### 202-234-4433 Neal R. Gross & Co., Inc. Page 1 UNITED STATES DEPARTMENT OF ENERGY

+ + + + +

ENERGY EFFICIENCY AND RENEWABLE ENERGY

+ + + + + NOTICE OF PROPOSED RULEMAKING (NOPR) FOR ENERGY CONSERVATION STANDARDS FOR RESIDENTIAL WATER HEATERS, DIRECT HEATING EQUIPMENT AND POOL HEATERS (i.e., RESIDENTIAL HEATING PRODUCTS)

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PUBLIC MEETING

+ + + + + Thursday January 7, 2010

The Public Meeting convened in Room 1E245 in the Forrestal Building, 1000 Independence Avenue, S.W., Washington, D.C., at 9:00 a.m., Douglas Brookman, Facilitator, presiding,

PRESENT: DOUG BROOKMAN, Facilitator CHARLIE ADAMS, A.O. Smith ASHLEY ARMSTRONG, Navigant Consulting ALEX LEKOV, Lawrence Berkeley National Laboratory BRUCE AUBREY, Hayward Pool Products TIM BALLO, Earthjustice JANE BAUER, Empire Comfort Systems NICK BAUER, Empire Comfort Systems KEN BELDING, Empire Comfort Systems MIKE BEYERLE, General Electric

### 202-234-4433 Neal R. Gross & Co., Inc. Page 2 PRESENT (Cont'd): J.P. BLACKFORD, American Public Power Association JOE BOROS, Rheem Manufacturing Company DON BRUNDAGE, Southern Company RUTH ANN DAVIS, Williams Furnaces Company ANDREW deLASKI, Appliance Standards Awareness Project LANCE DeLAURA, Sempra Energy Utilities CARVIN DiGIOVANNI, Association of Pool & Spa Professionals TOM ECKMAN, Northwest Power & Conservation Council ROBERT ELLIOTT, National Propane Gas Association CHUCK FOSTER, Edison Electric Institute ROBERT GLASS, Raypack JOHN HOLT, National Rural Electric Cooperative Association MOHAMMED KHAN, U.S. Department of Energy GEORGE KUSTERER, Bock Water Heater RON LEWIS, U.S. Department of Energy FRANK MEYERS, PIV Industries KAREN MEYERS, Rheem Manufacturing Company RICHARD MUDD, Louisville Tin & Stove Company TERRY MULLEN, Bock Water Heater MARK PARKER, A.O. Smith RAYMOND RICHARDSON, Louisville Tin & Stove Company HARVEY SACHS, American Council for an Energy- Efficient Economy SHAJEE SIDDIQUI, Zodiac Pool Systems, Inc. JIM SMELCER, Lochinvar Corporation MARK STANGA, Daikin, U.S. Corporation FRANK STANONIK, Air-Conditioning, Heating, and Refrigeration Institute ERIC STAS, U.S. Department of Energy TOM STROUD, Hearth, Patio, and Barbeque Association MOLLY TROMBLEY-McCANN, Energy Solutions, Pacific Gas & Electric ERIC TRUSKOSKI, Bradford White Corporation PRESENT (Cont'd):

### 202-234-4433 Neal R. Gross & Co., Inc. Page 3 IAN SWINK, U.S. Department of Justice DAVID TRAN, Honeywell International CONSTANTIN von WENTZEL, Navigant Consulting TED WILLIAMS, American Gas Association VANCE WILLIS, Hayward Pool Products JEFFREY KINGMAN, Navigant Consulting

### 202-234-4433 Neal R. Gross & Co., Inc. Page 4 T-A-B-L-E O-F C-O-N-T-E-N-T-S Welcome, Introduction, and Agenda Review, Doug Brookman........................5 Rulemaking Overview and Proposed Standard Levels, Mohammed Khan...............13 Brief Opening Remarks from Interested Parties, Doug Brookman..............18 Scope of Coverage and Product Classes, Ashley Armstrong....................46 Screening Analysis and Engineering Analysis, Ashley Armstrong..........88 Life-cycle Cost and Payback Period Analyses, Alex Lekov...............169 National Impact Analysis, Alex Lekov.....246 Trial Standard Levels, Ashley Armstrong..271 Consumer Subgroup Analysis, Alex Lekov...278 Manufacturer Impact Analysis, Jeff Kingman.......................279 Utility Impacts, Employment Impacts, Environmental Impacts, and Regulatory Impacts Analyses, Alex Lekov.......311 Discussion of Proposed Standard Levels and Additional Considerations for the Final Rule, Mohammed Khan......346 Other Issues and Final Remarks from Interested Parties, Doug Brookman......................352 Next Steps and Closing, Mohammed Khan....367 Adjourn..................................370

### 202-234-4433 Neal R. Gross & Co., Inc. Page 5 1 P-R-O-C-E-E-D-I-N-G-S 2 (9:03 a.m.) 3 MR. BROOKMAN: Good morning, 4 everybody. Welcome. My name is Doug Brookman 5 from Public Solutions in Baltimore. Glad to 6 see you all here this morning bright and 7 early. 8 This is the U.S. Department of 9 Energy's Public Meeting on the Notice of 10 Proposed Rulemaking for Energy Conservation 11 Standards for Residential Water Heaters, 12 Direct Heating Equipment and Pool Heaters, 13 also known as Residential Heating Products. 14 I'm so glad you could make it this 15 morning. We have a full day for you, I 16 suspect. 17 It's our tradition to start with 18 introductions and then I'm going to do a brief 19 agenda review and then we'll proceed with the 20 program for the day. 21 I'll start this side of the room. 22 Say your name and organizational affiliation

### 202-234-4433 Neal R. Gross & Co., Inc. Page 6 1 and we'll just proceed around. Please. 2 MR. MUDD: My name is Richard 3 Mudd. I'm from Louisville Tin & Stove Company 4 in Louisville, Kentucky. 5 MR. BROOKMAN: And let me just 6 break in to say the microphones, we won't get 7 everybody's name on the record, but since you 8 registered, we do know who is here and we'll 9 provide a listing of those registered. So you 10 don't need to worry right now about using the 11 microphones. We'll get instructions on that 12 in a moment. 13 MR. BOROS: I'm Joe Boros with 14 Rheem Manufacturing Company. 15 MR. GLASS: Robert Glass with 16 Raypack. 17 MR. STANONIK: Frank Stanonik, 18 Air-Conditioning, Heating, and Refrigeration 19 Institute. 20 MR. BRUNDAGE: Don Brundage, 21 Southern Company. 22 MR. DeLAURA: Lance DeLaura,

### 202-234-4433 Neal R. Gross & Co., Inc. Page 7 1 Sempra Energy Utilities, Los Angeles. 2 MR. TRAN: David Tran, Honeywell 3 International, Minneapolis. 4 MR. AUBREY: Bruce Aubrey, Hayward

5 Pool Products. 6 MR. WILLIAMS: Ted Williams, 7 American Gas Association. 8 MR. SIDDIQUI: Shajee Siddiqui, 9 Zodiac Pool Systems, Inc. 10 MR. SMELCER: Jim Smelcer, 11 Lochinvar Corporation. 12 MR. STANGA: Mark Stanga, Daikin, 13 U.S. Corporation. 14 MS. DAVIS: Ruth Ann Davis, 15 Williams Furnaces Company. 16 MR. HOLT: John Holt, National 17 Rural Electric Cooperative Association. 18 MR. BLACKFORD: J.P. Blackford, 19 American Public Power Association. 20 MR. ELLIOTT: Robert Elliott, 21 National Propane Gas Association. 22 MR. DiGIOVANNI: Carvin DiGiovanni

### 202-234-4433 Neal R. Gross & Co., Inc. Page 8 1 with the Association of Pool & Spa 2 Professionals. 3 MR. BELDING: Ken Belding, Empire 4 Comfort Systems. 5 MS. TROMBLEY-McCANN: Molly 6 Trombley-McCann, PG&E, California. 7 MR. SWINK: Ian Swink, U.S. 8 Department of Justice Anti-trust. 9 MR. BEYERLE: Mike Beyerle, 10 General Electric. 11 MR. SACHS: Harvey Sachs, American 12 Council for an Energy-Efficient Economy. 13 MR. STAS: Eric Stas, DOE General 14 Counsel's Office. 15 MR. LEWIS: Ron Lewis, DOE. 16 MR. KHAN: Mohammed Khan, DOE. 17 (Audience Introductions off mic.) 18 MR. BROOKMAN: Thank you. Once 19 again, welcome to everybody. Glad you could 20 join us this morning. If we exhibit this 21 level of discipline as the day goes on, we're 22 going to be in good shape, I think.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 9 1 I'm going to do a brief agenda 2 review and then we're going to launch right 3 square into the program. Immediately 4 following this overview, Mohammed is going to 5 give a rulemaking overview and talk about the 6 proposed standard levels. Following that, 7 there's an opportunity for anybody that wishes 8 to do so to make brief comments on key issues 9 that any of you wish to raise here at the 10 outset, brief remarks. Following that, a 11 description of scope of coverage and product 12 classes from Ashley. 13 Proceeding on, screening analysis, 14 engineering analysis from Ashley and 15 Constantin. We'll take a break round about 16 10:15 or 10:30 depending on how the flow of 17 information proceeds and following that, a 18 life-cycle costs and payback period analysis. 19 We'll take lunch round about 12:15 today or 20 so. Everybody is on their own for lunch. 21 Following that, the national impact analysis, 22 trial standard levels, additional information

### 202-234-4433 Neal R. Gross & Co., Inc. Page 10 1 and presentation on that. 2 We'll take a break mid-afternoon 3 and then following the mid-afternoon break or 4 whenever we get there, consumer subgroup 5 analysis; manufacturer impact analysis; 6 utility impacts, employment impacts, 7 environmental impacts, and regulatory impacts 8 analyses.

9 And then later on as the afternoon 10 progresses, discussion of proposed standard 11 levels and additional considerations for the 12 final rule. And finally, you'll see if you're 13 looking at the agenda, there's an opportunity 14 at the end of the day for anybody to raise any 15 additional issues that you wish to raise, 16 anything that you think we haven't covered so 17 far during the course of the proceedings 18 today. 19 So that's the plan for today. 20 Following that opportunity for comment, next 21 steps and brief closing remarks. 22 So how many of you are new to

### 202-234-4433 Neal R. Gross & Co., Inc. Page 11 1 these proceedings here? Just quite a few of 2 you, okay. 3 You received a packet when you 4 came in the door. The Department has put 5 together a rather detailed PowerPoint slide 6 presentation. The general format for this 7 discussion is to provide the Department and 8 their consultant team an opportunity to lay 9 out a lot of very specific material and then 10 provide an opportunity for your detailed 11 comments. And that's what we have found today 12 is the best way to generally capture all this 13 content and capture all of your comment. So 14 that's the general form for today that we 15 would anticipate. 16 And in addition to that PowerPoint 17 packet, you also have the Federal Register 18 notice and we have also a few comments here at 19 the outset from people that wish to speak 20 early on. 21 So I think that's all that I need 22 to cover except for the ground rules. Over

### 202-234-4433 Neal R. Gross & Co., Inc. Page 12 1 the course of these years in Appliance 2 Standards, we've asked that people if they 3 would, please, speak one at a time. Please 4 say your name for the record. There will be a 5 complete transcript of this meeting. It will 6 be available. It will be posted on the EERE 7 website, the BT website in a week or so 8 following this meeting. 9 I'm going to be queuing people as 10 best I can by name, so you'll have a sense of 11 where you stand in the queue. And also, I 12 wish to encourage follow-on comments, if you 13 think that helps to support or rebut someone

14 else's comment. 15 Please say your name each time you 16 speak. You don't need to say your 17 organizational affiliation again. Your name 18 is sufficient. We know you're here. 19 Please, be concise. Share the 20 airtime. There's a lot to be said in this day 21 today and, to keep the focus here, please turn 22 your cell phones on silent mode. If you need

### 202-234-4433 Neal R. Gross & Co., Inc. Page 13 1 to have a sidebar conversation with someone 2 that's going to last more than about 15 3 seconds, we'll understand if you wish to take 4 it out of the room. It's distracting for 5 everybody else at the table. So please, your 6 consideration there. 7 Finally, if you wish to speak, 8 you're going to have to press the bar on the 9 microphone. These microphones work pretty 10 well. You don't need to get your face into 11 them like we used to. They're working better. 12 But the little green LED will light up if the 13 microphone is activated. So that's how we 14 queue you to speak. 15 So then other issues that people 16 wish to raise here at the outset before we 17 proceed? I see none.

18 Mohammed. 19 MR. KHAN: Good morning, everyone. 20 Welcome, and thank you for participating in 21 today's public meeting on Energy Conservation 22 Standards for Residential Heating Products

### 202-234-4433 Neal R. Gross & Co., Inc. Page 14 1 which encompasses water heaters, direct 2 heating equipment, and also pool heaters. 3 My name is Mohammed Khan. And I'm 4 the Department's Project Manager for this 5 activity. 6 I'll be providing a brief overview 7 of the rulemaking, and throughout the day 8 we'll be hearing from analysts from Navigant 9 Consulting and from the Lawrence Berkeley 10 National Laboratory on the details of the 11 various important analyses that the Department 12 has completed to date. 13 The purpose of our meeting. 14 Today's meeting serves multiple purposes. 15 Generally, our goal is to have a two-way 16 discussion. We want to convey the key points 17 and concepts associated with this rulemaking 18 as well as to hear and listen to your thoughts 19 and potential concerns. 20 First, we want to invite comment 21 on the proposed standard levels. We want to 22 know your thoughts on the appropriateness of

### 202-234-4433 Neal R. Gross & Co., Inc. Page 15 1 the Department's proposal for the heating 2 product classes. 3 Second, we want to generally 4 describe the approaches and assumptions for 5 the NOPR analyses and provide an overview of 6 the results emphasizing the updates to the 7 prior analyses. 8 Third, we want to point out and 9 receive your input on some specific issues 10 associated with the analyses, for example, how 11 appropriate are the Department's assumptions?

12 Are there data and data sources that we 13 haven't recognized? 14 And lastly, we want to describe 15 the next steps in the rulemaking process and 16 what you should be anticipating from the 17 Department. 18 Statutory authority. The 19 applicable statutory authority is the Energy 20 Policy and Conservation Act. EPCA establishes 21 provisions for various consumer products and 22 prescribes an initial set of efficiency

### 202-234-4433 Neal R. Gross & Co., Inc. Page 16 1 standards for the products subject to this 2 rulemaking. 3 EPCA also requires the Department 4 to perform two cycles of rulemakings. As far 5 as the other requirements, DOE must publish 6 its final rule for heating products by March 7 31, 2010, pursuant to the consent decree of

8 New York v. Bodman. 9 Department actions on the heating 10 products. The Department established test 11 procedures for water heaters, direct heating 12 equipment and pool heaters. These test 13 procedures are found in Appendixes E, O, and 14 P, subpart B of 10 CFR 430, respectively. 15 More recent are the Department's 16 publications relevant to the standards 17 rulemakings. To initiate the rulemaking 18 effort, we published a framework document in 19 November of 2006. We then published a notice 20 that announced a public meeting and the 21 availability of a Preliminary Technical 22 Support Document last January. Most recently,

### 202-234-4433 Neal R. Gross & Co., Inc. Page 17 1 the Department published its Notice of 2 Proposed Rulemaking last month and as I 3 mentioned on the previous slide, we're 4 required to publish the final rule by March. 5 Okay. EPCA. EPCA requires the 6 Department to consider seven key factors when 7 promulgating new or amended energy 8 conservation standards. This table lists 9 those factors and illustrates the pertinent 10 analyses the Department performs to address

11 each factor. 12 As I mentioned earlier, throughout 13 the day we'll be hearing and describing 14 analyses in detail and this should make clear 15 the relevance and relationships of the EPCA

16 seven factors. 17 Slide 6. This slide presents the 18 proposed standards for water heaters. These 19 correspond to the trial standard level 4 in 20 the NOPR document. As identified on this 21 slide, the storage water heaters, there are 22 volume breakpoints occurring at 60 gallons for

### 202-234-4433 Neal R. Gross & Co., Inc. Page 18 1 gas water heaters and at 80 gallons for 2 electric water heaters. 3 We'll describe the division points 4 in detail later on as we discuss the 5 engineering analyses. All the TSLs that DOE 6 analyzed in this NOPR will be presented later 7 in the presentation and also found in Table 8 5.4 on page 65930 of the Federal Register 9 notice. 10 This slide shows the Department's 11 proposed standard levels for direct heating 12 equipment and pool heaters. DOE is proposing 13 TSL 3 for direct heating equipment and TSL 4 14 for the pool heaters. 15 Okay, Department of Energy 16 received some requests to provide an opening 17 statement from some interested parties and, at 18 this time, we're going to allow that 19 opportunity and I'll let Doug facilitate that 20 right now. 21 MR. BROOKMAN: Thank you. A few 22 individuals were kind enough to provide their

### 202-234-4433 Neal R. Gross & Co., Inc. Page 19 1 comments in writing in advance and we'll start 2 with them in calling attention to key issues 3 they wish to raise, and I see Richard. Would 4 you like to start? Please say your name for

5 the record. 6 MR. MUDD: I appreciate the 7 opportunity to address this hearing. I am 8 president of the Louisville Tin & Stove 9 Company, located in Louisville, Kentucky. We 10 manufacture gas heating equipment and have 11 been in the business since 1888 which is 121 12 years. I have been with the company for 36 13 years. 14 I have not come today to argue the 15 merits of energy conservation. Any reasonable 16 man would agree that conserving energy is a 17 worthwhile endeavor. What I have come to do 18 is offer my comments and observations and hope19 that it will persuade you to revisit the cost20 benefit analysis. 21 According to the Energy 22 Information Administration report dated July

### 202-234-4433 Neal R. Gross & Co., Inc. Page 20 1 2006, the global primary energy production for 2 2004 was 446 quad. Using that number over the 3 30-year period used in the NOPR would mean the 4 total usage over that period worldwide would 5 be 13,380 quad. The Department has concluded 6 that, if the new standards are enacted, 2.58 7 quad will be saved. 8 Of those 2.58 quads, my business, 9 the traditional direct heating segment 10 accounts for 8/100ths of 1 quad. The 11 Department could get over 97 percent of its 12 goal if traditional direct heating equipment 13 standards were not changed. 14 The report states that the 15 Secretary may not prescribe a new standard 16 that is likely to result in the unavailability 17 of covered product with substantially the same 18 characteristics including size and the 19 capacities. We are confident that the gravity 20 wall furnace category which represents 60 21 percent of our segment sales will not be able 22 to keep the same characteristics, particularly

### 202-234-4433 Neal R. Gross & Co., Inc. Page 21 1 cabinet size and the combustion chamber sizes. 2 We're not optimistic we could even 3 produce a gravity wall furnace to meet this 4 standard, but we are confident that if we can, 5 it will be substantially larger and will lose 6 its ability for retrofit which is key to our 7 business. Losing that capability will kill 8 the sales of gravity wall furnaces. And if in 9 order to keep the same cabinet sizes, we have 10 to add electrical components, then it ceases 11 to be a gravity wall furnace and that will 12 result in the unavailability of that product. 13 Under the mark-up scenarios, the 14 measurement is introduced called preservation 15 of return on the capital. I certainly expect 16 our company's profitability to decrease, 17 possibly to zero or below because of either 18 having to abandon some product categories or 19 experiencing lower consumer demand because the 20 features the consumer wants are no longer 21 available. 22 The report states that the large

### 202-234-4433 Neal R. Gross & Co., Inc. Page 22 1 impact on industry net present values suggest 2 that manufacturers would be substantially 3 harmed if profitability were impacted.

4 The statement that most 5 manufacturers have existing products that meet 6 the required new efficiencies of three out of 7 four products of our business is misleading. 8 Each of us has some products that meet the 9 standard. However, in no way do they 10 represent the bulk of our sales. In fact, 11 Louisville Tin sales, there's only 15 percent 12 that meet the proposed new standards. 13 The report addresses the impact on 14 employment if TSL 3 is proposed and passed. 15 It also says that it is likely to result in 16 the discontinuance of more product lines. It 17 goes on to state that it might result in small 18 businesses exiting the market completely. I 19 attest to both of those possibilities and 20 obviously, either of these two scenarios will 21 have a significant impact on employment in our 22 industry.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 23 1 The report states that DOE has 2 tentatively concluded that none of the 3 proposed standards would reduce the utility or 4 performance of heating products. We disagree 5 with that assessment. The utility will be 6 reduced because we see losing the ability to 7 heat without electricity and/or losing the 8 retrofit-ability. 9 The conversion costs are estimated 10 for a typical small manufacturer at $2.3 11 million. You calculate that number as 347 12 percent of each company's earnings before 13 interest and taxes. Imagine having to spend 14 three or four years' profit to attain a 15 standard that you're certain will make you 16 less profitable. We do not have that type of 17 cash and with the current credit markets in 18 turmoil, I don't think we can borrow it. 19 The report concludes that small 20 manufacturers would be negatively impacted, 21 but that we will be left with enough products 22 to meet the new standards. That is not true

### 202-234-4433 Neal R. Gross & Co., Inc. Page 24 1 in the gravity wall furnace which is 60 2 percent of our business. 3 According to the AHRI efficiency 4 listings, one of our manufacturers has two 5 SKUs that would pass the new standard. These 6 are rated at the 25,000-BTU category and 7 represent a small percentage of our business. 8 Our marketing staff has estimated that those 9 products represent around 5 percent of sales 10 and that does not necessarily lead to 11 maintaining a viable number of product 12 offerings.

13 You have asked for comments on 14 alternatives to the proposed standards that 15 could provide significant cost savings for 16 manufacturers while meeting DOE's energy 17 conservation goals. Our answer is the problem 18 will take care of itself. The traditional 19 direct heating equipment market will contract 20 over time. We already see a movement to more 21 efficient units. By allowing the market to 22 move to those units over time, it will allow

### 202-234-4433 Neal R. Gross & Co., Inc. Page 25 1 us to react naturally as changes occur. To 2 meet the proposed standards by a certain date 3 causes us to spend money we don't have and 4 puts our veritable survival in serious 5 jeopardy. 6 The preceding statements are 7 Louisville Tin and Stove's observations and 8 comments. My hope is that they will cause you 9 to revisit the risk-reward analysis and 10 conclude that the risk of disruption and/or 11 possible elimination of our U.S. based well 12 defined, niche small business is not worth the 13 reward of saving 8/100ths of 1 quad out of 14 13,380. 15 I am asking you to reconsider the 16 proposed standards for the traditional direct 17 heating equipment. Thank you for being 18 allowed to speak. 19 MR. BROOKMAN: Thank you. Other 20 individuals that wish to make brief comments

21 here at the outset? 22 Frank, do you wish to make --

### 202-234-4433 Neal R. Gross & Co., Inc. Page 26 1 since you sent in a letter? 2 MR. STANONIK: I'll just summarize 3 since you all have a copy -- or I assume you 4 all have a copy. 5 And I just want to use this 6 opportunity to state our, I'll say our initial 7 reactions to the proposed levels. 8 In the case of the residential -- 9 the proposals for residential water heaters, 10 we think that the NOPR is in the right 11 direction relative to its conclusions, but we 12 still believe the proposed levels are a little 13 too stringent. We have some issues and, in 14 particular, we think the separate product 15 class of ultra-low NO gas storage water X 16 heaters should still be addressed and should 17 have a lower minimum efficiency requirement. 18 In the case of electric water 19 heaters, we think the proposal as it addresses 20 the larger tank volumes is too high and should 21 be adjusted downward and, just as an aside, 22 I'll note as an example, if you do the math in

### 202-234-4433 Neal R. Gross & Co., Inc. Page 27 1 the case of a 65- or an 80-gallon electric 2 water heater, the proposal raises the minimum 3 by either 6 or 8 energy factor points. That's 4 a huge jump. 5 In the case of oil storage water 6 heaters, we think that the proposal should be 7 lower by two points energy factor. Also, in 8 the case of gas instantaneous tankless water 9 heaters, again, we think the proposal is too 10 high and we think the appropriate level would

11 be .80.

12 We also have some concern that we 13 had made a comment that a tankless product had 14 been required an external electric supply. It 15 does have a certain utility and it appears in 16 the NOPR that DOE is not recognizing that or 17 has decided that that's not a special utility. 18 In the case of pool heaters, we 19 think the proposal is too high. The main 20 issue there is it's a minimum standard that 21 would drive everyone to make products that are 22 near-condensing and in certain applications

### 202-234-4433 Neal R. Gross & Co., Inc. Page 28 1 would most certainly be condensing which comes 2 with a myriad of problems since they're not 3 really, at that level not intended to be 4 designed to be condensing. 5 In the case of direct heating 6 equipment, I'll just add to the comments you 7 heard from Mr. Mudd here, that we think the 8 proposals are definitely too high. We think 9 that the analysis needs to be reconsidered 10 relative to the impact of the manufacturers. 11 We think the proposed levels, 12 while numerically look relatively small, would 13 have very significant and costly effects on 14 manufacturers and, just to make a side comment 15 again, if you look at the analysis, in the 16 case of direct heating, all the levels show a 17 negative impact on the profitability of the 18 manufacturers. They are all small 19 manufacturers. They're all small businesses 20 and there's a real concern whether they could 21 withstand this erosion of their ability to 22 stay in business by making profit. In this

### 202-234-4433 Neal R. Gross & Co., Inc. Page 29 1 particular case, our recommendation would be 2 to leave the standards where they are. 3 MR. BROOKMAN: Thank you, Frank.

4 Other comments here at the outset? Andrew? 5 MR. deLASKI: Is this on, Doug?

6 MR. BROOKMAN: Yes. 7 MR. deLASKI: Andrew deLaski, 8 Appliance Standards Awareness Project. 9 A couple remarks here at the 10 outset. First of all, I want to congratulate 11 the Department on the analysis. I think, all 12 in all, it's a very thorough analysis and I 13 think that the Department has made enormous 14 strides over the past year, couple of years in 15 developing very clear explanations of what has 16 been done. You get a lot of practice, given 17 all the work you're doing in the various 18 rulemakings, but the NOPR and the attendant 19 TSD are, I think, much clearer than they were 20 a couple of years ago. 21 We support the proposed standards 22 for water heaters. I'm going to keep my

### 202-234-4433 Neal R. Gross & Co., Inc. Page 30 1 remarks focused primarily on water heaters 2 here. We think the proposal is solid for the 3 most part. That is, for most products sold in 4 the marketplace. However, we think DOE should 5 go to the higher levels for equipment over 55 6 gallons. So this would be TSL 5. We support 7 adoption of TSL 5 as the final standard. 8 We support adoption of TSL 5 9 because it would increase savings by about 40 10 percent relative to the proposed levels, 11 savings in energy, in terms of net present 12 value to consumers and in terms of CO2 13 emission reductions. So TSL 5, even though it 14 impacts only a small percentage of sales, 15 results in a disproportionate increase in 16 national benefits increase. So we strongly 17 support adoption of TSL 5 as the final

18 standard. 19 Equally important, by going to TSL 20 5, the Department would accelerate the market 21 transition to advanced water heater 22 technologies. It would encourage both

### 202-234-4433 Neal R. Gross & Co., Inc. Page 311 additional manufacturer investment in gas2 condensing equipment and also heat pump water 3 heaters and also further development of the 4 market infrastructure for these critical 5 technologies. 6 As we think ahead, beyond the 7 current rulemaking -- we've got a 2015 8 effective date of the current rulemaking for

9 water heaters -- to where should the water 10 heater market be going in the long term? We 11 think it should be going to heat pump water 12 heaters and to condensing gas equipment, and 13 that's not all going to happen in 2015, but 14 that's the direction and, by beginning with15 the biggest equipment where it's most cost16 effective, this will enable the government to 17 help the market move in the direction that 18 will yield the enormous savings that are 19 available at TSL 6 and TSL 7. 20 Now we know that TSL 6 is also 21 cost-effective on average for consumers. We 22 think it's also a good option. TSL 7 yields

### 202-234-4433 Neal R. Gross & Co., Inc. Page 32 1 also even larger savings. All that said, we 2 think TSL 5 is a reasonable middle ground 3 between the proposed rule and going all the 4 way to TSL 6 or TSL 7. 5 The concerns DOE raises with 6 regard to TSL 6 and TSL 7 are fully addressed 7 at TSL 5. The primary concern with TSL 6 and 8 TSL 7 involve transitioning the market to new 9 technologies within a relatively short period 10 of time. 11 By limiting the advanced 12 technologies to equipment over 55 gallons, the 13 primary concerns about TSL, about the higher

14 TSLs are addressed. 15 Finally, on a different note, I 16 want to thank the Department for the continued 17 progress made in valuing CO2 emissions. I'd 18 like to comment on some of the details, but 19 the Department's analysis shows that the CO2 20 emission reduction resulting from the proposed 21 rules would result in net present value 22 benefits of between $1.1 and $12.8 billion at

### 202-234-4433 Neal R. Gross & Co., Inc. Page 33 1 TSL 5, using a 3 percent discount rate. 2 We would also congratulate the 3 Department for the progress made in valuing 4 the impacts on natural gas prices. DOE shows 5 that natural gas savings resulting from this 6 rule would result in benefits of about $7.1 7 billion to buyers of natural gas over the 8 analysis period. 9 These two things are the benefits 10 from appliance standards that are being 11 delivered to what program evaluators would 12 call the non-participants. So when you add 13 those two values up, you get, at the high end 14 almost $20 billion in net present value 15 benefits over the analysis period. And 16 compare that to the $22 billion that water 17 heater purchasers get and you start to see 18 that the benefit to society beyond the buyers 19 of water heaters begin to rival those that are 20 being attributed to those -- the people who 21 buy water heaters. 22 So to me, what that says is that,

### 202-234-4433 Neal R. Gross & Co., Inc. Page 34 1 in a close call on the effect in the 2 marketplace, the Department, by beginning to 3 value the benefits to the nonparticipants in a 4 close call, that points to going to the higher 5 standard levels. So we think -- we strongly 6 support TSL 5 and we urge the Department to 7 move in that direction and we'll comment on 8 such details today. 9 MR. BROOKMAN: Thank you. Other 10 comments here at the outset? Yes, Tim?

11 MR. WILLIAMS: Ted.

12 MR. BROOKMAN: Ted. 13 MR. WILLIAMS: Ted Williams, 14 American Gas Association. 15 I'll just comment briefly on the 16 water heater proposals as they are in this 17 NOPR. We observed in the 2001 rulemaking a 18 wild mis-estimation by DOE on the market 19 shares that would result from that, 20 essentially a conclusion at that time that 21 market shares, gas versus electric, would be

22 unaffected.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 35 1 Clearly, history shows and the TSD 2 also shows historically that it didn't happen. 3 And by our analysis, the net effect was an 4 increase in full fuel cycle energy consumption 5 in CO2 in the product class. And I think 6 that's a prevailing issue in this analysis as

7 well. 8 The fact of the matter is that the 9 competing technologies of gas storage water 10 heater versus electric storage water heater of 11 equivalent volumes or first hour ratings, that 12 the gas option is penalized severely for very 13 minor increases in carbon and for fuel cycle 14 efficiency relative to the opportunities on 15 the electric side. And in our analysis, we'll 16 get into that in some additional detail. 17 Also, we're conducting tests on 18 available models, limited as they are, of the 19 design option for standard level 2, 20 atmospheric water heater, and vented water 21 heater, to look at the limitations on the 22 venting and the cost adders that might be

### 202-234-4433 Neal R. Gross & Co., Inc. Page 36 1 associated with that. We think the prevailing 2 technology at that efficiency level is going 3 to be a power-vented unit. That design option 4 should reflect the cost of the power-vented 5 unit, not an atmospheric-vented. And 6 certainly, where atmospheric can be used, the 7 full impact on the venting system, not just 8 the stainless steel vent connector incremental 9 cost ought to be incorporated in the analysis. 10 MR. BROOKMAN: Thanks, Ted. Other 11 comments here at the outset? Harvey Sachs? 12 Please turn the microphone on. 13 MR. SACHS: Thank you, Doug, and 14 attendees. I want to briefly make five points 15 which will be elaborated further during the 16 day, starting with the sixth point which is to 17 thank the Department for an unusually 18 transparent and easy-to-use set of documents. 19 I think that even where we disagree strongly 20 with their conclusions, they've made their 21 reasons quite obvious and made it very easy to 22 engage and should be commended for that.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 37 1 First point I want to make is that 2 the conclusions of the Department are based on 3 an entirely inappropriate screening analysis 4 that screened out technologies in wide use 5 internationally and screened out technologies 6 that are in use by other domestic industries 7 for other products. It looked only at things 8 that were available -- I speak specifically of 9 water heaters -- available today in U.S. 10 manufactured water heaters. This is not the 11 way we will bring Americans to international 12 competitiveness or energy efficiency. 13 The second point I want to make is 14 there's no free lunch. We are essentially at 15 the limit for resistance and atmospheric gas 16 water heaters. You can't continually ask for 17 additional safety features such as FVIR, 18 additional heat exchange to get higher EF, and 19 expect to be able to get there if you insist 20 on wasting a third of the fuel through an 21 atmospheric buoyancy-driven vent system. 22 To improve efficiency we must

### 202-234-4433 Neal R. Gross & Co., Inc. Page 38 1 begin the transition to equipment which has 2 electricity provided to reduce stand-by losses 3 and probably to provide power venting and/or 4 condensing. 5 Similarly, for electric 6 appliances, particularly in the tank 7 equipment, we're at the limit. We can double 8 the efficiency by moving to the heat pump 9 water heaters and we believe that the 10 appropriate way to do that is with the large 11 water heaters first. 12 Third point I want to make is with 13 the concept of consumer utility. Much has 14 been made of the question of diminished 15 utility by requiring gas-fired appliances to 16 have an electrical connection, whether it's

17 24 volts or 120 volts. 18 If the ability to ride out a power 19 failure was so important, why do not our 20 building codes require backup non-electric 21 heating capabilities for the 43 million U.S. 22 houses that today have electric water heaters?

### 202-234-4433 Neal R. Gross & Co., Inc. Page 39 1 This is a non-issue in the minds 2 of the public. 3 The fourth point I want to make is

4 that ACEEE and most of our collaborators and 5 friends remain sympathetic to the needs of 6 niche markets and niche manufacturers serving 7 those markets. We are not going to be 8 doctrinaire in our approach to any of these 9 things. 10 And finally, I think that, as 11 Andrew suggested, it is important to keep in 12 mind where construction is going, where 13 housing is going, and public policy. The 14 major efforts that are being launched now on 15 retrofits that will improve efficiency. 16 We believe strongly that over the 17 next decade or so, more and more consumers and 18 builders will question the need for separate 19 prime engines to provide water heating and 20 space heating. 21 Standards can't carry the burden 22 alone, but the move toward technologically

### 202-234-4433 Neal R. Gross & Co., Inc. Page 40 1 more sophisticated products, ultimately 2 winding up with condensing combination water 3 heaters is imperative to the future success of 4 U.S. industry as well as the energy efficiency 5 of our country. 6 MR. BROOKMAN: OK, thank you. Other

7 comments here at the outset? 8 (No audible response) 9 We're getting out some of the key 10 issues here. 11 Yes, please say your name. 12 MR. TRUSKOSKI: Is this on? 13 MR. BROOKMAN: Yes, I think it is. 14 MR. TRUSKOSKI: Eric Truskoski, 15 Bradford White Corporation. Some of the main 16 issues that we saw with the analysis where 17 we're looking at using insulation thickness 18 and increasing that to achieve the levels that 19 they state -- it's a disproportionate increase 20 as Frank had stated and there's also a point 21 of diminishing return.22 We fail to see some higher stand### 202-234-4433 Neal R. Gross & Co., Inc. Page 41 1 by loss increases that you see at the higher 2 volumes. When looking at manufacturing 3 capacity to produce the same amount of 4 products, the changes that are recommended, it 5 can't be done. The increase in shipping costs

6 are far too low. 7 On the installation front, there's 8 some problems that we see. For instance, the 9 sizes that are recommended for increase in 10 insulation thicknesses for electric water 11 heaters will not fit in attics at the sizes 12 that they'd have to go to. 13 And then looking at the 14 profitability estimates, as well as margins, 15 we feel these are already low and the margins 16 are already tumbling in the state that the 17 economy is. 18 And we also agree with the 19 analysis that heat pump and condensing 20 technologies are not used for -- to list some 21 of the reasons that were stated in the 22 analysis. That they're unproven on a large

### 202-234-4433 Neal R. Gross & Co., Inc. Page 42 1 scale. 2 Additional training would be 3 required, increase in component costs that 4 we'd have to bring in-house as well as 5 problems in closet installations. 6 MR. BROOKMAN: Your last name is? 7 MR. TRUSKOSKI: Truskoski. 8 MR. BROOKMAN: Thank you. 9 Please, use the microphone there. 10 MR. STROUD: Tom Stroud, HBPA. I 11 just want to reiterate a point that AHRI has 12 made and state that HBPA is in the same 13 position that we agree with the addition of 14 products, of vented hearth products, but are 15 concerned that DOE did not accept our 16 recommendation of the definition of these 17 products. 18 There is a good definition out 19 there that's a CSA definition and to come up 20 with a completely different definition, we're 21 not in support of that. 22 MR. BROOKMAN: Thank you.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 43 1 Yes, Don Brundage. 2 MR. BRUNDAGE: Don Brundage, 3 Southern Company. 4 In general, I agree with the 5 comments from the Air Conditioning, Heating, 6 and Refrigeration Institute. The levels that 7 you've chosen. I also think most of these are

8 rather 9 -- it's a rather tough standard, may go beyond 10 what may be cost effective, but I think we can 11 live with them. 12 I have a problem with TSL 5 in 13 requiring heat pump water heaters. One of the 14 big reasons is because unlike any of the other 15 water heating products, the operation of a 16 heat pump water heater is strongly affected by 17 the local climatic conditions around the water

18 heater. 19 You have widely varied locations, 20 the water heaters are installed in actual 21 operation. One may be in an attic with 140 22 degrees -- unvented attic, 140 degrees local

### 202-234-4433 Neal R. Gross & Co., Inc. Page 44 1 temperature during the summer. It may be 2 close to freezing in a garage or basement. 3 You could have issues such as if you pull 4 additional heat out of the space in order to 5 do the water heating, you may just be 6 increasing the heating level in the house or 7 you may -- depending on the local building 8 codes and the way the house was constructed, 9 you may risk freezing pipes in that basement 10 by lowering the temperature. 11 There were additional, very tough 12 issues which I agree with the Department fully 13 that there's a difference with -- it would be 14 very, very difficult with smaller water 15 heaters to require it -- the difficulties in 16 multi-family are extreme. But there really 17 needs to be more of a track record, more 18 experience with operation of these and what 19 things happen in real life. There is not a 20 long track record of heat pump water heaters 21 of the current generation in operation. 22 My company and others are

### 202-234-4433 Neal R. Gross & Co., Inc. Page 45 1 sponsoring a very large field test with heat 2 pump water heaters over the next year along 3 with the Electric Power Research Institute. 4 Some of these questions may be answered at 5 that time, but doing an unconditional standard 6 that would require heat-pump water heaters, 7 certain tank size regardless of the local 8 specifics, we feel is premature at this time. 9 Thank you. 10 MR. BROOKMAN: Can you say in your 11 study when you'll start having results? 12 MR. BRUNDAGE: It's on-going now. 13 Results should be available within one to two 14 years. 15 MR. BROOKMAN: One to two years. 16 Okay. 17 Yes, please. 18 MR. DiGIOVANNI: Carvin DiGiovanni 19 with the Association of Pool and Spa 20 Professionals, wanting to support the 81 21 percent recommendation by the AHRI and the 22 rationale thereto. Thank you.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 46 1 MR. BROOKMAN: Thank you. Other

2 comments here? 3 No additional comments. Then 4 we're going to proceed with the presentation 5 material, scope of coverage and product 6 classes. Ashley Armstrong. 7 And I'm sure that all of you are 8 now aware these materials are all in your 9 presentation packet. 10 MS. ARMSTRONG: Good morning. My 11 name is Ashley Armstrong and I'm going to 12 begin today's presentation by highlighting 13 some of the changes that the Department 14 developed for the NOPR analysis. 15 The full methodology, the results 16 are all described in the NOPR and the 17 associated TSD chapters. 18 So just to begin with an overview, 19 DOE is analyzing the following products in 20 this rulemaking. They include four types of 21 water heaters, five types of direct heating 22 equipment and one type of pool heater.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 47 1 One of the changes that DOE 2 developed for the NOPR is breaking out gas 3 hearth direct heating equipment. DOE proposed 4 the definition for gas hearth direct heating 5 equipment and in the NOPR and we're making a 6 minor clarification in this slide. 7 But the definition reads, vented8 hearth heater means vented, including free9 standing or recessed, zero clearance fireplace 10 heater, a gas fireplace insert or a gas stove 11 which simulates a solid fuel fireplace and is 12 designed to furnish warm air without ducts to 13 space in which it is installed. 14 So throughout today's 15 presentation, you're going to see highlighted 16 blue issues for which the Department 17 specifically requests your comments. The 18 issue number corresponds to the issues 19 identified in the NOPR and so with the first 20 one we're asking for comment on DOE's proposed 21 definition of vented hearth heater. 22 And I know that some of you have

### 202-234-4433 Neal R. Gross & Co., Inc. Page 48 1 indicated that you already have comments on 2 this and we'd like any suggestions you may 3 have for changes as well. So with that slide, 4 I'll open the floor. 5 MR. BROOKMAN: Thank you. We've 6 already had a comment on this, I think, so who 7 would like to start on this one? 8 Yes, Frank? 9 MR. STANONIK: Frank Stanonik. 10 Actually, I think -- I'm trying to remember, I 11 don't have all my papers with me, but I think 12 we had recommended that part of the definition 13 should specifically reference products that 14 are safety-certified to a CSA standard. And 15 if I remember the number right I think it's 16 Z21.86, I think. Or 88. One or the other. 17 But we think that's critical 18 because there needs -- in this particular 19 situation, there needs to be an absolutely 20 clear distinction between products that are 21 designed, intended, marketed, to be heaters as 22 opposed to the decorative gas-appliance

### 202-234-4433 Neal R. Gross & Co., Inc. Page 49 1 product that has been around for a while and 2 is -- regardless of how people may view that 3 product, the fact is it is out there and 4 people do buy that product simply to watch the 5 nice flames in their house and there isn't any 6 expectation or promise of those products being 7 heating appliances. 8 Some years ago, the safety 9 standards made that evolution to clearly 10 distinguish between a -- I'll call it a 11 fireplace heater and a decorative appliance by 12 creating this clear and different standard. 13 And I think the definition needs 14 to capture that. Otherwise, as we go forward 15 here, there will be unnecessary and very 16 difficult issues regarding what is or is not 17 covered by the standard, by the minimum 18 standard relative to, is this a heater or is 19 it decorative? 20 MR. BROOKMAN: Frank, can you 21 supply that specific reference? 22 MR. STANONIK: Oh yes, we'll have

### 202-234-4433 Neal R. Gross & Co., Inc. Page 50 1 it. 2 MR. BROOKMAN: Thank you. Other 3 comments about the definitions? 4 Yes, please. 5 MR. BELDING: Ken Belding. I 6 would echo what Frank was saying about the 7 ambiguity of the whole issue here. We don't 8 have really anything to talk about as far as 9 efficiency and that kind of thing because 10 we're still wondering what it says because it 11 doesn't spell out, as Frank pointed out, what 12 standard these products apply to. Is it a 13 decorative standard? Is it a heater standard? 14 What is it? So we need more definition. 15 MR. BROOKMAN: If the Department 16 were to employ the language that Frank 17 referred to, would that do it?

18 MR. BELDING: Yes.

19 MR. BROOKMAN: You're next. 20 MR. STROUD: I just want to ditto

21 that. 22 MR. BROOKMAN: Say your name.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 51 1 MR. STROUD: I'm sorry, Tom Stroud. 2 I just want to ditto Frank's comment and 3 again Z21.88 is the product that needs to be 4 referred to in here. 5 MR. BROOKMAN: Thanks very much. 6 MR. STROUD: We'll supply a

7 statement on that. 8 MR. BROOKMAN: Thanks very much, 9 okay. 10 Harvey Sachs. 11 MR. SACHS: Harvey Sachs, ACEEE. 12 We're certainly in agreement on the isolation 13 of decorative products from heating products. 14 We will provide a recommendation since the15 decorative products are frequently used year16 round for ambient comfort, pleasure, that 17 there be a capacity limitation, perhaps 5,000 18 to 6,000 BTUs which is roughly the equivalent 19 of half a ton of air conditioning. 20 You hold that, we don't care what 21 the efficiency is. 22 MR. BROOKMAN: So then we're going

### 202-234-4433 Neal R. Gross & Co., Inc. Page 52 1 to move on. 2 Ashley. 3 MS. ARMSTRONG: I actually have 4 one follow-on question. Frank and others. 5 Frank, when you make your comments and you 6 submit your recommendations for Z21.88, the 7 Department started with that definition and if 8 you would compare it to the vented home 9 heating definition within the statute, you 10 might find that there are some differences

11 there. 12 So any clarifications you can 13 provide would be helpful. 14 MR. STANONIK: We'll try and 15 address that. I'm aware a little bit of that 16 situation. We'll try and address that and 17 clearly -- clearly, part of the difficulty is 18 that certainly back when NAECA was written and 19 this product or the direct heating equipment 20 was defined, the concept of fireplace heaters 21 was by no means a very well-developed or even

22 close to mature market.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 53 1 MR. BROOKMAN: Thank you. 2 MS. ARMSTRONG: Okay, the next 3 slide, DOE would like to know that if DOE4 finalizes the rulemaking as proposed for gas5 fired hearth equipment that these 6 manufacturers would now be subject to the 7 relevant provisions for the other four types 8 of direct heating equipment, which would 9 include test procedures, certification 10 compliance and enforcement, along with other 11 provisions that are noted in the CFR and 12 explained in the notice. 13 So DOE is seeking comments from 14 interested parties on the potential burdens to 15 manufacturers of gas-fired hearth equipment 16 which would result from the testing, 17 certification, reporting and enforcement 18 provisions in these sections.

19 MR. BROOKMAN: Comments for that 20 specific query? 21 (No audible response) 22 No additional comments on that.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 54 1 Okay.

2 MS. ARMSTRONG: To move on to 3 water heaters and the product classes, DOE is 4 analyzing four water heater product classes in 5 this rulemaking. Product class requirements 6 include the type of energy used or capacity or 7 other performance related features which 8 affect the utility or efficiency. DOE decided 9 not to create a separate product class for 10 low-boy water heaters. They use the same type 11 of energy, they're offered in a similar range12 of storage volumes, and the size of the low13 boy units does not seem to impact the 14 efficiency of those currently on the market. 15 Next, DOE did not decide to16 establish a separate product class for ultra17 low NO heaters. Once again, they provide a X 18 similar utility as other gas-fired storage 19 water heaters, they use the same type of 20 energy and they're offered in the same volume. 21 That being said, DOE did devise a separate 22 analysis for ultra-low NO water heaters which X X

### 202-234-4433 Neal R. Gross & Co., Inc. Page 55 1 I'll talk about later. 2 So for issue 5 and 6 on this 3 slide, where it's specifically asking for your 4 comments on the need for a separate product5 class for low-boy water heaters and for ultra6 low NO water heaters. X 7 MR. BROOKMAN: Yes, please. 8 Charlie. 9 MR. ADAMS: Charlie Adams, A. O. 10 Smith. We believe that low-boy water heaters, 11 low-boy electric water heaters should indeed 12 be a separate class. 13 DOE has already recognized that 14 tabletop water heaters have a unique 15 application characteristic that would be 16 compromised, if not eliminate the whole class, 17 if we're required to meet higher efficiency 18 levels by increasing insulation which is, by 19 staying in resistance technology is about the 20 only tool that a designer has to work with on 21 an electric water heater for increasing 22 efficiency.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 56 1 Low-boys have much the same 2 constraints in their use application and 3 intended space. We will be submitting written 4 comments and we will provide additional 5 information and some photographs of typical 6 installations of electric low-boy water 7 heaters that show that they suffer the same 8 constraints as the tabletop-type equipment 9 that has already been recognized by the 10 Department of Energy. 11 We also -- on issue six, we also 12 believe that ultra-low NO gas water heaters X 13 should be considered in a separate class. 14 We've read the reasoning of the Department of 15 Energy in choosing not to address putting 16 ultra-low NO in a separate class and we X 17 disagree with some of the assumptions that are 18 in there as far as the level of operation that 19 continues, that continues to be the same for

20 ultra-low NO and non-ultra-low NO burner X X 21 technology through our additional pressure 22 drops and in ultra-low NO burner that X X

### 202-234-4433 Neal R. Gross & Co., Inc. Page 57 1 interferes with the ability to still maintain 2 an atmospheric flue system using that advanced 3 technology burner. And we'll address that in 4 our written comments also. 5 MR. BROOKMAN: Thank you. 6 Yes, Frank. 7 MR. STANONIK: Frank Stanonik. 8 Ashley has -- you indicated that the 9 assessment that ultra-low-NO provided the X 10 same utility as I'll call it standard storage 11 water heater. That's true, but I think it 12 doesn't recognize that it has an additional 13 utility and that is the nature of its low-NO X 14 emissions. Whether that's considered a 15 feature utility or whatever, in fact, it is a 16 defining characteristic that clearly 17 distinguishes that product from others. It's 18 required by certain areas of the country and 19 again, because it's an air quality issue, 20 there's no question of preemption of 21 efficiency regulations or what have you, but 22 the fact is it is a very different product.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 58 1 It does have this -- I'll call it extra 2 utility -- that makes it separate from 3 traditional gas-storage water heater and 4 obviously we think it does warrant its own 5 product class. 6 MR. BROOKMAN: Thank you. Yes, 7 Harvey. 8 MR. SACHS: Harvey Sachs. As 9 indicated in my remarks earlier, there 10 certainly is a zero-sum game when it comes to 11 air quality efficiency and other parameters. 12 We do not believe that this 13 requires a separate class at this time, but 14 instead would suggest that the involved 15 stakeholders, the air quality management 16 districts, the utilities and the manufacturers 17 work together on the possible solutions which 18 would include either requesting a waiver or 19 moving to power-vented units, where I believe 20 that Charlie's concerns can be met. 21 But this is a local problem, 22 amenable to a local solution, and in that

### 202-234-4433 Neal R. Gross & Co., Inc. Page 59 1 sense it's analogous to the waivers for 2 particular product subclasses that the 3 Department has issued repeatedly in the HVAC 4 world. And we think that's a better strategy 5 given that we have five years to handle it. 6 MR. BROOKMAN: Okay, thank you.

7 Yes. 8 MR. DeLAURA: This is Lance 9 DeLaura, I would just -- I'm not echoing, I 10 guess, I'm just raising the same concern that 11 there needs to be a solution to the ultra-low 12 NO . It definitely impacts the area of the X 13 country that my utilities are located in. 14 And regardless of whether it's a 15 local issue or not, I really would like to see 16 a solution that all parties can agree to, 17 especially the utilities and the

18 manufacturers. 19 MR. BROOKMAN: What are you 20 advocating with respect to the classes? 21 MR. DeLAURA: You know, I want to 22 hear from Ashley more. She said she's going

### 202-234-4433 Neal R. Gross & Co., Inc. Page 60 1 to talk more about that, so I'm going to hold 2 comment until then. 3 MR. BROOKMAN: Okay, thank you. I 4 appreciate that level of discrimination. 5 Other comments on these two issue

6 boxes? 7 Yes, Andrew. 8 MR. deLASKI: We think the 9 Department is going the right direction with 10 the proposal. I think the rationale is solid 11 on both of these remarks and I'll just join in 12 Harvey's comments. 13 With regard to the low-boys, one 14 thing we really have to keep an eye on is, to 15 the extent that the Department considers 16 separate product classes, we have to be very - 17 - the Department has to keep a close eye on 18 lower standards for particular product classes 19 can result in market share of those products 20 increasing, eating into the goal of increased 21 energy savings. So I would urge the 22 Department to stay the course with the

### 202-234-4433 Neal R. Gross & Co., Inc. Page 61 1 proposal on both of these issues. 2 MR. BROOKMAN: Thank you. Frank 3 Stanonik. 4 MR. STANONIK: If I could just 5 quickly address that one and Lance may be, in 6 fact, better able to address this particular 7 one, but in the case of the ultra-low NO X 8 situation, well, certainly the current 9 situation is that that product has a premium 10 on it, that it's very unlikely that a consumer 11 is going to choose to buy an ultra-low NO X 12 water heater on the theory that it will be 13 slightly less efficient and less costly than a

14 .63 or .64 or whatever. That's -- at the 15 current market situation, that's not the case 16 and not likely to change. 17 MR. BROOKMAN: Okay. Additional

18 comments on comment box 5 and 6? 19 (No audible response) 20 Okay. 21 MS. ARMSTRONG: Okay, the next 22 slide regards heat pump water heaters. DOE

### 202-234-4433 Neal R. Gross & Co., Inc. Page 62 1 did not propose to create a separate product 2 class for heat pump water heaters. Instead, 3 DOE is treating heat pump water heaters as a 4 design option for electric storage water

5 heaters. 6 DOE found that they provide the 7 same utility for consumers. They use the same 8 energy source. And in most cases, they can 9 replace electric resistance water heaters in 10 most residences although some of those may be 11 quite costly. 12 So for issue number eight, for 13 which DOE seeks your comments, is all about 14 establishing a separate product class for heat 15 pump water heaters. In particular, can they 16 be used as a direct replacement for electric 17 resistance water heaters, the types and 18 frequency of installation where heat pump 19 water heaters cannot be used as the direct 20 replacement for an electric resistance water

21 heater. 22 And I'll open the floor.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 63 1 MR. BROOKMAN: Yes, Charlie. 2 MR. ADAMS: Charlie Adams. We 3 believe that there should be a separate class 4 for heat pump water heaters. We disagree with 5 the statement that they can replace 6 traditional electric resistance water heaters 7 in most residences. In the technical support 8 document or the NOPR itself, DOE verifies that 9 by their study, 30 percent of the 10 installations that use electric resistance 11 water heaters don't lend themselves to working 12 with heat pump water heaters. 13 There's at least a couple of major 14 and a whole bunch of minor characteristics 15 that need to be understood about heat pump 16 water heaters. Number one, to maximize the 17 efficiency of the refrigeration cycle in the 18 water heating application, you need to 19 maximize the length of run time. That leads 20 to slow recovery which means that for a given 21 water usage in a house -- An example: if a 22 50-gallon electric resistance water heater

### 202-234-4433 Neal R. Gross & Co., Inc. Page 64 1 carries the water delivery needs of a 2 household, for an efficient heat pump water 3 heater to go in and deliver the same water 4 without running on the resistance backup 5 element, a good portion of the time, it's 6 probably going to be a 70-something or 80- 7 gallon tank so that you can run the heat pump, 8 the refrigeration components for a long, 9 protracted period of time. You have to have 10 the thermal storage to hold the water to 11 satisfy the same gallons per day or needs of

12 the household. 13 That automatically makes the heat 14 pump water heater get a bunch bigger. There's 15 also the matter of most residential size heat 16 pump water heaters need something on the order 17 of roughly 1,000 cubic feet of air to interact 18 with to be able to pull the heat out of -- to 19 put into the water. That's essentially a 10 20 by 10 by 10 room. That is addressed in the 21 technical support document that some of the 22 discussions in the TSD talk about, well, just

### 202-234-4433 Neal R. Gross & Co., Inc. Page 65 1 putting a louvered door on the closet takes 2 care of it. It really doesn't because you get 3 a close coupling effect of a wooden louvered 4 door sounds like that's why it opened. In 5 fact, the good wooden louvered door is only 6 about a 40 percent open area. So that's not a 7 lot of communication area to outside the 8 closet that the heat pump water heater is 9 installed in and it's going to tend to be 10 close coupled with the air that's inside the 11 closet, and our experience and understanding 12 is that it's going to spend an awful lot of 13 time running on the electrical resistance 14 backup element because it's not able to put 15 the heat in water by the refrigeration 16 circuit. 17 There's also the issue of, even 18 though the TSD, DOE study is that 30 percent 19 of the houses that use an electric resistance 20 don't lend themselves to the heat pump without 21 massive -- or without significant outside 22 cost and expense to the installation.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 66 1 Take a look at manufactured 2 housing. Mobile homes. About 85 percent of 3 mobile homes use electric water heaters as 4 opposed to gas and if you look at what's 5 involved in putting an equivalent heat pump 6 water heater back into a mobile home that is 7 an entire significant segment that is 8 predisposed to impact certain economic strata 9 of citizens, perhaps, that all, if a heat pump 10 water heater were mandated, considered to be 11 exactly interchangeable with electric 12 resistance heaters, our concern is that there 13 would be a significant segment of the 14 population that would no longer have a water 15 heater with the utility that's needed to be 16 providing their needs for hot water. 17 So we believe that heat pump water 18 heaters are significantly different enough in 19 their operating characteristics and 20 installation needs that they need to be 21 addressed as a separate classification. 22 MR. BROOKMAN: Okay, thank you.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 67 1 Frank Stanonik. 2 MR. STANONIK: First of all, I 3 agree with Harvey that when it comes to 4 electric water heaters the existing technology 5 is about as far as it can go. The industry 6 recognizes that and there certainly is going 7 to be a transition in that market in heat 8 pumps as we go forward in years here. 9 Heat pump water heaters are going 10 to be out there. I think in addition to the 11 reasons that Charlie has stated as to why it 12 should be a separate product class, there's, I 13 think, one huge benefit if it is. And at 14 least in my own opinion, it would benefit, and 15 that is if it's treated as a separate product 16 class, we can -- as we deal with the issue and 17 look at how to get this product into the U.S. 18 market and people comfortable -- not 19 comfortable with it, but recognize it has, you 20 know, can be a viable product, that it 21 eliminates this whole discussion about 22 replacing, if you have a minimum at a heat

### 202-234-4433 Neal R. Gross & Co., Inc. Page 68 1 pump level, about replacing product out there 2 and forcing people to put in a heat pump. If 3 it continues to be considered as a design 4 option or an electric resistance water heater, 5 this issue will not go away because it's very

6 real. 7 If we treat it as a separate 8 product class, we can address the necessary 9 minimum requirements for heat pump water 10 heater and we can look at other ways to, I'll 11 say, incentivize or make people understand why 12 it may be a proper transition in the market 13 without getting into the issue of, if it's 14 forced upon, as a minimum, this whole issue of 15 replacements and where they don't work because 16 of climatic conditions or an existing 17 installation. We don't have to continue to 18 debate that. It's there and it won't go away. 19 We can't make it go away. I don't know what, 20 what's the number, 40, 50 million electric 21 resistance water heaters?

22 MR. SACHS: 43.3.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 69 1 MR. STANONIK: Pardon me? 2 MR. SACHS: 43.3 million. 3 MR. STANONIK: 43.3 million 4 exactly electric resistance water heaters in 5 the United States today and I -- there's 6 clearly some huge percentage that aren't in a 7 place where it's very easy to just bring in a 8 heat pump water heater and replace it and walk 9 away and that consumer will be happy with what 10 they've got. 11 MR. BROOKMAN: Okay, thank you. 12 Others? Yes, Tim. 13 MR. BALLO: Tim Ballo. Earth 14 Justice. It seems to me that this 15 conversation we're having is to a large extent 16 inapposite to the issue of whether DOE should 17 be creating a separate product class for the 18 heat pump water heater. 19 We seem to be talking about a 20 situation in which maybe 30 percent, according 21 to DOE's analysis, of homes would face 22 increased installation costs, if they were

### 202-234-4433 Neal R. Gross & Co., Inc. Page 70 1 forced to install a heat pump water heater. 2 That is a cost issue. It's not a 3 performance characteristic issue. It's not a 4 performance feature of the product. It's an 5 installation cost of the product. That goes 6 to the economic justification for the 7 standard, not the product to which the 8 standard should apply. It's irrelevant to the 9 issue of whether DOE should create a product

10 class. 11 MR. BROOKMAN: Thank you. Your 12 name, please? 13 MR. PARKER: I'm Mike Parker. I'm 14 with A. O. Smith as well. 15 I'm the marketing lead for A. O. 16 Smith, so my expertise is in the area of the 17 marketplace in consumers and installations. 18 Just one thing I wanted to point 19 out on the electric water heating. Yes, 20 there's 43-plus million installations in the 21 U.S. today. As Charlie indicated, mobile 22 homes are a piece of that and I think it's

### 202-234-4433 Neal R. Gross & Co., Inc. Page 71 1 pretty clear that the general demographic for 2 the installed base for electric water heating 3 tends to be at the lower end of the economic 4 spectrum. 5 Smaller homes, less expensive 6 homes, condominiums and apartments are where 7 you see most electric resistance water heating 8 installations today. So I asked DOE to take 9 that into account. When we're talking about 10 this whole issue, the cost burden to the end 11 user is going to probably, or most likely, and 12 I think, very definitively, fall on those that 13 can least afford it in this category. 14 MR. BROOKMAN: Thank you. 15 MS. ARMSTRONG: Just to point out 16 that DOE is going to present its details about 17 the cost that's associated for installations 18 of heat pump water heaters later today. So, 19 if you want to table your specific comments 20 for those for a couple of hours, that would be 21 great. 22 MR. BROOKMAN: Monica.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 72 1 MS. TROMBLEY-MCCANN: Molly. 2 MR. BROOKMAN: Oh, Molly. I'm 3 sorry. Molly, please. 4 MS. TROMBLEY-MCCANN: This is 5 Molly. I wanted to just support Tim Ballo and 6 his comment that this does seem to be more of 7 a cost issue than a utility issue. But 8 quickly throw out the questions to A. O. Smith 9 or other manufacturers about what percentage 10 of people with electric storage water heaters 11 in trailer parks or trailer homes would be 12 using a unit over 55 gallons. That seems like 13 a pretty large unit for that type of 14 installation, so I'm wondering if you know 15 what the percentage would be. 16 MR. BROOKMAN: Charlie? That's 17 the breakpoint right? Go ahead. 18 MR. ADAMS: Not really. 19 (Laughter.) 20 MR. ADAMS: Mike may have better 21 data, being the marketing guy from our 22 company, but I suspect you're right in

### 202-234-4433 Neal R. Gross & Co., Inc. Page 73 1 general. It tends to be the smaller houses -- 2 smaller gallon sizes. 3 I would respond to yes, I agree, 4 it's a cost issue, but if I have to build a 5 room on a house to install a heat pump water 6 heater, that's a significant cost issue and 7 directly in my mind affects the utility of 8 that class of appliance even though it is cost 9 oriented. And that's what it would take to 10 adequately install a heat pump water heater in 11 some number of that 30 percent of houses that 12 we're talking about.

13 MR. BROOKMAN: There are several 14 people over here, I thought, in addition to 15 Harvey. Any -- ? 16 Okay, Harvey, go ahead. 17 MR. SACHS: Harvey Sachs. 18 Charlie, the genius of TSL 5 is that it brings19 heat pump water heaters in at the 55-gallon20 and-above range. 21 I think having thrown out the 22 number of 30 percent that would have

### 202-234-4433 Neal R. Gross & Co., Inc. Page 74 1 installation issues, the burden really is on 2 you to show the fraction of large product 3 buyers who would have issues. 4 We're not sure that 55 gallons is 5 exactly the right number. That's what's in 6 the TSL. But I certainly am wiling to admit 7 that as you get into much smaller units, 8 tabletops being an example, heat pump water 9 heaters have a disproportionate challenge in 10 serving the utility. 11 But to me, the 30 percent number 12 is too coarse-grained to be helpful as policy 13 guidance. 14 MR. BROOKMAN: Charlie, please. 15 MR. ADAMS: Yes, Charlie Adams, 16 responding to that. 17 Agreed, with the concept of the 18 larger gallon size is typically not the 19 highest volume, but it gets back to the point 20 that I made earlier that because of maximizing 21 efficiency when you replace a 50-gallon 22 resistance electric with a heat pump water

### 202-234-4433 Neal R. Gross & Co., Inc. Page 75 1 heater, it's probably going to have a 65, 70, 2 75-gallon tank, so that you can run the 3 refrigeration circuit long enough to achieve 4 the efficiencies you want without significant 5 periods running on the resistance back up 6 heating element which kind of gets rid of the 7 whole purpose of the exercise. 8 So, the largest selling, at least 9 in our business, electric size is the 50 or 10 52-gallon resistance heating or resistance 11 tank. That's going to be replaced with a heat 12 pump water heater that has a tank that is 13 larger than 55 gallons to get like-for-like 14 water delivery and utility to the consumer. 15 MR. SACHS: Except that TSL 5 does 16 not require the replacement of that 52-gallon 17 tank with a heat pump water heater. 18 MR. ADAMS: If it takes -- my 19 understanding, and maybe I'm screwed up, but I 20 don't think it addresses anything other than 21 how much water does the heat pump water heater

22 tank hold.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 76 1 MR. SACHS: Which says that under 2 TSL 5 and we can delay this until Ashley is 3 ready for us, under TSL 5, as I read it, a 4 customer today has a 50 or 52-gallon 5 resistance water heater could replace that 6 with a new 50- or 52-gallon resistance water

7 heater.

8 MR. BROOKMAN: Let's hear from Tom 9 Eckman. That exchange between Charlie and 10 Harvey. Please, Tom, you're next. 11 MR. ECKMAN: Yes, I have a 12 question for, I guess, the representatives of 13 GE and Rheem that are here is why they're 14 making their Energy Star products with 50 to 15 55 gallons if this a problem that Charlie 16 brings up. 17 MR. BROOKMAN: Yes. Mike. 18 MR. BEYERLE: Mike Beyerle, GE. 19 First off, we don't support a separate product 20 line for the heat pump water heaters. We 21 don't believe there's any need for it. 22 There's a variety of configurations of water

### 202-234-4433 Neal R. Gross & Co., Inc. Page 77 1 heaters, electric water heaters, standard 2 electric water heaters from the physical side, 3 shape, height. Those are used in different 4 applications, they're not separate product 5 classes. This is a different configuration in 6 terms of energy, and it has slightly different 7 needs in terms of space requirements. But 8 there's no need for a separate product class. 9 The product we make today, we're 10 manufacturing, selling, distributing, and 11 installing the 50-gallon product. We're 12 having no problem in the field in terms of 13 meeting consumers' needs for replacing 50- 14 gallon water heaters and electric resistance 15 water heater products doing just fine. We've 16 had very, very few -- I can't think of any 17 complaints from consumers in terms of water 18 delivery. 19 We believe the product is almost a 20 direct substitute in many, many, many cases. 21 We're finding cases where it's been a very, 22 very good substitute that we hadn't even

### 202-234-4433 Neal R. Gross & Co., Inc. Page 78 1 expected to be a good substitute, but it's 2 working very well. 3 Will it work universally? 4 Probably not, but in many, many, many cases it 5 will. 6 MR. BROOKMAN: Okay, thank you. 7 Yes, please, your name? 8 MR. FOSTER: Chuck Foster, 9 speaking on behalf of Edison Electric 10 Institute. And I think that this has been a 11 great introduction to the issues surrounding 12 heat pump water heaters. EEI supports heat 13 pump water heaters. We think that they, in 14 the future, are going to be the technology of 15 choice. That said, for the reasons Charlie 16 and others have elaborated on here earlier, we 17 think TSL 4 is the right standard level. 18 We don't agree that heat pump 19 water heaters are, in this country, at this 20 time, are ready to be defined as a minimum 21 standard. Don Brundage alluded to earlier a 22 very large study being -- taking place right

### 202-234-4433 Neal R. Gross & Co., Inc. Page 79 1 now by Electric Power Research Institute, over 2 200 installations, lots of climate 3 differentials. Lots of building different 4 types and their results will be ready, I was 5 told yesterday, preliminary results by the end 6 of this year. The full report probably won't 7 be out until some time later next year. But 8 in some respects, I feel like we're getting 9 ready to drive beyond our headlights here with 10 heat pump water heaters.

11 There's been some references to 12 international, and how there are lots of them 13 being installed. Well, that's right. Japan, 14 I understand, has two million or so heat pump 15 water heaters. They also have, on a per 16 capita basis, multiples of the hot water usage 17 that we have here in the United States. 18 Yesterday, I was told that a 19 typical heat pump water heater, a large size, 20 over 55-gallon in Japan, installed, is about 21 $6,000 U.S. dollars. I don't think we're 22 ready to define a minimum product standard

### 202-234-4433 Neal R. Gross & Co., Inc. Page 80 1 here in the United States at $6,000.

2 MR. BROOKMAN: Is that the 3 installed cost? 4 MR. FOSTER: Doug, that's the way 5 that I took it, was that it was installed. 6 MR. BROOKMAN: Just curious. 7 MR. FOSTER: It would be worse if 8 it was not installed, so let's assume the 9 conservative case that that's an installed 10 price. 11 MR. BROOKMAN: Thank you. Yes, 12 please. Is it -- please say your name? 13 MR. BOROS: Joe Boros with Rheem 14 Manufacturing. 15 I would just like to comment that 16 we believe heat pump water heaters should be 17 in a separate product class for many of the 18 reasons that Charlie has already stated. 19 We do support the heat pump water 20 heaters as an Energy Star program and we 21 recognize that, as a design option, it does 22 provide significant energy savings.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 81 1 MR. BROOKMAN: Okay, thank you. 2 Thanks, Joe. 3 So this is good comment. We've 4 received a lot of good comment. 5 John? Is your microphone on,

6 John? 7 MR. HOLT: John Holt with NRCEA. 8 MR. BROOKMAN: Okay. 9 MR. HOLT: I'd just like to say 10 that NRCEA for once agrees with EEI. We're on 11 the same page. 12 (Laughter.) 13 We participated with Oak Ridge 14 Laboratory back in the '90s with heat pump 15 water heaters. We installed a lot of them in 16 our members' houses and residences and the 17 answer is, we didn't end up with it being 18 cost-effective and available for our members. 19 Unfortunately for us, a lot of our 20 members do live in manufactured housing and in 21 very poor rural areas and we think the cost of 22 having or installing a heat pump water heater

### 202-234-4433 Neal R. Gross & Co., Inc. Page 82 1 would make the economics very bad, recognizing 2 this is standard, but economics of our members 3 is very, very important. We think it should 4 be a separate class. 5 MR. BROOKMAN: Okay, thank you. 6 Andrew deLaski. 7 MR. deLASKI: I think the 8 experience in the 1990s, I just wonder a bit 9 how relevant it is to our discussion today. 10 Mike, can you speak to this issue 11 of what might compare to what was being 12 produced in the 1990s? 13 MR. BEYERLE: Yes, things have 14 changed dramatically since then. I mean 15 front-load washers, for example, were common 16 back in the 1950s. Those products weren't 17 particularly good. They disappeared from the 18 American marketplace for a number of years, 19 showing back up in the late '90s. And now 20 about 30 percent of the U.S. marketplace and 21 many, many people have them and many, many 22 people are satisfied with them because of the

### 202-234-4433 Neal R. Gross & Co., Inc. Page 83 1 changes in technology and the ability of the 2 companies, the larger companies to get behind 3 the products. 4 We spent a lot of time on this 5 product, the manufacturing and selling. It's 6 been very, very well received in the 7 marketplace. We've got minimal complaints 8 about the product. I don't think we're 9 advocating at the present time that it should 10 be a standard for the industry. We just want 11 it to be considered on an even footing with 12 all other electric products, so that people 13 will consider it as an option because in many, 14 many cases, it can save the consumer a great 15 deal of money in terms of energy costs. 16 MR. BROOKMAN: Okay. So I think 17 it's time for us to move on. 18 Final comments on this subject 19 before we press on? 20 (No response) 21 Okay. 22 MS. ARMSTRONG: On the next slide

### 202-234-4433 Neal R. Gross & Co., Inc. Page 84 1 we have the product classes the DOE is 2 proposing for direct heating equipment. This 3 includes those for traditional direct heating 4 equipment, and by traditional I mean, the gas 5 wall fan, the gas wall gravity, the gas floor, 6 the gas room, that currently have standards 7 and then including the gas hearth. 8 There are currently 16 product 9 classes spanning the four traditional types of 10 DHE. DOE is proposing to consolidate some of 11 those input capacity ranges into the 11 shown 12 on the slide. 13 In addition, we're adding four for 14 the gas hearth DHE. 15 So for issue 9 and 10, we're 16 asking for your comment about the product 17 classes that DOE is proposing for direct 18 heating equipment as a whole. 19 MR. BROOKMAN: So you can see them 20 listed there. Questions, comments? These two 21 issues listed in the comment box. 22 Frank Stanonik?

### 202-234-4433 Neal R. Gross & Co., Inc. Page 85 1 MR. STANONIK: At this point, just 2 a basic comment which we certainly will follow 3 up with in our written comments, but since, in 4 this particular product class we think it's 5 really -- we're supporting the position that 6 the standard shouldn't change. That would 7 include also not consolidating any of the 8 existing BTU range categories or range levels, 9 I guess. 10 So at this point, we're not 11 supportive of collapsing some of these 12 categories. 13 MR. BROOKMAN: Okay. 14 MS. ARMSTRONG: Thank you. When 15 you send in your written comments, if you 16 could explain why, that'd be great.

17 MR. STANONIK: Yes. 18 MR. BROOKMAN: Additional comments 19 on direct heating equipment product classes? 20 Yes, please. 21 MR. BELDING: Ken Belding with 22 Empire Comfort System. I just want to add on

### 202-234-4433 Neal R. Gross & Co., Inc. Page 86 1 to what Frank said and maybe shed a little 2 light on it. Obviously, if you condense the 3 amount of categories, you're going to reduce 4 the flexibility of the manufacturers and it's 5 diametrically opposed to what you need in 6 order to increase efficiency which is to maybe 7 reduce the BTU input. 8 So we're struggling with the idea 9 that we have less categories to work with to 10 try and appease what we don't want, but if we 11 have to do it, then we need more categories. 12 MR. BROOKMAN: DO you want to

13 follow on? 14 MS. ARMSTRONG: No, that's good. 15 MR. BROOKMAN: Okay, any 16 additional thoughts, comments on these product

17 classes? 18 I think -- yes, Harvey Sachs. 19 MR. SACHS: Harvey Sachs. Just to 20 reiterate, I don't think we would oppose in 21 concept the exception of the smallest 22 products, those under 5,000 or 6,000 BTUs,

### 202-234-4433 Neal R. Gross & Co., Inc. Page 87 1 which are purely decorative, from efficiency 2 regulation, but in turn, we feel that products 3 that are sold for heating should be regulated, 4 should meet efficiency standards that are firm 5 and aggressive. Thank you. 6 MR. BROOKMAN: Thank you. That is 7 consistent with your other comments. 8 So we're at a natural breakpoint. 9 Let's take this opportunity to pause. Take a 10 coffee break for 15 minutes. You need to wear 11 your visitor's badge if you're going to walk 12 around in the Forrestal Building. Otherwise, 13 someone will escort you someplace secure. 14 (Laughter.) 15 And also, for those of you that 16 aren't familiar with the facilities, there's a 17 coffee shop on the ground floor, straight on 18 down the stairwell or down the elevator. If 19 you're going to get coffee, go quickly, 20 because we're going to resume in 15 minutes 21 and it's not very efficient down there right 22 now. And so we'll be starting back up at --

### 202-234-4433 Neal R. Gross & Co., Inc. Page 88 1 it would be 10:45.

2 The rest rooms are at both ends of 3 the hallway. 4 (Whereupon, at 10:28 a.m. the 5 above-entitled matter went off the record and 6 resumed at 10:45 a.m.)

7 FACILITATOR BROOKS: On the 8 record. Prior to the break, we finished with 9 Scope of Coverage and Product Classes and now 10 as reflected in the agenda we're going to 11 continue with Screening Analysis and 12 Engineering Analysis and continue with Ashley. 13 Here we go. 14 MS. ARMSTRONG: Okay. So one of 15 the issues for which DOE is seeking comment is 16 relative to heat pump water heaters and for 17 this rulemaking DOE screened in heat pump 18 water heaters. We discussed some of the 19 issues associated with them including the cold 20 air production, the noise, the installation 21 and potential service issues, the lead times, 22 the manufacturability of them in order to

### 202-234-4433 Neal R. Gross & Co., Inc. Page 89 1 serve the entire market needs by the effective

2 date of the standard. 3 So, with that in mind -- and some 4 of you have already submitted comments to that 5 extent already today. But, with that in 6 mind, DOE is seeking comment on the 7 manufacturability of heat pump water heaters 8 and the capability of manufacturers to ramp up 9 the production to meet the needs of the entire 10 market by the effective date of the standards. 11 You can see the additional details we're 12 asking for comment and I'm going to open the 13 floor for that discussion now.

14 FACILITATOR BROOKS: Who would 15 like to start? Frank, I'd be inclined to put 16 you on the spot. 17 (Laughter.) 18 Since, right, there's logic there.

19 Go ahead. 20 MR. STANONIK: First of all, I'm 21 really at this point not prepared to talk 22 about this in detail simply because this does

### 202-234-4433 Neal R. Gross & Co., Inc. Page 90 1 certainly get into specific individual 2 manufacturers' capabilities. But I think in 3 general the idea that in five years -- well, 4 no. Let me rephrase that because 5 realistically it probably would be less than 6 five years because we're not talking about, 7 you know, on the last day of the fifth years 8 that somebody flips a switch and it's all been 9 changed to equal -- really it would to happen

10 before that. 11 But to say that in that period of 12 time you could transform this U.S.-based 13 industry to go from producing anywhere from 14 four to four and a half million units a year 15 and to convert all of those to heat pumps I 16 just don't think is a reasonable expectation. 17 Well, first of all, just the idea 18 of transforming production lines, I don't -- 19 they, the manufacturers, can speak to how well 20 they might adapt a production line that's 21 making resistance water heaters to then make 22 heat pump water heaters. I'm not sure how

### 202-234-4433 Neal R. Gross & Co., Inc. Page 91 1 that works. 2 But there's all the other, I'll 3 call them, ancillary changes that would be 4 involved in literally transforming that 5 industry from one technology to another that 6 just couldn't I think be done properly or with 7 minimizing negative effects to both the 8 manufacturers and to the people that use the 9 product in a three to four or four and a half 10 year period. 11 FACILITATOR BROOKS: Thank you. 12 Charlie. 13 MR. ADAMS: Charlie Adams. 14 Without the benefit of data, Frank doesn't 15 know how right he really is. 16 (Laughter.)

17 We are -- 18 MR. STANONIK: Stop me before. 19 (Laughter.) 20 MR. ADAMS: Sure. We've been in 21 that debate together more times than not,

22 Frank.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 92 1 In our written comments, A.O. 2 Smith will be pulling together some 3 extrapolations I guess. We're in the process, 4 the final stages, of implementing production 5 for heat pump water heaters now and we will 6 extrapolate the cost that it took us to get to 7 a small quantity to our portion of the four 8 million that Frank's talking about. And it's 9 going to be a phenomenally large number. 10 MR. DeLAURA: Did you have to open 11 an entirely new production line? 12 MR. ADAMS: Yes, we did because 13 we're not converting any of our existing 14 manufacturing lines at this point in time. So 15 we are setting up a new one. 16 MR. DeLAURA: Okay. 17 MR. ADAMS: And that's a good 18 point. In a lot of cases it's probably 19 cheaper to set up a brand new line from 20 scratch than it is to rework the existing 21 lines in existing facilities. 22 MR. DeLAURA: Okay.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 93 1 MR. ADAMS: We'll try to put that 2 together as much as we can in our written

3 comments.

4 FACILITATOR BROOKS: We'll have 5 more detail, much more detailed analysis of 6 the Department's thinking on this later. 7 So would you like to comment? 8 MR. BOROS: This is Joe Boros with 9 Rheem. I would just like to add that we've 10 already submitted numerous comments regarding 11 manufacturing capabilities for heat pump water 12 heaters during our manufacturing interviews 13 that we had about -- what was that -- a year 14 ago. Those comments are still valid. As you 15 know, we've released a heat pump water heater 16 to the market, but that's just one model. 17 Very few. Very limited production capability

18 there. 19 To convert our entire electric 20 water heater model offering to heat pumps 21 would be a very significant undertaking 22 requiring capital and new manufacturing

### 202-234-4433 Neal R. Gross & Co., Inc. Page 94 1 capabilities. 2 FACILITATOR BROOKS: Okay. Thank 3 you. 4 Mike and then I'll come back to 5 you. 6 MR. BEYERLE: Mike Beyerle with 7 GE. We are in production with a product to 8 date. We have a manufacturing facility 9 ongoing with a joint venture partner and we 10 have announced last fall that we will be 11 building a new manufacturing facility in 12 Louisville, Kentucky of a much, much larger 13 size to produce heat pump water heaters. We 14 obviously feel that it's very manufacturable 15 and/or profitable. 16 FACILITATOR BROOKS: Thank you. 17 Is it Joe? 18 MR. SMELCER: Jim. Jim Smelcer, 19 Lochivar. I agree with the gentleman already 20 speaking with respect to manufacturing 21 changes. As a small manufacturer of gas-fired 22 and electric types of water heaters, to switch

### 202-234-4433 Neal R. Gross & Co., Inc. Page 95 1 to the technology to a heat pump water heater 2 requires also an upgrade investment in 3 engineering aspects. 4 We are primarily combustion 5 engineers, gas engineers and to bring those to 6 the level of getting ready for a combustion or 7 switching from combustion to a refrigeration 8 type product where bringing the heat transfer 9 process is something unique in itself and it 10 is a constantly evolving industry, it would 11 require us probably at least three years to 12 get a competent handle on staffing so that we 13 would have a good idea of where to go with a 14 product. 15 And, secondly, I think rather than 16 being a company with 30-50 years of experience 17 in the gas powered industry we would wind up 18 being a company that is in its infancy stages 19 of coming out with an evolution of products 20 that are higher risk simply because of the 21 level of detail that we would have to meet and 22 spend in trials and investments up front to

### 202-234-4433 Neal R. Gross & Co., Inc. Page 96 1 get a reliable heat pump type water heater. 2 So it would definitely impact our company. 3 FACILITATOR BROOKS: Thank you. 4 George. 5 MR. KUSTERER: George Kusterer of 6 Bock Water Heaters. Although you know the 7 switching from a tank type electric water 8 heater or whatever and going exclusively heat 9 pump would be a monumental undertaking. But I 10 think more monumental is the fact that 11 currently with heat pump water heaters 12 basically it's inherent there's no 13 infrastructure out there to teach and train 14 technicians not only to install the equipment 15 properly but also to maintain the equipment 16 properly. 17 And if you think that you're going 18 to train technicians who have been installing 19 electric, gas-fired equipment or oil-fired 20 equipment into heat pump water heaters in the 21 twinkling of an eye, then you're sorely 22 mistaken. You can manufacture all the

### 202-234-4433 Neal R. Gross & Co., Inc. Page 97 1 products in the world. But if you don't have 2 an infrastructure in place to train these 3 people then you're going to have a very bad 4 product and it's going to come back to your

5 name. 6 So I think it's equally important 7 that DOE look at this and address how are we 8 going to train the thousands upon thousands 9 upon thousands of technicians nationwide so 10 that we can put in a quality product and that 11 it does in fact increase efficiency. 12 FACILITATOR BROOKS: Thank you. 13 So we've -- yes please. Mohammed. 14 MR. KHAN: Mohammed Khan, DOE. I 15 certainly appreciate the comments that we've 16 just heard describing I guess level of burden 17 to transition production and manufacturing 18 lines to be able to handle a complete heat 19 pump water heater standard. I was wondering 20 though if we can get some comment on what that 21 burden or level of burden might be if we're 22 considering or only wanting to make changes to

### 202-234-4433 Neal R. Gross & Co., Inc. Page 98 1 facilitate the heat pump water heater standard 2 that only affects the larger volumes. 3 FACILITATOR BROOKS: Charlie, do 4 you want to start? Larger volumes being

5 above?

6 MR. KHAN: Above 55.7 FACILITATOR BROOKS: Above fifty8 five, yes.

9 MR. ADAMS: Sure. As far as total 10 number of capital dollars outlay, obviously 11 it's a smaller amount. Unfortunately the 12 business case would be harder to justify 13 because as my friend and colleague, Mr. Sachs, 14 pointed out to earlier if we went with the 15 trial standard level five that just uses the 16 larger sizes, right, Harvey, the 50 gallon 17 electric resistance could be replaced with the 18 50 gallon electric resistance. 19 So we're looking at the heat pump 20 water heaters in Trial Standard Level 5 for 21 example being a much, much, much smaller 22 segment of the market. So now all of a sudden

### 202-234-4433 Neal R. Gross & Co., Inc. Page 99 1 the manufacturer is going to have to invest a 2 significant amount of capital dollars and you 3 go through the learning curve on how to 4 manufacture a device that uses a refrigerant 5 circuit that as a water heater guy we've never 6 done before. That's a lot of investment in 7 time, money and learning for a very small 8 number of units per year. 9 So the business case probably 10 looks worse for that conversion for that 11 assembly line. Now the scope of it is 12 obviously smaller because we could probably do 13 that with one line instead of having to build 14 five or six or seven. But again the business 15 case would be miserable for that small volume. 16 FACILITATOR BROOKS: I would like 17 to hear from a few more manufacturers, Harvey, 18 if anybody else is willing to comment on 19 Mohammed's specific question about 55 and

20 over.

21 Please Joe.

22 MR. BOROS: Joe Boros. I would

### 202-234-4433 Neal R. Gross & Co., Inc. Page 100 1 agree with Charlie that a better understanding 2 of the business case would be required to 3 determine what level of capital in the 4 investment we'd have to make. I would also 5 point out that looking at Trial Standard Level 6 5 assuming there's the 55 gallon break point 7 there would definitely be a shift of volume 8 there. We believe that many would choose to 9 install perhaps two water heaters rather than 10 forego or undergo the additional expense of 11 buying a heat pump water heater. 12 So perhaps they may install two 30 13 gallon or two 40 gallon electric instead of 14 heat pump water heater. So we would have to 15 understand the business case around where that

16 volume would be. 17 FACILITATOR BROOKS: Okay. 18 Frank, do you?

19 MR. STANONIK: Just one other 20 aspect of this and it's probably a little more 21 relevant to the broad question of converting 22 all the products and I'm not sure it's really

### 202-234-4433 Neal R. Gross & Co., Inc. Page 101 1 been appreciated is if you try and envision. 2 Okay. Let's say that we're sitting here and 3 saying, "Okay. In five years the industry is 4 going to convert the electric resistance 5 products to the heat pumps." Okay. Well, in 6 the interim, you're asking the existing 7 manufacturers, not an issue for someone 8 entering newly, but you're asking the existing 9 manufacturers to figure out how -- they're 10 going to have to make a choice of how do they 11 continue to provide electric resistance 12 products which we'll allow to be made until 13 that effective date, okay, and still convert 14 to anticipate this new Federal requirement. 15 Okay. 16 And so it really becomes an issue 17 of, all right, the market's going to do 18 whatever it does. So let's say that the 19 consumers still want that significantly 20 cheaper electric resistance product. Okay. 21 And so the manufacturer each want to sit there 22 and say, "Well, I've still got -- if I want to

### 202-234-4433 Neal R. Gross & Co., Inc. Page 102 1 make money -- God forbid I make money, okay -- 2 I still have to make these electric resistance 3 because that's what people are buying out 4 there. That's what they're still buying. And 5 yet you want me by this certain date to in 6 fact convert my entire product production to 7 heat pumps." Okay. That's a very difficult 8 choice and each one of these manufacturers 9 will make it differently. 10 And I think it's inevitable. I 11 don't know there will be any winners. There 12 will be losers. Now that may be -- that's 13 competition. You know, that's America. 14 That's the way it goes. But I think that's an 15 aspect that needs to be recognized. 16 We're not just talking about -- 17 you know, they still need to be able -- they 18 will still need to be able to stay in business 19 by selling electric resistance water heaters 20 and, if they don't, somebody else will and 21 that somebody else in fact may have more money 22 available at some point down the line to

### 202-234-4433 Neal R. Gross & Co., Inc. Page 103 1 convert their production to heat pumps because 2 they won't have any income coming in or 3 appreciable less than what they used to have 4 if they don't compete and provide that less 5 efficient electric resistance water heater. 6 FACILITATOR BROOKS: Okay. 7 Additional comments? 8 (No audible response.) 9 Then to Harvey. 10 MR. SACHS: Thank you. Harvey 11 Sachs. I'm hearing a number of different 12 messages -- I'd be lost without you, Ron. 13 I'm hearing a number of different 14 messages and in response to Mohammed's 15 question which I heard as TSL 5 rather than 16 the full conversion to heat pump water heaters 17 across all size classes. I think it's very 18 important that these two be kept as separate 19 questions. 20 I also want to point out a couple 21 of observations that perhaps are not true, but 22 I think they are. I took the time this week

### 202-234-4433 Neal R. Gross & Co., Inc. Page 104 1 to look at the technological support documents 2 for a couple of other products with small 3 sealed refrigeration systems, residential air 4 conditioners and refrigerators. And for both 5 product classes as far as I could tell quickly 6 the assumptions made by DOE's contractors and 7 DOE and not refuted were that there is no 8 service required through the life of these 9 products and certainly the room air 10 conditioner has a refrigeration circuit 11 comparable to that of a heat pump water 12 heater. I may have misread it, but it's 13 certainly something that's verifiable. 14 I looked at the warranty 15 requirements for the two products that are out 16 there now and although one manufacturer offers 17 the option of a longer warranty of somewhat 18 longer warranty coverage if it's installed by 19 a contractor, there is nothing to state what 20 the contractor's training requirements would 21 be. And I find nothing in the manufacturer's 22 literature that suggests that the installation

### 202-234-4433 Neal R. Gross & Co., Inc. Page 105 1 requirements with the possible exception of 2 the weight of the unit are more expensive for 3 a heat pump water heater, again large size 4 classes, than resistive water heater. 5 So it seems to me that the 6 manufacturers have succeeded in coming to 7 market with products today that are, shall we 8 call them, plug replacements for the resistive 9 water heaters in these large size classes. 10 Yes, there are some other issues and Don 11 Brundage has been very helpful about that. 12 But I think that if we confine our 13 consideration to Mohammed's question the 14 answer has become much sharper and become much 15 more favorable to the consideration of TSL 5. 16 FACILITATOR BROOKS: Thank you.

17 MR. SACHS: I want to make one 18 other comment and this relates to 19 international competitiveness and the 20 manufacturing cycles. I have not been in any 21 of these factories. I have a lot of respect 22 for the people who do the design and

### 202-234-4433 Neal R. Gross & Co., Inc. Page 106 1 manufacturing. 2 But I would point out that this 3 process gives them five years to design the 4 product, its manufacturing process, to build 5 the prototypes, to certify the products, to 6 develop the marketing information and to go to 7 market. That is longer than the design cycle 8 today for a clean sheet automobile. It's 9 roughly two design cycles for an advanced 10 microprocessor as I understand it. 11 This seems to be something that's 12 within the capability of manufacturers who 13 aspire to be nationally competitive to protect 14 our manufacturing from offshore products. 15 FACILITATOR BROOKS: Thank you.

16 Tom Eckman. 17 MR. ECKMAN: Tom Eckman, Northwest 18 Power Council. A couple comments just taking 19 on Frank's comment that they might replace it 20 with two water heaters. They're likely to 21 have to have another 30 amp circuit to do that 22 if you're going to -- that's generally not

### 202-234-4433 Neal R. Gross & Co., Inc. Page 107 1 available in most homes. So the likelihood of 2 that requires an electrical contractor to come 3 in and give them another 30 amp circuit. So 4 for an electrical replacement, it's unlikely 5 they would go to two, at least for an 6 emergency replacement which is typically what 7 happens. 8 The second issue is I know there 9 are at least two and perhaps three 10 manufacturers, two with product online 11 already, that have some business plan in mind 12 about selling heat pump water heaters over the 13 next five years before the standard takes 14 place. And I presume that that business model 15 has some idea of what the scale of those 16 production in those plants might be to provide 17 some sort of ROI. Otherwise they wouldn't get 18 into that business line. 19 So my presumption is that if we're 20 talking about 10 to 15 percent of the market 21 in these larger sizes that that scale is 22 within the reach of those manufacturers.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 108 1 FACILITATOR BROOKS: Thank you. 2 Ron Lewis. 3 MR. LEWIS: Someone brought up the 4 question that having trained technicians to go 5 out and service the products and having one of 6 the globally recognized premier trade 7 associations of the world, AHRI, associated 8 with this product I was just wondering since 9 we've have some manufacturers say that they 10 have product available if there's been an 11 effort in developing a training program for 12 the technicians and people that would install 13 and service.

14 FACILITATOR BROOKS: Frank. 15 MR. STANONIK: Frank Stanonik. On 16 the specific issue of, let's say, training 17 what I'll call the traditional plumber to be 18 able to address and service and install heat 19 pump water heaters, the answer is no. On a 20 broader issue, we certainly have had a number 21 of programs to I would say improve the overall 22 training of people who provide service and

### 202-234-4433 Neal R. Gross & Co., Inc. Page 109 1 installation for HVAC equipment. 2 Honestly, those programs have up 3 to this point not had much of an aspect again 4 dealing with the plumber. Without question, 5 that will have to change and it's certainly 6 something I guess that would be considered 7 that as you move towards -- I don't know how 8 that would be addressed, but if you move 9 towards the heat pump water heater, yes, you 10 may end up rather than calling the plumber you 11 would call the HVAC technician. I don't know, 12 but the answer right now is we really haven't 13 focused on any plumber training. 14 FACILITATOR BROOKS: Mike. 15 MR. BEYERLE: Mike Beyerle, GE. 16 GE does maintain a nationwide service network 17 for all the products that we sell. So if you 18 buy a heat pump water heater anywhere in the 19 United States you can get it serviced. We 20 have a very large installation network that is 21 growing. 22 FACILITATOR BROOKS: Do you

### 202-234-4433 Neal R. Gross & Co., Inc. Page 110 1 anticipate that there will be ongoing service 2 and/or maintenance of the unit? 3 MR. BEYERLE: There is only 4 service of the unit if the unit fails for some 5 reason, some sort of an issue that may occur. 6 Our service call rates on most of our 7 appliances are very, very low. We don't 8 anticipate very many of these products having 9 trouble in the field, but there will be some. 10 Those products will need to be serviced by a 11 service technician. But in terms of ongoing 12 maintenance of the product, there's none that 13 really needs to be done aside from 14 occasionally vacuuming out the air filter. 15 And it's a very coarse air filter to catch the 16 lint. In some installations, they need to be 17 cleaned out much like you might clean the 18 coils on your refrigerator or change a filter 19 on an air conditioner. 20 FACILITATOR BROOKS: Okay. 21 Molly. 22 MS. TROMBLEY-McCANN: Molly

### 202-234-4433 Neal R. Gross & Co., Inc. Page 111 1 Trombley-McCann, PG&E. I just wanted to note 2 that in the technical support document in the 3 base case the DOE analysis does assume that 4 there will be a 10 percent market share of 5 heat pump water heaters in the electric 6 storage market. So the current analysis in 7 the base case if you're assuming that market 8 share then you must be assuming some ability 9 to install and/or service and maintain those 10 units. I guess I'm directing the question at 11 DOE. What are you assuming in the base case 12 in terms of ability to install, service and 13 maintain? 14 MS. ARMSTRONG: I'm going to table 15 that question because there's going to be a 16 couple slides that are going to go over the 17 details of the installation cost that DOE 18 estimated for maintenance, the repair, etc. 19 that Alex can address later in addition to the 20 percentage of the base case that DOE assumed 21 would be heat pumps. 22 MS. TROMBLEY-McCANN: Okay.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 112 1 FACILITATOR BROOKS: Charlie.

2 MR. ADAMS: I know we are 3 considering the manufacturing investment with 4 a whole lot of other things. But to briefly 5 respond to a comment that Harvey made about 6 there are installations being made today with 7 apparently a minimum or no appreciable 8 feedback on how difficult the expense of it 9 was. My response to that is that the number 10 of installations today are such a small number 11 that they're predisposed to be in the portion 12 of that 70 percent where they go in with no 13 problems. 14 And my house would be a perfect 15 example. I could put one in tomorrow that 16 would be no sweat. But that's the kinds of 17 applications I believe that we're seeing that 18 they're being installed now which is a totally 19 different case than if everybody that had an 20 80 gallon heater had to figure out how to make 21 it work or in the higher trial standard levels 22 that if anybody that had a resistance heater

### 202-234-4433 Neal R. Gross & Co., Inc. Page 113 1 had to figure out how to make it work. 2 FACILITATOR BROOKS: Did you 3 comment on Mohammed's question? I can't

4 recall.

5 MR. ADAMS: Yes. 6 FACILITATOR BROOKS: Thank you. 7 MR. ADAMS: The business case on

8 the small volume of the -- 9 FACILITATOR BROOKS: I just wanted 10 to make sure we covered that. Okay. Thank 11 you. 12 George. 13 MR. KUSTERER: Yes. George 14 Kusterer. This is a comment I guess for Mr. 15 Lewis with regard to training. It's generally 16 not the responsibility of such a vast 17 organization like AHRI or a number of others 18 that are represented here today. But 19 basically it's the manufacturer's 20 responsibility to train the people who are 21 going to install their equipment. So the 22 responsibility is on the manufacturer.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 114 1 And again the manufacturers of 2 heat pumps or any product really should 3 provide such training programs and back-up 4 service. So it's really not the 5 responsibility of an organization like AHRI. 6 The comment to the gentleman from 7 GE is you have people in place that either are 8 contracted to you or work directly for GE. 9 But what happens if I'm the homeowner and I 10 can't get a hold of anybody at GE or I don't 11 want to use GE or the warranty has run out? 12 Who can I get to service your product? 13 MR. BEYERLE: Well, first off, you 14 can get a hold of GE. Okay. 15 (Laughter.) 16 MR. KUSTERER: Okay. Let's leave 17 that alone right now. 18 (Laughter.)

19 MR. BEYERLE: If for some reason 20 you don't want to use GE service network you 21 might have a little more of a challenge at the 22 present time. That's correct.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 115 1 MR. KUSTERER: Okay.

2 MR. BEYERLE: But I mean we do 3 believe that we offer a superior service 4 network and we can only be responsible for our 5 own service network.

6 MR. KUSTERER: I understand. I 7 understand. But you do sell product to other 8 people who install it other than GE 9 technicians, right? 10 MR. BEYERLE: That is correct. 11 But we do service those products. 12 MR. KUSTERER: I see. Okay. 13 Thank you.

14 FACILITATOR BROOKS: So that was 15 just between Mike and George, that part there. 16 Yes. Jim. 17 MR. SMELCER: Thank you very much. 18 Jim Smelcer, Lochivar. After Mr. Sachs made 19 a comment awhile ago, I just kept thinking. I 20 can't let this go. I've got to come back and 21 say with respect to time frames associated 22 with design cycle please understand that the

### 202-234-4433 Neal R. Gross & Co., Inc. Page 116 1 comment that I had made prior was relative to 2 starting from zero and for those companies 3 that are in business today that make or 4 iterate their existing products, those design 5 cycles, especially ours. Our design cycles 6 are certainly less than two years. It's the 7 time it takes to start from zero to bring 8 yourself up to a competence level that you 9 want to be able to put a premier product on 10 the market that you have never done before. 11 And your initial design cycle for that I'm 12 sure, I'm positive, that there are so many 13 field trials and field tests of the first 14 prototype water heaters out there that took 15 many years before that got refined. 16 And it will be for the small 17 business manufacturer that is not engaged in 18 doing that now a considerable period of time 19 for his first design cycle to happen. And I 20 need to let that be said. 21 FACILITATOR BROOKS: Thank you. 22 Okay.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 117 1 Have we covered this? Mohammed. 2 MR. KHAN: Mohammed Khan, DOE. 3 Most of, I guess, all of the conversation and 4 discussion here has been relative to heat 5 pumps. But we could take my same question 6 about the burden on manufacturers and switch 7 that over or apply that to gas units, gas 8 condensing.

9 FACILITATOR BROOKS: At 55 and 10 plus? 11 MR. KHAN: For the large ones, 55 12 and plus. 13 FACILITATOR BROOKS: For the large

14 ones. Yes. 15 Lance, do you want to start? 16 MR. DeLAURA: I think I just 17 wanted to add onto that question and include 18 the ultra-low NO as part of the answer. So X 19 it's probably two answers. One is the non 20 ultra-low NO and the second question is what X 21 about ultra-low NO . X 22 FACILITATOR BROOKS: So the

### 202-234-4433 Neal R. Gross & Co., Inc. Page 118 1 Department appreciates the manufacturers have 2 been very forthcoming.

3 Frank. 4 MR. STANONIK: To preclude you 5 from putting me on the spot again. 6 (Laughter.) 7 FACILITATOR BROOKS: Strike first, 8 right?

9 MR. STANONIK: Yes. To answer 10 Mohammed's question, I think certainly there 11 are some differences when it comes to this 12 question of, let's say, converting production 13 to provide, to manufacture, what I'm going to 14 say residential condensing tank water heaters. 15 Even in the larger volumes as Tim's pointed 16 out, certainly not starting new, this in some 17 ways arguably is just an advancement of 18 technology on a gas product. 19 But having said that, first of 20 all, understand and I'm sure everyone's 21 working on it, but right now as we're sitting 22 here, there still hasn't been introduced the

### 202-234-4433 Neal R. Gross & Co., Inc. Page 119 1 definition of residential gas storage water 2 heater a condensing storage water heater 3 unless it came out very recently and I missed 4 it. But that's possible. 5 But the products that are on the 6 market that certainly are more out there are 7 commercially sized or sized such that they 8 would be defined as commercial. And so there 9 is still this challenge of incorporating 10 condensing technology into a smaller package 11 if you will. And so that's still a challenge. 12 Assuming that once that challenge was 13 addressed, I'm going to venture that if we are 14 talking about, let's say, only 75 gallon gas 15 storage water heaters to the simple question 16 of could a manufacturer convert their 17 production so they would only make condensing 18 75 gallon gas storage water heaters within 19 five years. Physically I think they could 20 probably do that. 21 But again, I think you've got to 22 get into all the other issues that involve

### 202-234-4433 Neal R. Gross & Co., Inc. Page 120 1 such a major switch and again I'm talking 2 about making that your only product of 3 production for that size. Okay. And so I 4 think there's a lot of those other ancillary 5 issues including the one I raised about how do 6 I remain an active competitor in the market 7 where the other product, the less efficient 8 one, is still available and will be available 9 at a significantly different price and still 10 try and deal with this. 11 FACILITATOR BROOKS: Charlie. 12 MR. STANONIK: And hopefully 13 they'll expand and correct what I probably 14 just said.

15 FACILITATOR BROOKS: Go ahead. 16 MR. ADAMS: Charlie Adams. We, 17 A.O. Smith, manufacture true commercial 18 condensing gas water heaters. Have for a 19 number of years. We also manufacture EPACT as 20 opposed to NAECA-covered residential 21 condensing gas water heaters to Frank's point. 22 They don't have an EF and they don't fall

### 202-234-4433 Neal R. Gross & Co., Inc. Page 121 1 under this rule. So we have some experience 2 in the manufacturing of these types of units. 3 I will tell you that we've got two 4 different families with different types of 5 construction for condensing gas water heaters. 6 Both of them have dedicated factories 7 associated with them that do not make the 8 standard type of either atmospheric or power 9 vent non-condensing water heaters of today. 10 Depending on the business case and 11 the true volume, production volume, associated 12 with the condensing water heater if we went to 13 a TSL that had condensing gas for some larger 14 sizes, we would have to evaluate whether 15 existing facilities in our case were 16 sufficient to handle that production or not. 17 It may or may not be. 18 I will tell you that the takt time 19 or the production rate, the number of seconds 20 or minutes per unit, is much slower for a 21 condensing gas because of the number of 22 additional manufacturing steps that have to be

### 202-234-4433 Neal R. Gross & Co., Inc. Page 122 1 taken to protect against the corrosive 2 condensate, to be able to withstand it. It's 3 considerably a longer period of time per unit 4 and considerable additional equipment in the 5 manufacturing facility to be able to 6 manufacture those units. 7 Again I realize your question was 8 strictly for the larger sizes. I would have 9 to crunch the numbers to see what volume is 10 associated with that. But just in general the 11 act of making a condensing water heater takes 12 longer and is more complicated than making a 13 non-condensing water heater. 14 I will tell you that we also make15 a significant number of 65 and 75 gallon non16 condensing water heaters today that are made 17 in other factories, made in a conventional 18 design production facility that we'd have to 19 shut that down and convert that production to 20 the condensing. My off-the-top-of-my-head 21 guess is that would take additional production 22 lines over and above the capacity that we have

### 202-234-4433 Neal R. Gross & Co., Inc. Page 123 1 today. And again we're fairly -- we're a 2 manufacturer that's fairly mature in being 3 able to make condensing gas water heaters. 4 FACILITATOR BROOKS: Other -- yes. 5 Okay. Other comments? Final comments on to 6 address Mohammed's question?

7 Lance. 8 MR. DeLAURA: I was just wondering 9 if there's any comment on the ultra-low NO X 10 aspect of Mohammed's question, the adder that 11 I put to the --

12 FACILITATOR BROOKS: Yes. 13 Charlie, do you want to try that? 14 MR. ADAMS: Sure. Charlie Adams. 15 We've got ultra-low NO , NAECA-covered water X 16 heaters today in production. Some of our 17 condensing gas true commercial heaters in the 18 EPACT-covered residential that I spoke of 19 earlier happened to be ultra-low NO . So X 20 technologically feasible. Absolutely we're 21 doing it today. 22 I will tell you that all of the

### 202-234-4433 Neal R. Gross & Co., Inc. Page 124 1 cost impact studies are going to have to be 2 reworked extensively to take into account the 3 ultra-low NO in combination with condensing X 4 because it's significantly more complex to do 5 it with a condensing gas heater than it is to 6 do it with a non-condensing gas heater. 7 FACILITATOR BROOKS: Okay.

8 Andrew. 9 MR. deLASKI: The question I think 10 to the industry folks which is that I believe 11 the Department assumes or found based on the 12 analysis that about four percent of gas water 13 heaters sales are at 55 gallons or larger and 14 I'm curious if that comports with what the 15 industry observes. 16 FACILITATOR BROOKS: Could you 17 repeat the question please? 18 MR. deLASKI: The Government in 19 the analysis I believe and correct me if I'm 20 wrong found that about four percent of gas 21 water heaters sales were at 55 gallons and 22 above. So would it be impacted by TLS 5 if

### 202-234-4433 Neal R. Gross & Co., Inc. Page 125 1 there was no market shifts? So I'm curious if

2 -- 3 FACILITATOR BROOKS: You said four 4 percent. 5 MR. deLASKI: Four percent. 6 FACILITATOR BROOKS: Yes. Okay.

7 So can we -- Frank? 8 MR. STANONIK: Frank Stanonik. 9 Without looking at the exact text, I mean the 10 data came from the industry. And so if that's 11 the number that's in the analysis, I assume

12 that DOE contractors can do that level of

13 math. 14 MR. deLASKI: So then just to 15 follow on, I think that's a fair assumption. 16 The sales, the volume, on gas water heaters -- 17 Harvey, you seem to have these numbers -- for 18 electric it was 4.3 million units per year. 19 For gas, I believe it's something comparable. 20 So we're talking on the order of a couple 21 hundred thousand units per year that would be 22 impacted for the industry as a whole.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 126 1 So per manufacturer depending on 2 the market share you get a sense of the sort 3 of volume that would need to be produced. To 4 Charlie's point, you know, I think that it is 5 a volume that is well within the capacity of 6 manufacturers recognizing that manufacturers 7 are at varying degrees of current 8 participation and current capacity to serve 9 this market. 10 FACILITATOR BROOKS: Charlie. 11 MR. ADAMS: Charlie Adams. Yes, 12 and your back-of-the-envelope math is pretty 13 close to right. Just thinking about it as I 14 sit here, knowing what our production 15 capabilities currently are and have been for 16 some time on the true commercial type that I 17 spoke of in the dedicated factories, roughly 18 speaking we've got two factories making 19 condensing gas today. We'd have to build two 20 more in order to handle our share of those 21 kinds of numbers. 22 FACILITATOR BROOKS: So I'm going

### 202-234-4433 Neal R. Gross & Co., Inc. Page 127 1 to suggest we move on because we've got a lot

2 to cover here. 3 A final comment, Harvey? Briefly. 4 MR. SACHS: I think it is 5 important to note that all three of the full 6 line water heater manufacturers in the U.S. do 7 make at least commercial condensing products 8 today and also to emphasize Charlie's response 9 to amplify that a little bit. But once you've10 put an inducer fan on the product ultra low11 NO is a design factor not a prohibited X 12 feature. 13 FACILITATOR BROOKS: Okay. Thank 14 you. 15 Ashley. 16 MS. ARMSTRONG: Okay. The next 17 analysis we're going to talk about is the 18 engineering analysis. The purpose of the 19 engineering analysis just briefly is to 20 analyze higher efficiency designs as compared 21 to the baseline model. This will be used to 22 characterize the manufacturer cost-efficiency

### 202-234-4433 Neal R. Gross & Co., Inc. Page 128 1 relationship for the downstream analyses. 2 There's a general methodology that 3 was used for all three products. That would 4 be select representative units to analyze, 5 develop baseline models, tear down the models 6 at higher efficiencies over the full range, 7 then use a bill of materials and a 8 manufacturing cost model to generate those 9 cost-efficiency curves that I just spoke about 10 and the to scale to those unanalyzed product 11 through the manufacturing cost models. 12 And then I'll touch briefly on 13 some of the updates that we made for the NOPR 14 engineering analysis. We include the15 efficiency levels that were analyzed for gas16 fired storage and electric water heaters. A 17 separate analysis was performed for ultra-low 18 NO water heaters. We further investigated X 19 heat pump water heaters and we updated the 20 scaling equations that were presented in the 21 preliminary analysis as well as we separated 22 out the shipping cost from the manufacturer

### 202-234-4433 Neal R. Gross & Co., Inc. Page 129 1 markup. 2 So to talk about the efficiency 3 levels changed for gas-fired storage water 4 heaters, I'm going to talk about 5 representative rated storage volume for the 6 analysis which was 40 gallons for gas. DOE 7 used that 0.77 EF in the preliminary analysis. 8 Based on comments in the preliminary analysis 9 and further research by DOE we changed that to 10 0.80 EF for the NOPR analysis. 11 For the intermediate efficiency 12 levels for electric at the 50 gallon we added 13 an intermediate efficiency level for heat 14 pumps. So we analyzed two separate heat pump 15 levels that included a 2.0 EF and a 2.2 EF. 16 DOE is seeking comment on their 17 efficiency levels including the max-tech 18 efficiency levels identified for both gas and 19 electric as well as any of those for the other 20 products. DOE is particularly interested in 21 comments pertaining to the technological 22 feasibility of these levels. So I'm going to

### 202-234-4433 Neal R. Gross & Co., Inc. Page 130 1 open the floor at this time for you guys to 2 discuss. 3 FACILITATOR BROOKS: Harvey Sachs. 4 MR. SACHS: Harvey Sachs. 5 Returning to my initial comments on the 6 outscreening analysis, max-tech for heat pump 7 water heaters did not include carbon dioxide 8 cycle which is commercially available in other 9 countries. 1.7 million units sold before the 10 end of 2008 and consequently does not in my 11 opinion have an appropriate max-tech. 12 Whether that's suitable for a 13 standard or not is a different question. But 14 the outscreening has limited the truth-telling 15 of the analysis. 16 FACILITATOR BROOKS: Okay. Thank 17 you. 18 Charlie. 19 MR. ADAMS: Charlie Adams. This 20 is going to shock Harvey to no end, but I 21 agree. 22 (Laughter.)

### 202-234-4433 Neal R. Gross & Co., Inc. Page 131 1 From a pure max-tech point of view 2 because of CO cycles and some other heat pump 2 3 technologies that exist, max-tech possible is 4 higher than a 2.2. Now when you start rolling 5 in things like economics and impact and 6 whatever else that's not the question on the 7 table. As far as the max-tech on gas, I 8 agree. Having substantial experience in 9 condensing gas mentioned earlier, that's a 10 good number. 11 FACILITATOR BROOKS: Okay. Thank 12 you.

13 Yes. Andrew. 14 MR. deLASKI: My understanding -- 15 and, Ron or Mohammed, perhaps you can answer 16 this -- is that the Government has used the 17 screening criteria of either it's available in 18 our products today or it's available in a 19 working prototype. And I'm curious. Are you 20 using a domestic available in a domestic 21 working type in a domestic working prototype? 22 Is that a screening criteria for the

### 202-234-4433 Neal R. Gross & Co., Inc. Page 132 1 Department?

2 MR. KHAN: Yes. 3 MR. deLASKI: What do we actually

4 use?

5 FACILITATOR BROOKS: Mohammed. 6 MR. KHAN: Mohammed Khan, DOE. 7 That's a very good question. I myself am not 8 really sure whether or not it is a requirement 9 for domestic only. But I'm going to let 10 Ashley try to answer that. 11 MR. LEWIS: If we could reframe it 12 to what we actually use.

13 MS. ARMSTRONG: Sure. So we'll 14 talk about some of the history for the 15 framework we did propose to do a CO 3.0. 2 16 Then because of comments from a number of 17 different parties we ended up screening it 18 out. One of the screening criteria is its 19 manufacturability to service the market and in 20 theory that is we're speaking of the domestic

21 market. 22 Now we didn't necessarily screen

### 202-234-4433 Neal R. Gross & Co., Inc. Page 133 1 it out because it's not a domestic design, but 2 it has to be available to not only service, 3 install and manufacture on a scale necessary 4 to serve the entire domestic market by the 5 2015 standard date for this. So if you -- we 6 have a whole write-up about CO water heaters 2 7 in the NOPR and I welcome your comments on 8 that including Harvey's. 9 (Laughter.)

10 FACILITATOR BROOKS: Frank 11 Stanonik. 12 MR. STANONIK: Frank Stanonik. On 13 that particular issue I think it's worth 14 noting and again I'm venturing into something 15 I'm not absolutely sure about, but without 16 question there's a huge heat pump business in 17 the United States. Right now, it's primarily 18 in the heating side of things. And I'm not 19 aware that any significant percentage of those 20 products use CO as the refrigerant. 2 21 And so the fact that maybe that 22 technology exists elsewhere in the world I

### 202-234-4433 Neal R. Gross & Co., Inc. Page 134 1 think is overwhelmed or has been properly 2 screened out because in fact it is not 3 prevailing technology in North America even. 4 And whether it's required or not we certainly 5 applaud DOE wholeheartedly in addressing 6 minimum standards that will apply to U.S. 7 industry. That's the right thing to do. And 8 to get too involved in looking at what might 9 be going on in other parts of the world I 10 think is an unnecessary expansion of this 11 rulemaking. 12 FACILITATOR BROOKS: Charlie. 13 MR. ADAMS: Charlie Adams. To 14 just supplement that comment, I would point 15 out that especially the Japanese CO heat pump 2 16 water heaters are certified to different 17 levels of standards requirements than exist in 18 certainly the U.S., North America, 19 specifically things like maximum allowable 20 working pressure and so forth and so on that 21 would address the U.S. requirements being 22 higher than the Japanese. So that would

### 202-234-4433 Neal R. Gross & Co., Inc. Page 135 1 increase the wall thicknesses and lots of 2 other things in the design. 3 To say it another way, the one 4 point whatever million CO water heaters that 2 5 sold in Japan would not be certifiable in the 6 United States. 7 FACILITATOR BROOKS: Thank you.

8 Yes. Joe.

9 MR. BOROS: Joe Boros. I should 10 point out that in general heat pump water 11 heaters can operate in different modes and 12 given where they're installed if you have 13 plenty of hot air supply you may have a much 14 higher efficiency compared to an installation 15 where you don't have that supply. So in terms 16 of analyzing max-tech, I would recommend that

17 DOE evaluate the test method as well as the 18 minimum level that's being considered and it 19 will depend on where the water heater is 20 installed and the conditions that we're 21 dealing with and what mode is the water heater 22 operating in to provide the required hot

### 202-234-4433 Neal R. Gross & Co., Inc. Page 136 1 water. 2 FACILITATOR BROOKS: Okay. Thank 3 you. 4 Yes. Mike. 5 MR. BEYERLE: Mike Beyerle, GE. I 6 would just like to note for the record that 7 the product that we have in production at 8 standard DOE test conditions does have an 9 energy efficiency, an EF of 2.3 which is in 10 excess of the max-tech listed on the paper. 11 FACILITATOR BROOKS: Thank you. 12 MS. ARMSTRONG: Okay. What Lance 13 has been waiting for, our methodology for 14 ultra-low NO gas-fired water heaters. What X 15 we did was we separated them out and we 16 developed a separate cost-efficiency curve 17 relationship for them. We realized that they 18 have special restraints because of the 19 emission requirements and utilize different 20 types of burner technology. 21 That being said we analyzed the 22 same efficiency levels and the same

### 202-234-4433 Neal R. Gross & Co., Inc. Page 137 1 representative rated storage volume. We did 2 teardowns of ultra-low NO models specifically X 3 shipped to California and other regions of the 4 country which have those regulations to come 5 up with our cost-efficiency curve for those. 6 DOE estimated the cost to account 7 for the differences in burners, flue baffling, 8 power venting and any other differences we

9 were able to see. The results were then fed 10 to the downstream analysis for those fractions 11 of consumers that would be impacted in the 12 regions which have ultra-low NO fed into the X 13 national analysis data. 14 So we seek your comments on our 15 assumptions for ultra-low NO storage water X 16 heaters and our costs estimates. 17 And I'll just pull up the next 18 slide. These are MPC estimates. They're also 19 in the notice. You can tell that one thing we 20 did find out was that the efficiency's designs 21 as far as the atmospheric technology would be22 implemented earlier, plus it shifted the cost### 202-234-4433 Neal R. Gross & Co., Inc. Page 138 1 efficiency curve down a little bit. So you 2 can see that we didn't analyze Efficiency 3 Level 5 for ultra-low NO and that the jump X 4 from power venting now happens earlier. 5 FACILITATOR BROOKS: So just 6 repeat that last part again just briefly, 7 Ashley. There's a lot there. 8 MS. ARMSTRONG: Okay. So as 9 Charlie explained earlier dealing with 10 pressure, increased pressures, we found that 11 through our teardowns and the number of 12 differences that manufacturers would likely 13 implement the different design strategies 14 earlier in the efficiency level process. So 15 you wouldn't necessarily result in the same

16 EF. 17 Plus for our costing we 18 implemented those designs one level earlier as 19 compared to the traditional gas-fired water 20 heater market. This resulted in us not 21 analyzing Efficiency Level 5 and anything 22 above Efficiency Level 4. We then switched to

### 202-234-4433 Neal R. Gross & Co., Inc. Page 139 1 a condensing ultra-low NO water heater for X 2 those portions of the market. 3 FACILITATOR BROOKS: Charlie. 4 MR. ADAMS: Charlie Adams. I 5 would comment that your MPC for Efficiency 6 Level 6 in an ultra-low NO condensing water X 7 heater is considerably too low. 8 MS. ARMSTRONG: Okay. 9 FACILITATOR BROOKS: Would you 10 like to say what it should be? 11 MR. ADAMS: We'll comment in our 12 written comments. Because if I said anything 13 today, I would be wrong. 14 FACILITATOR BROOKS: Okay. 15 MS. ARMSTRONG: Thank you. 16 FACILITATOR BROOKS: Yes, Joe. 17 MR. BOROS: A follow-up question 18 to that. Efficiency Level 6, is that scaled 19 to 55 gallons and above? 20 MS. ARMSTRONG: No. That's just 21 for the 40 gallon representative capacity. It 22 will be scaled in the analysis further.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 140 1 MR. BOROS: To support TSL, what 2 is it, 5?

3 MS. ARMSTRONG: Yes. 4 MR. BOROS: Is it scaled there 5 appropriately for that? 6 MS. ARMSTRONG: It will be scaled, 7 yes. Now for the -- yes. So the answer is 8 yes and I can show you where those tables are. 9 MR. BOROS: Thank you.

10 MS. ARMSTRONG: Yes. 11 FACILITATOR BROOKS: So you can 12 see the question from DOE. Does it comment on 13 its assumptions about ultra-low NO gas-fired X 14 storage water heaters and the manufacturer 15 production cost estimates? So additional

16 comments on that? 17 (No audible response.) 18 MS. ARMSTRONG: Okay. So I'm 19 going to pass the presentation over to my 20 colleague, Constantin, who is going to talk a 21 little bit more about our integrated heat pump 22 water heater engineering analysis.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 141 1 MR. von WENTZEL: Good morning. 2 My name is Constantin von Wentzel. I had the 3 pleasure of tearing down a number of 4 integrated heat pump water heater units and 5 this is just an update. So since the NOPR 6 engineering analysis was finalized, DOE tore 7 down commercially available units. DOE then 8 compared its cost estimates for these 9 commercially available units with the 10 prototypical unit that DOE had developed for 11 the pre-NOPR. 12 And we observed two different 13 design philosophies for these units that we 14 tore down. Specifically, one type of design 15 was a quasi-retrofit where you took an almost 16 standard electric water heater and added a 17 heat pump module to it. And the other design 18 was a more integrated unit where the condenser 19 heat exchanger was actually inside the heat 20 pump water heater unit. So it was a more 21 integrated design versus a quasi-retrofit. 22 The commercially available units

### 202-234-4433 Neal R. Gross & Co., Inc. Page 142 1 have we estimate somewhat similar efficiencies 2 at the representative storage volume and I 3 list some of the differences here between the 4 unit that DOE used in its pre-NOPR analysis 5 versus the designs that were observed in the 6 field. You can see here extra heat exchanger, 7 water pump, ECM blower motor. And the other 8 design, Design B, used a different type of 9 condenser heat exchanger, fewer resistance 10 heaters and a shaded-pole fan motor. And then 11 you can see that both of these commercially 12 available designs actually drained the 13 condensate water as opposed to evaporating it 14 with a resistance element which is what our 15 initial assumption was. So those are the 16 major differences. 17 And I presume this is what 18 interests everybody the most which is that DOE 19 was able to confirm its cost estimate from the 20 analysis developed from the pre-NOPR. As the 21 cost of these two design types, the DOE design 22 was in between the two.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 143 1 DOE also notes that this is an 2 emerging technology that doesn't have nearly 3 the maturity that the current storage water 4 heater industry has. So it's likely that 5 there will be additional iterations going 6 forward perhaps based on unit experience in 7 the field and what have you. 8 As I mentioned before, DOE modeled 9 a 2.0 storage water heater and a 2.2 EF 10 electric storage water heater and we felt that 11 the -- our research suggested that the two 12 units that the -- excuse me -- the two designs 13 have about the same EF at the representative 14 storage volume of 50 gallons. 15 FACILITATOR BROOKS: Charlie, go

16 ahead.

17 MR. ADAMS: Yes. I have a 18 question. Charlie Adams. The two units that 19 you tore down were 50 gallon capacity units. 20 MR. von WENTZEL: They are 21 commercially available units and -- 22 MR. ADAMS: Fifty?

### 202-234-4433 Neal R. Gross & Co., Inc. Page 144 1 MR. BEYERLE: Ours is 50. I don't 2 know if it's the one they tore down.

3 MR. von WENTZEL: There are also 4 other units. I said there are two designs we

5 tore down. 6 MR. ADAMS: Right. Correct.

7 MR. von WENTZEL: And there are 8 units available at the 50 and the 80 gallon 9 capacity. 10 MR. ADAMS: Okay. My real 11 question was and perhaps we can get this and 12 follow on, but was the seven foot tall unit 13 was a 50 gallon water heater is my question.

14 MR. von WENTZEL: Yes. 15 MR. BEYERLE: So in that case it 16 must not -- this is Mike Beyerle, GE -- in 17 that case it must not be ours. Ours is not

18 seven feet.

19 MR. von WENTZEL: About seven feet

20 tall.

21 FACILITATOR BROOKS: That's what I 22 wanted. So this is approximately seven feet.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 145 1 MR. BEYERLE: Ours is not even 2 approximately seven feet. 3 FACILITATOR BROOKS: Yours is 4 approximately how tall? 5 MR. BEYERLE: Approximately six

6 feet. 7 FACILITATOR BROOKS: Thank you, 8 Mike. Okay. That's enough difference to 9 clarify that. 10 Okay. Yes. Frank.

11 MR. STANONIK: Just another 12 question. You mentioned in one of the slides 13 that Design B had fewer resistance heaters. 14 Are you meaning it had a smaller resistance 15 element or did it actually have heater, 16 plural, heaters? 17 MR. von WENTZEL: If you look at 18 the designs that are available on the market 19 today, you have everything from two resistance 20 elements to one resistance element. That's

21 all I -- 22 MR. STANONIK: Okay. I -- okay.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 146 1 Thank you. 2 FACILITATOR BROOKS: Did you 3 finish with your presentation? 4 MR. von WENTZEL: Any other 5 questions?

6 FACILITATOR BROOKS: Yes. There's

7 one. Andrew. 8 MR. deLASKI: You mentioned at the 9 end that these are products that are 10 relatively new to the market and that a lot of 11 the learning that will happen as manufacturers 12 ramp volumes hasn't yet happened yet. Does 13 the DOE's unit MPC attempt to take into 14 account the learning that will happen over the 15 next five years or is it based on the cost 16 that you would estimate in the marketplace 17 today? 18 MR. von WENTZEL: It is a cost 19 that is estimated on the basis of baseline 20 production. That is to say high volume 21 production and the pre-NOPR design that we 22 analyzed had been on the market for a number

### 202-234-4433 Neal R. Gross & Co., Inc. Page 147 1 of years and had been refined to some degree. 2 So we felt that that was a representative 3 design for a high volume manufacturing 4 scenario.

5 Whether manufacturers can or 6 cannot further refine their designs and what 7 directions they might go in, I'm afraid that's 8 beyond my scope. I'm not a -- although I 9 designed a water heater earlier in my life and 10 that's a couple years ago, it was not a heat 11 pump water heater. 12 MR. deLASKI: Okay. Thanks. 13 MR. von WENTZEL: Any other 14 questions?

15 FACILITATOR BROOKS: Frank. 16 MR. STANONIK: I'm sorry. One 17 more question and you did mention that one of 18 the designs had as you characterized it a much 19 more sophisticated control system. Can you 20 give some idea of what that sophisticated 21 control system was supposed to do or why it

22 was needed?

### 202-234-4433 Neal R. Gross & Co., Inc. Page 148 1 MR. von WENTZEL: First of all, I 2 preface this by telling you that I'm a 3 manufacturing engineer, not a chemical, HVAC 4 or what have you engineer. I will also draw 5 from my experience in the central AC world 6 where you have also seen and I'll just use 7 this as a parallel a range of control systems 8 that manufacturers use for different reasons. 9 You could be using for instance a TXV valve 10 to control the flow refrigerant. 11 Similarly you could be using an 12 electronically actuated valve. If you're 13 going to be using an electronically actuated 14 valve, chances are you're going to have to use 15 a pressure transducer as opposed to high 16 pressure limit switch. 17 So there are a lot of iterations 18 that a manufacturer can go through in order 19 to, let's say, make a unit that is more 20 electronic and less analog versus a unit that 21 -- and the analog may be good enough. It may 22 not be. That's again beyond my expertise.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 149 1 All I can do is I can take the units apart and 2 see what manufacturers did. 3 FACILITATOR BROOKS: Okay. Let's 4 keep going. 5 MR. von WENTZEL: Then moving on 6 to the scaling of manufacturing product 7 production costs, DOE scaled costs to rated 8 storage volumes outside of the representative 9 storage volume to account for large variations 10 in first costs and usage patterns of different 11 size products. These scaled production costs 12 are used in the downstream analysis. 13 DOE performed teardowns of models 14 at rated storage volumes other than the 15 representative rated storage volume, i.e., 40 16 gallons for gas, 50 for electric and 32 for 17 oil. These teardowns allowed DOE to determine 18 which components scale with rated storage 19 volume and exactly how they scale. So, for 20 instance, how does a tank wall volume, excuse 21 me, tank wall thickness change as a function 22 of tank diameter. We all know about hoop

### 202-234-4433 Neal R. Gross & Co., Inc. Page 150 1 stress. But exactly how manufacturers 2 implement that question is what we were after. 3 On the other hand, there are other 4 components that don't scale necessarily with 5 the volume of the unit or the diameter of the 6 unit but perhaps with the thickness of the 7 insulation such as the stems that are required 8 on gas valves may require to become longer as 9 a function of the insulation thickness. 10 So what I'm showing you here on 11 the next page are the -- 12 MR. BRUNDAGE: Before we move on, 13 Constantin.

14 MR. von WENTZEL: Yes. 15 MR. BRUNDAGE: Don Brundage. I'm 16 sorry. I was looking down. Are you starting 17 to talk about this page?

18 MR. von WENTZEL: Yes. 19 MR. BRUNDAGE: Okay. 20 MR. von WENTZEL: But if you'd 21 like to go back if you had a question.

22 MR. BRUNDAGE: No. I had a

### 202-234-4433 Neal R. Gross & Co., Inc. Page 151 1 question on this page. 2 MR. von WENTZEL: Okay. So what 3 I'm showing you here are the manufacturing 4 production costs at the gallon capacities 5 outside of the so-called representative range 6 for each, for gas and electric storage water

7 heaters. 8 Your question? 9 MR. BRUNDAGE: For Efficiency 10 Level 5 -- Don Brundage. For Efficiency Level 11 5, you are showing a price difference between 12 efficiency level 5 and efficiency level 6 of 13 $370 for a 30 gallon and $365 for the 119 14 gallon. 15 MR. von WENTZEL: Okay. Quick 16 question. You're referring to the electric?

17 MR. BRUNDAGE: Yes. 18 MR. von WENTZEL: Okay. 19 MR. BRUNDAGE: I would -- this is 20 obviously where you get the heat pump water 21 heaters and I guess my question is are you 22 assuming the same size of heating capacity on

### 202-234-4433 Neal R. Gross & Co., Inc. Page 152 1 the 30 gallon as on the 119 gallon.

2 MR. von WENTZEL: The thermal 3 capacity stays the same across all of these 4 units. So the thermal heating capacity is the 5 same whether you've got a 30 gallon storage 6 product or a 120 gallon storage product. 7 MR. BRUNDAGE: I guess I wonder if 8 in real life that's a realistic assumption. 9 People need more -- people buy a larger unit. 10 They're going to have a larger capacity. You 11 would have -- we're looking at a couple of 12 models of heat pump water heaters out there 13 now that have a variety of sizes of capacities 14 on heating. It seems like with 119 gallon you 15 would have a larger heat pump in there than 16 with a 30 gallon just in real life the way 17 they design products. 18 FACILITATOR BROOKS: Charlie, do 19 you want to respond to Don's question? 20 MR. ADAMS: Other than to agree to 21 it, I think this is a rabbit trail that will 22 not benefit us to discuss today because it's

### 202-234-4433 Neal R. Gross & Co., Inc. Page 153 1 an implication of the DOE test method which 2 will get me off on a whole other tangent 3 because the way the ratings are developed 4 there is the daily use of 64 gallons and 5 that's with a 21 gallon water heater or a 119 6 gallon water heater. It's evaluated at 64 7 gallons a day. And that's a real problem, but 8 it's not for the topic of the day, I think. 9 FACILITATOR BROOKS: Okay. Thanks 10 for your discipline there.

11 I want to make sure that we do 12 stay pretty much in sequence here. You were 13 leading off with oil-fired and Don had jumped 14 to electric. 15 MR. von WENTZEL: No, I was 16 leading off with gas-fired. But just to 17 quickly respond.

18 FACILITATOR BROOKS: Pardon me.

19 Yes.

20 MR. von WENTZEL: I do note that 21 the units we obtained and tore down had two 22 resistance elements on the market today at 4.5

### 202-234-4433 Neal R. Gross & Co., Inc. Page 154 1 kilowatts total. So apparently the market is 2 capable of having units with large storage 3 volume where the actual heating input is no 4 different whether you are a lower volume or a 5 higher volume.

6 FACILITATOR BROOKS: Frank. 7 MR. STANONIK: I think Don's point 8 is that if I'm incorporating heat pump 9 technology in an 119 gallon water heater that 10 heat pump may have a much higher -- it may 11 have a higher capability to develop BTUs into 12 the water as opposed to that heat pump I stick 13 on a 20 gallon. And because if I did that the 14 cost would scale very differently than if I 15 took the same heat pump for the sake of 16 discussion could deliver 5,000 BTUs an hour 17 and I put it on the 20 gallon, 40 gallon, the 18 60 gallon and the whatever. I think that was 19 his point, right? 20 MR. BRUNDAGE: Yes. I guess my 21 point and obviously these are designed for the 22 test procedure, not for real life. But I

### 202-234-4433 Neal R. Gross & Co., Inc. Page 155 1 think in real life you're going to see a 2 bigger price difference on the 119 gallon. I 3 think a viable commercial product -- and the 4 manufacturers can talk to this better than I 5 can. A viable commercial product is going to 6 have a larger heat pump element for the 119 7 gallon. 8 The reason you see the same 9 heating elements with the resistance is you're 10 maxing out a standard circuit. You don't 11 normally stick above that circuit limit on an 12 electric resistance water heater. 13 FACILITATOR BROOKS: And, Charlie, 14 do you want to add on here? 15 MR. LEWIS: He's right. It turns 16 out since we've got a couple minutes that if 17 you have some data on anything that any of you 18 could supply real life data that would be 19 informative to us. It would be helpful to 20 know those specifics and time is of essence 21 here. You know, we have to review all the 22 analysis. So the offering versus the ability

### 202-234-4433 Neal R. Gross & Co., Inc. Page 156 1 to deliver it was something that's projected 2 like the study that won't be available for a 3 year or two. But it may be too late to 4 benefit us, but if you've got something 5 readily available, any of you, that would help 6 us we would appreciate it.

7 MR. BRUNDAGE: We have asked EPRI 8 to provide us whatever they can within your 9 time frame of what they are currently working 10 on on the test. We have requested that from 11 EPRI to provide it to us and provide it to 12 you. 13 They are -- they try to be very 14 careful about 501(c)(3). They'd rather 15 provide data to others instead of coming 16 directly to you. 17 FACILITATOR BROOKS: So if it was 18 in a preliminary state, not even fully 19 scrubbed, it would still inform the 20 Department, right? 21 Charlie. 22 MR. ADAMS: Charlie Adams. Just

### 202-234-4433 Neal R. Gross & Co., Inc. Page 157 1 to comment on the cost, we will provide our 2 view on the costs in our written comments.

3 FACILITATOR BROOKS: Great. 4 MR. ADAMS: Some of the higher 5 efficiency levels we believe are probably too 6 low, but we'll be able to be more definitive 7 in our written comments.

8 FACILITATOR BROOKS: Your comment 9 earlier following Don's comment was that he 10 was on track with his -- he was correct.

11 MR. ADAMS: Correct. But 12 typically a 119 gallon heat pump water heater 13 would have a higher capacity refrigerant 14 circuit than a 30 gallon heat pump water

15 heater would. 16 One other comment in this area 17 before we leave it is just and we provided 18 some similar comments to the preliminary 19 technical support document earlier last year 20 also the approach of tearing one or two gallon 21 sizes in an efficiency level or technology and 22 scaling that up to larger sizes if you're not

### 202-234-4433 Neal R. Gross & Co., Inc. Page 158 1 a water heater guy and you don't know what to 2 look for there's some things you're going to 3 miss in there. A lot of them don't 4 meaningfully affect the costs for the purposes 5 that we're looking at here. And in some cases 6 it might, for example, the flue size in a 7 standard gas water heater doesn't scale with 8 the tank capacity. It's scales with the 9 input. So you can have a four inch flue in a 10 30, 40, 50, 60 gallon tank and a five inch 11 flue in a 30, 40, 50, 60 gallon tank because 12 the heating input has nothing to do with 13 gallon capacity. 14 FACILITATOR BROOKS: Okay. Thank 15 you. 16 MR. von WENTZEL: I really look

17 forward to the data and as I noted before we 18 did confirm flue sizes, tank diameters, tank 19 wall thicknesses and other things at various 20 diameters, sizes, volumes, storage volumes. 21 So we really did try to account for all of the 22 factors that would change and we confirmed as

### 202-234-4433 Neal R. Gross & Co., Inc. Page 159 1 best as I can tell the results of the model 2 using actual units that we tore down at 3 smaller storage volume capacities as well as 4 much larger ones. 5 MR. ADAMS: Charlie Adams again. 6 Understand that the point that I'm really 7 making is that we make a 40 gallon water 8 heater for example at one of the lower 9 efficiency levels with 30,000 BTU input that 10 has a three inch diameter flue and we make a 11 40 gallon at 60,000 BTUs that has a five inch 12 diameter flue. But it's still a 40 gallon

13 tank. 14 MR. von WENTZEL: Right. 15 MR. ADAMS: And depending on which 16 one you tore down your numbers are going to be 17 to whatever level is correct for that one. 18 But not all 40 gallon heaters are the same is 19 my point. 20 MR. von WENTZEL: Right. So to the 21 extent that you can provide us data about what 22 kinds of units you shipped at what capacities

### 202-234-4433 Neal R. Gross & Co., Inc. Page 160 1 and what storage volumes I think that would 2 help us greatly in terms of refining the 3 analysis if that's what it comes to. 4 FACILITATOR BROOKS: Okay.

5 MR. von WENTZEL: And last but not 6 least, certainly not least, it's the oil side. 7 As you may recall, we -- you don't have to 8 hit him. 9 MR. ADAMS: Waking him up because 10 it's important that he listens to this one. 11 MR. KUSTERER: Thanks, Charlie.

12 MR. von WENTZEL: We conducted the 13 same exercise for oil storage water heaters 14 which is say we tore down 50 gallon units to 15 confirm that our scaling up from 32 gallons 16 was correct and in terms of everything that we 17 expected to see we would see. 18 So Issue No. 12 as you can see 19 here DOE requests comments on its approach to 20 scaling the manufacturer production costs from 21 the representative storage volumes to other 22 storage volumes. DOE also requests comments

### 202-234-4433 Neal R. Gross & Co., Inc. Page 161 1 on the estimated manufacturer production costs 2 for storage water heaters at storage volumes 3 outside of the representative volumes that are 4 shown in Chapter 5 of the heating products

5 TSD. 6 If you have any questions about or 7 comments about, additional comments or 8 questions about, electric, gas or oil storage 9 water heaters, I'm here for you.

10 FACILITATOR BROOKS: Yes. Frank. 11 MR. STANONIK: Just a more general 12 question and I'm going to apologize because I 13 probably should know this. But in the 14 analysis did you do any of the scaling for the 15 direct heating equipment? 16 MR. von WENTZEL: Direct heating 17 equipment. 18 MR. STANONIK: Okay. I just 19 didn't remember.

20 FACILITATOR BROOKS: The answer 21 was no. Okay. 22 George.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 162 1 MR. KUSTERER: I'm trying to be 2 frank. George Kusterer. The only thing I'd 3 like to say is that we will be addressing this 4 in the written comments through AHRI. 5 FACILITATOR BROOKS: Thank you. 6 MR. von WENTZEL: Thank you. 7 FACILITATOR BROOKS: So I think 8 we've had some comment on or the promise of 9 comment on all three of these categories. 10 Additional comment before we move on? No. 11 Move onto the next set of slides. 12 Yes, okay. We're moving on. 13 MS. ARMSTRONG: Still on water 14 heaters. The next thing we're going to talk 15 about is the energy efficiency equations which 16 characterizes the relationship between the 17 rated storage volumes and the energy factor. 18 For the NOPR, DOE revised these equations from 19 the preliminary analysis based on the products 20 in the market today as well as based on some 21 testing that we had done by an independent 22 laboratory.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 163 1 So these are the equations for 2 gas-fired storage water heaters. There is a 3 60 gallon cutoff across all the efficiency 4 levels that we analyzed with the exception of 5 the max-tech. And we kept the same slope as 6 previously. 7 Next are the equations for the 8 electric side. There's an 80 gallon cutoff

9 for these and we used no cutoff for the heat 10 pump water heater equation. 11 And although not shown here, we 12 propose to maintain the same slope as the 13 existing equation for oil water heaters. 14 (Laughter.) 15 I knew that was coming. And we 16 request your comments on all of them. 17 FACILITATOR BROOKS: George. 18 MR. KUSTERER: Why are we always 19 the stepchild? 20 (Laughter.) 21 Don't you know we're the most 22 efficient way to heat domestic hot water?

### 202-234-4433 Neal R. Gross & Co., Inc. Page 164 1 MS. ARMSTRONG: There you go. 2 MR. KUSTERER: I don't even get a 3 graph. 4 (Laughter.) 5 MR. ADAMS: Go home and think

6 about that. 7 MR. KUSTERER: I'm so upset. I'm

8 mad. 9 FACILITATOR BROOKS: George, we do 10 like to provide you an opportunity to comment.

11 MR. KUSTERER: I know. 12 FACILITATOR BROOKS: Okay. 13 Ashley, now that you've given George an 14 opportunity keep going. 15 MS. ARMSTRONG: Okay. Great. 16 Thank you, George. 17 So we ask for comment either now 18 or in writing later after you've had time to 19 look at these a little more on the equations, 20 the appropriateness of the slopes as well as 21 the division points for both gas, electric and 22 oil that DOE did consider for the final rule

### 202-234-4433 Neal R. Gross & Co., Inc. Page 165 1 and last but not least any additional issues 2 or questions pertaining to the engineering 3 analysis for all three products. 4 FACILITATOR BROOKS: Yes, Ken.

5 MR. BELDING: I don't know what's 6 worse than a stepchild, but we weren't even in 7 this category. 8 (Laughter.) 9 Direct heating was kind of left 10 out of this. I'll just make a couple of quick 11 comments because I think we'll also handle 12 this in the written comments. But we 13 understand that during the engineering 14 analysis a lot of things were taken into

15 account. 16 We just -- I would just like to 17 reinforce the fact that we believe that the 18 analysis underestimated a lot of things that 19 impact our category, meaning that the design 20 changes that need to be made having to have a 21 lower input BTUs for the same physical size of 22 a unit. And unlike water heaters while they

### 202-234-4433 Neal R. Gross & Co., Inc. Page 166 1 might be hidden in the closet, our units are 2 sitting in somebody's living room. And 3 physical changes on our products are extremely 4 critical for sales. We would need to have 5 larger heat exchanger surface areas as was 6 commented earlier. 7 And again there's apparently a 8 dismissal of the fact that millivolt units 9 aren't worth saving because a lot of the 10 things that we would need to do on an 11 engineering side would be to add electricity 12 to a unit that's run by less than a volt of 13 electricity. 14 Again, I think these were all 15 taken into account. I sat in the meetings with 16 the folks that came to our facility and we had 17 great conversations about this thing. But I 18 think they were grossly underestimated on our 19 product because of the physical location of 20 where it sits in the person's home. 21 FACILITATOR BROOKS: Thank you. 22 Additional comments on this?

### 202-234-4433 Neal R. Gross & Co., Inc. Page 167 1 (No audible response.) 2 Do you have any additional 3 questions? 4 MS. ARMSTRONG: No, we're moving 5 to the life-cycle cost analysis if you want to 6 continue. 7 FACILITATOR BROOKS: I'm wondering

8 whether we should break for lunch now. Yes. 9 Let's do that. It's now 12:05 p.m. and it 10 takes pretty much an hour to get to lunch and 11 get back here. First of all, I'd like to 12 thank everybody. From my perspective and on 13 behalf of the Department, this has been very, 14 very constructive and we've really covered a 15 lot of ground, a lot of good input, a lot of 16 good comment. I expect that we'll continue 17 that after lunch. We'll resume at 1:05 p.m.

18 Off the record. 19 (Whereupon, at 12:07 a.m., the 20 above-entitled matter went off the record and 21 resumed at 1:12 p.m.)

### 202-234-4433 Neal R. Gross & Co., Inc. Page 168 1 A-F-T-E-R-N-O-O-N S-E-S-S-I-O-N 2 (1:12 p.m.)

3 MR. BROOKMAN: Thanks to all of 4 you for being back on time so we can resume on 5 time. I'm sure that many of you were studying 6 the agenda during lunch. We're a little bit 7 behind. So we're going to have to keep the 8 pace up this afternoon. 9 Also, a person or two approached 10 me and said that they have plane flights. How 11 many of you intend to get out of here early 12 today? 13 (Show of hands.) 14 MR. BROOKMAN: Not too many of 15 you. That's a good impulse. 16 I suspect we're going to be 17 working until at least, say, four o'clock, and 18 maybe a little bit beyond that. Sometimes the 19 way the agenda works, the final items of the 20 day go a little quicker, although there are 21 some summary slides and remarks that are very 22 important to the department. So we're going

### 202-234-4433 Neal R. Gross & Co., Inc. Page 169 1 to try and get there as effectively and 2 efficiently as possible. So we're going to 3 press on. 4 And, Alex, Alex Lekov is 5 presenting. 6 MR. LEKOV: Hello, everybody. I'm 7 Alex Lekov, Lawrence Berkeley National 8 Laboratory, and I'll be presenting details on 9 the updates of the life cycle cost analysis 10 for the three products as done for the NOPR 11 phase of this rule. 12 So a brief introduction to the 13 life cycle costs. The three main components 14 of the life cycle cost analysis that we will 15 be discussing during the next 30 minutes are 16 the markups for product price determination 17 and reduced characterization and the life 18 cycle costs -- 19 MR. BROOKMAN: Alex, you need to 20 keep -- 21 MR. LEKOV: -- and life cycle 22 costs in the payback period analysis.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 170 1 So now on the markups for product 2 price determination, and just as an 3 introductory wording, you'll see the slides 4 have a very similar format. You will see all 5 of the method and the sources, and after that 6 there will be a table in the bottom part of 7 the slide showing the changes that the 8 department performed, the update that occurred 9 between the preliminary analysis and this NOPR 10 phase of the rulemaking. 11 So a brief summary of the method 12 for markups for product price determination. 13 Markups relate the consumer price to cost of 14 goods sold, and as has been the case with 15 many, many other rules that the department 16 showed the last ten years, the method includes 17 determination of baseline markups and 18 incremental markups. 19 In addition to this, the markups 20 utilize national distribution of sales taxes 21 in order to arrive at the product, the actual 22 product price to the consumer.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 171 1 Below that you have the source, 2 the list of the major sources, just the 3 collection explaining in detail in the 4 technical support documentation as they are 5 applicable to this particular Analysis Branch. 6 In the case of markups for product 7 price determination, there were not very many 8 changes since the preliminary analysis, and as 9 here indicated, the prices were now reported 10 in 2008 data as well as we updated the sales

11 taxes to 2009 data. 12 The next major component of the 13 life cycle cost analysis are the energy use 14 characterization. Again, a brief summary of 15 the method used, as explained in details in 16 the technical support document, we are using 17 -- DOE uses RECS 2005 and applied also hot 18 water draw model to calculate the daily hot 19 water use. The energy use itself is 20 calculated using the water heater analysis

21 model known as WHAM. 22 In the case of direct heating

### 202-234-4433 Neal R. Gross & Co., Inc. Page 172 1 equipment, pool heaters, the department uses 2 information from RECS, Residential Energy 3 Consumption Survey, and as well as the test 4 procedure calculation to determine the energy

5 use. 6 The table below in the familiar 7 format presents the impacted product classes, 8 what has been done during the preliminary 9 analysis and what is the actual update. 10 The first row shows changes that 11 are applicable to all products or to a group 12 of products. 13 MR. BROOKMAN: Hey, Alex, speak 14 into the microphone. 15 MR. LEKOV: Oh, I thought I was 16 close enough.

17 MR. BROOKMAN: You're close. 18 Thank you. 19 MR. LEKOV: Okay. I'll be like 20 this. 21 So basically a very major change 22 is that the sample was updated from RECS 2001.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 173 1 MR. BROOKMAN: Can you read this? 2 That will keep you right in front of it. No, 3 you can't. How about this? 4 MR. LEKOV: Am I okay?

5 MR. BROOKMAN: Yes. 6 MR. LEKOV: Okay. Thank you. 7 So I started to discuss it. 8 Basically, we updated the house example from 9 RECS 2001 to RECS 2005. A very important 10 update was that we also developed new product 11 characteristic based on the latest available 12 data, as listed here, March 2009, AHRI 13 Directory, as well as June '08, FTC for pool

14 heaters. 15 In terms of the gas storage water 16 heaters, an improvement the department did is 17 basically with how we defined recovery 18 efficiency values. In the previous round we 19 had the single RE value for efficiency level. 20 Now basically we are presenting, the 21 department is presenting a range of 22 efficiency, distribution of efficiencies for

### 202-234-4433 Neal R. Gross & Co., Inc. Page 174 1 recovery efficiency values based on the number 2 and models in the directory. 3 In the case of electric storage 4 water heaters, major update for the NOPR phase 5 is that the department now accounts for a cost 6 of venting for a fraction of heater 7 installation, and this is in addition to the 8 basic penalties that we calculated and 9 presented as an impact on the house heating 10 and cooling cost. 11 Also for the NOPR phase of the 12 rulemaking, we are presenting distribution 13 values for heating capacity for heaters in 14 lieu of a single point, which was the previous 15 time, and everything discussing now and 16 listing is based on input from the interested 17 parties during the preliminary analysis. 18 Essentially the last point also, I 19 believe, addresses some concerns about the 20 heating capacities which were expressed this 21 morning. 22 Instantaneous gas-fired water

### 202-234-4433 Neal R. Gross & Co., Inc. Page 175 1 heaters. In the preliminary analysis, we 2 applied a performance adjustment factor which 3 basically was introduced to present the 4 performance at actual fuel condition. It was 5 kept at 8.8 percent. 6 Now, the department basically 7 refined this approach, and essentially this 8 adjustment factor varies from zero to 8.8 9 percent based on your references that are 10 listed in the technical support documentation. 11 Direct heating equipment. The 12 main thing is, as explained this morning, the 13 department introduced a new product class 14 called hearth direct heating equipment. So 15 the equipment which during the preliminary 16 analysis was included in gas wall furnaces and 17 gas room DHE now is entirely into the hearth 18 DHE product class. 19 For pool heaters, we expanded the 20 household example. In the prior phase we used 21 a single RECS survey, 2001. Now we increased 22 the sample significantly to account for all

### 202-234-4433 Neal R. Gross & Co., Inc. Page 176 1 available RECS surveys. This makes it 2 statistically much more representative. 3 Now I'll switch to the core of the 4 analysis, the actual life cycle cost and 5 payback period. 6 MR. BROOKMAN: Question? Frank 7 Stanonik. 8 MR. STANONIK: Are we doing 9 questions as we go through the slides? 10 MR. BROOKMAN: I guess so, yes. 11 MR. STANONIK: Alex, on this 12 energy use characterization, direct heating 13 equipment, the RECS data, how does that 14 characterize that? Simple as supplemental 15 heating? 16 I mean, the RECS data doesn't 17 distinguish between a floor furnace, wall 18 furnace, room heater, vented fireplace or any 19 of that, right? It just has this category of 20 space heating, I guess. Is that correct? 21 MR. LEKOV: No. In fact, it has 22 some distinguishment of the equipment there

### 202-234-4433 Neal R. Gross & Co., Inc. Page 177 1 indicating whether it's a fireplace. Also, 2 the end use itself, it also indicates whether 3 the equipment is secondary or primary. 4 MR. STANONIK: Oh, okay. 5 MR. LEKOV: So this is accounted 6 in the DOE analysis appropriately, or the gas 7 end uses are appropriately subtracted. 8 MR. BROOKMAN: Jim has a question. 9 MR. SMELCER: Yes. Alex, could 10 you also give me a particular rationale or BTU 11 input if you can on the heaters wherein you 12 expanded the sample of the RECS study? Do you 13 know if that had a -- did that have a BTU 14 limit input that you were looking at as far as 15 pool heaters are concerned? 16 MR. LEKOV: The Residential Energy 17 Consumption Survey does not include the 18 capacity of the pool heater. 19 MR. SMELCER: The reason I speak 20 of that is that there is a -- what is in front 21 of us is a no cap BTU limit with pool heaters 22 coming, and what is basically on file today is

### 202-234-4433 Neal R. Gross & Co., Inc. Page 178 1 for residential pool heaters primarily 400,000

2 and down. 3 MR. LEKOV: The department for 4 this analysis, the department utilized a 5 single capacity, 250 kBTU per hour. 6 MR. SMELCER: Okay. I will 7 question that and then I'll let it continue. 8 I will question the RECS data as being 9 indicative of a no capped BTU limit for pool

10 heaters. 11 MR. BROOKMAN: Okay. Thank you. 12 MR. LEKOV: Yes, I understand your 13 question, and again I will repeat. RECS has 14 no determination of the actual capacity of the 15 installed unit. 16 With that, here is an introduction 17 to the life cycle cost analysis, just a brief 18 summary of the other approach, and after that 19 I'll go into details of all the input 20 variables as utilized in the analysis. 21 So basically life cycle costs 22 equals the consumer price plus the sum of

### 202-234-4433 Neal R. Gross & Co., Inc. Page 179 1 operating costs discounted to a particular 2 base year. The entire evaluation is done from 3 the customer perspective. Analyses are 4 implemented in an Excel spreadsheet combined 5 with a Crystal Ball, which is a -- software, 6 multiple times discussed during the different

7 rules. 8 In the analysis models include the 9 uncertainty and variability of inputs 10 essentially using the Monte Carlo simulations 11 and all the variables are defined -- and most 12 of the variables are defined as probability 13 distributions. 14 Results are expressed as LCC 15 savings, essentially as the difference between 16 two calculations, one LCC calculation. One is 17 for the baseline and one for the considered 18 standard level. Also, the simple payback is 19 calculated and reported in the analysis. 20 With this introduction, I'll 21 switch to different variables that essentially 22 are utilized to derive the life cycle cost

### 202-234-4433 Neal R. Gross & Co., Inc. Page 180 1 results. Installation cost is a part of the 2 first cost, and it's applied in combination 3 with the actual consumer price. 4 As shown here, the DOE is using 5 data from RS Means 2008 Consultant Report for 6 oil storage water heaters with the numbers as 7 explained in the preliminary analyses that are 8 coming from the DOE's 2001 water heater rule 9 and for DHE, most of the information comes 10 from the '93 technical support document. 11 With that, the table here shows 12 the differences between the two analysis sets. 13 For our product, one main piece is that DOE 14 switched from national labor costs to regional 15 labor costs. So this comes from RS Means. 16 Basically we're accounting for the fact that 17 if we have a national labor costs in New York, 18 they're like times 1.6, while for some other 19 states could be .7. So this is now accounted 20 for every single household. 21 DOE converted the installation 22 materials and labor costs, 2008 dollars.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 181 1 Based on interested parties' input, DOE 2 actually did the installation cost for water 3 heaters when located in the attics. So that 4 how is accounted; additional cost is added for 5 gas storage and electric storage water

6 heaters. 7 For gas-fired storage water 8 heaters, there were several improvements. 9 During the preliminary analysis phase, DOE did 10 not account for space constraints. Now, there 11 are space constraint costs for fraction of 12 installations that have design options that 13 include one and a half and two inches 14 insulation. 15 Again, based on interested 16 parties' input, DOE added additional costs for 17 stainless steel vent connector to a fraction 18 of households. Before what was used in terms 19 of venting was an average venting cost was 20 applied for all households. Now venting 21 households is calculated for each individual 22 household. This means the department looked

### 202-234-4433 Neal R. Gross & Co., Inc. Page 182 1 at the house characteristics, assume where the 2 water heater is, calculated some length of the 3 vents, and all those things, carefully 4 determined for each individual household. 5 Electric storage water heaters. 6 While during the preliminary analysis, the 7 department accounted just applied space 8 constraint to condition space where the design 9 of the water heater included two and a half 10 inches insulation and above. Now, it's just 11 -- and was supplied just to conditioned 12 spaces. Now it's applied to all household, 13 fraction of household that are not just 14 conditioned space. 15 For heat pump water heaters, the 16 department added venting costs, and this will 17 be mentioned once or twice again during the 18 more detailed slides after that, but again, in 19 summary, what's happened in the preliminary 20 analysis, the department calculated 21 essentially the heating-cooling penalties as a 22 result of the operation of the water heaters;

### 202-234-4433 Neal R. Gross & Co., Inc. Page 183 1 essentially added the cost to household 2 because they need to operate their heating 3 system more to compensate for the cooling of 4 the space due to the operation of the heat 5 pump water heater. 6 Now for a very large fraction of 7 the households, the department decided to 8 apply actually a venting system associated 9 with each water heater. So basically the load 10 imposed on the space conditioning whole is 11 large enough. It will be either penalties or 12 venting system, and you'll see the cost as 13 determined on the next slide. 14 MR. BROOKMAN: Let's go to that. 15 Alex, I think since it's useful for you to 16 highlight the big changes and try and 17 summarize as you're going along. Okay? Just 18 see if you can summarize a little more as you 19 go to the next slide.

20 MR. LEKOV: Sure. 21 MR. BROOKMAN: Okay. 22 MR. LEKOV: There essentially I

### 202-234-4433 Neal R. Gross & Co., Inc. Page 184 1 believe there will be a potential on the next 2 slide. 3 MR. BROOKMAN: Okay. So we have a 4 question here on this slide. Yes. 5 MR. LEKOV: Oh, I have one more 6 item for the DHE folks. 7 MR. BROOKMAN: Yes, please, yes. 8 MR. LEKOV: Essentially an 9 installation cost was introduced for the 10 hearth products and was assumed to be similar 11 to the one applied for gas room DHE.

12 MR. BROOKMAN: Please.

13 MR. GLASS: Robert Glass. 14 The reason why I'm inserting the 15 question here is because pool heaters are not 16 addressed on the future slides, but it does 17 relate to the installation cost. 18 The comment that I want to make is 19 that basically there is approximately about 20 eight million pool heaters that are currently 21 in the U.S. market, and of those about eight 22 percent of them are millivolt pool heaters,

### 202-234-4433 Neal R. Gross & Co., Inc. Page 185 1 raising the efficiency level to a point above 2 that that can be maintained with a millivolt 3 heater will force the replacement of those 4 units to have to have a new electrical supply 5 brought to the pool pad location in order to 6 hook up a unit that previously did not require 7 electricity, and now will require electricity, 8 and those installation costs are not taken 9 into account for pool heaters here for 10 something that does represent a quite 11 substantial amount of units that are out

12 there. 13 MR. BROOKMAN: Could you estimate 14 the percentage or the number of units? 15 MR. GLASS: About eight percent of 16 the installed base are millivolt pool heaters 17 at this point. 18 MR. BROOKMAN: Okay.

19 MR. GLASS: And those are not 20 taken into account in the installation cost. 21 MR. BROOKMAN: Okay. 22 MR. LEKOV: The answer is that, in

### 202-234-4433 Neal R. Gross & Co., Inc. Page 186 1 fact, the department accounted for this, just 2 as pointed in the beginning of the 3 presentation. Here we're focused on the 4 changes between the preliminary analysis and 5 the NOPR in the preliminary analysis phase. 6 Lastly, we had quite a bit of 7 discussion on exactly the item you are 8 touching upon. So a short answer is, yes, 9 it's accounted with an appropriate cost. It's 10 in the technical support document. 11 MR. BROOKMAN: Go ahead, Robert. 12 MR. GLASS: I mean, I agree that 13 there was a lot of discussion about it because 14 it hadn't been addressed there, and because it 15 doesn't show that there's any change here, 16 that's why I'm questioning to say that I don't 17 believe that it had been addressed, because at 18 that time we also didn't have information that 19 related to really what was the installed base 20 that was out there. And subsequent to that 21 time we've received information and feedback 22 from within the industry and particularly from

### 202-234-4433 Neal R. Gross & Co., Inc. Page 187 1 a company that actually is the largest 2 wholesale distributor of pool products in the 3 United States. Actually it's the largest 4 wholesale distributor of product in the world, 5 of pool product in the world, and they're the 6 ones that have come out with this rough 7 figures on what their installed base is, and 8 that information is available on their Website 9 in some of their annual reports, if you want 10 it from a reference standpoint. 11 MR. BROOKMAN: Thank you. 12 MR. GLASS: We will also comment 13 to this as well. 14 MR. LEKOV: If it's okay, the 15 department also could, in order to help you to 16 comment, could provide to you the pages in the 17 technical support document as well as an 18 explanation in the life cycle cost spreadsheet 19 where this is done and how it has been done. 20 MR. BROOKMAN: So you can check on 21 that. Okay. Thank you. 22 MR. LEKOV: So on this slide, we

### 202-234-4433 Neal R. Gross & Co., Inc. Page 188 1 focused on the installation cost associated 2 with heaters. So basically we have an 3 explanation of the installation cost 4 component. We have the average cost. There 5 is assignment, explanation of how this is 6 assigned to different installation cases, and 7 according to this, the fraction impacted as 8 part of the entire example. 9 So the first line for the NOPR 10 analysis, the department actually edit 11 additional labor for the heat pump water 12 heater installation, which was applied to 100 13 percent of the installations. There were 14 refinements and increase of the closet door 15 re-designs for heated basements and indoor 16 installations, basically the spaces that have 17 a conditioning load, space conditioning load. 18 There also the tempering valve 19 addition versus the approach the department is 20 proposing in the cases when it's possible, 21 large water heater, to be replaced with small 22 rated volume, but with a higher set point

### 202-234-4433 Neal R. Gross & Co., Inc. Page 189 1 temperature. So this is also here listed. 2 The condensate pump was increased 3 to account for about 25 percent of all 4 replacement installations. On the previous 5 slide I discussed the issue of the venting 6 adder. So again, for this phase of the 7 rulemaking, the department accounts that about 8 40 percent of the replacement installations 9 with cooling codes, the fact instead of ten - 10 - to the household monetary penalties, the 11 department proposes a specific type of water 12 heater that will include a venting system at 13 the cost of average of 460, and there were 14 adjustments for the size of the drain pan. 15 With that, the department seeks 16 comment on its installation, installation cost 17 for water heaters, and particularly interested 18 in comments on its analysis of installation 19 costs for heat pump water heaters.

20 MR. BROOKMAN: We have a few 21 questions. Is yours on this slide? Let's do 22 his first and then I'll return to you,

### 202-234-4433 Neal R. Gross & Co., Inc. Page 190 1 Richard. 2 Go ahead, Harvey. 3 MR. SACHS: I'm not sure. Harvey 4 Sachs with the light bulb on.

5 I'm not sure how to read across 6 these rows. For example, the venting adder 7 says that it will impact 40 percent of 8 replacement installations, but then it says 9 ten percent of installations are impacted, and 10 the average cost is $460. 11 MR. LEKOV: Okay. 12 MR. SACHS: Does this mean that 13 the average per installation cost is $460 and 14 that is then averaged out across all units? 15 MR. LEKOV: Okay. 16 MR. SACHS: What are you assuming 17 the cost of putting in one tempering valve is? 18 MR. LEKOV: Okay. Let me 19 translate it. Okay. So, yes, I understand. 20 Each of these values needs a specific 21 explanation. So basically, the data, 40 22 percent of replacement installation with

### 202-234-4433 Neal R. Gross & Co., Inc. Page 191 1 cooling load effect means exactly what's 2 written there. Basically a price if there is 3 a cooling load effect for the number of 4 households that have this effect. It's 40 5 percent of them will get the venting adder. 6 When you translate this to the 7 entire example, which includes new 8 construction, replacement installation for the 9 national example, it gets at this particular 10 adder answer to be applied to ten percent of 11 the installation. 12 The 460 value, it's an average of 13 a very large distribution from several dollars 14 to $1,000 or more, depending, and the values 15 are in those spreadsheets. So basically one 16 of these values, depending on the weight, is 17 applied to the specific household as it's 18 simulated during the Monte Carlo simulation. 19 MR. SACHS: So that's the per

20 house --

21 MR. LEKOV: Correct. 22 MR. SACHS: -- installation

### 202-234-4433 Neal R. Gross & Co., Inc. Page 192 1 average cost.

2 MR. LEKOV: Correct. 3 MR. SACHS: Not the average across 4 all houses with water heaters.

5 MR. LEKOV: No. 6 MR. SACHS: Thank you. 7 MR. BROOKMAN: Richard. 8 MR. MUDD: Richard Mudd. I 9 apologize for taking us backwards with this 10 comment. I'd like to go back to the 11 installation costs on the direct heating 12 equipment. 13 MR. BROOKMAN: On Slide 41. 14 MR. MUDD: In my opening 15 statement, I was talking that the possibility 16 of making a Granby wall furnace, which again 17 represents 60 percent of our business, if that 18 unit would have to be larger, I believe we 19 would be looking at possible additional 20 carpenter cost, drywall cost, updating the 21 vent or changing the vent as well as the 22 electricity supply that he referred to.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 193 1 I was just wondering if those 2 costs were taken into account. 3 MR. LEKOV: Similarly to Robert's 4 question what is explained here relates to the 5 NOPR changes. The department will be more 6 than willing to provide the details that the 7 paragraph that explains what actually is 8 applied to DHE equipment. However, the 9 parameters you mentioned are addressed.

10 MR. BROOKMAN: Are?

11 MR. LEKOV: Are.

12 MR. BROOKMAN: Are addressed. 13 Okay, and so that would be in the technical 14 support document.

15 MR. LEKOV: Yes. 16 MR. BROOKMAN: Okay. So we can 17 get you those pages.

18 MR. SACHS: Follow-on for Mr.

19 Mudd. 20 MR. BROOKMAN: I'm sorry?

21 MR. SACHS: A follow-on for Mr.

22 Mudd.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 194 1 MR. BROOKMAN: Please, Harvey. 2 MR. SACHS: Harvey Sachs.

3 Just one follow-on. It would be 4 my understanding that the costs of the larger 5 heat exchangers maintain gravity, and all of 6 the cost associated, that would not be 7 additive with the costs of adding electricity. 8 That's an either/or. If I put in a fan, I 9 should be able to keep my heat exchanger and 10 the rest of it within the same physical volume 11 I now have with gravity. 12 MR. MUDD: I would say that is a 13 possibility, yes.

14 MR. SACHS: So the costs are not 15 added. Thank you. 16 MR. BROOKMAN: Okay. Okay, Alex. 17 Keep going. 18 Tim. 19 MR. BALLO: Tim Ballo, Earth 20 Justice. 21 One quick question. I'm sorry if 22 this is addressed in the TSD. There's a note

### 202-234-4433 Neal R. Gross & Co., Inc. Page 195 1 here that households installing heat pump 2 water heaters that would experience extra cost 3 for space heating if they don't have the 4 venting added, that the energy use calculation 5 reflects the extra space heating energy 6 consumption. Is the reverse of that true? If 7 the house would experience a reduced summer 8 cooling load, is that expressed in the energy

9 use? 10 MR. LEKOV: Yes, this is 11 calculated. However, the magnitude is much 12 smaller, about eight times less. 13 MR. BROOKMAN: Okay. Ken. 14 MR. BELDING: Yes. Sorry. Just a 15 follow-up to Harvey. What he's insinuating by 16 asking that question is that we can reach it 17 by either/or. That fact that we're adding 18 electricity now eliminates the category. 19 So it's not an either/or. It's 20 not additive. It's eliminating a category by 21 adding electricity. So that's something 22 that's missed, I think, even in the pool

### 202-234-4433 Neal R. Gross & Co., Inc. Page 196 1 heater question. The category is now 2 eliminated. 3 MR. BROOKMAN: Yes, Charlie. 4 MR. ADAMS: Yes, I have three 5 comments on the installation costs. First 6 off, on adding a tempering valve to a smaller 7 gallon size heat pump water heater to overcome 8 space constraints, with the exception of CO , 2 9 which has been screened out, most of the 10 refrigerants that are available, the 11 thermodynamic properties limit the water 12 temperature to somewhere between 125 and 130 13 degrees Fahrenheit. 14 So if you're going to take a 30 15 gallon tank and think you're going to increase 16 the water temperature to 160 or 170 degrees in 17 order to use a tempering valve to make it look 18 like a 50 gallon tank, for example, it's going 19 to take running on the resistance element 20 almost all the time to generate temperatures 21 above that that the thermodynamic properties 22 of the refrigerant can maintain.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 197 1 So I think there's a little bit of 2 logic that needs to be revisited in tempering 3 valves. On an electric resistance heater, 4 there was some discussion early for the 5 preliminary TSD and whatnot where there are 6 space constraints for resistance, yes. If the 7 technology is there to store the water at 160 8 degrees, then the tempering valve argument 9 holds. But in heat pump water heater with the 10 refrigerants under consideration, I would 11 question that. 12 The closet door redesign -- 13 MR. LEKOV: Charlie, wouldn't you 14 find help if I answered the questions 15 sequentially? 16 MR. ADAMS: Sure, sure. 17 MR. LEKOV: So basically, this, 18 the tempering valve is associated mostly with 19 the conventional electric resistance water 20 heaters. However, if it's practical to avoid 21 space constraints associated with the heat 22 pump water heater design, the calculations

### 202-234-4433 Neal R. Gross & Co., Inc. Page 198 1 actually account for a range of conditions at 2 temperature above the freezing point that will 3 require the operation of electric resistance 4 elements. It's essentially depending on the 5 circumstances somewhere between zero and 50 6 percent of the time and actually the heat pump 7 water heater will operate in the electric 8 resistance mode. 9 So the standard concern, we need 10 to look at the issue of the recovery of the 11 heat pump water heaters. However to a certain 12 extent it has been at that. 13 MR. ADAMS: And I would agree with 14 that if you're talking about storing water in 15 the heat pump water heater at 130 F. or below, 16 but if you're going to get any benefit out of 17 using a tempering valve, and I'm just going by 18 the fact that the tempering valve is on the 19 heat pump installation graph; if the thought 20 is similar to the resistance heaters that 21 you're going to store above 130, it ain't 22 going to happen unless you run the element

### 202-234-4433 Neal R. Gross & Co., Inc. Page 199 1 almost all the time on a heat pump water 2 heater, and that's the point that I'm getting

3 at. 4 I agree with what you say if the 5 storage temperature of the water is 130 or

6 less. 7 MR. LEKOV: Okay. Thank you.

8 MR. ADAMS: The closet door re9 design, gain, comments I mentioned earlier 10 that wouldn't louvered doors, only about a 40 11 percent open area, and they'll be -- our 12 experience is you'll get a close coupling 13 effect, and a closet with a louvered door on 14 it doesn't act like a free, open room as far 15 as the ability of the heat pump to get 16 adequate ventilation air around it. 17 The other point is not really 18 called out anywhere on the slides, but since 19 we're still in installation costs, in our 20 responses to the preliminary technical support 21 document, we pointed out that the cost of 22 increasing the size of the gas line to handle

### 202-234-4433 Neal R. Gross & Co., Inc. Page 200 1 a gas-fired instantaneous water heater was not 2 taken into account. The response in the NOPR, 3 in response, DOE did not include the cost of 4 such measures, being the gas line increase, 5 for gas-fired instantaneous water heaters 6 because in those cases where these measures 7 would be required, the extremely high cost 8 would likely lead households to purchase a 9 storage water heater instead. 10 I don't have sufficient number of 11 data points to make it statistically 12 meaningful. I can tell you that A.O. Smith 13 sells gas-fired instantaneous water heaters, 14 and I can tell you that people in the United 15 States are indeed buying them and paying the 16 extra freight to change the gas line to larger 17 size every day. 18 MR. BROOKMAN: Okay. Thank you. 19 MR. LEKOV: Thank you. 20 The next parameter that applied in 21 the life cycle cost, the energy prices. So 22 brief summary of the matter. We are applying

### 202-234-4433 Neal R. Gross & Co., Inc. Page 201 1 either average monthly or annual energy prices 2 from the EIA historical data. Water heaters, 3 we're using average monthly energy prices for 4 DHE and pool heaters will use average annual 5 energy prices. 6 In terms of changes, here is the 7 list of the sources. Essentially what's 8 happened for this phase, DOE switched to the 9 most current set of data about the government 10 values for energy prices, and so those are 11 listed. 12 Energy price trends, they were 13 updated using the AEO 2009, and when 14 refinement was added, essentially instead of 15 using the national price trends, this time the 16 department uses a more accurate approach by 17 applying the energy prices trends for the 18 individual census regions. 19 MR. KUSTERER: Question. 20 MR. BROOKMAN: Question. George. 21 MR. KUSTERER: George Kusterer. 22 Alex, you mentioned that in both

### 202-234-4433 Neal R. Gross & Co., Inc. Page 202 1 electric, natural gas, and in petroleum, that 2 the most current available data is 2007. I 3 don't think that's accurate. I do believe the 4 data to 2008 is available, and that's what 5 should be used because there is quite a 6 difference in pricing from 2007 to 2008. 7 MR. LEKOV: I believe what, 8 George, you're referring to is the just 9 currently release AEO 2010 forecast which came 10 on December 16th, two weeks after the 11 publishing of this document. So these 12 particular trends are not reflected. 13 What you see here, those are 14 specific forms that government collects over 15 the years and updates them every second year 16 -- every year or every second year. It has 17 happened for that part of the so-called 18 natural gas navigator. The last available 19 information was this particular 2007 document.

20 So that's the answer. 21 At the time of the analysis, which 22 happened, let's say, between September '09 and

### 202-234-4433 Neal R. Gross & Co., Inc. Page 203 1 December '09, this is the most current

2 document. 3 MR. BROOKMAN: Yes, please. Jim. 4 MR. SMELCER: Jim Smelcer, 5 Lochinvar. 6 Alex, could you explain again in 7 your energy price under the bullet item method 8 there? You indicate for water heaters used an 9 average monthly energy price, and that for 10 direct heating equipment and pool heaters, you 11 used an average annual energy price. My 12 question is surrounding water heaters being 13 basically a yearly operated appliance and 14 direct heating and pool heaters being 15 seasonally operated. 16 MR. LEKOV: What's actually 17 happening is for water heaters we have 18 calculation capabilities to calculate the 19 energy use monthly. So it makes sense, the 20 monthly energy used multiplies by monthly 21 energy price. 22 For DHE and pool heater, we don't.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 204 1 So basically we're calculating energy use, 2 annual energy use. So we're -- it doesn't 3 make sense to multiply by one and the same 4 number every single one.

5 MR. BROOKMAN: Frank. 6 MR. STANONIK: Just a follow-up to 7 that, and again, I'm sure it's in the TSD and 8 I just haven't found it yet, but so on the 9 average monthly price of gas is there really a 10 variation that's worth talking about? 11 MR. LEKOV: Yes, sir. 12 MR. STANONIK: Can you give me a 13 rough idea what magnitude? 14 MR. LEKOV: Probably up to ten to 15 15 percent. 16 MR. BROOKMAN: Okay. Thank you. 17 Yes, Mohammed. 18 MR. KHAN: Mohammed Khan, DOE. 19 Before we get too much further 20 ahead, a moment ago A.O. Smith brought up the 21 point that consumers or homeowners are 22 operating their gas supply lines to

### 202-234-4433 Neal R. Gross & Co., Inc. Page 205 1 accommodate installations of instantaneous gas 2 heaters, and I don't think -- he said he has 3 numbers about the frequency and also the cost, 4 but if such data is available, we'd like to 5 get that if we could please. 6 MR. BROOKMAN: Okay. Thank you. 7 Yes, Jim. 8 MR. SMELCER: I may have heard it, 9 but I don't know that I understood it. I 10 guess my question is what was the rationale to 11 use average monthly prices on annual operation 12 type equipment versus using annual energy 13 prices on seasonally operated equipment. 14 You may have said it, but I might 15 have missed it. Why not use monthly prices 16 for DHE and pool heaters basically is what my 17 question is. 18 MR. LEKOV: There are probably 19 more details in the technical support 20 document. Again, the calculation, it's driven 21 by the calculation of the energy use. If we 22 have energy use by the month calculated for

### 202-234-4433 Neal R. Gross & Co., Inc. Page 206 1 each individual month, in this case it makes 2 sense to multiply by the monthly energy price. 3 MR. SMELCER: You just answered 4 it. I'm sorry. You're basically say for the 5 seasonal months, those monthly prices were

6 what were used.

7 MR. LEKOV: Correct.

8 MR. SMELCER: I understand. 9 MR. BROOKMAN: Okay. Thank you. 10 All right. 11 MR. LEKOV: With that I will 12 switch to the components that are associated 13 with the calculation of the operating cost as 14 a component of the life cycle cost analysis, 15 and we will start with the maintenance cost. 16 So here is the method basically. 17 Maintenance is the cost of regularly scheduled 18 product maintenance. The sources are listed 19 here, discussed in detail in the technical 20 support document, and the changes are in the 21 table for all products, again, as mentioned 22 for the installation cost. DOE applies

### 202-234-4433 Neal R. Gross & Co., Inc. Page 207 1 regional labor costs. Maintenance materials 2 and labor has been converted to 2008 dollars, 3 and based on inputs from the interested 4 parties DOE applied annual flushing 5 maintenance cost for a fraction of households. 6 On the next slide there will be 7 opportunity. You'll see the numbers are 8 broken. So you could have more details about 9 eight. 10 Gas-fired storage water heaters, 11 added maintenance cost for the FVIR. 12 Instantaneous water heaters, in the 13 preliminary analysis the de-liming costs were 14 supplied to all households. Now the department 15 acknowledges that there is a fraction of 16 households that have soft water or softeners, 17 also was reduced to about 75 percent. 18 MR. BROOKMAN: One question, yes.

19 MR. GLASS: Robert Glass. 20 I've got a question. In the NOPR 21 DOE states, quote, most pool owners do not 22 perform any pool maintenance except when the

### 202-234-4433 Neal R. Gross & Co., Inc. Page 208 1 heater does not come on, end quote. We 2 respectfully disagree with that. What you 3 have is you have many situations or for really 4 any installation where a pool is seasonal 5 operation and it's closed at the end of the 6 season and the pool drained and all of the 7 equipment drained. When the whole pool is 8 started up the following year and, therefore, 9 water is added to it, chemicals have to be 10 checked. The operation and start-up of the 11 heater again at the beginning of the season is 12 part of that whole process, and there's a cost 13 associated with that.

14 The statement that DOE makes would 15 only potentially be true if the pool was 16 operated the entire year long when it was not 17 shut down. Then there may be some merit to 18 that statement, but any other time those 19 maintenance costs I do not believe have been 20 taken into consideration. 21 MR. BROOKMAN: Yes, Mohammed. 22 MR. KHAN: Mohammed Khan, DOE.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 209 1 I just have a follow-on for 2 RAYPAK. I was just wondering if those costs 3 might be at all efficiency related and then

4 also whether or not those same costs would be 5 regionalized.

6 MR. GLASS: Robert Glass. 7 Efficiency related, I would 8 estimate that the higher the efficiency, the 9 higher the maintenance costs are going to be 10 because during that off season, there is 11 potentially more things to go wrong. There's 12 animals that like to find warmer places or 13 places to make nests during the winter and 14 they may, therefore, be gnawing on wires and 15 controls and other things that would be higher 16 efficiency products, which therefore at the

17 start of the new season would have to be 18 replaced so it could be a higher efficiency. 19 From a regional standpoint, yes, I 20 think as I stated before, that if you're in 21 more of a southern region where the product is 22 operating all year long, there is less of that

### 202-234-4433 Neal R. Gross & Co., Inc. Page 210 1 opportunity than something where it is 2 seasonally operated and is, therefore, shut 3 down for extended periods of time. 4 MR. KHAN: Thank you. 5 Mohammed Khan. Thank you. 6 I must have missed the point out 7 or your comment about the regional effect.

8 Thanks. 9 MR. LEKOV: So in summary, DOE's 10 assumption that the paragraph is cited, 11 basically it also applies if in the beginning 12 of the season the pool heater does not start. 13 They'll call a contract. 14 MR. BROOKMAN: Okay. 15 MR. LEKOV: The next component is 16 the repair cost. So basically the method 17 determines the price for replacing or 18 repairing components which have failed. 19 There are a few changes here that 20 happen during this particular update. Some of 21 them are repeated from the maintenance. Our 22 point here, that in the preliminary analysis

### 202-234-4433 Neal R. Gross & Co., Inc. Page 211 1 the cost was applied to a fraction based on 2 the lifetime of the component, which means is 3 the component sales your applied cost within 4 the lifetime of the water heater. 5 Now, this has been refined to 6 account for data, what's happened during the 7 warranty period. So the data essentially 8 allowed the DOE to refine this particular 9 application knowing what will fail during the 10 period where there is essentially no cost to 11 the consumer, the warranty. 12 So the other component here 13 specific is, again, based on the input from 14 industry party, is adding the costs for 15 replacing the heating element. 16 This slide summarizes everything 17 that could happen to a heat pump water heater 18 that the department is aware of in terms of 19 maintenance and repair, and there are more 20 details involved, the actual costs and 21 frequencies. 22 So in terms of maintenance cost,

### 202-234-4433 Neal R. Gross & Co., Inc. Page 212 1 this type of water heater could encounter, 2 tank flushing, evaporator cleaning, in terms 3 of repair the department applies the 4 replacement of the electric resistant element 5 as well as accounting for the lifetime of the 6 compressor and the evaporator fan. That is 7 the distribution of lifetime based on the GTI 8 source that is accounted in this particular 9 operation. 10 MR. BROOKMAN: So you can see DOE 11 wants comment on this specifically, but 12 Charlie first. 13 MR. ADAMS: Question so I'll know 14 if my comment makes sense. The average annual 15 cost -- and let's just pick one -- tank 16 flushing, three bucks; that's based on the 17 labor rate for the amount of time that it

18 takes to flush the heater? 19 MR. LEKOV: Okay. Again, I'll try 20 to translate what's on the slide. This is the 21 case when you call a contractor average cost 22 and there is a distribution, and I call the

### 202-234-4433 Neal R. Gross & Co., Inc. Page 213 1 contractor. That's the average cost you pay. 2 However, essentially based on this 3 report provided by our consultant, he 4 accounted that ten percent of the households 5 in the United States could do this tank 6 flushing. Of this ten percent, three quarters 7 of them are going to do it themselves. Two 8 and a half percent will do it -- will 9 basically call a contractor and essentially 10 when you distribute the $105 to all households 11 it will come down on the average just to show, 12 well, basically it will be if you look at all

13 households. 14 MR. ADAMS: Okay. So to make sure 15 what I think you just told me, for one unit to 16 be flushed is $105.

17 MR. LEKOV: Correct. 18 MR. ADAMS: Which you distributed 19 that across the entire 43.3 --

20 MR. LEKOV: No. It's not 21 distributed. It's not distributed. There is 22 a distribution of cost, let's say, from -- to

### 202-234-4433 Neal R. Gross & Co., Inc. Page 214 1 look at the -- but let's say from zero to 2 $300. The average is $105, and Monte Carlo 3 simulation examples for each household in 4 assigned one of these costs, $80, $105, $180, 5 whatever, or zero dollars. So that's how it's

6 done. 7 MR. ADAMS: So the $3 -- 8 MR. LEKOV: -- you guys to get an 9 understanding of how this actually applies. 10 MR. BROOKMAN: So keep going. 11 MR. ADAMS: So it's $105 applied 12 to some small fraction of all installations --

13 MR. LEKOV: Correct. 14 MR. ADAMS: -- was equivalent or 15 was spread to $3 applied to all installations

16 to make them -- 17 MR. LEKOV: Exactly. 18 MR. ADAMS: Okay. Then I have no 19 further questions. 20 MR. BROOKMAN: Okay. So we're 21 seeking comment on this point. Go ahead, 22 Harvey, and then to Frank.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 215 1 Specifically on these costs that 2 are listed there. Harvey. 3 MR. SACHS: It occasionally 4 happens that Charlie and I get confused the 5 same way, and in this case I think part of my 6 problem, inferring also his, was that on Slide 7 42 average cost referred to per installation, 8 whereas what I'm hearing is that on the 9 present Slide 46 average annual cost is across 10 the whole distribution --

11 MR. LEKOV: Correct.

12 MR. SACHS: -- owner for all of 13 them. It's a very different item. 14 MR. LEKOV: It's not consistent 15 throughout the presentation the way it's 16 expressed on here as we thought to make sense 17 for the people basically to see. 18 MR. SACHS: So it's not just that 19 Charlie and I have small brains. 20 MR. LEKOV: yes. 21 MR. SACHS: Thank you. 22 MR. ADAMS: It's in addition to

### 202-234-4433 Neal R. Gross & Co., Inc. Page 216 1 that. 2 (Laughter.)

3 MR. BROOKMAN: But thanks for that 4 clarification.

5 Frank. 6 MR. STANONIK: Alex, in an earlier 7 slide it's noted that a certain number of 8 installations would have the cost of a 9 condensate pump and a tempering valve, and 10 actually the tempering valve would apply in 11 even the general -- the electric water heater 12 situation. 13 In the analysis, did the 14 maintenance or the repair costs factor in that 15 on some of these systems I've added these 16 extra components, and on occasion some of 17 those extra components will, in fact fail? Is 18 that part of the -- did that get included in 19 the analysis? 20 In other words, some percentage of 21 the installations I'm going to go with this 22 tempering valve system and so I've added this

### 202-234-4433 Neal R. Gross & Co., Inc. Page 217 1 component with some associated control system 2 to communicate with the tempering valve, if 3 you will, in some way. Now, in that subset, 4 some of those tempering value at some point 5 are going to fail before the water heater did. 6 Has that been factored in?

7 MR. LEKOV: No. 8 MR. STANONIK: Okay. 9 MR. BROOKMAN: Additional 10 comments? The department is seeking your 11 comment on the analysis of repair and 12 maintenance cost for heat pump water heaters. 13 Harvey. 14 MR. SACHS: Harvey Sachs. 15 Again, on Slide 46, the costs on 16 compressor and evaporator and replacements, 17 which of course deals with their frequencies, 18 came from a consultant report by GTI? 19 MR. LEKOV: No, no. It's a report 20 by GTI dated during the '90s that basically 21 they perform an extensive survey of U.S. 22 utilities and a pretty large sample, and they

### 202-234-4433 Neal R. Gross & Co., Inc. Page 218 1 developed for many components essentially with 2 the frequency in the lifetime of different 3 components. 4 MR. SACHS: I'm sorry, Alex. This 5 is Harvey Sachs again. 6 Conceptually I object to those 7 assumptions being carried forward for products 8 for which compressors, I suspect, are two or 9 three complete re-design cycles different. We 10 now have information on other product classes 11 of comparable compressor and evaporator sizes 12 which are expected to carry through their 13 entire life cycle without replacement, without 14 service, and I think these are assumptions 15 that are not well grounded in what little I 16 know about modern design and manufacturing 17 practice. 18 MR. BROOKMAN: Harvey, can you 19 send into the department your thoughts on what 20 compressors would fill that need? 21 MR. SACHS: I can send in my 22 thoughts from TSDs of other products on the

### 202-234-4433 Neal R. Gross & Co., Inc. Page 219 1 assumptions that these do not require 2 replacement based on surveys of service life. 3 MR. BROOKMAN: Thank you. That 4 would be helpful. 5 MR. LEKOV: The next parameter 6 that was impacted during the NOPR analysis 7 product lifetime, as mentioned in the 8 preliminary analysis, DOE characterized the 9 product lifetime using Weibull probability 10 distribution, and now for the NOPR phase a 11 refinement was done to the average phase for 12 the lifetime using essentially a pretty 13 complicated I would say I would characterize 14 this as sophisticated approach, which accounts 15 for the AHRI shipment data and AHS, American 16 Housing Survey, equipment stock data, and 17 which was enhanced with using direct equipment 18 age data to come to well justifiable ranges of 19 lifetime for the equipment. 20 So the impact in terms of the 21 water heater is reflected in the table. As 22 you see here, the lifetime for both gas and

### 202-234-4433 Neal R. Gross & Co., Inc. Page 220 1 electric has been calculated to be on average 2 at 13 years compared to the previous number, 3 which was 12 and 14. 4 Oil-fired storage water heaters 5 based on input from the oil manufacturers was 6 equalized to be equal with the gas storage 7 water heater. So this is the reason for the 8 change. 9 Going back to the table on direct 10 heating equipment, the only change is 11 basically the additional product which has the 12 same lifetime now as DHE product, and on pool 13 heaters, the department refined the lifetime 14 of the equipment to eight years based on 15 several inputs. 16 MR. BROOKMAN: Yes, Charlie. 17 MR. ADAMS: Charlie Adams. 18 Just reiterating comments that we 19 submitted to the preliminary TSD last year and 20 will be including in our written comments this 21 year, we disagree with the 20-year life on 22 instantaneous gas-fired heaters. The

### 202-234-4433 Neal R. Gross & Co., Inc. Page 221 1 discussions that we've seen and had subsequent 2 to today point out, well, those European type 3 heaters or European and Asian installations 4 where these have been used for some years and 5 that's part of where the 20-year comes from; 6 those are typically different size and 7 different heat input heaters, different gallon 8 per minute, in some cases different 9 technology, lesser efficient technology. 10 There's not been instantaneous 11 gas-fired heaters in widespread use in the 12 United States of the sizes and the type of 13 technology that we use today that we believe, 14 at any rate, shows the data that can justify a 15 20-year life. 16 If you look at the straight 17 thermodynamics or thermal stress and heat 18 loading, BTUs per square foot of heat exchange 19 surface, for example, the materials that are 20 typically used like copper tubing for the heat 21 exchangers and so forth, an instantaneous 22 heater to an engineer looks a lot more like a

### 202-234-4433 Neal R. Gross & Co., Inc. Page 222 1 little, small pool heater than it does a type 2 of water heater, and we believe that the 20 3 years represents much too long a life for 4 instantaneous gas-fired heaters. 5 MR. BROOKMAN: Can you say what it

6 would be? 7 MR. ADAMS: Without -- no more 8 than the 12 or 13 years that's being given to 9 the other heaters. My personal opinion, not 10 necessarily A.O. Smith's but Charlie Adams' 11 opinion, is it's going to be more like the six 12 or seven years that you see in a pool heater 13 than it's going to be the 13 or 15 or 20 years 14 that are allocated to the other devices. But 15 I know we've got some folks in the room that 16 are much more expert in gas instantaneous

17 heaters than I am. 18 MR. BROOKMAN: So the department 19 is seeking comment on this. Additional 20 comments? Jim. 21 MR. SMELCER: Jim Smelcer, 22 Lochinvar.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 223 1 Quite frankly, looking at the 2 preliminary number of six years and then NOPR 3 increased to either, that doesn't look too 4 inviting to any buyer or that would be 5 interested in buying a pool heater. I'd be 6 interested to know if the analysis was based 7 off of unit failure that was the cause of 8 replacement or if it was because other 9 mandated energy or emissions reasons that 10 would cause the change out of that particular 11 appliance. 12 MR. LEKOV: The answer is that the 13 main -- as you know, there is very little 14 actual data. People repeat what they know 15 from the '90s when a few things were 16 published. But the answer is that our main 17 source on this one is the consultant report. 18 MR. SACHS: I'm sorry. A what? 19 MR. LEKOV: A consultant report, a 20 report -- 21 MR. SACHS: Consultant report. 22 MR. LEKOV: A report of consultant

### 202-234-4433 Neal R. Gross & Co., Inc. Page 224 1 to DOE. 2 Now, in addition to this we 3 validated it through our calculations 4 associated with the shipments and the stock 5 and found that eight years -- and you'll see 6 this during the next presentation on the 7 national impact analysis -- found that eight 8 years very well matches how the stock actually

9 behaves. 10 So that's the input DOE applied.

11 DOE would love to have better data. At that 12 point we go with what's available. 13 MR. SMELCER: Okay. Jim Smelcer 14 again. 15 The only question I have is it 16 gives the industry an indication that pool 17 heaters fail quite frequently when, in fact, 18 it may be by customer choice or by some other 19 reason or factor that pool heaters are changed 20 out. If the inventory says that, fine, but 21 the data that we have indicates that pool 22 heaters live longer than six to eight year.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 225 1 MR. BROOKMAN: Okay. Thank you. 2 Harvey Sachs. 3 MR. SACHS: Harvey Sachs. 4 Alex, in one sense it's heartening 5 that you find the same 20-year lifetime for 6 tankless gas water heaters as we had published 7 a number of years ago, and when I was asked to 8 check that down, the TSD, I believe, referred 9 to our Website, and when I went looking on our 10 Website and tried to track it down, I got into 11 an infinite circular loop of references to 12 each other. So I'm looking forward to seeing 13 the analysis, more sophisticated analysis 14 because if it's really just what it was at the 15 TSD, I'm not confident, and I'm confessing 16 that as a failure in my organization. 17 MR. LEKOV: I will very briefly 18 announce that DOE uses the best available 19 data. In fact, DOE looked very hard to try to 20 update this manual and was not able to 21 identify a good surface to replace. DOE is 22 very well aware of the comments provided by EU

### 202-234-4433 Neal R. Gross & Co., Inc. Page 2261 and other interested parties during the pre2 '90s. However, it would be great if someone 3 provides actual data. 4 MR. BROOKMAN: Ron Lewis. 5 MR. LEWIS: I think it has been 6 said a couple of times that we are wide open 7 for data and input from folks that would help 8 us to have some degree of precision and 9 clarity, especially things that are current, 10 and even including -- and we do have the 11 ability for confidentiality through the 12 contractors to have a firewall being public 13 knowledge. Even if you've done accelerated 14 life tests, if you've got anything that would 15 help us to understand or at least see data 16 points, if it's not enough to be a 17 comprehensive study, anything that would be 18 helpful to refine our analysis would be much 19 appreciated. 20 MR. BROOKMAN: Charlie. 21 ADAMS: Just to point out that 22 this all reinforces the concern that I

### 202-234-4433 Neal R. Gross & Co., Inc. Page 227 1 expressed a minute ago with the 20-year life 2 for the tankless. I had the opportunity to 3 follow Harvey around in those circles trying 4 to find the reference that was cited, and 5 unfortunately it all seemed to point back to 6 some manufacturers' quite honestly advertising 7 literature, and just because 20 years was the 8 first number that came up and there's been no 9 data found to substantiate that 20 years, 10 we're not going to change it when there's a 11 belief at least on my part that it was based 12 on advertising claims. I have a real problem 13 with using that in the technical analysis by 14 the Department of Energy.

15 MR. BROOKMAN: So we've made the 16 hope that more data will occur or be found. 17 So let's keep going. 18 MR. LEKOV: Okay. Thank you. 19 The next parameter, the discount 20 rate. Basically DOE performed the following 21 changes here first to the calculations of the

22 share of the assessment. DOE added the new

### 202-234-4433 Neal R. Gross & Co., Inc. Page 228 1 data available for 2007 from the Federal 2 Reserve Board basically their survey that 3 occurs every three years, and essentially 4 basically accounts for the change of those 5 shared locations for this period. 6 Again, the same thing happened on 7 the debt interest rate and also update the 8 asset interest rates for the period '98 to 9 2008. As a result of this for the NOPR 10 analysis the mean for the discount rate 11 changed somewhat as shown here on the slide. 12 Another item, out of life cycle 13 cost and payback analysis is the product 14 assignment in base case. Basically I'll 15 briefly repeat the matter so everybody will 16 recollect what we're talking about. It's 17 essentially making sure that not all equipment 18 is assigned to the efficiency, quota baseline 19 efficiency, but actually accounts for the 20 actual equipment efficiency as currently 21 exists, and the sources are basically 22 efficiency data, the model database, and also

### 202-234-4433 Neal R. Gross & Co., Inc. Page 229 1 it's assumed a higher market share for Energy 2 Star products. 3 With that what's happened is DOE 4 utilized the more current directories for 5 water heater and DHE in order to extract the 6 efficiency distributions of the models there 7 as well as shipments data. All those were 8 updated to the most possible date. 9 For gas storage water heater, DOE 10 acted on the comments by industry parties. 11 Particularly they had a concern during the 12 preliminary analysis that large fraction for 13 gas was assigned to the condensing instead of 14 to the actual Energy Star level, which is .67 15 to be active in August. So as a result of 16 this, DOE shipped out the market share based 17 on those trends as projected by the Energy 18 Star program. 19 Electric water heater, the change 20 was, as explained this morning, since DOE 21 introduced a new level for imported heaters, 22 we have now two and 2.2, the fraction which

### 202-234-4433 Neal R. Gross & Co., Inc. Page 230 1 was five is now shared between the two new 2 efficiency levels. 3 In the case of oil storage water 4 heaters, DOE utilized the March AHRI director

5 as well as some manufacturer market share 6 inputs, and for direct heating equipment, the 7 new item is adding the separate hearth product 8 which impacted the market share mix. 9 With that --

10 MR. BROOKMAN: You can see our 11 summary slide. The department invites 12 comments on any other issues pertaining to 13 energy use, mark-ups, life cycle costs, 14 paybacks, and your analyses. So there's a lot

15 of content there.

16 Comments on the slew of them? 17 Let's start with this gentleman here and then

18 to Andrew. 19 MR. PARKER: Yes, Mike Parker with 20 A.O. Smith. 21 Two things. One, on gas 22 instantaneous. Request was for some data

### 202-234-4433 Neal R. Gross & Co., Inc. Page 231 1 around what Charlie had mentioned about there 2 being significant or a number of installations 3 requiring the installation of a larger gas 4 line that is more than zero.

5 We have consumer research data 6 that says that about 80 percent of gas 7 instantaneous installations are replacing a 8 storage gas water heater, and while it doesn't 9 specifically say that a larger gas line was 10 installed, since most U.S. homes using a 11 storage gas water heater have a half inch gas 12 line, it would be a valid assumption, I think, 13 to say that at least in a significant number 14 of those 80 percent of installations there is 15 a larger gas line being installed. 16 MR. BROOKMAN: Thank you. 17 So any data you've got that you 18 could supply. 19 MR. PARKER: We'll be happy to 20 share the 80 percent consumer data. We've 21 also validated this anecdotally with 22 customers, but I don't know that we have

### 202-234-4433 Neal R. Gross & Co., Inc. Page 232 1 specific data.

2 MR. BROOKMAN: And that's across 3 the whole country?

4 MR. PARKER: Yes. 5 MR. BROOKMAN: Okay. 6 MR. PARKER: Second of all, on the 7 20-year life for gas instantaneous, I just 8 point out that the most gas instantaneous 9 manufacturers put a ten to 12 year warranty on 10 the heat exchanger. For storage heaters we 11 put up to typically a 12-year warranty on 12 storage heaters. It would seem reasonable 13 that in the absence of other data that a ten 14 to 12-year life span for instantaneous would 15 be a logical place to start. 16 MR. BROOKMAN: Thank you.

17 Andrew. 18 MR. LEKOV: Just to mention, so as 19 we provide this data it would be important if 20 possible to tell DOE what would be the 21 fraction of change it needs for the piping 22 prior to the meter and from the meter to the

### 202-234-4433 Neal R. Gross & Co., Inc. Page 233 1 equipment. Essentially what I'm thinking about 2 is what you guys are talking about is probably 3 the pipe size, the length of the pipe between 4 the meter and the equipment because the other 5 one from the street to the household is a huge 6 thing. It's essentially -- 7 MR. PARKER: The data we have is 8 that 80 percent of installations are 9 replacement installations, and so they're 10 using whatever existing gas line is there or 11 they're upgrading it. We don't have specific 12 data that says which gas line or how many gas 13 lines have been upgraded. We collectively or 14 individually can do additional research to try 15 and figure out what that is. 16 But what I can say is that we have 17 data that says 80 percent of installations are 18 replacements.

19 MR. BROOKMAN: Let's move on.

20 Andrew. 21 MR. DeLASKI: I have a question on 22 the last slide. This is Andrew DeLaski,

### 202-234-4433 Neal R. Gross & Co., Inc. Page 234 1 Appliance Standards Awareness Project. 2 For the project assignment in the 3 base case, is this product assignment in the 4 year the standard goes into effect?

5 MR. LEKOV: That's correct. 6 MR. DeLASKI: And then does it 7 change over the 30-year analysis period or is 8 it held flat? 9 MR. LEKOV: It changes for 10 electric and gas storage. It changes for 11 electric and gas storage because of the 12 changes due to the Energy Star program for the 13 other is kept constant. 14 MR. DeLASKI: Okay. Thank you. 15 MR. BROOKMAN: Okay. Yes, 16 Charlie.

17 MR. ADAMS: What would be the 18 changes to the electric because of the Energy 19 Star program? Because electric water heaters 20 are not included in Energy Star. 21 MR. LEKOV: Electric storage. 22 MR. ADAMS: Heat pumps, yes.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 235 1 Electric storage or electric resistance. 2 MR. SACHS: -- category, yes. 3 MR. ADAMS: Well, we're working on 4 it, Harvey. 5 (Laughter.) 6 MR. BROOKMAN: So additional 7 comments on this slew of slides? Yes, please,

8 Robert.

9 MR. GLASS: Robert Glass. 10 I've got a question and then based 11 on the answer to the question then I've got a

12 comment. 13 In calculating the payback, is the 14 median payback or the average payback used? 15 MR. LEKOV: DOE analysis provides 16 both the median and the mean payback. It's up 17 to the policy people at DOE to put a certain 18 weight. My understanding is that they 19 consider both. 20 MR. GLASS: Okay, because the 21 reason for that question is that the DOE 22 analysis for pool heaters, unlike that for any

### 202-234-4433 Neal R. Gross & Co., Inc. Page 236 1 of the product classes for the direct heating 2 and unlike any of the products for the water 3 heaters has a payback that is in one case, in 4 using the median payback, a payback of what, a 5 factor of negative 1.6? The life of the unit 6 is eight years and the median payback is 13 7 years. 8 And if you use the average 9 payback, it's two and a half lifetimes. If 10 the median life is eight years and the payback 11 is 19.5, how can the Department of Energy say 12 that that is economically justified?

13 MR. LEKOV: I could comment on the 14 calculation basically explaining 15 mathematically what's the reason for this. 16 Basically, the average payback usually results 17 sometimes in very large numbers, because 18 during the 10,000 that are performed, there19 could be few exemptions, basically the so20 called tail of the distribution that could be 21 many thousands of dollars.

22 MR. BROOKMAN: Ron.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 237 1 MR. LEWIS: Once again, if you've 2 got something that you can give clarity this 3 afternoon that helps the members, helps us to 4 understand that you catch that looks unusual 5 to you, please, you know, put that in your 6 comments and we appreciate that 7 MR. BROOKMAN: This is a follow-on 8 here. Yes, please, Robert. 9 MR. GLASS: Yes, Robert Glass. 10 Now, I mean, I understand it, but 11 the payback has been based on the analyses, 12 and I'm not disputing the analyses. What I'm 13 disputing is the fact that the NOPR comes out 14 to say that it's economically justified, and 15 it's the only product of everything that's 16 being addressed here that's inverse. The 17 payback is significantly longer than the life 18 of the product, and as a result of it, I just 19 struggle with how that can be qualified as 20 economically justified, which is how that 21 specifically is stated in the document. 22 MR. LEWIS: Thank you for that

### 202-234-4433 Neal R. Gross & Co., Inc. Page 238 1 input, and we will look at it.

2 MR. BROOKMAN: Please. 3 MS. MEYERS: Karen Meyers with 4 Rheem. If we could go back to the discount 5 rate slide and if you could just maybe help me 6 understand that. The financial cost of any 7 debt incurred to purchase equipment, right 8 there, which is your method, and your result 9 is a new construction mortgage with a mean of 10 three percent or, for instance, a credit card 11 percentage of 4.8 percent. 12 I mean, is that correct? So if 13 I'm going to go and finance a pool heater, for 14 instance, installation, then I should be able 15 to get one of these rates? That's the mean 16 rate that you can get to do that? Am I 17 reading that right? 18 And if I am, can I have the name 19 of that bank, please? 20 (Laughter.) 21 MR. ADAMS: Yes, I'd like a DOE 22 credit card, too, please.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 239 1 MS. MEYERS: Can you walk me 2 through that maybe? 3 MR. LEKOV: Oh, sure. 4 MS. MEYERS: I don't really

5 understand. 6 MR. BROOKMAN: How you arrived at 7 that percentage. 8 MR. LEKOV: Okay. Let me start 9 with the sources. DOE uses the Survey of 10 Consumer Finances over the periods '89 to 11 2004, and it's produced by the Federal Reserve 12 Board. So it's pretty solid source. 13 Now, each of these surveys has 14 20,000 to 30,000 households, and it looks at 15 each of them. What's the distribution of the 16 assets and what actually the household pays 17 over the different periods? For example, the 18 2007 survey will look between five, six, and 19 seven, '05, and so on. 20 So as you see here, this one, two, 21 three, we're talking about seven surveys times 22 3,000. We're talking about 200,000 data

### 202-234-4433 Neal R. Gross & Co., Inc. Page 240 1 points, which shows the distribution of 2 different debts and assets over the last 20 3 years. So this is how this number is 4 generated here. 5 MR. BROOKMAN: This rate that you 6 specify, is that the rate that she will pay or 7 credit card she can obtain? It's the 8 distribution. 9 MR. LEKOV: It's the average of -- 10 the average value for this distribution over 11 this length of period. 12 MR. SACHS: Inflation adjusted. 13 MS. MEYERS: Well, I think that 14 answers my question, but it also proves that 15 it's a very invalid number. I don't see how 16 that can be significant at all. 17 MR. BROOKMAN: Harvey, go ahead. 18 MR. SACHS: What I think has been 19 unclear in Alex's presentation is that these 20 are inflation adjusted rates, real rate of 21 return after you subtract out inflation; is 22 that correct, Alex?

### 202-234-4433 Neal R. Gross & Co., Inc. Page 241 1 MR. LEKOV: That's correct. 2 MR. BROOKMAN: That's part of it. 3 Okay? 4 Okay. We're going to take final 5 comments on this series and then we're going 6 to take a short break, a very short break and 7 then proceed. 8 Go ahead, Robert.

9 MR. GLASS: Robert Glass. 10 I've got a separate comment. It 11 kind of relates to the same thing, but in the 12 NOPR, the DOE states that only commercial 13 customers will be able to recoup the higher 14 cost associated with the replacement heater at 15 the proposed levels and due to the payback, 16 and one of the concerns, I think, that we have 17 and that we share with this is whether or not 18 we're going to end up with a similar result to 19 what happened in the air conditioning 20 rulemaking when the 13 SER went on was the 21 fact that you ended up having customers that 22 were repairing versus replacing product.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 242 1 So if you're continuing to repair 2 older, less efficient product, then all of the 3 analyses that are going on that are talking 4 about higher efficiencies, the energy that's 5 being saved, the CO saved and everything 2 6 else, those are no longer valid because your 7 people will be continuing to try to repair 8 older units rather than trying to upgrade it. 9 Because, again, if they currently 10 have a millivolt unit and that product class 11 is no longer available and they have much 12 higher costs because the of electrical 13 installations and everything else, it just 14 again comes back to something that I struggle 15 with how something can be economically 16 justified based on the numbers that are being 17 presented in the analysis. 18 MR. BROOKMAN: Thank you. 19 Yes, Harvey. 20 MR. SACHS: Harvey Sachs. 21 Mr. Glass, I have reviewed those 22 data and appreciate the concern very much.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 243 1 The change at last year, the last time I 2 looked, the change in replacement compressor 3 sales was about a fifth the change in new air 4 conditioner sales. There may be a small 5 effect of repair, but it does not account for 6 the very large decrease in air conditioner 7 sales since SEER 13, and there has been some 8 misunderstanding of that, and there is still 9 some disagreement about my interpretation

10 versus those of others.

11 MR. BROOKMAN: We do want to 12 confine ourselves to -- 13 MS. MEYERS: This is Karen Meyers 14 with Rheem. 15 And I do disagree with Harvey on 16 that. We saw a significant increase in 17 replacement sales, well over 30 percent, and 18 we continue to see those, although some of 19 those percentages have decreased over the last 20 year or so, but if you were to add those last 21 three or four years together, you would see a 22 significant increase in replacement compressor

### 202-234-4433 Neal R. Gross & Co., Inc. Page 244 1 sales and an even more significant decrease in 2 new air conditioning sales, and that data is 3 very well documented. 4 MR. BROOKMAN: It is a relevant 5 comparison, but I want to stick with this 6 rulemaking here.

7 Frank. 8 MR. STANONIK: Well, just one more 9 comment on this discount chart, this table. 10 Okay. So I understand that it has apparently 11 been adjusted to I'll say factor out 12 inflation, but what is not clear to me is, 13 okay, so what's my base here. I mean, there 14 has to be some base from which you start, and 15 then as you go forward you're adjusting, and 16 as the rate changes you're factoring out the 17 inflation, but where did we start from? 18 MR. LEKOV: Okay. I think that 19 everything is adjusted to the effective date

20 or to 2010. 21 MR. BROOKMAN: Greg, find the 22 microphone.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 245 1 MR. ROSENQUIST: Hi. Greg 2 Rosenquist, Lawrence Berkeley National 3 Laboratory. 4 That real interest rate is 5 calculated for each year. So that survey, 6 that survey of consumer finances goes back to 7 '09, and again, the real interest rate for 8 each of those years is calculated. 9 MR. STANONIK: Okay. So what 10 we're looking at is a survey wherein each year 11 I'll say independently the real interest rate 12 was determined, and then you basically average 13 it over all those years. 14 MR. ROSENQUIST: Yes, because we 15 wanted to take into account, you know, the 16 peaks and the valleys of the economy. So 17 that's why we went that far back. 18 MR. STANONIK: And not that it 19 matters, but the reason I asked is I bought a 20 house in 1980, and talk about would I have 21 liked to have gotten that rate. 22 (Laughter.)

### 202-234-4433 Neal R. Gross & Co., Inc. Page 246 1 MR. BROOKMAN: Okay. Final

2 comments because we're about to take a break? 3 Let's do this. Can we do this 4 quickly? Ten minutes. We've really got a lot 5 of ground to cover, and we're going to get out 6 of here late unless we really stay focused. 7 So ten minutes, which means we're 8 going to start at five minutes till -- look at 9 your watch -- five minutes till three, and 10 when we come back, we'll hit the ground 11 running. 12 (Whereupon, the foregoing matter went 13 off the record at 2:44 p.m. and resumed at 14 2:54 p.m.)

15 MR. BROOKMAN: We have a lot to 16 cover here, and we want to do justice to all 17 the work that's here in this packet, so we're 18 going to proceed rapidly. Alex is going to 19 keep going, the National Impact Analysis, so 20 please take your seats. Here we go. 21 MR. LEKOV: So, I'll focus on the 22 two components, the Shipments Analysis and the

### 202-234-4433 Neal R. Gross & Co., Inc. Page 247 1 National Impact Analysis on the changes, and 2 going directly to the changes, themselves. 3 Here, the changes that occur to the shipments 4 component of the analysis, we're talking about 5 water heaters, DHE and pool heaters. Mostly, 6 with water heaters what's happened is all 7 dated to the most current data, and applied 8 the data, the retirement function to account 9 for the new life time. 10 The DHE, they are pretty 11 significant changes with the forecast. 12 Essentially, DOE accounted for the hearth 13 products data from HPBA, as well as based on 14 the input from interested parties, updated 15 wall and fan and gravity market shares. And 16 this will discuss and essentially illustrate 17 on the charts, which will follow. Pool 18 heaters, also, there were significant changes 19 to the forecast based on the input from the 20 manufacturers, so it will be explained on the 21 chart. But, essentially, DOE accounted for a 22 significant fraction of normal replacement of

### 202-234-4433 Neal R. Gross & Co., Inc. Page 248 1 a fraction of pool heaters, as well as updated 2 retirement function with new lifetime. 3 With that, illustration of the 4 current results for gas-fired water heaters. 5 On the left part, the storage, on the right 6 side, the gas-fired instantaneous water 7 heaters. So, basically, DOE accounts for two 8 market segments, because there's replacement,9 and as well as for the market growth of gas10 fired instantaneous water heaters. There are 11 no significant changes. Everything has been 12 explained during the preliminary analysis. 13 MR. BROOKMAN: That's really good. 14 I'm going to pause, see if there are any 15 questions here, because that's about the pace 16 we need to maintain. That was excellent. 17 Just then any questions, comments on these 18 slides? Everybody is with us so far, right? 19 Because we're going to have to keep going at 20 this pace. Yes, Charles. Pardon me, Robert.

21 MR. GLASS: Robert Glass. Just a 22 quick comment. I do appreciate the fact that

### 202-234-4433 Neal R. Gross & Co., Inc. Page 249 1 DOE has taken estimated non-replacements as a 2 fraction. I'm going to dig deeper into what 3 that estimate is, but based on the proposed 4 level that's there, and the fact of a repair, 5 the higher the level, the more of a repair 6 versus replace. It may be that the factor 7 that you've used may not be high enough to 8 represent the people that are either going to 9 repair versus replace, or just stop using it 10 entirely. So, what factor you've used may not 11 be sufficient, but I'll include that in

12 comments to DOE. 13 MR. BROOKMAN: Yes. Can you 14 speculate now, or you just need to do some

15 research?

16 MR. GLASS: I don't know what the 17 number is. 18 MR. BROOKMAN: Gotcha. Okay.

19 Frank. 20 MR. STANONIK: Alex, on the 21 Instantaneous chart there, when you're talking 22 about modeled replacements where -- I just

### 202-234-4433 Neal R. Gross & Co., Inc. Page 250 1 want to, first of all, clarify we're just 2 talking about a situation where the tankless 3 water heater has gone in as a replacement to

4 some water heater. Correct? 5 MR. LEKOV: The replacement of 6 Instantaneous water heaters with the same 7 type. 8 MR. STANONIK: With the same type. 9 MR. LEKOV: Right. 10 MR. STANONIK: All right.

11 MR. BROOKMAN: Instantaneous 12 replaces instantaneous. 13 MR. STANONIK: Okay. Well, then 14 let me point out in my simple view of things,

15 I - 16 MR. LEKOV: I am sorry. I would 17 like to take it back. 18 MR. BROOKMAN: Okay. Good. 19 MR. STANONIK: Okay. All right. 20 It's going to change my next statement, 21 because -- well, I'll just go to the next

22 statement.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 251 1 All right. We've been debating 2 this estimated 20-year life. All right? 3 MR. LEKOV: Right. Right. 4 MR. STANONIK: So, if that is 5 correct, and looking at the chart, at some 6 point, it seems to me, the replacement 7 situation needs to factor in that there's 8 going to be a significant increase of like 9 replacements for tankless that doesn't exist 10 right now, because, essentially, they are, if 11 you will, building a base of installed 12 products. 13 MR. LEKOV: Right. 14 MR. STANONIK: And, I don't -- I 15 guess the question is, does this chart reflect

16 that?

17 MR. LEKOV: The chart reflects the 18 model that is modeled according to the 19 Australian market, and was explained in detail 20 during the preliminary analysis, there is a 21 chapter in the NOPR analysis. And, 22 essentially, what happened during those first

### 202-234-4433 Neal R. Gross & Co., Inc. Page 252 1 year is still the instantaneous are taking a 2 fraction of the gas storage market. And after 3 a certain time, also the replacements. 4 MR. BROOKMAN: Once again the need 5 for data here. If it's out there somewhere, 6 it really would help the Department of Energy.

7 Ted. 8 MR. WILLIAMS: Ted Williams, 9 American Gas Association. Alex, we'll just 10 provide a comment here. The averaging of 11 market shares over 2000-2008, this is a major 12 shift in market share trend since about 2003. 13 We'll provide comments on that, and we'll 14 recommend a shorter interval for developing 15 that average. 16 MR. BROOKMAN: Thank you, Ted. 17 Charlie. 18 MR. ADAMS: Charlie Adams. We 19 provided comments in the Preliminary Technical 20 Support document questioning the validity of 21 putting a lot of weight behind the Australian 22 model as being representative of the market

### 202-234-4433 Neal R. Gross & Co., Inc. Page 253 1 dynamics in the U.S., and I just reiterate

2 those here. 3 MR. BROOKMAN: Thank you. I don't 4 think we -- I recall that discussion from

5 before.

6 MR. LEKOV: One sentence answer. 7 The Department accounted for three scenarios. 8 MR. BROOKMAN: Okay. So, keep 9 going then. We're doing well here. 10 MR. LEKOV: On DHE, actually no 11 significant change happened. On the right 12 side we have the conventional -- on the left 13 side are conventional DHE, the historical data 14 and forecast. During the preliminary 15 analysis, DOE utilized declining shipments for 16 gravity equipment and replacement shipments 17 for the gas wall fan. And for this analysis, 18 based on input from interested parties, the 19 Department kept those constant based on the 20 sequence over the last eight years. 21 Hearth DHE is completely new based 22 on the generation that right now the

### 202-234-4433 Neal R. Gross & Co., Inc. Page 254 1 Department has a new product class. And the 2 way it's modeled is essentially correlated the 3 shipments with the new construction as a proxy 4 for economic growth. Basically, our model 5 found that the new construction for the 6 historical data matches very well the trend, 7 so this is what has been used for the trend 8 you see here, comes from this type of 9 evaluation. 10 MR. BROOKMAN: Yes, please. 11 MR. MUDD: Richard Mudd. As in my 12 opening statement, we feel like the DOE has 13 come to the conclusion that in our small 14 market, that product offerings will decrease. 15 And we feel like couple that with the loss of 16 the utility of the gas gravity wall furnace, 17 that our shipments will significantly decrease 18 if these are implemented. 19 MR. BROOKMAN: So, these shipments 20 based on housing starts, you would dispute

21 those. 22 MR. MUDD: Ours is mostly

### 202-234-4433 Neal R. Gross & Co., Inc. Page 255 1 replacement. 2 MR. BROOKMAN: Okay. Thank you. 3 And if you have numbers, forecasts, the 4 Department would like that. Frank. 5 MR. STANONIK: I think just asking 6 about numbers and forecasts, well, it's a 7 forecast, but there certainly is -- if you 8 just look at the chart on the left, the 9 history is very clear, and it is what it is, 10 but the people in the business of providing, 11 I'll call it the traditional direct heating 12 equipment, have not had a growth market. And 13 it may be a little -- we think it's a mistake 14 to assume that somehow magically they're going 15 to flatten out and continue a constant market 16 there, particularly in the face with they're 17 required to, if nothing else, increase the 18 cost of the product for some few points in 19 efficiency gain. It's a troublesome graph 20 right there. 21 MR. BROOKMAN: Okay. Yes, Ken. 22 MR. BELDING: Ken Belding. I

### 202-234-4433 Neal R. Gross & Co., Inc. Page 256 1 would echo those same comments, and just a 2 little more logic on that. If we made a 3 comment during our interview process that we 4 thought our sales might remain constant, we 5 apologize for being too optimistic. I mean, 6 this chart -- I mean, it's very obvious 7 looking at this what happened, and what's been 8 happening for the last 15 years, at a minimum. 9 And that's -- this is a basis for our 10 argument that these units have an attrition 11 that is self-seeking. I mean, they will go 12 away by themselves, and to force that by 13 making us do anything to efficiency levels, 14 then anything that you have down here as a 15 level for 2013 for all of the non-gas wall fan 16 units just drops to zero. So, three of those 17 four lines drop to zero, almost, in 2013, if 18 we have to go up in efficiency. The only one 19 left would be the gas wall fan, which in some 20 cases can be achieved. And, certainly, now 21 many of us have products that are 80 percent 22 that are gas wall fan units, but the other

### 202-234-4433 Neal R. Gross & Co., Inc. Page 257 1 three that are millivolt, they just drop off 2 the chart. So, we would just -- if we misled 3 someone during our interview process, we 4 apologize. And I think that might be from, 5 what was said, might be what happened there, 6 but that's certainly not the case. 7 MR. BROOKMAN: Okay. 8 MR. BELDING: This trend is going 9 to continue as it is, without being pushed by 10 higher efficiencies. 11 MR. BROOKMAN: Okay.

12 MR. LEKOV: The next one are the 13 pool heaters. So, from the pool heaters 14 forecast, basically, the Department accounts 15 for new housing installations for first-time 16 owners and for the replacement. The big 17 change occurred to the replacement where, 18 essentially, DOE accounted for units that are 19 not replaced based on input from 20 manufacturers. And this changed the forecast 21 very significantly, make it almost flat here, 22 compared to a very steep forecast that was

### 202-234-4433 Neal R. Gross & Co., Inc. Page 258 1 presented for the preliminary analysis. 2 MR. BROOKMAN: Robert first, then 3 to Jim.

4 MR. GLASS: Robert Glass. The 5 analysis on the graph where it's showing 6 roughly from where we are moving forward, it's 7 suggesting recovery, particularly in the area 8 of the first-time users. And with a 9 significant reduction in property values, and 10 the more difficult access to credit makes that 11 recovery that's being shown there, if you look 12 at the depth of that, whatever, magenta area 13 from now, and then you go up to 2011, there 14 just looks like there's a huge recovery in 15 that first-time pool, first-time owners 16 category. That's not there. It's not 17 reality. It's not going to happen. It's just 18 the value -- many of those first-time owners 19 were putting pools in because they had values 20 in their house, and they were pulling it out 21 to go ahead and do it. That does not exist, 22 and that won't be back. The values in those

### 202-234-4433 Neal R. Gross & Co., Inc. Page 259 1 houses aren't just going to immediately 2 recover. That's going to be a 10, 15-year 3 process until they get back the values in the 4 house that they've lost in this downturn in 5 the economy. So, that's one of the comments

6 that I have. 7 The second one is talking about 8 the modeled replacements. I think that that's 9 also significantly overstated, particularly 10 based on the projected efficiency levels that 11 this document shows. I don't see that that 12 really shows that there will be a reduction in 13 the models, because the elimination of the 14 product class of the millivolt pool heaters, 15 and the fact of having more repair versus 16 return aspect, because of the higher costs 17 associated with having to put in a higher 18 efficiency unit. 19 MR. LEKOV: Just to mention that 20 this is the forecast in absence of new

21 standards. 22 MR. BROOKMAN: Okay, yes. Keep

### 202-234-4433 Neal R. Gross & Co., Inc. Page 260 1 going.

2 MR. GLASS: Robert Glass. I 3 provided comments in regards to the market and 4 the industry, and, basically, I think as you 5 have shown, that it's a very flat, a very slow 6 growth over a significant number of years. We 7 do agree with that, but the recovery that you 8 show there in the years of 2010 through 2012, 9 that will not be there. The industry is not 10 expecting that, and that graph shows that 11 there, and we do not believe that that is

12 accurate. 13 MR. LEKOV: Basically, this 14 reflects the new housing forecast from the 15 federal government. 16 MR. BROOKMAN: You predict a slow 17 climb out at least for the next 10, 15 years 18 while values steadily increase. That would be 19 trending upward slightly, but slow. Yes.

20 MR. GLASS: Robert Glass. The 21 slope of the lines that are basically shown 22 from year 2016 through 2036, I think that same

### 202-234-4433 Neal R. Gross & Co., Inc. Page 261 1 slope is effective on the levels where we are 2 today. 3 MR. BROOKMAN: Okay. 4 MR. GLASS: There's not going to 5 be a recovery that's associated with that. 6 And this presentation does not reflect that. 7 MR. BROOKMAN: Thanks very much. 8 Jim. 9 MR. SMELCER: Jim Smelcer, 10 Lochinvar. This would be an excellent time to 11 point out that chart would be extremely 12 helpful for another point I'd like to make, if 13 you can answer this question. Is the data 14 available that generated that report forecast 15 available by input, and also by certification 16 of the product, as far as pool heaters are

17 concerned? 18 MR. LEKOV: It's not available by 19 input capacity. 20 MR. SMELCER: Is it based off of a 21 particular total volume sales assumed to be 22 Z21.56 certified pool heater.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 262 1 MR. LEKOV: Of course, it utilizes 2 all available historical shipments data that 3 the Department had. It's combined with the 4 new housing forecast. The Department also 5 obtained from the PK data consultant, detail 6 information over whatever they did over the 7 last 20 years. 8 MR. SMELCER: Okay. But I think 9 my question was, when the data came to you, 10 did it come in total growth sales, or did it 11 come to you by model, input.

12 MR. LEKOV: Gross sales.

13 MR. SMELCER: Gross sales. 14 MR. BROOKMAN: Okay. Did you say 15 your name was Shad? 16 MR. SIDDIQUI: Shajee. 17 MR. BROOKMAN: Shajee. 18 MR. SIDDIQUI: Yes.

19 MR. BROOKMAN: Please. 20 MR. SIDDIQUI: Hi, Shajee 21 Siddiqui, Zodiac Pool Systems. I just wanted 22 to go on record, first of all, I've been very

### 202-234-4433 Neal R. Gross & Co., Inc. Page 263 1 quiet all morning because my colleagues, Mr. 2 Glass, and Mr. Lochinvar have very eloquently 3 stated the positions on behalf of industry. 4 (Simultaneous speaking.) 5 MR. SIDDIQUI: I'm sorry. Yes, 6 Mr. Lochinvar. That's right. That's a 7 reputation. Let me correct that, Mr. Smelcer. 8 Sorry about that. But I wanted to echo what 9 Robert Glass just said about the trend of the 10 recovery. And I just wanted to go on record 11 as saying that we agree with that, and 12 actually all the other points that they have 13 made all morning. 14 MR. BROOKMAN: Thanks very much. 15 That's helpful. Okay. Yes, please. 16 MR. AUBREY: Bruce Aubrey from 17 Hayward. I just want to echo what Shajee is 18 saying, that we are in support of what Robert 19 Glass has been saying throughout the day, and 20 up to this point. 21 MR. BROOKMAN: Thank you. To have 22 reinforcement from the industry is helpful.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 264 1 George. 2 MR. KUSTERER: Just a quick 3 questions, Doug. George Kusterer. Alex, this 4 housing start data, how far back does this go? 5 MR. LEKOV: The historical, it 6 goes probably to the `60s. 7 MR. KUSTERER: No, no, no. When 8 was the last housing start data, what was the 9 -- what was that time frame, 2007, 2006? What 10 is the most current? 11 MR. LEKOV: The most current, we 12 used the 2009 housing starts. So, the one 13 that was published in December 2008. 14 MR. KUSTERER: Okay. So, it's a 15 year old. 16 MR. LEKOV: Right. 17 MR. KUSTERER: Okay. Thank you. 18 MR. BROOKMAN: Okay. Yes, please.

19 MR. GLASS: Robert Glass. Another 20 point to kind of look as we're moving out, 21 there's an area of the pool heating market 22 that the NOPR identifies as not being

### 202-234-4433 Neal R. Gross & Co., Inc. Page 265 1 addressed, but that's electric, which is, 2 therefore, like heat pump pool heaters. And 3 the heat pump pool heater market is growing at 4 this point, so the scenario also is that as 5 that market continues to grow, the market for 6 the gas fired units is going to be tailing 7 off, because what we're showing here is 8 basically the growth in the industry as a 9 whole, but with one segment increasing, the 10 gas pool heater segment is going to be 11 decreasing. And I know it's difficult to do, 12 because of the fact that this product class 13 has not been included as a part of this, and 14 specifically stated as such in the NOPR 15 document. But that's also something that has 16 a negative impact with the information that's 17 being presented there. 18 MR. BROOKMAN: Okay. Ron Lewis. 19 MR. LEWIS: Oh, thank you, Doug. 20 Because we're running a little behind -- 21 basically we need to look at these numbers, 22 just if we can truncate this a little bit,

### 202-234-4433 Neal R. Gross & Co., Inc. Page 266 1 unless there is something new and substantive. 2 We would really appreciate any data that you 3 have and projections and things that are based 4 on some kind of study, or something that's not 5 just a raw guess or response of just saying, 6 what you have got is wrong. This is -- it's 7 helpful to know that you have got concerns. 8 It's much more helpful to have any kind of 9 data that you've got that's based on some 10 foundational study, or anything else. 11 So, some of the methodologies, 12 some of the things that we use as the basis 13 for projections that are from the government 14 that we've always used for things, these are 15 unusual times that we've been on. If there's 16 something that you want us to reflect on, 17 please put that in your comments. It would be 18 appreciated. And I think unless there's 19 something more on this topic, then we should 20 move along. But it's not to cut off 21 conversation. We really appreciate your input

22 here.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 267 1 MR. BROOKMAN: So, let's move on,

2 Alex. 3 MR. LEKOV: Okay. So, the next 4 component of the Shipments Analysis, the last 5 one for the shipment is the -- what the 6 Department did about the fuel switching. So, 7 the main thing that happened is, essentially, 8 the Department evaluated the potential fuel 9 switching in case of the electric heat pump 10 standard, and here are the results associated 11 with a potential switch depending on what 12 level of gas fired water heater the standards 13 could be. So, those are the fractions, the 14 approach didn't change over the last period 15 from the preliminary analysis. It's explained 16 in the TSD. 17 MR. BROOKMAN: Yes. Don Brundage. 18 MR. BRUNDAGE: A quick question on 19 this. In the case we're saying that 20 effectively requires an electric heat pump 21 water heater, is that effectively requires 100 22 percent heat pump water heaters, or the TSL 6,

### 202-234-4433 Neal R. Gross & Co., Inc. Page 268 1 or the TSL 5 of large water heaters? 2 MR. LEKOV: TSL 6, the entire

3 market. 4 MR. BRUNDAGE: Okay. 5 MR. KHAN: Mohammed Khan, DOE. 6 TSL 5 is 55 and up. 7 MR. BROOKMAN: Okay. So, you can 8 see the query from the Department, Issue 15 in 9 your slides. Any additional comment on that, 10 and those are listed there? Harvey Sachs. 11 MR. SACHS: Harvey Sachs. Did the 12 Department do any analysis of fuel switching 13 at TSL 5, the large capacity heaters only? 14 MR. LEKOV: Basically, this -- 15 we're talking to about 9 percent of the 16 market. I believe that the spreadsheet is set 17 automatically to generate also to account for 18 the efficiency levels at -- yes, the 19 spreadsheet is set up to account for the large 20 water heaters. However, the large water 21 heaters are also projected to include the 22 condensing on the other side, so as a result

### 202-234-4433 Neal R. Gross & Co., Inc. Page 269 1 of this, the condensing is basically -- 2 there's almost no switch in the case of 3 condensing. So, it's not going to see much of 4 an impact. 5 MR. SACHS: Okay. 6 MR. BROOKMAN: Okay. Yes, Ted. 7 MR. WILLIAMS: Ted Williams, 8 American Gas Association. I do think on 15 9 that the switching scenarios are narrowly 10 cast. A principal one we're concerned about 11 is gas storage water heater versus electrical 12 resistance storage water heating, both of 13 which are in the proposals. We see that 14 switching taking place in the shipment data 15 currently since 2003. We see it happening in 16 individual locations where we're changed out 17 heating products with condensing furnaces, and 18 had orphan water heaters, and the replacement 19 there has been electric storage water heaters, 20 electric resistance storage water heaters. 21 So, we'll be proposing some alternatives for 22 doing that, probably even looking at the NEMS

### 202-234-4433 Neal R. Gross & Co., Inc. Page 270 1 model as an approach for looking at this, 2 based on the component costs and cost adders 3 for both of those products, and maybe return 4 to the LBNL analysis that was done during the 5 prior rulemaking. 6 MR. BROOKMAN: Thank you. That 7 would be helpful. Okay. So, then final 8 comments on fuel switching? Okay. 9 MR. LEKOV: Now, on the NIA NOPR 10 analysis, basically, I explain what happened 11 in the base-case and standards-case efficiency 12 and how we changed them. As a result of this, 13 there were a few changes in the market shares 14 as calculated. Also, price trends were 15 updated, and the discounting was changed to

16 2010. 17 The last two slides basically show 18 the results for the proposed levels. This is 19 for the gas fired and storage, and electric 20 storage water heaters at the proposed level. 21 And, similarly, those two charts show for pool 22 heaters and gas hearth heating.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 271 1 MR. BROOKMAN: So, there you see 2 the results. Comments on what you see, 3 particularly on the results slides. I see 4 several people are scanning. We'll just let 5 you scan for a minute here before we move on.

6 MR. LEKOV: The results are well 7 illustrated in the Technical Support document, 8 and, basically, its outcome of all the 9 assumptions that were explained. 10 MR. BROOKMAN: Okay. So, given 11 the shortness of time, we're going to press on 12 here. Ashley. Thank you, Alex. 13 MS. ARMSTRONG: I'm going to 14 briefly go over how DOE reads benefits and 15 burdens by grouping efficiency levels for 16 various product classes into trial standard 17 levels. Basically, DOE grouped efficiency 18 levels for water heaters, for direct heating 19 equipment, and for pool heaters separately 20 into different trial standard levels, then we 21 have the benefits and the burdens. 22 This slide shows -- for water

### 202-234-4433 Neal R. Gross & Co., Inc. Page 272 1 heaters, I'm going to show the trial standard 2 levels separately, so you can graphically see 3 the equations. If you notice the long table 4 that's in the NOPR document, can be a little 5 bit confusing. So, this table shows trial 6 standard levels 1-4 for electrics. We're 7 going to go through this pretty quick, so stop 8 me if you have questions.

9 The next one shows TSL 4-7. I 10 would like to point out TSL 5, which is where 11 we have these different requirements for large 12 volumes that are indicated by the red dots 13 where you see the jump. The next one you can 14 see is for gas, and same thing for TSL 5. You 15 see the jump from traditional gas storage 16 water heaters to condensing for the larger 17 volumes. The break point is at 55 gallons. 18 This is an issue for which Mohammed is going 19 to seek your comment later, or you can make 20 comments now about the break point. 21 Next is for oil-fired storage 22 water heaters. These are the four different

### 202-234-4433 Neal R. Gross & Co., Inc. Page 273 1 levels, and they're paired differently on the 2 DOE considered. 3 MR. BROOKMAN: Just hang on a

4 second. 5 MS. ARMSTRONG: Okay. 6 MR. BROOKMAN: Okay. 7 MS. ARMSTRONG: Okay. The next 8 one is for instantaneous water heaters, and 9 this is just a single -- or two separate 10 efficiency levels across the board, and 11 they're paired differently with other 12 different water heating efficiency levels from 13 other product classes for DOE weighing the 14 benefits and burdens. 15 So, for direct heating equipment, 16 I'm showing the AFUE values for only the 17 representative input capacity range that we 18 looked at. This is all six trial standard 19 levels, with the one that DOE proposed 20 highlighted. It's for all five different 21 types of direct heating equipment. Last but 22 not least are the six TSLs DOE considered for

### 202-234-4433 Neal R. Gross & Co., Inc. Page 274 1 residential pool heaters, with the one that 2 DOE ultimately proposed highlighted. 3 MR. BROOKMAN: So, that was a 4 quick run-through. Feel free to backup if you 5 need to. Charlie.

6 MS. ARMSTRONG: Sure. 7 MR. ADAMS: Just a quick comment 8 on the equations for the electric heaters 9 below heat pump, there's an inherent 10 assumption that -- there appears to be, at 11 least, that a little more insulation is all it 12 takes to get you to the next level, and there 13 is a point somewhere at, or slightly above 3 14 inches that more insulation doesn't get you 15 anything in the practical world of water

16 heaters. 17 MS. ARMSTRONG: Okay. 18 MR. BROOKMAN: Okay. Yes? 19 MR. PARKER: Mike Parker, A.O. 20 Smith. Maybe I should go after this. I'm 21 curious why TSL 7, at least, doesn't include a 22 scenario for condensing instantaneous gas.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 275 1 There's very few condensing residential 2 storage heaters sold in the U.S, but about 15 3 to 20 percent of the instantaneous gas being 4 sold today is already condensing. 5 MS. ARMSTRONG: It is. TSL 7 is 6 condensing. 7 MR. PARKER: Oh, I'm sorry. I 8 read it wrong. Okay. Then I should have 9 known the answer. Thank you. 10 MS. ARMSTRONG: No worries. I 11 went through them fairly quickly. 12 MR. BROOKMAN: Yes, Robert.

13 MR. GLASS: Robert Glass. I'm 14 trying to put things together, and from some 15 of the different information, things that we 16 have, and, again, one of the concerns that I 17 have, when you go back to looking at the 18 projected life of the product of being eight 19 years, and concerns about it being short, et 20 cetera, well, one of the reasons for that is, 21 even though the existing product that is above 22 the minimum stated efficiencies right now

### 202-234-4433 Neal R. Gross & Co., Inc. Page 276 1 still condenses, I mean, when you're bringing 2 60 degree water, 70 degree water in 3 constantly, and you have a gas flame 4 underneath it, you are condensing. Now, the 5 designs are intended to try to minimize that, 6 but increasing the levels significantly up to 7 the level that's being projected here, it's 8 either going to result in one of two things. 9 It's either going to result in similar-type 10 designs that are improved to meet the 11 efficiency level, but then the product life 12 will probably be even shorter, as a result, or 13 manufacturers are going to go to a point where 14 they're going to be using materials that are 15 going to be suitable for condensing, and then 16 the price is going to be significantly more. 17 And I know the analysis has been going 18 through, you can't deviate and pick one or the 19 other, so you're trying to project kind of 20 based on the information that's there. But it 21 really becomes a difficulty, and with a 22 projected level at TSL 4 of 84 percent, there

### 202-234-4433 Neal R. Gross & Co., Inc. Page 277 1 are serious concerns that we, as the 2 manufacturers, have in that 84 percent is 3 very, very close to the condensing level. 4 And, in many instances, you have to deal with 5 condensate that's going to be in it. And, so 6 we also are in support of the comments that 7 AHRI made initially, that the level that's 8 being proposed is too high, and we need to be 9 selecting a lower level. 10 The other part of it, too, is -- 11 and, again, I don't know from other 12 rulemaking processes, but on this one going 13 from what the current level is of 78 percent 14 to a level of 84 percent, six percentage 15 points from an efficiency, is a huge jump to 16 be mandating from an efficiency standpoint. 17 And, so we are just struggling with that level 18 from a standpoint of having good, reliable 19 product, which is what we've been known to 20 have for many, many years. 21 MR. BROOKMAN: Okay. Thank you. 22 MS. ARMSTRONG: Thank you.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 278 1 MR. LEKOV: This will be very 2 brief. Basically, the Department satisfied 3 the regulatory requirement to perform consumer 4 subgroup analysis. It's done on the seniors 5 and low-income households. The approach taken 6 is, essentially, a full-scale -- as you see, 7 spreadsheets are developed for those two 8 subgroups based on examples that separate 9 these type of households. And the outcome is 10 that DOE determined the savings and the simple 11 payback for those groups, and determined that 12 those groups were not disproportionately 13 impact by the standard. 14 MR. BROOKMAN: Charlie.

15 MR. ADAMS: Just to reference 16 previous comments, won't bother to repeat them 17 now about increasing size and going to heat 18 pump water heaters in the electric category 19 for typically low-income people and 20 manufactured housing. 21 MR. BROOKMAN: Thank you. Don 22 Brundage.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 279 1 MR. BRUNDAGE: There is an obvious 2 disproportionately impacted subgroup that is 3 not your typical one, which is small household 4 size. The more people you have in a house, 5 the more hot water you're going to tend to 6 use. And maybe that's picked up adequately in 7 the seniors, but there's a huge spread in the 8 household use of hot water, and it's not just 9 seniors that higher efficiency standards are a 10 very bad deal for. Any single person 11 household, it's probably going to be a very 12 bad deal for unless they use an usually large

13 amount of hot water. 14 MR. BROOKMAN: Okay. Thank you. 15 Other comments on Consumer Subgroup Analysis? 16 Okay. So, we're going to keep pressing

17 ahead. 18 MR. KINGMAN: I'm going to try to 19 keep this brief, too, but if anything I say 20 isn't clear, please stop me at any point. The 21 two main things that I want to do with the -- 22 MR. BROOKMAN: Introduce yourself.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 280 1 MR. KINGMAN: Oh, I'm Jeff Kingman 2 from Navigant Consulting. But the two main 3 points that are going to be presented in the 4 MIA slides are an overview of the analysis 5 that was conducted, as well as pauses to seek 6 comments that are on new subjects that haven't 7 been approached yet today. 8 The main purpose of the 9 Manufacture Impact Analysis, or MIA, is to 10 assess the impact of standards on 11 manufacturers of the covered products. A 12 second main purpose is also to identify and 13 estimate the impacts on manufacturer 14 subgroups. The upcoming slides on the MIA 15 present this issue in further detail. 16 The main tool that the DOE uses to 17 conduct this analysis is a cash flow model 18 called "The Government Regulatory Impact 19 Model", or GRIM. For the MIA, DOE also 20 conducts interviews with manufacturers to 21 refine the inputs to this model, and to 22 understand the qualitative impacts of

### 202-234-4433 Neal R. Gross & Co., Inc. Page 281 1 standards. 2 And this slide just shows that the 3 basic structure of the MIA is conducted in 4 three phases. Phase one happens, primarily, 5 during the preliminary analysis. In this 6 phase, DOE uses all publicly available 7 information, such as manufacturer annual 8 reports, to develop profiles of the covered 9 industries. Phase Two and Three are the main 10 phases that are conducted during the NOPR 11 phrase of the rulemaking. 12 In these two phases, DOE develops 13 the cash flow spreadsheets that are used to 14 estimate industry impacts, and also develops 15 the interview guides that are used to tailor 16 the inputs for the cash flow models. And, 17 finally, in Phase Three, during the NOPR, DOE 18 conducts interviews with manufacturers, and 19 uses this information to further develop 20 subgroup analysis. 21 This slide presents an overview of 22 what scenarios DOE ran for the Manufacturer

### 202-234-4433 Neal R. Gross & Co., Inc. Page 282 1 Impact Analysis. Important points are that 2 the -- for all heating products, DOE applied 3 two market scenarios, but also used the 4 standard NIA scenario. And for water heaters, 5 this scenario accounts for fuel switching, and

6 also uses the reference case for the 7 penetration of instantaneous water heaters. 8 The upper bound scenario is called 9 the Preservation of Return on Invested 10 Capital. For this scenario, DOE applies a 11 markup at each TSL that sets the return on 12 invested capital in the standards case to the 13 same levels as in the base case. This 14 scenario models the situation where 15 manufacturers are in historical level of 16 profitability on incremental investments 17 required by standards as they do from their 18 current business operations. After standards, 19 manufacturers have greater working capital 20 investments, and a larger capital base, but 21 also have higher net operating profit. And 22 because manufacturers earn additional profit

### 202-234-4433 Neal R. Gross & Co., Inc. Page 283 1 on the investments required by standards, this 2 is why it's considered the upper bound. 3 The lower bound scenario that's 4 analyzed is called the Preservation of 5 Operating Profit. In this scenario, markups 6 are set so that the profitability in the base 7 case is the same as in the standards case, and 8 that models a situation where the incremental 9 investments required by standards do not yield 10 any additional profit. 11 MR. BROOKMAN: Just pause there. 12 Questions about this methodology, really, 13 before we move into the results? Okay. 14 MR. KINGMAN: This slide just 15 presents a brief overview of the industry 16 impacts at the various selected TSLs for the 17 three products. The main thing for water 18 heaters is that the technology that's used for 19 storage water heaters pushes the technology to 20 the base case, but doesn't require major 21 technology changes. For the oil-fired 22 industry, some manufacturers could face

### 202-234-4433 Neal R. Gross & Co., Inc. Page 284 1 conversion costs to modify existing product 2 lines. For direct heating equipment, the 3 traditional direct heating equipment, 4 manufacturers have existing product lines in 5 three and four product categories. However, 6 all manufacturers face substantial conversion 7 costs relative to shipments, and could 8 discontinue product lines to lower conversion

9 costs. 10 The estimated impacts on the gas 11 hearth DHE are minimized because the proposed 12 standards could likely be met mostly with a 13 purchased part. And, finally, for pool 14 heaters, the proposed standards do require 15 changes to be made for most manufacturers to 16 modify existing product lines, or to expand 17 the volume of what are now relatively low 18 volume products.

19 MR. BROOKMAN: Yes. Ken. 20 MR. BELDING: Ken Belding. I 21 don't mean to belabor this, but on the DHE for 22 hearth products, the second statement under

### 202-234-4433 Neal R. Gross & Co., Inc. Page 285 1 "Direct Heating Equipment", I'd just like to 2 take this opportunity to reinforce again that 3 we need a clarification on what a hearth 4 heater is, because without that, this 5 statement really is meaningless. And I don't 6 know what that purchased part is that is 7 referred to, but without that definition, 8 again, we can't really move forward. 9 MR. BROOKMAN: Okay. Thank you. 10 Charlie. 11 MR. ADAMS: From -- I'll keep my 12 tongue firmly in cheek, and say from the 13 Washington, D.C. perspective, the statement 14 that TSL 4 for water heaters, the technology 15 is not greatly different from the baseline, 16 yes, they're both atmospheric at both the 17 baseline and TSL 4. I will tell you that for 18 a water heater designer to design a 19 manufacturable, 400 million plus a year for 20 the industry, atmospheric water heater at TSL 21 4 is pretty close to the edge of the cliff. 22 Doable, but just don't want to let the

### 202-234-4433 Neal R. Gross & Co., Inc. Page 286 1 uninitiated walk away saying oh, yes, it's the 2 same thing, so what's the big deal? It is a 3 big deal to make it reliably and safely at

4 that level. 5 (Simultaneous speaking.) 6 MR. KINGMAN: I didn't mean to be 7 misleading with that comment, too. If you 8 look at the conversion costs being associated 9 with that, it's not zero by a long shot. 10 MR. BROOKMAN: Yes, please. 11 MR. MUDD: Richard Mudd. On the 12 direct heating equipment segment, it says that

13 most of our manufacturers have three or four 14 product lines that meet the standard. 15 However, as I pointed out in my opening 16 statement, those represent 15 percent of our 17 company's total sales. And I would suspect 18 that that would hold fairly true throughout 19 the -- our product category, or through our 20 three business, small businesses. 21 Also, one last comment. If DOE 22 grants it, we will have to -- or probably have

### 202-234-4433 Neal R. Gross & Co., Inc. Page 287 1 to discontinue product lines to meet these 2 standards. I think that's a true statement, 3 and I believe it goes back and affects both of 4 those, return on invested capital, and 5 operating profit issues, because I look to be 6 significantly less profitable, maybe not 7 profitable at all, because it affects 60 8 percent of my business in one category. 9 MR. BROOKMAN: Constantin, do you

10 want to follow on here? Please do. 11 MR. VON WENTZEL: Constantin Von 12 Wentzel here. I just wanted to point out that 13 in Chapter 12, we lay out the thought process, 14 and the logic, Chapter 12 of the TSD, we lay 15 out the thought process, and so on and so 16 forth, the assumptions, estimates for all 17 industries affected here today. And, so if 18 you could give us specific pointers as to what 19 assumptions you consider to be incorrect or 20 correct in that chapter, I think that would be 21 extremely helpful in terms of the impact on 22 your industries of product lines being

### 202-234-4433 Neal R. Gross & Co., Inc. Page 288 1 discontinued, conversion costs, product 2 development costs, and what have you. I mean, 3 we have -- a lot of the assumptions and 4 estimates are laid out there in detail, and so 5 to the extent that you can tailor your 6 responses to those estimates, that would be 7 extremely helpful for a follow-on analysis, 8 and this is really applicable for all 9 manufacturers here. It was just brought up in 10 the DHE context. I just thought I'd bring it 11 up. And I can give you the detailed page 12 ranges for your particular industry, if you 13 would like. To the extent that we can help 14 you find the information so that you can 15 comment on it, we will \do so. 16 MR. MUDD: Is it okay to do that 17 in written comments from our industry? Can it

18 take that form? 19 MR. VON WENTZEL: I would think 20 so, yes. Sure.

21 MR. BROOKMAN: That would be most 22 beneficial, in fact.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 289 1 MR. TRUSKOSKI: Eric Truskoski. I 2 just want to follow on what Charlie -- we do 3 agree with his comments on that. But I also 4 want to make a comment on oil-fired in a dying 5 industry. The business case for the proposed 6 levels makes it very difficult with an 7 industry being so small, and decreasing, with 8 oil-fired to be competitive. 9 MR. BROOKMAN: Okay. George. 10 MR. KUSTERER: George Kusterer. 11 Very well put. It's nice to know that just 12 about a year ago I was in Washington, D.C. on 13 business, and had a heart attack. Now 14 somebody is telling me I'm going to die in the 15 industry. 16 (Laughter.) 17 MR. KUSTERER: What a way to go. 18 Well, in actuality, I don't feel very bad, 19 because the electric water heaters 20 manufacturers are right behind us, with the 21 advent of heat pump water heaters. 22 (Laughter.)

### 202-234-4433 Neal R. Gross & Co., Inc. Page 290 1 MR. KUSTERER: But your comment 2 under water heaters, first of all, you're 3 saying that TSL 4, the technology does not 4 differ greatly from the baseline; yet, on the 5 third bullet point you say some oil-fired 6 water heater manufacturers face substantial 7 costs in modifying their existing -- it's kind 8 of a funny -- I hate to be anal retentive. 9 MR. KINGMAN: Oh, sure. 10 MR. KUSTERER: You know, what are 11 you trying to tell us? 12 MR. KINGMAN: Right. And I guess 13 those costs should be reflected in our product 14 conversion costs, in our capital conversion

15 costs. 16 MR. KUSTERER: Thank you. 17 MR. KINGMAN: That's a good point, 18 though.

19 MR. BROOKMAN: Yes. Robert.

20 MR. GLASS: Robert Glass. In 21 order to get a comment, I've got a question to 22 DOE concerning the most previous rulemaking

### 202-234-4433 Neal R. Gross & Co., Inc. Page 291 1 that was done back in 2001. Did the 2001 2 rulemaking decide not to raise the minimum 3 efficiency of pool heaters due to factors and 4 things that were decided at that time, or was 5 it just addressed, or just not covered during 6 that rulemaking process? And the reason for 7 that is, the answer to that will address a 8 future comment that I'll have four slides

9 down. 10 MR. BROOKMAN: Ron Lewis. 11 MR. LEWIS: My understanding is 12 that rulemaking only addressed water heaters 13 at that time.

14 MR. BROOKMAN: I see a few -

15 MR. GLASS: Robert Glass. Can I 16 get confirmation of that, because I believe 17 that it was -- that it did address it, but it 18 was indicated at that time that it was not 19 going to be covered. 20 MR. BROOKMAN: That's a long time 21 back. Can anybody say authoritatively pool

22 heaters were not covered then?

### 202-234-4433 Neal R. Gross & Co., Inc. Page 292 1 MR. DE LASKI: I was there. It

2 wasn't covered.

3 MR. BROOKMAN: It wasn't covered. 4 Thank you, Andrew. Several of the consulting 5 cadre there, they - 6 MR. LEWIS: We can provide you 7 with a copy of that rulemaking. 8 MR. BROOKMAN: So, Robert, do you

9 want to follow on? 10 MR. GLASS: No, it's four slides, 11 or three slides further down. 12 MR. BROOKMAN: Okay. Thanks for 13 that discipline. That's good. Okay. I 14 thought I saw one more. Maybe I didn't. 15 Okay. Then, the final slide in this packet 16 here, I meant before this comment box. Yes. 17 MR. KINGMAN: Now, one of the 18 statutory criteria DOE is required to look at 19 is the impact of the amended conservation 20 standards on small business manufacturers. 21 DOE uses the Small Business Administration's 22 definition of a small business manufacturer in

### 202-234-4433 Neal R. Gross & Co., Inc. Page 293 1 each category to determine if it fits the 2 criteria. The SBA definition sets a minimum 3 threshold for the number of employees. For all 4 three heating products in this rulemaking, 5 that threshold is 500 employees, and that 6 includes subsidiaries and parent companies. 7 In order to figure out if a 8 company is considered a small business 9 manufacturer, DOE used all publicly available 10 information, including certification 11 databases, and other website material, such as 12 reports for purchase, and also contacted 13 manufacturers to determine if they fit the 14 criteria. 15 For water heaters, DOE identified 16 five small business manufacturers. DOE did 17 not conduct a full subgroup analysis for small 18 business manufacturers of residential water 19 heaters. And DOE seeks comment on the impacts 20 of the proposed energy conservation standards 21 on small manufacturers of residential water

22 heaters.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 294 1 MR. BROOKMAN: I think we've heard 2 some of this already today. Perhaps, we have 3 additional comments on this time. Please. 4 MS. MEYERS: Karen Meyers. I'm 5 not sure where this comment goes, maybe I 6 should have made it earlier, but since the 7 Manufacturer Impact Analysis does cover 8 cumulative regulatory burden, and since we've 9 been talking about heat pump water heaters, 10 there is proposed legislation on the books to 11 phase out HFCs, and heat pump water heaters do 12 use a refrigerant. And should that 13 legislation pass, in less than two years, that 14 will be capped, and it will be significantly 15 phased down. 16 The current alternative that is 17 out there is about half as efficient. And, 18 although, I understand the heat pump water 19 heater uses very little refrigerant, if this 20 alternative were to move forward, it would 21 require us to use double the amount at costs 22 that are significantly higher than the

### 202-234-4433 Neal R. Gross & Co., Inc. Page 295 1 refrigerant used today. So, as far as the 2 cumulative regulatory burden, the cap and 3 trade programs, and the HFC phase-out would 4 have a significant effect on the heat pump 5 water heater business. And it's something 6 that maybe I should have made earlier, but I 7 actually have to go. And since this part 8 covers cumulative regulatory burden, I did not 9 want that to go unsaid, that the cap and 10 trade, and HFC phase-out will affect all water 11 heaters that make that product line. 12 MR. BROOKMAN: Thank you. There's 13 going to be an opportunity on that as we go 14 along. Harvey. 15 MR. SACHS: Harvey Sachs. Karen, 16 before you leave, certainly in our community 17 we're making efforts to focus people's 18 attention on total environmental warming 19 impact, and other parameters which help people20 understand the potential impacts of HFC phase21 outs. And we look forward to opportunities to 22 continue to work with you in that area.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 296 1 MR. BROOKMAN: Thank you. So, you 2 can see the Comment Box 19, comments on the 3 impacts of proposed amended energy 4 conservation standards on small manufacturers 5 of residential water heaters. Additional

6 comments on that? 7 MR. KINGMAN: We have been through 8 this a couple of times today, I think, but for 9 the direct heating equipment industry, DOE 10 identified 12 domestic small business 11 manufacturers. Of these, three make 12 traditional DHE, 10 make gas hearth products,

13 and one makes both. DOE concludes that the 14 DHE business is not to scale to afford the 15 large conversion costs, certification 16 requirements and product development 17 requirements for certain minimum energy 18 conservation standards. 19 When faced with these conversion 20 costs, a year's worth of typical R&D and 21 capital expenses, small business manufacturers 22 would likely reduce their product offerings,

### 202-234-4433 Neal R. Gross & Co., Inc. Page 297 1 especially in the short term to keep 2 conversion costs within reachable limits.

3 MR. BROOKMAN: Frank. 4 MR. STANONIK: Just a quick 5 comment, and it's a little bit about perhaps 6 looking at this a little bit differently. As 7 you mentioned here, DOE is looking at the 8 possibility that manufacturers may drop some 9 product lines. Okay? As you noted, there's 10 three traditional DHE manufacturers. I think, 11 perhaps, something to consider is probably the 12 reason they've survived is because, in fact, 13 they do offer whatever type of space heater 14 somebody wants. Okay? And you're talking 15 about dropping product lines. It may be a 16 situation, they may be forced to drop product 17 categories. Okay? So, all of a sudden, and 18 I'll just use Empire as an example, just 19 because Ken is right there. Okay? But an 20 example, you know, here I'm somebody who needs 21 to buy space heaters, and I go to Empire. I 22 say oh, I need some floor furnaces, I need

### 202-234-4433 Neal R. Gross & Co., Inc. Page 298 1 some wall furnaces, I need some of this. And 2 Ken says yes, I've got them all. Okay? And 3 that's great, I'll buy your products. Okay? 4 All of a sudden he might be in a situation and 5 says well, sorry, I'm not getting room heaters 6 any more, because I can't afford it to stay in 7 business. Okay? That has an effect of itself, 8 because that customer still may be looking for 9 the company that can give them everything he 10 needs, rather than -- they like the single 11 source. And I don't think you've quite 12 captured that. We'll sort of try and give you 13 some comments to capture that nuance, but it's 14 not just a question of okay, I used to have 15 two lines of room heaters, I'm going to drop 16 one. I may -- whatever company it is, I may 17 just drop -- get out of the room heater 18 business. That's a different situation. 19 MR. BROOKMAN: Please say your

20 name. 21 MR. BAUER: My name is Nick Bauer. 22 I'm with Empire, what he was talking about.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 2991 Empire was founded in 1932 by my great2 grandfather. We're considered a small 3 manufacturer in this room, even though we 4 think we're quite large. We've looked at the 5 cost analysis for a dying product, and anyone 6 who saw that slide earlier when the products 7 were going down, they're not going to go back 8 up. It's as simple as that. 9 It's not worth the money to invest 10 in a dying product that it takes for the 11 tooling for the certification. We will lose 12 products. It's as simple as that. And when 13 you lose products, you lose sales. And when 14 you lose sales, you cut expenses. The first 15 thing you cut are your employees. 16 We struggled through the 17 recession, but we were able to hire back every 18 single person we laid off last year. And we 19 take great pride in that. We're not looking 20 to fire people, and especially with something 21 beyond our control. And we will lose products 22 if this passes, and we will lose employees.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 300 1 Thank you. 2 MR. BROOKMAN: Thank you. 3 MR. KINGMAN: I think these past 4 couple of comments have addressed this first 5 issue, but if there's any other comments about 6 that right now? 7 MR. BROOKMAN: Yes, Ken. 8 MR. BELDING: Yes, I want to jump 9 on Frank's comment a little more, and not only 10 will we not be able to sell as much, because 11 we no longer have the full line, since there 12 are only three of us in this category, if only 13 Cozy has room heaters left, or if only Cozy 14 has floor furnaces left, the competition 15 factor is eliminated. They now have a 16 monopoly on that particular set of products. 17 And if you look at these product lines as 18 you've laid them out, that those happen in 19 several categories. So, there are monopolies 20 created because of what will happen if the 21 efficiencies are raised. 22 MR. BROOKMAN: Thank you. Yes,

### 202-234-4433 Neal R. Gross & Co., Inc. Page 301 1 please. 2 MS. DAVIS: Ruth Ann Davis, 3 Williams. I've been quiet in our category 4 today, but I agree with what's been said. 5 It's really critical to our category that as 6 manufacturers we be able to keep a broad range 7 of products. We're looking at a very small 8 category, a niche product, and part of the 9 viability of being able to be in this 10 category, and to be a manufacturer that can 11 offer product is being able to offer the 12 breadth of this offering. As mentioned 13 earlier, is a replacement product and going to 14 a fan-induced or an electric driven product is 15 really -- we need to keep it the way it is, so 16 that we can offer -- it is replacement 17 product, that it can be replaced with like 18 product, and not put the burden on where most 19 of this product is sold, on lower income and 20 smaller homes. They were designed to go into 21 homes that don't require a lot of heat, and in 22 climates that are conducive to this type of

### 202-234-4433 Neal R. Gross & Co., Inc. Page 302 1 equipment. 2 MR. BROOKMAN: Thank you. Okay. 3 So, additional comments on these slides here? 4 MR. KINGMAN: These are along the 5 same lines as the last slide, which is for the 6 gas hearth industry. Seek comment on DOE's 7 characterization of the large and small 8 manufacturer, small business manufacturer. 9 And, also, the impacts of the proposed 10 standards on small manufacturers of gas

11 hearth.

12 MR. BROOKMAN: Ken. 13 MR. BELDING: Yes, just one small 14 comment from someone with a company of the 15 three that make gas hearth products, as well. 16 And the reason you don't see this being a 17 contention here today is because they -- we 18 have an out. There are two standards. One is 19 decorative, non-energy efficient reliant, and 20 the other is energy efficient reliant. If you 21 don't meet the one standard, you just back out 22 of that heater category, and put it into the

### 202-234-4433 Neal R. Gross & Co., Inc. Page 303 1 non-heater category, basically. I mean, 2 that's oversimplified, so just an explanation

3 on that. 4 MR. BROOKMAN: Okay. Thank you. 5 MR. KINGMAN: This is the final 6 slide for the Manufacturer Impact Analysis. 7 DOE did not identify or did not conduct a 8 further subgroup analysis for small business 9 manufacturers of pool heaters. There is no 10 manufacturer with a product line that exceeds 11 the proposed standards, and DOE seeks comment 12 on the impacts of the proposed standards on 13 small business manufacturers of pool heaters. 14 MR. BROOKMAN: Jim, first. 15 MR. SMELCER: Okay. Jim Smelcer, 16 Mr. Lochinvar. 17 (Laughter.) 18 MR. SMELCER: This is the one I've 19 been waiting on, but because of the time here 20 being short, I think I'll just make my 21 statements that -- we'll work these into a set 22 of comments that you will receive. We've

### 202-234-4433 Neal R. Gross & Co., Inc. Page 304 1 already commented to some extent regarding the 2 nature of the product that you've looked at, 3 and the BTU input range that you've looked at. 4 The overview is that there is a 5 perception by DOE that the pool heater market 6 is limitless with respect to BTU input. In 7 other words, the Z21.56 standard, pool heater 8 industry, is limitless with respect to input. 9 The truth is that that industry, at least 10 from a residential standpoint, and I think 11 residential is the key word here, because 12 that's the one that continues to be resounded 13 in the statement in the NOPR. 14 The residential market really is 15 primarily and the industry has stated this 16 before, 400,000 BTU and down. And with 17 respect to all of the information that's been 18 presented today, that's the way things are. 19 You'll receive comments to that effect, but 20 when we went into, okay, we've looked at a 21 million -- ultimately, the NOPR basically said 22 we see no reason to cap it.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 305 1 Well, the residential market 2 doesn't really demand 400,000. That 400,000 3 is kind of an upper single barrier there. The 4 minute you go above that, there are other 5 things that kick in. It's basically starting 6 to look at commercial business. There are 7 other codes and standards that come in and 8 override basically what the efficiency, excuse 9 me, the safety standards have. You're getting 10 into ASME possible issues. You're getting 11 into other local codes' and jurisdictions' 12 issues that redefine what that product is. 13 And there's not a lot of history 14 in their maturity with products certified as 15 Z21.56 above 400,000. The primary volume, the 16 primary market for Z21.56 pool heaters is in 17 400,000 and down. I think the industry could 18 pretty well resoundingly say that thousands. 19 But above that, we're into the hundreds. It's 20 not a lot of units, so my initial thought is 21 that we should cap, because of the unknowns, I 22 know I'm getting into that a little bit.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 306 1 We should cap the BTU input at 2 400,000 for this rulemaking. And for pool 3 heaters above 400,000, there is an area there 4 that really needs some more studying from DOE 5 to determine just what that product is. 6 First of all, there is a -- in the 7 efficiency equation, there is a requirement 8 there that you would include the energy of the 9 pump if you need a pump in order to operate 10 your appliance to maintain your conditions. 11 Well, when you get into the 12 commercial realm, you are going to have to 13 require a pump in the commercial realm where 14 it can be limitless in terms of BTU. That 15 pump could get quite large. And managing that 16 pump can get quite large. With that number 17 entering into the equation, the efficiency, 18 the net efficiency that unit has to have to 19 overcome the pump energy that's now entered 20 into this thing is going to put you into the 21 convincing realm for efficiencies. That 22 changes the game for commercial. So, there is

### 202-234-4433 Neal R. Gross & Co., Inc. Page 307 1 a major thrust here to focus on, comments to 2 that effect, to focus on this ruling basically 3 being applicable 400,000 down. Above 400,000, 4 we would need to discuss, but we'll provide

5 comments to that effect. 6 MR. BROOKMAN: Thank you. 7 Appreciate that. Charlie. 8 MR. ADAMS: Charlie Adams. Just a 9 clarification. The first line of the second 10 bullet should read small pool heater instead

11 of small water heater. Correct?

12 MR. KINGMAN: True. 13 MR. ADAMS: Thank you. 14 MR. BROOKMAN: Thank you. And

15 Robert.

16 MR. GLASS: Robert Glass. Number 17 one, I support what Jim had talked about from 18 the max input of the residential pool heaters.

19 We've stated that before. I don't have exact 20 numbers, but I would venture to say somewhere 21 in the neighborhood of 96 to 98 percent of all 22 of the pool heaters sold in the United States

### 202-234-4433 Neal R. Gross & Co., Inc. Page 308 1 are 400,000 or less. The rest is, therefore, 2 commercial use there, so we also would support 3 DOE putting -- looking at putting a cap on the 4 residential, which is what this is talking 5 about, to 400,000. 6 In the impact to manufacturing 7 capacity, DOE states that TSL 5 and TSL 6 8 would require manufacturers to incur 9 significant product and capital conversion 10 costs. We believe that this is also true for 11 the TSL levels 3 and 4, because of the fact 12 that there is significant tooling, because the 13 vast majority of this market is in the 14 residential. I believe all of the 15 manufacturers here have very highly tooled up 16 that product line, and by changing the minimum 17 efficiency level to the levels that we're 18 talking about here, that has substantial cost 19 impact on the manufacturers to turn around and 20 to develop the tooling there. 21 The other thing in that same 22 section that talks about it, says DOE -- is

### 202-234-4433 Neal R. Gross & Co., Inc. Page 309 1 that setting an amended energy conservation

2 standard at or above TSL 5 could lead to short 3 term capacity problems if manufacturers cannot 4 make the necessary tooling equipment and 5 assembly changes in time to meet the standard. 6 We definitely support that, at 7 that level. And, again, we also think that

8 that's the same case even at levels TSL 3 and 9 TSL 4. And the reason that I bring that in my 10 earlier comment was pool heaters, unlike any 11 of the other products that we're talking about 12 today, the vast majority of those are 13 installed outdoors. And the fact, because the 14 products are installed outdoors, we have a lot 15 more difficult things to overcome in the way 16 of reliability with wind on the units and the 17 vents, with animals, whatever else, with 18 temperatures, operating controls. And in 19 order to try to go ahead and develop entire 20 new product lines to meet these levels in what21 the NOPR is identifying as being the three22 year implementation window that would be

### 202-234-4433 Neal R. Gross & Co., Inc. Page 310 1 necessary under a first rulemaking adjustment, 2 where the direct heating equipment and the 3 pool heating are identified that there would4 be a three-year implementation versus a five5 year implementation for the water heaters, I 6 would like to go on record to state that if we 7 end up at a TSL level of 4 or 3, I would 8 propose, if there's any way of doing it, to 9 have a five-year implementation period, 10 because the manufacturers -- we, as 11 manufacturers, have a lot more work that we 12 have to do in order to provide reliable 13 product at those higher efficiency levels. 14 Again, we're talking about an increase of 15 efficiency of 4, 5, 6 percent, which is very 16 substantial, and the operating conditions that 17 these units operate under are significantly 18 more difficult to plan, and to develop, and 19 conduct field testing with before we would 20 want to go ahead and launch these products. 21 MR. BROOKMAN: Okay. Thank you. 22 Yes, Don Brundage.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 311 1 MR. BRUNDAGE: Don Brundage. Just 2 an observation. The basic guideline on EPCA 3 is for products that would be typically used 4 in a normal home. And yes, there's swimming 5 pools of millionaires that are very large. 6 Some of those also have three-phased internal 7 power within the building. I think you need 8 to set the limit for this rulemaking at the 9 point where you're more typically getting into 10 being a commercial pool, and not a residential 11 one. Thank you. 12 MR. BROOKMAN: Thank you. 13 Additional comments on pool heaters? 14 MR. LEKOV: Okay. Utility Impact 15 Analysis. So, I will go relatively quick. 16 However, I'll echo Jeff, if there is a point I 17 need to return, please let me know. 18 So, the Utility Impact Analysis, 19 the main outcome of this is to report the 20 change of installed capacity in generation as 21 a result of the national energy savings. And 22 this is what has been done here, and the

### 202-234-4433 Neal R. Gross & Co., Inc. Page 312 1 results are presented at the bottom for all 2 three product class. 3 MR. BROOKMAN: Yes, please. 4 Robert, go ahead.

5 MR. GLASS: Robert Glass. A 6 question that I have, which, again, as it's 7 noted here for pool heaters, it talks about 8 TSL 1-6 resulted in a very small installed 9 generation capacity increase, ranging from 2 10 megawatts, where water heaters you're talking 11 gigawatts. 12 The question that I have is, at 13 what point does DOE consider the energy 14 savings to be significant? If you go back to 15 what's presented in the NOPR, you end up 16 coming out to a point that, similar to Mr. 17 Mudd's comments first thing this morning when 18 he was talking about .08 quads, for the pool 19 heaters based on the numbers that are in here, 20 we're talking about .001 quads per year. 21 That's what the projected energy savings are. 22 So, the question is, is what becomes

### 202-234-4433 Neal R. Gross & Co., Inc. Page 313 1 significantly significant? Where is that 2 level? How does DOE determine what is 3 significantly significant in regards to what 4 are the projected savings? 5 MR. BROOKMAN: Okay. So, Alex, 6 keep going with this slide. 7 MR. LEKOV: So, this is about the 8 results and the outputs from the Utility 9 Impact Analysis. The next is the Employment 10 Impact Analysis.

11 MR. ECKMAN: Tom Eckman. I am 12 going to issue my constant refrain, that it 13 would be useful in the benefits analysis to 14 price the awarded resource that's being talked 15 about up there between 1 and 5 gigawatts of 16 generating capacity doesn't come cheap. So, I 17 think DOE should calculate what that cost is 18 in avoided terms over the lifetime of those 19 plants, and incorporate that into the benefits 20 analysis, not just count the number of 21 gigawatts avoided, but how much it costs to -- 22 how much we save by avoiding those gigawatts.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 314 1 MR. BROOKMAN: Okay. Thank you. 2 And I'd like to just emphasize, as you look at 3 Slide 84, take a peek at the very bottom of 4 that slide there, because that's where the 5 Department is listing the change in installed 6 capacity and generation, and just see if we 7 have any comment on what's there before we 8 move on, since we're moving rapidly. Yes, 9 please. Don. 10 MR. BRUNDAGE: I do have one quick 11 comment on the electricity prices, includes 12 price of carbon in the analysis, which sort of 13 violates the guidelines they followed before 14 of only using things that have actually be 15 passed an enacted by Congress in costing 16 assumptions moving forward. Is there any sort 17 of comment on why this was done this time? 18 MR. LEKOV: There is no difference 19 in the type of energy prices used compared to 20 other rulemakings. 21 MR. BROOKMAN: I'm looking -- 22 where did you see carbon?

### 202-234-4433 Neal R. Gross & Co., Inc. Page 315 1 MR. BRUNDAGE: There is a 2 discussion at one point in the TSD, and in the 3 NOPR document about cost of carbon as being a 4 benefit. 5 MR. BROOKMAN: Okay. 6 MR. LEKOV: We will reach that in 7 about three slides. We'll get there. 8 MR. BROOKMAN: Yes, environmental. 9 MR. BRUNDAGE: Okay. 10 MR. BROOKMAN: All right. So, 11 additional -- I just want to call your 12 attention, I didn't want to skip lightly over 13 that, those impacts there before we move on. 14 Okay. 15 MR. LEKOV: The next components 16 are the Employment Impact Analysis. 17 Basically, DOE looks at direct and indirect 18 impacts, and I provided the results for the 19 direct impacts. Separate analysis are done 20 using the model called ImSET, and it estimates 21 changes in cost and benefit using inputs from 22 the NIA analysis.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 316 1 The outcome of the indirect 2 employment impact analysis as shown here, 3 result by product class, water heaters, DHE, 4 and pool heaters. 5 MR. BROOKMAN: So, you can see 6 that's the Department's assessment. Comments 7 on that, on employment? Yes, Charlie. 8 MR. ADAMS: In regard to water 9 heaters, if it's driven to the very high 10 standard levels completely heat pumps, for 11 example, which is what, 6 and 7, as Frank 12 Stanonik mentioned earlier, there's an issue 13 in the manufacturer converting all of their 14 assembly lines in that you've got to keep the 15 resistance element line, heater lines running, 16 for example, while you're implementing the new 17 heat pump lines. So, that presupposes that 18 you're -- we would, essentially, be building 19 new factories, or at least new lines to be 20 able to accomplish that. At the end of the 21 exercise, there might be the same number of 22 jobs as there were before, but the reality of

### 202-234-4433 Neal R. Gross & Co., Inc. Page 317 1 the day is that we, as manufacturers, would 2 have to take a good hard long look as to 3 whether those jobs would be in the Continental 4 United States, or not, after the new lines 5 came on line. Just a comment. 6 MR. BROOKMAN: Thank you. Yes, 7 please. 8 MR. MUDD: Richard Mudd. This is 9 a quick comment on employment in our industry. 10 I've said it a few times today. If we have 11 to abandon product offerings, our demand is 12 reduced because we no longer have the utility 13 to offer, such as working without electricity, 14 or the retrofitability. You know, obviously, 15 employment in our industry is going to be 16 affected greatly. 17 MR. BROOKMAN: Thank you. Other 18 comments on employment impacts as shown in 19 this slide? Yes, Robert.

20 MR. GLASS: Robert Glass. The 21 comment there says TSL 1-5 result in a very 22 small net increase in jobs. Over what year

### 202-234-4433 Neal R. Gross & Co., Inc. Page 318 1 levels are we talking about? Are we talking 2 about over the 2009, or are we talking about

3 over - th 4 MR. LEKOV: Over analysis the 30 5 year. 6 MR. GLASS: Analysis over? 7 MR. LEKOV: A 30-year period. The 8 plant in 2043. 9 MR. GLASS: Okay. Thank you. 10 MR. BROOKMAN: George. 11 MR. KUSTERER: George Kusterer. 12 Alex, I'm really confused under the results of 13 product class with regard to water heaters. 14 It says all TSLs result in a net increase in 15 jobs ranging from 3,000 to 50,000. But, yet, 16 you've heard comment that in certain water 17 heater classes, we're a dying industry, so if 18 we're a dying industry, why would we want to 19 go out and hire people, when we're dying? I 20 think the -- what you're projecting here are, 21 basically, fictitious numbers, and, 22 unfortunately, I just -- I can't agree with

### 202-234-4433 Neal R. Gross & Co., Inc. Page 319 1 them. 2 MR. BROOKMAN: Okay. Thank you. 3 MR. LEKOV: Essentially, what 4 those numbers are the indirect employment. 5 They are not related to the workers in this 6 industry. During the manufacturing impact, 7 they were reported the impact on the 8 manufacturer, we refer to those as direct 9 employment impact. 10 MR. KUSTERER: Well, if it doesn't 11 affect water heaters, then why is it there? 12 MR. LEKOV: In a complex economy 13 as United States have impacts that 14 redistribution of resources and labor when 15 something changes. 16 MR. KUSTERER: Yes, but we have so 17 many people on unemployment right now, and 18 you're telling me that these TSLs are going to 19 increase jobs? I find that very hard to 20 believe. 21 MS. ARMSTRONG: I just want to 22 make a small distinction here. What Alex is

### 202-234-4433 Neal R. Gross & Co., Inc. Page 320 1 showing here is the net increase in indirect 2 employment, so other sectors that will result 3 in the savings, because of the savings of the 4 TSLs were analyzing for water heaters. If you 5 go to the TSD, and the MIA, we do direct, and 6 that's direct manufacturing jobs to the 7 manufacturers as a result of the various TSLs. 8 So, the number of people who said 9 that they might go out of business or that 10 they might reduce their employment because of 11 standards at different levels, that will be 12 characterized as an MIA issue as direct 13 employment, and those are not the numbers you 14 see here. But, I mean, fundamentally whether 15 you agree with those numbers, that's a 16 different issue, but this is employment in 17 other sectors as a result of the savings from 18 the different TSLs. 19 MR. BROOKMAN: Thank you. 20 Charlie. 21 MR. ADAMS: So, these would 22 represent the additional installers that it

### 202-234-4433 Neal R. Gross & Co., Inc. Page 321 1 takes to put the higher technology equipment 2 in and work on it when it breaks. Right? 3 (Laughter.) 4 MR. BROOKMAN: Andrew first, and 5 then to Molly. 6 MR. deLASKI: Alex, typically, 7 historically, the ImSET model takes into 8 account the savings to purchasers of the 9 equipment, the fact that they're now using 10 those savings to go do other things with the 11 money they saved. The analysis DOE has done 12 shows about $7 billion in savings to folks who 13 buy natural gas, and to lower natural gas 14 prices. Has that been through the ImSET model 15 to see what the employment impacts are? 16 MR. LEKOV: No. Oh, yes. 17 MR. BROOKMAN: Greg. 18 MR. ROSENQUIST: You have that 19 right, Andrew. I mean, what we're doing, 20 again, is using an input/output model, and 21 carrying those National Impact Analysis inputs 22 to see how sectors in the rest of the economy

### 202-234-4433 Neal R. Gross & Co., Inc. Page 322 1 may react to the savings that consumers are 2 getting by having lower utility bills. 3 MR. BROOKMAN: So, not speaking to 4 the specifics, but the way Andrew 5 characterized it, that's correct. 6 MR. ROSENQUIST: Correct. 7 MR. BROOKMAN: The billion dollars 8 of savings continue to ripple through the 9 economy. 10 MR. ROSENQUIST: Exactly. 11 MR. deLASKI: And you're capturing 12 both the direct savings in the rule, as well 13 as the indirect savings that you calculated 14 due to impacts on natural gas prices. 15 MR. ROSENQUIST: Okay. That's 16 another issue. Okay? That's another issue. 17 So, that issue, the affect on natural gas 18 prices to all consumers is being calculated, 19 but it's not being counted right now as part

20 of the overall MPD. 21 MR. deLASKI: Right. And is it -- 22 my question, then, not part of the overall

### 202-234-4433 Neal R. Gross & Co., Inc. Page 323 1 MPD, I understand that. Is it reflected in 2 the jobs numbers that Alex has put up? 3 MR. ROSENQUIST: No, it is not. 4 MR. DeLASKI: Okay. Thanks. 5 MR. BROOKMAN: Molly, Jim wants to 6 follow-on. Let him follow-on. Jim, go ahead. 7 MR. SMELCER: This is frustrating 8 me. I'm going to pull a George here, I think. 9 (Laughter.) 10 MR. SMELCER: We're talking - 11 MR. KUSTERER: That'S Mr. Bock, to 12 you. 13 MR. SMELCER: I've heard this once 14 before, billions of dollars were spent and 15 gentlemen, please, we've sat here and watched 16 ourselves many times over the years deal with 17 raising efficiencies that ultimately save, 18 temporarily, people some utility dollars that 19 ultimately go back up to generate revenue 20 because they lost their capacity. What we're 21 talking about is conservation of gas. We're 22 not talking about billions of dollars saved

### 202-234-4433 Neal R. Gross & Co., Inc. Page 324 1 ultimately, that revenue, that infrastructure 2 is going to continue, and has to be paid for, 3 and gas prices will be adjusted accordingly. 4 So, it's not anything that's prudent.

5 MR. KUSTERER: Amen. 6 MR. BROOKMAN: Okay. Thank you. 7 Frank Stanonik. 8 MR. STANONIK: I would just ask 9 DOE on this point, particularly with the 10 direct heating equipment, the statement that 11 all TSLs result in a very small net increase 12 in jobs. And I think I understood what I 13 heard, but I would ask you to reassess that 14 statement in relation to the data that's in 15 Table Roman Numeral 562, specifically at the 16 division of the direct heating equipment, 17 because I understand you've looked at the 18 whole category. And, as we saw with some 19 reconsideration of what constitutes house 20 products, that becomes the big dog in that 21 group, by sales by a huge amount, by factors. 22 And I think if you looked at simply

### 202-234-4433 Neal R. Gross & Co., Inc. Page 325 1 traditional direct heating equipment and the 2 numbers that are in that table, and then 3 looked at that statement, I don't think it's 4 any longer true. In fact, probably the 5 opposite. 6 MR. BROOKMAN: Okay. Harvey 7 Sachs, and then we're going to move on to 8 Environmental Assessment. Go ahead. 9 MR. SACHS: With all due respect, 10 Mr. Lochinvar, there's a -- Mr. Smelcer there, 11 there is a substantial literature on the 12 issues which you've raised about rates versus 13 bills. And, in most cases, it still is the 14 case that improving efficiency costs less than 15 even the marginal supply. So, we can carry 16 this into our comments, but I don't want to 17 let it go - 18 MR. BROOKMAN: We can continue 19 this. We're going to be done in less than a 20 half an hour, when we're finished. 21 MR. SACHS: I said everything I

22 know.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 326 1 MR. BROOKMAN: I thought you'd 2 have some citations at hand, Harvey. Okay. 3 So, we're moving to Environmental Assessment. 4 MR. LEKOV: So, DOE uses NEMS 5 program to calculate the savings in terms of 6 emissions. DOE calculated reduction in power 7 plant emissions and reduction in on-site 8 emissions. For this particular rule, this is 9 applicable to CO2, NO and Mercury. SO X 2 10 emissions are not included because of the 11 emissions cap. One new item is that DOE 12 monetized the value of reductions in C02, NO , X 13 and mercury. And those are the major findings 14 from the Environmental Assessment analysis. 15 MR. BROOKMAN: Thank you. Don. 16 MR. BRUNDAGE: Okay. I've got a 17 number of philosophical problems with this. 18 I'll try to summarize it. I can't say that 19 there's really a lot of difference between 20 SO , NO and Mercury in the way they should be 2 X 21 treated. It's very misleading to say that 22 it's not included because under the emissions

### 202-234-4433 Neal R. Gross & Co., Inc. Page 327 1 cap set by the Clean Air Act amendments of 2 1990, SO emission allowances cost is near 2 3 zero right now, because the Clean Air Act 4 amendments of 1990 has been superseded by a 5 multitude of other regulations on utilities. 6 And if you've got 12 different regulations on 7 utilities, you have to meet the strictest one. 8 And rarely is the Clean Air Act amendments of 9 1990 the strictest one. 10 Basically, for all of these local 11 source emissions, you've got absolute values 12 to protect public health under Title 5 that 13 EPA is going to enforce emitters to get under, 14 so you could look at all of them really as 15 having a absolute cap. And if you save money 16 from -- if you save kilowatt hour emissions, 17 you're just giving more room for utilities to 18 spend less money on controls, because they're 19 emitting less. I can't see that there's any 20 real value in reductions of any of these. 21 When you get to CO , -- let me 2 22 just try to cut through the -- cut to the

### 202-234-4433 Neal R. Gross & Co., Inc. Page 328 1 quick real quickly on this. CO , you're doing 2 2 a monetized value even though there's been 3 nothing passed by Congress. Is that because 4 it appears so imminent it seems reasonable to 5 assign a monetary value to CO , even though it 2 6 violates the philosophy of waiting until -- of 7 the EIA's studies, and forecast of wait until 8 something is passed by Congress.

9 FACILITATOR BROOKMAN: I am 10 looking over here. Ron Lewis or Eric Stas.

11 MR. LEWIS: We have been 12 monetizing carbon for the last several 13 rulemakings as a separate activity from the 14 NPV, and looking at the -- it's a little -- a 15 little bit difficult to give great precision. 16 This is a -- we are on an interagency 17 activity of taking a look at CO monetization. 2 18 You know, there are a lot of activities 19 within the government that have happened, 20 including lawsuits that have happened, that 21 required us to look at CO . So as part of -- 2 22 we are looking into this.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 329 1 We have been doing this for a 2 while. It is something that we, in 3 preparation for whatever happens in the 4 future, we are prepared. We have been looking 5 at -- we have a history of looking at what is 6 the bandwidth? What are the potential 7 impacts? There is a knowledge base being 8 loaned here on it. It was not the basis of 9 decisions here -- the CO value. It is 2 10 included there. 11 If you look at other agencies, if 12 you look at the last several rulemakings, we 13 have included that value there. So I'm not 14 quite sure why -- it is not specific to this 15 rulemaking, it is not something that was the 16 decision point on TSLs. 17 MR. BRUNDAGE: Okay. 18 MR. LEWIS: So I hope that was 19 helpful. 20 MR. BRUNDAGE: Okay. And I

21 haven't been to -- I haven't been to the last 22 several rulemakings, so that is helpful.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 330 1 I would -- I would make the point 2 that the requirements on utilities are very 3 complex. My company the last few years has 4 been spending a lot more on backhouses, 5 scrubbers, etcetera, than we are on new 6 generation, and our emission rates are falling 7 very rapidly on NO , mercury, and sulfur. And X 8 hopefully the NEMS model captures that, and it 9 is much more than just the Clean Air Act of 10 1990 and some things like that that affect 11 emission rates moving out in the future. 12 Thank you. 13 FACILITATOR BROOKMAN: Thank you.

14 Charles?

15 MR. FOSTER: Chuck Foster. And 16 just to echo Don's comments there, I plan to 17 hear -- that was a good clarification that CO 2 18 estimates aren't part of the decisionmaking 19 process here, provided for I think you said an 20 interagency activity, and it may have some 21 special meaning to -- to the agency. But as I 22 take it, it is not part of the decision

### 202-234-4433 Neal R. Gross & Co., Inc. Page 331 1 criteria here. 2 FACILITATOR BROOKMAN: Ron Lewis? 3 MR. LEWIS: Yes. I wouldn't put 4 that interpretation on things. I think I said 5 that it is not the decision point. I think 6 that there is a sensitivity to looking at what 7 -- what the impacts are of carbon, and we are 8 learning as we are going here as the 9 interagency activities go forward at looking 10 at how things are to be interpreted and to be 11 utilized in the future. 12 It is something that we are doing, 13 and we are -- it is almost like a sensitivity, 14 but it is not the criteria, it is not the 15 primary criteria. It is not the weighted 16 criteria. But I would not say that we are 17 ignoring that. We are doing that exercise, we 18 are looking at it and trying to assess what is 19 the impact of that without having that as the 20 leading criteria or the selection criteria.

21 MR. FOSTER: Just as someone who 22 buys and sells carbon for clients, I view it

### 202-234-4433 Neal R. Gross & Co., Inc. Page 332 1 as pretty speculative, and I'm glad that it's 2 not -- it sounds like it's not weighted 3 heavily. 4 On the second issue Don raised --

5 FACILITATOR BROOKMAN: Chuck?

6 MR. FOSTER: Yes. 7 FACILITATOR BROOKMAN: Eric Stas, 8 counsel, wanted to follow on. Excuse me -- 9 MR. FOSTER: Okay.

10 FACILITATOR BROOKMAN: -- for 11 interrupting. 12 MR. STAS: Eric Stas, DOE. I was 13 just citing that's why in recent rulemakings 14 you have seen us assigning a range of values 15 to the carbon, you know, the costs of carbon. 16 Given that uncertainty, it's -- you know, 17 we're working and the whole government is 18 trying to refine, you know, its analyses in 19 this area. 20 FACILITATOR BROOKMAN: Please,

21 Chuck. 22 MR. FOSTER: Thank you. The other

### 202-234-4433 Neal R. Gross & Co., Inc. Page 333 1 comment would be that I am going to have to 2 confess to not fully appreciating I believe 3 the economic analysis here. It seems to be 4 fairly complex. 5 But it occurs to me that there 6 might be a double-counting taking place here 7 on the valuation of NO and mercury. The X 8 abatement of NO and mercury emissions is X 9 already implicit in the price of electricity 10 right now. And to -- and, therefore, as we 11 project forward, it is already implicit -- 12 compliance with these laws are already 13 implicit -- implicit compliance is already 14 there internalized as well to separately 15 account for it. It looks to me like it is 16 being counted on both sides of the equation. 17 I say that with some hesitancy, 18 because if someone tells me I'm wrong it won't 19 hurt my feelings. But it just -- that's what 20 it looks like to me. 21 FACILITATOR BROOKMAN: Thank you. 22 Andrew deLaski.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 334 1 MR. deLASKI: I just want to 2 comment on this issue of the role of CO in 2 3 the decision process. Chuck, I know that, you 4 know, usually Steve Rosenstock represents EEI 5 at these proceedings. So you haven't been in 6 as many as Steve has, and I'm sure you're

7 thankful for that. 8 (Laughter.) 9 But, you know, CO has been a 2 10 factor in DOE decisionmaking since forever on 11 appliance standards. It has been a factor 12 along other emissions, and quite rightly so, 13 and it is a major factor in driving the need 14 for new appliance standards. 15 Energy efficiency is a top 16 priority of the administration. It was a 17 priority of the previous administration as 18 well. You know, EEI thinks efficiency is a 19 priority. Why? Well, in part to get CO 2 20 savings. And I know that the utility industry 21 has been supportive of advancing efficiency, 22 in part to deliver CO savings. 2 2

### 202-234-4433 Neal R. Gross & Co., Inc. Page 335 1 The logical next step, which I 2 applaud, is for the government to start 3 figuring out what is it worth. And the 4 interagency process is one that is -- that I 5 applaud, is to have a consistent approach 6 across the government. Having DOT do one 7 thing, DOE do something else, and EPA do 8 something third is -- would make no sense

9 whatsoever. 10 So I applaud what is going on. We 11 are seeing a lot of progress in this area, and 12 I think more progress can be made. 13 FACILITATOR BROOKMAN: Thank you. 14 Robert? Robert, Ron Lewis wants to follow

15 on. 16 MR. LEWIS: Yes. If I can just 17 further characterize that my comments are -- I 18 think there is reference as far as things yet 19 to come and whether there is carbon 20 sequestration and cap and trade or anything 21 else. That is something that we don't have 22 definitive information on.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 336 1 But while this work that we're 2 doing, and the sensitivity, looking at the 3 potential impacts and that discussion within 4 government, is addressing being prepared, that 5 as things unfold that we are in fact 6 considering the carbon and looking at -- we 7 are not completely ignoring it, but it has not 8 been with the -- we have specific values. It 9 is in the TSD. There was a range of values. 10 There was a discussion in the TSD about that

11 value of carbon. 12 It is something that we have been 13 doing for a while. As things change, as we go 14 forward, we will be utilizing that knowledge 15 we are gathering over these rulemakings. And 16 we've got a history now of what the influence 17 would be, what the savings are from those 18 rulemakings. 19 FACILITATOR BROOKMAN: I think 20 Robert is next in the queue.

21 MR. GLASS: Robert Glass. In the 22 NOPR, DOE states, "Residential gas-fired pool

### 202-234-4433 Neal R. Gross & Co., Inc. Page 337 1 heaters are exempt from ultra-low NO X 2 requirements in the southcoast air quality 3 management districts." 4 This may be true if it's related 5 to the ultra-low NO , but it is misleading. X 6 Pool heaters have been exempted from any 7 revisions to the existing requirements in 8 these air quality management districts. Pool 9 heaters are still required to meet or exceed 10 55 ppm NO . And so the statement that is in X 11 there, like I said, I believe is misleading 12 and should be addressed, because we are not 13 exempt from anything. 14 Another comment that I have, 15 because if you look at the statement on this 16 particular screen here, when it talks about 17 CO and NO emissions it is saying gas-fired 2 X 18 water heaters and direct heating equipment. 19 Pool heaters are not included there, and my 20 guess is because the savings that is 21 associated with increasing the efficiencies 22 and the very low hours of operation annually

### 202-234-4433 Neal R. Gross & Co., Inc. Page 338 1 are such that any savings there are 2 negligible. 3 Therefore, would support that 4 statement or the lack of having pool heaters 5 showing up there, because it is something that 6 the increases in efficiency, wherever we end 7 up with, it is -- it is very insignificant, 8 just like the energy savings is going to be 9 very significant. 10 FACILITATOR BROOKMAN: Okay. 11 Thank you. Don Brundage. 12 MR. BRUNDAGE: Just a quick 13 clarification of what I earlier said on the 14 emissions. I am not questioning the monetized 15 value of reductions for a given unit of CO , 2 16 NO , SO , mercury, et cetera. I think there X X 17 is opportunities to overstate the number of 18 units of savings that would practically come 19 from new efficiency standards. 20 Thank you. 21 FACILITATOR BROOKMAN: Okay. 22 Thanks. Tim Ballo. Oh, pardon me. Back to

### 202-234-4433 Neal R. Gross & Co., Inc. Page 339 1 DOE. Eric Stas. 2 MR. STAS: Eric Stas. Just a 3 follow-on to that. If you could provide us 4 detailed written comments on that, if you 5 think that the -- our approach should be 6 changed in some way. I'm not sure what is 7 embedded in the NSED model, but that would be 8 -- you know, if we could understand in a very 9 detailed fashion, you know, which other 10 regulations you are subject to, where you 11 think we are overstating, so they could check 12 it against that model, that would be helpful. 13 FACILITATOR BROOKMAN: Okay. Yes, 14 go ahead, Greg. Greg Rosenquist. 15 MR. ROSENQUIST: Yes, just to try 16 to provide some clarification. You know, we 17 -- DOE does use NEMS to do its environmental 18 assessment for powerplant emissions, right? 19 And so it uses the most recent regulations 20 that are on the books, so that includes SO , 2 21 NO , and mercury. X 22 And for the Clean Air Interstate

### 202-234-4433 Neal R. Gross & Co., Inc. Page 340 1 Rule, which is still in effect, only regulates

2 28 states and D.C. So for those 22 states 3 that aren't regulated, that is where you 4 calculate NO reductions. And for SO , just X 2 5 to clarify here, that is really since 1990. 6 We -- again, NEMS includes all of those 7 regulations since then, and takes into account 8 when trying to calculate the allowance price. 9 And so one of the things that was 10 done for this analysis was trying to calculate 11 the effect on the allowance price for SO and 2 12 NO . And I believe for SO that it is X 2 13 virtually zero, and I believe the same thing 14 for the NO allowance price in those 28 states X 15 that are covered by CAIR. 16 MR. BRUNDAGE: The driving factor 17 at my utility for -- for recent investments in 18 NO and mercury controls has been local X 19 regulation, meaning ozone compliance and state 20 regulations where they said that there were 21 excessive mercury levels in particular areas. 22 So are you picking up that level

### 202-234-4433 Neal R. Gross & Co., Inc. Page 341 1 of detail? 2 MR. ROSENQUIST: Yes, I don't know 3 if NEMS is picking up that level of detail. 4 We can check on that, right? It should be 5 picking up that level of detail, but I'm just 6 not certain. It's supposed to be covering 7 everything that is on the books. 8 FACILITATOR BROOKMAN: Ron Lewis. 9 MR. LEWIS: Okay. As you can see 10 from this conversation, there are 11 considerations, and your input, the 12 environmental factors, are extremely important 13 to us. The consideration -- I guess what I 14 was trying to delink before was I thought I 15 heard someone making the statement that we 16 were linking on something that we speculative 17 that could come in cap and trade. And I was 18 trying to delink from that speculation point, 19 that we are actually doing things now, and 20 environmental factors are extremely important 21 to this administration. 22 So anything that people have that

### 202-234-4433 Neal R. Gross & Co., Inc. Page 342 1 can supplement our knowledge, things that we 2 ought to be aware of, would be helpful, 3 because it is a high priority and something of 4 heightened value to this government in 5 evaluating and analyzing things. So if you've 6 got additional data or information to give us, 7 that would be much appreciated. 8 FACILITATOR BROOKMAN: Tim. 9 MR. BALLO: Just very quickly. 10 Tim Ballo, Earthjustice. We support the 11 Department's treatment of CO and the other 2 12 pollutants and encourage the Department to 13 weigh those dollar values just the same as it 14 weighs all the other dollar values in the 15 analysis. 16 Second, the notion that power -- 17 counting the reductions at powerplants would 18 somehow be double-counting because the price 19 of electricity encompasses the full value of 20 those emissions I think misconstrues the 21 extent to which there is a large fleet of 22 powerplants that are very minimally regulated

### 202-234-4433 Neal R. Gross & Co., Inc. Page 343 1 and run very heavy to supply a lot of that 2 electricity. 3 And, finally, I think the motion 4 that there is in some sense already a cap on 5 NO or mercury, obviously there isn't a cap X 6 nationwide on NO , and for mercury there is no X 7 regulation of mercury for the vast majority of 8 sources. So there is really no effective cap. 9 FACILITATOR BROOKMAN: Okay. So a 10 lot of comment on environmental assessment. 11 Greg Rosenquist. 12 MR. ROSENQUIST: Yes, just to add 13 to that, you know, what -- what Timothy said. 14 Yes, because NEMS -- because there is no 15 nationwide cap on mercury, and no nationwide 16 cap or no cap in those 22 states that aren't 17 covered by CAIR -- or NO -- that is why NEMS X 18 is showing reductions, again, in those two 19 emissions. 20 And to try to answer Chuck 21 Foster's question about the electricity price 22 and double-counting, yes, the electricity

### 202-234-4433 Neal R. Gross & Co., Inc. Page 344 1 prices forecasted by NEMS will capture the 2 effect of any regulations on the books. So it 3 captures all of the regulations pertaining to 4 SO and on NO in those 28 states that are 2 X 5 covered by CAIR. But, again, those 6 electricity price forecasts won't reflect any 7 regulations on mercury and in the 22 states -- 8 and for NO in the 22 states not covered by X 9 CAIR. 10 So that is why DOE values those 11 emissions in the rules with these -- with 12 these dollar values per ton. 13 MR. BRUNDAGE: I think it would 14 probably be most profitable just to follow up 15 offline with you on the NEMS and do a deep 16 dive on whether things are getting -- are 17 getting covered. 18 FACILITATOR BROOKMAN: Thank you, 19 Don. And following that follow-up, detailed 20 written comments to the Department, that would 21 be appreciated. 22 We are going to move on.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 345 1 MR. LEKOV: And the last item I 2 will be talking about is the regulatory impact 3 analysis, so the non-regulatory alternatives 4 that DOE analyzes, and here is the list of 5 those. Basically, DOE uses a full-scale NIA 6 spreadsheet to assess the scenarios associated 7 with those non-regulatory alternatives. And 8 the output is the national energy savings and 9 the net present value for those non-regulatory 10 alternatives. 11 The notice and the TSD have a lot 12 of details related to this analysis. 13 FACILITATOR BROOKMAN: Thank you. 14 So additional comments on regulatory impact 15 analysis? You can see the output there at the 16 bottom of that slide. 17 Okay. So now there is an 18 opportunity for anybody to make final 19 comments, raise any other issues that you 20 think haven't been emphasized. 21 MR. KHAN: Actually, I -- 22 FACILITATOR BROOKMAN: Do you need

### 202-234-4433 Neal R. Gross & Co., Inc. Page 346 1 to go first with something?

2 MR. KHAN: Yes. 3 FACILITATOR BROOKMAN: Okay. 4 Sorry. Go ahead. 5 MR. KHAN: That's okay. Okay. 6 Earlier this morning we had a -- I think a 7 rather comprehensive discussion on the 8 appropriateness of TSL 5 and TSL 6 for water 9 heaters. And at this point, I was actually 10 going to initiate that discussion. So we 11 already covered I think a lot of the issues 12 surrounding the appropriateness already. 13 And, let's see, so I want to ask 14 that folks in their written comments, you 15 know, please provide any additional 16 information that would help in this regard. 17 So there is actually one other 18 point that we really still need to talk about. 19 And let's see -- yes, okay. Our analysis 20 predicts that the majority of consumers will 21 experience a negative LCC at TSL 4 for pool 22 heaters. So the Department would like comment

### 202-234-4433 Neal R. Gross & Co., Inc. Page 347 1 on Issue 18. How appropriate is proposed 2 standard level? Should DOE consider a 3 different efficiency level in the final rule? 4 FACILITATOR BROOKMAN: Please,

5 Robert. 6 MR. GLASS: Robert Glass. I think 7 much of the comments that I have personally 8 made today indicate that the appropriateness 9 of TSL 4 is not supported, even if you are 10 just looking at the life cycle and the payback 11 associated with that. And then, even if you 12 go back and you look at TSL 3, it also is not 13 supported. 14 And then, when you also look at 15 the technical issues that are associated with 16 it, the condensing issues that we're dealing 17 with, I think we continue to support the -- 18 what was proposed by AHRI, that the level of 19 TSL 2 -- is it TSL 1? No, I thought 79 was 1. 20 PARTICIPANT: Well, 81, whatever. 21 MR. GLASS: Okay.

22 PARTICIPANT: Whatever level

### 202-234-4433 Neal R. Gross & Co., Inc. Page 348 1 corresponds to 81. 2 MR. GLASS: Eighty-one percent is 3 what we would be supporting from a standpoint 4 of I think at that point it becomes something 5 from a cost payback -- something that I 6 believe even at that point I think may still 7 be negative, but it is almost a wash at that 8 point. 9 And from a standpoint of 10 condensing and reliability of product, things 11 that are out there, I think that is something 12 that the entire industry can get behind and 13 support to be able to have good, reliable 14 products available for the consumers that are 15 using them. 16 FACILITATOR BROOKMAN: Okay. 17 MR. KHAN: Thanks again for 18 summarizing those, and I would also ask that 19 you put that in writing and submit that to us 20 as official comment. 21 FACILITATOR BROOKMAN: Harvey

22 Sachs.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 349 1 MR. SACHS: Harvey Sachs. I have 2 been very quiet about pool heaters, because I 3 am really very ignorant about them, and this 4 time I recognize it. But you have raised a 5 question with the continual references to 6 condensate accumulation, and the question is 7 whether the rating method in use now 8 adequately reflects the low temperature of the 9 heat sink against which you are condensing. 10 That is to say, with the water 11 heater products the Department has used an 12 adjusted daily hot water use in its life cycle 13 costing as opposed to the 64 gallons per day 14 of the rating method. And we have seen for 15 another condensing product class -- the 16 commercial boiler -- that the inferences drawn 17 from the rating method are wildly inaccurate 18 in terms of the fuel use in operation. 19 So this is just sort of a signal 20 that I am personally interested in looking at 21 the rating method for pool heaters to see if 22 it accurately reflects the savings across that

### 202-234-4433 Neal R. Gross & Co., Inc. Page 350 1 condensing step.

2 FACILITATOR BROOKMAN: Go ahead.

3 Robert. 4 MR. GLASS: Well, one of the 5 things, if you go through the report, the 6 NOPR, the DOE represents that the average 7 annual hours of operation of a pool heater is 8 149. That is a value that was reduced from I 9 think slightly over 200, and some of that was 10 also based on a study that had been done in 11 the early '90s that actually showed that the 12 annual usage was something just over I think

13 104 hours. 14 And so DOE has come up and has 15 used 149. That is fine. We -- I think the 16 industry supports that, and that there is not 17 an issue with that. 18 If you go ahead and look at the 19 fact that if there is 149 hours of operation a 20 year, and the average life of the pool heater 21 is eight years, you are talking roughly about 22 1,000 hours of operation for the life of the

### 202-234-4433 Neal R. Gross & Co., Inc. Page 351 1 product. That -- there is many things that 2 are associated with that. 3 One of that is the fact that even 4 product that is non-condensing at this point 5 condenses. The product is designed to try to 6 minimize condensation, but it still happens. 7 And by raising those efficiency levels it 8 makes that operation much, much more 9 difficult, and, as I said, will either reduce 10 the life more or the design of those products 11 will have to be made with components and 12 materials that are able to handle the 13 condensate, which are significantly more 14 expensive. 15 And to have significantly more 16 cost associated with a product that is only 17 going to be operated 149 hours a year is going 18 to drive customers to repairing versus 19 replacing, or not using it at all. 20 MR. SACHS: Thank you. I 21 appreciate that. My question was about the 22 rating method.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 352 1 MR. GLASS: The rating method is a 2 thermal efficiency. It is a measure of the 3 amount of energy that actually goes into the 4 water and doesn't go out the flue in the waste 5 of the waste products. 6 And then, as Jim mentioned, it 7 also includes -- under a test setup it 8 includes the pump energy that is used in a 9 bypass system for the measurement. But it is 10 purely a thermal efficiency that is measuring 11 the energy that is consumed and how much is 12 actually going into the water. 13 MR. SACHS: Okay. 14 FACILITATOR BROOKMAN: Okay. So 15 are there additional comments on this final 16 issue that was raised, Issue 18, before we 17 move on? Because we would like to ask you to 18 look one more time at the final slides in your 19 packet. That would be slides beginning on 20 page 98. There you see I think all of the 21 NOPR issues that were raised during the course 22 of the day today.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 353 1 And if you would just scan through 2 those for a moment to see if there is anything 3 additional, if you missed something, if there 4 was anything that you would like to raise, 5 because we are now moving into also a period 6 of open comment, any other issues you wish to 7 raise. And we hope that you -- if you could 8 do so, address any of these that you need to 9 now. Please, Robert.

10 MR. GLASS: Robert Glass. In 11 regards to question number 3, it talks about 12 the -- EPCA's efficiency descriptor 13 requirements and any potential test procedure, 14 revisions for electric pool heaters, which are 15 not included under this rulemaking. 16 But we believe that the proper 17 approach would be a descriptor of COP, and it 18 would be basically -- or it would be 19 recommending DOE to use the AHRI 1160 test 20 method, test standard, that has already been 21 developed and is a national standard, as far 22 as the test methodology, which is actually

### 202-234-4433 Neal R. Gross & Co., Inc. Page 354 1 testing at two different temperature 2 conditions. 3 FACILITATOR BROOKMAN: Okay. 4 MR. GLASS: And that the COP is -- 5 and that actually has output and COP.

6 FACILITATOR BROOKMAN: Yes.

7 MR. GLASS: But that those would 8 be descriptors to go ahead and use in any type 9 of program that would be set up. 10 FACILITATOR BROOKMAN: Okay. As 11 the hour is late, it is not the subject of 12 this rulemaking. Charlie. 13 MR. ADAMS: Just in general, the 14 topic -- or the comments I have made all day 15 today support this. But in direct answer to

16 number 16 and 17 about TSLs 5 and 6 for water 17 heaters, A.O. Smith is of the belief that 18 TSL 4 is indeed the correct level for the 19 final rule. 20 We have given lots of reasons 21 today, and you will see them again in writing 22 between now and February 9th, or whenever it

### 202-234-4433 Neal R. Gross & Co., Inc. Page 355 1 is, to substantiate that. But we believe -- 2 A.O. Smith as a corporation believes, Charlie 3 Adams as an engineer and as a citizen 4 believes, that TSL 4 is not a trivial 5 exercise, but is the correct public policy for 6 this final rule for water heaters. 7 FACILITATOR BROOKMAN: Thank you. 8 Shajee. 9 MR. SIDDIQUI: Just to clarify a 10 little bit on what Robert said, that question 11 3, I just want to make sure, when you say 12 electric pool heaters, are we talking about 13 electric heat pump pool heaters or some other 14 technology? 15 MR. KHAN: Anything electric. 16 MR. SIDDIQUI: Okay. Because what 17 Robert said applies really specifically to 18 heat pump pool heaters. That's why.

19 FACILITATOR BROOKMAN: Thanks for 20 the clarification. Yes, Joe.

21 MR. BOROS: Joe Boros. I have one 22 comment and one question. As Charlie stated,

### 202-234-4433 Neal R. Gross & Co., Inc. Page 356 1 we believe TSL 4 is the appropriate level. A 2 question related to the analysis on TSL 5 and 3 6. Did DOE consider potential products in 4 exchange with -- TSL 5 and 6 were essentially, 5 at least in part with TSL 5 and then with 6, 6 were banning electric storage water heaters. 7 There may be a shift to 8 instantaneous electric water heaters. And DOE 9 would that in the business case assessment of 10 proposing TSL 5 and 6.

11 FACILITATOR BROOKMAN: Alex. 12 Microphone, right there. Yes.

13 MR. LEKOV: Alex Lekov. So DOE 14 does not consider switching to instantaneous 15 water heaters, even in the case of heat pump

16 water heater standards. 17 MR. LEWIS: So to follow up, if 18 you have some information that could be 19 helpful to us to understand that, that would 20 be your projection of what might happen, and 21 anybody else, please include that with your

22 comments.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 357 1 FACILITATOR BROOKMAN: George, and

2 then Frank. 3 MR. KUSTERER: George Kusterer, 4 Bock Water Heaters. First of all, I would 5 like to applaud the Department of Energy for 6 their -- even though there were some 7 criticisms on my part, but we feel that TSL 4 8 is a level that, again, as Charlie -- I would 9 like to echo is not going to be an easy task 10 for some, but it is something that we feel -- 11 we feel we can live with. 12 TSL 6 I think would put the 13 majority of us out of business. TSL 5 -- 14 again, even at TSL 4 I think we are at the 15 edge of the technology. We have been in 16 business since 1929. I think we are the 17 oldest oil-fired water heater manufacturer in 18 the world. We would like to keep up the 19 tradition, but, unfortunately, with TSL 6 and 20 TSL 5, it is just -- it is just not going to

21 work. 22 And, you know, even though many of

### 202-234-4433 Neal R. Gross & Co., Inc. Page 358 1 you may have heat pump water heaters, you may 2 have electric heaters, you may have gas3 heaters, there are many people in the mid4 Atlantic states and the northeast, as well as 5 the majority of Alaska, who rely on oil-fired 6 products. And I just wouldn't want to see 7 them become a dinosaur. 8 Thank you. 9 FACILITATOR BROOKMAN: Thank you. 10 Frank Stanonik. 11 MR. STANONIK: On question 16, I 12 have got nothing to add that I haven't stated 13 today about that particular level. But on 17, 14 Trial Standard Level 5, I think one thing that 15 has occurred to me is in the analysis I think 16 DOE looked at the different requirements for 17 the larger volume units as kind of, if you 18 will, a pair, and that these two gas and 19 electric would kind of be the competitive 20 products.

21 And I -- what has occurred to me 22 is that, in looking at Trial Standard -- TSL

### 202-234-4433 Neal R. Gross & Co., Inc. Page 359 1 5, I think you need to consider the fact that 2 a -- Charlie's 40-gallon gas water heater that 3 is firing at 50- or 60,000 BTUs per hour in a 4 lot of applications probably would be a good 5 alternative to an 80-gallon heat pump water 6 heater, and a lot less expensive. 7 Now, again, we have the issue of 8 the people, whether they have the service 9 available or not. But there will be some of 10 those that do, and I think the analysis 11 doesn't recognize that consumers' choice won't 12 be a 75-gallon condensing gas or an 80-gallon 13 heat pump. Their choice might be this 14 advanced technology electric water heater or 15 this high-input standard gas water heater. 16 And that is a different comparison. 17 FACILITATOR BROOKMAN: Charlie, 18 you can follow-on, since he referenced you.

19 MR. ADAMS: Thanks. I'll take the 20 microphone and -- 21 FACILITATOR BROOKMAN: Let me go 22 to Harvey, then.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 360 1 MR. ADAMS: Okay. Because it's a 2 separate topic.

3 FACILITATOR BROOKMAN: You're next 4 in the queue. 5 MR. SACHS: While we are speaking 6 in terms of Trial Standard Level 5 -- and I 7 will confine my remarks to gas and electric 8 water heaters -- where you get to depends on 9 where you start. And we have concluded that 10 Trial Standard 5 is the best soldier left 11 standing. 12 We don't think it is necessarily 13 the best for the industry, or the long-term 14 strategic evolution of efficient water 15 heating. But having screened out some 16 important options that would have improved 17 efficiency, such as the use of 24-volt power 18 for flue dampers to kill the off-cycle losses 19 from storage water heaters, it is the best 20 thing remaining. 21 And it offers multiple quads of 22 savings. It provides a technology evolution

### 202-234-4433 Neal R. Gross & Co., Inc. Page 361 1 path without forcing this into areas where we 2 know there are going to be more problems, such 3 as the very small heat pump water heaters. 4 So we have concluded that, of the 5 options on the table, for gas and electric 6 water heaters Trial Standard 5 -- Trial 7 Standard Level 5 requiring condensing gas tank 8 water heaters and heat pump water heaters at 9 capacities above 55 gallons is the best public 10 policy solution and the best for the long-term 11 evolution of hot water in America. 12 FACILITATOR BROOKMAN: Thank you. 13 Do you want -- Ashley? 14 MS. ARMSTRONG: I am going to 15 followup on -- maybe with a question or a 16 clarification on Frank's comment. Frank, you 17 mentioned something about comparable gas and 18 electric products, whether it be an input 19 rating to gallon size comparison. 20 Another way is -- see if this is 21 correct, another way of stating what you said 22 is there should be different division points

### 202-234-4433 Neal R. Gross & Co., Inc. Page 362 1 for gas and electric for water heaters. And 2 if that's true, we would suggest that you 3 comment about other division points the 4 Department could consider, whether they be the 5 same or different, or other than the 55 for 6 both that the Department is considering. 7 FACILITATOR BROOKMAN: Okay. 8 Thank you. Don Brundage. 9 MR. BRUNDAGE: I think TSL 4 is a 10 difficult standard. It is not going to be 11 difficult for the manufacturers nearly as much 12 as it is some of the retrofit markets, where a 13 consumer, property owner, is going to have to 14 take walls out in order to replace the unit. 15 But given all of the factors, I think TSL 4 is 16 appropriate. 17 TSL 5, which would ban -- which 18 would require heat pump water heaters for 19 larger applications, I really think is 20 premature. And I think there are -- there are 21 -- if you do that, you are liable to have a 22 lot of installations and cases where they will

### 202-234-4433 Neal R. Gross & Co., Inc. Page 363 1 be short life due to harsh conditions, such as 2 in an attic installation you may have -- just 3 rob from the heating in the house. 4 You are going to end up with a lot 5 of -- a lot of applications in real life where 6 it is going to be running like electric 7 resistance, because it can't operate the way 8 it is supposed to, and you are not really 9 going to save energy, but you have an enormous 10 amount of additional cost to homeowners.

11 TSL 6 -- and I had not -- I had 12 not thought about instantaneous electric. To 13 be honest with you, I try not to think about 14 instantaneous electric. 15 (Laughter.) 16 It is not a friend of electric 17 utilities, and we don't like them. But there 18 is a lot of multi-family applications with 19 small water heaters where it is virtually 20 impossible to put in either a gas or a heat 21 pump water heater, because of the reasons that 22 have been stated through the day.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 364 1 And if you've got to add a room on 2 to your house in order to have the space for a 3 heat pump water heater, running 30 kW of 4 electric wire to an instantaneous unit might 5 come out to be the cheaper for the property 6 owner, and that would not be in the interest 7 of energy efficiency or electric utilities or 8 anyone else. 9 And I think that is -- there is a 10 real danger with TSL 6 of having a -- having a 11 start of an instantaneous water heater market, 12 unless you find some way of banning 13 instantaneous water heaters as part of the 14 rulemaking. 15 Thank you. 16 FACILITATOR BROOKMAN: Charlie. 17 MR. ADAMS: I am looking at slide 18 number 95, and I have to, in all good 19 conscience, take exception to what is 20 represented in that bullet. In particular, 21 DOE is interested in comments regarding the 22 possibility of manufacturers circumventing the

### 202-234-4433 Neal R. Gross & Co., Inc. Page 365 1 standard by manufacturing products at storage 2 volume slightly below the product division, or 3 discontinuing the manufacturer of the large 4 volume products all together, etcetera,

5 etcetera. 6 Number one, at least this 7 manufacturer isn't going to circumvent 8 anything, but what volume size units we choose 9 to manufacture is part of the business plan 10 and not part of circumventing anything. 11 In fact, if you are worried about 12 if Trial Level 5 or 6 were to go in -- well, 13 Trial Level 5 were to go in, it is going to be 14 the installer or the customer who makes the 15 choice of they are not going to buy one of 16 these highly expensive heat pumps. They are 17 going to buy two 30-gallon or 40-gallon 18 electric resistance and replace one for two. 19 That is going to occur. That is 20 not something that is under the manufacturer's 21 control. And, quite honestly, if Trial 22 Standard Level 5 were to go into effect, A.O.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 366 1 Smith would indeed ramp up to build large heat 2 pump water heaters, and we would be very much 3 afraid that the consumer decision would be 4 install two of the cheaper resistance heaters 5 instead of support the business case that we 6 justified our investment to go into production

7 on. 8 MR. LEWIS: Why?

9 MR. ADAMS: And whether or not a 10 manufacturer discontinues -- chooses to 11 discontinue large volume heaters, I, quite 12 frankly, resent that being represented as a 13 means to circumvent a standard by a 14 manufacturer. That is business decision and 15 nothing more. 16 FACILITATOR BROOKMAN: Thank you. 17 Final comments. I think we are nearing the 18 end of it here. Andrew deLaski. 19 MR. deLASKI: Just a brief 20 comment, observation, that -- the reason I 21 read the NOPR that -- and correct me if I'm 22 wrong -- but that the level of oil water

### 202-234-4433 Neal R. Gross & Co., Inc. Page 367 1 heaters is the same at TSL 4 and TSL 5, right? 2 FACILITATOR BROOKMAN: Ashley?

3 MS. ARMSTRONG: That's correct. 4 MR. deLASKI: So TSL 4, 5, and 6, 5 oil water heaters, I believe you used the same 6 efficiency level for that -- for that product. 7 MS. ARMSTRONG: I believe that's

8 true. 9 MR. deLASKI: Okay. 10 MS. ARMSTRONG: I think George was 11 referring to efficiency levels rather than

12 TSL. 13 MR. deLASKI: Oh, I see. Okay.

14 Thanks. 15 FACILITATOR BROOKMAN: Okay? So I 16 think we are nearing the end of this comment 17 period here. Do you have the final slide 18 which shows the comment period that -- yes,

19 that. 20 So for my part, I will just thank 21 all of you. We have really covered a lot of 22 ground today. I really appreciate the spirit

### 202-234-4433 Neal R. Gross & Co., Inc. Page 368 1 of disclosure. 2 And there's an evaluation form at 3 the back of your packet. Please take a minute 4 to fill it out. The Department reads them. 5 They are always looking for ways to improve 6 these meetings. 7 I turn it back to Mohammed. 8 MR. KHAN: Thanks, Doug. First, 9 again, let me express our appreciation for 10 everyone's attendance. I also want to 11 apologize for going over schedule, but I think 12 the points that were made today were very 13 important and certainly worthwhile, the extra 14 time spent today. 15 What I have here is just a 16 reminder of the close of the comment period, 17 which, again, is February 9th. Also, realize 18 that that is just a couple of weeks away. I, 19 you know, wish we could extend it, but we

20 can't. 21 The method in which you want to 22 submit it, you can e-mail it, mail a hard

### 202-234-4433 Neal R. Gross & Co., Inc. Page 369 1 copy. Addresses are here. And I think most 2 of you know Brenda. There she is there. 3 Okay. 4 So, again, I just want to thank 5 you, and have a great evening. It looks like 6 we have one final comment from Ron Lewis. 7 MR. LEWIS: I just wanted to make 8 available, again, an address. There were so 9 many times during the day where people 10 couldn't find something in the TSD. Some of 11 you have asked for a copy of the prior letter 12 -- of the rulemaking. We'll get a copy of 13 that to you. 14 My comments about the higher -- 15 it's an important factor for us. We have been 16 considering that for some time now. If there 17 is somebody that wants to see examples from 18 prior rulemakings, we can make that available 19 to you and show you that as well. 20 If there is anything that is 21 lacking in your understanding, if there is 22 something that would be helpful or that you

### 202-234-4433 Neal R. Gross & Co., Inc. Page 370 1 need, then we would like you to further 2 understand what is going on. You can see the 3 degree -- the amount of work we have done. 4 And your input today was absolutely 5 tremendous. I think it was a very, very good 6 day, that you gave us a lot of good comments. 7 We thank you for that and wish 8 everybody a good ride home. Stay safe. 9 Thank you. 10 (Whereupon, at 5:03 p.m., the 11 above-entitled matter was concluded.)

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64:8 149:18 150:4 169:13 206:12 210:18 216:16,17 218:1,3 246:22 315:15 351:11 comports 124:14 comprehensive

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351:5 condensing 28:1,4

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70:9 created 300:20 creating49:12

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295:2,8 curious 80:6 124:14 125:1 131:19 274:21 current23:17 31:7

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243:6 244:1 254:14,17 decreased 243:19 decreasing 265:11

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