DOE’s EERE: Reform Ideas for Secretary Perry

By Mark Krebs and Tom Tanton -- March 6, 2017

“Back in 1977 when the US Department of Energy (DOE) was established, a major part of its mission was to help protect American from the OPEC cartel. While the mission has changed in recent years towards mitigating ‘anthropogenic’ climate change, a trace of consumer focus still exists and should be reemphasized.”

“With a renewed focus on energy consumers and less on environmental cronyism, DOE can gain newfound respect from the American public and help drive a resurgent economy.”

On February 24, a Presidential Executive Order, Enforcing the Regulatory Reform Agenda, was signed by President Trump which, according to Bloomberg News, “will impose additional oversight on government regulations, designating officials within government agencies who will monitor rule-making and identify needed policy changes.”

Earlier on Wednesday, January 25, 2017, E&E Daily published an article titled “Barton, Perry to team up on plan to ‘revamp’ agency.” The title pretty much summarized the article which included the rationale for doing so from Rep. John Shimkus (R-IL):

“Government grows pretty big and sometimes we lose track of what they are actually doing,’ Shimkus said. ‘It’s always good to clean out the closet every now and then.'”

Back in 1977 when the US Department of Energy (DOE) was established, a major part of its mission was to help protect American from the OPEC cartel. While the mission has changed in recent years towards mitigating “anthropogenic” climate change, a trace of consumer focus still exists and should be reemphasized.

Big Picture

With a renewed focus on energy consumers and less on environmental cronyism, DOE can gain new found respect from the American public and help drive a resurgent economy. With this purpose in mid, we offer the following ideas to Misters Barton, Shimkus, Secretary Perry, and his new regulatory reform officers to help start fundamental reform:

1. Recalibrate DOE’s mission to focus on improving energy productivity rather than a blind quest to save BTUs. Many of DOE’s programs reduce labor productivity in the quest to save fossil fuel BTUs with diminishing costs.
2. Change the application of computer modeling from seeking and justifying answers to improving questions for policy makers. For example, if energy prices are forecasted to increase and a proposed standard is only beneficial under that scenario, what can be done to firm up future prices, instead of accepting higher prices and a regulatory standard as a fait accompli?
3. Build flexibility into programs, recognizing that science and technology change over time. Harmonize organizational and personnel behavior with best business practice; staff salaries that reward size of staff feed mission creep. Always keep a weather eye on how programs affect consumers and everyday Americans. Recognize the valuable contribution of all energy forms and stop favoring one over another. Finally, and most importantly, acknowledge that free markets can and do accomplish social goals more efficiently and effectively than government programs and mandates, including environmental goals.

In short: Make sure that an “all the above” energy policy means every option is fairly and scientifically evaluated.

Specifics

Some changes are within DOE’s current authority, while others may require legislation. We focus on the target rich Office of Energy Efficiency and Renewable Energy (EERE) with the following specifics which give greater detail to the above listed ideas. 

A. Adjustments within DOE’s Authority

1. Establish separate product classes for condensing and non-condensing appliances

DOE should stop EERE’s “War on Fossil Fuels.” For example, EERE is pushing to electrify everything by eliminating the direct use of natural gas. They are doing this, in part, through setting unachievable, except for certain product classes, efficiency standards that only work to eliminate natural gas as an option for consumers at the behest of their environmental cronies.

Three examples are:

• Docket EERE-2014-BT-STD-0031 Energy Conservation Standards for Residential Furnaces
• Docket EERE–2014-BT–STD–0042 Energy Conservation Standards for Commercial Water Heaters
• Docket EERE–2013–BT–STD–0030 Energy Conservation Standards for Commercial Packaged Boilers

EERE has aptly demonstrated that is a willing party to the elimination of non-condensing furnaces, water heaters and boilers at the behest of its “energy efficiency” clientele and to achieve their “deep decarbonization” goals to electrify everything. These subjects have been extensively documented within Master Resource over the past 4 years.  Just put the name “Krebs” into the search box and then take your pick.

• Segregate energy promotional/advocacy programs from regulatory programs

As the initials EERE imply, promotional functions include EERE’s advocacy of energy efficiency and renewable energy. These come together under “Net Zero.” Regulatory functions under EERE include the establishment of appliance minimum efficiency standards.  Having both “Net Zero” and fossil-fueled appliance efficiency standards under the same DOE Office (EERE) is a recipe for the regulatory picking of winners and losers where fossil-fueled appliances lose; especially those that are non-electric. Our specific recommendations are:

1. The establishment of energy efficiency metrics should be transferred out of EERE and over to EIA along with a full NOPR proceeding to consider how such metrics should be used within both statutory (e.g., minimum appliance efficiency standards) and volunteer programs (e.g., Home Energy Score and Portfolio Manager).
2. All “Net Zero” programs and funding thereof should be eliminated as they are essentially a means of implementing the UNFCC’s objective of “deep decarbonization.”

The above two ideas are within DOE’s authority. Additional “revamping” is called for that may need some legislative adjustments that are outside of DOE’s authority.

B. Legislative Adjustments

• Reduce DOE’s authority; especially it’s open-ended authority

Most of EERE “energy efficiency” duties are no longer relevant; unless you are an environmental advocate of “deep decarbonization.” Most of EERE’s duties were assigned several decades ago, in the era of oil embargoes (of which relatively very little was used in appliances back then and it is truly negligible now.) Basically, energy efficiency was and is a vehicle for bureaucratic “mission creep” and political graft using OPM (other people’s money).

Such abuses are further enabled by open-ended authorizations scattered throughout DOE’s statutes.  A prime example of this is the term “as the Secretary determines.” Replace all references to “as the Secretary determines” with “as established by a formal determination issued by the Department following public review and comment.“

• Overhaul EERE’s Opaque, Obese and yet Obtuse economic analyses

Perhaps the most abusive of consumer choice is the convoluted and manipulative modelling that EERE uses to justify its rulings.   Basically, EERE’s present modeling assumes consumers are incapable of economic decisions. For each Notice of Proposed Rulemaking (NOPR), EERE generates thousands of pages of documentation and spreadsheets with the apparent purpose of being too heavy to lift; let alone read.

But read them we do.  And in doing so, we have found some truly amazing (and not in a good way) findings.  For example, EERE uses Monte Carlo simulation of its Life-Cycle Costing (LCC) spreadsheet models that assumes consumers never use rational (economic) decision making.  The result are efficiency standards that fail simple economic cost benefit done in the real world.

Next up are an assortment of specific legislative fixes that are sorely needed. These Include:

1. Repeal (without replacement) Section 433 of the Energy Independence and Security Act of 2007
2. Update the 1996 “Process Improvement Rule” and make it “judicially enforceable.”
3. Modernizing Energy Efficiency under EPCA: 42 U.S.C. § 6295(m)(1) means that every 6 years every appliance standard will be re-evaluated. This needs to be changed because we are well beyond the point of diminishing returns and well into bureaucratic “mission creep.” Specifics include: 

• Define the statutory requirement that new energy conservation standards must result in “significant” conservation of energy, measured over the full fuel cycle and only include that which is over-and-above that of market-driven increases in efficiency that are already occurring or are expected to occur.
• “Significance” should also be defined in terms of source (a.k.a., full fuel-cycle) by energy type so that overall impacts can be clearly identified.
• Establish a market-based cut-off within 42 U.S.C. § 6295(m)(1) when high-efficiency (e.g., condensing) market share exceeds 50% on a national basis.
• Define “technically feasible and economically justified” in terms of products successfully represented in the market and economically beneficial to consumers individually and collectively. The vagueness of these terms allows the picking of winners and losers while abusing consumers through allowing the LCC savings to merely break-even with the associated LCC costs of given proposed appliance minimum efficiency increase.
• To the extent possible, mandate that DOE base all projections upon the historical data rather than creating synthetic data.
• Remove mandatory 6 year reviews of all minimum energy efficiency standards for appliances unless the preponderance of clear and convincing evidence makes it reasonable to expect that appliance efficiency increase is warranted and:
• The concept of increasing a given appliance’s minimum energy efficiency must be first vetted with “industry” before being officially published as a NOPR or any other means (e.g., RFI).  The vetting process must also meet the following criteria:
  • If the specific value of estimated energy savings does not meet the threshold value set by statute and found to be reasonable by industry, the concept of increasing a given appliance’s minimum energy efficiency is dropped.
  • The identification of a clear market failure that warrants the adoption of energy conservation standards must be identified and quantified and agreed to by industry. Otherwise, the concept of increasing a given appliance’s minimum energy efficiency should be dropped.
• Allow for “backsliding” of minimum efficiency standards minimum efficiency standards when it best serves consumer interests in terms of more economically justified purchase decisions for lower efficiency covered products. Save consumers upfront costs if life cycle energy savings do not warrant higher efficiency levels.
• Use only publicly available and verified data and models.
• Instead of the complicated (and gamed) life-cycle costing (LCC) modelling and Monte Carlo risk analyses currently used, consider a more straightforward payback methodology. This would closer mimic “real consumer” behavior for economic decision-making. Require peer review every ten years on the rulemaking analytic process.
• Reform DOE’s Appliance Standards and Rulemaking Federal Advisory Committee (ASRAC) to represent all major stakeholder groups, and justifying restriction of members of any such group, and restricting ASRAC guidance to strategic recommendations for DOE rulemaking. All negotiated rulemaking with respect to DOE covered products is to be conducted outside of ASRAC functions.

C. Organizational Reform Priorities

The new Secretary, Congressional Committees and President have all expressed desires to streamline and make more effective DOE’s organization and functioning. Towards that end the following recommendations should be pushed through letters, meetings and opinion editorials:

1. Establish clear demarcation organizationally between analytic/information functions and promotional/regulatory functions: they should never reside in same office and in fact should be managed in such a way as to create clear ‘independence’ between them, not ‘cooperation.’
2. Establish a five-year “sunset” review of all DOE offices and programs. Sunset review provisions such as in Texas could help avoid mission creep.
3. Consider shifting the present emphasis from prescriptive standards to performance standards and legitimize fuel switching in whatever direction is the most economically affordable means of providing specific energy needs of consumers.
4. Limit EERE and DOE’s National Labs’ participation in national codes and standards activities (ASHRAE, ICC, etc.) to presentation of peer reviewed research and analysis. Discontinue participation in standards and code body proceedings as advocates of requirements, chairs of committees and task groups, voting members of these organizations, and funding sources for advocacy organizations and interests participating in these proceedings. Through direct funding and “packing the bleachers,” committee assignments, EERE, through the National labs, has effectively hijacked these private institutions resulting in regulatory capture in reverse.
5. Reform energy price forecasting to be more independent of regulatory agenda. Price forecasts, like any other computer model, should better frame and inform decisions, not used to justify predetermined agenda. Market pricing should be used whenever available. Scenario analysis with wide ranging alternative pricing should be utilized only when market pricing is not available. We think that there could be an expanded role for EIA in this to track utility rate structures, not just average rates, so that true “marginal costs” (e.g. “tail block rates”) can be used in cost/benefit analyses based upon up-to-date and real world tariffs and providing crucial information to the states in comparing alternative rate structures.

Additional Ideas and Conclusions

Federal efforts to phase-out natural gas direct-use include Docket EERE-2016-OT-0010-0001; titled “Accounting Conventions for Non-Combustible Renewable Energy Use.” This situation was recently reviewed at Master Resource (here and here).

In summary, the following excerpt from comments filed in the above-mentioned Energy Conservation Standards for Commercial Packaged Boilers lay EERE’s game bare.

Despite lofty projections of energy savings, cost savings, and environmental benefits that often bear little relation to reality, the main effect of these rulemakings is to force consumers to purchase products that are already available to them, but that they have declined to choose to purchase on their own. These rules represent, in reality, a hidden tax on consumers – taxes that result in higher up-front prices for products and lower overall manufacturing employment in the United States.

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Mark Krebs (Mark.Krebs@spireenergy.com), an engineer by training, has been involved with energy efficiency design and program evaluation for more than thirty years. He has served as an expert witness in dozens of energy-efficiency filings, which he summarized in a Public Utilities Fortnightly article, “It’s a War Out There: A Gas Man Questions Electric Efficiency” (December 1996).

Tom Tanton (ttanton@fastkat.com) is Director with Energy and Environmental Legal Institute. Mr. Tanton has 40 years in energy and environmental policy, focused on enabling technology choice and economic development. Mr. Tanton has testified to numerous state Legislatures and Congress as an expert on energy policy. He formerly served as Principal Policy Advisor at the California Energy Commission.