### AFFIDAVIT OF STEVEN P. HERSHEY ON BEHALF OFPHILADELPHIA GAS WORKS Being first duly sworn, I, Steven P. Hershey, on oath do depose and state: 1. My name is Steven P. Hershey. I am the Vice President Regulatory and External Affairs ofthe Philadelphia Gas Works (PGW); mybusiness address is 800 W. MontgomeryAvenue, Philadelphia, PA 19122. PGW is the local gas distribution company owned and operated by the City ofPhiladelphia serving
some 500,000 residential, commercial and industrial customers within Philadelphia. POWis the largest municipally-owned local gas distribution system in the United States, and it is a member ofthe American Public Gas Association. 2. I have served PGWsince January, 2004. Priorto that date I was in private law practice for six years and, priorto that, I was a Supervising Attorney at Community Legal Services in Philadelphia for twenty-two years. I also served
as an attorney in the Regional Legal Services Program in Stamford, Connecticut for four years. 3. The main purpose ofthis affidavit is to discuss the adverse consequences to POW and its customers ofthe direct final rule (DFR) issued bythe Department ofEnergy (DOE) on June 27, 2011, and reaffirmed byit on October 24, 2011. More specifically, PGW is concerned about that aspect ofthe DFR setting a

### 90% efficiency standard for non-weatherized (i.e., residential) furnaces in the northern region. Philadelphia is in the northern region, and the practical effect ofthe 

### DFR on PGWwill be loss ofload due to fuel switching on oursystem as well as enhanced safety-related problems, as described in more detail below. 

### 4. The 

### 90o/o efficiency requirement set forth in the 

### DFR will mean that virtually
our entire replacement market will be required at some point either to convert from existing Category I non-condensing furnaces, which do not require condensate drains orspecial venting, to Category IV condensing furnaces, which have special venting and condensate drainage requirements, orto switch to alternate equipment that is less costlyto purchase or install (electric or keroseneburning), but which is more damaging to the environment and more costly to operate. The incremental costs associated with purchasing and properly installing a condensing furnace are substantial, estimated bythe American Gas Association at between $1500 and $2200 where there is also an orphaned water heater (as is most often the case), 1a range with which PGW agrees, and these incremental costs will likely result in substantial fuel switching on our system, especiallyby our large lower income population. 5. Whereas Category I non-condensing gas furnaces (and gas waterheaters) use a
common vertical ventthrough a flue orchimney, this is not possible with

1 See AGA November 4, 2010 submission in Docket EE-2009·BT·STD·0022, R.44 at5.
2Category IV condensing furnaces, which are supposed to provide condensate draining and treatment and must be vented laterallythrough a wall or, ifthat is not possible (as will often bethe case), vented vertically though a dedicated flue
or chimneywith an exhaust fan (which is a component ofthe furnace) to ensure properventing. The special venting requirements associated with Category IV condensing furnaces are particularly onerous in cities like Philadelphia, which has a significant number ofrow homes in which access to an exteriorwall is either impossible (ifyou are an interiorhome) or very difficult (ifyou are an exteriorunit) since installation requirements prevent venting near a sidewalk or below a window (almost all existing heating systems in these homes are installed in a below ground basement); 2 and the chimneys in these dwellings
are typically too small to accommodate separate vents for a furnace and water heater (as required with the Category IV installation). Also, as to the related problem ofthe orphaned waterheater (orphaned because it can no longeruse the common vent with the non-condensing furnace) that must likewise be upgraded at a substantial cost ifit is even physicallypossible (which is frequently not the case) or abandoned in favor ofan electric water heater. Becauseoftheupfront cost differential associated with installing a Category IV

2Approximately 75.4% of Philadelphia homesare row homes. Approximately 15.3% are twin homes sharing one common wall, totaling 90.7% ofall homes.
3condensing furnace, weconclude that a substantial portion ofour customerbase will electto convert from gas to electricityorto kerosene. 6. To fully appreciatethe impact ofthis up-front cost differential on PGW and its customers, it is important to know that in 2010, 25% ofPhiladelphia households
were at orbelow 100% ofthe Federal Poverty Level (FPL), 35.l% were at or below 

### 150% FPL, and 

### 44.9o/ oat orbelow 

### 200° /oofFPL. The 

### 150% standard is the typical upperthreshold for eligibility in many governmentprograms such as Low Income Heating Energy Assistance Program (LIHEAP) that provide assistance to low income families, though eligibility for that program has in
some years extended as high as 185% ofFPL bythe Commonwealth of Pennsylvania. I am without knowledge about such an extension byother states. There are also many seniors living on low, fixed incomes as well as many "workingpoor" who struggle to pay theirbills. Forthese customers, the fact that natural gas may be the more economic fuel overthe life-time ofthe equipment is immaterial; these customers do not have disposable income and their sole focus is the up-front, out-of-pocket cost ofpurchasing and installing the appliance. Ifthe purchase and installation cost ofa new natural gas furnace and/orwater heater is more than the cost ofequipment fueled by an alternative energy sourceby any appreciable amount, as is the case with conversion to a Category IV condensing furnace, these customers will likely opt for the

4alternative, in this case electricity orkerosene. The same is also true for our rental units, which, according to 20l0 census data, comprise around 45% ofthe total dwellings in Philadelphia; our experience is that landlords focus virtually exclusively on "first costs" since the operating costs are typically paid by, or passed through to, the tenants. Thus, the incremental costs associated with installing Category IV condensing furnaces will mean that many ofour customers, at such time as they must replace their existing gas furnaces, will opt for electricity orkerosene, which not only adversely affects the health ofPGW but also adversely affects the environment in ourcity due to the much greater efficiency and lower level ofpollutants ofgas heat on a full fuel cycle basis and is contraryto the purpose ofDOE's rule. A high percentage ofelectricity in this region is generated by coal-fired plants and then delivered relatively long distances, with attendant substantial line loss. Kerosene produces indoor air pollution and fire dangers, as well as the risk offuel spills inside the home, further increasing both fire and indoorpollution hazards. 7. The other significant harm that will attend the implementation ofthe 90% efficiency standard isthat the same low and moderate income customers will likely opt for an even worse alternative than switching fuels: they maycontinue to patch their existing equipment long after the point where it should have been replaced. This has serious potential safetyramifications not only for the



### sdirectly affected consumers, but also theirneighbors and the PGW employees who visit homes in response to calls regarding leaking gas. In the event ofan increase in safety calls which are related to the above, PGW, as a first responder, would be required to address these matters. 8. PGWsupports and encourages energy efficiency. We have voluntarily proposed and implemented (with PUC approval) the largest natural gas demand side management program in Pennsylvania. The program, called "EnergySense," includes rebate programs for high efficiency furnaces and significant, cost-effective treatments for certain low income customers who meet specified criteria. We urge ourcustomers to use gas wisely and to install the most efficient equipment possible. We offernumerous tips to our customers about saving gas and reducing consumption and resulting gas bills. The unfortunate fact is that the many low and moderate income customers on
our system simply do not have the financial wherewithal to make investment decisions based on 

### life cycle costs; they, along with the many landlords in the city, react only to the out ofpocket "first costs." The impact ofthe DFR, which in effect bans the future installation ofCategory I non-condensing furnaces in Philadelphia, will beto drive many ofourcustomers to electricity orkerosene. This will adversely affect those PGWcustomers that remain on gas and willhaveto pick up the fixed costs ofthe system that would havebeen paid bythe former gas customers. 9. Further affiant sayeth not. 

### (THE NEXT PAGE IS THE SIGNATURE PAGE)

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### AFFIDAVIT OF STEVEN P. HERSHEY ON BEHALF OF PHILADELPHIA GAS WORKS

State ofPennsylvania County ofPhiladelphia ) ) SS )

I, Steven P. Hershey, being first duly sworn, on oath, depose and state that the foregoing affidavit was prepared byme and thatthe statements contained in such affidavit are true and correct to the best ofmyinformation and belief.

Steven P. Hershey

Subscribed and sworn to before me this
__day ofMay2012.

(Name ofNotary)

8