
527-C1
527-D
527-E
527-F
527-G
527-H
527-1
5S5
562
56M
565-5
56S-6
563-7
59S
18
20
22
SI
28
24
22
26
21
19
21
20
24
22
24
19
17
23
17
PH
4.4
8.0
8.2
4.8
8.1
8.2
8.0
i&
5.9
4.4
7.8
5.0
7.4
3.7
4.0
7.7
5.9
6.1
7.7
Ammonium
Sulfate
18
Boric
Add
Calcium
Sulfate
_
—
11
16
23
22
20
13
-
26
-
-
10
19
-
-
16
4
17
1
10
4
4
5
-
18
-
12
-
'
-
1
Aluminum
Sulfate
-
-
—
-
-
—
-
-
—
-
-
—
5
-
—
5
5
5
-
2
-
S
1.
4
2
5
3
-
-
—
Sodium
Carbonate
-
1
—
-
-
-
-
1
2
2
-
7
-
1
6
8
—
-
-
-
-
17
—
325
T h e results of the moisture absorptivity tests are given in Table I I
and shown graphically in Figure I .
Examination of these data show the following:
1. There was a wide range in moisture absorption between samples
when tested in the low density configuration. After the standard
24 hour test, moisture gains ranged from 3.5 to 38 percent and .six
of the samples exceeded the 15 percent limit given in the standard
specification.
2. T h e differences in moisture absorption increased with increasing
time—some samples had moisture gains in the 75 percent range
after 8-15 days exposure. Also, in some samples the moisture gains
reached a maximum and then decreased. T h e mechanism for this
behavior is not known, but may be a result of some moistureinduced separation of the fire retardants from the cellulose matrix.
3. Generally, samples containing primarily boric acid had lower,
and acceptable, moisture absorptivities, whereas those containing
primarily ammonium sulfate had excessive gains in moisture.
T h e one sample containing only aluminum sulfate showed excessive moisture gains but less than those containing ammonium sulfate.
4. T h e differences between moisture gains in samples containing
similar additives suggested that factors other than composition of
fire retardants also affect moisture gain, such as the size and distribution of the additives and the characteristics of the cellulose
matrix.
5. T h e apparent moisture gains observed during testing were dependent upon the specimen configuration. For example, sample
563-5, when tested in the low-density configuration had an unacceptable 22 percent moisture gain. However, when tested in
1000 and 2000 ml beakers, the moisture gains were an acceptable
6 and 8 percent respectively.
D.
CORROSIVENESS
T h e nineteen samples were tested for corrosiveness in accordance
with A S T M C739-73, section 10.7, except that thicker metal test coupons
were used. T h e thicker coupons (0.25 inches/0.6 cm) were selected to allow
more detailed evaluation of the mechanisms and rates of possible corrosion.
T h e test coupons specified in A S T M C739 are only 0.003 inches thick and
failure of test is based on visual observance of perforation of the coupon.
T h e coupons, tested in duplicate for each cellulosic samples, were:
1. Steel, A I S I type 1018, cold rolled, 5 cm x 6.3 cm x 0.6 cm.
2. Aluminum, alloy 2024-0, (annealed) 5 cm x 5 cm x 0.6 cm.
3. Copper, type K tubing, 5 cm x 1.5 cm O.D.
As specified in the standard, the coupons were placed in contact with
the cellulosic samples that had been moistened with water and held for thirty
days at 120°F and 96% R . H . Because of the difficulty in expressing the corrosion results adequately in terms of a single number or term, the data were
reported by corrosion type; general or uniform, pitting, and subsyrface.
326
TABLE I I
Moisture Weight Cains in Cellulosic Insulation Samples
A. Moisture Gain (%) in Low-Density Packing Configuration
Sample
Identification
Test Exposure
(90% RH)
Pre-Test Conditioning
(50% RH)
24 Hour *
8 days
15 days
2.4
1.1
1.1
1J
-0J5
0.1
21
22
1.1
12
2.6
2J
-0.3
13
0J
0.7
0.7
0.6
12
38.5
95
5.6
5.6
7.8
7.3
10.9
29.0
10.0
24.1
7.0
24.8
10.3
112
11.6
21.6
10.6
12.3
19.6
76.5
18 2
7.7
72
9.0
8.4
16.4
65.9
9.7
432
5JS
50.7
16.4
202
16.8
55.1
15.0
13.1
30.3
43.7
19.5
6.7
6.0
8.4
7.9
20.4
70.0
8J
37.4
3J
42.5
14.9
19.6
14.4
295
10.1
10.3
29.7
5.6
4.0
3.5
112
43
4J
21.6
7.6
6.0
7.7
64
6.4
20.2
13.1
12 2
55.1
235
21.1
6.7
6.9
6.5
19.6
17.1
15.2
29.5
29.2
26.4
526-1
526-5
527-A
527-B
527-C
527-C1
527-D
527-E
527-F
527-G
527-H
527-1
535
562
5654
565-5
565-6
563-7
. 593
B. Moisture Gain for Different Packing Configurations
527-A, Low Density
527-A, 2000 Ml Beaker
527-A, 1000 Ml Beaker
562, Low Density
562, 2000 Ml Beaker
562.1000 M l Beaker
563-5, Low Density
563-5, 2000 Ml Beaker
563-5, 1000 Ml Beaker
1.1
1.4
U
lJ
22
U
0.7
1.1
1.1
* Standard ASTM test, acceptance level set at less than 15% gain.
EXPOSURE TO 120OF, 90% RELATIVE HUMIDITY, DAYS.
FIGURE 1. EFFECT OF FIRE RETARDANT COMPOSITION
ON MOISTURE WEIGHT GAIN.
328
General corrosion was determined by measuring the coupon weight
loss during the test, and calculating the equivalent uniform loss of thickness
over all surfaces of the test coupon. Pitting corrosion was determined by
microscopic measurement of the depths of individual surface pits below the
final coupon surface. Subsurface coirosion was determined by metallographic
analysis of cross-sections of the coupons thereby indicating both the depth
and mechanism of corrosion; e.g., intergranular. Again, all measurements
were made from the final coupon surface. The general corrosion data are
given in Table I I I and Figure 2. Pitting corrosion data are given in Table
IV.
Examination of the corrosion test data showed the following:
General Corrosion:
1. The corrosion experienced by the individual test coupons was not
uniform, but rather much greater on one of the surfaces, and, in
many cases variable over the surface. Apparently corrosion was
greater at points of intimate physical contact between the coupon
and the cellulose. Consequently, the calculated general corrosion
reported in Table I I I and Figure 2 represents conservative corrosion values: it is roughly estimated that the corrosion areas were
approximately twice those reported,
2. A wide range of corrosion rates of the test materials were observed
between the cellulosic samples. Generally, the steel coupons experienced the greatest rate of corrosion.
S. There was poor correlation between corrosion rates, composition
of fire retardant, and pH.
4. Based on the calculated general corrosion rates, eleven of the nineteen samples showed corrosion rates greater than allowed under
A S T M C739-73 for one or more of the test coupon materials.
(The corrosion rate to completely dissolve the 0.003 inch thick
test coupons specified in A S T M C7S9-73 in the 30-day test period
is equivalent to 0.45 mm per year.)
Pitting Corrosion:
5. T h e observed pit depths are conservative, since measurements
were taken from the final coupon surfaces.
6. Only the aluminum test coupons showed any significant amount
of pitting corrosion.
7. All nineteen cellulosic samples produced pitting i n the aluminum
test coupons to an extent greater than allowed in ASTMX739-73.
(The A S T M standard test coupon is 0.003 inches or 0.076 mm
thick.) However, the control sample, which was exposed only to
the test atmosphere, also showed excessive pitting. Of the nineteen
coupons tested against the cellulose samples, twelve exhibited pitting depths greater than that observed on Jthe.controLcoupon. T h e
standard specifications do not require the evaluation of control
coupons in the corrosion tests.
329
8. Essentially no correlation was observed between the pitting of
aluminum, composition of fire retardant, and p H .
Subsurface Corrosion:
9. There was extensive subsurface corrosion in the form of intergranular attack in the aluminum test coupons. M a x i m u m observed
depths of subsurface attack were in the 0.008-0.010 inch range.
Although no attempt was made to correlate depth of attack with
fire retardant composition and p H , deep attack was observed in
test coupons exposed to samples containing boric acid and ammonium sulfate.
10. Subsurface corrosion of the copper test coupons was limited to an
observed maximum of about 0.0005 inches and was considered
negligible.
11. T h e steel test coupons had no observable subsurface corrosion.
TABLE m
Rates of General Corrosion of Aluminum, Copper and
Steel Exposed to Cellulosic Insulation Samples,
Millimeters per Year*
Sample
Identification
Control**
526-1
526-5
527-A
527-B
527-C
527-C1
527-D
527-E
527-F
527-G
527-H
527-1
535
562
565-4
563-5
563-6
563-7
593
Aluminum
Copper
Steel
0.18
0.29
0.14
0.05
0.16
0.06
0.29
0.25
0.10
0.07
0.11
0.06
0.39
0.24
0.26
0.06
0.20
0.14
0.05
0.75
0.05
U7
0.77
0.19
US
0.46
0.38
0.36
0.33
0.43
1.57
0.15
0.98
0.58
0.16
1.12
0.38
0.87
0.34
2.24
0.11
0.22
NS
Nil
0.07
Nil
Nil
0.03
0.78
Nil
0.47
Nfl
0.30
0.04
0.20
0.10
0.S6
0.03
0.03
0.33
• Base on 30-day test period
• • Control samples exposed only to test atmosphere
330
V
o
o
o
oc
fe
6
PH
AMMONIUM SULFATE
BORIC ACID
ALUMINUM SULFATE
CALCIUM SULFATE
X
A
O
-J
4
q
z
90
6
PH
CLoQLO8
xx o
O
O
X
4
•
6
PH
X oo
8
FIGURE 2. EFFECT OF COMPOSITION AND pH ON
GENERAL CORROSION RATES.
10
X
O
&
•
331
TABLE IV
Maximum Pit Depth on Aluminum Exposed to Cellulosic
Insulation Samples for 30 Days
E.
RESISTANCE TO
FUNGAL GROWTH
Sample
Identification
Pit Depth
Millimeters
Control
526-1
526-5
527-A
527-B
527-C
527-C1
527-D
527-E
527-F
527-C
527-H
527-1
535
562
563-4
563-5
563-6
563-7
593
0.38
0.25
0.86
0.15
0.15
0.33
0.76
0.99
0.28
1.04
0.63
0.33
0.66
0.48
0.96
0.66
1.07
0.61
0J5
0.81
Fungi which degrade cellulose are widespread and are found in virtually all environments. Generally, these fungi require temperatures in the
50-100°F range and a relative humidity of 60 percent or greater. It is possible that fungal growth on cellulosic insulation could cause the following
undesirable conditions:
a. provide a source of fungal spores which can penetrate the living
area and cause health problems,
b. degrade the thermal properties of the insulation by destroying the
structure of the cellulose, and
c. increase the corrosive action of the insulation material through
accomulation of metabolic products.
Testing for fungal growth is not included in the A S T M , Federal or
industry specifications.
T h e nineteen cellulosic samples were tested on a "go, no-go" basis to
determine the propensity for fungal growth. The samples were tested at 86°F
and 95 percent relative humidity for 28 days in accordance with military testing specification Military Standard 810B, method 508. Results of those tests
showed the following:
1. Cellulosic samples containing primarily boric acid were resistant
to fungal growth.
332
2. Cellulosic samples containing primarily ammonium sulfate supported fungal growth. Visible indications of growth were observed
after 2 - 3 weeks exposure in sample 526-1, 527-E, 5 2 7 - G , 563-5
and 562.
3. T h e cellulosic sample containing primarily aluminum sulfate
(593) supported fungal growth; visible indications of growth
were observed after 2 weeks exposure.
4. T h e existence of fungal growth after 28 days exposure would be
difficult for the untrained or casual observer to detect because of
the coloration and texture of the cellulosic matrix.
F. THERMAL
Only eight of the nineteen cellulosic samples were tested for thermal
CONDUCTIVITY AND conductivity and flame spread by a non-Federal organization prior to the
FLAME SPREAD foregoing tests performed at the Naval Laboratory. T h e thermal conductivity
tests were reportedly performed in accordance with A S T M C518-70,
Thermal Conductivity of Materials by Means of the Heat Flow Meter
Method. Likewise, the flame spread tests were performed in accordance with
A S T M E84-75, Test For Surface Burning Characteristics Of Building Materials.
Both of the above tests are included in the A S T M , Federal and Industry
specifications. T h e results of the tests are given in Table V.
Examination of these data show the following:
1. For most of the samples, the thermal conductivity values obtained
through independent testing were significantly higher than corresponding values reported by the manufacturers. T h e differences
i n value were greater than could be expected from differences in
test densities.
2. Flame spread data reported by the manufacturers were in good
agreement with those obtained through independent testing. T h e
data indicate that both boric acid- and ammonium sulfate-based
fire retardants are capable of affording the flame spread levels
defined in the standard specifications.
333
TABLE V
Thermal Conductivity and Flame Spread
Values for Cellulotic Insulation Samples
A. Thermal Conductivity
Manufacturer's Data
Prf
"K"
BTU-in
Hr-ff-'F
5.0
2.3
3.0
.25
30
.19
Test Density
527-A
527-B
527-C
527-C1
527-D
527—E
527-F
527-G
-
-
2.4
37
-
24
26
27
1.8
23
Independent Data
Test Density
Prf
2.9
2.8
2.6
2.4
2.7
22
22
2.3
"K"
BTU-in
Hr-ftMF
Deviation
in "K"
Values, %
.35
31
31
30
32
39
29
37
40
55
63
-
18
.21
12
0
B. Flame Spread
527-A
527-B
527-C
527-CI
527-D
527-E
527-F
527-G
Manufacturer's Data*
Independent Data**
15
10
38
10
20
15
~
-
30
20
15
15
10
-
20
-
• Test method not known
• • ASTM E84 25-foot tunnel tester
IV.
CONCLUSIONS
A survey of cellulose thermal insulation materials has provided base
level property data heretofore unavailable and an assessment of the suitability of specification standards for defining the properties and quality of
the material. Since the survey included samples of only nineteen commercially available products from an estimated one hundred manufacturers, the
results and conclusions cannot be interpreted as pertaining to every manufacturer. But rather, the results must be reviewed in total to identify overall
trends or patterns and serve as a base from which manufacturers can improve
their products and consumers can better choose a product. T h e results also
provide a basis from which organizations responsible for preparing cellulosic
insulation standard specifications can evaluate the adequacy of their standards.
334
Specific conclusions derived from this survey were as follows:
1. A variety of fire retarding chemicals are added to cellulose in
quantities ranging to about 25 percent T h e chemicals are added
either singularly or are combined. Types of chemical additives
used include:
ammonium sulfate
"borates", e.g., boric acid and borax
aluminum sulfate
calcium sulfate
sodium carbonate
2. T h e p H of the samples, when contacted with water, ranged from
5.7 to 8.2. T h e standard specifications neither limit nor require
reporting of p H values.
3. Some separation of fire retardant chemicals from the cellulosic
matrix occurred in thirteen of the nineteen samples surveyed after
handling under normal conditions. The standard specifications do
not include criteria for retention of fire retardant chemicals.
4. Six of the nineteen samples exceeded the moisture absorption criteria of the standard specifications when tested in a low-density
configuration (e.g., as may be found in attic installations). Excesssive moisture absorption rates were generally found in samples
containing ammonium sulfate and aluminum sulfate. The standard specifications do not adequately define the testing conditions
for moisture absorption tests.
5. T h e capacity of cellulosic materials to absorb moisture is variable.
Extended testing at 120°F and 90 percent relative humidity
showed weight gains ranging from 5 to 76 percent. T h e standard
specifications do not provide limits for moisture absorption over
long-term exposure.
6. The cellulosic materials exhibited a wide range of corrosiveness
against aluminum, copper and steel when tested in accordance
with the standard specifications. Three types of corrosion were
observed:
a. general corrosion (dissolution of the metal)
b. pitting corrosion, and
c. subsurface corrosion (intergranular)
When compared with the limits of corrosion provided in the
standard specifications, eleven of the samples produced excessive
general corrosion, primarily when in contact with steel. Excessive
pitting and subsurface corrosion were observed on aluminum
coupons when tested against most of the cellulose samples. The
standard specifications do not differentiate between different tvpps
of corrosion, nor do they consider the full extent of possible corrosion. Because of the poor correlation between composition and
p H of the cellulose samples and observed corrosion, composition
and p H cannot be used as indicators of corrosiveness.
335
7. Six of the nineteen samples supported fungal growth when tested
at 86°F and 95 percent relative humidity for 28 days. Samples containing boric acid were resistant to fungal growth, whereas samples containing primarily ammonium sulfate or aluminum sulfate
supported fungal growth. The standard specifications do not include criteria for fungal growth resistance.
8. Thermal conductivity values for seven of the eight samples tested
exceeded the values reported by the manufacturers; the range of
deviations was 11-63 percent. The standard specifications allow
only a 5 percent deviation.
9. Flame spread ratings obtained from the eight samples tested were
in good agreement with values reported by the manufacturers.
The chemicals used in the tested samples were effective in providing flame spread resistance as defined under the standard spetifications.
RECOMMENDATIONS
The results of this survey show the need for a better understanding
of the parameters which control the performance of cellulosic insulation and
the need for improved standard specifications. Therefore, the following
recommendations are offered:
1. That the performance criteria of cellulosic insulation be reevaluated and, where necessary, redefined and/or new performance
criteria identified. Items to be included in the reevaluation should
be:
retentivity and stability of fire retardant additives
• moisture absorptivity
• resistance to fungal growth
• corrosiveness
2. That the standard specifications be modified to insure effective
specifications for product quality and performance.
S. That manufacturers of cellulosic insulation place greater emphasis
on compliance with standard specifications.
4. That consumers of cellulosic insulation insist that purchased materials are in compliance with the standard specifications an3. when
feasible, check for such compliancy by independent testing.
336
A P P E N D I X A - P R O C E D U R E FOR A N A L Y Z I N G FIRE R E T A R D A N T A D D I T I V E S
(1) Check sample for organic additives by extraction
with suitable solvents. Check sample for ethanol
solubles in particular.
(10)
(2) Oven dry a weighted sample at 80°C for one
hour to determine moisture level "as received.**
(11)
(3) I f results of (1) through (3) are negigible, proceed with water extraction.
(4) Combine 5 grams of insulation sample with
100-200 ml distilled water in suitable container
and warm on hot plate for 5 minutes. Stir occasionally.
(12)
(13)
(5) Remove water and dissolved material from wet
cellulose by vacuum filtration. Retain washed
cellulose on filter paper in buchner funnel.
(14)
(6) Set aside 100 ml of the filtrate for analysis.
(15)
(7) Wash cellulose with three 100 ml portions of
hot distilled water and one 50 ml portion of 95
percent ethanol.
(16)'
(8) Transfer cellulose to watch glass and dry one
hour at 100°C
(9) Weigh watch glass and cellulose* Place cellulose
in labeled botde, wipe dust from watch glass and
weigh.
Computer weight of dried cellulose and percent
water solubles by difference.
Heat filtrate retained in step (6) at 80-90°C
until water has evaporated. Remove dried solids,
grind and mix to assure uniformity. Place in
labeled vial.
Perform emission spectrographs and X-ray
fluorescence analyses to detect elements.
Confirm compounds and elements detected in
steps (11) and (12) using X-ray diffraction and
differential thermal analysis.
Quantitatively determine metallic elements using atomic absorption spectrophotometry.
Quantitatively determine metallic elements by
using the quantity of that element present and
the molecular weight of the most likely molecular form and hydration state.
Quandtatively determine those compounds
which do not contain metallic elements by subtracting known substances in those cases where
all residue components arc identifiable.
A P P E N D I X B—PROCEDURE FOR D E T E R M I N I N G p H OF CELLULOSIC SAMPLES
a 5 percent Trident Solution to the mixture prior
to stirring. (This will not alter the final p H ) .
(4) Using a Beckman Zeromatic p H meter and Combination Electrode (Beckman Part No. 39013),
determine the p H of the suspension.
(1) Allow a quantity of distilled water to equilibrate
with atmospheric CO, (approximately p H 5.7).
(2) Add 50 ml of water to one gram insulation sample and stir for approximately five minutes using
an electric stirrer.
(3) I f the sample does not wet readily, add 0.1 ml of
16
337
Senator MCINTYRE. T h a t is a very good statement. I t just seems
like the problem seems to proliferate, or seems to grow a l l of the
time.
F o r instance, we heard the other day i n a hearing I was i n that
p u t t i n g insulation i n a b u i l d i n g that is already insulated w o u l d mean
a 6 or 7 percent saving, whereas p u t t i n g i t i n a b u i l d i n g that had no
insulation would be a 50 or 60 percent saving. So i t looks like the
p r i o r i t y should be those that don't have any insulation at all. I know
our insulation up i n the Northeast is very good, but i t is very poor
i n the South where they have air conditioning.
I f Congress grants a tax credit f o r energy conservation and solar
energy, would your organization endorse the concept of loan subsidies f o r solar energy ?
Ms. LAWRENCE. I t is our feeling that we have to have more than
one system going. I don't t h i n k we would endorse people getting both
a tax credit and a low interest loan. B u t i t is our feeling that
tax credits w i l l affect one p a r t of the population and low interest
loans w i l l affect another p a r t of the population, and i t is appropriate to devise two different Strategies because of that.
So we would endorse a double strategy.
Senator MCINTYRE. T a x credits and tax exemptions are such difficult things to push through the Finance and Ways and Means committees. L o a n subsidies may be the more facile route.
Ms. LAWRENCE. A r e they easy to push through?
Senator MCINTYRE. W e l l , the Finance Committee gets so many of
these coming in.
Can you suggest any existing Federal programs that could be used
to directly provide low cost loans f o r solar energy and energy conservation?
Ms. LAWRENCE. There are some programs i n Farmers Home which
are already apparently being used for this, low interest loans f o r
conservation and those could be used for solar. I read a report i n
the paper on Saturday that said that they were not anxious to use
Farmers Home loan money f o r solar, because they didn't feel the
standards were available yet.
I t is m y hope that w i t h the H U D m i n i m u m property standards
they w i l l now be w i l l i n g to do that. Perhaps that program could be
expanded.
I don't know what the legalities are of using some of the existing
home improvement programs f o r low interest loans f o r solar, and I
t h i n k the staff of the committee could probably t e l l you better than I .
There are many different kinds of loan programs, and I am just
not f a m i l i a r enough w i t h the way they are structured to be able to
tell you whether you could adapt those to solar energy. I t h i n k your
staff would have to tell you.
Senator MCINTYRE. W e put out one of these reports that go back
home to the constituents, and i t is currently under fire by Common
Cause. A n d we have been g i v i n g them all this sweet t a l k about how
insulation is available, all of that. A n d I wish you could see some of
the letters I got. W e made one mistake somewhere—the staff never
makes a mistake, i t is always someone else. W e fed a lot of wrong
figures up there, and I wish you could have seen the replies. I re-
338
member one reply i n heavy black type saying " I have eight kid§, I
worked h a r d all m y l i f e , I have got a l i t t l e house, what are you t r y i n g to t e l l me? The banks are going to loan me money to insulate
the house? Sure, at 18 percent, of course they are."
I t is very frustrating. I find i t f r u s t r a t i n g , too. F o r instance, I am
s t i l l frustrated that 4 years ago I said sure, we ought to make sure
no b u i l d i n g is b u i l t that you can't open the windows. A n d they are
s t i l l b u i l d i n g them that way today. W h y doesn't R a l p h Nader get
after that?
M r . STANTON. W e w i l l w o r k on i t .
Senator MCINTYRE. I t is a mess, really, so help me God, what a
mess.
Ms. Lawrence, what action should the Government take to protect the potential 1.2 m i l l i o n to 2.3 m i l l i o n American families who
are expected to buy solar energy heating systems between now and
1985?
Y o u mentioned standards. W h a t about enforcement as well?
Ms. L A W R E N C E . I t h i n k one t h i n g that could be done is a very
active look at what is going on already. Aside f r o m the H U D m i n i m u m property standards, which are really only a stopgap measure,
there is a very complex process among the industry itself to set
standards f o r itself which is progressing at a very slow pace.
Some pressure ought to be put on E R D A f r o m this committee and
maybe some f u n d i n g provided to actually assist i n hastening t h a t
process.
The concept of consensus standards made by the industry itself is
an appropriate one. I don't t h i n k E R D A should go i n and set standards f o r the industry. B u t E R D A can play a very i m p o r t a n t role i n
hastening that process.
W h a t would come out of that would be something similar to what
is happening i n F l o r i d a , where there is a F l o r i d a Solar Testing Center. T h a t center certifies equipment and puts a seal, a round sunshaped seal on i t
Senator MCINTYRE. A Goodhousekeeping Seal of A p p r o v a l ?
Ms. LAWRENCE. T h a t is r i g h t , F l o r i d a goodhousekeeping seal of
approval. T h a t indicates the collector has gone through a series of
tests, not only to see i f i t w i l l stand up to weather conditions, but
also to see i f i t w i l l perform at a certain level. The center then gives
you sheets of information as to what level of performance this specific collector has met.
I don't t h i n k you want to get into a situation of saying that collectors should perform at a specific level or else they are no good,
because the reality is that many collectors may be very efficient, but
they may also be exorbitantly expensive. Other collectors may be less
efficient, but are much more w i t h i n the realm of a person w i t h a l i m ited income, and may work well f o r that person, given the fact t h a t
he or she understands exactly what he or she is getting f o r their
dollars.
T h a t is the essential piece of information, that people know what
they are b u y i n g produces what they want to get out of it.
Senator M C I N T Y R E . H O W long have you been w i t h Consumer
Action ?
339
F i v e years.
Senator MCINTYRE. A r e you s t i l l as optimistic about solar energy
as you were when you first came w i t h them ?
Ms. LAWRENCE. More so. I t h i n k the development of interest over
the past several years has been very significant. I t may not come as
soon as I t h i n k i t w i l l come, or i t may come more quickly. I t depends on so many different factors. B u t I t h i n k its coming is assured.
Senator MCINTYRE. Should the States create and enforce standards or should F E A and F T C have the responsibility ? W e are talki n g about those standards to protect people.
Ms. LAWRENCE. I t is my feeling that F E A is already, i n fact, they
are holding hearings today on the subject of standards or at least
r a t i n g energy conservation performance. I t h i n k F E A is a logical
place to continue that effort. One of the problems w i t h their evaluation is that up u n t i l now they have only looked at the country i n
very broad regions and that has been due so I have been t o l d to not
having the funds and the staff to do more than that.
I t h i n k i f they are going to do that job, and I t h i n k i t is appropriate that they should, i t would have to include area specific information as to price and type of supply.
B u t I t h i n k together w i t h that, i t can't be a program that ignores
the States. I t has to be something that goes hand i n hand w i t h the
efforts of State energy offices. I t can't be a program that is. dictated
f r o m above.
Senator MCINTYRE. Have you ever been over to E R D A ?
MS.*LAWRENCE.
M s . LAWRENCE. Y e s .
Senator MCINTYRE. W h a t is i t like over there ?
Ms. LAWRENCE. There are no windows.
Senator M C I N T Y R E . N O windows? Sometimes i n the hustle and
bustle of the job I have, I wish I could go and see some of these
places.
W e l l , you mentioned the Dayton, Ohio, loan funds f o r energy
conservation. Could such a f u n d be used f o r solar energy as well?
A n d is the D a y t o n program self-supporting?
Ms. LAWRENCE, I have to preface this by saying I have only talked
to the people r u n n i n g this program. There may be another side to
the story.
T h e i r belief—they started the program w i t h community development block grant funds and municipal funds, and this is a revolving
fund, that is self-supporting.
Senator MCINTYRE. M r . Stanton, the Federal Energy Administration has presented the committee a study of residential insulation
supply, indicating few problems w i t h supply or price of retrofit insulation materials.
H o w does this square w i t h your own testimony ?
L e t me read f r o m that report, " S u p p l y Response to Residential
Insulation Retrofit Demand," page 35, submitted to F E A on June 17,
1977.
Page 35 says :
Our estimates of c u r r e n t p r o d u c t i o n a n d c u r r e n t a n d f u t u r e capacity f o r
cellulosic i n s u l a t i o n m a y be understated. Since the m a j o r i t y of cellulosic ins u l a t i o n is used i n the r e t r o f i t m a r k e t , the Commerce d a t a suggest t h a t capac-
340
i t y m a y be a v a i l a b l e t o produce enough cellulosic i n s u l a t i o n f o r a n a d d i t i o n a l
1-2 m i l l i o n r e t r o f i t s . U t i l i z a t i o n of t h i s p l a n t capacity, however, w i l l depend
o n t h e a v a i l a b i l i t y of m a t e r i a l s such as n e w s p r i n t a n d boric acid. I n a d d i t i o n ,
d e m a n d m a y be r e s t r a i n e d i f some cellulosic i n s u l a t i o n p r o d u c t s are perceived
t o be less desirable t h a n m i n e r a l w o o l because of q u a l i t y problems such as
flame r e t a r d e n c y a n d c o r r o s i v i t y .
I have a speech w r i t e r , and every time he puts "statistics" i n a
speech, I get a l i t t l e upset, even i f i t is once every 20 pages. B u t one
day about a week ago he had i t three times on the same page. A n d I
just managed to make the hurdle, you know. Statistics is a tough one.
W h a t do you have to say about that ?
M r . STANTON. W e are glad they at least included the cautionary
language, the fine p r i n t that says " U t i l i z a t i o n of this capacity w i l l
depend on the availability of materials such as boric acid."
Nowhere do they explore the fact that boric acid is i n short supp l y and we have few clear prospects of cracking t h a t particular
bottleneck. They simply don't explore t h a t issue.
O n page 19 of the same report you are t a l k i n g about, they project
an expansion of cellulosic insulation plant of 20 to 25 percent a year,
w i t h o u t exploring the problems of availability of borates. W e t h i n k
i t is h i g h l y irresponsible f o r them to make that k i n d of over-optimistic projection w i t h o u t doing the necessary homework first.
W e m i g h t also add a few other points, i f we could. O n page 34
you w i l l note they have admittedly shaky numbers. They say insulat i o n material available f o r retrofit w i l l vary depending on certain
assumptions, between 17 m i l l i o n homes by 1980 and 29 m i l l i o n homes
by 1980.
F i r s t of all, that is a really pretty broad area of disagreement, depending on assumptions.
Second of all, they do a d m i t — i n fine p r i n t — t h a t they have a
shortfall, assuming the lower assumption comes out, to meet the
target of 47 m i l l i o n homes to be retrofitted by 1985.
F i n a l l y , i n the end, the most i m p o r t a n t part, possibly, is their assumption about price. They interviewed industry sources and came
back w i t h a statement t h a t industry sources say since they w i l l be
a f r a i d of possible antitrust actions, f a r be i t f r o m them to take advantage of scarce supplies by j a c k i n g up the price.
W e have had a l i t t l e history now, oil, coffee, you name i t , and we
can't depend on the benevolence of industry not to take advantage
of scarcity of supply.
Moreover, antitrust enforcement, w i t h the prevalence of consent
decrees, and the long time i t takes to pursue an antitrust case, is not
an adequate deterrent.
A g a i n , the administration has not faced this issue. The F E A admits the contractor spent only 10 days doing the research on this
particular report. They are quite candid about that fact. W e don't
t h i n k i t qualifies f o r Senator Proxmire's Golden Fleece A w a r d .
Senator MCINTYRE. T h a t is not one of m y favorites. D o n ' t mention
i t , please.
M r . STANTON. W e don't t h i n k i t qualifies anyway. On the other
hand, the report is not the k i n d of detailed w o r k this committee deserves i n order to reach an informed decision.
341
Senator M C I N T Y R E . D O y o u t l i i n k because of the shortages the
Government should not p r o v i d e incentives f o r insulation?
M r . S T A N T O N . T h e Government has to be careful i n p r o v i d i n g i n centives, f o r example a tax credit, so t h a t i t doesn't go out of the
consumers pocket i n t o the hands o f producers r e s t r i c t i n g supply and
j a c k i n g up the price.
Senator M C I N T Y R E . 1 t h i n k that is a great weakness. T h a t is probably w h y the a d m i n i s t r a t i o n b r o u g h t the u t i l i t i e s in.
M r . S T A N T O N . B u t the u t i l i t i e s are only good f o r d i s t r i b u t i o n . T h e
bottleneck is f u r t h e r up. I t is a question of the u t i l i t i e s ' access to
insulation.
Senator M C I N T Y R E . S h o u l d n ' t the u t i l i t i e s be able to judge whether
i t is good i n s u l a t i o n or n o t ?
M r . S T A N T O N . I t is a question of a v a i l a b i l i t y . I hope the utilities
w i l l be able to judge the q u a l i t y .
Senator M C I N T Y R E . I t seems they would. W h a t about the fact t h a t
i f there are shortages, and there is this difference between—I can
take and p u t 3,000 w o r t h of insulation i n m y home t h a t is already
insulated, and I get a 6-percent increase. Should there be some p r i o r ities i f we have a shortage?
M r . S T A N T O N . Yes, sir, the Ashley b i l l p r o p e r l y gives p r i o r i t y to
public housing. W e t h i n k the weatherization f o r low income people,
who are most inclined to have the p o o r l y insulated buildings, should
also be pushed to h i g h p r i o r i t y .
Senator M C I N T Y R E . Y o u describe the potential problems of cellulose insulation, t h a t i t is not treated w i t h fire retardant borates.
Does the Federal Government have any fire safety standards to
cover insulation to y o u r knowledge?
M r . S T A N T O N . T h e y have very l i m i t e d fire safety standards. I n cluded i n the N a t i o n a l Bureau of Standards testimony w h i c h I subm i t t e d f o r the record is a very b l u n t statement t h a t they do not
have adequate standards, and, worse, they don't have the test
methods.
I n other words, even i f you have a standard, how do you test a
piece of m a t e r i a l to see whether or not i t meets t h a t standard? N B S
is t a l k i n g about crash programs. W e w o u l d urge the committee to
use strong report language to get them g o i n g on i t .
Senator M C I N T Y R E . W h a t is the reputaton of the N a t i o n a l Bureau
of Standards?
M r . STANTON. Mixed.
Senator M C I N T Y R E . I s anybody g e t t i n g a decent m a r k w i t h you
Nader fellows?
M r . STANTON. Y e s ,
Senator M C I N T Y R E .
Mr. STANTON. We
sir.
W h o . Yourselves ?
f i n d m a n y different programs and goals very
valuable. B u t the reputation of the N a t i o n a l Bureau o f Standards is
mixed, I can't tell you a n y t h i n g else, t h a t is a fact.
Senator M C I N T Y R E . D o you t h i n k we ought to fire a letter to the
N a t i o n a l Bureau of Standards, m a k i n g them aware of this, the poss i b i l i t y of these flamable things g e t t i n g i n t o a crash p r o g r a m of insulation and be a fire hazard?
94-843 O - 77 - 22
342
B u t apparently i f i t is mixed, we better f i n d somebody else.
M r . STANTON. N o ; we t h i n k the National Bureau of Standards is
the r i g h t agency. I t is a question of getting top management to allocate p r i o r i t y to this area. W e are impressed w i t h the i n d i v i d u a l
members of N B S that we spoke w i t h .
Senator M C I N T Y R E . M S . Lawrence and M r . Stanton, our appreciat i o n to you f o r your presence here today. W e may have considerable
questions to send you f o r the record.
I believe t h a t this concludes the committee's hearings on the
energy conservation legislation.
[Thereupon, at 12:15 p.m. the hearings were concluded.]
APPENDIX
AMERICAN
BANKERS
ASSOCIATION
1120 Connecticut Avenue, N.W.
Washington. D.C.
20036
EXECUTIVE DIRECTOR
GOVERNMENT RELATIONS
GeraW M.Lowrie
202/467-4097
June 2 8 , 1977
The Honorable W i l l i a m Proxmire
Chairman
Banking, Housing and Urban A f f a i r s Committee
U n i t e d S t a t e s Senate
Washington, D.C. 20510
Dear Mr. Chairman:
We r e s p e c t f u l l y ask t h a t the a t t a c h e d s t a t e m e n t be made p a r t o f the
h e a r i n g r e c o r d on S . 1 4 6 9 , t h e N a t i o n a l Energy A c t .
The t a s k which your Committee faces w i l l be a d i f f i c u l t one, as
s p e c i f i c recommendations must be made on e n e r g y - r e l a t e d i s s u e s . The
American Bankers A s s o c i a t i o n , w h i l e v e r y i n t e r e s t e d i n the broad range
o f e n e r g y - r e l a t e d i s s u e s , has chosen t o address o n l y the i s s u e o f how
e n e r g y - e f f i c i e n t home improvements w i l l be f i n a n c e d .
We hope t h a t our remarks w i l l be o f v a l u e as the Committee considers
this issue.
Sincerely,
G e r a l d M. Lowrie
cc:
Members o f t h e Committee on Banking, Housing and Urban A f f a i r s .
(343)
344
STATEMENT OF
THE AMERICAN BANKERS ASSOCIATION
Both P r e s i d e n t C a r t e r and Congress a r e t o be commended f o r t a k i n g t h e
i n i t i a t i v e i n what i s c e r t a i n t o be a long and arduous s t r u g g l e w i t h our n a t i o n ' s
energy problems.
Many o f t h e s p e c i f i c s recommended by the P r e s i d e n t ' s energy s p e c i a l i s t s
are reflected in
S.1469,
t h e " N a t i o n a l Energy A c t , " a m u l t i - f a c e t e d
legis-
l a t i v e proposal designed t o a l l e v i a t e some o f t h e s t r a i n s imposed on our s c a r c e
sources o f e n e r g y .
The v a r i o u s aspects o f t h i s l e g i s l a t i o n , t h e r e f o r e , deserve
c a r e f u l d e l i b e r a t i o n by t h e Congress and r e s p o n s i v e i n p u t by t h e a f f e c t e d e n t i t i e s
i n both t h e p u b l i c and p r i v a t e s e c t o r s .
H o p e f u l l y , a l l o f these i n t e r e s t s w o r k i n g
t o g e t h e r w i l l produce some much needed s o l u t i o n s t o t h e n a t i o n ' s energy dilemma.
The American Bankers A s s o c i a t i o n r e a l i z e s t h a t t h e r o l e o f t h e p r i v a t e l e n d e r
w i l l be v i t a l l y i m p o r t a n t i n e f f o r t s t o implement the proposed n a t i o n a l energy p l a n .
T h a t p e r c e p t i o n a c c o r d i n g l y prompts us t o focus our a t t e n t i o n , as bankers and t h e
p r i m a r y source o f home improvement l o a n s , on T i t l e I , o f
w i t h energy c o n s e r v a t i o n programs f o r e x i s t i n g r e s i d e n t i a l
S.1469
which d e a l s
buildings.
We endorse t h e o b j e c t i v e o f t h i s s e c t i o n — t o reduce energy consumption
through i n s t a l l a t i o n o f e n e r g y - e f f i c i e n t home improvements.
The s t a t e d goal o f
b r i n g i n g 90% o f a l l r e s i d e n c e s and many p u b l i c b u i l d i n g s w i t h i n minimum F e d e r a l
energy s t a n d a r d s by 1985 would seem an o p t i m i s t i c o b j e c t i v e ; however, i t i s not
u n r e a l i s t i c , and we encourage i t s p u r s u i t .
I t i s t h e r e f o r e not the "end" b u t
r a t h e r t h e "means" by which t h e o b j e c t i v e would be a c h i e v e d t h a t r a i s e s c e r t a i n
concerns among bank l e n d e r s .
More s p e c i f i c a l l y , those concerns a r e t h e burden which would be p l a c e d on
t h e u t i l i t i e s t o become p r o v i d e r s o f home improvements loans and t h e l a c k o f
n e c e s s i t y f o r a "secondary market" f o r those l o a n s .
W h i l e mandating as
S.1469
does, t h a t r e g u l a t e d u t i l i t i e s must o f f e r t h e i r
r e s i d e n t i a l customers a " t u r n k e y " energy c o n s e r v a t i o n s e r v i c e , f i n a n c e d by loans
345
r e p a i d t h r o u g h monthly u t i l i t y b i l l s seems l o g i c a l on i t s f a c e , t h e r e a r e some
flaws in the concept.
The most v i s i b l e d e f e c t from a bankers p e r s p e c t i v e i s
t h a t t h e d r a f t e r s o f t h i s proposal have assumed t h e need f o r c r e a t i n g through
l e g i s l a t i o n a new source o f f i n a n c i n g f o r home improvement l o a n s .
Our p e r c e p t i o n s
a r e q u i t e t h e o p p o s i t e as we a n t i c i p a t e t h a t bankers would q u i c k l y respond t o t h e
demand f o r t h i s new t y p e o f l o a n .
I n f a c t , home improvement loans a r e c u r r e n t l y
o f f e r e d as a customer s e r v i c e by almost a l l commercial banks, and i t seems o n l y
l o g i c a l t h a t t h e s e i n s t i t u t i o n s w i l l again make a v a i l a b l e t h e s e funds as t h e y a r e
needed.
A few s t a t i s t i c s q u i c k l y h i g h l i g h t t h e commitment commerical banks have
a l r e a d y made t o p r o v i d e funds f o r home improvements — commercial banks extended
a p p r o x i m a t e l y $ 3 . 0 3 b i l l i o n o f t h e t o t a l $ 5 . 0 3 b i l l i o n extended on home improvement loans i n 1976 and hold some $ 5 . 4 b i l l i o n i n t h e i r t o t a l home improvement loan
portfolios.
Beyond t h e q u e s t i o n o f whether or not commercial banks a r e w i l l i n g and capable
of p r o v i d i n g t h e funds f o r t h i s new c a t e g o r y o f l o a n , t h e r e a l s o e x i s t
o t h e r r e l a t e d issues which should be examined.
several
I t i s our u n d e r s t a n d i n g t h a t the
e l e c t r i c u t i l i t i e s have t e s t i f i e d b e f o r e t h e House I n t e r s t a t e and F o r e i g n Commerce
Committee t h a t t h e y do not wish t o become i n v o l v e d i n the home improvement loan
business.
T h i s p o s i t i o n seems q u i t e r e a s o n a b l e , p a r t i c u l a r l y under c u r r e n t con-
d i t i o n s where t h e u t i l i t i e s a r e being f a c e d w i t h unprecedented c h a l l e n g e s t o
p r o v i d e i n c r e a s i n g energy demands from d w i n d l i n g s u p p l i e s .
I n view o f t h e s e
c i r c u m s t a n c e s , i t then seems l o g i c a l f o r s p e c i a l i s t s t o r e t a i n t h e o p p o r t u n i t y
t o p r o v i d e those s e r v i c e s w i t h which t h e y a r e most e x p e r i e n c e d , i . e . ,
s u p p l y i n g energy and bankers s u p p l y i n g l o a n s .
utilities
I t should be noted t h a t o n l y
e x i s t i n g f i n a n c i a l i n s t i t u t i o n s a l r e a d y have i n p l a c e t h e mechanism t o q u i c k l y
and e f f i c i e n t l y begin d i s b u r s i n g home improvement l o a n s .
346
There are several other important r a m i f i c a t i o n s involved in r e q u i r i n g t h a t
u t i l i t i e s p r o v i d e f i n a n c i n g f o r energy e f f i c i e n t home improvements.
In t h i s
p e r i o d o f s o a r i n g u t i l i t y c o s t s , mass c o n f u s i o n c o u l d r e s u l t o v e r u t i l i t y
u n l e s s a c a r e f u l i t e m i z a t i o n o f charges a r e made on each b i l l .
bills
I t would be an
i m p o r t a n t consumer p r o t e c t i o n measure t o r e q u i r e t h a t a f u l l d i s c l o s u r e o f charges
be p r o v i d e d t o u t i l i t y customers such as p r o v i d e d t o bank borrowers by t h e " T r u t h
i n Lending A c t . "
The u t i l i t y customer would need a p r e c i s e e x p l a n a t i o n o f t h e
monthly u t i l i t y b i l l so t h a t each one would be f u l l y a p p r i s e d as t o t h e amount
a p p l i e d t o energy c o s t s ; loan p r i n c i p a l ; and l o a n i n t e r e s t .
P o s s i b l y t h e most i m p o r t a n t c o n s i d e r a t i o n i n a u t h o r i z i n g consumer l e n d i n g
powers f o r u t i l i t i e s i s t h e e f f e c t t h i s would have on t h e "monopoly" s t a t u s
accorded a p u b l i c u t i l i t y .
T h i s new a u t h o r i t y w i l l p r o b a b l y r e q u i r e l i c e n s i n g by
some s t a t e s and a c a r e f u l m o n i t o r i n g by t h e p u b l i c u t i l i t y commission i n a l l
states
t o d e t e r m i n e t h e e f f e c t t h e i n t e r e s t earned from t h e s e loans w i l l have on t h e o v e r a l l
p r o f i t a b i l i t y o f u t i l i t y companies.
T h i s i s necessary because o f t h e " f a i r r a t e
o f r e t u r n " method o f r e g u l a t i o n t r a d i t i o n a l l y used t o i n s u r e t h a t monopolies a r e
not t a k i n g advantage o f t h e i r monopoly p o s i t i o n .
P u b l i c u t i l i t y commissioners may
f i n d themselves having t o become e x p e r t s i n consumer f i n a n c e as w e l l as t h e p r o d u c t i o n and d i s t r i b u t i o n o f e n e r g y .
The recommendation o f t h e American Bankers A s s o c i a t i o n , i n view o f t h e c i r c u m stances d e s c r i b e d a b o v e , i s t h a t no l e g i s l a t i o n be e n a c t e d a t t h i s t i m e which would
c r e a t e new sources o f home improvement loans o r mandate t h a t any l e n d e r be r e q u i r e d
t o make t h e s e l o a n s .
I n s t e a d we suggest t h a t t h e e x i s t i n g market w i l l meet t h e
demand f o r t h e s e loans so long as a s a t i s f a c t o r y r a t e o f r e t u r n i s a v a i l a b l e and
FHA T i t l e I g u a r a n t e e s can be o b t a i n e d f o r a t l e a s t a p o r t i o n o f those l o a n s .
We
a n t i c i p a t e t h a t t h e percentage o f banks using FHA T i t l e I would s i g n i f i c a n t l y i n c r e a s e , p a r t i c u l a r l y i n view o f t h e i n c r e a s e d r i s k i n v o l v e d i n p r o v i d i n g l o a n s t o
347
90% o f t h e n a t i o n ' s u t i l i t y u s e r s .
Although f e w e r banks have been using FHA T i t l e
I loans each y e a r , t h a t i s l a r g e l y because banks have found i t more p r o f i t a b l e t o
s e l f i n s u r e o r use p r i v a t e i n s u r a n c e — i t i s n o t because o f any b a s i c d e f e c t i n
t h e T i t l e I program.
The s c e n a r i o f o r t h e f u t u r e , as we would p e r c e i v e i t , i s t h a t a major new market
w i l l develop f o r e n e r g y - e f f i c i e n t home improvement l o a n s .
T h i s demand w i l l be
sparked by i n c r e a s i n g energy c o s t s passed on t o t h e consumer i n h i g h e r u t i l i t y
b i l l s which can be a m e l i o r a t e d somewhat by i n s t a l l a t i o n o f energy s a v i n g home improvements f o r which a f u r t h e r i n c e n t i v e w i l l be p r o v i d e d i n t h e form o f a t a x
credit.
We f u r t h e r e n v i s i o n t h a t t h i s loan demand w i l l be met by e x i s t i n g
lenders
assured o n l y o f an o p p o r t u n i t y t o r e c e i v e e i t h e r p r e v a i l i n g market o r FHA T i t l e I
interest rates.
We must q u a l i f y t h i s assumption p a r t i a l l y , however, on t h e b a s i s o f two circumstances which c o u l d a r i s e .
The f i r s t i s t h a t lenders could i n c u r m a j o r problems
caused by t h e e l i m i n a t i o n o f t h e t r a d i t i o n a l r i g h t s o f a " h o l d e r i n due course" as
proposed and p a r t i a l l y f i n a l i z e d under r e g u l a t i o n s o f t h e Federal Trade Commission.
S p e c i f i c a l l y , t h e l e n d e r would be r e q u i r e d t o w a r r a n t t h e work o f hundreds o f home
improvement d e a l e r s , many o f whom w i l l m a t e r i a l i z e o v e r n i g h t t o meet t h i s new demand
f o r home improvement i n s t a l l a t i o n s .
The American Bankers A s s o c i a t i o n has r e p e a t e d l y
a t t e m p t e d t o b r i n g t h e p o t e n t i a l harm o f t h i s FTC r e g u l a t i o n t o t h e a t t e n t i o n o f
Congress, and we would r e s p e c t f u l l y suggest t h a t t h e a p p r o p r i a t e t i m e t o c o r r e c t
t h e problems c r e a t e d by t h e r e g u l a t i o n would be i n t h e course o f making c e r t a i n t h a t
adequate f i n a n c i n g w i l l c o n t i n u e t o be a v a i l a b l e t o meet t h e o b j e c t i v e s o f t h e
N a t i o n a l Energy A c t .
S t a f f a t t o r n e y s from ABA a r e a v a i l a b l e t o discuss i n depth
the parameters o f t h i s s p e c i f i c problem w i t h Members o f Congress o r t h e A d m i n i s t r a t i o n .
The second c i r c u m s t a n c e which c o u l d p o t e n t i a l l y dampen enthusiasm on t h e p a r t
o f l e n d e r s f o r t h i s program would be an i n c r e a s e i n t h e premium r a t e f o r FHA i n surance on T i t l e l loans o c c u r r i n g p r i o r t o t h e t w o - y e a r r e v i e w o f t h i s r a t e as
348
prescribed in
S.1469.
The e f f e c t o f t h i s r a t e i n c r e a s e would be t o reduce t h e
y i e l d r e c e i v e d by t h e l e n d e r as a r e s u l t o f i n c r e a s e d loan d e l i n q u e n c i e s b e i n g
p r e s e n t e d as c l a i m s t o t h e FHA.
I t seems l o g i c a l t o e x p e c t t h a t l o a n d e l i n q u e n c i e s
w i l l be h i g h e r f o r e n e r g y - r e l a t e d HHA loans as e f f o r t s a r e made t o a c h i e v e t h e 90$
p e n e t r a t i o n r a t e which i s a b a s i c o b j e c t i v e o f t h e P r e s i d e n t ' s p r o p o s a l .
The
basis f o r t h i s p r e d i c t i o n is t h a t a f a i r l y s i g n i f i c a n t percentage of t h i s l a r g e
c o n t i n g e n t o f borrowers w i l l be substandard c r e d i t r i s k s .
Therefore, the combination
o f an e x p e c t e d i n c r e a s e i n i n s u r a n c e premium r a t e s and a s t a t u t o r y c e i l i n g on
T i t l e I loans w i l l c r e a t e o n l y one r e s u l t — a d e c r e a s e i n l o a n y i e l d s .
i t i s most i m p o r t a n t t h a t maximum f l e x i b i l i t y be i n c l u d e d i n t h e f i n a l
Accordingly,
legislation
which would a l l o w t h e S e c r e t a r y o f HUD and the Energy A d m i n i s t r a t o r t o be r e s p o n s i v e
should t h i s c i r c u m s t a n c e d e v e l o p , t h e r e b y a v o i d i n g unnecessary r e s t r a i n t s on t h e
usage o f t h e T i t l e I program.
SECONDARY MARKET FOB HOME IMPROVEMENT LOANS
S e c t i o n s 113 and 114 would a u t h o r i z e expanded powers f o r t h e F e d e r a l Home
Mortgage C o r p o r a t i o n and t h e F e d e r a l N a t i o n a l Mortgage A s s o c i a t i o n t o c r e a t e a
secondary m a r k e t f o r e n e r g y - e f f i c i e n t home improvement l o a n s .
The obvious i n t e n t
i s t o enhance t h e n a t u r e o f t h e T i t l e I program, t h e r e b y i n c r e a s i n g t h e a v a i l a b i l i t y
o f funds f o r home improvements designed t o conserve e n e r g y .
Although t h e i n t e n t
i s l a u d a b l e , t h e a c t u a l need f o r t h i s new F e d e r a l program seems unnecessary.
This
a p p a r e n t l a c k o f n e c e s s i t y f o r a secondary m a r k e t i s premised l a r g e l y on t h e b a s i c
d i f f e r e n c e between t h e c o m p a r a t i v e l y s h o r t t e r m o f home improvement loans as compared
t o t h e terms o f o t h e r types o f loans which a r e r e g u l a r l y passed on t o a secondary
market.
Regular r e s i d e n t i a l mortgages w i t h 2 0 - 3 0 y e a r repayment schedules and
s t u d e n t loans w i t h 8 - 1 0 y e a r p a y - o u t s have been t h e t r a d i t i o n a l t y p e s o f l o a n s which
a r e g r e a t l y f a c i l i t a t e d by t h e a v a i l a b i l i t y o f a secondary m a r k e t .
The obvious
v a l u e o f t h e s e secondary markets 1s t h a t f i n a n c i a l I n s t i t u t i o n s a r e n o t r e q u i r e d
349
t o t i e up funds f o r t h e e n t i r e d u r a t i o n o f t h e l o a n .
T h i s f l e x i b i l i t y i s thus
v e r y i m p o r t a n t f o r loans w i t h extended repayment p e r i o d s ; however, t h e t e r m
i n v o l v e d w i t h home improvement loans i s s h o r t by comparison and i t i s e x p e c t e d
t h a t f i n a n c i a l i n s t i t u t i o n s would not f i n d i t necessary t o seek any secondary
market f o r t h i s t y p e o f l o a n .
There i s a l s o a n o t h e r l i t t l e known form o f f l e x i b i l i t y f o r FHA T i t l e I loans
t h a t could p r o v i d e r e l i e f f o r l e n d e r s i f needed.
In an i n s t a n c e where a f i n a n c i a l
i n s t i t u t i o n e l e c t s t o reduce i t s T i t l e . I p o r t f o l i o f o r whatever r e a s o n , those loans
can be s h i t t e d t o a n o t h e r f i n a n c i a l i n s t i t u t i o n as t h e y have a n e g o t i a b i l i t y f e a t u r e
and t h e i n s u r a n c e r e s e r v e s a r e t r a n s f e r a b l e as w e l l .
N a t i o n a l Housing A c t ) .
( T i t l e 24 Sec. 2 0 1 . 1 2 o f t h e
T h i s i m p o r t a n t f e a t u r e would a l l o w one i n s t i t u t i o n w i t h a
d i s p r o p o r t i o n a t e volume o f e n e r g y - r e l a t e d home improvement loans t o s h i f t a p o r t i o n
of t h a t p o r t f o l i o to another f i n a n c i a l
institution.
I n view o f t h e r a t h e r s h o r t term o f most home improvement loans and t h e n e g o t i a b i l i t y o f those loans among f i n a n c i a l i n s t i t u t i o n s , i t i s our o p i n i o n t h a t t h e
c r e a t i o n o f a secondary market f o r these loans i s unnecessary a t t h i s t i m e .
Instead
we f e e l t h a t t h e a v a i l a b i l i t y o f e n e r g y - e f f i c i e n t home improvement loans should be
c a r e f u l l y m o n i t o r e d by an a p p r o p r i a t e Federal agency t o d e t e r m i n e i f a d d i t i o n a l
l e g i s l a t i o n i s needed.
Our recommendation s i m p l y s t a t e d i s t h a t t h e c r e a t i o n o f a new f i n a n c i n g source
f o r home improvement loans and a secondary market f o r those loans i s n o t necessary.
We a r e persuaded t h a t t h e e x i s t i n g c r e d i t mechanism i s capable o f meeting and
s e r v i c i n g t h i s new m a r k e t demand.
However, we do not advocate t h a t e i t h e r o f t h e s e
a l t e r n a t i v e s be permanently p r e c l u d e d as f u t u r e e x p e r i e n c e could a l t e r p r e s e n t
assumptions about supply and demand.
I f t h e term o f e n e r g y - r e l a t e d home improvement
loans i s extended s i g n i f i c a n t l y beyond t h e c u r r e n t average term o f 3 - 5 y e a r s or the
consumer p a r t i c i p a t i o n i n t h i s program should d r a m a t i c a l l y exceed e x p e c t a t i o n s —
then a l t e r n a t i v e s such as t h e s e should be c a r e f u l l y c o n s i d e r e d .
We advocate o n l y
350
t h a t t h e e x i s t i n g m a r k e t p l a c e be g i v e n an o p p o r t u n i t y t o supply t h e f i n a n c i n g
needs c o n t e m p l a t e d by
S.1469.
We a p p r e c i a t e t h e o p p o r t u n i t y t o make known our views on t h i s v e r y i m p o r t a n t
l e g i s l a t i o n and remain a v a i l a b l e f o r f u r t h e r c o n s u l t a t i o n w i t h members o f t h i s
Subcommittee i f we can be o f a s s i s t a n c e .
351
TESTIMONY OF
EDWARD J . CARLOUGH, GENERAL PRESIDENT
SHEET METAL WORKERS' INTERNATIONAL ASSOCIATION
ON
S. 1^69 and S. 805
Before the
SUBCOMMITTEE ON HOUSING AND URBAN AFFAIRS
OF THE
SENATE COMMITTEE ON BANKING, HOUSING AND URBAN AFFAIRS
June 29, 1977
We appreciate t h i s o p p o r t u n i t y t o express the p o s i t i o n o f the Sheet
Metal Workers 1 I n t e r n a t i o n a l Association on those sections o f S. 1^69*
The N a t i o n a l Energy A c t , now under c o n s i d e r a t i o n by t h i s Subcommittee,
and t o present our support o f S. 805, which would s t i m u l a t e commerc i a l i z a t i o n o f energy conservation and s o l a r energy through f e d e r a l l o w i n t e r e s t loans and grant programs.
We b e l i e v e t h a t such d i r e c t f e d e r a l
f i n a n c i a l assistance t o homeowners i s an e s s e n t i a l component o f an e f f e c t i v e
n a t i o n a l energy s t r a t e g y .
Our a c t i v e i n t e r e s t i n s o l a r energy and energy conservation i s twofold.
I t i s a t r a g i c i r o n y t h a t although the need t o conserve f o s s i l f u e l
energy and t o f u l l y u t i l i z e s o l a r energy i s so c r u c i a l , thousands o f sheet
metal craftsmen—whose s k i l l s can make e n e r g y - e f f i c i e n t homes and b u i l d i n g s
a reality—stand i d l e .
The cost t o our n a t i o n i n wasted energy and i n l o s t wages i s s t a g g e r i n g .
President Carter warned i n h i s Energy message t h a t "We imported more
than $35 b i l l i o n worth o f o i l l a s t y e a r , and we w i l l spend much more than
352
-2that t h i s year.
The time has come t o draw the l i n e , "
He emphasized t h a t
h e a t i n g and c o o l i n g systems are one o f the areas "where we waste most o f
our energy."
There i s a second k i n d o f waste.
workers are out o f j o b s .
Right now, 30,000 union sheet metal
Based on a n a t i o n a l average h o u r l y wage o f $8.08
and a U0-hour work week, an i n c r e d i b l e $9.7 m i l l i o n per week i n buying
power, t a x e s , and f a m i l y s e c u r i t y i s being l o s t t o our economy—to say
nothing of p r o d u c t i v i t y .
The Congressional Budget O f f i c e White House, and the AFL-CIO have
estimated the t o t a l l o s s i n government revenues due t o l o s t taxes, payment
o f unemployment compensation; and costs o f h e a l t h care, food stamps, and
o t h e r forms o f d i r e c t and i n d i r e c t f a m i l y assistance.
Taking an average,
i t i s a s t a g g e r i n g $600 m i l l i o n l o s s i n Federal revenue and $150 m i l l i o n
l o s s i n s t a t e and l o c a l revenues f o r each 30,000 wage-earners unemployed.
And, we a l l know t h a t sheet metal workers are not the o n l y Americans
s u f f e r i n g from t h e loss o f j o b s .
We can and must cut these losses now.
We can save energy.
But t o
get s t a r t e d , we must get sheet metal workers o f f the unemployment r o l l s ,
and back on the j o b .
Energy conservation and the use o f s o l a r energy w i l l have a l a r g e
impact on unemployment.
I t has been estimated by the Stanford Research
I n s t i t u t e t h a t o n e - f o u r t h o f the d o l l a r s i n v e s t e d i n s o l a r h e a t i n g and
c o o l i n g alone w i l l go t o the l a b o r costs o f i n s t a l l a t i o n .
In addition,
t h e r e w i l l be many jobs created f a b r i c a t i n g the c o l l e c t o r s , storage t a n k s ,
d u c t i n g , and a l l i e d equipment necessary f o r a s o l a r i n s t a l l a t i o n .
A massive
commitment t o r e s i d e n t i a l energy conservation w i l l create thousands o f jobs
f o r which sheet metal workers have the unique t r a i n i n g and s k i l l s .
353
-2We must s t r e s s t h a t there i s no shortage o f s k i l l e d manpower t o
i n s t a l l conservation measures and t o b u i l d s o l a r i n s t a l l a t i o n s .
In
f a c t , our journeymen sheet metal mechanics have been f u l l y q u a l i f i e d
f o r many years t o b o t h f a b r i c a t e and i n s t a l l s o l a r equipment.
There
need not be any conservation o r s o l a r p r o j e c t s shelved f o r want o f the
s k i l l e d manpower.
Members o f the Sheet Metal Workers 1 I n t e r n a t i o n a l
A s s o c i a t i o n are ready t o go t o work.
We have already taken these steps:
*
I n 1975 we commissioned the Stanford Research I n s t i t u t e and t h e
M i t r e Corporation t o make studies o f the impact o f s o l a r development
and energy conservation on our i n d u s t r y .
Copies o f these studies have
been made a v a i l a b l e t o every Member o f Congress.
The M i t r e study f o r e c a s t
t h a t 2.k m i l l i o n s i n g l e f a m i l y residences could be using s o l a r energy by
1985 t o 1990.
We are g r a t i f i e d t h a t the President has made proposals t o
back t h i s commitment.
*
Through our N a t i o n a l T r a i n i n g Fund, we have developed an e x c e l l e n t
f i l m on s o l a r energy, and we have aided ongoing s o l a r research.
*
We have been educating our membership t o the p o s i t i v e savings o f
energy conservation and s o l a r energy development.
*
Sheet metal workers have already p u t the s o l a r promise t o work by
i n s t a l l i n g s o l a r h e a t i n g systems throughout the country.
P r a c t i c i n g what
we preach, Local 55 on Long I s l a n d converted i t s Apprenticeship T r a i n i n g
School from e l e c t r i c t o e l e c t r i c - b o o s t e d s o l a r a i r h e a t i n g .
Solar energy
c a r r i e d about ^5 percent of the h e a t i n g l o a d i n our worst w i n t e r on
record.
Local 80 i n D e t r o i t has j u s t i n s t a l l e d an a l l - a i r s o l a r h e a t i n g
system i n i t s new t r a i n i n g school f a c i l i t y .
94-843
0-77-23
354
-2Looking ahead, t h e U.S. Energy Research and Development A d m i n i s t r a t i o n
estimates t h a t s o l a r energy w i l l provide 7 percent o f our t o t a l energy needs
by 2000 and up t o 25 percent by 2020.
"No country uses as much energy as i s contained i n the s u n l i g h t t h a t
s t r i k e s j u s t i t s b u i l d i n g s . " , according t o the recent WorldWatch Report,
"Energy: The S o l a r Prospect."
Ve cannot a f f o r d t o w a i t .
Apathy and the wait-and-see a t t i t u d e are
our worst enemies.
Having acquainted you w i t h our earnest commitment t o a sound, n a t i o n a l
energy program and w i t h the s k i l l s and manpower t h a t union sheet metal
workers w i l l p r o v i d e t o implement the program, I wish t o express our
p o s i t i o n on s p e c i f i c p o r t i o n s o f t h e b i l l .
Our union urges e a r l y passage o f the P r e s i d e n t ' s l e g i s l a t i v e proposals
f o r opening a secondary market f o r r e s i d e n t i a l energy conservation and
s o l a r energy loans through the Federal Home Loan Mortgage Corporation
and the Federal N a t i o n a l Mortgage A s s o c i a t i o n .
This w i l l s t r o n g l y encourage
p r i v a t e l e n d i n g i n s t i t u t i o n s — m a n y o f which have been conservative i n t h e i r
view toward s o l a r loans—to make c a p i t a l a v a i l a b l e a t reasonable i n t e r e s t
rates.
We also support the increased f u n d i n g l e v e l s f o r the r e s i d e n t i a l
w e a t h e r i z a t i o n program which w i l l not o n l y save energy b u t also r e a l d o l l a r s
f o r those hard-pressed, low-income Americans who can l e a s t a f f o r d h i g h
energy b i l l s .
Advancing t h e e f f e c t i v e date o f mandatory standards f o r new r e s i d e n t i a l
and commerical b u i l d i n g s from 1981 t o 1980 w i l l be extremely e f f e c t i v e i n
reducing our energy d e f i c i t .
C u r r e n t l y , almost 25 percent o f a l l energy
used i n t h i s country i s consumed by h e a t i n g , v e n t i l a t i n g , a i r c o n d i t i o n i n g
355
-2and r e l a t e d systems.
I t makes no sense t o continue t o b u i l d energy-guzzling
" w h i t e elephants" when we have the knowledge t o make them e n e r g y - e f f i c i e n t .
We, t h e r e f o r e , endorse the a u t h o r i z a t i o n o f funds t o a s s i s t the s t a t e s i n
this effort.
With regard t o the P r e s i d e n t ' s proposal t o make p u b l i c u t i l i t i e s t h e
major v e h i c l e f o r accomplishing r e s i d e n t i a l energy conservation, we have
strong reservations.
The f i r s t i s the question o f a l l o w i n g u t i l i t i e s even more o f a
monopoly i n the r e s i d e n t i a l energy f i e l d than they now command.
If
u t i l i t i e s i n s t a l l energy conservation measures w i t h t h e i r u n t r a i n e d o r
h a s t i l y r e t r a i n e d personnel, they would d r i v e many independent c o n t r a c t o r s
and small businesses which normally perform such work out o f business—with
attendant losses i n j o b s .
Second, the u t i l i t i e s ' v a s t c a p i t a l would permit l a r g e - s c a l e purchases
o f i n s u l a t i n g m a t e r i a l and conservation equipment, c r e a t i n g a l o c k on the
supply and k i l l i n g o f f p r i v a t e c o m p e t i t i o n .
Shortages are already f o r e c a s t
as e a r l y as t h i s F a l l w i t h o u t the u t i l i t y program's p o t e n t i a l e f f e c t .
As
u t i l i t i e s move i n e v i t a b l y i n t o the s o l a r i n s t a l l a t i o n f i e l d , they could
again, by t h e i r c a p i t a l , dominate the market.
T h i r d , i f they acquire s o l a r equipment manufacturing f i r m s , we w i l l
be faced w i t h the same monopolistic problems we now have w i t h t h e l a r g e
o i l companies—suppression o f competition, p r i c e maneuvering, market
manipulation, and d e d i c a t i o n t o the status quo.
And, they would have
c o n t r o l over our use o r non-use o f an i n e x h a u s t i b l e energy source.
Solar energy i s f r e e .
I t i s the equipment and i n s t a l l a t i o n t o convert
t h a t energy t o our use t h a t r e q u i r e s an investment.
However, i f the u t i l i t i e s
c o n t r o l the equipment and the i n s t a l l a t i o n , we may end up, i n e f f e c t , l e a s i n g
the rays o f the sun.
356
-2The a d m i n i s t r a t i o n ^ proposal t o r e q u i r e u t i l i t i e s t o o f f e r a conservation
program and loans t o homeowners i s the f i r s t step down t h i s road.
does n o t provide adequate safeguards against deceptive p r a c t i c e s ,
The b i l l
anticompetitive
a c t i v i t y , p r i c e f i x i n g , excessive p r o f i t t a k i n g , or unreasonable i n t e r e s t
rates.
The s t a t e r e g u l a t o r y commissions w i l l have the r e s p o n s i b i l i t y f o r
watchdogging these a c t i v i t i e s .
Y e t , we know h i s t o r i c a l l y t h a t t h e i r r e c o r d
i n r a t e r e g u l a t i o n and consumer p r o t e c t i o n has been p o o r .
A l l u t i l i t y consumers w i l l pay f o r t h i s program because a d m i n i s t r a t i v e
overhead w i l l be passed on through r a t e increases.
t h e l e g i s l a t i o n t o prevent i t .
There i s n o t h i n g i n
Those who have already invested i n energy
conservation o r who p l a n t o do so w i t h t h e i r own money w i l l be p e n a l i z e d .
Carrying i t one step f u r t h e r t o s o l a r , the Southern C a l i f o r n i a Gas Company
has requested a r a t e h i k e from t h e State P u b l i c U t i l i t y Commission t o fund
a 5-year s o l a r demonstration g r a n t .
The Center f o r Science i n the P u b l i c
I n t e r e s t f o r e c a s t s t h a t i f the r a t e increase i s granted, consumers w i l l
pay about $11 m i l l i o n f o r the u t i l i t y t o i n s t a l l 315 s o l a r h e a t i n g u n i t s .
That t r a n s l a t e s t o a cost o f $3^,920 per u n i t — w h i c h gives you some i n d i c a t i o n
o f how Southern C a l i f o r n i a Gas i s promoting s o l a r and p r o f i t i n g from i t .
The consumer i s t h e l o s e r .
I n c o n t r a s t , an A p r i l Uth a r t i c l e i n "U.S.
News and World Report" discussed 22 s o l a r i n s t a l l a t i o n s i n Denver t h a t
cost between $8,000 and $9,000 each.
I
Last y e a r , Colorado u t i l i t i e s asked f o r and.received a r a t e s t r u c t u r e
change so they could charge s o l a r homes a higher r a t e f o r e l e c t r i c i t y than
c o n v e n t i o n a l homes.
Why?—To compensate f o r decreased e l e c t r i c i t y useage.
Reason f i n a l l y p r e v a i l e d , and the d e c i s i o n was reversed.
But t h i s
is
a f o r e r u n n e r o f what consumers can expect i f the u t i l i t y program p r o v i s i o n s
o f S. 1^69 are passed.
357
-2There i s a b e t t e r way t o spur r e s i d e n t i a l energy conservation and
speed up the use o f s o l a r .
We support H.R. 3981 > which would provide
l o w - i n t e r e s t loans and grants t o homeowners; community, neighborhood, and
n o n - p r o f i t groups; and l o w - i n t e r e s t loans t o small businesses f o r
installation
o f conservation measures and s o l a r space and water h e a t i n g systems.
The concept i s s t r a i g h t f o r e w a r d .
I t would make the energy savings
o f conservation and s o l a r a v a i l a b l e t o many Americans who otherwise could not
a f f o r d the i n i t i a l i n v e s t m e n t . . . i t would provide dividends t o the N a t i o n
as a whole i n the form o f reduced energy consumption.. . i t would create
thousands o f jobs f o r sheet metal workers, other t r a d e s , and employees i n
r e l a t e d businesses, supply companies, and c o n t r a c t i n g f i r m s . . . a n d i t would
prevent the p u b l i c u t i l i t i e s from d i g g i n g even deeper i n t o the consumer's
pocketbook.
- Americans are r a p i d l y becoming educated about the energy c r i s i s .
Many
are already s u f f e r i n g s e r i o u s l y from the h i g h c o s t s .
A l l o f us want t o
do our c o n s t r u c t i v e p a r t t o h e l p solve the problem.
And, we are l o o k i n g
t o C a p i t o l H i l l t o p r o v i d e the answers as t o how.
Passage o f S. 805 would
be a s t r o n g i n c e n t i v e t o i n d i v i d u a l a c t i o n and a c l e a r statement t h a t
Congress i s commited t o b r i n g i n g order out o f chaos and a measure o f help
t o the average American.
I f we are t o have an e f f e c t i v e n a t i o n a l energy program, we cannot
put a s i g n i f i c a n t p o r t i o n o f t h a t program i n the hands o f the u t i l i t i e s
t h a t have generated poor energy planning, i n v e r t e d r a t e s t r u c t u r e s ,
b l a c k o u t s , brownouts, and p o l l u t i o n — a n d w i l l s h o r t - c i r c u i t the use o f
s o l a r energy unless they can put a p r i c e on s u n l i g h t .
Congress alone can make the hard, l e g i s l a t i v e choices t h a t w i l l determine
the
outcome of
our
energy f u t u r e
and t h e f a t e
of
our
unemployed.
358
-2The energy l e g i s l a t i o n we support, w i t h o u t question, w i l l cut our losses
i n energy and j o b s .
I t w i l l save f o s s i l f u e l , y i e l d a more f a v o r a b l e balance
o f payments, create thousands o f j o b s , and c o n t r i b u t e t o our energy independence.
The Sheet Metal Workers' I n t e r n a t i o n a l A s s o c i a t i o n urges passage.'
359
NATIONAL ASSOCIATION OF MUTUAL SAVINGS BANKS
2 0 0 PARK AVENUE
N E W YORK, N . Y . 10017
TELEPHONE 212-973-5432
June 2 9 ,
1977
The H o n o r a b l e W i l l i a m P r o x m i r e
Chairman
C o m m i t t e e on B a n k i n g , H o u s i n g a n d
Urban A f f a i r s
United States Senate
W a s h i n g t o n , D. C.
20510
Dear Mr.
Chairman:
T h e N a t i o n a l A s s o c i a t i o n o f M u t u a l S a v i n g s Banks (NAMSB) a p p r e c i a t e s
t h i s o p p o r t u n i t y t o p r e s e n t t h e v i e w s o f t h e s a v i n g s b a n k i n d u s t r y on S u b p a r t s 1 ,
and 3 , o f T i t l e I o f S . 1 4 6 9 , t h e N a t i o n a l E n e r g y A c t , a n d we r e q u e s t t h a t t h i s
l e t t e r be i n c l u d e d i n t h e r e c o r d o f t h e c o m m i t t e e ' s h e a r i n g s .
2,
A t t h e o u t s e t , we w i s h t o s t a t e t h a t t h e s a v i n g s b a n k i n d u s t r y s u p p o r t s
t h e e n e r g y c o n s e r v a t i o n e f f o r t as an e f f e c t i v e means o f a l l e v i a t i n g o u r n a t i o n ' s
energy c r i s i s .
M o r e o v e r , as an a s s o c i a t i o n whose members a r e l o c a t e d p r e d o m i n a n t l y
i n t h e n o r t h e a s t e r n p a r t o f t h e c o u n t r y , we r e c o g n i z e t h e i m p o r t a n c e o f r e s i d e n t i a l
c o n s e r v a t i o n as a means o f a c h i e v i n g s u b s t a n t i a l e n e r g y s a v i n g s .
Our r e c o g n i t i o n
o f t h e r o l e t h a t s a v i n g s banks can p l a y i n e n c o u r a g i n g r e s i d e n t i a l e n e r g y c o n s e r v a t i o n has r e s u l t e d i n NAMSB r e c e n t l y c r e a t i n g a S u b c o m m i t t e e on E n e r g y I m p l i c a t i o n s
t o d e a l w i t h t h i s problem.
B e f o r e d i s c u s s i n g s p e c i f i c p r o v i s i o n s o f S. 1 ^ 6 9 , I p a r t i c u l a r l y w i s h t o
applaud t h e A d m i n i s t r a t i o n ' s d e c i s i o n t o accomplish r e s i d e n t i a l energy savings
t h r o u g h t a x i n c e n t i v e s and v o l u n t a r y c o o p e r a t i o n .
We b e l i e v e t h a t m a n d a t o r y e n e r g y
c o n s e r v a t i o n r e q u i r e m e n t s s h o u l d b e imposed o n l y a f t e r c a r e f u l r e f l e c t i o n .
In this
r e g a r d , we w i s h t o r e c o r d o u r o p p o s i t i o n t o t h e a c t i o n o f t h e House S u b c o m m i t t e e
on E n e r g y a n d Power w h i c h w o u l d deny m o r t g a g e f i n a n c i n g , e f f e c t i v e J a n u a r y 1 , 1 9 8 2 ,
t o h o u s i n g w h i c h f a i l s t o meet f e d e r a l e n e r g y e f f i c i e n c y s t a n d a r d s .
The s a v i n g s
b a n k i n d u s t r y b e l i e v e s t h a t such a s a n c t i o n s h o u l d b e imposed o n l y a f t e r a c o n s i d e r e d
d e t e r m i n a t i o n t h a t such a m e a s u r e i s n e c e s s a r y , e f f e c t i v e , and n o t u n d u l y d i s r u p t i v e
t o t h e h o u s i n g and m o r t g a g e m a r k e t .
We t h u s b e l i e v e t h a t t h e s u b c o m m i t t e e ' s a c t i o n
was p r e m a t u r e , a n d we u r g e t h e S e n a t e B a n k i n g C o m m i t t e e t o r e s i s t e f f o r t s t o impose
mandatory sanctions a t t h i s t i m e .
We w o u l d , h o w e v e r , s u g g e s t t h a t t h e c o m m i t t e e
a d o p t p r o v i s i o n s s i m i l a r t o t h o s e a d o p t e d b y t h e House C o m m i t t e e on B a n k i n g , F i n a n c e
and Urban A f f a i r s i n r e p o r t i n g o u t H . R . 7 8 9 3 .
P r o v i s i o n s i n t h e b i l l would r e q u i r e
t h e Department o f Housing and Urban Development t o s t u d y t h e impact and f e a s i b i l i t y
o f a mandatory r e s i d e n t i a l energy conservation program.
We b e l i e v e t h a t such a
s t u d y i s a n e s s e n t i a l f i r s t s t e p b e f o r e t h e v o l u n t a r y a p p r o a c h i s abandoned i n
favor o f mandatory sanctions.
360
The Honorable William Proxmire
- 2 -
June 29, 1977
As to the particular provisions of S. lU69, we support expansion
of the d e f i n i t i o n of the term "energy conserving improvements" to include energy conservation repairs. This expansion should increase the a v a i l a b i l i t y
of economical financing for these effective, energy savings measures.
With regard to the provision of the b i l l adding public u t i l i t i e s to
the l i s t of f i n a n c i a l institutions e l i g i b l e to receive FHA insurance for T i t l e I
loans, we would note that the savings bank industry has expertise in the making
of both FHA and conventional home improvement loans. We also believe that
existing private lenders w i l l be able to provide the necessary financing for
the implementation of residential energy conservation measures. I t should also
be noted that the Subcommittee on Housing and Community Development of the
House Committee on Banking, Finance and Urban A f f a i r s deleted the proposal to
require u t i l i t i e s to finance energy improvements, and we urge the Senate Banking
Committee to take similar action.
We support amending the statutes controlling the Federal Home Loan
Mortgage Corporation and the Federal National Mortgage Association so as to
permit them to purchase unsecured loans made to finance the i n s t a l l a t i o n of
energy conservation measures. The c a p i t a l requirements of t h i s program w i l l
undoubtedly not be geographically uniform and the creation of a secondary
market for "energy" loans w i l l f a c i l i t a t e required credit flows. Additionally,
the pooling and selling of such loans in the secondary market may a t t r a c t
nontraditional home improvement loan investors, thereby further contributing
necessary c a p i t a l .
We would, however, suggest that the b i l l be amended so as to permit
FHLMC and FNMA to purchase conventional as well as FHA-insured energy loans.
The bureaucratic delays attendant to the FHA T i t l e I program have diminished
i t s usefulness to many of our members and as a r e s u l t , the majority of home
improvement loans are not FHA-insured. These conventional energy loans must
also be transferable i n the secondary market i f -the f u l l potential of the
program i s to be realized.
Sincerely yours,
Committee on Mortgage Investments
361
STATEMENT OP THE NATIONAL OIL JOBBERS COUNCIL
The National Oil Jobbers Council is a federation of 44 state and regional
trade associations representing thousands of independent small business
petroleum marketers.
Members include gasoline and diesel fuel wholesalers,
commissioned distributors of gasoline, gasoline reseller-retailers and a large
number of retail fuel oil dealers. Members ,also wholesale or retail many other
petroleum products, including kerosene, LP gas, aviation fuels and motor oils as
well as residual fuel oil.
Together our members market approximately 75
percent of the home heating oils and 25 percent of the gasoline sold' in America
under- either their own private brand or the trademark of their supplier.
Because we are small, highly competitive, independent of the major oil
companies, and close to the consumer, we believe we can offer some special
insight into the formulation of the national energy plan. Our unique perspective
and experience could be of valuable assistance in the development of effective
and equitable energy policies.
The independent marketers represented by the National Oil Jobbers Council
welcomed Dr. Schlesinger's invitation to submit our ideas for inclusion in the
National Energy Plan.
The proposals we offered emphasized incentives to
achieve conservation in the short term and increase production of energy for the
future. We called these recommendations "An American Energy Policy".
On April 20 our members were pleased to learn that many of their
suggestions had been incorporated in President Carter's program. Most of the
principles which he selected as a basis for his program were similar to ideas we
had emphasized
conservation to reduce demand to a level consistent with the real
cost of replacing the energy we use.
an emphasis on incentives rather than mandatory restrictions on our
citizens.
energy prices which stimulate production and reflect
replacement cost of oil and natural gas.
the
true
fairness, especially through equal treatment of similarly situated endusers.
And while the principles are not as consistently applied as we should wish,
many of the President's specific measures were also quite similar to our own
suggestions.
Our members strongly supported and continue to support the
President's proposals for
tax credits for thermal efficiency measures in residential buildings
federal insurance of
conservation measures
credit
extended
for
residential
energy
a residential energy conservation program in which independent
heating oil dealers and heating equipment contractors can compete
fairly with electric and gas utilities.
362
-
2
-
electric utility rate reform based upon cost of service
excise taxes on inefficient vehicles coupled with rebates for efficient
cars and trucks
avoiding import quotas and end-user rationing
incentives for the development of all conventional resources including
oil, natural gas, coal, and refining capacity both domestically and
abroad
maintenance of appropriate
development and use of coal
environmental
guidelines
for
the
programs and incentives for the development of oil shale and coal
liquefaction
programs and incentives
resources
to
develop solar
and other
renewable
use of nuclear power only after safe and standardized technology is in
hand and only to the extent that other alternatives cannot meet this
nation's energy needs.
With these general observations in mind, let us turn to specific issues
within the scope of interest of this committee.
I.
U t i l i t y Program
(Title I, Part A - Energy Conservation Program for
Existing Residential Buildings)
While strongly supporting conservation, independent petroleum marketers
are reluctant to endorse the particular weatherization program set forth in
S. 1469. That program requires electric and natural gas utilities to offer to
perform inspection procedures to determine the conservation potential in almost
every American home. When the home which is inspected is equipped with
electric heat, the proposal has no direct impact on our members. However,
almost every home heated with fuel oil is also serviced by an electric utiljty.
Independent heating oil dealers are generally fully capable of conducting the
inspection and performing the necessary weatherization measures at a
competitive price.
Y e t , the legislation proposed by the President gives
inadequate recognition to the service and competition our members can provide.
The potential adverse effect on competition of the legislation as proposed
is large.
Given the extremely competitive character of the home heating
market, it is impossible for our members to accept the proposition that an
electric company energy auditor will enter the homes of fuel oil customers and
fairly evaluate the energy efficiency of their heating units. In fact, years of
experience in competing with the often misleading promises made about electric
heat make it difficult to imagine a more clear cut conflict of interest.
363
-3-
This committee should know that even without the tax-credits or
facilitated financing proposed in the bill currently under consideration, several
independent heating oil companies for several years have been r e i n s t a t i n g homes
and utilizing extended payment programs. This low cost effort could be severly
impeded if a monopoly is, in effect, granted to the utilities and oil heating
contractors best equipped to do the work'are ultimately excluded.
Moreover, there is a real danger that the regulatory formulas used to
determine utility profits will encourage these monoplies toward extravagance in
the equipment modifications they recommend. Where the return to the utility is
a percentage of the costs, higher contractor prices translate directly into higher
utility profits. Although the legislation as proposed would require the utilities to
provide information regarding alternative methods of insulation installation and
financing, there is no provision that assures a competing contractor or heating
equipment dealer will be included in the list of available contractors before the
list is sent to customers. Nor is there any provision for independent contractors
to conduct their own audit and perhaps recommend a more modest but equally
effective weatherization program. Both these revisions must be made if the
interests of the consumer as well as the viability of the community small
businessmen are to be protected. We suggest these specific revisions:
1.
Because fuel oil dealers are not regulated public utlities, it would be
inappropriate to mandate their participation in the weatherization
program. But the FEA or its successor1 in the DOE should be specifically
directed to promulgate regulations directing state energy offices to assist
heating oil marketers in offering every service which the legislation
requires utilities to offer.
This assistance should include technical
information about which conservation measures are appropriate for
different locales of the state, financing, and state or federal assistance
programs for small businessmen offering weatherization services.
2.
To give teeth to the requirement that a utility must fairly assemble a list
of alternative contractors, the legislation should specifically require
approval of the list by the State Energy Office before any offer or list is
distributed. The State Energy Office should be required to resolve disputes
between the utility and any contractor excluded from the list before
approval is granted. A procedure to protect consumers from incompetent
or fraudulent contractors should also be established by requiring the listed
contractors to post bonds.
3.
To prevent subsidizing finance terms with inflated recommendations or
prices, the legislation should require that all contractors, including heating
oil dealers, have access to utility financing if the terms offered there are
better than those which can be obtained elsewhere; or, at the very least, to
prevent subsidizing, that utility financing can be no more favorable than
that of independent financial institutions serving the independent
contractor.
4.
To assure efficient and equitable administration, the legislation should
require FEA or its successor in the DOE to establish an Industry Advisory
Committee which would work with the agency to develop and co-ordinate
the national framework for implementation of these plans. Membership on
this committee should include a number of heating oil industry spokesmen
proportionate to the percentage of homes in the country heated with oil as
compared with the number of representatives from the gas and electric
industries. It should also include consumer representatives.
364
-4-
Amendments
An additional section should be added to T i t l e I, Part A , sub part 1
"Competitidn"
a)
Part C of Title 3 of the Energy Policy and Conservation Act is amended by
adding at the end of Sec. 367(b) (2) (B) the following:
"such program shall include procedures whereby State Energy Offices
(or their functional equivalent) w i l l provide independent fuel oil
marketers assistance in the undertaking of energy conservation
programs for existing residential buildings, including information of
both technical and administrative nature which would be of assistance
in performing all functions designated for utilities in Sec. 103 of the
National Energy Act."
b)
The Administrator shall promulgate rules
.
1.
to establish a procedure whereby the list of suppliers and
contractors prepared by the public utility pursuant to Sec. 103 (a) (2)
(D) (3) be subject to the approval of the State Energy Office (or the
functional equivalent there of) prior to distribution.
2. The rules shall include provisions for notice and comment by
interested parties prior to approval of the list.
c)
Each utility program shall include procedures whereby approved contractors
will be eligible on a non-discriminatory basis for utility financing of purchase and
installation costs.
d)
The Administrator shall establish an Industry Advisory Committee to assist
the agency in development and coordination of the residential energy
conservation plans.
Members shall include representation from the heating
industries proportionate to the approximate national market shares of the
industries.
President Carter and the Congress have expressly recognized the important
role independent businessmen play in the energy industry. Because we are small,
independent businessmen we are committed to the free enterprise system,
competition and innovation. Serving the needs of our customers is our top
priority.
However, the fact remains that we must compete not only among ourselves
but also with the giant oil companies and the large gas and electric utilities. If it
is in the public interest to maximize competition in the energy market place it is
in the public interest to formulate an energy plan which affords the independent
marketer the opportunity to compete fairly with the mammoth financial entities
represented by the oil companies and utilities. We urge you to consider the
comments we offer in light of this and we look forward to providing further input
and assistance in the development of an equitable long range energy plan.
365
INDUSTRIES
PPG I N D U S T R I E S , I N C . / ONE GATEWAY C E N T E R / P I T T S B U R G H , P E N N S Y L V A N I A
15222
June 29, 1977
The Honorable William Proxmire
Chairman
Committee on Banking, Housing and Urban Affairs
5241 Dirksen Senate Office Building
Washington, D.C.
20510
Dear Senator Proxmire:
PPG Industries is pleased to provide this testimony for the Subcommittee on
Housing and Urban Affairs concerning S. 1469, the National Energy Act.
As we have previously expressed before other committees of Congress, there
are five points relative to the glass and glazing, window and door industry
which should be considered i n your review of the Act. These points include:
1.
.
a clear definition of "insulating products".
.
a v a i l a b i l i t y of glass and related products for the building
industry.
.
value of glass and related products.
.
energy efficiency of glass products.
.
value of solar heating equipment.
D e f i n i t i o n of i n s u l a t i n g products
Numerous terms and phrases have been used to identify window and door
insulation; however, we recommend the following revised wording to help
c l a r i f y the definition of window and door insulating products: "storm windows and doors, multiglazed windows and doors, heat-absorbing or heatreflective glazed windows and doors"
This broader interpretation is preferable because better window and door
insulation can be accomplished through:
A.
The substitution of hermetically sealed insulating glass units, which
combine into one glazing system the insulation value of the prime
window, plus the storm window.
B.
Replacement of deteriorated existing window sash (to which the addition of a new storm window would be inadvisable), with new sash,
366
The Honorable W i l l i a m Proxmire
Page 2
June 29, 1977
containing i n s u l a t i n g g l a s s , and which new sash u t i l i z e s e x i s t i n g
window frames.
C.
I n m i l d climates w i t h a high Incidence of s o l a r r a d i a t i o n , w i n t e r
heat loss I s not the problem. Summer s o l a r heat g a i n , and I t s t r a n s l a t i o n i n t o a i r - c o n d i t i o n i n g l o a d , i s the problem. I n such cases,
t r a d i t i o n a l c l e a r glass I n s u l a t i n g panels (as storm windows are
r e f e r r e d to I n m i l d climates) are not very e f f e c t i v e .
Reflective
g l a s s , 8 i n g l e - g l a z e d , i s much more e f f e c t i v e , so the b e t t e r s o l u t i o n
I s the s u b s t i t u t i o n o f r e f l e c t i v e glass f o r the e x i s t i n g c l e a r g l a s s ,
or the a d d i t i o n o f an i n s u l a t i n g panel containing r e f l e c t i v e g l a s s .
Hence, the recommended d e f i n i t i o n would include a l l window and door
products which could c o n t r i b u t e to the conservation of energy desired by
the A c t .
2.
A v a i l a b i l i t y of glass and r e l a t e d products
With respect to the demand l e v e l generated by the N a t i o n a l Energy A c t ,
the domestic glass i n d u s t r y can supply t h i s demand subject to the a v a i l a b i l i t y o f energy to make glass and current environmental r e g u l a t i o n s . A t t h i s
t i m e , the I n s u l a t i o n p l a n timetable c a l l s f o r the p u b l i c u t i l i t i e s to n o t i f y
t h e i r customers of energy saving a l t e r n a t i v e s by January, 1980, and the
implementation t h e r e a f t e r on 60 percent o f a l l e x i s t i n g American homes by
the end of 1985. This r e l a t i v e l y extended p e r i o d and the gradual scale-up
are compatible w i t h glass I n d u s t r y planning p r a c t i c e s .
Storm window and door and i n s u l a t i n g glass capacities also have been questioned.
Both I n d u s t r i e s are e s s e n t i a l l y r e g i o n a l i n character and not c a p i t a l - i n t e n s i v e .
Both are capable of responding to any foreseen l e v e l s o f business generated
by the Act under the present t i m e t a b l e . Both businesses are somewhat seasonal,
so a general .increase i n business l e v e l might even help t h e i r employment
seasonality* F i n a l l y , both businesses have the manpower necesaairy to ensure
t h a t the current h i g h q u a l i t y o f production and i n s t a l l a t i o n of these products
c o u l d be e x p e c t e d t o
3.
continue.
Value of glass and r e l a t e d products
There are numerous window and door options a v a i l a b l e t o the homeowner,
depending on the s t y l e , performance, and q u a l i t y desired. Storm windows
t y p i c a l l y cost $30 to $40 per window i n s t a l l e d .
Replacement windows t y p i c a l l y cost $150 to $300 per window i n s t a l l e d . Payback periods f o r storm windows due t o saving of f u e l consumption are f o u r
to seven years, depending on geographic l o c a t i o n . Payback f o r replacement
windows l a considerably l o n g e r ; but the homeowner derives a d d i t i o n a l b e n e f i t s ,
such as b e t t e r o p e r a t i o n , no maintenance c o s t s , improved appearance, and
higher value f o r the home.
367
The Honorable W i l l i a m Proxmire
Page 3
June 29, 1977
R e f l e c t i v e glass has t y p i c a l l y been used f o r commercial a p p l i c a t i o n s and more
r e c e n t l y as r e f l e c t i v e i n s u l a t i n g panels f o r homes i n the South. R e f l e c t i v e
g l a z i n g adds about $12 to $15 per r e s i d e n t i a l window.
4.
Energy e f f i c i e n c y of glass products
One of the reasons windows have been maligned during the energy c r i s i s
period i s a perceived poor energy performance; i . e . , heat loss i n w i n t e r ,
heat gain i n summer. However, the energy e f f i c i e n c y of a window i s complex
when a l l the p o t e n t i a l b e n e f i t s are considered. Windows p r o v i d e : a) proven
psychological b e n e f i t to the b u i l d i n g occupant, b) d a y - l i g h t i n g to minimize
the use of e l e c t r i c l i g h t s , and c) s o l a r heat gain i n w i n t e r .
Additionally,
proper window design w i t h m u l t i g l a z e d panels can r e t a i n heat and Improve
occupant comfort i n w i n t e r , and w i t h r e f l e c t i v e panels, reduce s o l a r heat
and g l a r e i n summer. Both of these measures s u b s t a n t i a l l y conserve energy.
T r a d i t i o n a l l y , when the energy e f f i c i e n c y of windows i s c a l c u l a t e d , I t has
been based on only one of these f a c t o r s , not a l l ( i . e . , s i n g l e - g l a z e d vs.
double-glazed v s . t r i p l e t - g l a z e d ) . The true energy e f f i c i e n c y of glass
products i s always b e t t e r than most people r e a l i z e .
5.
Value of s o l a r heating equipment
Solar heating provides only one f e a t u r e — f r e e heat, and thus the only
f a c t o r of importance i s the t r a d e - o f f of an i n i t i a l investment against the
p o t e n t i a l long-term cost of the f u e l no longer r e q u i r e d .
Solar heating equipment i s commercially a v a i l a b l e , and l i k e automobiles, there
are numerous makes, models, and p r i c e s . "Subcompacts" (swimming pool heaters)
s t a r t a t $1,500 i n s t a l l e d ; "compacts" (hot water) s t a r t a t $2,000 i n s t a l l e d ;
" i n t e r m e d i a t e s " (hot water and space heating) s t a r t a t $3,000 i n s t a l l e d , and
" f u l l - s i z e d " (hot water, space heating and cooling) s t a r t a t $4,000 i n s t a l l e d .
Also l i k e c a r s , there are a d d i t i o n a l features which can be added f o r a p r i c e .
Given s u f f i c i e n t time, the solar system w i l l pay i t s way and a t the same time
provide a hedge against f o s s i l f u e l s h u t o f f .
Though c e n t u r i e s - o l d i n a p p l i c a t i o n , s o l a r equipment f o r heating i s i n i t s
infancy as a commercial e n t e r p r i s e i n the U.S. S u b s t a n t i a l incentives i n
the form of tax c r e d i t s are necessary to provide market s t i m u l a t i o n to help
Increase demand so t h a t manufacturers and Investors w i l l move more r a p i d l y
i n t o the production o f b e t t e r and less c o s t l y equipment, and add another
important weapon to the arsenal of energy conservation.
368
The Honorable W i l l i a m Proxmire
Page 4
June 29, 1977
We hope t h i s summary o f key p o i n t s r e l a t i n g t o the N a t i o n a l Energy Act w i l l
help you and your committee to b e t t e r assess the b e n e f i t s o f glass and
i n s u l a t i o n - r e l a t e d products and make use o f t h e i r c h a r a c t e r i s t i c s to b e t t e r
the energy e f f i c i e n t y of America's homes and b u i l d i n g s .
We would be pleased to discuss any of these p o i n t s w i t h you or members o f
your committee.
Sincerely,
Frank Breeze
Group Vice President-Glass
369
STATEMENT OF HENRI B. SCHECHTER, DIRECTOR
DEPARTMENT OF URBAN AFFAIRS, AFL-CIO
ON RESIDENTIAL ENERGY CONSERVATION
SUBMITTED TO THE SENATE COMMITTEE
ON BANKING, BOUSING AND URBAN AFFAIRS
June 29, 1977
The AFL-CIO respectfully submits f o r your consideration and inclusion
i n the record of the current hearings of your Committee t h i s statement of
i t s views on those parts of the National Energy Act dealing with r e s i d e n t i a l
building energy conservation, i n T i t l e I , Part A, Subparts 1 and 2 of S. 1^69*
At the l a s t biennial convention of the AFL-CIO, i n October 1975, &
resolution that was adopted on Energy Conservation stated, i n p a r t , that one
of the steps that must be taken was to "require a l l new and existing structures
to conform to energy efficiency standards."
I n that context, we support as
two of the stated goals to be achieved by 1985, i n Section 3 of the b i l l :
"Insulation of 90 percent of a l l American homes and a l l new buildings" and
"Use of solar energy i n more than two and one-half m i l l i o n homes."
We would urge the Congress, however, to give due consideration to the
national capacity f o r production of building insulation materials, p a r t i c u l a r l y
those that are used i n homes.
I f , i n addition to demands for materials to
insulate a current record high l e v e l of new 1-family homes, a demand f o r
materials to insulate millions of older homes i s created, a severe shortage
and price i n f l a t i o n could ensue.
As part of the overall program, therefore,
there should be provision to encourage such increased capacity for production
of insulation materials as would be required to meet the 1985 goals without an
i n f l a t i o n a r y jbmpact.
Although the aforementioned energy conservation goals are addressed to
insulation of homes, i t should be noted that Part A of T i t l e I deals with
Energy Conservation Programs f o r Existing Residential Buildings and that the
term "residential building" i s defined to mean "any building developed for
r e s i d e n t i a l occupancy, the construction of which commenced prior to one year
a f t e r date of enactment of t h i s subpart."
94-843 O - 77 - 24
370
- 2 -
Ea?ygy p u f f e r y * * * ? "
Each state or non-regulated u t i l i t y would be permitted to prepare and
submit for approval a proposed residential energy conservation plan to the
Administrator of the Federal Energy Agency, within 180 days a f t e r promulgation
of rules for such plans by the Administrator.
Each regulated u t i l i t y i n a
State would be required under such a plan to carry out a " u t i l i t y program".
I f , within 270 days a f t e r promulgation of his rules the Administrator determines
that the State regulatory authority has not adequately implemented an approved
plan, the Administrator must, by order, require each public u t i l i t y i n the
State to offer i t s customers a u t i l i t y program prescribed i n such order which
meets requirements specified i n Section 103 of the b i l l .
The Federal energy administrator would be directed, a f t e r consultation
with the Secretary of HUD and other appropriate agency heads, to issue rules
that would include "suggested measures" for energy conservation i n residential
buildings i n different locations.
Such measures could include standards for
general safety and effectiveness, standards for i n s t a l l a t i o n of any residential
energy conservation measure and such other requirements as the Administrator
might determine would be necessary.
I t must be noted, however, that i n Section 111, which amends the National
Housing Act to make loans for energy financing Improvements e l i g i b l e for
Federal insurance, the e l i g i b l e additions, alterations or improvements which
are designed to reduce the t o t a l energy requirements of a structure must
conform with such c r i t e r i a and standards prescribed by the Secretary of HUD i n
consultation with the Administrator of FEA.
I n order to avoid the possibility
of conflicting standards that could be issued by two Federal o f f i c i a l s ,
should be provided the standards to be issued by the Administrator under
Section 102 and by the Secretary under Section 111 shall be the same, as
agreed upon by both of them.
it
371
-3We are also concerned that the standards that may be Included i n rules
to be prescribed by the Administrator, under Section 102, might be prescriptive
rules.
I n l i g h t of the great number of variations i n climatic conditions,
prescriptive rules could not be applicable nationally, and a great number of
local variations would have to be adopted.
To avoid the possibility that a
very cumbersome type of national code, with almost unavoidable deficiencies
i n local application, i t is recommended that the standards that might be
prescribed be only i n terms of thermal efficiency, i . e . u t i l i z a t i o n of a
maximum number of BTUs for major categories of types of structures.
The plan to be submitted to the Administrator by each state energy
regulation authority would require each u t i l i t y regulated by a state authority
to Implement a program for energy conservation.
The state plan also would have
to contain provisions for consumer protection, procedures to insure that each
regulated u t i l i t y carried out a u t i l i t y program; that each u t i l i t y would
charge f a i r and reasonable prices and the rates of interest to i t s residential
customers i n connection with the i n s t a l l a t i o n of residential energy conservation
measures; and would meet other prescribed requirements.
U t i l i t y Programs
Under Section 103, there i s a provision t h a t each u t i l i t y program would
have t o include procedures t o inform r e s i d e n t i a l customers o f the suggested
measures f o r energy conservation; the savings and costs of heating and cooling
t h a t are l i k e l y t o r e s u l t from I n s t a l l a t i o n of the suggested measures; and the
a v a i l a b i l i t y of arrangements under which the public u t i l i t y , d i r e c t l y or
through one or more contractors, would inspect the b u i l d i n g and estimate the
cost of purchasing and i n s t a l l i n g the measure, o f f e r t o have the measure
i n s t a l l e d and make or arrange f o r a lender t o make a loan t o finance the
public and i n s t a l l a t i o n .
The proposed required provision that the residential customer be advised
of the savings and costs that are l i k e l y to result from i n s t a l l a t i o n of the
suggested energy conservation measures should be expanded.
I t should be made
clear that the residential customer should be advised of the savings or additional
costs of heating and cooling that are l i k e l y to result from i n s t a l l a t i o n of
the suggested measures, including the interest and principal payments during
372
the period of repayment of amy loan to finance the addition, alteration or
improvement involved.
f l n H O i W Program
Subpart 2 of T i t l e I , Part A, would amend severed Federal statutes.
One
amendment would permit FHA insurance of loans to finance energy conservation
measure installations, including the i n s t a l l a t i o n of solar energy systems.
Other amendments would make such loans e l i g i b l e for purchase by the Federal
Home Loan Mortgage Corporation and the Federal National Mortgage Associations.
Such loans moreover, under the provisions of T i t l e I of the National
Housing Act and i n accordance with the d e f i n i t i o n of a residential building i n
S. lb69, could be used for a solar heating device i n a multi-unit dwelling.
However, the present $25,000 l i m i t on a T i t l e I FHA-insured improvement loan
for an apartment house might be insufficient to finance the i n s t a l l a t i o n of a
solar energy system for an apartment house.
Either an amendment to T i t l e
I
of the National Housing Act, or an amendment to permit refinancing of Insured
multi-family mortgages of larger amounts than $25,000 would probably be required.
There i s also no provision i n the b i l l to finance the i n s t a l l a t i o n of
energy conservation measures i n public housing projects which include a t o t a l
of some 1.2 million dwelling units.
I f energy conservation, leading to u t i l i t y
costs savings, can be achieved through i n s t a l l a t i o n of energy conservation
measures i n public housing projects, i t would result i n a
reduction of Federal expenditures through reduction of economic rents and
required Federal subsidies.
With the modifications that have been recommended, the AFL-CIO supports the
approval of Subparts 1 and 2 of Part A i n T i t l e I of S, 1469,
373
S
T
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M
E
N
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U
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N
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R
V
A
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IN P
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O
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R
A
M O
F S. 1469
S
U
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IT
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June 24, 1977
American Public Power Association is a national service organization representing s
o
m
e 1,400 local public power systems in 48 States, Puerto Rico, the
Virgin Islands, and G
u
a
m
.
A
P
P
A supports the implementation of the energy conservation program for
existing residential buildings which is contained in Title I, Part A, Subparts
1 and 2 of the National Energy Act, S. 1469, in accord with the attached resolution
adopted by the A
P
P
A membership at the Association's 1977 Annual Conference.
A number of A
P
P
A m
e
m
b
e
r
s have already initiated various programs designed to
encourage energy conservation in family dwellings, and w
e applaud the President's
goal of bringing 9
0
% of the Nation's 7
4 million h
o
m
e
s up to m
n
im
i um energy standards.
A
s \he Committee proceeds through its hearings and mark up of this portion
of the National Energy Act, there are at least six items which A
P
P
A believes should
be given serious consideration.
1.
As you know, public utilities which sell less than 750 million kilowatt-
hours of electricity (at retail) are excluded from mandatory participation in formulating and implementing conservation plans.
A
P
P
A believes that there is ample
justification for this threshold requirement based on volume of sales.
Our research
indicates that approximately 55 local publicly-owned electric utilities would be
covered under this program, with the remainder of the country's public power, systems
falling below the threshold level of sales.
These systems would have sufficient
resources and expertise to implement conservation programs.
Conversely, m
a
n
y of
o u r smaller m
e
m
b
e
r systems would have considerable financial and administrative
problems were they required to formulate and implement such programs.
However, at
P
P
A m
e
m
b
e
r
s are concerned, there appears to be a sincere desire
least insofar as A
o n the part of smaller systems to join in this program.
I n fact, the A
P
P
A Executive
374
Committee approved, in late April, a recommendation of the Association's Energy
Conservation Task Force encouraging smaller public power systems that arc not
required to participate in the program to m
a
k
e every effort to offer their consumers all of the features of the energy conservation program described in Title I,
Part A, Subpart 1 of the National Energy Act.
S. 1469 could be a
m
e
n
d
e
d to enable such systems not required to participate
under the Act, to nevertheless participate voluntarily where the aims of the program
would be advanced. ' The Administrator could be authorized to establish the guidelines for such participation.
Such guidelines should recognize the limited resources
available tc the smaller systems.
Since the greatest burden to these smaller
systems will be the administrative costs of implementing energy conservation programs, consideration should be given to methods for minimizing such costs and, perhaps, for providing direct assistance in meeting them.
The insured .loan program and financing through secondary markets should be
universally available to all utilities, regardless of size.
2.
A
P
P
A is concerned that there m
a
y be insufficient incentives to implement
this energy conservation program in rental units.
Renters would be entitled to tax
credits for the installation of approved energy conservation items, but such credits
are of little value to low income individuals.
In addition, few renters are willing
to m
a
k
e permanent improvements in rental property.
Assuming that s
o
m
e renters would
be willing to pay for such improvements, i t can be anticipated that they would be
willing to do so only if they could anticipate a substantial reduction in their utility
bill.
Renters in multi-unit buildings served by a master meter would not experience
any such direct financial benefit.
Investment tax credits would be available to landlords making qualified energy
conservation expenditures.
In most commercial enterprises, such tax credits, in
conjunction with an expectation of lowered utility expenditures, will probably provide a sufficient incentive for the business owners to participate in the energy
conservation program.
In contrast, in most residential rental situations, lowered
375
utility bills do not directly benefit the landlord since the renters either pay
their utility bills directly or utility costs are passed through in the total
rental charge.
P
P
A would suggest that Title I of the bill be a
m
e
n
d
e
d
In view of this problem, A
to require the Administrator to conduct a study of the effectiveness of the program as i t relates to rental units.
The Administration has suggested that if the
voluntary program is not effective, i t would consider a prohibition on sales of
h
o
m
e
s not satisfying certain weatherization standards.
If the study of insulation
of rental units reveals that the-program is not effective with respect to such
units, then consideration should be given to prohibiting n
e
w or renewed leases on
units which do not comply with specified energy conservation standards.
3.
A
P
P
A suggests that consideration be given to the definition of "residential
energy conservation measure" in Section 101 (11).
The definition specifies that
only certain items qualify as residential energy conservation measures, and provides no flexibility to the Administrator to include additional measures.
A
P
P
A lias taken an active role in encouraging the utilization and installation
of various energy-conserving devices.
In addition to those items contained in
Section 101 (11), A
P
P
A has, for instance, recommended the use of heat p
u
m
p
s where
climatically appropriate.
u
m
p
s are well
The energy-conserving properties of heat p
demonstrated, and yet they are not included within the definition.
particular item only as a specific example.
I mention this
Whether or not i t is added to the list
of approved items, it would appear prudent not to attempt to provide an exclusive
list of energy conservation measures.
A
P
P
A suggests that the Administrator be
given the discretionary authority to add to the list, by regulation, those items
either currently available or those items which, as w
e direct our attention and
ingenuity to the task of conserving energy, m
a
y b
e
c
o
m
e available ajid are proven to
be effective in conserving energy.
4.
Under Section 103, utilities would be required either to loan, or m
a
k
e
arrangements for another lender to loan, funds to residential customers which would
376
be used to finance the installation of s
o
m
e insulation materials.
In several states,
direct financing by a publicly-owned utility would be prohibited by state constitution, statute or local charter.
Section 106 of the bill attempts to overcome this
problem by providing that the Administrator m
a
y supersede any law or regulation of
any State or political subdivision where such law or regulation prohibits a utility
from instituting a conservation program.
It is not at all clear that the Adminis-
trator, under the authority of that section, could in fact issue an order which
would supersede a state constitutional prohibition.
While there s
e
e
m
s to us that there is s
o
m
e question about the effectiveness
of Section 106, i t does not appear that these state constitutional (and statutory)
prohibitions pose an insurmountable obstacle.
For example, the Congress could
establish c.i National Energy Bank to serve as an alternative source of funds for
loans.
The bank could be established as a revolving fund within the Treasury and
would place no burden on the taxpayers.
Utilities prohibited from making direct
loans and unable to arrange for loans for residential consumers from other conventional sources could then turn to the National Energy Bank.
5.
A
P
P
A recommends that your committee consider an a
m
e
n
d
m
e
n
t to Part A of
Title I to establish a national thermogram program.
Using existing federal civilian
and military equipment, such a program could both identify buildings which have
heat loss problems, thereby assisting energy consumers in identifying and correcting
the situation, and would reveal, over time, the effectiveness of the program to be
established under Title I of this bill.
The Garland Power and Light Department, a municipal electric utility in
Garland, Texas, has already conducted a thermogram program on a local basis. An
article explaining the program and evaluating its effectiveness in conserving
energy is contained in the January-February 1977, issue of Public Power, a magazine
published by A
P
P
A
. A copy of this article is attached for your review.
6.
Under Section 105, where a State regulatory authority or a non-regulated
utility has not had a conservation plan approved, or has not adequately implemented
377
an approved plan, the Administrator m
a
y order the utilities under the jurisdiction
of the State regulatory authority, or the non-regulated utility, respectively, to
offer to their customers a utility program which meets the requirements of the Act.
The Administrator, upon a determination that such an order is not being complied
with, m
a
y prohibit any rate increase by the utility in violation, or seek to enjoin
the utility from violating the order.
In addition, utilities in violation of the
Administrator's order arc subject to a civil penalty of up to $25,000 for each
violation.
It is jjossible that, notwithstanding a good faith eff
@FedFRASER