First, I want to thank you, Mr. Speaker, for convening today’s forum and putting new energy into the search for answers to our state’s energy challenges.
You have been a great friend of mine and the people of Massachusetts throughout your career. No one has watched out more for the hungry and the homeless. No one has watched out more for those struggling in the shadows of life. No one has watched out more for working families than Sal DiMasi.
I also want to thank Chairman Dan Bosley, Chairman Frank Smizik, and Chairman Brian Dempsey for your leadership on finding energy solutions for the twenty-first century.
Mr. Speaker, the winter storm of high fuel prices getting ready to hit Massachusetts has provided us with more warning than Katrina. The $20 million in state fuel aid you’ve proposed is almost the only effort that will make our state government look like it’s not being run by Mike Brown.
Millions will be affected. Some will just go cold. Others could face a more dangerous fate.
Over 100,000 Massachusetts households could be out of federal fuel aid by the end of December -- right around the holidays.
Why? The prices of natural gas and heating oil have doubled over the last few seasons but the fuel assistance benefit has remained even.
Meanwhile, Mrs. McGillicuddy’s Social Security check hasn’t been making up the difference. She gets about $900 a month. When it costs close to $700 to fill her heating oil tank, what’s she to do?
So we have both an immediate crisis -- keeping Mrs. McGillicuddy warm this winter -- along with longer term challenges that the state and federal governments ought to take as seriously as a Category 5 hurricane roaring into our coastline.
In the short run, the $20 million in state fuel assistance proposed by the legislature will definitely help. We need to make that happen. But we must also recognize that only one out of every four families that’s eligible for fuel assistance ever receives any. If the 400,000 plus eligible households actually apply, our assistance system would suffer a meltdown.
Citizens Energy is working on a number of initiatives to help in the short term and the long term -- some of which we can talk about this morning.
If you read the financial pages, you may know that ExxonMobil, Chevron, ConocoPhillips, and Shell are expected to report a 43% increase in their combined third quarter profits -- a $9 billion surge over the same period last year. Refiners such as Valero and Frontier are expected to report a 162% jump over last year, while gas producers will enjoy a boost of over 65%.
Rising energy prices have spurred an unprecedented run-up in profits for oil and gas companies and refineries.
To help those suffering from the price surges, we have sent letters to every major oil and gas company in the US asking them to set aside 1% of their after-tax profits for fuel aid.
I have also written to the governors of the six New England states to join us in asking the oil and gas industry to participate in this voluntary effort. Mr. Speaker, perhaps you might ask your fellow speakers and state legislators to add their voices as well to this campaign.
The governors themselves should ask the president to declare a state of emergency when the price of heating oil goes above $3 a gallon or natural gas tops $20 an mcf. Homeowners should receive automatic relief under these circumstances. The impact of these prices will be no different than if a storm surge wiped people out of their homes.
If you ask me how we’re going to pay for emergency fuel relief, I’ll give you an answer other than deficit spending as soon as George Bush tells us how he’ll pay for tax cuts.
I should also note that the federal government itself makes a fortune when the price of energy goes up because of the surge in royalty payments from energy producers taking oil and gas from federal lands and waters.
Rents, royalties and bonuses paid to Washington pulled in a staggering $8 billion last year. And with prices up, the federal windfall will increase significantly this year. The long and the short of it is that there’s money in the budget -- we only need the will to find it.
We have urged the federal government to devote every cent of this royalty windfall to help the poor cope with the price hikes. We hear that the federal government may provide a little boost to fuel assistance, but nowhere near how much the feds are making on oil and gas leases.
We need help with both cheaper oil and using less of it. As consumers, we can take immediate steps that may save up to 20% of our energy consumption by using low cost/no cost weatherization measures, starting with turning down our thermostats.
For those who may have difficulty making even a modest investment in energy savings, I would propose that hardware stores throughout the state lend a hand. We should ask Ace, True Value, Home Depot, Lowe’s and others to provide, at cost, energy savings kits containing weather stripping, plastic window covers, caulking, and other low cost devices to help cut heating bills.
These are all short-run Band-Aids to put on the gaping wound that’s sure to come.
What we really need to do is bring down the cost of energy. The most effective way to do that is to use less.
And the only way we will use less is to become more energy-efficient.
There are a series of initiatives that could enable Massachusetts to become the most energy-efficient state in the union and lead the country in a sensible twenty-first century energy policy.
Let me talk about two of them.
The average home in Massachusetts uses between 25% and 40% more energy than needed simply because it leaks like a sieve.
In most homes in Massachusetts, you can light a candle on a cold windy night in the middle of winter and see the candle smoke blowing from one end of the room to the other -- that is, if you’re lucky enough to have the candle stay lit at all.
The number of times we have to heat the same air molecules in Massachusetts to warm our homes is many times that of new housing being built in other areas of the country.
Our housing stock is much older and was built based on cheap fuel. As a result, the stock is highly inefficient. As a state, we spent about $4 billion in 2004 to heat our homes with oil and natural gas. At 60% average efficiency, that means we’re wasting well over $1 billion a year on unneeded heating costs. As we’ve seen in 2005, those costs can rise astronomically in a single year.
We can either continue to send that $1 billion to big oil and gas and OPEC every year or we can keep it right here at home to create good jobs and energy savings.
An estimated 5% to 10% of Massachusetts households have made independent investments in energy-saving technologies, but that’s not nearly enough to capture the full potential savings.
Meanwhile, publicly funded conservation programs reach only 0.1% of Massachusetts homes every year. That’s not enough either.
It’s time Massachusetts took a bold step. We should create incentives for our banks to make home improvement loans for energy efficiency upgrades the same way we give them incentives to make student loans -- by guaranteeing the loans.
By making loans for energy conservation, Bay State banks can help grow jobs and an entire industry devoted to making our state more energy-efficient and independent. Maybe State Treasurer Tim Cahill could help by providing cash deposits in exchange for reduced lending rates from the banks.
Many of these home improvements can take place for loans of $5,000 to $10,000 and can be paid back in less than 10 years.
Let’s say an old furnace is running at 65% efficiency and can be replaced with a 95% efficient unit at a cost of $4,000. If the household’s annual fuel bill is $1,500, the annual savings would run close to $500. That’s a first year return on investment of 11.8% -- enough to make any Wall Streeter sit up and take notice. The whole furnace would be paid for in about eight years.
Even deeper savings can be achieved by investing in new windows, insulation, thermostats, and lighting.
Simply put, a major energy savings home improvement loan program, guaranteed by the state and administered by the banks, will actually make money for the Commonwealth.
We can take the same dollar that was going to OPEC and pay for energy improvements to Mrs. McGillicuddy’s home that she can finance with the savings on her monthly energy bill. The loans won’t cost the Commonwealth a cent. And the jobs -- many good union jobs -- and businesses created by a rapid expansion in the energy conservation workforce will bring new tax revenues to state coffers.
As the Big Dig winds down, why not launch a great new statewide effort to create a tremendous boon for the construction industry? At the same time, it will add value to homes for the wealthy, the middle class, and everyone else.
Multiply individual household savings in dollars and BTUs by the millions, and the bottom line is that we can dramatically cut our energy costs and reduce the amount of oil and natural gas we have to import every year.
Secondly, I read with great interest Gov. Romney’s recent proposal to relax pollution limits to allow power plants that burn dirty fuels to increase production in order to keep the energy supply in line with peak demand.
That’s the old way. That’s the pre-energy crisis George Bush “let’s drill our way out of the problem” way. If we have a problem, open the spigot, burn more oil, pollute our lands, create greenhouse gases, and increase our dependency on fossil fuels.
Believe me, there’s a better way. It’s called demand response. And it’s a bit different from traditional energy conservation. It brings down peak needs rather than overall use.
Demand response works by providing incentives for local businesses to reduce their energy consumption during periods of peak demand, usually in the hot summer or cold winter months. Under DR, your local supermarket could reduce its lighting and cycle its refrigeration during those peaks and receive payment for the energy it doesn’t use.
Or an office building could modify its heating and ventilation system to use less energy during those peaks in demand.
Cutting down on energy demand is just as valuable as having additional generation capacity available.
I’ve spoken with the head of ISO New England and a local demand response company about this promising option. One Massachusetts company is working in other markets; the one place they aren’t is the Bay State because the appropriate incentives are not in place.
There are [at] least 100 megawatts of demand response capacity that could be brought on line in Massachusetts before the year’s end. That alone won’t completely solve the short term problem, but it could eliminate the need to unleash one or two of the four dual-capacity plants eyed by the Romney administration for generating more power from oil.
But in the long term, demand response programs could meet 5% to 10% of our peak capacity -- the most expensive power we pay for -- channel millions of dollars to local businesses, and dramatically reduce the need to bring additional fossil fuel generation on line.
New advances will allow homeowners themselves to participate, getting paid to use washers, dryers, vacuum cleaners, air conditioners, can openers and other appliances outside the periods of peak demand. In fact, new technology allows these programs to be controlled remotely and [do] not significantly affect one’s standard of living.
The Bay State’s 2.5 million households currently pay hundreds of millions of dollars annually in reliability contracts to ensure our grid has adequate capacity. These contracts pay existing generators a bonus just for being available.
Rather than force utility users to pay millions to power companies like Dominion and Exelon, we ought to allow those same payments to go to businesses in the demand response program. The desired result of sufficient capacity will be achieved not through exporting dollars to energy giants but rather through channeling payments to our own firms.
Places like Southwestern Connecticut and New York City have already implemented successful demand response programs to ensure grid reliability, and they did so for less than the cost of paying generators for capacity.
In a recent 300-megawatt RFP for peaking capacity in Southwestern Connecticut, demand response proved to be the most cost-effective option. This means that paying people not to use energy is simply cheaper than paying for new plants that will only be used to meet demand for a few days in the middle of winter or summer.
The energy challenges facing Massachusetts are complex, and there are no easy solutions. We need to keep our energy systems safe and reliable and also meet the immediate needs of all our citizens, including the most vulnerable.
At the same time, we have to avoid falling back into old ways of thinking.
We need bold action to help the poor in this time of crisis and set the stage for long term solutions.
I want to thank you for your leadership in shining the spotlight of public attention on our energy challenges.
Thank you again for inviting me here today. I look forward to answering your questions.