AFFIDAVIT OF STEVEN P. HERSHEY 

ON BEHALF OF PHILADELPHIA 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 of the Philadelphia Gas Works (PGW); my business address is 

800 W. Montgomery Avenue, Philadelphia, PA 19122. PGW is the local gas 

distribution company owned and operated by the City of Philadelphia serving 

some 500,000 residential, commercial and industrial customers within 

Philadelphia. POW is the largest municipally-owned local gas distribution 

system in the United States, and it is a member of the American Public Gas 

Association. 

2. I have served PGW since January, 2004. Prior to that date I was in private law 

practice for six years and, prior to 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 of this affidavit is to discuss the adverse consequences to 

POW and its customers of the direct final rule (DFR) issued by the Department 

of Energy (DOE) on June 27, 2011, and reaffirmed by it on October 24, 2011. 

More specifically, PGW is concerned about that aspect of the 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 

of the DFR on PGW will be loss of load due to fuel switching on our system 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 or special venting, to Category IV condensing furnaces, 

which have special venting and condensate drainage requirements, or to switch 

to alternate equipment that is less costly to purchase or install (electric or 

kerosene burning), 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 by the 

American Gas Association at between $1500 and $2200 where there is also an 

orphaned water heater (as is most often the case), 1 

a range with which PGW 

agrees, and these incremental costs will likely result in substantial fuel 

switching on our system, especially by our large lower income population. 

5. Whereas Category I non-condensing gas furnaces (and gas water heaters) use a 

common vertical vent through a flue or chimney, this is not possible with 

1 See AGA November 4, 2010 submission in Docket EE-2009·BT·STD·0022, R.44 at 5. 

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Category IV condensing furnaces, which are supposed to provide condensate 

draining and treatment and must be vented laterally through a wall or, if that is 

not possible (as will often be the case), vented vertically though a dedicated flue 

or chimney with an exhaust fan (which is a component of the furnace) to ensure 

proper venting. The special venting requirements associated with Category IV 

condensing furnaces are particularly onerous in cities like Philadelphia, which 

has a significant number of row homes in which access to an exterior wall is 

either impossible (if you are an interior home) or very difficult (if you are an 

exterior unit) 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 of the orphaned water heater (orphaned because it can no longer use 

the common vent with the non-condensing furnace) that must likewise be 

upgraded at a substantial cost if it is even physically possible (which is 

frequently not the case) or abandoned in favor of an electric water heater. 

Because of the upfront cost differential associated with installing a Category IV 

2 Approximately 75.4% of Philadelphia homes are row homes. Approximately 15.3% are twin homes sharing one 

common wall, totaling 90. 7% of all homes. 

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condensing furnace, we conclude that a substantial portion of our customer base 

will elect to convert from gas to electricity or to kerosene. 

6. To fully appreciate the impact of this up-front cost differential on PGW and its 

customers, it is important to know that in 2010, 25% of Philadelphia households 

were at or below 100% of the Federal Poverty Level (FPL), 35.l % were at or 

below 150% FPL, and 44.9o/o at or below 200°/o of FPL. The 150% standard is 

the typical upper threshold for eligibility in many government programs 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% of FPL by the Commonwealth of 

Pennsylvania. I am without knowledge about such an extension by other states. 

There are also many seniors living on low, fixed incomes as well as many 

"working poor" who struggle to pay their bills. For these customers, the fact 

that natural gas may be the more economic fuel over the life-time of the 

equipment is immaterial; these customers do not have disposable income and 

their sole focus is the up-front, out-of-pocket cost of purchasing and installing 

the appliance. If the purchase and installation cost of a new natural gas furnace 

and/or water heater is more than the cost of equipment fueled by an alternative 

energy source by any appreciable amount, as is the case with conversion to a 

Category IV condensing furnace, these customers will likely opt for the 

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alternative, in this case electricity or kerosene. The same is also true for our 

rental units, which, according to 20 l 0 census data, comprise around 45% of the 

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 of our 

customers, at such time as they must replace their existing gas furnaces, will opt 

for electricity or kerosene, which not only adversely affects the health of PGW 

but also adversely affects the environment in our city due to the much greater 

efficiency and lower level of pollutants of gas heat on a full fuel cycle basis and 

is contrary to the purpose ofDOE's rule. A high percentage of electricity 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 of fuel spills inside the home, 

further increasing both fire and indoor pollution hazards. 

7. The other significant harm that will attend the implementation of the 90% 

efficiency standard is that the same low and moderate income customers will 

likely opt for an even worse alternative than switching fuels: they may continue 

to patch their existing equipment long after the point where it should have been 

replaced. This has serious potential safety ramifications not only for the 

s 
directly affected consumers, but also their neighbors and the PGW employees 

who visit homes in response to calls regarding leaking gas. In the event of an 

increase in safety calls which are related to the above, PGW, as a first 

responder, would be required to address these matters. 

8. PGW supports 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 our customers to use gas wisely and to install 

the most efficient equipment possible. We offer numerous 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 of pocket "first costs." The impact of the DFR, which 

in effect bans the future installation of Category I non-condensing furnaces in 

Philadelphia, will be to drive many of our customers to electricity or kerosene. 

This will adversely affect those PGW customers that remain on gas and will 
have to pick up the fixed costs of the system that would have been paid by the 

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 of Pennsylvania 

County of Philadelphia 

) 

) SS 

) 

I, Steven P. Hershey, being first duly sworn, on oath, depose and state that 

the foregoing affidavit was prepared by me and that the statements contained in 

such affidavit are true and correct to the best of my information and belief. 

Steven P. Hershey 

Subscribed and sworn to before me this __ day of May 2012. 

(Name of Notary) 

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