UNITED STATES OF AMERICA

+++++ DEPARTMENT OF ENERGY

OFFICE OF CODES AND STANDARDS

WORKSHOP ON STANDARDS FOR WATER HEATERS

TUESDAY NOVEMBER 10, 1998

The workshop was held in Room 1E245, Department of Energy, 1000 Independence Avenue, S.W., Washington, D.C., at 8:30 a.m., Terry Logee, presiding. PRESENT: TERRY LOGEE, DOE DOUG BROOKMAN, Facilitator MICHAEL McCABE, DOE SANDY BEALL, DOE BRYAN BERRINGER, DOE QONNIE LAUGLIN, DOE CARL ADAMS, DOE CYRUS NASSERI, DOE JIM RABA, DOE BRENDA EDWARDS-JONES, DOE MIKE E. RIVEST, A.D. Little JIM McMAHON, Lawrence Berkeley National Laboratory EUGENE MARGOLIS, DOE/GC



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### ~PRESENT: (continued) FRANCINE PINTO, DOE/GC JIM LUTZ, Lawrence Berkeley National Laboratory JIM SHELLENBERGER, American Water Heater Group ROBERT HEMPHILL, Gas Research Institute WILBUR HAAG, A.O. Smith Water Products KELLY TRONCALLI, Rheem Manufacturing Co. STEVE ROSENSTOCK, Edison Electric Institute STEVE NADEL, American Counsel for an Energy Efficient Economy MARK TAYLOR, Bradford White Corporation GREG NAGY, Beckett Air OTTO VAGO, State Industries, Inc. DAVIDGOLDSTEIN, NaturalResourcesDefense Council JAMESVAUGHAN,VaughanManufacturingCorp. CHARLES STEPHENS, Oregon Dept. of Energy JAMES RANFONE, American Gas Association FRANK STANONIK, Gas Appliance ManufacturersAssociation, Inc. JOSEPH MATTINGLY, Gas Appliances ManufacturersAssociation, Inc. GEORGE KUSTERER, Bock Water Heaters CARL HILLER, Electric Power Research Institute DAVID WINIARSKI, Pacific Northwest National Laboratory MICHAEL MARTIN, California Energy Commission



### NEALR.GROSS COURT REPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE., N.W. (202)234-4433 WASHINGTON,D.C. 20005-3701 www.nealrgross.com3 C-O-N-T-E-N-T-S PAGE Technical Research Presentation 8 Review of November 9 Discussions 65 Manufacturer Impacts 107 National Energy Savings 140 Consumer Sub-group 180 Environmental and Utility Impacts 187 Next Steps 196



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# Ol 1 P-R-O-C-E-E-D-I-N-G-S 2 (8:35 a.m.) 3 MR.BROOKMAN: Goodmorning, andthanks to 4 all of you hearty souls that made it here in time for 5 us to start on time. I appreciate it a lot. 6 We're hoping to get through the 7 considerable amount of work here and adjourn today by 8 12:30. 9 A couple of housekeeping items at the 10 outset. Yesterday in your life cycle cost packet 11 there were some pages that were left out, and so the 12 Department hasprovided --has todayphotocopied those 13 pages that were missing yesterday, and they're 14 available over there at the registration table. That 15 would be pages 73 through 86 somehow got left out of 16 the earlier packet. 17 So at the break or sometime today stop 18 over and get what's called here an addendum. 19 Secondly, Hunter Fanney fromNISThas been 20 gracious enough to get here early, and he's ready to 21 present, and we're going to let him go first thing 22 this morning based on the request of several 

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1 individuals yesterday that we get him early in the day 2 and get a chance tonot onlyhearhis presentation but 3 provide adequate time for question and comment on his 4 segment. 5 Then followingHunter'spresentation this 6 morning, the Department is going to respond to some of 7 the issues that were left from the discussion 8 yesterday. So that's what we're planning to do next, 9 and then we would return to the agenda as written and 10 try and get through the rest of this by 12:30. 11 Steve Rosenstock. 12 MR. ROSENSTOCK: Hi, Steve Rosenstock, 13 EEI. 14 I just looked around. At least it looks 15 like some of the people who especially requested it 16 aren't here yet. Idon't know how you want to handle 17 it. JimVaughan and, I think, Mr. Taylor, some of the 18 manufacturers, I think, that seemed most interested 19 aren't here yet. 20 MR. BROOKMAN: Yes. 21 MR.ROSENSTOCK: Idon't knowhowyouwant 22 to handle that. 

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1 MR. BROOKMAN: That's an important 2 footnote. Okay, thankyou. Okay. There's a line at 3 the check-in table? Okay. I think -- Based on that, 4 maybe we'll wait just a few minutes and see how many 5 more people we can get in here. I know it does get 6 stacked up at the gate coming in the door. But all of 7 you that are here on time, you should be rewarded 8 somehow. So thank you for that. 9 For those of you who haven't found your 10 way around yet -- probablywe will delay at least five 11 minutes beforewe start -- directly beneathus on the 12 ground floor there is a snackbar that has good coffee 13 and also some pastries and things, if you'd like to 14 stop down there and get something. 15 So let's see how it looks at about 8:45 16 and plan on starting up then or round about then. 17 Okay? 18 (Whereupon,the foregoing matterwent off 19 the record at 8:38 a.m. and went back on the record at 20 8:45 a.m.) 21 MR. BROOKMAN: Good morning. My name is 22 Doug Brookman. I'll be facilitating today's session. 

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1 This is the second day of the Workshop on 2 Standards for Water Heaters. We are going to suggest 3 a slightly revised agenda, but a few housekeeping 4 items first. 5 For those of you that weren't here at 8:30 6 when I made this announcement the first time, 7 yesterday the life cycle cost document yesterday -- If 8 we could hold down the sidebars a little bit

-- 9 Yesterday the life cycle cost document had some pages 10 that were omitted. They are pages 73 through 86. 11 The Department has made copies of those 12 pages, not the entire document, just those pages. 13 They're over on the registration table. Please pick 14 up a copy of them. 15 Also, if you would be kind enough to 16 initial next toyourname on the registration table so 17 the Department has a record of who is here today for 18 the record. Those of you that have laptops with you 19 today, make certain to talk with Brenda and get a 20 property pass so that you can walk out the door with 21 your laptop when we adjourn today. 22 The basic plan for today is to work hard 

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1 and try and adjourn by 12:30. We are revising the 2 schedule, the agenda, somewhat. Basedon the requests 3 that we received yesterday,Hunter Fanney is going to 4 go first this morning. 5 Then the Department is going to begin to 6 try to respond to some of the issues that you see 7 listed over here to my left on the wall, issues that 8 came up from the discussion yesterday. 9 Then we're going to return to the agenda 10 as written, and try and get through the rest of this 11 material as efficiently and completely as possible. 12 So that's the basic plan. Questions, 13 comments about the plan and the other things that I've 14 laid out here? I see none. 15 So then, Hunter, are you ready to go? 16 Okay. Now our first speaker is Hunter Fanney from 17 NIST. 18 MR. FANNEY: Thank you, now that you've 19 got me wired up. I'm going to be talking about some 20 measurements that we made for the Department of Energy 21 at the National Institute of Standards and Technology, 22 and these measurements primarily concern the thermal 

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1 conductivity of alternative foam materials and the 2 resulting impact on the performance of residential 3 water heaters. 4 Before I get started, I'd like to 5 acknowledge the people that made this work possible: 6 BASF, Michael Kurpa who actually produced the foam 7 materials; Eric Lannis from Bradford White who 8 provided the tanks; at NIST, Keith Eberthart who is 9 our statistician, Jareb Ketay-Paprocki who is a coop 10 student from Virginia Tech, Stanley Morehouse who is 11 a technician in the Heat Transfer Group; and finally, 12 Scott Freeman from Pacific Northwest Laboratories for 13 arranging the shipment of tanks and the foaming of the 14 tanks. 15 What I'm going to discuss this morning

-- 16 I'm going to go over what the goal of this particular 17 segment of research was, the scope, the approach that 18 we took, the apparatus that we used, themeasurements, 19 the experimental measurements that we made, and then 20 summarize it for you. 21 The goal of these measurements was to 22 measure and compare the thermal conductivity of foam 

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1 boards that were produced using three different 2 blowing agents, 245fa, 141b and water/CO2. 3 The second goal was, once those thermal 4 conductivity measurements were made on the individual 5 foam materials, to also measure the resulting 6 performance from water heaters that were insulated 7 with foams blown with those three blowing agents. 8 As Imentioned, Ihad mentioned the three 9 different blowing agents. Thewater heaters that were 10 part of this particular study were residential 11 electric water heaters with a nominal 50-gallon 12 capacity. 13 The foam block specimens that were 14 produced at identically the same time were nominally 15 two foot by two foot by approximately 2.6 inches 16 thick. 17 The approach that we took -- and again, 18 this was coordinatedby Pacific Northwest Laboratory

- 19

- is that the water heaters were produced and the foam 20 samples were produced at exactly the same time. So 21 there were three different occasions in which blocks 22 and tanks were foamed: The initial set, the 141b 

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1 measurements were made, produced on April 21. The 2 H20/CO2 specimens were produced in early June, and 3 then the 245fa in early July. 4 This chart is showing that one of the 5 things we strive for is that the thermal conductivity 6 measurements were made at exactly the elapsed time 7 from the point at which the foams were produced; 8 because, as many of you in the roomare aware of, foam 9 characteristics change with time. 10 So the thermal conductivity measurements 11 were timed basically to be about 26 days after the 12 production of the foams and tanks on all three 13 occasions. 14 The energy efficiency measurements were 15 also timed so that at least one of the tanks was 16 undergoing evaluation at the same time that the 17 thermal conductivitymeasurements were being made. 18 The apparatuses that weusedtomakethese 19 measurements: The thermal conductivity measurements 20 were made with the NIST 1-meter hot plate, which is 21 the nation's standard for thermal conductivity 22 measurements. All thermal conductivity measurements 

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1 are traceable back to this apparatus. It conforms to 2 ASTM test method C177. 3 The water heater testing was done in our 4 water heater laboratory in which we have control of 5 the water, inlet water temperature, the environmental 6 conditions surrounding the tank. It's fully 7 automated, computerized, and we also have an infrared 8 imaging system as part of this laboratory. 9 This laboratory was initially used to 10 assist DOE in development of the simulated use test 11 for residential water heaters a number of years ago. 12 Okay. Let's get to the experimental 13 results. There's really three different areas of 14 results that we're going to talk about. The first 15 will be the thermal conductivity measurements of the 16 foam samples themselves. 17 The second will be measurements of the 18 heat loss from the tank to the surrounding ambient, 19 which, of course, is ameasure of howwell the tank is 20 insulated. Then finally we'll talk about the energy 21 factor and the energy factors that we measured for the 22 different blowing agents. 

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*e 1 The thermalconductivity measurementswere 2 made at three different conditions, and this was done 3 to determine -- It was done for a number of reasons, 4 but the primary reason was that we felt that modelers 5 would like to know the thermal conductivity of the 6 material over the range of temperatures that would 7 likely be encountered in use as a water heater 8 application. 9 So on the cold side of the foam material 10 we selected 67.5 degrees Fahrenheit, which is the 11 ambient temperature specified in the DOE test 12 procedure. On the warm side of the foam material we 13 picked three different temperatures to capture the 14 temperature range that would be likely to be 15 encountered by the foam material in the actual 16 application of the tank, which was 100 degrees 17 Fahrenheit, 120, and 140. 18 Themeasurements weremade for eachof the 19 three blowing agents at each of these three 20 conditions, and I'll show you the results of that 21 graphically. Okay. 22 MR. BROOKMAN: Can wehave a fewquestions 

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1 as we go along? 2 MR. FANNEY: I'd love questions as we go 3 along, yes. 4 MR. BROOKMAN: Frank? 5 MR. STANONIK: Frank Stanonik, GAMA. Two 6 questions. 7 MR. FANNEY: Yes, sir. 8 MR. STANONIK: Going back to the 9 characteristics of the specimens, I assume that that 10 is nominal two-pound density foam. 11 MR. FANNEY: Yes. 12 MR. STANONIK: Okay. 13 MR. FANNEY: It is, and I have the full 14 foam specifications, but I don't have them with me, 15 Frank. 16 MR. STANONIK: Oh, no. I just -- because 17 the measurements like 1.5, 1.9 -- just nominal two 18 pound. Okay. 19 If you missed it, I -- If you said it, I 20 apologize formissing it. The ambient areameasuring 21 -- where is that? 22 MR. FANNEY: Okay. Let me back up a 

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1 minute. No, that's fine, because I think people may 2 not be familiar with the NIST one-meter hotplate. 3 With a hotplate apparatus, the way the 4 measurements are made, Frank, is that there is two 5 parallel plates, and the foam is sandwiched inbetween 6 those two plates. 7 One is what's referred to as the cold 8 plate, and the other plate is referred to as the hot 9 plate. In the test conditions that we selected, what 10 we did is for all thermal conductivity measurements we 11 maintained the cold plate at 67.5 degrees Fahrenheit, 12 which would be equivalent to the nominal ambient 13 temperature in the DOE test procedure. 14 The hot plate was maintained at three 15 different -- was used at three different conditions, 16 the 100, 120, 140. 17 MR. STANONIK: Okay, but onyour chart of 18 test conditions, the last column says ambient air. I 19 was just trying to figure out where that one -- 20 MR. FANNEY: Oh, okay. Okay. The ambient 21 air is what you want to do when you -- You have to 22 make sure that your specimen is guarded in the hot 

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# Q 1 plate apparatus, Frank. So you want the ambient air 2 surrounding the insulation sample to be at the mean 3 temperature between the cold plate and the hot plate. 4 MR. STANONIK: Oh, okay. All right. 5 MR. FANNEY: That's a good question. 6 MR. STANONIK: It's the size, really, 7 you're worried about. 8 MR. FANNEY: That's right. That's right. 9 Okay. 10 MR. BROOKMAN: It's a bunch of engineers. 11 MR. FANNEY: Right. 12 MR. BROOKMAN: Bunch of damn engineers. 13 MR. FANNEY: Okay. So this is the first 14 set of results that I'm going to present. This is 15 just the thermal conductivity of the foam material 16 blown with the three different blowing agents. 17 What we have on the X axis is the mean 18 temperature. So this is simply the mean of the cold 19 plate and hot plate temperatures. On the Y axis what 20 we have is the thermal conductivity of the foam 21 materials. 22 There is three different curves for the 

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1 three different blowing agents, and there is a three 2 points on any given curve, because again we ran three 3 different hot plate temperatures which thereby 4 correspond to three different mean temperatures. 5 The bars on each data point represent the 6 uncertainty associated with the measurement for the 7 NIST one-meter guarded hot plate. 8 So the first thing you'll notice -- Now 9 remember, thermal conductivity means you're losing 10 more heat which, when you're trying to insulate a 11 water heater, is abad thing. Okay? So the lower the 12 thermal conductivity, the better the performance of 13 the foam. It's the inverse of R value. Okay? 14 The top bar is for the water/CO2 foam 15 material. The blue bar is for the currently used 141b 16 blowing agent that's used in water heaters, and then 17 the green bar is for the 245fa blowing agent. 18 Things that jump out atyou, of course, is 19 the fact that thewater/CO2 has a significantlyhigher 20 conductivity than the 141b. The 245fa samples are 21 very close to the 141b measurements and, in fact, 22 there's overlap within the measurement uncertainty of 

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1 the apparatus itself. 2 The dates correspondtothedates inwhich 3 the measurements were made. You can see, for any 4 given blowing agent, they are sequential in nature. 5 MR. ROSENSTOCK: Question. On our copy, 6 I just want to double check the

-- 7 MR. BROOKMAN: Steve Rosenstock. 8 MR. ROSENSTOCK: Steve Rosenstock, EEI. 9 The HFC-245fa -- is that the lowest line across on the 10 graph? 11 MR. FANNEY: Yes. The green line, yes. 12 MR. ROSENSTOCK: The lowest line. Then 13 the 141. 14 MR. FANNEY: Yes, the 141b is the 15 intermediate line, and the top line would be the 16 water/CO 2 . 17 Okay. Another way of looking at this 18 wouldbe the relative differences between the thermal 19 conductivities. Here what we're showing, we're 20 comparing the two alternative blowing agents to the 21 one that's currently being used, the 141b, and it's 22 simply representedas apercentdifferencebetween the 

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1 alternative foamingagent and the one that's currently 2 being used. 3 So, for example -- and as you remember 4 from the previous graphs, those lines are pretty much 5 linear andparallel as a function of temperature. So 6 thepercent difference in thermal conductivitybetween 7 the water/CO2 blowing agent and the 141b is 8 approximately 42 percent higher; whereas, for the 9 245fa blowing agent, it's within three percent. 10 The experimental uncertainty on the NIST 11 guarded hot plate is about +1.5 percent. So you can 12 see that theyoverlapwithin experimentaluncertainty. 13 Okay. The next thing that we wanted to 14 look at was the overall heat-loss-area coefficient. 15 Okay? Basically, what it is is it's a measurement -- 16 this is embedded within the DOE test procedure, but 17 you can also use the technique to determine the 18 overall insulating capability of a water heater. 19 Basically, the way this works is 20 probably all of you are familiar with -- is that you 21 heat the tank up. You make sure the tank has achieved 22 thermal equilibrium at that point in time. 

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### ~ 1 The tank stands there foragivenduration 2 of time. There's no hot water load on the tank. You 3 measure the energy into the tank. Knowing the average 4 temperature within the tank and the surrounding 5 ambient temperature, you canback out the overall heat 6 loss area coefficient. 7 So we thought it would be of interest to 8 look at that also independent of the measurement of 9 the energy factor itself, and this is just the 10 equations by which we can determine the UA factor of 11 the tank. 12 MR. BROOKMAN: Carl? 13 MR. HILLER: Don't run by that one so 14 quick. I see your assumed input

-- 15 MR. BROOKMAN: Carl Hiller. 16 MR. HILLER: Carl Hiller from EPRI. 17 I see your assumed input efficiency is 98 18 percent. 19 MR. FANNEY: Yes. 20 MR. HILLER: What is it really? The point 21 is, don't assume that number. 22 MR. FANNEY: Yes. Yes, I always have

-- 

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1 It's always kind of -- I've always questioned that 2 myself, Carl, as to why that DOE test procedure 3 proscribes the .98. 4 MR. HILLER: I've never seen any proof of 5 that. Seems to me, since the wires are pretty much 6 inside the insulation

-- 7 MR. FANNEY: Yes. You're right. 8 'MR. HILLER: -- and the elements inside 9 the insulation, that even if there was some heat loss 10 due to the resistance heating in the wires, it would 11 still be inside the insulation and still end up in the 12 water. 13 MR. FANNEY: Yes. Yes. 14 MR. BROOKMAN: So rather than 98 percent, 15 you would suggest it should be more like

-- 16 MR. HILLER: Either use 100 percent or 17 measure it and find out what it is. Don't assume it. 18 MR. FANNEY: Right. The problem with 19 trying to measure it, Carl -- and you've probably 20 tried to do this yourself -- is even with the best 21 NIST instrument calibrated from our traceable 22 laboratories there's still some uncertainty in all of 

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1 the measurements. 2 When you're looking for a one percent 3 difference, for example, it's very difficult to 4 separate out that due to measurement uncertainty and 5 that due to the actual conversion efficiency. 6 MR. HILLER: You can see the importance of 7 that, however, when you're trying to make tanks with 8 an energy factor of .97. 9 MR. FANNEY: Yes, that's right. However, 10 for this discussion it somewhat becomes irrelevant, 11 because all of the results, Carl, are calculated in 12 the same manner. So the relative ranking would not 13 alter. 14 MR. HILLER: That is one of the things one 15 needs to consider in both your modeling efforts and in 16 your trying to make better tanks. 17 MR. FANNEY: Yes. 18 MR. HILLER: If there is a built-in 19 assumed input efficiency that's incorrect and it 20 knocks you down two points, there's only so much you 21 can do. 22 MR. FANNEY: That's true. 

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1 MR. BROOKMAN: That does not detract from 2 Hunter's comment about the methodology which

-- 3 MR. HILLER: The relative comparisons are 4 still the same. 5 MR. FANNEY: That's right. In fact, when 6 I first did this, Carl, I made that mistake and 7 perhaps did the right thing, because when I first 8 calculated it, I forgot to put that in, and then I 9 went back and altered it. 10 Yes, Frank? 11 MR. STANONIK: It's an interesting 12 discussion, but the fact is the overall purpose of 13 this is to come up with new minimum efficiency 14 requirements for the product. 15 MR. FANNEY: Yes. 16 MR. STANONIK: And those efficiency 17 requirements will be based on the current test 18 procedure. Now the current test procedure, you used 19 .98. So in some ways it would be not worthwhile to 20 get into what the real efficiency is, because when the 21 manufacturer goes to build a water heater to meet the 22 new'levels, he's going to use .98. 

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1 MR. FANNEY: Yes. 2 MR. STANONIK: Andwhatever the benefit of 3 the insulation, that's the number he's going to use. 4 MR. FANNEY: Yes. That's correct. 5 MR. LOGEE: Terry Logee from DOE. You're 6 correct, Frank. We just revised the DOE test 7 procedure. We did not try to consider that rather 8 small difference, andperhaps we can do that next go9 round; but that's not going to be in the near future. 10 MR. STANONIK: Good. 11 MR. LOGEE: Not for these standards. 12 MR. FANNEY: Okay. The results of these 13 tests -- Now the procedure that was followed here, of 14 course, is that, as I mentioned in the scope, there 15 was four tanks produced using each of the three 16 blowing agents. So there's 12 tank specimens that are 17 available to us. 18 This is basically showing the tank number 19 and the overall heat-loss-area coefficient that we 20 measured for each of the tanks. Now there's quite a 21 bit of variation from tank to tank within a given 22 blowing agent, and that could be due to a number of 

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1 things. When I show you some infrared images later, 2 I think some of those will come to mind as to why 3 there's a large variation from tank to tank. 4 Basically, the 141b came in at about an 5 average of 3.11. The 245fa is 3.15, and the water/CO2 6 is 3.77. 7 Yes, Frank? 8 MR. STANONIK: Hunter, just a quick 9 interruption. I just want to, I guess, emphasize

-- 10 and these water heaters were blown by the foam 11 manufacturer? 12 MR. FANNEY: That's correct. Theywere -- 13 MR. STANONIK: The experts. 14 MR. FANNEY: That's right. They were 15 blown by BASF, that's right. 16 MR. BROOKMAN: BASF means? Oh, that's a 17 company? Okay. Okay. Jim Lutz? 18 MR. LUTZ: Hunter, what was the thickness 19 of the insulation? 20 MR. FANNEY: In the tank? 21 MR. LUTZ: In the tank. 22 MR. FANNEY: Approximately two inches in 

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1 the radial direction. 2 This is just a graphic of what I showed 3 you on the previous tabular slide. 4 Now one of the things that came to mind 5 early when DOE approached us about determining the 6 effect on energy factor of different thermal 7 conductivity foams is the fact that it's not an 8 extremely strong relationship, and you're going to 9 have to bear withme here for a minute. I'm going to 10 show you why that's the case. 11 If you look at the energy factor, if 12 everything in the test procedure is at nominal 13 conditions, and if there's no change in stored energy 14 when the test is conducted, the energy factor is 15 simply the thermal efficiency of the water heater. 16 It's the amount of energy you get out of the tank 17 compared to the amount of energy that's supplied to 18 the tank. 19 So when you look at this, the amount of 20 energy that goes into the tank is equivalent, withno 21 change in stored energy, to the hot water load plus 22 the tank losses. Now you could debate the .98, but 

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r.27

1 let's just say that is the case for the point of 2 discussion here. It could be one. 3 If you move this around a little bit, you 4 get the final equation here, and you can see that the 5 energy factor is equal to .98 or .1, if we went with 6 Carl's suggest, plus 1 plus the overall heat loss 7 coefficient of the tank times the difference between 8 the average tank temperature, the ambient, the elapsed 9 time of the test divided by the hot water load. 10 So the thing to keep inmindhere is that, 11 whenyou're changing theUA, thishot water load tends 12 to be very significant with 64.3 gallons per day 13 compared to the heat loss from the tank. 14 So if you look at this graphically, what 15 you quickly recognize is that -- All I've done here is 16 taken the previous equation and I've varied the UA. 17 I've kept everything else constant, andwe're looking 18 at energy factor. 19 So if you doubled the heat loss form the 20 tank -- if you doubled the UA from the tank itself, 21 from one tank to another tank, you would affect the 22 energy factor by about 0.08. Okay? So it's not an 

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1 extremely strong function. It's an important 2 function, because that's the one thing you have 3 control of. Okay? 4 You can only -- To get the energy factor 5 up, somehowyou'vegot tobetter insulate thisvessel. 6 But keep this inmind as we go through these charts, 7 because things will become more apparent as to why 8 there's a large difference in thermal conductivity of 9 the foam,but in fact arathermuch smaller difference 10 in the energy factor that the tankproduced using that 11 foam. 12 MR. HILLER: Carl Hiller from EPRI. 13 You'll probably say this later on, but I'll say it 14 here. 15 It's one thing to vary theUA,but theUA, 16 the wayyou're calculating it, is really amixture of 17 theheat loss throughthe insulation and theheat loss 18 through the fitting. 19 MR. FANNEY: You're exactly right. 20 MR.HILLER: It's evenmuchworsewhenyou 21 look at how that breaks down as you add insulation. 22 MR. FANNEY: That's right. There's an 

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1 eight percent dependency here if you double the UA. 2 It turns out that ifyou calculate what the heat loss 3 should be from the tank -- and I'm sure all the water 4 heater manufacturers have done this many times, but 5 the actual heat loss from the tank typically, 6 depending on the tank configuration, is about 1.5 to 7 two times greater thanwhat you would calculate just 8 using a vessel with the thermal conductivity of the 9 foam materials and the thicknesses. 10 So the UA from the tank, even if you 11 insulated it twice as well, you wouldnot -- the tank 12 would not be twice as well insulated, because the 13 piping connections, as you'll see from some infrared 14 images, are significant. Okay. 15 MR. BROOKMAN: Jim McMahon. 16 MR. McMAHON: This is Jim McMahon from 17 LBL. 18 I'm looking at the graph, and maybe I'm 19 just not reading it correctly,but thedifference that 20 I see is about .06. 21 MR. FANNEY: Yes, .06 divided by -- I 22 think I took .90. It's about eight percent, but 

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1 you're right. As far as actual difference, it's 2 probably .06. That's right. 3 MR. BROOKMAN: George. 4 MR. KUSTERER: George Kusterer with Bock 5 Water Heaters. 6 Is this apolitical conspiracy to make us 7 all go blind? 8 MR. FANNEY: Well, Ihope not. 9 MR. KUSTERER: Is there anywaywe canget 10 full-size graphs? Imean, you know, at my age, it's 11 difficult. I squint enough. Thank you. 12 MR. FANNEY: Sure. We can -- I'm not sure 13 how DOE wants to handle that, but

-- 14 MR. BROOKMAN: Yes. The Department will 15 try and figure out some way to make those images 16 available. He just wanted to make a complete record 17 and still save paper, I'm certain. 18 MR. FANNEY: Hopefully, you can see the 19 visuals up here. 20 MR. KUSTERER: No, they're blurry, too. 21 MR. FANNEY: Oh, theyare? Is anyone else 22 having problems seeing them? 

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1 MR. KUSTERER: Certainly,on thesewritten 2 pages. 3 MR. FANNEY: Yes, I can understand that. 4 Okay. We'll take care of that. 5 Okay. So nowwe're through -- Everyone is 6 on board here about the relative impact of UA on the 7 energy factor's performance, and we've discussed the 8 impact of thermal conductivity on the UA of the tank. 9 So we're all in the same boat here. 10 What we didnow -- Now I'm switchinggears 11 for aminute, andwe'll get back in a second to the UA 12 discussion. But I'm showingyou some typical results 13 for a selection of the tanks that we tested. 14 Again,we tested four tanks. I'mgoing to 15 show you the averages of the tanks in a minute, but 16 this is showing the energy factor simplyas a function 17 of test day. 18 The first test day Iwould discount. The 19 tank is under a transient situation. We're heating 20 the tank up. But you can see from day two through 21 five, the results are quite repeatable, and this was 22 evident on all the tanks that we tested during the 

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* 1 study. 2 The 14lb for this particular tank -- and 3

- I'm having trouble reading this myself -- is .886. 

### 4 Okay? But I'll summarize these inaminute. This is 5 just showing kind of -- The thing to be getting from 

### 6 these slides is the day to day variation in the 7 results. Again, discounting the first day, you can 8 see that the results areveryrepeatable,.andthe same 9 was found for 245fa. 10 Okay. This is showingthe results forthe 11 12 tanks. Again, there's four tanks of eachblowing 12 agent,andthen it's showingtheaverageresult,which 13 I've got in anotherchartthat's goingtobe easier to 14 see in a second, for each group of four tanks. But 15 the importance of this chart is to show, at least to 16 me, howrepeatable theresults were from tank to tank. 17 Finally, this is showing the overall 18 energy factor for the three differentblowingagents, 19 which is the average for the four tanks that were 20 produced with each of the three blowing agents. 21 The 141b blowing agent turned out to be 22 .887. We believe the experimental uncertainty of 

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1 these results is +.007. 2 Thewater/CO2 blowing agent -- the average 3 for the four tanks that were measured was .870, and 4 for the 245fa, .884. So the HFC 245fa to 141b results 5 arewithin the bands of experimental uncertainty. The 6 water/CO2 blowing agent is below that. 7 MR. BROOKMAN: David Goldstein. 8 MR. GOLDSTEIN: David Goldstein, NRDC. 9 So that raises the question, is the 10 difference between 141b and 245fa statistically 11 significant? 12 MR. FANNEY: Well, we've been talking to 13 the statistician about that. We believe it probably 14 is not, based on this limited number of results that 15 we have and the energy factor; because, again, the 16 difference between these particular tanks for these 17 particular specimens is .003 mean. 18 The experimental uncertaintywithin these 19 results is +.007. 20 MR. GOLDSTEIN; I guess I would ask the 21 same questionwith respect to the hot box samplings as 22 well where there's a very small difference. 

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1 MR. FANNEY: Yes. It would be basically 2 the same response. 3 MR. BROOKMAN: Carl Hiller. 4 MR. HILLER: Carl Hiller from EPRI. Just 5 a comment, that your repeatability in the same water 6 heaters on thenumber of testswas better thanwe were 7 ever able to achieve, and we took standard water 8 heaters and had them tested repeatedlyover the energy 9 factor test cycle. We didn't get that tight a repeat. 10 It's better than we're doing, or our testing lab was 11 doing. 12 MR. FANNEY: Right. Well, Carl, we did

-- 13 we spent an extensive amount of time, because we knew 14 the -- we anticipated the differences would be small, 15 based on the analysis that we went through a little 16 while ago, and we did -- we spent a lot of time having 17 things calibrated within our NIST calibration 18 facility. 19 So in my opinion, at least for the tests 20 that I've run over my career atNIST, this is the best 21 set of results that we've ever achieved. In fact, one 22 of the things I was interested in, as we had that 

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1 sidebar a minute ago -- well, these tanks were 2 manufactured by a phone manufacturer and not a 3 commercial -- not by amanufacturer of water heaters, 4 I guess, was the point. 5 So what we did is we went to a local 6 supply house, and I bought the same tank, more or 7 less, from thedistributor, independent of this study, 8 that was blown with 141b. Iwanted to find out just 9 how repeatable these results could be if Iran for 15 10 or 20 days. 11 MR. HILLER: Fifteen or 20 days? 12 MR. FANNEY: Yes. I call this the street 13 tank. Okay? It's the same identical tank, samemodel 14 number,blownwith 141b. What's interesting -- Well, 15 first you can see, it's extremely repeatable. Okay? 16 This is in a room that's environmentally controlled, 17 Carl. But we found that the average for these 26-27 18 days is .887, whichwas identical to -- and it's kind 19 of amazing that it is -- but it was identical to the 20 141b tank that was blown by BASF. That surprised me. 21 MR.ROSENSTOCK: Steve Rosenstock. It was 22 the same amount of insulation? 

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1 MR. FANNEY: Yes, to my knowledge. 2 MR. BROOKMAN: Otto? 3 MR. VAGO: Otto Vago, State Industries. 4 You said itwas -- the street water heater 5 was foamed with 141b? 6 MR. FANNEY: Yes. 7 MR.VAGO: Sinceyoupurchased that on the 8 street, so to speak, how do you confirm -- how could 9 you confirm, or did you confirm that it's foamed with 10 141b? 11 MR. FANNEY: I'm thinking back to my 12 thought process. I made an assumption. I assumed 13 that all of the tanks that were currently available

-- 14 and for thisparticular energy efficiency tank -- that 15 it was blown with 141b. I do not -- could not swear 16 on a Bible that's the case. Good point. 17 MR. TAYLOR: Mark Taylor, Bradford White 18 Corporation. I can assure my colleague that this 19 heater was blown with 141b. 20 MR. FANNEY: Thank you. 21 MR. TAYLOR: If you could supply me with 22 the serial number of the product that you bought, I 

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1 could confirm that. If it was within the range of 2 over the last several years that we've been producing 3 these types of products, it would be 141b. 4 MR. FANNEY: Okay. We purchased it 5 approximately two months ago. So, thank you. 6 MR. LOGEE: Terry Logee from DOE. I was 7 going to add that Eric Lannus, their chief engineer at 8 Bradford White,worked with Mike Crouper from BASF and 9 developed both the HFC141b foaming formula and the 10 HFC245fa formula. 11 Somy assumption wouldbe that theHFC141b 12 was the same formula they use in their commercial 13 production. 14 MR. BROOKMAN: David Goldstein. 15 MR. GOLDSTEIN: David Goldstein, NRDC. 16 You knowwhat the rated energy factor was 17 for this tank? 18 MR. FANNEY: Yes. It was .90 -- 0.90, I 19 believe. 20 MR. GOLDSTEIN: Was that available just 21 from the GAMA directory or do you have a test lab 22 report? 

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1 MR. FANNEY: Idetermined that from using 2 the dollar label on the tank, knowing the rate that 3 was used. Iknowwhat the standard hot water load is, 4 and I backed it out. Perhaps Bradford White could 5 comment, but I'm relatively certain it's 0.90. 6 MR. TAYLOR: Mark Taylor from Bradford 7 White again. Idon't have the GAMAdirectory in front 8 of me, but I think that's probably an accurate 9 statement. 10 MR. FANNEY: Okay. What I'd like to do 11 now is move to just show you a couple of infrared 12 images, and this -- It's pertinent in terms of a 13 number of things, but it gets back to the fact that 14 the thermal conductivity doesn't necessarily drive 15 entirely the UAof the tank, which then in fact is not 16 a strong -- the energy factor is not a strong function 17 of that. 18 This is typical of a number of tanks that 19 we've tested at NIST. This is not unique in any 20 means. We've taken infrared images as part of our 21 solar energy work for a number of years in this, and 22 basically, traditionally, what you see -- and again 

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1 I'm sure the manufacturers are aware of this -- is 2 that there's a number of high heat loss areas. 3 One is around the drain valve of the tank 4 itself. One is around the bottom perimeter of the 5 tank. My thoughts on that, and the manufacturers can 6 correct me if I'm wrong, but basically you have the 7 metal jacket of the tank itself. 8 The storage vessel itself has a lip on the 9 bottom of it. You know, it's concave inward, if you 10 were under the tank looking up, and then perhaps 11 there's some insulation, some fiberglass or something, 12 that's put under the bottom of the tank. Then the 13 vessel is put within it. 14 Well, when you get this thing filled up 15 with 50 gallons of water, you've got 400-450 pounds of 16 weight pushing down on this piece of insulation. So 17 you have a thermal shunt between that lip of the 18 storage vessel itself, which is now almost -- It 19 probably is sitting on the actual metal jacket 20 exterior. So heat tends to be like people. It likes 21 the path of least resistance. So you have this 22 thermal shunting. 

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1 This isverytypical of tankswe've looked 2 at over the years. I'll show you another IR image 3 that shows the fittings on the top of the tank. So 4 we'll get a better look at the top. 5 Thentypically,you'll see areas likethis 6 around. These are the panels that are removed for 7 access to the thermostat and the heating element, and 8 you'll typically see warmer areas around those 9 accessible coverarea there or thermostat and heating 10 elements. 11 This is also somewhat typical. When the 12 pipes enter and leave the tank, they come through the 13 exterior sheetmetal of the tank. I call it the 14 jacket. I guess that's what it's called, jacket. 15 People are nodding their heads. Okay, jacket. 16 What happens is that, when that top piece 17 is put over the ports, it's not necessarily the case 18 that every time you look down that the holes in the 19 jacket are lined up with the inlet and outlet port. 20 Okay? They're slightly off inmost cases. 21 So whenyouget the pipe screwed into the 22 ports, typically what will happen is the pipe is 

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* 1 hitting or very close to or brushing that jacket 2 portion. Okay? So again you have this hot port 3 that's coming out. 4 Not only doyou have the heat transferup 5 the pipe, but because the jacket is in contact or may 6 be in contact -- not in all cases, but may be in 7 contact with the entrance and outlet pipes, it's 8 heating up that upper surface of the tank itself. 9 You can see it slightly here in this 10 infrared image. 11 MR. BROOKMAN: Jim Lutz, and then David 12 Winiarski. 13 MR. LUTZ: Hunter, did that water heater 14 have heat traps on it, because the pipes look like 15 they cool off dramatically once you get above the 16 nipple. 17 MR. FANNEY: Yes. It's my recollection 18 that they do. 19 MR. BROOKMAN: David? 20 MR. WINIARSKI: DavidWiniarski, PNL. 21 Just looking at this, we have kind of a 22 unique situationhere. Wehave identical tanks foamed 

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1 with two different foams for which we know the 2 conductivity pretty well. 3 MR. FANNEY: Right. 4 MR. WINIARSKI: Was this a good way to 5 extrapolate the overall heat losses from the non-foam 6 components? 7 MR. FANNEY: You know, infrared imaging

-- 8 MR. WINIARSKI: Not so much the imaging, 9 the fact that we have the data, the numbers. 10 MR. FANNEY: Yes, and I did that, as a 11 matter of fact. I went through, because I wanted to 12 determine what's the ratio of what you would 13 calculate. I assumed two inches of foam material on 14 the top and the radial direction and one inch of 15 fiberglass in the bottom, which may or may not be the 16 case. It's some assumptions I made. I'm sure it

-- 17 It certainly varies. I mean, the top of the tank is 18 concave upward. So it's not uniform in thickness. 19 When I made those assumptions and I went 20 through and calculated my UA factors, the UA factors 21 tended to be approximately between 1.5 and 1.7 times 22 what youwould calculate. So to me, that gives you an 

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1 indication of the relative importance of the other 2 penetrations as opposed to if you had a perfectly 3 insulated cylindrical vessel. 4 MR. BROOKMAN: Carl Hiller. 5 MR. HILLER: Carl Hiller from EPRI. A 6 couple of questions and comments. 7 First, the T&Pvalve is that bright thing 8 on the righthand side, I assume? 9 MR.FANNEY: No. That's aUPS. That's an 10 uninterruptable power supply that's feeding over to 11 our computer. 12 MR. HILLER: Where's the T&P valve? 13 MR. FANNEY: It's not on this image. I'm 14 sorry. You can't see it from this image. Maybe we 15 can get it from the other image. 16 MR. HILLER: Where was the T&P valve on 17 this tank, on the top or on the side? 18 MR. FANNEY: Yes, and it was insulated to 19 the highest level allowable within the DOE test 20 procedure. You know, they give you a range. 21 MR. HILLER: That part sticking out was 22 insulated, because normally that wouldn't

-- 

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1 MR. FANNEY: Anyadditional fittings that 2 were added were insulated to the level prescribed by 3 the DOE test procedure, not the T&P valve itself. 4 MR. HILLER: Because normally I would 5 expect to see a T&P valve show up very brightly. 6 MR. FANNEY: And you do. If I had 7 selected the right image, Carl, you would see that. 8 You're right. 9 MR. HILLER: A couple of comments. You 10 ought to give serious consideration topresenting this 11 information in a technical

-- 12 MR. FANNEY: We're writing an ASHRE paper 13 right now. 14 MR. HILLER: And I'd like to get copies of 15 this information for use in my training seminars. 16 MR. FANNEY: Sure. Sure. Okay. I'd like 17 to summarize -- I'm sorry. Doug, did you have 18 something else? Now I'd like to summarize what we 19 found from the study. 20 We measured the thermal conductivity, and 21 we measured the energy factor and the overall heat 22 loss coefficients for foammaterialsand waterheaters 

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1 that were produced using the three different blowing 2 agents that I previously described. 3 We found that thewater/CO 2 specimens have 4 a thermal conductivityapproximately 43 percent higher 5 than 141b. We found that the 245fa specimens were 6 within three percent of what we found for the 141b 7 results. 8 Then we're showing that the overall heat 9 loss area coefficient for the water/CO2 tank is 10 significantly higher than for the other two blowing 11 agents. 12 We also showed that the energy factor is 13 not a strong function of the overall heat-loss-area 14 coefficient, but keep in-mind that it is the one thing 15 you can control. Imean, if youwant amore efficient 16 tank, given the same hot water load, even though it 17 may not be a strong function, it's the only path to 18 get there. Somehow, it has to be reduced. 19 The average energy factor measurements 20 that we measured for the 12 tanks: The water/CO2 21 energy factor is about .02 less than that for the 141b 22 and the HFC245fa. 

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1 Then based on the infrared images that I 2 showed you, there are significant thermal shunts 3 around things such as the bottom of the tank, the 4 drain valve, the piping leading to and from the tank. 5 MR. BROOKMAN: Steve Rosenstock. 6 MR. ROSENSTOCK: Steve Rosenstock, EEI. 7 Just a couple of questions. 8 Areyou continuing, and the next phase is 9 for fossil fuel water heaters? That's the first 10 question. 11 The second question is: Is there a way -- 12 I know there's a lab procedure you have. Please let 13 me know, is there a way to do any sort of accelerated 14 lifetime testingwhere youwould, say, try to project, 15 well, okay, five years down the line, ten years down 16 the line, this is what we project, in case there's any 17 change in the -- I'm sure there probably isn't, but 18 just in case there was any changes in UA or energy 19 factor. 20 MR. FANNEY: Yes. That's kind of an area 21 of research right now. It's interesting that you 22 would bring that up. ASTM is trying to develop 

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1 techniques, not for water heaters but on the actual 2 foam samples, as to how do you predict the change in 3 thermal conductivity versus time. 4 In some of these materials, it takes 5 rather a long time before they reach kind of the 6 bottom of the exponential curve. So ASTM is looking 7 into procedures. They're called thin slicing 8 techniques. 9 It turns out that, if you slice the foam 10 thinly, you have samples. You can accelerate the 11 aging. They're tryingtocorrelate those resultswith 12 long term results, but they're not to the point that 13 you can do that with confidence, I should say. 14 I'm sorry. You had two or three 15 questions. 16 MR. ROSENSTOCK: Oh, the other one was 17 about are you following up with fossil fuel water 18 heaters? 19 MR. FANNEY: At this time, we're not. 20 This was basically the scope of the study we've 21 completed. 22 One of the things thatwe thoughtwouldbe 

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* i e1 interesting to do this year would be to take a tank 2 such as this, for example, and using our infrared 3 equipment and our measurement capabilities to make 4 changes to the tank design itself to see if we could 5 eliminate some of these thermal shunts to see what 6 improvement in energy factor we could gain from that. 7 But we didn't get funded to do that. So -- 8 MR. BROOKMAN: Carl Hiller. 9 MR. HILLER: Carl Hiller from EPRI. Just 10 following up on the degradation of the foam issue. 11 Just for the record here, I would comment that we've 12 had a number of field test sites around the country 13 andmy own personal experience that fumigants commonly 14 used when you tent a house to treat for termites or 15 other insects are usually a fluorine or bromine based 16 fumigant, and they react very quickly with any kind of 17 moisture. That's how they kill termites, but they 18 will also dissolve almost all foam structures in your 19 building, and they will also dissolve fiberglass 20 insulation. 21 I have seen houses where a fiberglass 22 insulation in the attic was totally disintegrated 

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1 because of the fumigants, and Ihave seen foams in my 2 own house on my water heating pipe completely 3 liquified, and that happens in a matter of less than 4 a year. 5 MR. BROOKMAN: Frank Stanonik. 6 MR. STANONIK: Hunter, two questions. 7 MR. FANNEY: Yes, sir. 8 MR. STANONIK: You mentioned that the

-- 9 Forgive me if I misstate it -- the accuracy of the 10 guarded hot plate is +1.5 percent? 11 MR. FANNEY: Yes. 12 MR. STANONIK: Okay. And the difference 13 between the 245 and the 141 was nominally a -3 14 percent? 15 MR. FANNEY: Yes. 16 MR. STANONIK: Okay. I thought I heard 17 you say that that was within the tolerance of the 18 guarded hot plate. So it seems to me -- 19 MR. FANNEY: It's right at the edge, 20 Frank. You can make the argument either way. 21 MR. STANONIK: I don't follow, because 22 +1.5 is 1.5 above or below. 

### NEALR.GROSS COURTREPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE., N.W. (202)234-4433 WASHINGTON,D.C. 20005-3701 www.nealrgross.com50 1 MR. FANNEY: Exactly. 2 MR. STANONIK: This was clearly 3below. 3 How is it right on the edge? 4 MR. FANNEY: Okay. Well, for example, if 5 you've got this number up here, and it can be

-- 6 MR. STANONIK: It just clicked. You're 7 assuming the 1.5 or the threepercent could allbe

-- 8 if you took the -- Okay. 9 MR. FANNEY: Yes. It's possible. 10 MR. STANONIK: All right. Okay. Now the 11 other question is: From the datayou generated using 12 the hotplate and theother information you've learned 13 here, could you guys at NIST make a prediction as to 14 what the energy factor benefit would be of going to 15 2.5 inches of foamversus two? 16 As I understand it, Terry, the stuff 17 that's been done in engineering analysis has been 18 driven off of either of the computerprograms, and I'm 19 justwondering if Hunter's datawould showanotherway 20 to estimatewhat the valueof this addedhalf-inch is. 21 MR. FANNEY: I think, Frank, that the 22 techniques that -- I think the techniques that we 

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1 would employ for just a calculation are probably 2 identical to what they're using. You know, the only 3 thing that -- and I'm not sure what they're using in 4 their analysis for the overall UA versus what they 5 calculate for a perfectly insulated tank. 6 You know, there, I think our information 7 could assist, but I think to get at that, because of 8 the -- As you know, because of the way these things 9 are manufactured with the top not -- you know, the 10 storage tankvessel top is not parallel to the jacket 11 top. The calculations aresomewhat difficult tomake. 12 The measurements are, in some way, easier to do or 13 perhaps more believable. 14 MR. STANONIK: I mean, for the -- Let me 15 just point it out here. The engineering analysis on 16 an electric heater, 50 gallon, with heat traps, 17 plastic ones -- Idon't know if it makes adifference 18 -- and two inches of insulation predicts an energy 19 factor of .89; and that was with -- Is that with 245? 20 Yourtest result, if Irememberright, was 21 one point lower. Let me see if I can find that

-- 22 .87? Okay, so it's the same. Okay. I looked at the 

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1 wrong foam. 2 MR. BROOKMAN: Otto Vago? 3 MR. VAGO: I have a couple of questions. 4 On page 5 you indicate bulk density. 5 MR. FANNEY: Yes. 6 MR. VAGO: I assume that's the test. 7 MR. FANNEY: Yes, that's correct. 8 MR. VAGO: Have you checked the in-place 9 density of the foam; that is, you know, afteryou foam 1.0 the

-- 11 MR. FANNEY: A tank? 12 MR. VAGO: Yes. 13 MR. FANNEY: No, we did not. 14 MR. VAGO: Second question: The water 15 heater was foamed by the foam supplier? 16 MR. FANNEY: BASF. 17 MR.VAGO: Obviously, that's a laboratory 18 condition. Right? 19 MR. FANNEY: Ihave neverbeen to the BASF 20 facility. So I couldn't answer that. Perhaps someone 21 that's been there could answer that. Surely, the 22 manufacturers have been there. 

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1 MR. TAYLOR: MarkTaylor, BradfordWhite. 2 Yes, Otto, it is a facility that is a laboratory type 3 condition where the heaters were foamed under. To 4 this panel, I can tell you that that was in ideal 5 conditions pretty much. 6 Whenawaterheatergoes downaproduction 7 line, they're running through several a minute, and 8 it's very difficult to make sure that the foam is the 9 same conditions at all times. The in-place density, 10 as Otto brought up, is going to stratify within that 11 tank vessel. It is not packed under pressure per se, 12 because it does free-rise, unlike other fixtured type 13 components. 14 Soyou're going to have a lot ofvariation 15 in the in-place density. 16 MR. FANNEY; Yes. That's one of the 17 reasons. We have seen that before with our infrared 18 imaging equipment for a number of tanks we've tested 19 for various purposes in the past. We go around the 20 circumference of the tank. We have picked up voids 21 before, and thenwe woulddisassemble the tank. We've 22 workedwith manufacturers to -- you know,we'd send it 

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1 back, and they would take a look at it. 2 That's one of the reasons that Iwanted to 3 buy that street tank, because that thought had crossed 4 my mind, you know, and maybe I got real fortunate by 5 that particular street tank. Theguy did an excellent 6 job that day in foaming it, but I got the same result. 7 MR. NADEL: Steve Nadel. Hunter, the 8 results you presented basically showed that there's a 9 slightly better, more efficient conductivity in the 10 hot plate test, and a slightly worse energy 11 performance. 12 MR. FANNEY: Yes. 13 MR. NADEL: I'm familiar with the 2R 14 directory, not comparable, as you pointed out, and 15 also some other losses. I'm not -- In my limited 16 experience, I'm not familiar with them going in the 17 opposite direction. I was wondering if you can 18 comment onperhaps why they are going in the opposite 19 direction. Is it basically just, you know, within the 20 error tolerances? 21 MR. FANNEY: Yes. 22 MR. ROSENSTOCK: Steve Rosenstock, EEI, 

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1 just for Mr. Taylor. What kind of variances are you 2 seeing in the in-place density, if you've done any 3 sort of research? 4 MR. TAYLOR: You'll have to pardon me. I 5 haven't -- We haven't looked at this in quite 6 sometime, but through past experience in this maybe 7 with other blowing agents, but I would think that it 8 would be the same, is you can get anywhere from a 9 half-pounddensityvariationfrom top tobottomof the 10 unit. 11 MR. FANNEY: Well, certainly, one of the 12 tanks that I recall that we found, you know, a huge 13 hot spot in the side of, there was quite a variation 14 in density; becausewhenwe got the jacket off, itwas 15 an area about like this that had no foam. So -- 16 MR. BROOKMAN: Jim Vaughan. 17 MR.VAUGHAN: Hunter, I'd just like to say 18 that, as Carl pointed out, I cannot believe the 19 repeatability of your tests. That's just amazing to 20 us who -- and unlike the other water heater 21 manufacturers,wedon'thave ourownin-house testing. 22 Every time we send a test out to ETL or 

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1 whoever they are now -- 2 MR. FANNEY: Right. 3 MR. VAUGHAN: -- we have absolutely no 4 idea what the test is going to be. 5 MR. FANNEY: Right. 6 MR. VAUGHAN: And I would follow up on 7 what I think Frank was getting at, is if you have the 8 repeatability there, I think we should find some way 9 to try and use it to not.guess at what these changes 10 may be, but actually try and

-- 11 MR. FANNEY: Okay. You know, we're in an 12 ideal situation, because once we set a tank up, 13 repeatability,nothing changed in the set-up, it's day 14 to day, back to back results. We have a well 15 controlled room as far as temperature conditioning 16 surrounding the tank. 17 You know, we're not in a commercial type 18 application. We're constantlymoving equipment inand 19 out of the laboratory, for example. We have a well 20 controlled inlet temperature, and every piece of 21 instrumentation was calibrated back to the NIST 22 standards. 

### NEALR.GROSS COURTREPORTERSAND TRANSCRIBERS 1323RHODEISLANDAVE., N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com57 1 So it was a lot of effort. Imean -- 2 MR. VAUGHAN: It obviously worked. 3 MR. FANNEY: Yes. It was, for these 4 results, because one of our fears, as you're alluding 5 to, is that because the differences are going to be 6 small, that unless you're really on top of this 7 instrumentation,youruncertaintiesaregoingto swamp 8 what you're looking for. 9 MR.VAUGHAN: Imean, just for the panel, 10 I can tellyoupersonally that wehave sent tanks and 11 had them tested and then gotten the same tankback at 12 our place and insulated the bottom of it and sent it 13 back out to ETL, and come back with a worse energy 14 factor number -- substantially worse. 15 So I think repeatability is a big issue, 16 but there were two other questions I want to get at. 17 You had said that there is not a big 18 difference or variation. If you double the UA, that 19 it wouldn't make that big a difference in the energy 20 factor. Maybe I'mreadingthis chart incorrectly,but 21 on page 9 you have the energy factor versus overall 22 heat loss coefficient. 

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1 MR. FANNEY: Yes. 2 MR. VAUGHAN: If you went from a UA of 2 3 to a UA of 4 -- 4 MR. FANNEY: Right. 5 MR.VAUGHAN: -- or the other way around, 6 you went from .85 to .91. 7 MR. FANNEY: That's right. It's about 8 eight percent. On a percentage point basis, if you 9 doubled the UA, it's about a eight percent difference 10 in the energy factor. 11 MR. VAUGHAN: That's a significant 12 difference. 13 MR. FANNEY: That's right. Significant

-- 14 I shouldn't have said it the way I did. I agree. I 15 mean, significant -- Before I thought this through, I 16 thought that doubling the heat loss from the tank 17 perhaps woulddecrease the energy factor by 30 percent 18 or so, but it is significant. It's certainly eight 19 percent on the energy factor. 20 MR. VAUGHAN: Then the last question is 21 why did you choose 245fa, and were there other 22 alternatives? 

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1 MR. FANNEY: Yes. NIST did make the 2 selectionof theblowingagents. So I'mgoing tohave 3 to defer to DOE. 4 MR. BROOKMAN: Terry Logee. 5 MR. LOGEE: Terry Logee from DOE. 6 We chose 245fa because the refrigerator 7 people are planning to use that. That was the basis 8 for the new refrigerator standards, and to our 9 knowledge, they stillplan to use that, andwe -- From 10 that assumption, Allied Signalpresumably is going to 11 be able toproduce enough tomake it worthwhile -- you 12 know, commercialviable toproduce 245fa forany other 13 use as well. 14 MR. VAUGHAN: Has anybody checked with 15 EPA? 16 MR. LOGEE: Yes. 245fa, to myknowledge, 17 has passed all of the appropriate EPA requirements. 18 MR. VAUGHAN: And so there weren't other 19 alternatives looked at or considered? 20 MR. LOGEE: The only other one that we 21 considered inthis test waswater/CO 2. We also talked 22 withmanufacturers last fall about cyclopentaneand

-- 

### NEALR.GROSS COURTREPORTERS ANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com60 1 I can't remember all of the names of the things, but 2 there were a couple of other ones, but they were not 3 as readilyavailable, andperhapsweweren't sure they 4 would be available even by 2003. 5 MR. BROOKMAN: Jim, maybe you can ask Jim 6 Lutz about the particulars on that in a little bit. 7 We need to be moving on with the program. There's a 8 lot of additional material for us to cover. 9 Otto Vago, did you have additional 10 questions? 11 MR. VAGO: I'll withdraw mine. 12 MR.BROOKMAN: Then, SteveNadel, perhaps 13 a final question before we keep moving on. 14 MR. NADEL: It's not a question. I was 15 just going to add an extra bit of information for Jim 16 Vaughan and his question. 17 I do know the refrigerator industry went 18 through very extensive testing on all sorts of 19 alternatives. They did lots of testing in 20 laboratories and actual refrigerators, andeventually 21 settled on 245fa, because it had thebest combination 22 of efficiency, etcetera. 

### NEALR.GROSS COURTREPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com61 1 I understand there are some differences 2 between refrigerators andwater heaters, but there is 3 an extensive body of testing to arrive at that, and I 4 know DOE has lots and lots of information from the 5 refrigerator rulemaking. 6 MR. BROOKMAN: Mark Taylor? 7 MR. TAYLOR: Just one final comment on 8 245fa. Iguess my understanding is that, yes, it's a 9 desired blowingagent of the future, but right nowmy 10 information -- Allied Signal really doesn't have the 11 capability or the capabilitydoesn't exist toproduce 12 that material in bulk quantities at this point in 13 time, and I don't think anyone really knows when 14 that's going to be. 15 MR.BROOKMAN: Thankyou. Okay. The next 16 -- Thank you, Hunter. Thanks very much. 17 MR. KUSTERER: Excuse me. I'm just 18 stymiedbywhat I've just heard. George Kustererwith 19 Bock Water Heaters. 20 So the hour and a half or hour and 45 21 minutes we spent is just kindof amootpoint, because 22 it's not going to be available. 

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1 MR. BROOKMAN: Charlie Stephens. 2 MR. STEPHENS: I didn't hear that. I 3 heard that no one knows whether it wills be or not. 4 But I also -- But Ihave had conversations with Allied 5 Signal, and this is a two-way street. 6 I think they are also waiting for some 7 commitments by the people who might choose a blowing 8 agent about whether or not it's worth their investment 9 in how much production facility to make this stuff 10 available in what year. 11 They're watching some of this stuff as 12 much as we are, waiting to see which way they should 13 make their investments, but I think if people were to 14 make commitments to a blowing agent, they could make 15 it available. 16 MR. BROOKMAN: Charlie, what does the

-- 17 Given your knowledge of -- or maybe Steve or someone 18 else -- knowledge of the refrigerators and how that's 19 proceeding, how that affects Allied Signal's 20 commitments? 21 MR. STEPHENS: It's amatterof scalingup 22 production, once enough manufacturers have made 

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1 commitments for enough annual volume. It's not that 2 hard to produce additional production capacity, once 3 you have enough of a commitment from industry that 4 they will buy it. So -- but barring that, I don't 5 think they're going to make the investment. 6 MR. BROOKMAN: So maybe, George, you and 7 Charlie or Steve or someone else can talk about the 8 capacity that exists there ordoesn't exist there and 9 how that frames up, looking ahead. 10 MR. KUSTERER: Well, just one morepoint, 11 and I don't want to belabor this, but you know, I'm 12 kind of a dumb farm boy, and I don't put all my eggs 13 in one basket. If this is the scenario that we're 14 talking about right now,maybe we should be lookingat 15 an alternative. The year 2003 is coming real quick. 16 MR. BROOKMAN: Steve, I'mgoing to let you 17 go off-line and talk about thiswith George. Otto, do 18 you wish to make

-- 19 MR. VAGO: Otto Vago. Not to contradict 20 what Mark has said, on one hand. On the other hand, 21 the information we were given, it's not consistent 22 what Mark said. 245 seems to be the likelihood of 

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1 material that they will be going in, and will be 2 available. 3 MR. BROOKMAN: And, Steve, doyou wish to 4 have a final word before Ipush us on? 5 MR. ROSENSTOCK: All I wasgoing to say is 6 this will be resolved well before July 1, 2001, 7 because that'swhen the newDOE refrigerator standard 8 takes effect, and the manufacturers have said that 9 theyare going tobe convertingblowing agentsby that 10 same time. 11 I realize that is not finalized now, but 12 decisions are going to have to be made -- finalized 13 pretty soon so that themanufacturers can produce the 14 newrefrigerator. That standardgoes into effectwell 15 before any potential water heater standard goes into 16 effect. 17 MR. BROOKMAN; Just as a footnote, we're 18 going to try and do one more thing before we go to 19 break, which ought to be probably in about a half an 20 hour. So maybe 20 minutes, if we're lucky. 21 TheDepartmentyesterdaywith the support 22 contractorsworkingwith theDepartment -- whenweall 

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1 went home yesterday, they stayed here and worked for 2 another several hours, trying to think through how to 3 respond tothe issues that we noted as wewent through 4 the day yesterday. You see them listed on the wall 5 over here tomy left. 6 So Terry Logee with support from some 7 other individuals perhaps are going to talk about the 8 issues thatyou see listedthere. So, Terry, it's all 9 yours. 10 MR. LOGEE: Thank you, Doug. We did 11 indeed spend severalhours here last night. These are 12 preliminary responses to all of these issues, the key 13 issues that were raised yesterday. 14 As Michael said,-wewill respondwithin a 15 couple of weeks, putting on the Internet a complete 16 response to all of the issues that have been raisedat 17 thisworkshop, to the extent that we can respond that 18 quickly,but right nowwe wanted to go through some of 19 these key issues. 20 IssueNumber 1: Revisitingthe screening. 21 In the process rule, of course, we've committed to 22 eliminate problematic design options early in the 

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1 process. We have screened out heatpump water heaters 2 and, based on comments and other information that 3 we've received regarding manufacturability, 4 serviceability, the infrastructure, consumerutility, 5 and-other things. 6 What we will be putting together is this 7 documentation on those to make sure that that's fully 8 available. We're going to -- We will, if we receive 9 new information, and that information has to be 10 corroborated with data or with some kind of survey 11 information or something like that other than just a 12 comment that you disagree with our position. Then we 13 will reconsider our positions on these issues. 14 The next issue

-- 15 MR. BROOKMAN: Steve, do you wish to -- 16 I'd like tokeep this moving ahead fairly quickly, but 17 Steve Rosenstock? 18 MR. ROSENSTOCK: So from the workshop of 19 several months ago where all the design options or 20 many design options were screened out and discussed 21 openly, that if some parties bring out some of those 22 previously screened out design options, then all of 

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1 the engineeringanalysismight have tobe redone again 2 and all of the life cycle cost analysis will have to 3 be redone again. 4 I mean, I thought that was the point of 5 the earlier workshop, was to say this was aworkshop 6 to screen out the design options at a roundtable on a 7 consensus basis, and you're saying that the ones that 8 were basically screened out before might come back 9 again. 10 Idon't see howyou can -- That's going to 11 delay the process. 12 MR. LOGEE: No, we're not saying that. 13 We're saying that what was screened out is screened 14 out, and we will only reconsider if we receive new 15 information that is -- you know, would substantiate 16 someone's position. And we haven't received any of 17 that sort of information. 18 What we have been able to find is more 19 information to buttress our original contention that 20 we should screen out heat pump water heaters. 21 MR. BROOKMAN: Michael McCabe. 22 MR. McCABE: Michael McCabe. Aswith any 

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1 issue on a rulemaking, that as DOE receives credible 2 and compelling information, we are committed to 3 changing the analysis, whether or not it deals with 4 the price of energy, lifetime or products or others. 5 But as of right now, the workshop that took place

-- 6 we have screened out a whole range of design options 7 and wouldbe willing to consider any information, but 8 today we have not received information that would 9 cause us to change it. 10 Again, the rulemaking is an openprocess, 11 and we're committed to considering any and all 12 information on any subject as it would affect the 13 rulemaking. 14 MR.BROOKMAN: Michael, am Icorrect inmy 15 understanding that you're essentially required by law 16 to be open until this is closed? 17 MR. McCABE: Well, I have my chemical 18 engineering law degree. That is my understanding. 19 MR. BROOKMAN: Yes, and what Ialso heard 20 you say there a moment -- although I'm acting like a 21 mediator here. Look out. Terry, do you wish to 22 continue then from there? 

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1 MR. LOGEE: Oh, I see Steve has one 2 follow-up. 3 MR.ROSENSTOCK: I just had one follow-up. 4 I mean, I'm just concerned that -- suppose you get 5 some information in late October of 1999, and you're 6 putting out the NOPR in the next month, and none of 7 the other stakeholders might have had a chance to 8 respond to it. 9 I'm just saying, from a process 10 standpoint, it's throwing a lot of wild cards in the 11 process, andwe've seen how long the reports are right 12 now, coming at 160 pages right now. So, you know, I 13 just wanted to say that I'd be worried about it. 14 MR. McCABE: What we're committed to with 15 the current process is to share information, complete 16 information, as early as possible so that there will 17 not be any surprises. 18 So that if there is information that is 19 compelling and convincing thatwould lead us to change 20 a significant part of the analysis, I'm sure the 21 Department wills be willing to adjust the schedule 22 accordingly. But that's one reason why we're having 

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1 these series of meetings, in order to draw out that 2 information as early as possible. 3 MR. BROOKMAN: Francine, do you wish to 4 comment? 5 MS. PINTO: Francine Pinto. I think this 6 came up yesterday just on the issue of comments in 7 general. Of course, we have some flexibility, but 8 there is a timeline. There is aneed to do a standard 9 and to move the process. 10 So when people have information data on 11 anything, we would request you give it to us as soon 12 as possible, so that we can actually review it anduse 13 it. So I think that, while there is openness and 14 flexibility, there is apoint at which decisions have 15 tobemade and go forward. Otherwise,we'll neverget 16 done. 17 So we askyou togivewhateveryou have as 18 soon as possible. 19 MR. BROOKMAN: Jim? 20 MR. RANFONE: Yes, Jim Ranfone, American 21 Gas Association. 22 Yes, we did bring out this -- our 

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I.,71

1 objections to screening out this design option 2 yesterday,and Iwould challenge the Department in its 3 bullet points as to why it did that, and I did 4 yesterday. 5 We see a Federal technology alert, cost 6 effective only in selected regions, and you're using 7 that as abasis for screening out this option as one 8 of your reasons. Yet we just spent anhour andahalf 9 lookingat insulationprovisions,whetheryou'regoing 10 to modify an energy factor based on new foaming 11 agents, andhere's aproduct that you are now saying, 12 because of a FMP report that says it's cost effective 13 only in selected regions. 14 Why are you using that as a basis when 15 we're -- you've got an option that you developed and 16 reviewed in 1994 with good technical information 17 showinga substantial capability-- abilityfor saving 18 energy,andyou've taken it off the table. That'sour 19 objection. 20 Ifyouwant togo through theanalysis and 21 determine that this is not a cost effective option, 22 then do that. This is the only thing that we're 

### NEALR.GROSS COURTREPORTERSANDTRANSCRIBERS 1323RHODEISLAND AVE.,N.W. (202)234-4433 WASHINGTON,D.C. 20005-3701 www.nealrgross.com72 1 asking. 2 The other three comments about cost, 3 noise, space, reliability,electric rate increases, no 4 sales and service infrastructure -- these are not 5 valid reasons for taking it off the table; and that's 6 the only thing we want. Take a look at it. 7 MR. LOGEE: The Department -- This is 8 Terry Logee. The Department believes that those are 9 valid reasons. Those are our reasons. We have 10 documentation to that effect, and we will be putting 11 that together. 12 MR. BROOKMAN: Do you wish to comment, 13 sir? 14 MR.MORANTE: Yes, Ido. My name is Peter 15 Morante, and I'm with Northeast Utilities. We 16 probably have put in more of these heat pump water 17 heaters than most utilities in the United States. 18 Iwill provide inwriting those comments. 19 The documentation that we have essentially 20 substantiates DOE's reasons for taking it off of 21 consideration. 22 MR. BROOKMAN: Thank you for that. Are 

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### * 1 there other comments before we move on to the next 2 issue? Okay. 3 MR. LOGEE: The next issue: Our question 4 in regard to that is, on what basis did DOE limit the 5 recovery efficiency to 78.5 percent on gas water 6 heaters, I suppose we should say? 7 We have those GRI Battelle reports, and I 

### 8 think someone was able to findthe source of those in 9 our engineering document. There are a couple of 10 reports there, and they identify flue loss 11 efficiencies between 80 and 83 percent as being an 12 area of concern. 13 Based on the computer simulation model 14 tank, we translated those efficiencies to the 78.5 15 percentand lowerrecoveryefficiency. Wedidn'twant 16 to put either the consumers who buy these tanks in 

### 17 some jeopardy due to safety concerns with venting 18 corroding or dissolving away, nor do we want to put 19 the manufacturers at risk by requiring a higher 20 efficiency standard that would be sensible or 21 reasonable. 22 MR.BROOKMAN: Questions,commentsonthat 

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1 issue? Steve Nadel? 2 MR.NADEL: First, Ihave a few questions. 3 First, I just wanted to understand this 78.5 percent. 4 That is based on the 80 percent flue loss efficiency, 5 the 83 percent flue loss efficiency or -- 6 MR. LOGEE; It's based on a range between 7 80 and 83 percent. Okay, it's not really known for 8 sure just what the flue loss efficiency differences 9 are, because each model -- it's dependent on each 10 model and the local conditions. 11 We list them here: You know, the 12 geographic conditions, horizontal flue length and so 13 forth and so on. 14 MR. NADEL: You looked at a range of flue 15 loss efficiencies from 80 to 83 percent and,based on 16 that, came up with a single sort of cap of 78.5 17 percent recovery efficiency? 18 MR. LOGEE: I don't think that we -- No. 19 MR. NADEL: I'm trying to understand how 20 that 78.5 came about. 21 MR. LOGEE: It's not correct to say that 22 we looked at a range of efficiencies. We merely said 

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1 that, when we got below 80 percent -- When we reduce

- 2

- get -- stay within or below 83 percent flue loss 3 efficiency and with some tolerance there, because we 4 understand that, you know, conditions vary throughout 5 the United States -- that 78.5 percent was -- gave us 6 that tolerance. 7 MR. NADEL: So the 78.5 is related to the 8 83, I just heard you say? I'm just trying to 9 understand. 10 MR. LOGEE: No. You're wrong. It's not 11 related. It's merely -- There is a relationship, but 12 it's just not directly related. Okay? It has to do 13 with this range, and we're providing some tolerance 14 within that range. 15 MR. NADEL: I think I'm going to get all 16 I'm going to get other than comments on that. 17 Let me move on to the next question. If 18 I understand correctly, the far more important value 19 is the flue loss efficiency than the recovery 20 efficiency, because that's what all the GRI data 21 developed. So to the extent there is flue loss 22 efficiency data, the difference between flue loss 

### NEALR.GROSS COURTREPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 200053701 www.nealrgross.com76 1 efficiency and recovery efficiency is somewhat 2 academic. Is that correct? 3 MR. LOGEE: There isn't agood correlation 4 between the two efficiencies. So I guess it's 5 acceptable to characterize it as somewhat academic. 6 What we measure -- What we -- in our DOE 7 testprocedure isrecovery efficiency,and that'swhat 8 the standard will be based on. So for our purposes, 9 that's the important number. 10 MR. BROOKMAN: Frank Stanonik? 11 MR. STANONIK: I was just going to say, 12 Steve threw in a little -- To the extent that there's 13 flue loss efficiency data -- well, the fact is there 14 isn't a lot of flue loss efficiencydata, because that 15 measurement is not made as part of the DOE test 16 procedures, efficiency test procedures for water 17 heaters. 18 There is no reason for water heater 19 manufacturers to have made thatmeasurement, and there 20 isn't anyhuge databaseorwealth of information as to 21 flue loss efficiency onwater heaters. Peoplemeasure 22 recovery efficiency.

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1 MR. LOGEE: Right. But that measurement 2 is an application specificnumber -- the result of it. 3 You know, each application is going to have a 4 different number, and it actually will change 5 throughout the year. 6 MR. KUSTERER: And one has nothing to do 7 with the other. 8 MR. LOGEE: There's very little 9 correlation. 10 MR. BROOKMAN: Steve, did you have an 11 additional question? 12 MR.NADEL: Ihave one additional comment, 13 and this is in terms of how do we -- I mean, I have 14 comments I'll submit for the record, now that I'm 15 getting some understanding. But a recommendation on 16 how to proceed. 17 These values are relatively key. I agree 18 that we need a safety margin. The question is how 19 much safety margin? You could add ten percent and 20 have a safety margin. I mean, where do you draw the 21 line? 22 It's going to be fairly critical for 

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1 certain measures that do or do not get included in the 2 engineering analysis. 3 MR. LOGEE: At this point, this is where 4 the Department has drawn the line. 5 MR. NADEL: Right, and I don't -- There 6 will be comments. 7 The recommendation, though -- This is all 8 based, as I understand it -- and I haven't seen the 9 reports yet on these GRI studies which, if I 10 understand correctly, are based on a combination of 11 computer analysis and some laboratory measurements. 12 MR. LOGEE: Correct. 13 MR. NADEL; Right. There

-- 14 MR. BROOKMAN: Darryl says correct. 15 MR.NADEL: Okay. As far as Iknow, there 16 has not been any systematic field studies. There's a 17 few reports, anecdotal reports in the field. It 18 strikes me that this is a very important issue. It 19 would be useful to get some field data. 20 I know I was talking to some people over 21 lunch yesterday, and what came out is that there have 22 been some utilities, particularly in the northwest, 

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1 who have done a lot of rebates for high efficiency 2 units, and there should be information on what those 3 units are and, hence, by extension being able to look 4 up in the GAMAdirectorywhat the recovery efficiency 5 is. 6 Itmaybeveryuseful to institute a field 7 study lookingat several hundred installations across 8 a range -- you know, where is the water heater, the 9 basement, the garage, etcetera -- looking at a range 1.0 of weather conditions, if I understand these, range 11 from more mild northwestern temperature questions to 12 northern Idaho, some pretty cold conditions. 13 It may be very useful, rather than just 14 relying on computermodels to actuallyget some field 15 data tohelp inform the best judgment in terms of how 16 conservative isconservative enoughversus gettingtoo 17 conservative. 18 MR.BROOKMAN: Thankyou, Steve. Comment, 19 please? 20 MR.HOSLER: DarylHosler speaking forthe 21 Z21 waterheater subcommittee. Just foryour thought 22 process, it has already been submitted to the Z21 

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1 waterheater subcommittee theGRI reports, andthey're 2 looking between 80.5. and 83 percent flue loss 3 efficiencies. 4 So the debate is going on. They haven't 5 had a lot of luck in getting it finished, but it is 6 there, and it is in apublic process. If people want 7 to participate, you might think of going into that 8 area. But this is already before the water heater 9 subcommittee. 10 The numbers are out, 80.5 to 83. So it's 11 not going to be ten percent. It's just a matter of 12 picking which one, based on the analysis and the data 13 that the working group comes up with. 14 MR. BROOKMAN: Thank you. 15 MR. NADEL: One clarification. You said 16 80.5 versus 83. Are those, I assume, flue loss 17 efficiencies? 18 MR. HOSLER: Yes. 19 MR. NADEL: Okay, thank you. 20 MR. BROOKMAN: Charlie Stephens. In a 21 littlebit I'd like tomove to the next topic,because 22 we have a lot to cover this morning. Charlie. 

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1 MR. STEPHENS: I just have one comment to 2 support what Steve is saying. I think we've already

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- Terry has explained that there's a disconnect here 4 betweenwhat GRI and Battelle and the Z21 committee is 5 looking at, flue loss efficiencies, and what we're 6 interested in here. 7 I think it might be useful to try to 8 connect the two, if there is a connection, and if it 9 is, as George says, there isno connection between the 10 two, then I have towonder howwe got connected -- how 11 it got connected in the rulemaking process here. 12 So one or the other: You know, either 13 there is a connection or there isn't, but I'd like to 14 know what it is, if there is one. 15 MR. KUSTERER: That's called job 16 retention. That's the connection. 17 MR. LOGEE: I would like to move on now. 18 The next concern is over the energy factor, a 19 difference with electric water heaters. Our question 20 to reflect this is why are the highest efficiency 21 models in the current DOE analysis not at levels 22 represented in the GAMA directory? 

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1 Our response iswewill look at themodels 2 that are out there, try to identify the similarities 3 and any differences that may exist between those 4 models listed in the GAMA directory and what we've 5 simulated with the computer simulation model. 6 In addition, we're requesting from GAMA 7 and from manufacturers -- and/or from manufacturers 8 the ITS test data for these high efficiency water 9 heaters. So we felt that -- and the specifications 10 for the tank. We felt that if we had that, we could 11 more adequately assess these differences. 12 MR. BROOKMAN: DavidGoldstein. 13 MR. GOLDSTEIN: David Goldstein, NRDC. 14 I think you're doing the right thing on 15 this, particularly requesting the data on the test 16 reports; because the issue of calibrationhas come up 17 a couple of times in the last two days, andwe really 18 need to make sure that we're self-consistent between 19 a computer simulation model, given how detailed they 20 are, that goes into, okay, with these measures you 21 have an energy factor, you've got the three 22 significant figures.

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1 Now if someone actually produced that, 2 what would the rating be, and would that be the same 3 as the three-figure accuracy number in the computer 4 run; and if not, how do you get them to be self5 consistent? 6 So in otherwords, if you set a standard 7 at .90 based on a certainmodelbeing the basis of the 8 standard, then that model should be rated at .90 bya 9 manufacturer who produces it, and then you're 10 requiringwhat you think you're requiring. 11 There is some indicationofproblems,both 12 in the efforts to calibrate the EPRI model with the 13 data on what's actually out there as the base case. 14 We saw this morning another example of .887 as a 15 testedmeasurement and .90 as the rated measurement. 16 So Idon't know if that's typical or not, 17 but we need to find out, is there some kind of 18 correction factor, and what is it? 19 MR. BROOKMAN: Additional questions or 20 comments? Michael Martin and then to Frank Stanonik. 21 MR. MARTIN: Yes. At the California 22 Energy Commission we have a lot of models listed. 

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1 Most of them come to us from the manufacturers through 2 GAMA,but there are some that come tous directly from 3 manufacturers. When I go back, Iwill see whether any 4 of those fit into this category for this very high 5 efficiency, and make inquiries about that also. 6 MR. BROOKMAN: Frank. 7 MR. STANONIK: First thing,Terry, Imean, 8 you said it. It's not on the sheet, but we are 9 talking just about electric models. That's the 10 question. Right? 11 MR. LOGEE: That is the particular 12 question, yes. 13 MR. STANONIK: Okay. Then I guess the 14 other thing is

-- 15 MR. LOGEE: I mean, I -- Let me back up a 16 little bit. Gas models are also a concern. 17 MR. STANONIK: But the previous question 18 answers this question for gas models. 19 MR. LOGEE: We limit them to 78.5 percent 20 recovery efficiency, but the energy factor is still 21 based on also thermal losses, and that can be 22 modified. 

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1 MR. STANONIK: Well, but some of the 2 higher efficiency gas models will have higher 3 efficiency -- I'msorry, higher recovery efficiencies. 4 They do. 5 MR. LOGEE: Our thinking is that we would 6 not like to limit -- We would like the data for both 7 gas and electric, but we're particularly concerned 8 about the electric. 9 MR. STANONIK: In any event, the other 10 issue is that -- well, two things. There's an 11 undercurrent here that I'm hearing that there is some 12 concern that everything is overrated and that the GAMA 13 tests with the tolerance allow some kind of, for lack 14 of a better word, gaming. 15 I mean, the first thing is that in the 16 overall average of our measured values versus the 17 rated values, with the exception of a two-year period 18 which we can fully explain that goes back to when the 19 test procedures changed and people were using 20 different foams -- With the exception of those two 21 years, we are always between 99 and 100 percent, when 22 we look at all our values. All right? 

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1 So I'm just a little concerned, people 2 thinkthat everybody isputting things out there right 3 on the margin. 4 The other issue is that there is a -- 5 We've never -- We haven't fully got this one figured 6 out. The test procedure itself presents some 7 difficulty, because-you can take -- Maybe in Hunter's 8 lab it will showup, but you can take a two-inch foam 9 product and run the test and get an energy factor. 10 You can addanother fully inch of foam to 11 that, and this is kind of what Jim Vaughan was 12 alluding to, and the analysis might say you're 13 supposed to see some significant improvement in the 14 energy factor. It doesn't show up in the test, and 15 we're still not exactly sure why. We suspect part of 16 it is when you switch the -- convex. 17 You know, we're kind of ignoring that 18 there are -- The test procedure is a real world test. 19 It has some -- let's call them peculiarities, and I'm 20 just a little concerned about this -- concerned about 21 wantingto see themanufacturer's databecauseof some 22 concernthat sometimes the testdoesn't come out right 

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1 at the rating. But we certainly, to the extent we 2 can, will give you that information. 3 MR. BROOKMAN: Several people wish to 4 speak, andHunter, doyouwish to follow onbrieflyto 5 Frank's comment? 6 MR. FANNEY; Yes. I would just say, 7 Frank, I'mnot surprisedwhenyouadd the inchof foam 8 you don't see a significant difference, because you 9 know, if you add an inch, you've increased it by a 10 third, basically. 11 I've showed you that, if you double it, 12 you're only going to see eight percentage points, and 13 also the fact that 60 or 70 percent of the overall 14 heat loss is probably due to piping penetrations, 15 which aren't affected significantly whenyou add that 16 other inch. So I believe you. 17 MR. BROOKMAN: Tom? Is it Tom? Then 18 Charlie. 19 MR. ECKMAN: I want to race ahead on the 20 other page. So maybe you'll deal with two questions 21 at the same times. 22 This particular

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1 MR. BROOKMAN: Tom, say your full name. 2 MR. ECKMAN: Tom Eckman, Northwest Power 3 Planning Council. This particular issue, basically, 4 generates a comparison of the engineering model's 5 energy factors with the DOE test procedure's energy 6 factors along a continuum from current standards to 7 some level higher than that. 8 There's a question on -- The last question 9 dealswith connecting the dots on the retailprice for 10 these same models. I think it would be important to 11 compare what the -- the slope of the energy versus 12 cost tradeoff is in the engineering models with the 13 retail price and the energy factor as done by the test 14 procedures, so we can see whether they're parallel, 15 whether they cross or what have you. 16 Am I beingclear aboutwhat I'masking for 17 there? 18 MR. BROOKMAN: Ihope that in a little bit 19 we can get to that last item, you know, if we keep 20 going quickly here. Charlie? 21 MR. STEPHENS: Charlie Stephens. I just 22 wanted to follow up on Frank's comment. Idon't -- My 

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1 concernwas with the electric tanks, not somuchwith 2 the gas, because reading the report I was more 3 impressed with DOE's ability to physically 4 characterize the gas tanks and thenget, you know, the 5 results theywouldpredict and compare that favorably 6 with the test results for that same tank. 7 They didn't get that with the electric 8 tanks, and that's why I'm concerned only about that. 9 But I also want to follow up on Frank's earlier 10 comment this morning where he did say that 11 manufacturers are going to be complyingwithwhatever 12 the new standard is, using the test procedure and the 13 results that you get when you run the test procedure. 14 I just would like to ensure that we set 15 the standard on that same basis, and right now,based 16 on the engineering models for the electric tanks, I'm 17 not convinced we're doing that. 18 So ifwe can get those things straightened 19 out, then I'll have confidence in the test, and I'm 20 not concerned about the test results being one point 21 off or something. 22 MR.BROOKMAN: Carl Hiller and then Steve 

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1 Nadel. 2 MR. HILLER: Carl Hiller, EPRI. Just to 3 follow up on this whole issue of the accuracy of the 4 electric model versus the gas model and the three 5 percent tolerance, whatever it is: 6 First of all, the electric model is very 7 accurate. We had it independently evaluated by ETL 8 Testing Laboratory. The big issue here is, number 9 one, we're talking about a production commercial test 10 facility, not NIST. 11 We had a whole bunch of identical tanks 12 tested over and over and over again, just like they 13 did at NIST, and we see, you know, ±.02 in the result, 14 and that variability gets worse as the tank energy 15 factor goes higher, because you have less and less 16 loss involved, and it's more and more difficult to 17 measure. 18 That's the reason why you get better 19 correlation with a fossil fired tank and the fossil 20 models, because the efficiency limit is somuch lower, 21 it's easier to do. It's not an inaccuracy in the 22 model. It's a variability in the test, and the result 

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1 of the test, because the higher efficiency you get, 2 the smaller differences you're trying to measure. 3 That's what's going on. 4 MR. BROOKMAN: Thanks for that 5 edification. Ihave this sensewe're doubling back on 6 ourselves, and I'd like to keep pushing on here. 7 SteveNadel, close us outof this segment. 8 MR. NADEL: Iwas actually going to move 9 on to the issue that Tom Eckman raised. 10 MR. BROOKMAN: Which is the final issue on 11 the sheet, Ibelieve. 12 MR. NADEL: Well, it relates alsoto this. 13 Imean, I agree that DOE should be working to try to 14 better understand why does its engineering analysis 15 not, on the face, appearto correlate towhat's in the 16 market, andwhat are the reasons for the discrepancy, 17 so we can get the two to correlate. That's one. 18 In addition, I think I agree with Tom 19 that, instead of putting all our eggs in that basket, 20 itwould alsobeveryuseful to collect informationon 21 theactual price inthemarket ofdifferent efficiency 22 measures. 

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1 We do have electric water heaters of .9, 2 .91, .92, 193, etcetera, energy factor. It would be 3 very useful to actually collect data on those. 4 I would recommend. I think trying to 5 collect retail costs gets pretty messy. I would 6 recommend concentrating on wholesale costs and then 7 working on awholesale to retail mark-up. Ibelieve 8 through the distributors, through the manufacturers, 9 it might be quite possible to get a lot of wholesale 10 costs, to do a parallel analysis and saying what is 11 the pricing like now for these different efficiency 12 levels. 13 That may help better understand what's 14 going on in terms of the engineering, and ultimately 15 get DOE the data it needs to make the best decision. 16 MR. BROOKMAN: Okay, thank you. It 17 strikes me, this is averygooddiscussion but, Terry, 18 weneed to keeppressing on. So go to the next issue. 19 MR. LOGEE: Yes. Let's go to the next 20 issue, which is -- Here, it was characterized as 21 revisit the price data from the survey. Our question 22 there iswhy is there adifference in the retailmark

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1 ups of gas and electric water heaters. 2 We perceive that there probably is an 3 apparent difference in these mark-ups, and we say 4 apparent because we don't have all of the information 5 to be able to determine where the differences might 6 have arisen. 7 We have two alternatives that we're kind 8 of proposing here. The first alternative is 9 essentially extend our current database of retail 10 prices, just like Steve just suggested. We'll do that 11 by going to the wholesale plumbing supply houses. 12 The second approach is to just apply a 13 constant mark-up across both gas and electric water 14 heaters, the manufacture and cost of those water 15 heaters. We're suggesting a 1.32. That's simply an 16 average of the two mark-ups that we already got, but 17 we're hoping to -- other values, obviously. 18 MR. BROOKMAN: Glenn Schleede. 19 MR. SCHLEEDE: Yes. I asked Doug this 20 morning for permission to make two general comments. 21 One of them fits here. So I'll put it in. 22 Now it seems to me that there's a general 

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1 problem here with some of the data collection. It 2 ought to be treated as a generic problem by DOE and 3 figured out how things are handled. 4 Yesterday we had some LVNL examples of 5 data collected with calling AD people or AD 6 organizations. Seems to me, we have no real 7 discipline here in the study designs and how the data 8 is collected. So we don't know whether it's 9 representative. We don't know whether it's valid, 10 reliable and so on. 11 Seems to me, there's a generic problem 12 that DOEmust face here of where it gets its data, how 13 it's collected, and is it really good data. 14 MR. BROOKMAN: If-they are going to employ 15 a surveymethodology suchas this. That's yourpoint. 16 Jim McMahon, did you wish to respond? 17 MR. McMAHON: Glenn, I just wanted to 18 respond to your question yesterday. You had asked 19 about documentation of this data, and Iwant to refer 20 you to the engineering report. Starting on page 39 21 for electric, and on page 64 for gas water heaters, 22 there is information about how we did it, but your 

### NEALR.GROSS COURT REPORTERSAND TRANSCRIBERS 1323RHODE ISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com1 comment is well taken, and we will look into that. 2 MR. BROOKMAN: Thank you, Glenn. Terry? 3 Additional comments on this last point that Terry 4 made, the last issue? I see none. Keepgoing, Terry. 5 MR.LOGEE: The only thing that leaves us 6 in the lurch is we don't have any response here to 7 indicate which direction we should go. I guess, by 8 your silence,you're sayingproceeddown thepath that 9 collects more data. 10 Idon't understand the signal, Michael. 11 MR. BROOKMAN: Charlie? 12 MR. STEPHENS: Yes. Just one quick 13 question. On the pages that Jim mentioned, I saw the 14 data, the price data from the base case equipment. I 15 think there is equipment out there. At least there is 16 in our market that sells rather well at the other 17 levels that are sort of implied by the standard. 18 Iwould think it wouldbe just as easy to 19 collect the data on that and derive a difference. 20 Ultimately, Iguesswe're interested in the increment, 21 the increment in price and the increment in 22 performance. 

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1 MR. LOGEE: We, in fact, have some of that 2 data in our database already. 3 MR. BROOKMAN: JimMcMahon, wouldyou like 4 to add on? 5 MR.McMAHON: Letme clarify, Charlie, for 6 everybody. The data thatwas gatheredhad information 7 on all the models currently for sale by those people 8 who responded. So we do have that database, andwould 9 be happy to make that available upon request. 10 MR. BROOKMAN: Steve Nadel? 11 MR. NADEL: Just to directly answer 12 Terry's question, at least to give one opinion: I 13 would recommend, yes, try to collect some additional 14 data. There were a number of suggestions made that 15 there were certain things lacking. Look at that. 16 If you still have discrepancy, then you 17 might need to consider option B, but let's first get 18 some more data and see what that says. 19 MR. LOGEE: Thank you. 20 The next issue is the issue of the 21 constant set point. What we didwas combine these two 22 issues, the mark-up issue and theprice database, into 

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1 the one issue -- the set point of using the curve that 2 was developed from the California data, and Charlie, 3 you suggested that youhad some additional data to add 4 to that curve. 5 What we're thinking there is that we 6 maintain our approach in the methodology of using 7 ranges of water temperatures or ranges in everything, 8 essentially. We would continue to use that curve. 9 We believe the data is valid. We'll add 10 your data to it. Other data that any of you folks can 11 direct us to or provide to us, we can add to that data 12 as well. We also suspect that we should add in some 13 weighting factor for the fact that most manufacturers 14 today sell water heaters at a set point of 120 degrees 15 Fahrenheit. 16 I'm not exactly sure just how we'll 17 develop that weighting factor, but we may get hold of 18 some of the manufacturers and talk with them about 19 that. 20 MR. BROOKMAN: Joe? 21 MR. MATTINGLY: Joe Mattingly from GAMA. 22 I would just -- You ought to be careful to consider 

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1 the vintage of the data. Older data may have no 2 validity to what's being installed today. 3 MR. BROOKMAN: Thanks, Joe. 4 MR. LOGEE: Well, I would submit that 5 that's a good suggestion. We had considered that, but 6 we still think there's quite a lot of variability out 7 there. 8 MR. BROOKMAN: Additional comments or 9 questions on this point? Jim Vaughan, a final 10 comment? 11 MR. VAUGHAN: I think we can get comments 12 from the manufacturers, if the question is at what 13 set-point are the manufacturers setting the water 14 heaters today? 15 MR. LOGEE: Yes. Sure. 16 MR. VAUGHAN: I think everyone is setting 17 the water heaters at 120. 18 MR. LOGEE: Well, at least you say you 19 are. 20 MR.VAUGHAN: I think -- You know, and I'm 21 not speaking for everyone, but I thinkyou can clarify 22 that fairly quickly. 

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1 MR. LOGEE: I saw a couple of other 2 manufacturers nodding their heads yes, but does that 3 mean it's set at the factory? 4 MR. VAUGHAN: Yes. 5 MR. BROOKMAN: Jim Lutz. 6 MR. LUTZ: I want to stress that what 7 we're trying to model here is what the setting is in 8 the field, and it can vary quite a bit from what it 9 comes out of the factory setting. So I believe you 10 when you say in the factory you set it to 120. 11 I can guaranty you that not all of them 12 stay at 120 in the field. 13 .MR. BROOKMAN: Wilbur? 14 MR. HAAG: At 120; Ipresume we're talking 15 about electric water heaters 16 MR. BROOKMAN: Yes, that's what I thought. 17 MR. HAAG: The gas models are set at 18 minimum. 19 MR. BROOKMAN: Okay. Terry, would you 20 like an additional question on that? I guess, Jim, 21 your comment was that the industry could comment on 22 that. The question then becomes how, I guess, how 

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1 that gets gathered or is this sufficient for your 2 purposes, Terry? 3 MR. LOGEE: They can send it in on their 4 written comments. That will be fine. Through GAMA 5 even. 6 MR. BROOKMAN: Okay. 7 MR. ECKMAN: Tom Eckman, Northwest Power 8 Planning Council. 9 I want to make sure that we don't just 10 look at the set-point. I think what we're really 11 interested in is what the outlet temperature is. 12 MR. LOGEE: That's correct. 13 MR. ECKMAN: And to the extent that we 14 have empirical data from the field, that's probably 15 more relevant than what the manufacturers set it at, 16 given the tolerances of the thermostats. 17 MR. BROOKMAN: Thanks, Tom. 18 MR. LOGEE: Okay, the next issue involves 19 these inconsistent data comparisons in theLCCor life 20 cycle cost analysis between gas and electric. Jim 21 McMahon presented this for ouredification yesterday, 22 andwe just want to point that out toyou and let that 

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1 stand on the record. 2 If you need him to repeat that, I'm sure 3 he can do that now, but in the interest of time, I'd 4 rather not. Okay. Then we'll move on. 5 The last two -- The last issues are 6 installation costs, the first one being installation 7 costs onnewhomes andreplacements, and should DOEor 8 -- It was recommended to DOE that we gather that 9 information and include that in our installation 10 costs. 11 Let's see. Did I get ahead of myself? 12 No. We wanted to point out that in the life cycle 13 cost analysis only the incremental installation costs 14 -- only the differences between the baseline and the 15 new designs would be relevant to calculate the 16 payback. 17 So in most cases, what we're saying is 18 that there are no differences in installation costs 19 between the existing designs and new designs. We 20 understandthat thereprobablyare different costs for 21 new construction. 22 Ourdifficulty -- We have twodifficulties 

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1 there. One is that this is a fairly lowpart of the 2 market, maybe ten percent, around ten percent of the 3 market. So we don't anticipate a large effect from 4 it, and we're looking sort of at a resource versus 5 benefit from it. 6 The second difficulty is in trying to 7 determine what those costs are, even when we call 8 builders. Builders get this one bill from the 9 plumbing contractor or the HVAC guy, and it may be 10 pretty difficult for them to break this out. 11 We will attempt to get some of this 12 information and, to the extent we get it, we will 13 include it in our analysis. So -- Did you have a 14 question on that, Mark? 15 MR. KREBS: Mark Krebs, Laclede Gas. 16 I don't want to steal Jim McMahon's 17 thunder for his presentation on national energy 18 savings,but there's a lot of informationthat appears 19 to refute what you just said about what market share 20 newconstruction is. It's a lotmore significant than 21 ten percent. 22 MR. BROOKMAN: Let's look forward to 

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1 hearing that presentation. 2 Jim McMahon,wouldyou like to comment at 3 this point? 4 MR. McMAHON: Just since you have stolen 5 my thunder, it's 16 to 20 percent. 6 MR. BROOKMAN: And we'll look forward to 7 the details shortly here as we move from here on to 8 the break. 9 Terry, let's go to the last issue. 10 MR. LOGEE: Yes. Then we have 11 installation costs of the gas versus electric, and we 12 characterize that as -- Oh, this is the retail price 13 issue here. Right? Where did we get out of whack 14 here? 15 Okay. The retail price of currently 16 available, more efficient water heaters. As we 17 already mentioned, we have some retail prices in our 18 database, and it exists not only for more efficient 19 water heaters but also for different sizes of tanks. 20 We'll try to getmore of that, andwewill 21 make this available toyou uponyour request. You can 22 sign the back of your business card and leave it on 

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1 the table there, write it out on apiece of paper, or 2 whatever, and we'll E-mail it to you. 3 MR. BROOKMAN: Questions or comments on 4 these before we go to break? Jim, yes? 5 MR.RANFONE: JimRanfone. Iguess Iwant 6 to add one other issue that we will be commenting on. 7 That's the hot water usage factors. It was discussed 8 yesterday. We took the RECS data and looked at the 9 differences. 10 We were rereading that this morning, and 11 we don't believe that it's correct. So we will 12 comment. Ithoughtwe had supplied, andwehad at the 13 lastworkshop, some detaileddiscussiononaveragehot 14 water usage, and I thought it came out to about 51 15 gallons, and I'mnot sure whywe got off base here and 16 started going back to RECS data, which was analyzed. 17 Anyhow, I'd like to keep that as an issue 18 for our discussion. 19 MR. BROOKMAN: Sure. 20 MR. LOGEE: As Imentioned, Jim,we will 21 respond to all the issues in a couple of weeks. 22 MR. BROOKMAN: Jim Lutz. 

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1 MR. LUTZ: Jim, I want to reiterate to 2 make clear -- perhaps Iwasn't quite clear yesterday

- 3

- that we did not use the hot water use or the hot 4 water energy to heat water that is in the RECS 5 database. We used the RECS database to characterize 6 the household -- the number of people in the household 7 and the appliances in the household. 8 MR. RANFONE: Jim Ranfone. But I do think 9 that does impact what your average cost is going to 10. be. 11 MR. LUTZ: It does, yes. 12 MR. RANFONE: That's the issue. 13 MR. BROOKMAN: We've covered a remarkable 14 amount of ground this morning already. It's now 15 10:30, and let's take a break. We'll start at 10:45, 16 and we'll get through the rest of this agenda and, 17 hopefully, adjourn at 12:30. 18 Since we're going to work until at least 19 12:30 andperhaps a little bit longer,you might want 20 to get a snack at the snack bar. 21 (Whereupon,the foregoingmatterwent off 22 the record at 10:30 a.m. and went back on the record 

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1 at 10:45 a.m.) 2 MR. BROOKMAN: I'm suggesting that we try 3 and be very, very targeted and proceed through the 4 agenda as it's listed here. 5 The first segment was scheduled for an 6 hour and 15 minutes. I'm going to see if we can do 7 that in 45. The next element after the break, NES, 8 was listed for 45 minutes. I'm going to see if we can 9 do that in 30. The Consumer Sub-group we should be 10 able to do in 15. Maybe we can do environmental and 11 utility impacts in 15 or 20, maybe as many as 30. 12 That gets us done just about 12:45. So 13 that's pretty darn close, if we can stick with those 14 basic numbers, that basic framework. So that's what 15 we're going to try to achieve here. 16 So I'm going to put the burden on the 17 presenters to try and be concise, and I'mgoing toput 18 the additional burden on all of you in the room to try 19 and keep your comments targeted and on point. Okay? 20 So that's the basic plan. 21 Our first presenter is Ed Barbour, and 22 you're going to talk about manufacturer impact 

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1 analysis. Ed. 2 MR. BARBOUR: That's right. I'm going to 3 try to be brief. So if I go too fast or I skip 4 something, please feel free to ask a question during 5 the presentation. 6 Again, I'm EdBarbour. I'mwith Arthur D. 7 Little, and I'm going to be talking today about 8 manufacturer impact analysis, basically the 9 methodology on what we've done to set up right before 10 we actually start the process. 11 MR.BROOKMAN: Everybodyhas this in their 12 packets, I believe. 13 MR. BARBOUR: Should be what was handed 14 out yesterday at the end of the day. So everybody 15 have it? We're all set. 16 All right. Basically, I'm going to 17 discuss -- I'm going topresent this in five sections, 18 and we talk about the generic analytical framework, 19 the industry profile, straw man industry cash flow, 20 sub-group impact analysis and industry cash flow. 21 The first thingwe're going to talk about 22 is the generic analytical framework. To run a little 

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1 background as to why we perform manufacturer impact 2 analysis, essentially the law specified that in 3 determining whether a standard is economically 4 justified, DOE is required to consider the economic 5 impact of the standard on themanufacturers andon the 6 consumers of theproducts subject to the standard,and 7 also -- The key words here were the impact on the 8 manufacturers. 9 Basically, impacts is defined as any 10 lessening of competition as determined in writing by 11 theAttorneyGeneral that is likely toresult fromthe 12 imposition of the standard. 13 In July 1996 in the process rule the 14 Department committed to review of the manufacturer 15 impact analysis methodologies. In this new 16 methodology we must address the following: We must 17 provide forearly stakeholder input; utilizeanannual 18 cash flowapproach to determine quantitative impacts, 19 including an assessment of short term costs and 20 capital requirements. 21 We must develop estimates of critical 22 variableswith input from interestedparties, drawing 

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1 on multiple sources, both quantitative and 2 qualitative; report thedistributionof impacts onthe 3 manufacturers; usemodels that are easy to understand 4 and account for uncertainty; must consider the 5 cumulative impacts of regulation; and must consider 6 the impacts onmanufacturing capacity,plant closures, 7 and the loss of capital investment. 8 This sort of shows what sort of inputs 9 that we're looking for from both the qualitative and 10 the quantitative aspects. In the past there's been a 11 lot of tendency to sort of jump headlong into trying 12 to do quantitative, very detailed calculations, then 13 measure financial variables, without having really 14 spent enough time asking ourselves what were the 15 relevant things to measure for the manufacturers. 16 What we're trying to do now with the new 17 methodology is address that. That'swhy we have a lot 18 of qualitative -- or a lot of opportunities for 19 qualitative inputs. 20 In order to do this, we have fully 21 documented qualitative and quantitative analytical 22 methods. The qualitative assessment will draw on 

### NEALR.GROSS COURTREPORTERSAND TRANSCRIBERS 1323 RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON,D.C. 200053701 www.nealrgross.com110 1 multiple types of stakeholder inputs. Essentially it 2 will be manufacturer inputs will be invited through 3 voluntary interviews and facility visits. 4 Stakeholders will be consulted through interviews, 5 workshops, surveys and other means to develop 6 estimates of criticalvariables and identifypossible 7 impacts. 8 The key to this, it is very important to 9 understand the way wemodel the passes different from 10 our attempt today. I think it's fair to say that 11 previouslywe had the models suchas the GRIMwas very 12 much center stage. 13 Today, what we're trying to do is put -- 14 this is to be more up front and be really the center 15 stagewhenwe do the manufacturing impact analysis, to 16 really understand the qualitative assessments before 17 we get into detailed cash flow analysis thatwills be 18 conducted under GRIM. 19 Now what Iwould like to do is sort of go 20 step by step outline of how the analysis is going to 21 be conducted. Essentially, the industry profile 22 provides us some quantitative and qualitative 

### NEALR.GROSS COURTREPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 200053701 www.nealrgross.com111 1 boundaries and aspects orderofmagnitudes that we can 2 work from so that we sort of understand what the 3 current industry looks likebeforeweactuallydevelop 4 a straw man cash flow and visit the manufacturers for 5 the interviews. 6 For the straw man industrycashflow,what 7 we have done is we have created a spreadsheet tool 8 called the GRIM model, Government Regulatory Impact 9 Model, to forecast industry cash flows both with and 10 without standards. Later this week that should be 11 available on the DOE Web to download by the 12 manufacturers andother interested parties so thatyou 13 can sort of see how we set up the analysis. 14 Next we do manufacturer sub-group 15 analysis, and that's actuallywherewewill goout and 16 visit the manufacturers to interview you, get the 17 qualitative assessments, and the manufacturers 18 themselveswill be allowed to run the GRIMwith their 19 own financial inputs. We'll discuss that in a little 20 more detail. 21 In Phase III we sort of roll it all up 22 into an industry cash flow analysis. 

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1 Next Iwant togo through this real quick. 2 This should be nothing real new. 3 MR. BROOKMAN: Can I just check. Is 4 everybody staying with us so far? So far? Most of 5 you have seen this framework before. Yes? Okay. 6 MR. BARBOUR: Okay. I'm going to go 7 through this real quick. This is some of the outputs 8 from the industry profile that we've done, and it's 9 just to sort of again set an order of magnitude and 10 sort of aboundary so we understand what's going on. 11 The first one, we want to look at both 12 unit shipments and value of water heaters. They've 13 increased since 1992. That's how far we go back. 14 Essentially, in 1997 there were 9.3 million water 15 heaters shipped in the United States, and this 16 attributes to a manufacturer of about $1.3 billion. 17 Next, from Appliance Magazine, just to 18 sort of get an idea who the big players are in the 19 water heater market. There's five major players. 20 Don't get too wound up in the percentages. 21 What we want to be able to do is to 

### 22 basically say that there are five major players, so 

### NEALR.GROSS COURTREPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 200053701 www.nealrgross.com113 1 thatwhenwe visit one of the majormanufacturers and 2 they tell me that they have 60 percent market share, 3 we know that maybe that's not quite right. So this 4 provides a littlebitmore of, again, aboundary check 5 and a framework. 6 The other thingwewant to look at is some 7 of the distribution channels. One of the issues 8 that's come up previously was about the increase in 9 the large retail outlets for the do-it-yourself 10 market. Again, these numbers are somewhat 11 illustrative. 12 What we want to try to capture is the 13 growing trend to moving form plumbing wholesalers to 14 large retail outlets and whatever impact that might 15 have on a business. 16 Next I'm going to walk through how we 17 developed the straw man industry cash flow using the 18 GRIM. The Department is currently proposing to use 19 the GRIM to conduct the industry cash flow. The GRIM 20 is basically a tool that provides a discounted cash 21 flow or produces an industry net present value for 22 both scenarios, with standards andwithout standards. 

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1 It also offers numerical and graphical comparisons. 2 The GRIM basically has four inputs: 3 Manufacturer prices, manufacturing costs, shipments, 4 and then the financial information of the 5 manufacturer. Out of those four inputs, we can 6 produce a cash flow that ends up with a net present 7 value for the industry. 8 In order to set up a tool, the Department 9 created a straw man cash flow using industry average 10 values for manufacturer prices, manufacturing costs, 11 shipments and financial information. 12 Themanufacturercostswereestimatedfrom 13 the developed industry cost structure. The data 14 submitted by GAMA was compared to current industrial 15 reports as published by the Bureau of Census. 16 Themanufacturingprice data itself comes 17 from the current industrial reports, and then we have 18 manufacturermarkups fromthe industrycost structure. 19 The financial information was obtained through 20 manufacturers' 10K statements, the census of 21 manufacturers from 1992, as well as Dun & Bradstreet 22 company datasheets.

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1 Then the shipments we will get from the 2 NES, which will be discussed next by Jim McMahon, 3 which is being developed by LBNL. 4 This slide we actually discussed 5 yesterday. So unless there's anyquestions about what 6 GAMA provided, that theyprovided the fullproduction 7 costs, I'm going to go on to the next slide. 8 One of our first checks was to sort of 9 compare what GAMA supplied on the average side from a 10 manufacturer cost standpoint towhat theaverageprice 11 was for all electric and all gas units sold in 1997 12 and 1996. 13 Now recognize thatthis,boththe electric 14 cost, thegas cost and the oil cost represent distinct 15 baselinemodels. This represents a50-gallonelectric 16 with a certain energy factor and certain physical 17 characteristics. Gas is a 40-gallongaswith certain, 18 again, physical characteristics. Same with oil, 30- 19 gallon tank with certain characteristics. 20 These numbers represent the averageprice 21 that manufacturers sold to the wholesalers or the 22 large retail outlets or whoever their customers were 

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1 for all sizes and all efficiencies and all ranges. 2 What we were able to develop was an 3 average price in 1997 for electric of $130 for gas, 4 $156, and oil was not available from the CIR. It's 5 actually not offered. There would be disclosure 6 reasons. 7 Sincewe're interestedinreallyobtaining 8 an industry value, we're proposing to use these 9 industry average prices presented in the CIR for 10 "manufacturerprices" to set up the cash flow, again. 11 MR. BROOKMAN: George, a question? 12 MR.KUSTERER: GeorgeKusterer,Bock Water 13 Heaters. In the lefthand chart that you have here, 14 overheadcosts for oil is $36 as opposed to an average 15 of $50. Can you explain that, please? 16 MR.BARBOUR: Why these two aredifferent? 17 I'm not sure Iunderstand. 18 MR. KUSTERER: Yes. Why is that lower? 19 MR.BARBOUR: This data comes straightout 20 of the engineering analysis, and actually, what 21 happens is is that this data is what was submitted by 22 GAMA. There was no oil data submitted by GAMA. This 

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1 was provided by consultants to the Department of 2 Energy to develop this overhead cost. 3 MR. KUSTERER: Well, why is there such a 4 disparity in overhead? Overhead is basically the 5 same. Imean, what changes? 6 MR. BARBOUR: All right. One thing we 7 know is that we have a transportation aspect in both 8 the overhead cost here. I'm not sure if that was 9 included in here. Again, I wasn't involved in 10 developing this data. So I'm not sure I'm the best 11 one to answer it. There may be somebody that's 12 better, that worked with the consultants in order to 13 develop the data for the oil. 14 MR. KUSTERER: Iwould like the record to 15 show that Ibelieve that that number is inaccurate. 16 MR. BROOKMAN: Thanks, George. 17 MR. BARBOUR: So working off of -- Again, 18 we're still creating a straw man. Iwant to sort of 19 emphasize that these numbers are just to help us set 20 up the GRIMand that, whenwevisit themanufacturers, 21 they will run the model themselves for their own 22 situation and their own financial inputs. 

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* 1 ' So don't -- I wouldn't get too wound up 2 per se about the different costs that are being 3 represented here. They're to provide a baseline and 4 provideus something to help -- sort of inputs to help 5 us develop the spreadsheet modelbeforewe actuallygo 6 out anddo the interviews, which I'm going to discuss 7 a little bit. 8 MR. KUSTERER: Letme just say something. 9 Nobody is getting wound up. They're just -- We're 10 just trying to point out there's some inaccuracies. 11 We're not gettingwound up. 12 MR. BROOKMAN: Okay. Thank you. 13 MR. KUSTERER: Imean, if you want me to 14 get wound up -- 15 MR. BROOKMAN: But as I understand it, 16 we're trying to lay out themethodologyhere. This is 17 the description of the methodology with some numbers 18 that are starting points. 19 MR. KUSTERER: Imean, nobody is getting 20 wound up. 21 MR. BARBOUR: Okay. What we did is we 22 looked at the Census of Manufacturers, and we looked 

### NEALR.GROSS COURTREPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com119 1 at some public data available through 10K and Dun & 2 Bradstreet, andwe're able to developwhat we call an 3 industry pie which tries to allocate costs for the 4 base price of a water heater for the different end 5 uses. 6 Then from that, we can sort of come up -- 7 we canback out amaterial, laborandoverhead thatwe 8 need to go into the spreadsheet, and ifwe do that, we 9 get a fullproduction cost, and thenwe get an average 10 manufacturer markup of 1.24. 11 We're proposing to use that markup to 12 estimate the post-standard manufacturer price. 13 Essentially, what that would be, we would take the 14 base case manufacturer price from the CIR, which I 15 just presented, and we would add the incremental 16 production costs which we developed from the 17 engineering analysis, times thatmanufacturer markup. 18 Right nowwe've got abase case markup of 19 1.24. There are numerous scenarios that we can run 20 when we do the analysis that can look at whether or 21 not there are certain markups that result in the 22 current industry value that we currently have, just 

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1 maintains it flat. 2 We can also lookatdifferentmarkups that 3 reduce the industry value to zero, and we can also 4 look at price resulting from a pass-through of that 5 incremental cost, all to sort of give us an idea of 6 what sort of impact it will have on the industry. 7 As I said earlier, the shipment values in 8 the GRIMwill be obtained from the NES, and that's an 9 output of the NES. We actually just incorporated it 10 in, and currently LBNL is developing that. 11 For the financial information, we used a 12 couple of different sources. We used 10K reports, 13 company annual reports, Dun & Bradstreet. From that 14 we were able to come up with sort of a straw man 15 working capital number of almost 13 percent. SG&A is 16 about 11. R&D is about 2. Depreciation is about 3, 17 and capital expenditure is about 3.7, and we have an 18 effective tax rate of 35.8 percent for the strawman. 19 Any questions so far on this, because 20 otherwise I'm going to go into the interviewprocess. 21 Basically, the interviewprocess happens 22 when we do the sub-group impact analysis. It includes 

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1 basically five components: Manufacturer cash flow; 2 estimated competitive impacts; estimate employment 3 impacts; estimate impact of manufacturing capacity; 4 and summarize quantitative and qualitative findings. 5 Now that I've just walked you through all 6 the average industry analysis, it's actuallynot going 7 to be used to assess the impacts on sub-groups of 8 manufacturers. What we do in the interview or even 9 before the interview, we're going to ask the 10 manufacturers to perform a cash flow analysis using 11 the GRIM spreadsheet and their own values for 12 company-specific inputs. 13 ADL will be available to assist the 14 manufacturers in adapting the GRIM to their individual 15 situation, as well as -- The key point is to document 16 important variances from the straw man or industry 17 norms, and that will be discussed and documented 18 during the interview process. 19 Cash flow reportswill beprepared,again, 20 with and without new energy efficiency standards. 21 The key point of this whole analysis is 22 really the interview. What we'd like to do is to 

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1 nconduct interviews that would gather manufacturer 2 specific data and views, and really the views on the 3 important issues. 4 We will develop a questionnaire to guide 5 the interviews. Currently,we have adraft version of 6 the questionnaire over on the table over here. I'd 7 like anymanufacturer or interestedparty to feel free 8 to pick up a current copy. 9 We would also like for you to provide 10 comments and feedback into what's currently 11 incorporated in that interview guide. 12 The purpose of the interviews is to really 13 -- is to gain that understanding and to reallyhave a 14 good confidence into the actual results that come out 15 of the MIA. 16 Somequestions inthe interviewguidewill 17 be relevant to some -- will be irrelevant to some 18 manufacturers, while there may be some manufacturers 19 who have other issues they maywish tobring up that's 20 not included in the interview guide; and we want tobe 21 able, during the interview, to allow them to provide 22 that information. 

### NEALR.GROSS COURTREPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE., N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com123 1 Again, ADL will be assisting the 2 Department in carrying out the interviews, and we'll 3 be providing the third party confidentiality for 4 proprietary information. 5 The interview guide is going to cover a 6 range of topics, and really what we'd like to do now 7 is to really outline our needs, what we need in order 8 to do the MIA, as well as distribute the draft 9 interviewguide and to encourage themanufacturers to 10 contact us with suggestions and questions about the 11 content of the interviews. 12 Basically,theinterview isgoingto cover 13 six issues: Current organizational characteristics; 14 industry infrastructure; global competition; 15 manufacturer cash flow analysis impacts assessment; 16 employment impacts assessment; andcompetitive impacts 17 assessment, and cumulative burden which isn't up 18 there. 19 We're interested in understanding the 20 current organizational characteristics of each 21 manufacturer. Primarily,whatwe reallywant to focus 22 on is at the plant and profit center level. That 

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1 means to look atproduction levels andtrends, themix 2 ofproducts thatyou havebetween electric andgas and 3 oil, as well as the size range. 4 We want to look at your location, where 5 you're located both domestically, North America and 6 other foreignproduction facilities. We also want to 7 look at any sort of marketing strategy you may have 8 for efficiency and how would all these things change 9 with new standards, new energy efficiency standards. 10 The cash flow analysis is somewhat key. 11 It provides a level of consistency between each 12 manufacturer as we do the interviews. As I stated 13 earlier, eachonewillbe given aGRIM spreadsheet and 14 a sampleworked-out strawman industry cash flow that 15 I walked through earlier to sort of facilitate 16 understandingamong themanufacturers about themodel 17 and how it works. 18 Then each manufacturer can input its own 19 data and assumptions to develop its own expected cash 20 flow, and the cash flow output will exhibit, just by 21 the way we've set up the spreadsheet -- will exhibit, 22 basically, a format content similar to the straw man. 

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* 1 It should be also noted that the 2 manufacturer cash flows will be kept confidential. 3 I think we just discussed this a little 4 bit. The cash flow analysis key procedure -- It's 5 important -- The important goal of each interview is 6 to fullydiscuss the results of the cashflowanalysis 7 under each scenario that the manufacturer does. 8 Inmanycases, the cash flowanalysiswill 9 be prepared before the interview for discussion 10 purposes only. Problems and/or unique circumstances 11 affecting the cash flows shouldbe discussedandtried 12 to be resolved during the interview. 13 Each manufacturer should also include an 14 informal review of the draft cash flow analysis for 15 the manufacturer. This draft can then be revised 16 after the discussion for submission to third party 17 review and inclusion in the industry roll-up. 18 The next thingwe want to look at is sort 19 of employment impacts. We want to look at current 20 trends of water heater production employment as well 21 asmanufacturer'suse onhow employmentpatternsmight 22 be affected by new energy efficiency standards. 

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1 They would also be interested in knowing 2 to what extent that workforce will need extensive 3 retraining or even replacement in the case of a new 4 energy efficiency standard. Existing data on 5 manufacturing interviews are going to be used to try 6 to estimate this employment level, differencesbetween 7 different standard levels. 8 Interviews will be the primary method of 9 really establishing the difference inworkforce skills 10 required under different levels of the energy 11 efficiency standards, and again the interviews will 12 establish likely impact of the new energy efficiency 13 standards on product mix and employment levels. 14 In order to do- the competitive impact 15 assessment, the Department of Justice. will be 16 solicited in order to provide draft questions to the 17 manufacturers for the interview questionnaire. 18 Questions are likely topertain to the likeliness of

- 19

- DOJ is really interested in what sort of reduction 20 in competition happens among the manufacturers. 21 So a lot of their questions are really 22 going to be focused on if there's asymmetrical cost 

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### 1 increases to some manufacturers, whether there is an 2 increased proportion of fixed costs to certain 3 manufacturers that increase their business risk, as 4 well as anybarriers to market entry. 5 In other words, if one manufacturer has 6 proprietary technology that would allow it to really 7 dominate themarket, DOJwouldbe interested in that. 8 MR. LOGEE: This is Terry Logee. Let me 9 just make a note for the record. DOE andArthur D. 10 Littlecontractorshavealreadybeento theDepartment 11 of Justice and have gottenpreliminary input on what 12 shouldbe in this questionnaire. 13 Department of Justice will be contacted 14 oncemore to review this and to finalize it beforewe 15 actually make our interviews. 16 MR.BROOKMAN: And so everybody,based on 17 Ed's earlier comment, should take a look at the 18 interview format and look and make sure they're 19 comfortableand addtheir comments to theDepartment. 20 MR.BARBOUR: The interviewguideactually 21 alreadyhas questions for competitive impacts in it. 22 MR. BROOKMAN: So look at those. 

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1 MR. BARBOUR: Then after the interviews, 2 we go into develop an industry task flow to sort of 3 roll up everything we've learned, and it's really a 4 bottoms up approach. 5 We've talkedprobablyadnauseamabout the 6 GRIM, but it will be used to really have -- to 7 provide that commonality between the different 8 manufacturers in order to come up with anannual cash 9 flowanalysis under current and newenergy efficiency 10 standards. 11 We've already talked about the process. 12 So let's go into how we actually roll it up. We can 13 develop -- take the individual flows -- We take the 14 straw man, send out the GRIM to the manufacturers. 15 They run itwith their own financial information. We 16 have the results. We roll it up together into one big 17 industry cash flow that shows the overall impact on 18 the industry. 19 Then finally, for the public record the 20 information ispresented. It's onlythe summary sheet 21 of the industry cash flow for each scenario. 22 Proprietary information will not be disclosed. That 

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1 means shipments by water heater type, prices by water 2 heater type, manufacturing costs, as well as the 3 manufacturer specific financial information. 4 That actually concludes my presentation. 5 If there's any other questions

-- 6 MR. LOGEE; Terry Logee again. Ed, for 7 the record why don't you just explain what the 8 confidentiality arrangement is that you intend to 9 have. 10 MR. BARBOUR: Actually,Mike is probably 11 better, since he's done this with valves before. 12 MR. RIVEST: Hi. This is Mike Rivest of 13 ADL. I've just been through the process with the 14 valvesmanufacturers, and I'mhappyto say that things 15 went surprisingly well. 16 Wewere able to -- We had varyingways of 17 working withmanufacturers. All of themallowedus to 18 tour theirmanufacturing facilities. In some cases -- 19 In most cases, they had prepared GRIM cash flow 20 analyses fortheirparticular situations and filled in 21 the questionnaires when we met them. 22 In other situations we spent aday or two 

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1 with them developing the cash flow analyses for their 2 particularsituations. Theconfidentialityagreements 3 that we signed -- We at ADL have suggested 4 confidentiality agreements. 5 Iwould say inmost cases they came back 6 changed substantially, based on the inputs from the 7 legal counsel of thevarious companies, but it hasn't 8 been a roadblock up until now. All the information 9 coming from individual manufacturers is kept in 10 confidentiality at A.D. Little. 11 TheDepartmentdoesn't seeyour individual 12 company submittals. All they see is what is in the 13 public record,which is the rolled-up industry values. 14 MR. BROOKMAN: Questions on that? That 15 was a lot of information quickly presented by Ed 16 Barbour. Questions on this packet of information? 17 Glen Schleede. 18 MR. SCHLEEDE: One question for Terry. 19 Could you sort of characterize how -- the extent to 20 which the JusticeDepartment is really engaged inthis 21 process? Imean, are they thoroughly involved? Are 22 they doing it because you're bugging them or can you 

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### 1 give some general description of how thorough you 2 think their involvement really is. 3 MR. LOGEE: The meeting that Iattended, 4 therewere three or four -- several JusticeDepartment 

### 5 individuals, including, I believe, the Director of 6 that particularoffice. Theyhad offered to reviewa 7 generic, if you will, document, interview type 8 document which is reallywhat our interview guide is 9 *1 basedon, andthentheyalsowillbe interviewing each 10 specific -- product-specific interview guide that we 

### 11 produce. 12 Our reason and our effort and their 

### 13 interest in it is to reduce overlap from the two 14 agencies so that -- with the hope that in most cases 

### 15 they will not have to go back out and ask these 16 questions all over again to all these manufacturers. 17 Nowtheremaybe some instances when they 18 decide they need additional information, but to the 19 extent that it's possible, we're trying to prevent 20 that. 21 MR. SCHLEEDE: Will they have access to 22 the raw information that is collected or are they 

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1 restrictedto seeingonlythe summaryinformation that 2 DOE gets? 3 MR. RIVEST: I certainly -- My intent is 4 to not give them any information. 5 MR. LOGEE: The confidentiality agreement 6 is between the manufacturers andADL. The government 7 is not involved in that. So Iwould expect that, if 8 theywant some of that information, the Department of 9 Justicewillhave to execute theirownconfidentiality 10 agreement and go and get that information. 11 Otherwise, they will see the same 12 information that the public sees and that we see. 13 MR. BROOKMAN: Jim, you had a question? 14 MR.RANFONE: Yes. JimRanfone, American 15 Gas Association. 16 I guess, even though this is in the 17 section on manufacturing, back onpage 2 it says, "In 18 determining a standard, whether a standard is 19 economically justified, DOE is required to 20 consider..." 21 The second bullet is the impact of 22 lessening of competition as determined in writing by 

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1 theAttorney General that is likely to result from the 2 imposition of the standard. 3 I guess this is more for DOE's counsel. 4 Would that also apply to competition, for example, 5 between fuel suppliers, between energy suppliers? 6 MR. BARBOUR: No, I don't think so. I'm 7 almost positive it doesn't. 8 MS. PINTO: We don't have an answer right 9 now. 10 MR. RANFONE: Okay, but can we get an 11 answer to that, whether or not that's being 12 considered. 13 MS. PINTO: At some point, yes. 14 MR. BROOKMAN: Help me to capture it 15 again. Say it in a way that I can write it up here in 16 a few words. 17 MR. RANFONE: The legislative requirement 18 states the impact that DOE indetermining a standard

- 19

- whether a standard is economically justified, DOE is 20 to look at the impact of any lessening of competition 21 as determined in writing by the Attorney General that 22 is likely to result from the imposition of the 

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1 standard. 2 My question is does that apply to the 3 lessening of competition between energy suppliers

-- 4 among energy suppliers? 5 MR. MARGOLIS: Are you asking -- Eugene 6 Margolis. Are you asking that in DOJ giving us its 7 opinion or are you asking how, after DOJ gives us its 8 opinion, how we relate to it, how DOE then relates to 9 it? 10 MR. RANFONE: No. What I'm asking is a 11 response to what's outlined here. It says the 12 standard -- In determining whether a standard is 13 economically justified, DOE is required to consider 14 the impact of any lessening of competition as 15 determined in writingby the Attorney General that is 16 likely to result from the imposition of the standard. 17 Myquestion is does this onlyapply to the 18 lessening -- a possible lessening of competition 19 betweenmanufacturers or does it also apply -- do you 20 have to do an analysis on any possible lessening of 21 competition between energy suppliers? 22 As an example, ifyouestablisha standard 

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1 for one product that would result possibly in fuel 2 switchingto anotherproduct, is thatbeing considered 3 by the Department of Energy orare yourequiredby law 4 to do so? 5 MR.MARGOLIS: That has never beendoneby 6 the Department before. That doesn't mean that it 7 won't be done. It's never been raised before either. 8 MR. BROOKMAN: But, Jim, thanks for 9 clarifying -- for taking the time to clarify that. 10 Francine, I heard you comment earlier. 11 You gave a short answer. 12 MS. PINTO: No. I said we don't have an 13 answer. 14 MR. BROOKMAN: Thank you. That was a 15 short answer. I saw Mark Krebs first, and then 16 George. 17 MR.KREBS: MarkKrebs. Yes, it has been 18 looked at in the past.. It was looked at in the last 19 roundofNAECA, specificallyregarding the issue about 20 the heat pump water heaters, and Ibelieve that DOJ 21 made a statement that's in the formal records to that 22 extent. 

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1 MR.BROOKMAN: Soadditionalquestions and 2 comments based on -- George, did you wish -- Okay. 3 Additional questions and comments based on Ed 4 Barbour's presentation? There's a lot there. Steve 5 Nadel? 6 MR. NADEL: Yes. Two questions and, Ed, 7 I'm not sure whether it's you or Michael answers it. 8 If Iunderstood correctly, you'll be taking all these 9 GRIM runs from individual manufacturers and then 10 aggregating them in some way to get an overall 11 industryperspective, andthat latter iswhat comes in 12 the public record. 13 Okay. Let me just make sure I have it 14 understood. 15 MR. RIVEST: Yes. 16 MR. NADEL: Okay. The question is what 17 type of review are these individual manufacturer 18 estimates going to be getting, and what type of 19 assurances can -- I guess it's ADL, because they're 20 the only ones who have access to this, can give it to 21 us, that they believe that this is a fair 22 representation in the industry? 

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1 The reason I ask this is that, clearly, 2 there are judgment calls being made in making these 3 analyses, andthemanufacturerswho are preparing them 4 are not disinterested parties in this proceeding. So 5 how can'those of us who do not have access to this are 6 going to get it in such highly aggregated form, it's 7 going to be very difficult to understand. 8 MR. RIVEST: The underlying assumptions, 9 Steve, are going to be verbalized through the 10 qualitative assessment. So that, if youhaveproblems 11 with the assumptions, you'll be -- I think you'll be 12 in a position to make your own evaluation. 13 You know, if there are some assumptions 14 about shipments, for example, or about price trends or 15 things like that, they will be verbalized. So you 16 won't just get the GRIM and no explanation. You know, 17 we will be reporting back on the

-- 18 MR. NADEL: The key assumptions. 19 MR. RIVEST: Yes. 20 MR. BROOKMAN: That was Mike Rivest. 21 Additional questions or comments based on this 22 presentation? Okay. Idon't see any. Thanks, Ed. 

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1 George, I thought you -- Did you wish to 2 comment? 3 MR. KUSTERER: Not on the presentation, 4 but on my colleague, Mr. Ranfone. I share his 5 concerns with regard to the fuel switching issue, and 6 if you remember, for those of you who were here in 7 '94, this was also brought up. So it has been 8 extensively discussed. Whether the Department of 9 Energy had addressed it at that time, I thought they 10 had. 11 So I think it is a serious issue, and I 12 think it's something that can't be swept underneath 13 the table. 14 MR. BROOKMAN: Okay, thank you. Steve 15 Nadel? 16 MR.NADEL: One other question. An issue 17 that's come up, I think, since theprocess improvement 18 began and we started talking about GRIM was GRIM has 19 certain strengths, but that it needed certain 20 enhancement, particularly the one that comes to mind. 21 I see you have a cash flow here. There's 22 been discussion for several years now about also 

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1 adding return on investment. What is the status of 2 thatwork? That's another way to look at the industry 3 health and one that traditionally DOE has used and 4 many of uswhohavebeen involved inthisprocess have 5 become quite familiar with. 6 MR. RIVEST: I'm looking at Carl Adams 7 now. Carl, pay attention to what I'm going to say. 8 We have at ADL developed the metric, but 9 we have yet to have it approved by DOE, reviewed by 10 DOE and approved by DOE. Is that fair, Carl? 11 MR.ADAMS: Iguesswe're still looking at 12 it. 13 MR. BROOKMAN: That was Mike Rivest. 14 Carl, for the record, says DOE is still looking at it. 15 Eugene, do you wish to -- Okay. 16 So additional questions or comments on 17 this presentation? I think we're just about back on 18 track. The next presentation and discussion is on 19 NES. By all means, Francine Pinto. 20 MS. PINTO: This is Francine Pinto. This 21 is in response to Mr. Ranfone. Since I cannot 22 guaranty that we would have a legal opinion by 

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1 December 11th, please submit whatever statements on 2 the whole issue you want to. 3 MR. RANFONE: Thank you. 4 MR. BROOKMAN: Thank you. Okay, Jim, are 5 you doing NES. National Energy Savings is the next. 6 We're back on track with time. So that's very 7 helpful. Thanks, Ed Barbour, for doing that 8 efficiently. 9 Letme also say, for those of you thatmay 10 have joinedus and didn't hear the announcements this 11 morning, if you have a laptop computer andyou expect 12 to walk out the door with it today, you need a 13 property pass. 14 So if you haven't obtained that yet from 15 Brenda Edwards Jones,youneed toget one. Otherwise, 16 you'll be detained at the door as you try and leave. 17 MR.McMAHON: Apparently,the filedidnot 18 get loaded. I'm going to have to transfer it to my 19 computer. 20 MR. BROOKMAN: Everybody has a copy of 21 this. This is Jim McMahon's presentation, National 22 Energy Savings. 

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1 MR.McMAHON: In the interest of time, I'm 2 going to begin from the paper copy and, if we get the 3 electronic slides up in time, we'll go to those. 4 This is the paper that I'm talking about, 5 National Energy Savings, page 2, discussion topics. 6 You'll be happy to know that topics 3, 4, and 5 were 7 discussed yesterday. So I'm not going to talk about 8 those: Consumer marginal energy rates, energy price 9 trends, and the energy conversion factors. 10 So the focus today is on water heater 11 shipments, fuel switching, and economic factors. 12 Page 3 is a graphic of historical water 13 heater shipments. This is date back to 1951. It 14 shows total residential water heater shipments 15 increasing from about 3 million up to close to 9 16 million today, and it also shows the breakout 17 according to fuel type for gas and electric water 18 heaters. 19 This is basic information that we need, 20 because the current stock of water heaters in place 21 includes some that were installedup to 20 years ago, 22 and we need to know how many of those are likely to 

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1 retire as a meter driver of future shipments. 2 Next page, page 4 -- and please stop me 3 anytimeyouhave aquestion. Newhousingconstruction 4 has been discussed a little bit yesterday. We have 5 looked at the historical record. There have been 6 between 1and 2millionhousingunits added eachyear. 7 Most of those, 90 or 95 percent, have 8 residential storage waterheaters of the.type that we 9 are concernedabout. Then letme throw inhere, there 10 are some residential housing units that have shared 11 water heaters. That is, they share a water heater 12 among multiple housing units. Those are typical not 13 of consideration here, andwe are aware of that. I'll 14 account for that later. 15 So if you put that together, new housing 16 accounts for on the order of 1-2 million new 17 residential storage water heaters eachyear, and that 18 represents 16-20 percent of annual shipments. 19 MR. BROOKMAN: Frank Stanonik. 20 MR. STANONIK: Frank Stanonik with GAMA. 21 Jim, housing units -- you kindof alluded that doesn't 22 include to some extent units that would be provided 

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### 1 from, let's say, a central water heater. Is there 2 anymore specific definition? Are we including 3 everything -- Let's put it this way -- including even 4 highrise or residential -- units that would be in the 

### 5 highrise residential building? 6 MR. McMAHON: Let me explain. The 7 definition of housing units includes single family, 8 attached and detached. It includes multi-family, 9 including highrise. It also includes mobile homes. 10 However,we aregoingtoexclude fromthewaterheater 11 analysis those housing units that have shared water 12 heaters that are not of the type that are being 13 regulated. 14 Okay,onpage 5,life expectancy. As was 15 indicated yesterday, we are using triangular 16 distributions. They are different for electric and 17 gas, and the numbers are here. 18 For electric water heaters, the range of 19 lifetimes is from four to 19 years with a 12 year 20 average, and for gas from three to 15 years with a 21 nine year average. 22 MR.HILLER: CarlHiller fromEPRI. From 

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1 where do you get this data? 2 MR. McMAHON: It's from Appliance 3 Magazine, September. 4 MR.HILLER: So it'snot reallyscientific 5 data then. It's just somebody's estimate. 6 MR. McMAHON: My understanding of how 7 they gathered that is by interview of knowledgeable 8 people. They've done it for many, many years. We 9 have in the past done research to try and derive 10 lifetimes fromthe shipmentsdata, and it's difficult, 11 and you don't always get results that are credible. 12 I'd be happy to have input if you have 13 other sources of data. 14 MR. HILLER: Unfortunately, I don't have 15 other sources of data. I have considered doing the 16 scientific tests like we did for space conditioning 17 heatpumps, but it requires amuch,much larger sample 18 because of the variability that affects water heater 19 life. 20 Just for the record, the opinion survey 21 generally doesn't give you real good results. 22 MR. BROOKMAN: And can -you characterize 

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1 how they are not good? 2 MR. HILLER: Let me give an analogy of 3 what we did with space conditioning heat pumps. 4 Opinion surveys -- The opinion of how long something 5 lasts canonlyreflectyour experiencewiththose that 6 have been replaced, not those that haven't. That 7 tends to be the downside. 8 So, for example, when you consider a long 9 life tank,most of which wouldpresumablystillbe out 10 there, having never failed, how do you determine the 11 lifetime by an opinion survey? 12 MR.McMAHON: We'll come back to this in 13 a moment, because I've got a comparison of how our 14 estimates of the replacement market plus the new 15 construction compare to actual shipments, and so 16 you'll be able to see what the discrepancies are. 17 Thenwe candiscuss whether lifetime maybe one source 18 of that discrepancy. 19 MR. STANONIK: Frank Stanonik again. So, 20 Carl, do you think the averages are too high or too 21 low? 22 MR. HILLER: Idon't know what they are. 

### NEALR.GROSS COURTREPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE., N.W. (202)234-4433 WASHINGTON,D.C. 20005-3701 www.nealrgross.com146 1 I don't claim to know the answer. I wish Idid. 2 MR.McMAHON: Here is a comparison. What 3 I've done here is combine the information on the 4 previous slides. This is the -- The dashed line is 5 total shipments from 1981 out to 1996. So that's 6 reported data. I got that from data that GAMA has 7 published. Igot their statistical highlights. 8 The yellow band here is new .housing,and 9 I'm fairly confident of that, because there are good 10 surveys every year that report for new housing what 11 types of water heating they have, and we used the 12 historical statistics on how many housing units are 13 constructed each year. That's the yellow band. 14 Theblue orgreenbandhere at the bottom, 15 whichwas the bulk of the market, is the replacement 16 market. We calculated that using the lifetimes that 17 I just showed you, coupled with the historical 18 shipments that have been reported. 19 Then so the total, the top line here, can 20 be compared with theactual shipments, andyou can see 21 how well we did. 22 Go to the next page. It's the same 

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### 1 information presentedas apercentof theannual total 2 eachyear. So you should get 100 percent every year 3 if you've done it right. 4 Here's the new construction. Here's the 

### 5 replacement market. So you can see that we over6 estimatedalittle initially,prettygoodagreement in 7 the middle in the late eighties and early nineties, 8 and we're still within tenpercent ineveryyear. I 9 think it's actually eight or nine percent -- is the 

### 10 worst error. 11 I don't know all the reasons why it doesn't 12 agree. If you read the NES report, I've listed some 13 things that Ithinkarepossible explanations,and I'd 14 be happytohave anyadditional information that will 15 help usmake abetter estimate. But for now, in the 16 context of theopenprocess, we're trying togive you 17 as much information on the way as we go. 18 Ihopewe can improve these ifwegetmore 19 data,but fornowourestimates arewithin tenpercent 20 of actual shipments. 21 MR. BROOKMAN: Frank Stanonik. 22 MR. STANONIK: Jim, why is -- I'm 

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### 1 confused. Why is new housing an estimate? Imean, 2 every year there is a statistic published that says 3 we've had this many new housing starts in this year. 4 MR. McMAHON: Imay have misspoke. The 5 housingstarts arereported. Weget them from Census, 6 and there are surveys that report the percent of 7 houses that have water heaters by fuel type, and 8 that's what we've reported here. 9 MR. BROOKMAN: Charlie Stephens. 10 MR. STEPHENS: One quick question. Did 11 you aggregate this up fromelectric, gas and other or 12 did -- So you can separate the two and perhaps look 

### 13 for explanations there? 14 MR. McMAHON: Yes. That's correct, 15 Charlie. I'mpresenting the totals first,andnow I'm 16 going to get into the fuel shares, but we did 17 calculate them,gas and electric, separately and add 18 them up. 19 MR. BRUNDAGE: Don Brundage, Southern 20 Company. 21 Doyour data sources on new construction 22 break out houses that -- new houses that may have 

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### 1 multiple water heaters or is an assumption of one 2 water heater per house? 3 MR.McMAHON: Idon'tbelievewe've looked 4 atmultiple waterheaters. Ithinkwe've assumed one. 5 MR. BRUNDAGE: Because you could have an 

### 6 electric water upstairs and a gas in a house. That 7 may be a source of

-- 8 MR. McMAHON: I agree. Jim, could I ask 

### 9 you to take anote on that? 10 Okay, waterheater shipments. Let'smove 11 to fuel shares. Again, this is from the shipments 12 data. It is the fraction of -- the percent of annual 

### 13 shipments eachyear,starting in 1961 outto 1996, gas 14 at the top, electric at the bottom. 15 Oil is in here from 1969 to 1986. You 16 can't see it verywell, because it's on the order of 17 one percent or less, but we do have those statistics 18 in there. 19 You can see that gas has the highest 20 share, and I want to focus on the last ten years, 21 about this period out here; because things have 22 stabilized pretty well, and I think that provides a 

### NEALR.GROSS COURTREPORTERSANDTRANSCRIBERS 1323 RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 200053701 www.nealrgross.com150 1 base. I'm not sure that the information from the 2 early -- from the late fifties and early sixties is 3 relevant to this proceeding. 4 So we want to focus on the more recent 5 data. From '86 to '96 gas has had a 53-56 percent 6 share. I'm including LPG in there, and letme comment 7 that -- That's enough on that. 8 Electric is second, 44-47 percent. Oil 9 shares are very low. 10 MR. BROOKMAN: Mark Krebs, I saw you 11 first, and then to Steve Rosenstock and George. 12 MR. KREBS: Thanks. I'm Mark Krebs, 13 Laclede Gas. Jim, Iwas wondering if you are able to 14 break it out geographically. 15 MR. McMAHON: The shipments are not 16 reported geographically, at least to the best of my 17 knowledge. 18 MR. KREBS: Nor the fuel shares. 19 MR. McMAHON: Right. 20 MR.KREBS: Iwould assume that themarket 21 share for natural gas maybe higher in the north, and 22 electric mayhave ahighermarket share in the south. 

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1 MR. McMAHON: Let me try to clarify. The 2 shipments data are not reported geographically. 3 However, there are surveydata that are regional. For 4 example, AGAreports surveydata fordifferent regions 5 of the country for the fraction of households

-- 6 existing households that have water heaters of 7 different fuel types, andwe do have that information. 8 This is shipments data, and we do not have that 9 geographically. 10 MR. KREBS: DOE is required to look at the 11 variability, such as geographical variability and 12 other factors. I'm indicating I think that this might 13 be one of those cases where we want to specifically 14 look at the geographic impact ongas and electric fuel 15 shares. 16 MR. McMAHON: Thank you. Can I ask you 17 what level of geographic detail you think is 18 appropriate? 19 MR.KREBS: Well, is it possible to get it 20 off Census data? I think Census data captures that 21 information, doesn't it? 22 MR.McMAHON: TheAmericanHousing Survey, 

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1 I believe, has information on fuel type of water 2 heater. I'm not aware -- I can't think of another 3 Census survey that has that information. I'dbehappy 4 to take comments from anybody who knows. 5 MR. KREBS: Well, the report that I sent 6 you from the Texas RailroadCommission -- itwasbased 7 on Census data. You know, that seemed to indicate a 8 far different picture than what you're illustrating 9 here. 1.0 MR. McMAHON: A far different national 11 picture? 12 MR. KREBS: A far differentpicture as far 13 as market share and especially if you're looking at 14 trends and projecting it out. 15 MR. McMAHON: Okay. Let me address that. 16 I agree that, when you look at regions, you see 17 different trends, andthe most recent report I've seen 18 on that is from AGA. The residential market survey 19 report for 1996 shows, Ibelieve, four Census regions, 20 and it shows for gas increasing market share in the 21 northeast, increased about threepercent overthe last 22 tenyears, and decreasingmarket share of about three 

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1 percent in the south, which includes the area you're 2 referring to, Texas. 3 So I agree with you that regionally it's 4 different, and I guess the question is at what level 5 of detail does this need to be analyzed. 6 Is four Census regions adequate? Should 7 we go to states, counties, ZIP Codes, neighborhoods, 8 houses? 9 MR. KREBS: Well, Idon't want toget into 10 exactly what level at this point. I'm just making an 11 observation that I think it does significantlyvary on 12 a geographic region and that DOE has a responsibility 13 to take those considerations into account. 14 MR. BROOKMAN: - Thank you. Steve 15 Rosenstock? Terry, do you wish to comment? 16 MR. LOGEE: Well, I can let Steve. 17 MR.ROSENSTOCK: I'm on adifferent topic. 18 The LPG -- is that pretty insignificant? Is that ten 19 percent of the gas? I'm just saying this in terms of 20 your statistics and your analysis. That's pretty 21 insignificant, isn't it? 22 MR. LUTZ: It's on the same order. 

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1 MR. ROSENSTOCK: Okay, thanks. 2 MR. BROOKMAN: George? 3 MR. KUSTERER: Just a question. Why did 4 we stop at oil at 1986? Seems like we lost 12 years. 5 I mean, I realize there's not a significant change, 6 but why did we stop -- Why was it not tracked? 7 MR. McMAHON: George, I'm happy to answer 8 your question. The source of the data is GAMA 9 statistical highlights. They stopped tracking oil 10 after 1986. If there's another source that you can 11 recommend to us, I'd be happy to add it. 12 MR. KUSTERER: Yes, there are a number of 13 sources, and I can get you that information. Just 14 because GAMA doesn't -- I mean, that doesn't mean we 15 should drop it. 16 MR. McMAHON: Absolutely. 17 MR. KUSTERER: I think it's valuable 18 information. 19 MR. BROOKMAN: Thanks, George. Terry? 20 MR. LOGEE: This is Terry Logee from DOE. 21 I wanted to follow on Mark Krebs' 22 comments. I'm a little confused. This is a national 

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1 ,155

1 energy savings, and I'm not -- I don't really 2 understand what a regional distribution of this 3 information wouldplay in this particularpart of the 4 analysis. 5 MR. KREBS: Well, regionality is supposed 6 to be included in NAECA. You're supposed to consider 7 those variables and their statistic significance. 8 MR. LOGEE: It's not necessarily 9 regionality. It is a sub-group kind of analysis. 10 Whether that be -- and it specifically was consumer 11 sub-groups, and it could be regional or it could be 12 income or it could be some other demographic. 13 MR. KREBS: I agree. 14 MR. LOGEE: But Idon't see that it has a 15 purpose or a point in the national energy savings 16 portion of the analysis. 17 MR.McMAHON: If Ican interject, the sub18 group analysis is done at the life cycle cost level, 19 and I guess Terry's question is whether that is 20 necessary for the national energy savings. 21 MR.KREBS: I thinkwhere it really comes 22 home to rest is when we get to the fuel switching, 

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1 fuel substitution issue. Having stole Jim's thunder 2 once, Idon't want to do it again, right now at least. 3 I'll give him -- I'll jump back in if I need to. 4 MR.BROOKMAN: Steve's got aquestion, and 5 thenmaybewe canproceed. Frank also, and thenwe'll 6 proceed with the rest of the slides. 7 MR. ROSENSTOCK: Steve Rosenstock again. 8 Yes, Iheard some murmurs of discontent at the answer 9 tomy LPGquestion. So Iwaswondering if someone from 10 Rheemor GAMA could -- if theyhad some numbers on the 11 LPG portion. 12 MR. STANONIK: Frank Stanonik with GAMA. 13 I was just going to answer. The LP gas -- shipments 14 of LP gas water heaters on an annual basis probably 15 bounce around 8-10 percent of the total. So they're 16 not -- They're probablya factor of -- They're not the 17 same as oil. You're looking at a difference of, just 18 rough numbers, 40,000 versus 400,000. 19 MR. BROOKMAN: Okay. Thank you for that 20 clarification. 21 MR. McMAHON: At this point we're not 22 separating LPG out, but we can do that next round. I 

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1 think, Frank, you'reprobablyright. It'sprobably in 2 the 8-10 percent range. 3 Okay, the next slide is regional fuel 4 shares, and this is the data that Ireferred to from 5 theAGAreport. If youpick up our NES report, you'll 6 find this document there. 7 FortheU.S., theyreport 52percent share 8 in existing homes for gas water heaters from 1987 to 9 1995. So that's consistent with the shipment data. 10 In the northeast there was an increase of three 11 percent, in the south a decrease of three percent. 12 Hereare someof the reasons, the regional 13 factors: Gas availability is certainly a factor. As 14 some of you may recall, in the 1970s there were 15 restrictions on gas hook-ups. Utility company 16 programs, both gas and electric, influenced the fuel 17 shares. Finally, there are conversions from one fuel 18 to another. 19 MR. BROOKMAN: George. 20 MR. KUSTERER: I apologize. Senility is 21 setting in again. With regard to page 8 -- You don't 22 have to go back; it's just a quick question -- the 

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1 percentages, are foreign products included in those 2 percentages or do we know what foreign products

-- 3 foreign, meaning Canadian or any other? 4 MR.McMAHON: Iwillpass thatquestion to 5 GAMA. 6 MR. KUSTERER: Idon't mean to offend any 7 of my Canadian colleagues, but they are foreign 8 products, and they are infiltrating our market to a 9 degree where their standards are -- you know -- Well, 10 anyway, are foreign products included in those 11 numbers? 12 MR.McMAHON: Iwill askGAMA if they know 13 in statistical highlights whether imports are 14 included. 15 MR. STANONIK: Frank Stanonik with GAMA. 16 In terms of the data that we provided, as George said, 17 we don't get any data on a water heater, so we can't 18 provide it. But on the other products, those are 19 intended to represent shipments of products in the 20 United States. 21 So if there is aCanadianmanufacturerwho 22 is selling some of his products in the United States, 

### NEALR.GROSS COURT REPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE., N.W. (202)234-4433 WASHINGTON,D.C. 20005-3701 www.nealrgross.com159 1 it should be in those numbers, and we have at least 2 one that does report. 3 MR. KUSTERER: Thank you. 4 MR. BROOKMAN: Thanks, Frank. 5 MR. McMAHON: Let's turn to fuel 6 switching. Fuel switching can happy for some of the 7 reasons that I've indicated. Changes in relative 8 energy costs may be a factor. That's why this is 9 important for the standards process. 10 Dependingonthe standards levels thatare 11 ultimatelyanalyzed, there maybe differences between 12 the impact on gas and electric, andwe want to be able 13 to incorporate the implications of that into the 14 shipments. 15 From 1986 to '96 the american Gas 16 Association reports -- and Iunderstand this is based 17 upon inputs theyget fromthe individualgasutilities 18 -- between 148,000 and 311,000 housingunits annually 19 converted from some other fuel to natural gas house 20 heating; not water heating but house heating. They 21 didn't specifically collect on water heating. 22 If we were to assume that all of those 

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* ,160

1 households either sooner or later also converted to 2 gas water heating, then this would represent two to 3 four percent of total water heater shipments annually 4 or three to seven percent of gas water heater 5 shipments. 6 I'm not trying to say that they do 7 instantaneously change at the same time, but there 8 tend to bevery high correlations. People who switch 9 to gashouse heatingare likely to switch to gaswater 10 heater, either at the time orwhen the previouswater 11 heater fails. 12 MR. BROOKMAN: Mark Krebs? 13 MR. KREBS: Thank you.' Mark Krebs. To 14 what extent, Jim, are analyses based upon that "if" 15 statement? 16 MR. McMAHON: To what extent? The 17 analysis that Iwill show you today does not include 18 any explicit modeling of fuel switching. 19 MR. KREBS: Thankyou. 20 MR. McMAHON: The next topic is consumer 21 economic factors. Everything that I've shown you so 22 far hasbeenprettymuchaccounting,new construction, 

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1 market shares, but I've not gotten into economic 2 factors, and I want to remind you that we can come 3 withinabout tenpercent ofexplainingwhat's happened 4 in the past without considering any economic factors. 5 Part of the reasons for the discrepancies 6 may be that consumers are responding to either the 7 prices of waterheaters or,more likely, the prices of 8 energy in this period of time. So I want to now 9 introduce that topic. 10 Operatingexpenses: You've seen detailed 11 in the LCC report just rough ranges of values, 12 typically $100-$300 peryear, dependingupon the fuel 13 type, the local energy prices and howmuch hot water 14 they are using. 15 There's a typo here. The purchase 16 expenses -- It says typically about 300. We should 17 put a range on that, some several hundred dollars, 18 including theretailpriceplus the installation cost. 19 Just so that you know, we are consistent 20 in using the same numbers in between the national 21 energy forecast and the LCC. 22 MR. BROOKMAN: George? 

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1 MR.KUSTERER: George Kusterer, Bock Water 2 Heaters. 3 Jim, isn't operating expenses typically 4 $100 to $300 -- isn't that extremely conservative in 5 northeast. Typically, electric hot water can run 6 anywhere from $800 to $1,000. Three hundred dollars 7 per year is kind of very, very conservatively low. 8 MR. McMAHON: In terms of characterizing 9 the maximum that you could see anywhere, yes, it is 10 low. I was just trying to capture the majority of 11 households here, but you're right. 12 MR. KUSTERER: Thank you. 13 MR.McMAHON: Okay. Elasticities: Let me 14 give you a definition. An elasticity is something 15 economists use. It's percent change in some quantity 16 such as shipments or market share associated with a 17 percent change in some driving factor. 18 For our purposes, the likely driving 19 factors are operating expenses orpurchase prices. So 20 imagine that the price of energy went up 20 percent. 21 If the elasticitywas one, it would mean you would see 22 a 20 percent drop in shipments or market share, 

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### 1 depending upon which one you're looking at. That's 2 the concept of elasticity. 3 There has been previous research that 4 indicated that market shares by fuel types were 5 related to operating expenses. This is work done by 6 Oak Ridge in the 1970s. 7 The own-elasticities are the response of 8 one fuel type to the prices for the same fuel type. 9 So for electricity and oil, those elasticities were 10 approximately -1. So a ten percent or one percent 11 increase in price of electricity is likely to be 12 associated withaonepercentdecrease inmarket share 13 for that fuel type. 14 There are also cross-terms. The cross15 term says that the shareof electric water heaters is 16 goingtodependupon theprice ofgas, forexample, or 17 the price of oil. So those numbers are given here. 18 We intend to continue looking into 19 additional sources and, if people know of other 20 researchabout elasticities,we'dbehappytohaveit. 21 MR. BROOKMAN: Steve Rosenstock. 22 MR. ROSENSTOCK: Steve Rosenstock, EEI. 

### NEALR.GROSS COURTREPORTERSANDTRANSCRIBERS 1323 RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON,D.C. 20005-3701 www.nealrgross.com164 1 Did you try to go back and see if there was 2 correlation when you looked at shipments or -- 3 MR. McMAHON: Correlation between? 4 MR. ROSENSTOCK: Elasticity and actual 5 shipments? 6 MR. McMAHON: Yes, we're getting there. 7 MR. ROSENSTOCK: Okay, sorry. 8 MR.McMAHON: Equipment priceelasticities 9 are a problem for us. There is not, at least to my 10 knowledge, a publicly available dataset of water 11 heater prices, and we've had some discussions in the 12 last day and a half about the difficulties of getting 13 that information. 14 For our purposes to do a statistical 15 analysis, we would need a time series of perhaps 20 16 years of those prices and, if Mark is correct, we 17 would need them regionally; and I don't think that 18 data exists. 19 What we've done as a stop-gap is to use a 20 derivation of the equipment price elasticity from the 21 operating cost elasticity, again worked on at Oak 22 Ridge Lab in the 1970s. I'll be happy to give you the 

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### 1 specific references. 2 The derivation is shown there. The point 3 is that the result depends upon what you assume for 4 the equipment price and for the discount rate. I'm 5 now going to discuss the discount rate. 6 Okay. The discount rates: First of all, 7 herewe're talkingaboutdiscount rates inthe context 8 of the purchase of water heaters and how they weigh 9 operating costs compared to the equipment price. 10 This is adifferentdiscount rate than in 11 the context of calculating net present value, for 12 example. We'veuseddiscount rates inseveral places. 13 Iwant tobe clear that youknow which one this is. 14 Previous research assumed -- and I 15 emphasize the word assumed -- discount rates of 12-15 

### 16 percent real. Theyhadnodata at that time, and they 17 derived equipment prices of .1to .7negative. 18 If the discount rates arehigher -- Whydo 

### 19 we even consider that? We consider that, because 20 there is some evidences, particularly for water 21 heaters, that the consumers -- that purchasers of 

### 22 water heaters are much more concerned with the first 

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1 price of the water heater than they are with the 2 operating expenses. Example, builders or developers 3 who are purchasingwaterheaters and are not going to 4 pay the energy bill. 5 If that's the case, the discount rates -- 6 effective discount ratesmaybemuchhigherthan 12-15 7 percent. We estimated discount rates by taking the 8 observed efficiency purchases -- that is, the 9 efficiency levels purchased each year -- compared to 10 higher efficiencies, andbackout adiscount ratehigh 11 enough to account for the fact that they weren't 12 buying higher efficiencies. Are you with me on that 13 one? Questions? We're all right? Okay. 14 I put here, this is a significant area 15 requiring further research. Iunderstand that we're 16 making assumptions here. We are happy to get more 17 data. We're happy to do more analysis on this, but 18 this is a difficult area. 19 The interim results, becausewe know that 20 this is a difficult area, are using sensitivity 21 analysis with a high discount rate case and a low 22 discount rate case to bound the problem, so that we 

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### 1 canbeexplicitwithyouaboutourassumptionsandhow 2 much difference they make, and we would be happy to 3 refine those bounds if more information is provided. 4 Let's move to results. These are interim 5 results. We expectthat theywill changeasweupdate 6 the things that we've already talked about, but I 7 wanted to show you what the implications are of the 8 stuff we've talked about so far. 9 First of all, again projects are within 1.0 tenpercentofhistorical shipments. The fuel shares, 11 we expect, will depend upon fuel availability, 12 operating expenses, installed costs, and utility 13 programs. If anyone has a forecast of all those 14 things regionally, I'dbe happyto have it. No, huh? 15 Okay. 16 There are also some new factors that we 17 want to be cognizant of and include. One of them is 18 the cost for mitigation of gas vapor ignition,which 19 will impact the gas water heaterprice at least. 20 MR.ROSENSTOCK: Shouldn't that be level? 21 MR.McMAHON: Yes, it should. Thank you. 22 That's a mistake. 

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t .168 1 Other factors: Future energy prices. 2 There's a great deal of interest in what will happen 3 to energy prices in the future, and also the new 4 efficiency standards. 5 Sohere are some numerical results. This 6 is electric waterheater shipments, and I've overlaid 7 three lines on here. George, I apologize. My 8 eyesight is probably as bad or worse than yours, and 9 it's hard to see these lines. Hopefully,you canpick 10 them out. We can certainly make the electronic 11 copies available to you so you can put them on any 12 size you like. 13 Three lines: The blue line on the screen 14 is thehistorical from 1951 to 1996, the samedatayou 15 saw before. What I like to do is start my forecasts 16 a few years ago so that I can see if the forecast is 17 tracking or not. 18 So we started forecasting in 1981, and 19 that's the filled-in triangles in here. They match 20 the historical pretty well from '81 to '96. Then we 21 just continued that model on out to the year 2030. 22 The third line inhere is a little hard to 

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1 see. It's adashed line. It says calculatedwithout 2 elasticities, and there we took out the economic 3 factors and said, if we just do the accounting and we 4 ignore what's been happening to energyprices, howdo 5 we do. 6 It turns out, that's still pretty good. 7 That's not what we intend to do in the final. We're 8 going to keep the economic factors in there, but I 9 just wanted to show you the sensitivity. 10 MR. BROOKMAN: Steve Rosenstock? 11 MR. ROSENSTOCK: Just a quick question. 12 Steve Rosenstock, EEI. 13 For the national energy saving 14 spreadsheet, I didn't get a chance to look at the 15 spreadsheet yet on the Website,but how manyyears is 16 it going to -- How many years of savings are you going 17 to be looking at? Is it going to be two lifetimes of 18 the water heaters or is it going to be 30 years or -- 19 you know, just to get the time period, 2003 until 20 when? 21 MR.McMAHON: Yes. The time frame will be 22 2003 to 2030. Okay? 

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1 Ithentook ourprojection,again just for 2 electric waterheaters, and Icompared it to the other 3 ones that I could find. The GAMAprojectionhere was 4 published in 1996. 5 Iunderstandthat there's anupdatecoming 6 out, Frank. Idon't know ifyou can help me out with 7 whether that's available yet. It's a five-year 8 projection. 9 MR. STANONIK: Well, typically -- All 10 right, this is November. Typically, we're in the 11 middle of gathering the data. So Ibelieve our target 12 topublish those projections is normally -- is before 13 the end of the year. 14 So I have -- I do not have a definite 15 answer,butwe've got to beworking on it. So it must 16 be close. 17 MR. McMAHON: Okay. 18 MR. STANONIK: Since Ihaven't been in my 19 office since last Tuesday, Joe reported to me that we 20 may have just done it. 21 MR. McMAHON: Thank you. In 1996 these 22 came out about the first of November. So this is the 

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1 right time of year. I just wanted to check that I 2 have the latest one. So when we get the new one, 3 we'll update this. 4 In any case, the other source here, the 5 triangles that go out here, that's the Appliance 6 Magazine forecast. You can see that we're a little 7 lower than those -- So the actuals are in here also. 8 We're a little bit lower than those. I don't know 9 whether that's an important difference or not. I 10 would welcome comments, both on our forecast and on 11 the other two. 12 Okay, now let's turn to gas, a similar 13 presentation, historical, a forecast including the 14 economic factors and a forecast without the economic 15 factors. 16 Again,wematch,not as well aswe did for 17 electric but a pretty good match on the historical 18 shipments. You can see that the economic factors are 19 more important here. That is, we get a better fit 20 including the economic factors than excluding them. 21 So the changes in price of energy in the 22 1980s seemed to be an influenceon the shares that gas 

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1 got. 2 MR. KREBS: Mark Krebs. Jim, in most of 3 the times in the real world things don't go linear. 4 They go one direction or the other, and that was 5 really themessage about scenario engineering that the 6 modeling subcommittee came up with, sowe can look and 7 see how things can change other than, you know, the 8 linear directions you depicted here. 9 What have you tested there or what is 10 there -- At this point what kind of abilities exist to 11 test various scenarios? 12 MR. McMAHON; We have the ability to test 13 awide variety of scenarios, and we'd be happy foryou 14 to submit some. In terms of linear extrapolations, 15 there's nothinghere that's linear. We'rebuilding up 16 form historical shipments using the lifetime 17 distributions to get the replacement market, andwe're 18 using new construction times market shares where 19 economic factors are brought in, both for the market 20 shares of replacement and the market shares of new 21 construction. But none of it is linear. 22 MR. BROOKMAN: Steve Rosenstock. 

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1 MR. ROSENSTOCK: Steve Rosenstock, EEI. 2 Maybe what he's saying is that the 3 projectionsare always an increasing slope. The slope 4 always increases, it seems, from year to year. 5 There's no flat years or any -- 6 MR. McMAHON: Right. Since

-- 7 MR. ROSENSTOCK: I think that's what he 8 was referring to. 9 MR.McMAHON: Okay. 10 MR. KREBS: Correct. 11 MR. BROOKMAN: Additional questions or 12 comments? 13 MR.McMAHON: Okay. Again, a comparison. 14 Here, at least in the lateryears, the gas forecast

-- 15 Even though the shift -- the fit to the historical 16 shipments was not as good as electric, the fit to 17 other people's projections is better than it is for 18 electric. Go figure. 19 Preliminary base case results: I'm not 20 going to go through these and say very much about 21 them. I would be happy to take questions. Maybe 22 we'll just do that.

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1 If we use the model as currently written 2 with the elasticities that are in there andwith AEO3 98 interviewprice projections, these are the results 4 that you get. I just wanted to give you an idea of 5 the type of result that we're likely to see. 6 Obviously, this will all change as we refine the 7 analysis. 8 MR. HILLER: Carl Hiller from EPRI. 9 What's the assumption built into this 10 about new installations? Is that a constant 11 percentage or is it a constant number or what is the 12 assumption? 13 MR. McMAHON: We assumed that, Ibelieve, 14 a fixed fraction of new construction will have shared 15 water heaters that we're going to ignore. I believe 16 we said, based upon the most recent survey, nine 17 percent of houses have shared systems. So 91 percent 18 of newconstruction is available topurchase some fuel 19 type or other. 20 Then we use the elasticities that I've 21 shown you, coupled with the energy price projections 22 to find out what the market shares are. 

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1 MR. HILLER: But still, it seems like 2 there's an assumption somewhere being made about 3 exactly how many new housing starts there are. 4 MR.McMAHON: Yes. That'scoming from the 5 Annual Energy Outlook 1998. 6 MR. BROOKMAN: Additional questions? 7 MR.ROSENSTOCK: Steve Rosenstock, Edison 8 Electric Institute. 9 I see the primary -- the energy consumption 10 you're projecting for energy consumption. 11 MR. McMAHON: Yes. 12 MR. ROSENSTOCK: I didn't see -- Again, 13 you'll have to forgive me. I didn't see the 14 spreadsheet. What range of savings did you see with 15 the design option that you put into the spreadsheet 16 model, you know, off the top of your head, if you 17 remember. 18 MR. McMAHON: We have not done that yet. 19 We have not done any efficiency level improvement 20 analysis to this data. 21 MR.ROSENSTOCK: Thanks. 22 MR. BROOKMAN: Terry Logee. 

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1 MR. LOGEE: Let me just clarify for the 2 record. Primarily, the reason we haven't done any 3 design improvements is we -- DOE has not picked the 4 trial standards levelsyet. Jimneeds those to do the 5 energy improvements analysis. 6 MR. RANFONE: Jim Ranfone, AGA. 7 On your primary energy consumption, what 8 factors did you use to determine the primary energy? 9 MR. McMAHON: Yes, the factors for 10 electricity are the average bTU per kilowatt hour 11 rates fromAnnual EnergyOutlook 1998. So theychange 12 every year, and we can provide the specific numbers, 13 if you like. 14 For gas, we take the site energy and 15 divide by .9. 16. MR.RANFONE: For electricity, it varies? 17 MR.McMAHON: Yes, it varies. It starts 18 at -- I don't remember the exact number, but on the 19 order of 10,500 bTUs per kilowatt hour, and declines 20 to under 10,000. It's in the nine-somethings,. I 21 think, at the end. 22 MR. RANFONE: Thank you. 

### NEALR.GROSS COURT REPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 200053701 www.nealrgross.com-177 1 MR. BROOKMAN: Mark Krebs? 2 MR. KREBS: Imight add that that number, 3 the heat rate, there's some sensitivity to what that 4 really means, specifically to the losses that occur 5 between the point of extraction and the power plant. 6 MR. McMAHON: It's not heat rate. It's 7 the conversion factor including transmission 8 distribution losses, but it does not include 9 everything like transportation of -- the energy 10 required to transport coal from themine mouth to the 11 power plant. 12 MR. KREBS: Well, and I believe that 13 perhaps that shouldbe looked at, because it could be 14 statistically significant. 15 MR. BROOKMAN: Thank you. Does that 16 conclude your presentation? 17 MR. McMAHON: That concludes my 18 presentation. 19 MR. BROOKMAN: Questions and comments? 20 One final, Mark Krebs. 21 MR. KREBS: We seemed to skip over slide 22 22 which is very confusing to me. Would you explain 

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1 it, Jim? 2 MR. McMAHON: Sure. This is the 3 projection of water heater saturations. So it's the 4 percent of homes that have waterheaters of different 5 fuel types. If you pay close attention, which Mark 6 probablyis, you'll notice that these don't agreevery 7 well with the saturations in RECS or other national 8 surveys. 9 Most of the explanation -- for example, 10 let's go to gas. It starts out at about 38 percent. 11 I just showedyou ADA statistics that say 52 percent. 12 That seems like a big discrepancy. 13 We think that about eight percent is due 14 to shared systems. That would get us down to about 15 44. The remaining difference between the 38 percent 16 we show here and the 44 percent in their surveys is 17 unexplained, and this creates a dilemma. 18 We either have to calibrate everything to 19 the saturations in those surveys, whichmeans we have 20 to not believe either the historical shipments ornot 21 believe the lifetimes, or -- Something has to give 22 here, and Iguess Iwouldwelcome comments about what 

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1 you think needs to change. 2 MR. KREBS: Well, I'll comment about what 3 I'm perceiving here, that the so called fuel wars is 4 a lot closer race than some might otherwise expect 5 from your previous slides. 6 MR. McMAHON: Well, as you will recall, 7 the market shares have been very stable for the last 8 ten or 12 years. This shows both of them gaining a 9 littlebit ofmarket share, which ispresumably at the 10 expense of shared systems, possibly a little bit at 11 the expense of LPG. 12 In any case, one thing that's going on 13 that surprised me here is that, because of the 14 differences in lifetimes, that even though gas water 15 heaters have outsold electric every year for the last 16 12 and going back farther, electric still maintains 17 market share. That's because the electric lifetimes 18 are longer. So that makes sense. 19 MR. BROOKMAN: Carl. 20 MR. HILLER: Carl Hiller from EPRI. I 21 want to make sure I understand your definition of 22 saturation here. Can you explain that? 

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1 MR. McMAHON: Yes. It's the ratio of 2 total water heaters inplace in a given year divided 3 by the total number of housing units. 4 MR. HILLER: So it's not manufactured. 5 It's actually inplace in the housing stock? 6 MR. McMAHON: Correct. Not shipments. 7 MR. BROOKMAN: I'm going to cue up the 8 next presentation slides while we take a final 9 question for Jim McMahon, if there are any. 10 We'renowmovingontoconsumer sub-group, 11 the assumptions analysis approach and preliminary 12 results of the RECS database. Thanks, Jim McMahon. 13 Ournextpresenter is JimLutz fromLBNL. 14 MR. LUTZ: Idon't have amicrophone, but 15 I'll try to -- I stole a microphone. 16 The ConsumerSub-group analysis tolook at 17 how different subsets of the population would be 18 impactedby the rules. This is very similar to life 19 cycle costs, but differs -- analysis, but differs in 20 some ways, and I'll highlight them now and show you 21 the preliminary results, and go back and clarify the 22 differences. 

### NEALR.GROSS COURTREPORTERS AND TRANSCRIBERS 1323RHODEISLANDAVE., N.W. (202)234-4433 WASHINGTON,D.C. 20005-3701 www.nealrgross.com181 1 We used a different samplingmethod. In 2 the life cycle cost analysis we sampled from the RECS 3 data, take 10,000 samples according to the weights 4 that EIA assigned to each household. 5 In theConsumer Sub-groupwe just take all 6 the houses. In the Consumer Sub-groupweuse ourbest 7 point estimate for values and do not try to account 8 for the ranges anduncertainties there. We do that in 9 the life cycle cost analysis where we sample from 10 distributions of values. 11 The inclusion of household demographics: 12 This means that we carry along all the data that's in 13 the RECS survey about that household; for example, 14 factors like income, whether they're renters or 15 owners, things like that. We don't track that in the 16 spreadsheet -- the life cycle cost spreadsheet. 17 Then the final product for the Consumer 18 Sub-group is a database where we have all the 19 households and the results presented in a database, 20 the results of the analysis. 21 The calculations at each step are the 22 same, but the input numbers are different, because it 

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# 9 1 doesn't have the random error or uncertainty on it. 2 So it's prettier on the computer screen than it is on 3 your chart onyour pages, but this is the average life 4 cycle cost per household for all fuel types. 5 MR. STANONIK: Because it doesn't come 6 across on the paper too well

-- 7 MR. LUTZ: Well, it comes across pretty 8 good on my page. 9 MR. STANONIK: -- there clearly is some 10 darker region. Basically, it almost says, ifyou live 11 close to the water, you pay more for your water 12 heating. It kind of follows the coast. Right? What 13 color is that? 14 MR. LUTZ: Down the eastern coast? 15 MR. STANONIK: Well, go down the east 16 coast,you know,around Chesapeake Bay. Yougo around 17 Florida. You pick it up in the Gulf Coast. Are those 18 different colors? 19 MR. LUTZ: From here to here? These 20 regions are all the same color. 21 MR. STANONIK: Well,but ifyou look right 22 on the very coastline going down the east coast, 

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1 starting right where we live right there -- okay? 2 MR. LUTZ: You mean this dark line ? 3 MR. STANONIK: Yes. 4 MR. LUTZ: That's an artifact of the 5 geographic information system. It's a very detailed 6 map. So it shows all the little bays and coasts. 7 MR. STANONIK: Oh, so it's not part of 8 your color scheme? 9 MR. LUTZ: No, it's not. 10 MR.STANONIK: Iaskedthewrong question. 11 Thankyou. 12 MR. LUTZ: We should use a simpler map. 13 Then the other -- The next map is just for the low 14 income households. 15 MR. McMAHON: Jim, if I can interject. 16 The original maps that were used in the GIS system 17 were actually CIA maps with 50 meter resolution. So 18 if you want to see the coastline in great detail, we 19 can provide that. 20 MR. STANONIK: It threw me, because on 21 this it comes out as dark, and I thought it was the 22 first block. CIA is doing energy now, too? 

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1 MR. BROOKMAN: That was Jim McMahon. 2 MR. LUTZ: This is a chart of the results, 3 the average hot water draw volume, annual operating 4 cost and annual life cycle cost, comparing all the 5 households and the low income households. That's what 6 the Consumer Sub-group analysis is designed to, to 7 compare sub-groups of the population. 8 The final slide is just more details on 9 the differences between the life cycle cost and the 10 Consumer Sub-group. 11 MR. BROOKMAN: George? 12 MR. KUSTERER: I have a dumb question. 13 The reason Alaska was not in there is simply because 14 of population? 15 MR. LUTZ: It's hard to get data for it, 16 yes. 17 MR. KUSTERER: Okay, thank you. 18 MR. LUTZ: Any other questions? 19 Additional questions on this topic? 20 MR. LOGEE: This is Terry Logee. There 21 is, I guess, one sort of concern from the Department. 22 We have chosen this consumer sub-group of low income. 

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1 It is not the only consumer sub-group that could be 2 chosen. There are any number of other sub-groups 3 that we could analyze. 4 1 So we have made the assumption that that 5 is the sub-group of interest. If there are other sub6 groups that you think should be analyzed, we would 7 like you to let us know about that. 8 MR. BROOKMAN: So now we are to -- Jim? 9 MR. McMAHON: With Terry's indulgence, I 10 don't think the Department -- This is Jim McMahon. I 11 don't think the Department wants a request of all 12 ' possible sub-groups but rather, if we could come to 13 some agreement on a reasonable number of important 14 sub-groups, that would be extremely useful. 15 MR. BROOKMAN: Would you say the 16 rationale? Somebody say the rationale for why you 17 chose low income sub-groups? 18 MR. LOGEE: That seemed to be, to our way 19 of thinking, the sub-group that showed -- might show 20 any impact with appreciating prices due to increased 21 efficiency in the design options. 22 MR. BROOKMAN: So that gives you a 

### NEALR.GROSS COURT REPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE., N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com186 1 starting point for additional thoughts on any other 2 sub-groups that may be considered. Carl Hiller. 3 MR. HILLER: Carl Hiller fromEPRI. Just 4 throwing out one sub-group that's probably worth 5 considering would be the elderly, you know, smaller 6 household sizes,perhaps even smaller consumptionper 7 person as you get older. 8 That certainly impacts the cost 9 effectiveness of the devices for that segment of the 10 population, which is going to be growing 11 substantially. 12 MR. BROOKMAN: Thank you. Our next 13 presentation, and I think our last presentation, is 14 environmental and utility impacts. We're almost 15 there. You all are a pretty stout bunch for hanging 16 in here tough, covering a lot of ground here pretty 17 fast, and everybody is staying pretty tuned in. I'm 18 impressed. 19 Glenn Schleede, you wanted to make one 20 more comment for the record. You want to do that now 21 while we have this small gap? 22 MR. SCHLEEDE: Why don't we finish this? 

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1 MR. BROOKMAN: Okay. 2 MR. McMAHON: I am working from 3 Methodology for Utility and Environmental Analysis. 4 I apologize. The pages are not numbered. However, 5 the next page is "Utility Analysis." The purpose is 6 to estimate the effects of reduced energy sales due to 7 new standards on utilities. 8 The method is to use a version of NEMS. 9 We're calling it NEMS-NAECA for this particular 10 application. The reason we changed the name is that 11 EIA, which is the owner of NEMS, is very sensitive 12 about us or anyone claiming to be using the official 13 Department of Energy NEMS model. 14 Sowhenever someoneelse uses it, you have 15 to rename it. It is the same model. It's a copy, but 16 we're going to call it NEMS-NAECA, which is LBL's use 17 of the official NEMS model. 18 As most of you know, the NEMS model is an 19 integrated model of U.S. energy sector, including 20 supply and demand for all energy sources. It's 21 publicly available. It produces a forecast through 22 2020. 

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1 We need to go out to 2030, and we found 2 out that the EIA folks do extrapolations out to 2030 3 for FMP, and we intend to use their extrapolations. 4 In the past, we've done our own extrapolations out to 5 2030. 6 The current basis is the Annual Energy 7 Outlook for 1998. Whenever EIA updates their model

-- 8 for example, when they come out with Annual Energy 9 Outlook 1999 -- we willget a copy, andwewill update 10 ours. So wewill always have themost recent official 11 version of the model. 12 The inputs on the next page: The inputs 13 are coming from the national energy savings, and they 14 aregoing to be annual energyconsumptionby fuel type 15 and the savings for a particular standard level by 16 fuel type for residential water heaters. All the 17 other inputs are coming from EIA. 18 The output will be, since NEMS balances 19 supply and demand, any changes in energy sales and 20 price by fuel type, by region. The regional 21 definitions in NEMS vary by fuel type, but for the 22 consumer part they report things for nine Census 

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1 divisions and also for, Ibelieve, four of the largest 2 states. However, for each of the fuel types on the 3 supply side, they have different definitions of 4 regions which the folks in the field sector are 5 familiar with. 6 Also reported out will be any change in 7 the mix of electricity generation sources and in new 8 capacity construction. 9 Last -- that's it for utility analysis

-- 10 environmental analysis. 11 MR. BROOKMAN: If there are any questions 12 on those preceding slides? I don't know whether 13 everybody is tired or whether you've just absolutely 14 wowed them with your presentation, the depth. 15 MR. LUTZ: They're tired. 16 MR. BROOKMAN: So let's proceed with the 17 next. 18 MR. LUTZ: The environmental analysis on 19 one page. Purpose is to estimate the impacts from 20 standards on U.S. emissions of three things: Carbon, 21 oxides of nitrogen and of sulphur. 22 Themethod again is touse theNEMSmodel, 

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1 which includes accounting for those emissions. 2 However, there's two holes that we've identified in 3 that model having to dowith in-houseemissions. They 4 do get things from power plants. 5 They don't calculate the emissions from 6 in-house; for example, oil water heaters, sulphur 7 emissions are not included, and NO x from gas water 8 heaters are not included. So we intend to implement 9 a spreadsheet supplement that will add those emissions 10 to what NEMS produces for the energy supply. 11 MR. BROOKMAN: Questions on that last 12 slide andon this entirepresentationpacket? Idon't 13 hear any. Mark Krebs. 14 MR.KREBS: Onemore quick pointonwhat's 15 not included for the record. What's not included are 16 the emissions upstream of the power plant. 17 MR. BROOKMAN: I didn't hear that, Mark. 18 Say it louder. 19 MR. KREBS: What's not included are 20 emissions upstream of the power plant. 21 MR.BROOKMAN: Upstream? Okay. Anyother 22 comments on this group of slides? I think we'vemade 

### NEALR.GROSS COURTREPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON,D.C. 200053701 www.nealrgross.com191 1 it through the agenda, Terry. 2 Oh,yes,weneedto specifynext steps, of 3 course, and follow on from here. 4 MR.SCHLEEDE: Doug, can Imake that other 5 point now? This is another sort of generic concern, 6 and that with the specific example of the MASIE 7 database that Jim referred to yesterday. 8 Clearly, the price of that is out of the 9 range that some of us participating in this process 10 can afford to put into it, and I think DOE needs to 11 focus how it makes available the data from this 12 commercial database, which sounds like it could have 13 an important role in the process -- how those of us 14 participating in this process canhave access to that 15 data without coughing up the $50,000 required to get 16 the two databases. 17 Whatwe havehere, it seems -- We'vemoved 18 away from one blackbox that we've talked about for a 19 long time. We're sort of moving towards some other 20 oneshere,which is a commerciallyavailable database. 21 MR. BROOKMAN: Glenn, do you have any 22 practical experience with anything like this, any 

### NEALR.GROSS COURTREPORTERS ANDTRANSCRIBERS 1323RHODEISLANDAVE., N.W. (202)234-4433 WASHINGTON, D.C. 200053701 www.nealrgross.com192 d1advice for the Department how they could make that 2 available? 3 MR.SCHLEEDE: No, butMikeMcCabe toldme 4 the other day that he got $3 million more in his 5 budget. So I'm assuming he could put more staff to 6 work and figure this out. 7 MR. BROOKMAN: I see. Okay. JimMcMahon? 8 MR. McMAHON: Thank you. We have been 9 joinedbyRobert Latta fromEIA. There was aquestion 10 yesterday that I wanted to resolve before this 11 workshop concluded. It will be very quick. 12 That was aquestion raisedabout whether, 13 when we take the RECS survey and we take sub-samples 14 of that -- for example, in the life cycle costs where 15 we select only those households that have electric 16 water heaters -- whether that was a legitimate 17 statistical sample for a national analysis. 18 Iasked Bobto come down andput a comment 19 onthe recordaboutwhether this approachwas validor 20 not. So, Bob, if you wouldn't mind. 21 MR. BROOKMAN: Bob, did you hear 22 everything Jim said? 

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1 MR. LATTA: Yes. Yes, I did. Yes, that 2 would be at the national level. When you start going 3 down at a lower level like, if youwant to do just for 4 New York State, the sample size might be too small. 5 But at a national level it would be a statistically 6 valid sample. 7 MR. BROOKMAN: Thank you. Any other 8 comments or things that we should include before we 9 talk about next steps and other issues related to 10 closing out this two days of work? George, yes? 11 MR. KUSTERER: I don't want to belabor 12 this, but I'm seriously concerned about this issue, 13 and I don't think it should be swept underneath the 14 rug, as it was earlier this-morning. 15 Again, that's the foam issue, 245, with 16 regard to the availability to the water heater 17 industry. Currently, we have supposedly one 18 manufacturer. If he decides that he doesn't want to 19 make the foam, where are we? 20 Ihave assurance fromMr. SteveNadel that 21 it will be available. I trust my learned colleague. 22 However, I don't quite believe him. We need some 

### NEALR.GROSS COURTREPORTERSAND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON,D.C. 200053701 www.nealrgross.com194 1 assurances that this wills be available and, if it 2 wills be available, they may not decide to sell it to 3 us. Currently, we're not customers of them. 4 They may not want to take us on as 5 customers. Again, I'm seriously concerned that we 6 have no avenue of escape. We have no alternative. 7 This should not be swept underneath the rug, as itwas 8 this morning. 9 MR. BROOKMAN: Thank you for saying it 10 again. I've noted it in some of the questions and 11 other issues that have emerged, and so thanks for 12 surfacing it again. 13 Charlie Stephens? 14 MR. STEPHENS: Just for George, I'd like 15 to recommend that,based onmy experience, those folks 16 at Allied Signal are reachable by telephone, and you 17 could probably give them a call, and I think they 18 would be more than happy to discuss it with you, and 19 maybe you could bring back the results of your 20 conversation, after you do. 21 MR. KUSTERER: They have -- We have done 22 that. Again, it is an avenue that is available to all 

### NEALR.GROSS COURT REPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com195 1 of us, and they don't seem to be very interested nor 2 can they give me any firm commitment. 3 MR. BROOKMAN: Yes, please? 4 MR. BRUNDAGE: Don Brundage, Southern 5 Company. Myunderstanding, 245fa is not a proprietary 6 product, is it? I mean, anybody can make it. It's 7 just an industrial chemical. So especially given 8 several years from time of the final rule until 9 implementation, I think somebody would be happy to 10 make it for us. I'm not an expert on these things. 11 MR.KUSTERER: Nobody seems tobe stepping 12 forward. 13 MR. BRUNDAGE: Well, they haven't issued 14 a rule yet for them tomake any commitments for it. 15 MR. KUSTERER: Oh, so we're going to put 16 the horse before the -- the cart before the horse 17 then. We're going to make the rule, and then see if 18 it's out there. 19 I still feel we need an alternative. I 20 mean, ifyou're on the Titanic, there's one lifeboat, 21 you're not on it. Guess who's going to sink. 22 MR. BRUNDAGE: Just in other refrigerant 

### NEALR.GROSS COURTREPORTERS AND TRANSCRIBERS 1323RHODEISLANDAVE., N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com196 1 issues, giving reasonable implementation dates, 2 there's not been a problem with availability with 3 HCFCs and then HFCs. Thank you. 4 MR. BROOKMAN: Okay, thank you. Thanks 5 very much. 6 Soarethere anyotherissues that require 7 additional emphasis or discussion at this point? I 8 don't hear any or see any. Okay. 9 So next steps and follow-on from here. 10 Terry,you said at the outset thatyouexpect arecord 11 of this meeting wouldbe available. 12 MR.LOGEE: Yes. The record isusually

-- 13 The transcript is usually available in about a week. 14 However, if you want a copy of that, you have to make 15 arrangements with the court reporter. They sell 16 those. We buy them from them, but we provide it in 17 our reading room where you can copy, you know, parts 18 of it. 19 Within about two weeks we'll have a 20 workshop issue discussion. We'llput that on theWeb, 21 and then we're expecting comments on this workshop, 22 these proceedings, by December 11th with the 

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1 substantiating data, with the one exception that 2 Frank Stanonik had requested an extension on -- I've 3 forgotten which the issue was yesterday. 4 I think we will probably have a revised 5 analysis sometime in January. 6 MR. BROOKMAN: Revised analysis of? 7 MR. LOGEE: Life cycle costs and 8 engineering. After that, the manufacturer interviews 9 will start perhaps in January, at least in February. 10 While I'm on the updates, we would like 11 you to check ourWebsite. There it is. It got posted 12 over there at the end to my left, and we will notify 13 the trade associations. 14 That Website starts with a "less than" 15 sign. 16 MR. BROOKMAN: Yes. For the record, the 17 Website is a karat -- I don't know what that's called. 18 You don't need it? Okay: 19 http://www.eren.doe.gov/buildings/codes 20 standards/reports/index.htm 21 Okay. So there you have it, and I'm sure 22 if you call the Department and request what their 

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1 Website address is, they can provide that to you as 2 well. It's in quite a bit of the written 3 documentation for this workshop. 4 Mark Krebs? 5 MR.KREBS: Yes. Mark Krebs. It took me 6 awhile to get upwhenyou said -- asked for comments. 7 Therefore, the delay. 8 I'd like to say that DOE has done an 9 extraordinarilygood job on themodelingwhen it comes 10 to manufacturers, impacts analysis, and then GRIM. 11 I'm not sure we're there yet on the consumer side. 12 We've had amodeling subcommittee. We've 13 had a lot ofmeetings, andwe're moving -- It couldbe 14 fairly said we're moving in-the right direction, but 15 it's clear that we're not there yet. 16 GlennSchleede'sstatementabouta$25,000 17 database,a commercial database -- that's just the tip 18 of the iceberg. Yes, NEMS -- The source code forNEMS 19 is publicly available. However, you have to have 20 multiple RISC machines and a staff of programmers to 21 do anything with it. 22 MR. BROOKMAN: Okay, thank you. 

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1 So I've noted the next steps that Terry 2 listed, and let's see if there's anyothernext steps. 3 The transcript will be available in about aweek, and 4 you talk to John over here orhis company if you want 5 to obtain it. 6 Written comments are expected to be 7 received by December 11th, and Terry in his 8 introductory remarks yesterday talked about the form 9 and format for those comments. 10 Theworkshop issue discussion -- That is, 11 abrief discussionof issues that theDepartment would 12 like to flag and call attention to -- 13 MR. LOGEE: Those are all the issues that 14 we flag from the transcript, including the key issues 15 that we listed, both today, the two that we have 16 today, and the eight yesterday will be in this 17 discussion. We'll post that on the Web in about two, 18 two and a half weeks. 19 MR. BROOKMAN: And the life cycle cost and 20 engineeringanalysis in therange of January,andthen 21 in the January/February time frame the interviews, 22 manufacturer interviews and visits should start in 

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### 1 that time frame. 2 I know the Department would welcome any 3 comments on any and all of this that we've covered in 4 the last day and a half. 5 Anyothernext stepswewouldnoteat this 6 point? Jim? 7 MR.RANFONE: Just aquickquestionon the 8 request that AGAhasmade concerning manufacturers or 9 the energy providers, lessening of competition. A 10 letterwill be sent to Mr. Margolis or to -- 11 MR. MARGOLIS: What are you going to say? 12 MR. BROOKMAN: You recall, he raised the 13 issue of

-- 14 MR. MARGOLIS: Yes, I know. 15 MS. PINTO: You're going to send some 16 comments, I assume. Right? 17 MR. RANFONE: Well, I thought the 18 resolutionwas that Iwouldwrite you a letter andask 19 for a legal opinion. Is that what

-- 20 MS. PINTO: No. We're going to work on 21 the issue. 22 MR. RANFONE: Okay. 

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1 MS. PINTO: But I asked you, because I 2 can't guaranty a legal opinion by the December 11th 3 date, to include that in your other comments. 4 MR. RANFONE: Okay. Thank you. 5 MR. BROOKMAN: Thanks for that 6 clarification. 7 Any other items that should be clarified 8 or noted at this point? 9 So I'll just close out my involvement by 10 saying thanks to everybody for the cooperative spirit 11 of this exchange. I thought it was -- Was there one 12 other thing? Okay. 13 Thanks to all of you. Travel safely, and 14 thanks for the geniality of all of this in the last 15 day and a half. 16 (Whereupon,the foregoingmatterwent off 17 the record at 12:32 p.m.) 18 19 20 21 22 

### NEALR.GROSS COURTREPORTERSAND TRANSCRIBERS 1323RHODEISLANDAVE., N.W. (202)234-4433 WASHINGTON,D.C. 200053701 www.nealrgross.com202 CERTIFICATE

This is to certify that the foregoing transcript in the matter of: Workshop on Standards for Water Heaters

Before: Department of Energy Office of Codes and Standards

Date: November 10, 1998

Place: Washington, DC

represents the full and complete proceedings of the aforementioned matter, as reported and reduced to typewriting.



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