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

+ + + + + ENERGY EFFICIENCY AND RENEWABLE ENERGY

+ + + + + ENERGY CONSERVATION STANDARDS FOR RESIDENTIAL FURNACES

+ + + + +

NOTICE OF PROPOSED RULEMAKING (NOPR)

+ + + + +

PUBLIC MEETING

+ + + + +

WEDNESDAY

MARCH 31, 2010

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The Public Meeting convened in Room 8E-089 in the Forrestal Building, 1000 Independence Avenue, S.W., Washington, D.C., at 9:00 a.m., Douglas Brookman, Facilitator, presiding.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 2 PRESENT: DOUGLAS BROOKMAN, Facilitator KARIM AMRANE, Ph.D., AHRI ASHLEY ARMSTRONG, Navigant Consulting DANIEL J. ARNOLD, Nordyne TIM BALLO, Earthjustice DONALD M. BRUNDAGE, Southern Company LANE WESLEY BURT, Natural Resources Defense Council DAVID B. CALABRESE, AHRI ABIGAIL DAKEN, EPA ENERGY STAR ANDREW deLASKI, ASAP ROBERT ELLIOT, National Propane Gas Association CYRIL E. FOWBLE IV, Lennox International TALBOT H. GEE, HARDI AARON HERZON, Nordyne NATE HILL, American Public Gas Association SAMUEL A JASINSKI, Navigant Consulting CHRISTOPHER LAU, Navigant Consulting

### 202-234-4433 Neal R. Gross & Co., Inc. Page 3 PRESENT (Con't.): ALEX LEKOV, Lawrence Berkeley National Laboratory JOANNA MAUER, Appliance Standards Awareness Project CHARLES McCRUDDEN, ACCA KAREN B. MEYERS, Rheem Heating & Cooling JEFF NICHOLS, Johnson Controls JOHN PROCTOR, Proctor Engineering Group JIM RANFONE, American Gas Association MIKE RIVEST, Navigant Consulting STEVEN J. ROSENSTOCK, Edison Electric Institute HARVEY SACHS, ACEEE FRANK STANONIK, AHRI ROBERT SWILIK, Carrier

JOHN MICHAEL TALBOTT MOLLY TROMBLEY-McCANN, Energy Solutions JAMES T. VerSHAW, Ingersoll Rand, Trane TED WILLIAMS, American Gas Association KARL ZIA, Carrier

TABLE OF CONTENTS

### 202-234-4433 Neal R. Gross & Co., Inc. Page 4 Page

Welcome Michael McCabe................. 6 Attendee Introductions and Agenda Review Doug Brookman.................. 9 Introduction Mohammed Khan.................. 17 Brief Opening Remarks from Interested Parties Doug Brookman.................. 20 Rulemaking Overview Mohammed Khan.................. 53 Scope of Coverage, Regional Standards Background, Consensus Agreement, and Test Procedures Adam Darlington................ 60 Market and Technology Assessment, Screening Analysis, and Engineering Analysis Adam Darlington................ 144Markups for Equipment Price Determination, Energy Use Analysis, Life-Cycle Cost and Payback Period Analysis Alex Lekov..................... 179 Shipments Analysis, National Impacts Analysis, LCC Subgroup Analysis Alex Lekov..................... 212 Manufacturer Impact Analysis Rob Carmichael................. 232 TABLE OF CONTENTS (Con't.)

### 202-234-4433 Neal R. Gross & Co., Inc. Page 5 Page Utility Impacts, Employer Impacts, Environmental Impacts, and Regulatory Impacts Analyses Alex Lekov..................... 241 Next Steps and Closing Mohammed Khan.................. 269

Adjourn.............................. 270

### 202-234-4433 Neal R. Gross & Co., Inc. Page 6 1 P-R-O-C-E-E-D-I-N-G-S 2 (9:03 A.M.) 3 FACILITATOR BROOKMAN: Let's do get 4 started. Good morning everybody. Welcome. 5 My name is Doug Brookman. I am fortunate to 6 be able to introduce Michael McCabe from the 7 Department of Energy for welcoming remarks. 8 MR. McCABE: Good morning. I would 9 like to welcome everybody to today's public 10 meeting. There are a lot of familiar faces

11 here but some who are new. 12 As a matter of introduction, I am 13 Michael McCabe and I, as of this week, I am 14 supervising the Department of Energy's 15 Applying Standards Building Codes and ENERGY 16 STAR activities. I have been part of the 17 program on and off for those who know me, my 18 sick sense of humor, have been involved with 19 the program for just a short while since 20 February of 1979. 21 For those who are familiar and 22 recognize welcome the new people. I look

### 202-234-4433 Neal R. Gross & Co., Inc. Page 7 1 forward to having opportunities to get to meet 2 you, talk to you, understand what the issues

3 are. 4 This rulemaking is a continuation 5 of one that had started some years ago, I 6 think that some folks are aware of, and with 7 the change in legislation as the result of a 8 court case, there are a number of new issues 9 that we are embarking on for our consideration 10 of the input from folks who have not been part 11 of this process in the past, such as looking 12 at HARDI and the air conditioning contractors 13 are new, from my perspective, to this process 14 although we have had discussions over the last 15 couple years, looking at what the effects of 16 the regional standards and how the product is 17 marketed and what the impacts are and 18 considerations will be particularly useful in 19 this process. 20 Again, I would like to welcome 21 everybody, encourage an open and extensive 22 dialogue. This process is very different than

### 202-234-4433 Neal R. Gross & Co., Inc. Page 8 1 what it was when I got started. I think that, 2 looking at John Proctor, he is relatively new 3 to this. He has only been associated with the 4 program for about ten years, as far as 5 participating in the meetings. But he was at 6 the tail end of our panel discussion where 7 five or six DOE employees would sit up at a 8 panel and ask questions of the speaker, which 9 wasn't particularly effective. So we went to 10 this informal process. 11 And this one we have designed it so 12 as to encourage and facilitate discussion and 13 actually for folks to challenge each other 14 because you guys know the marketplace, the 15 products a lot better than we do, either 16 because you manufacture the products, you sell 17 the products, or in the case of some of the 18 efficiency advocates, they are getting out 19 into the industry, into the marketplace a lot 20 more than we do and have issues and 21 appreciation of those issues better than what

22 we do.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 9 1 So I would encourage everybody to 2 participate actively, challenge, add to, or 3 take away from what others have to say because 4 that can only make the record better for this 5 rulemaking. 6 But again, I would like to welcome 7 everybody and recognize Mohammed Khan, who is 8 the project lead for this rulemaking. And I 9 will apologize in advance that I have got to 10 leave early for a number of things which have 11 already been schedule. So I will turn it over 12 to Doug and to Mohammed. 13 FACILITATOR BROOKMAN: Thank you. 14 We are going, as we have done in the past, 15 provide an opportunity for each person to 16 introduce him or herself. If you would say, 17 your name and organizational affiliation. And 18 I think all of you registered, gave a business 19 card to Brenda as you came in the door today. 20 The Department will supply a photocopy of all 21 those business cards accumulated. So we don't 22 need to capture everybody's name and

### 202-234-4433 Neal R. Gross & Co., Inc. Page 10 1 organizational affiliation on the record. I 2 will start with you, John. Name and 3 organizational affiliation around the room. 4 MR. PROCTOR: John Proctor, Proctor 5 Engineering Group. 6 MR. GEE: Talbot Gee, with the 7 Heating Air Conditioning Refrigeration 8 Distributors International. 9 MR. McCRUDDEN: Charlie McCrudden, 10 Air Conditioning Contractors of America. 11 MR. FOWBLE: Cyril Fowble, Lennox 12 International. 13 MR. ZIA: Karl Zia, Carrier 14 Corporation. 15 MR. ROSENSTOCK: Steve Rosenstock, 16 Edison Electric Institute. 17 MR. BURT: Lane Burt, NRDC. 18 MR. SACHS: Harvey Sachs, American 19 Council for an Energy Efficient Economy. 20 MR. BALLO: Tim Ballo, 21 Earthjustice. 22 MS. TROMBLEY-McCANN: Molly

### 202-234-4433 Neal R. Gross & Co., Inc. Page 11 1 Trombley-McCann, Pacific Gas and Electric.2 DR. AMRANE: Karim Amrane, Air3 Conditioning, Heating and Refrigeration 4 Institute. 5 MR. STANONIK: Frank Stanonik,

6 AHRI. 7 MS. MEYERS: Karen Meyers, Rheem 8 Manufacturing. 9 MR. VER SHAW: Jim VerShaw, 10 Ingersoll Rand/Trane. 11 MS. KOHL: Betsy Kohl, Department 12 of Energy, Office of General Counsel. 13 MR. McCABE: Michael McCabe, 14 Department of Energy. 15 MR. KHAN: Mohammed Khan, 16 Department of Energy. 17 MR. DARLINGTON: Adam Darlington, 18 Navigant Consulting. 19 MR. CARMICHAEL: Rob Carmichael, 20 Navigant Consulting. 21 MS. ARMSTRONG: Ashley Armstrong, 22 Navigant Consulting.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 12 1 MR. LEKOV: Alex Lekov, Lawrence 2 Berkeley National Laboratories. 3 MR. TALBOTT: John Talbott,

4 consultant. 5 MR. RANFONE: Jim Ranfone, American 6 Gas Association. 7 MR. WILLIAMS: Ted Williams, 8 American Gas Association. 9 MR. JASINSKI: Sam Jasinski, 10 Navigant Consulting. 11 MR. PEGORS: Mika Pegors, Navigant 12 Consulting. 13 MR. ARNOLD: Dan Arnold, Nordyne. 14 MR. HERZON: Aaron Herzon, Nordyne. 15 MS. DAKEN: Abigail Daken, EPA

16 ENERGY STAR. 17 MS. MAUER: Joanna Mauer, Appliance 18 Standards Awareness Project. 19 MR. SWILIK: Robert Swilik, Carrier 20 Corporation. 21 MR. NICHOLS: Jeff Nichols, Johnson

22 Controls.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 13 1 MR. BRUNDAGE: Don Brundage, 2 Southern Company. 3 MR. SCHEER: Rich Scheer, 4 Energetics. 5 MR. LAU: Chris Lau, Navigant 6 Consulting. 7 MR. RIVEST: Mike Rivest, Navigant 8 Consulting. 9 FACILITATOR BROOKMAN: Everybody, 10 got a chance? 11 Okay, I think all of you received a 12 packet when you checked in. The packet has an 13 agenda, the PowerPoint slides for today, as 14 well as comments from interested parties in 15 today's meeting. 16 I am going to run through this very 17 briefly and then we will hear from Mohammed 18 Khan. Immediately following this agenda 19 review, as I said, we will hear form Mohammed 20 Khan. Following that, there is an opportunity 21 for each person that wishes to do so to make 22 brief summary remarks. Issues that are of

### 202-234-4433 Neal R. Gross & Co., Inc. Page 14 1 interest to individuals in the room and a few 2 people have already signed up to do that, so 3 we have you listed. That shouldn't restrict 4 people. If you want to make a comment here at 5 the outset, please do so. 6 Following that, we are going to 7 have a scope of coverage regional standards 8 background, consensus agreement, and test 9 procedures overview. And following that, 10 market and technology assessment, screening 11 analysis, and engineering analysis. We will 12 take a break mid-morning around about 10:30,

13 10:45 or so. 14 And then immediately following the 15 break you can see is listed in your agenda 16 markups for equipment price determination, 17 energy use analysis, life-cycle cost and 18 payback period analysis. Following that, 19 shipments analysis, national impacts analysis, 20 LCC subgroup analysis; manufacturer impact 21 analysis; utility impacts, employer impacts, 22 environmental impacts, and regulatory impacts

### 202-234-4433 Neal R. Gross & Co., Inc. Page 15 1 analyses. 2 And then there is an opportunity 3 again at the end of the day today, which we 4 anticipate will be around about 12:30 or so. 5 We will see. The Department is trying hard to 6 make sure these meetings are quite efficient 7 and so they are pressing the consultants and 8 everybody to see if they can't not waste 9 people's time. That is the plan. 10 So there is another opportunity at 11 the end of the day today for anybody that 12 wishes to raise additional comments, 13 additional issues that they don't think have 14 been covered fully. And then we will have 15 closing remarks around about 12:30 and then 16 adjourn for the day. That is the plan. Okay? 17 So questions and comments here at 18 the outset? How many of you are new to these 19 proceedings? Just a few. Most everybody's 20 gone through this before. Okay. I would ask 21 for your consideration of what have emerged as 22 sensible rules for the conduct of these

### 202-234-4433 Neal R. Gross & Co., Inc. Page 16 1 meetings. Please speak one at a time. Please 2 say your name for the record each time you 3 speak. You don't need to say your 4 organizational affiliation again. Your name 5 is sufficient. 6 You will need to turn on the 7 microphone. There is a little green LED 8 button. It needs to be on. If you expect 9 that you are going to be participating a lot, 10 you might as well just leave it on. 11 I am going to be queuing people as 12 best I can by name to speak and please try to 13 observe the queue. I also wish to encourage 14 follow-on comments. Sometimes the exchange 15 back and forth can be very, very useful in 16 elaborating and articulating different points 17 of view. And that is helpful for the 18 Department. 19 Please keep the focus here, turn 20 off your cell phones, put them on silent mode. 21 And if you could, try and be concise. Please 22 share the air time. There is a lot to be

### 202-234-4433 Neal R. Gross & Co., Inc. Page 17 1 said. As I said, the Department is trying 2 very hard to be efficient in these meeting. 3 And there will be a complete 4 transcript of this meeting. It will be posted 5 on the EERE website in the span of a week or

6 so. 7 And those that are in the back, if 8 you wish to speak, please come to one of these 9 microphones up here. 10 So that is the general plan. 11 Questions here before we get going?

12 So then let me ask Mohammed Khan. 13 MR. KHAN: Good morning, everyone. 14 Welcome and thank you for participating in 15 today's public meeting on the U.S. Department 16 of Energy's Rulemaking on Energy Conservation 17 Standards for Residential Furnaces. My name 18 is Mohammed Khan and I am the DOE Project 19 Manager for this activity. 20 I will be summarizing the pertinent 21 regulatory history and provide a brief 22 overview of the rulemaking. Details of our

### 202-234-4433 Neal R. Gross & Co., Inc. Page 18 1 rulemaking analysis plan will be presented by 2 the analysts from Lawrence Berkeley National 3 Laboratory and Navigant Consulting. I will 4 also hear from interested parties who have 5 requested to speak, as Doug has already 6 mentioned. 7 Okay. The purpose of today's 8 meeting. There are several purposes of 9 today's meeting. First we want to present the 10 Department's methodologies, data sources, and 11 key assumptions which it plans to use in the 12 analyses as detailed in the Rulemaking 13 Analysis Plan. 14 Second, we want to have a two-way 15 discussion. So in addition to conveying the 16 key points and concepts associated with the 17 rulemaking, we want to hear and listen to your 18 thoughts and potential concerns as well. 19 Because your input is very 20 important in facilitating rulemaking, I 21 enthusiastically encourage everyone to 22 participate in today's discussion and also

### 202-234-4433 Neal R. Gross & Co., Inc. Page 19 1 follow up with written comments and whatever 2 supporting data you may have as well. 3 All right, throughout the 4 presentation today, we will be seeking your 5 input on specific issues. This slide provides 6 an example of the callout boxes that we will 7 use to highlight certain questions and issues 8 as we progress through the presentation today. 9 Note that the identifying numbers 10 correspond to those questions and issues 11 raised in the rulemaking analysis plan. And 12 again, at these junctures, I encourage 13 everyone to provide their input. 14 Okay again, the importance of your 15 input and also a collection of written 16 comments. This slide provides the information 17 for you to submit those to us. In your 18 comment submittals, please identify the docket 19 number, RIN number. We do accept them via 20 email, here is the email address, as well as 21 ordinary mail. And again I want to point out 22 the close of the comment period is April 14th.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 20 1 Okay as we mentioned, opportunity 2 for those who want to provide an opening 3 statement, we will do this at this point. 4 FACILITATOR BROOKMAN: Thank you. 5 As I understand it, three individuals or 6 groups have asked to speak now. And the first 7 one I have listed is Talbot is it Gee?

8 MR. GEE: Gee.

9 FACILITATOR BROOKMAN: Gee. Talbot

10 Gee. 11 MR. GEE: Thanks. Thank you. 12 Throughout the day I will be speaking on 13 behalf of HARDI, the Heating Air Conditioning 14 Refrigeration Distributors International. 15 This statement in particular is a joint 16 statement that we produced in coordination 17 with AHRI and ACCA. So that is what this 18 reflects right here. 19 Good morning. I am Talbot Gee, 20 Vice President HARDI. I am speaking today 21 primarily as the chair of an industry task 22 force formed with our partners at the Air

### 202-234-4433 Neal R. Gross & Co., Inc. Page 21 1 Conditioning, Heating, and Refrigeration 2 Institute or AHRI, and the Air Conditioning 3 Contractors of America or ACCA, to consider 4 how regionalized efficiency standards could

5 best be enforced. 6 One of the primary objectives of 7 our task force is to develop and submit 8 enforcement suggestions to DOE. Today, we are 9 presenting the statement solely to address the 10 Department's request for comments on Section 11 2(A)(2) Regional Standards Enforcement found 12 on page 13 of the Rulemaking Analysis Plan or

13 RAP. 14 This statement reflects the common 15 recommendations of the aforementioned three 16 industry trade associations only as they 17 pertain to the enforcement of regional 18 standards for residential furnaces for the 19 purposes of this rulemaking, under the 20 assumption that DOE proceeds with regional

21 standards. 22 First let me begin by acknowledging

### 202-234-4433 Neal R. Gross & Co., Inc. Page 22 1 the daunting task that may lie ahead for DOE 2 and our industry to attempt to develop an 3 enforcement policy for regionalized energy 4 conservation standards. HARDI, AHRI and ACCA 5 have been considering how regional efficiency 6 standards would be enforced since the debates 7 leading up to the enactment of EISA 2007 and 8 still have been able to find a perfect 9 solution, though it is our intent to identify 10 potential enforcement solutions for DOE 11 consideration. 12 That being said, however, we are in 13 agreement that the effective energy saving 14 establishment of regional efficiency standards 15 of residential HVAC products is relying on the 16 development and implementation of a strong 17 enforcement policy. Effective implementation 18 of regional efficiency standards will require 19 a well-funded and responsive enforcement 20 infrastructure or risk the possible dilution 21 of intended energy savings or the unfortunate 22 circumstance of creating a serious competitive

### 202-234-4433 Neal R. Gross & Co., Inc. Page 23 1 advantage for those HVAC business that choose 2 to ignore the law. 3 In the RAP, DOE outlines eight 4 potential enforcement measures that are 5 currently being considered. In our opinion, 6 seven of these eight considerations fall into 7 three categories. The first being marketing 8 educational initiatives, building code 9 adoption, and inspection, and whistle blowing. 10 DOE enforcement considerations one, 11 two, and seven, on page 13 of the RAP suggest 12 product labeling, enhancement of manufacture 13 marketing literature and a consumer awareness 14 program. We agree that are opportunities to 15 support a robust enforcement policy through 16 programs such as these but we are skeptical 17 that any of these measures could be the 18 cornerstones of a serious enforcement policy. 19 Labels on furnaces may provide some 20 compliance benefit for inspection or 21 verification purposes, if furnaces always 22 operated by themselves. However, most

### 202-234-4433 Neal R. Gross & Co., Inc. Page 24 1 furnaces are intended to be half of a matched 2 cooling system as well, raising serious 3 concerns how effective a product-specific 4 label could be. In fact, the overwhelming 5 majority of central air conditioner units are 6 installed with warm air furnaces and 7 conversely. In addition, the AHRI directory 8 shows close to six hundred thousand possible 9 match combinations of outdoor coils with 10 indoor coils, making product labeling nearly 11 impossible. 12 Simply put in a broader context of 13 a match system HVAC market, we do not believe 14 the labeling of individual components provide 15 significant enforcement value. 16 Considerations three, four and five 17 attempt to tie regional standards enforcement 18 to state and local building codes, by having 19 these regional standards adopted and enforced 20 like other aspects of building safety and 21 energy codes. In theory, this could be an 22 effective enforcement method but we have

### 202-234-4433 Neal R. Gross & Co., Inc. Page 25 1 serious concerns about how well this would 2 work in actual practice because such a 3 strategy assumes that every state and 4 jurisdiction has adopted a relatively uniform 5 building code and more so that every state and 6 jurisdiction has a robust permitting 7 inspection and enforcement infrastructure. 8 Based on experiences in some 9 markets with inspector-enforced energy codes, 10 we have concerns whether the complex systems 11 in our industry can be consistently and12 properly inspected by those lacking HVAC13 specific experience or training. 14 Consideration eight suggest a 15 whistle-blower policy in which any HVAC 16 business can report noncompliance businesses. 17 However, there is no mention of where such 18 reports would go and how those reports would

19 be acted on. 20 First, consideration of a whistle 21 blower policy which includes manufacturers and 22 distributors assumes that suppliers can be

### 202-234-4433 Neal R. Gross & Co., Inc. Page 26 1 enforcers of regional standards. We do not 2 agree, since neither manufacturers nor 3 distributors have any way of knowing or 4 controlling how these products they sell are 5 used or where they are installed. 6 Second, unfortunately, our industry 7 has not experienced much success with whistle 8 blower policies. Contractors reporting clean 9 air act violations to the EPA usually see no 10 follow-up or action taken and California has 11 relied on a whistle blower policy for its 12 building code compliance for years. But code 13 inspectors will admit that they don't have the 14 resources to follow up on most reports. 15 A whistle blowing policy can only 16 be an effective enforcement strategy if backed 17 up with appropriate and responsive enforcement 18 infrastructure. 19 In conclusion, we agree with DOE 20 that it will require a matrix of measures to 21 attempt to enforce regional standards. 22 However, we strongly advise that DOE consider

### 202-234-4433 Neal R. Gross & Co., Inc. Page 27 1 only those strategies that can truly be 2 implemented uniformly and nationally. 3 Further, our three organizations agree that 4 any enforcement policy will need to account 5 for the complexities of properly matched 6 systems and should not be viewed during this 7 furnace standards rulemaking in isolation. 8 Our ultimate goal and we hope one 9 that is shared by DOE is to develop an 10 enforcement policy that adds the least amount 11 of cost to the industry, federal and state 12 agencies and consumers, while ensuring a level 13 playing field in which complying with regional 14 standards regulations does not create a 15 competitive disadvantage in the marketplace 16 for manufacturers, distributors, and

17 contractors. 18 We look forward to collectively 19 working with DOE and other stakeholders to 20 develop an effective and fair enforcement 21 policy, should regional standards become a 22 reality. Thank you.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 28 1 FACILITATOR BROOKMAN: Talbot, I 2 note that you have submitted this for the 3 record and provided it to the Department in

4 advance. Correct? 5 MR. GEE: That's right. 6 FACILITATOR BROOKMAN: So thank you

7 for that. 8 What we hope to do in these opening 9 remarks is summarize statements, especially if 10 they are three of four pages of written

11 remarks. 12 MR. GEE: But it took so long to 13 write. 14 FACILITATOR BROOKMAN: I know it. 15 Fortunately, you were very efficient. You 16 read that very quickly. But I would ask if it 17 is possible, to summarize your remarks, rather 18 than read them into the record, as these will 19 be submitted. They will be fully captured in 20 the Department's record going forward. Okay? 21 So thank you for that. 22 Now the next person I had heard

### 202-234-4433 Neal R. Gross & Co., Inc. Page 29 1 that wishes to speak is John Proctor. 2 MR. PROCTOR: Okay?

3 FACILITATOR BROOKMAN: Yes. 4 MR. PROCTOR: Hello, folks. I am 5 John Proctor. I guess you already know that, 6 because they said. I think I am on. Yes? 7 So, we appreciate the opportunity 8 to come and speak with you, based on our 9 experience, looking at over half a million air 10 conditioners and gas forced air furnaces 11 across the country and looking at how things 12 actually work out in the field, which is a 13 little different perspective than some of the

14 other folks around the table. 15 First of all, we would like to 16 support the combined rulemaking of the furnace 17 fan, and the furnace, and the air conditioners 18 because they actually, as the gentleman from 19 the distributors said, they actually work 20 together. Isn't that amazing? So the 21 standards need to integrate together and the 22 analysis should be integrated together.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 30 1 Are you saying I am being too loud? 2 Whoever the audio guy is, he might yell at me. 3 This is an opportunity to get it 4 right. We can actually have a standard and 5 standard test procedures that represent sort 6 of the median of what is out there in the 7 United States. And as a result, the numbers 8 which are generated will be meaningful and not 9 perverse. 10 Right now, you can actually buy 11 something you think is a more efficient 12 machine and find out that it is a less 13 efficient machine when you put it in the house 14 and you put it in the real combination with 15 the real duct system in the house. And by the 16 way, these are connected to duct systems for 17 those of you who have never been out there in 18 your attic or your crawlspace. 19 Within the context of this we would 20 like to see consistent standards between the 21 different components and ones that represent 22 what is in the field. Also in the context of

### 202-234-4433 Neal R. Gross & Co., Inc. Page 31 1 this rulemaking, it is important to understand 2 that regional standards for air conditioners. 3 I know we are talking about furnaces here but 4 we are talking about potentially combining 5 these. And regional standards for air 6 conditioning are very important and that there 7 is a very primary difference between air 8 conditioners in dry climates and air 9 conditioners in wet climates. And that has to 10 do with the amount of latent and sensible 11 cooling that they do. And until there is a 12 distinction between those two things within 13 the standards, it is very, very unlikely, I 14 would say impossible, that there is actually 15 is going to be any progress in capturing the 16 amount of energy efficiency savings we have 17 available in dealing with those two areas 18 differently. 19 I have remarks which you all have 20 copies of and a few pages after that. And I 21 will submit additional details to the website 22 or whatever it is that you all have. Thank

### 202-234-4433 Neal R. Gross & Co., Inc. Page 32 1 you very much. 2 FACILITATOR BROOKMAN: Thank you. 3 And thanks for submitting those comments in 4 advance to the Department. That is much 5 appreciated. 6 The next group that the Department 7 heard wishes to comment here at the outset is 8 a representative from the Air Conditioning 9 Contractors of America. 10 MR. McCRUDDEN: Once again, I am 11 Charlie McCrudden with the Air Conditioning 12 Contractors of America. In the interest of 13 efficiency, which is why we are all here 14 today, I am going to summarize my summary. 15 FACILITATOR BROOKMAN: Thank you. 16 MR. McCRUDDEN: As the joint 17 statement alluded to, we are very concerned 18 with the enforcement issue with regional

19 standards. Our members are the last ones 20 holding the box. And so now what you have is

21 a double test. You have a test of the 22 efficiency of the equipment as it leaves the

### 202-234-4433 Neal R. Gross & Co., Inc. Page 33 1 factory and you will now have a test of the 2 efficiency on the jobsite. 3 One other thing I did want to 4 mention is we want to urge DOE to seriously 5 consider the full impact of the installation6 cost when contractors must replace a non7 condensing furnace with a condensing furnace. 8 In a recent survey of our members, 9 on requiring condensing furnaces in the north 10 region, the majority of all respondents said 11 that 15 to 30 percent of furnace installations 12 would only accommodate non-condensing furnaces 13 due to vent path issues or concerns about 14 freezing condensate. 15 ACCA has begun to survey its 16 members in response to the 28 questions on 17 which DOE seeks comment and we appreciate the 18 opportunity to participate here today. As you 19 have said, we have not participated in some of 20 these rulemakings in the past but we do want

21 to make the concerns of the contractors out 22 there known. So we plan to be very active

### 202-234-4433 Neal R. Gross & Co., Inc. Page 34 1 throughout the rulemaking and on the other 2 rulemakings. 3 So, thank you. 4 FACILITATOR BROOKMAN: Thank you, 5 Charlie and thanks for your written comments 6 in advance. It is helpful. 7 An opportunity for anybody who 8 wishes to do so to make brief summary remarks 9 here at the outset. Karim. 10 DR. AMRANE: My name is Karim 11 Amrane with the Air Conditioning, Heating and 12 Refrigeration Institute. 13 As a signatory to the consensus 14 agreement on the minimum federal energy 15 efficient standard for residential furnaces, 16 air conditioners, and heat pump, which between 17 AHRI and leading energy efficiency advocacy 18 organization last October, AHRI strongly 19 supports the agreement and urges the 20 Department of Energy to adopt it in a direct 21 final rule without delay, we believe that the 22 agreement has several benefits.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 35 1 First, it will accelerate the 2 effective date. The proposed standard will 3 take effect in 2013 for non-weatherized 4 furnaces, two and a half years ahead of the 80 5 percent AFUE standard published by DOE in 2007 6 and several years ahead of any new standard 7 that DOE would promulgate under this current 8 rulemaking. Accelerating the effective date 9 will help the nation save energy several years 10 ahead of any standard established under the

11 current schedule. 12 The agreement, if adopted, will 13 save three quads of primary energy by 2030. 14 This is a significant amount of energy. These 15 energy savings will result in annual 16 greenhouse gas emission reduction of 17 approximately 18 million metric tons of CO2 18 equivalent in the year 2030 alone. 19 The agreement will also result -- 20 is the result of two years of intensive 21 negotiation. And adopting the agreement in a 22 direct final rule will free up resources at

### 202-234-4433 Neal R. Gross & Co., Inc. Page 36 1 DOE, allowing the Department to speed up other 2 rulemaking and focus on other products. 3 The Department of Energy has 4 encouraged stakeholders in the past to 5 consider informal discussion which could 6 result in a consensus agreement. Furthermore, 7 in 2007, Congress amended the Energy Policy 8 and Conservation Act to expedite the 9 rulemaking process by authorizing DOE to issue 10 direct final rules, establishing new energy 11 conservation standards upon receipt of joint 12 stakeholders' proposals. 13 The consensus agreement satisfies 14 the criteria of the law and the process 15 improvement rule. Consequently, we urge the 16 Department to issue a direct final rule 17 adopting the agreement as soon as possible. 18 Thank you. 19 FACILITATOR BROOKMAN: Thank you 20 Karim. 21 Additional comments? Yes, please 22 Molly.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 37 1 MS. TROMBLEY-McCANN: This is Molly 2 Trombley-McCann. And in this instance, I am 3 speaking for Pacific Gas and Electric, as well 4 as Southern California Gas Company, San Diego 5 Gas and Electric, and Southern California 6 Edison. 7 I just wanted to say that we also 8 want to go on the record as supporting the 9 consensus agreement that has been submitted to 10 the Department of Energy and we are all 11 involved in these negotiations and we believe 12 the outcome is very positive and we would like 13 to support the DOE in whatever process they 14 need to follow, in order to adopt the 15 consensus agreement. 16 We also do want to urge the DOE to 17 hold a combined rulemaking for air 18 conditioning, heat pumps, furnaces, and

19 furnace fans. 20 FACILITATOR BROOKMAN: Thank you. 21 A display of discipline. 22 Harvey Sachs.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 38 1 MR. SACHS: Harvey Sachs, ACEEE, 2 was a signer of the consensus agreement and we 3 very much would advocate adoption of that 4 agreement by direct rule. It is not a perfect 5 solution but we think it is by far the best 6 solution for the country and the industry that 7 could be adopted. And we appreciate the 8 Department's consideration. 9 FACILITATOR BROOKMAN: Thank you, 10 Harvey. 11 Yes, Lane. 12 MR. BURT: Lane Burt with NRDC. I 13 would just echo what Harvey said. As a 14 signatory to the consensus agreement, we do 15 agree that it does meet the requirements of 16 the statute and should be adopted as quickly 17 as possible. 18 FACILITATOR BROOKMAN: Thank you. 19 Additional comments here at the 20 outset? Yes, Andrew. 21 MR. deLASKI: I will just chime in 22 as another signatory to the joint

### 202-234-4433 Neal R. Gross & Co., Inc. Page 39 1 recommendation, ASAP strongly supports 2 adoption of the recommendation. 3 And I also just would note that in 4 our filing with the Department on January 5 15th, the joint filing of ACEEE, Department of 6 Energy, ASAP and NRDC, Northeast Energy 7 Efficiency Partnership and AHRI, we recommend 8 the Department move forward with a direct 9 final rule and urge adoption of a direct final 10 rule not later than August 2010. 11 Unfortunately, this request was not 12 responded to in the notice published a couple 13 of weeks ago. So we are very eager for the 14 Department of move forward with the direct 15 final approach for these products. 16 We also support accelerated

17 treatment for furnace fans. And to the extent 18 that there is attention here in addressing 19 furnace fans and getting this direct final out 20 within that time frame, we support moving 21 forward with the direct final rule 22 expeditiously.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 40 1 FACILITATOR BROOKMAN: Thank you. 2 Jim Ranfone. 3 MR. RANFONE: Jim Ranfone, American 4 Gas Association. While we support the intent 5 of the agreement, we were not signers of the 6 agreement, by the way, we are concerned about 7 the replacement market, specifically as 8 outlined I think by ACCA, that they are 9 concerned about the availability of product to 10 -- non-condensing product being replaced by 11 condensing, that that is going to cause a 12 burden on consumers. I think they said 15 to 13 30 percent would not be applicable but I think 14 it is even more than that. 15 This rule also includes

16 manufactured homes and I am not sure ACCA has 17 taken that into consideration, replacing a 18 direct vent required manufactured home with a 19 condensing. That is going to have another 20 aspect on the end use product line. 21 So while everybody is urging to 22 have a direct rulemaking, I think the DOE

### 202-234-4433 Neal R. Gross & Co., Inc. Page 41 1 would be prudent to look at this as it impacts

2 consumers. 3 When you talk about the major 4 difference between the 80 percent and the 90 5 percent, to us of course is the venting 6 system. When you go to a 90 percent 7 condensing furnace, you have a positive 8 venting system. That is not applicable for a 9 common vented application. The reason 10 manufacturers designed 80 percent furnaces to 11 be non-positive so that you could have a12 direct replacement. When you go with a non13 positive with a positive vented system, which 14 a condensing furnace does, you can't have a 15 direct replacement. So that is a major 16 consideration for end use consumers. 17 We think the best policy, if you 18 are going to go to regional standards, is to 19 probably require 90 percent for a new 20 construction, where it could be planned for 21 but to leave the 80 percent available for the 22 replacement market.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 42 1 On the other issue is, I think the 2 DOE says it is not including electric furnaces 3 as part of this rulemaking because there is 4 not significant energy savings available. But 5 if you are going to eliminate an 80 percent 6 furnace anything above 5,000 heating degree 7 days and still allow an electric furnace to be 8 installed because they are 98 to 100 percent 9 based on site energy, then I think that is 10 counterproductive to energy consumption and 11 energy uses. And I think the DOE has to take 12 a look at that as part of this rulemaking. 13 Some say well, they are not using 14 electric furnaces. I would urge the DOE to 15 take a look at how many electric furnaces are 16 marketed and use that in your comparative 17 analysis as to what the impact of this 18 rulemaking is. 19 Thank you. 20 FACILITATOR BROOKMAN: Thank you, 21 Jim. 22 Additional comments here before we

### 202-234-4433 Neal R. Gross & Co., Inc. Page 43 1 launch in to the content? Steve Rosenstock.

2 MR. ROSENSTOCK: Steve Rosenstock. 3 I just wanted to thank the Department for 4 holding this rulemaking and I do note that the 5 next session for air conditioners is going to 6 be on May 5th, as I recall. That is going to 7 be the next, kind of the -- there is going to 8 be another hearing on May 5th on the 9 residential air conditioners and heat pump 10 side. So again, we appreciate the Department 11 working so efficiently on that. 12 I do have to say that we were not a 13 party of the consensus agreement, too. We do 14 understand the hard work. We are still 15 getting feedback from our member companies and 16 we will submit the comments by April 14th on 17 our thoughts on this consensus agreement. 18 Thank you. 19 FACILITATOR BROOKMAN: Thank you. 20 Additional comments here now that we are about 21 to move on? Michael McCabe. 22 MR. McCABE: Thank you, Doug.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 44 1 Michael McCabe. I would like to follow up 2 those remarks with some specific questions. 3 But before I ask the questions, I would like 4 to thank everybody for their consideration and

5 the remarks. 6 First with regards to the joint 7 statement from HARDI, AHRI and ACCA, I am 8 encouraged and would encourage you to work 9 together and develop a specific recommendation 10 on enforcement of regional standards. As one 11 can tell from looking at the amount of text 12 that we gave to that in the notice, it is an 13 area that is very important and certainly very 14 sensitive to us as far as how you do it. And 15 I would encourage you that if you can, to 16 provide one, some very specific regulatory 17 language that you would encourage the 18 Department to consider adopting. And I would 19 also open that up, obviously, to everybody 20 else to offer very specific language. 21 And second, following up on your 22 comments from ACCA, the legislation as it is

### 202-234-4433 Neal R. Gross & Co., Inc. Page 45 1 currently structured, requires us to look at 2 the economic impact of standards. But for 3 regional standards, it directs us to look at 4 the economic impacts of the regional standards 5 and it talks about it, the distributors; it 6 talks about the contractors and the like. 7 So if anybody offers up some 8 specific language on regional standards 9 enforcement, if they have thoughts as to what 10 the economic impacts would be on the different 11 cohorts, that would be appreciated or could 12 provide us with some specific direction where 13 data might be had, that can enable us to 14 calculate those impacts. Because when we roll 15 it all up, at the end of the day, we have to 16 make a statement as to what is going to be the 17 economic impact of the regulations on the 18 nation. And we typically do that in our 19 calculation of net present value. 20 So the economic impact and the 21 specific certification enforcement language 22 would be greatly appreciated.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 46 1 Second, in following up on let's 2 see where Jim Ranfone from AGA said, following 3 up on your comments, Jim, the electric 4 furnaces, EPCA directs DOE to establish 5 separate classes of products where there are 6 different energy uses. Electric furnaces 7 falls within the product type of furnaces, 8 given that they are electric, as opposed to 9 natural gas or oil, we end up with a class of 10 electric furnaces. 11 I can appreciate your comments and 12 recognize that in many cases consumers will 13 weigh whether or not to buy an electric 14 furnace versus a heat pump. Often the 15 uniformed will look at the two products. And 16 particularly if you have a central air 17 conditioner sitting on top of the electric 18 furnace, you can't tell the difference between 19 that and a heat pump. But given how EPCA is 20 structured, we have to treat electric 21 resistance furnaces as a separate class within 22 the product type furnaces.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 47 1 If you or anybody has any specific 2 guidance suggestions on how we can look at in 3 a different fashion that would be greatly 4 appreciated. It has been something we have 5 struggled with over the years. We have, in 6 our energy forecasting, as we look at the 7 impact of standards and one of the benefit of 8 taking and considering furnaces and air 9 conditioners and air conditioning heat pumps 10 together in a single rulemaking, we will look 11 at what is going to be the shift. The fuel 12 shifting from one fuel type to another and we 13 capture electric furnaces separate from heat 14 pumps, separate from gas furnaces, so we can 15 get some of that fuel shifting. We do take 16 that into consideration. We have taken that 17 into consideration in past rules. But I think 18 that you may, based on my interpretation of 19 your comments, that you are encouraging us to 20 go further. And I would encourage you and 21 anybody else to offer some specifics as to 22 both one, how we can go further, and two, how

### 202-234-4433 Neal R. Gross & Co., Inc. Page 48 1 that can be done under the structure of the 2 current legislation. 3 And then third, there were a number 4 of comments both with regard to the consensus 5 agreement and John Proctor, while you didn't 6 talk about the consensus agreement itself, you 7 were talking about different approaches to 8 capture the energy savings from efficiency and 9 that there are some limitations right now. 10 So I will lump all that together. 11 The consensus agreement was submitted I 12 believe on January 15th. There was a 13 supplement or additional comment that I 14 consider to be a supplement that was provided 15 by I think the Appliance Standards Awareness 16 Project and possibly others had signed on to 17 it as to that supplement, talked about why 18 they believed the DOE could adopt the multiple 19 metrics, and why DOE could adopt the standards 20 for new construction that go into the building

21 code. 22 I would encourage everybody to take

### 202-234-4433 Neal R. Gross & Co., Inc. Page 49 1 whatever your position is to offer us some 2 specific languages. If you believe that we 3 can adopt multiple metrics, that is for 4 central air conditioners in SEER and in EER, 5 for example, why under the structure of the 6 current legislation do you believe we can do

7 so? 8 We have some reservations about 9 that. We are open to hearing some thoughtful 10 consideration as to why we can tie to the 11 legislative language in EPCA as to why we can, 12 not that it would be a good policy but why it 13 is legally acceptable. 14 Second, with the new construction, 15 we have reservations about adopting a standard 16 that are applied in new construction. When we 17 look at, again, looking at the structure of 18 the legislation, it is a manufacturing 19 standard not an installation standard. But 20 the legislation has been amended a number of 21 times since it was initially written in '75. 22 There may be something that we are missing in

### 202-234-4433 Neal R. Gross & Co., Inc. Page 50 1 our consideration of it. 2 So, if you believe we can adopt a 3 standard that applies to new construction, 4 please guides us through your reading of the 5 legislation as to why that can be done. And 6 of course, on the flip side, while everybody 7 who commented, commented for the consensus 8 agreement, there may be some who -- There were 9 strong comments as to why we should adopt the 10 consensus agreement. There may be equally 11 strong views as to why we should not. We 12 would encourage folks to provide comments as 13 to why we should not, why the legislation 14 would not allow us so that we, Betsy Kohl and 15 the General Counsel staff review that, having 16 some other learned views of the legislation 17 and why we can or cannot adopt the consensus 18 agreement, that would be greatly appreciated. 19 Thank you. 20 FACILITATOR BROOKMAN: Thank you, 21 Michael. 22 Okay so then Harvey Sachs.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 51 1 MR. SACHS: I would like to address 2 my colleague Mr. Ranfone's comments in one 3 respect. And that is to consider, and I think 4 it is relevant to Mr. McCabe's comments on new 5 construction as well. 6 The expectation in round numbers is 7 that a new house will last for 100 years. It 8 is a one percent augmentation of the housing 9 stock annually. The furnace in that house, 10 again in round numbers, is likely to last 20 11 years as is the air conditioner, perhaps a 12 little bit less, the water heater, ten years. 13 And in this context, Mr. Ranfone's request has 14 to be seen as a question of when we are going 15 to bite the bullet that if existing houses are 16 exempted from the condensing standard, it sets 17 a precedent for exempting them in the next 18 round and the next round, and the next round. 19 And 30 years from now we will still be asking 20 the same question, whether a standard that 21 supports water heaters that inherently waste a 22 third of their source energy are still

### 202-234-4433 Neal R. Gross & Co., Inc. Page 52 1 acceptable. 2 We have to cross this bridge at 3 some point to reach greater efficiency for our 4 residential sector. And I thank Mr. Ranfone 5 for framing it quite as succinctly. The cost 6 of doing the retrofit to a condensing furnace 7 and where required, the flue liner for the 8 water heater, will not go down in time. The 9 sooner we lock that in, the longer we will 10 have the benefits for the remaining life of 11 that existing house. 12 Thank you. 13 FACILITATOR BROOKMAN: I am eager 14 for us to move into the content for today. 15 MR. SACHS: We have been doing

16 content. 17 FACILITATOR BROOKMAN: Additional

18 remarks before we move one? 19 MR. KHAN: Doug, I just want to 20 make one point. 21 FACILITATOR BROOKMAN: Yes, please. 22 MR. KHAN: Mohammed Khan, DOE.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 53 1 Just to add to Michael McCabe's point and 2 request about data and ideas for the 3 enforcement, the Department has 90 days to 4 begin its rulemaking or initiating its 5 rulemaking for enforcement plans after the 6 final rule for standards has been issued. 7 So the point is, if we can begin 8 getting your ideas, data and everything that 9 would support development of an enforcement 10 plan, the better, obviously. Thank you. 11 FACILITATOR BROOKMAN: Thank you. 12 Then are you ready to --

13 MR. KHAN: Yes.

14 FACILITATOR BROOKMAN: Let's 15 proceed then. As listed in the agenda, we are 16 going to hear from Mohammed Khan a rulemaking 17 overview. 18 MR. KHAN: Okay, I am going to get 19 into some regulatory history. Okay, Energy 20 Policy and Conservation Act of 1975 21 established the energy conservation program 22 for consumer products that includes

### 202-234-4433 Neal R. Gross & Co., Inc. Page 54 1 residential furnaces. It prescribed initial 2 standards for furnaces and authorized the 3 Department to conduct rulemaking to determine 4 if amendments to standards are necessary. 5 And more recent is the Energy 6 Independence and Security Act of 2007. EISA 7 directs the Department to include standby mode 8 and off mode energy consumption in its 9 standards promulgated after July 2010. The 10 requirement for completion date of the furnace 11 standard is May 2011 and therefore, it will 12 reflect standby and off mode energy 13 consumption. 14 Now for a standard, DOE must have 15 an appropriate test procedure in place. EISA 16 directed the Department to develop a test 17 procedure for measurement of standby and off 18 mode by September 2009. 19 The Department published a notice 20 proposing a test procedure in July 2009 but 21 has since had to issue a supplemental notice. 22 And it is my understanding that today that

### 202-234-4433 Neal R. Gross & Co., Inc. Page 55 1 supplementary notice will be over at the 2 Federal Register and as soon as I confirm 3 that, we will post it, make it available on 4 our website for your review. 5 And the last point I want to make 6 about EISA, which is an important one, is that 7 it authorizes DOE to establish up to two

8 standard levels for furnaces based on 9 geographic region. Regional standards is new 10 ground and it is important for the Department 11 to understand all of the related issues. 12 As most of you are aware, the 13 Department issued a final rule for amended 14 furnace standards in November 2007. However, 15 this rule was voluntarily remanded following a 16 lawsuit, asserting that the rule failed to 17 deliver maximum improvement in energy 18 efficiency that is both technologically 19 feasible and economically justified. 20 DOE and the parties to the lawsuit 21 have agreed to the voluntary remand but DOE is 22 required to reissue the final rule by May

### 202-234-4433 Neal R. Gross & Co., Inc. Page 56 1 2011. 2 Okay, a short overview on the 3 rulemaking. I touched on EPCA earlier. In 4 this slide, we list seven factors EPCA 5 requires DOE to consider when promulgating 6 energy efficiency standards. This table also 7 shows the corresponding analyses the 8 Department performs to satisfy each of the

9 factors. 10 As an example, the DOE performs an 11 LCC analysis and a manufacturing impact 12 analysis to determine the potential economic 13 impacts on consumers and manufacturers 14 respectively. And of course, we want to get 15 your input on the proposed methodologies for 16 these analyses as we explain them later today. 17 This slide provides a simple 18 chevron chart illustrating the phases of the 19 rulemaking. We are beginning with the 20 rulemaking analysis plan and we will discuss 21 the details of the plan, which was made 22 available through the March 15th notice.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 57 1 The plan provides a full overview 2 of the rulemaking process, details of 3 analytical methodologies and identifies 4 certain issues the department seeks input on 5 for this phase of the rulemaking. 6 Next we will produce a notice of 7 proposed rulemaking acknowledging your input 8 of course. And lastly, we will publish a 9 final rule based on the revisions to the NOPR 10 which may result from the stakeholder inputs. 11 This concludes my overview and at 12 this point we will proceed to Section 4. 13 Thank you.

14 FACILITATOR BROOKMAN: Andrew 15 deLaski. 16 MR. deLASKI: Just a clarifying 17 question, Mohammed. 18 So, just on the test method for 19 furnaces, there was a NOPR published in July 20 of 2009. That hasn't gone final. Am I

21 correct? 22 MR. KHAN: No. No, it hasn't.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 58 1 MR. deLASKI: And what you said 2 just a moment ago was that there is a 3 supplemental NOPR being issued? 4 MR. KHAN: There is a supplemental 5 notice, exactly. 6 MR. deLASKI: Okay. 7 MR. KHAN: And the purpose of that 8 is to combine the standby and off mode energy 9 consumption with AFUE. And we will touch on

10 that later. 11 MR. deLASKI: Okay. And so then 12 the comments are due on that sometime within a

13 month or so? 14 MR. KHAN: I'm sorry to say I think 15 the comment period is only roughly two weeks. 16 MR. deLASKI: Okay. 17 FACILITATOR BROOKMAN: We will 18 double back and make sure we get that comment 19 period established.

20 MR. deLASKI: Sure.

21 FACILITATOR BROOKMAN: Frank? 22 MR. STANONIK: Frank Stanonik,

### 202-234-4433 Neal R. Gross & Co., Inc. Page 59 1 AHRI. Just because we have kind of touched on 2 it, I just want to make sure of this. If the 3 Department had decided to do a direct final 4 rule that got published before July 1, 2010, 5 DOE would not necessarily be obligated to roll 6 in the standby mode. Correct? 7 MR. KHAN: I am going to defer that 8 to legal. 9 FACILITATOR BROOKMAN: Elizabeth, 10 use your microphone and say your name for the

11 record. 12 MS. KOHL: Hi. Betsy Kohl, DOE 13 General Counsel's Office. The statute in 14 6295(g)(2) -- I'm not exactly sure of the 15 provision, provides a date after which we need 16 to incorporate that standby mode. So if it is 17 before that date, then we wouldn't have to do 18 it but if it was, then we would. And I am not 19 exactly sure of the date off the top of my 20 head but it is a hard cutoff. 21 FACILITATOR BROOKMAN: Thank you, 22 Frank. He just said --

### 202-234-4433 Neal R. Gross & Co., Inc. Page 60 1 MR. STANONIK: I said it is on the 2 slide as the correct date. 3 FACILITATOR BROOKMAN: Okay, thank 4 you, Betsy and thank you, Frank. 5 MR. KHAN: Anybody else? 6 FACILITATOR BROOKMAN: Thank you. 7 Okay, let's proceed. We are going to hear 8 from Adam Darlington on scope of coverage, 9 regional standards background, consensus 10 agreement, and test procedures. 11 MR. DARLINGTON: Good morning. I 12 am Adam Darlington, Navigant Consulting. As 13 Doug just said, I will be discussing the scope 14 of coverage, the regional standards, consensus 15 agreement, and touch on DOE’s test procedures 16 for residential furnaces. 17 So we will start with the scope of 18 coverage. As we mentioned earlier today, we 19 are revisiting the November 2007 final rule 20 for residential furnaces, which DOE determined 21 that EPCA's definition of a furnace was fairly 22 broad in its coverage and that it covers the

### 202-234-4433 Neal R. Gross & Co., Inc. Page 61 1 different products shown here on the slide but 2 for various reasons DOE did not address some 3 of these products. 4 Additionally, the Independence and 5 Security Act or the Energy Independence and 6 Security Act of 2007 has recently prescribed 7 standards for residential boilers. So DOE 8 will not be addressing those products in this 9 rulemaking. And therefore, this rulemaking 10 will only cover gas furnaces, mobile home 11 furnaces, and oil fired furnaces. 12 Now in addition, as Mohammed noted 13 earlier, the Energy Independence and Security 14 Act also gives DOE the authority to define 15 regional standards for residential furnaces. 16 And in addition to the base national standard, 17 DOE can establish up to one additional 18 regional standard. And EISA 2007 also 19 establishes criteria for defining the regions, 20 the regional definitions, which are shown here 21 on the slide. And given the criteria in EISA 22 2007, DOE is planning to use the regions shown

### 202-234-4433 Neal R. Gross & Co., Inc. Page 62 1 here, these are also in the rulemaking 2 analysis plan, to perform the regional 3 analysis for residential furnaces. 4 DOE's regions are basically divided 5 along the 5,000 heating degree day line. And 6 this is consistent with the regions defined in 7 the consensus agreement, which has been 8 touched on earlier today as well. 9 Also in the November 2007 final 10 rule, DOE performed sort of a sensitivity 11 analysis to analyze the impacts of regional 12 standards. And these regions are essentially 13 the same, except that it moves Nevada to the 14 southern region and West Virginia to the 15 northern region, as compared to that analysis. 16 And so DOE is seeking comments 17 regarding the regional definitions for the 18 residential furnace analysis.

19 FACILITATOR BROOKMAN: Steve

20 Rosenstock. 21 MR. ROSENSTOCK: Steve Rosenstock, 22 EEI. Looking at the current eight-zone map

### 202-234-4433 Neal R. Gross & Co., Inc. Page 63 1 that is used by ASHRAE and IACC, according to 2 this map, I would say at least 90 percent, 3 geographically speaking, 90 percent of the 4 land mass in Nevada is a climate zone five, 5 which is for most other states, considered a 6 northern zone, except for Clark County. What? 7 MR. DARLINGTON: Yes, these are 8 population weighted. 9 MR. ROSENSTOCK: They are 10 population weighted? Okay. Well that is 11 important. Well that is good to know because 12 if you are just looking at it just purely from 13 a geographical climate, again, you know, 14 Nevada would kind of fall in the northern zone 15 in terms of climate. 16 FACILITATOR BROOKMAN: Adam, say a 17 few more words about how that is done. 18 MR. ROSENSTOCK: Thank you. 19 MR. DARLINGTON: The regional20 analysis, I mean it is based on a population21 weighted average. So if there is heavier 22 population in the southern cities in Las

### 202-234-4433 Neal R. Gross & Co., Inc. Page 64 1 Vegas, then that would obviously skew it more 2 towards the southern region and that would be 3 the reason why it was included with the 4 southern region. 5 FACILITATOR BROOKMAN: That is what 6 tips the state from northern to southern. 7 MR. DARLINGTON: Right. It is 8 basically based on where most of the 9 population of the state is concentrated.

10 FACILITATOR BROOKMAN: Steve? 11 Okay. Harvey Sachs. No? Okay. Additional 12 questions on this comment box? DOE's regional 13 definition and how they did it. 14 Andrew deLaski. 15 MR. deLASKI: We support the 16 regions as the slide notes, they were part of 17 the consensus agreement. And I also wish to 18 note that we support them for air conditioners

19 as well. 20 And one of the things that we heard 21 throughout our discussions is the importance 22 of having that border be consistent for the

### 202-234-4433 Neal R. Gross & Co., Inc. Page 65 1 products and that helps to reduce some of the 2 issues that were raised on the outset of the 3 cost to have a regional standard by having a 4 consistent border for the product categories. 5 The issue came up time and time again, as we 6 discussed regional standards. And the 7 discussions ultimately led to the negotiated 8 agreement. 9 FACILITATOR BROOKMAN: Thank you. 10 Okay, Harvey. No? 11 MR. SACHS: Harvey Sachs. In the 12 development of the consensus agreement, one of 13 the parameters that was considered was in 14 addition to the direct climate impacts, the 15 5,000 degree line, an effort to minimize the 16 number of metropolitan areas that would follow

17 the border between northern and southern 18 climate zones in consideration of the 19 potential impact on distribution and 20 contractors. It was not the only factor but I 21 guess one of the parameters that was 22 considered in the development of the consensus

### 202-234-4433 Neal R. Gross & Co., Inc. Page 66 1 agreement. 2 FACILITATOR BROOKMAN: Thank you. 3 Additional comments? Because we are about to

4 move on. 5 MR. DARLINGTON: Okay. So along 6 with the analysis of regional standards, DOE 7 will need to develop an enforcement plan for 8 regional standards. Now DOE has not yet 9 determined that plan will be or the specific 10 mechanisms but DOE does, in the rulemaking 11 analysis plan and here on the slide, lists 12 what DOE believes some components of an 13 effective enforcement plan. And you can read 14 through those. 15 And here DOE is also interested in 16 comments regarding the mechanisms presented in 17 the rulemaking analysis plan, as well as any 18 additional enforcement mechanisms that DOE 19 should considered.

20 FACILITATOR BROOKMAN: Frank 21 Stanonik. 22 MR. STANONIK: Frank Stanonik,

### 202-234-4433 Neal R. Gross & Co., Inc. Page 67 1 AHRI. It is funny how sometimes you read 2 something and all of a sudden you read it 3 totally differently. 4 The first bullet about required 5 labeling and markings, and I assume that is 6 marking or maybe it is marketing. I don't 7 know. I have always been looking at that and 8 saying well they are talking about the FTC 9 label. But is DOE actually talking about 10 requiring a separate DOE required label?

11 FACILITATOR BROOKMAN: Mohammed

12 Khan. 13 MR. KHAN: This is Mohammed Khan. 14 Frank, that is a very good question. I will 15 tell you that I have had some initial 16 conversations with FTC. And so we are 17 beginning to flesh out what might be 18 considered an effective approach. So 19 obviously the FTC label will be changed. They 20 too have to initiate a rulemaking shortly. 21 But to answer your question in all 22 fairness, I guess the answer is I am not

### 202-234-4433 Neal R. Gross & Co., Inc. Page 68 1 really sure. So that maybe something that 2 maybe you have some ideas on and can elaborate 3 on some comments for us to consider and 4 possibly go down that way.

5 FACILITATOR BROOKMAN: Frank. 6 MR. STANONIK: Frank Stanonik with 7 AHRI. I mean yes, certainly if this 8 rulemaking includes the possibility of an 9 additional DOE label, I will tell you the 10 initial reaction right now is stop. Okay? 11 There is already a mechanism existing for 12 labeling efficiency information for furnaces. 13 I recognize that Congress in their wisdom 14 didn't give that responsibility to the DOE 15 they gave it to the FTC but I think we should 16 allow that FTC process to determine what label 17 will be needed based on this whatever changes 18 come out of this process. You know, whatever 19 the effective date is, we have some time but 20 additional labels that might be different than 21 that wonderful yellow thing we are all used 22 to, I just think an unnecessary complexity.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 69 1 FACILITATOR BROOKMAN: Thank you. 2 Anything else? Mohammed Khan.

3 MR. KHAN: Thanks for those 4 thoughts. 5 FACILITATOR BROOKMAN: Okay, Karim

6 Amrane. 7 DR. AMRANE: Karime Amrane AHRI. I 8 guess we need some clarification here but it 9 is my understanding that DOE has to do a 10 separate rulemaking on enforcement. Right? 11 Ninety days at least after the final rule is 12 published? 13 MR. KHAN: Mohammed Khan. That is

14 correct. 15 As I said earlier, within 90 days 16 after the issuance of the final standards 17 rule, we have to begin that. 18 DR. AMRANE: Okay. So the question 19 you are asking here is not really part of this 20 rulemaking. It is going to be discussed in a 21 separate rulemaking. 22 MR. KHAN: Well, that is sure. We

### 202-234-4433 Neal R. Gross & Co., Inc. Page 70 1 are going to get into more details with it in 2 that separate rulemaking but obviously it has 3 impacts here. So the more information we can 4 get up front, you know, the better. 5 DR. AMRANE: Well I am just saying 6 it is not the end of it. I mean, it is going 7 to be discussed eventually. 8 MR. KHAN: Okay, I understand your 9 question. Right. No, it is not the end of 10 it. No. 11 FACILITATOR BROOKMAN: Thank you. 12 Thank you for the clarification. Steve

13 Rosenstock.

14 MR. ROSENSTOCK: Steve Rosenstock. 15 Again, looking at that bullet where it says 16 marketing, was it really meant to say 17 marketing or marking? Because if it is 18 marketing, I don't know that DOE has ever 19 required marketing for any other appliance 20 efficiency rulemaking. 21 MR. KHAN: I think it is marking.

22 FACILITATOR BROOKMAN: Is that a

### 202-234-4433 Neal R. Gross & Co., Inc. Page 71 1 yes? Rob Carmichael. 2 MR. CARMICHAEL: It is markings, 3 yes.

4 FACILITATOR BROOKMAN: Rob 5 Carmichael confirms it is markings.6 MR. ROSENSTOCK: Markings, M-A-R-K7 I-N-G-S.

8 FACILITATOR BROOKMAN: I-N-G-S. 9 MR. ROSENSTOCK: Thank you.

10 FACILITATOR BROOKMAN: I saw Talbot

11 next. 12 MR. GEE: Yes, Talbot with HARDI. 13 One note here that I think maybe perhaps we 14 didn't outline in our joint statement on 15 enforcement is with the one, two, three, 16 fourth bullet point regarding warranty 17 registration. We just simply don't think that 18 is a possible avenue, just because some states 19 with consumer protection laws don't allow you 20 to have any tags, waivers, or compliance 21 obligations to enforce a warranty 22 responsibility. So I don't think that is one

### 202-234-4433 Neal R. Gross & Co., Inc. Page 72 1 that that can be extended to enforcement of a 2 regional standard. 3 FACILITATOR BROOKMAN: Thank you. 4 So those with detailed written remarks will be 5 helpful to the Department. I think if you 6 will site those states specifically 7 especially. 8 Yes please, Charlie. 9 MR. McCRUDDEN: Charlie McCrudden. 10 Like I said, if we are jumping around on 11 bullets here; number two, encouraging state 12 and local entities to adopt and codify, blah, 13 blah, blah. 14 How would DOE encourage this type 15 of requirement? I guess it is not a 16 requirement but is there a precedent for DOE 17 encouraging states and locals to do things? 18 MR. CARMICHAEL: This is Rob 19 Carmichael. So the precedent, DOE doesn't 20 have the authority to prescribe building codes 21 per se to states. It can actually adopt a 22 model energy code and I believe, Betsy correct

### 202-234-4433 Neal R. Gross & Co., Inc. Page 73 1 me if I am wrong, but I believe that in that 2 situation, states have to either adopt it or 3 give reason for not adopting it. So it would 4 be part of that process.

5 MR. McCRUDDEN: And then a follow6 up I guess on the fifth bullet, educating 7 consumers on regional standards, what to look 8 for. Is there a funding mechanism that DOE 9 has to support educating consumers and doing a 10 public information campaign? 11 And I bring it up because I know in 12 the past there have been congressionally 13 mandated sort of public information campaigns. 14 For example, I think there was one in the '05 15 energy bill encouraging homeowners and 16 building owners to make clean and checks on 17 maintenance and things like that and 18 unfortunately, Congress never appropriated 19 money. It was one of those as such sums 20 issues where I don't know the amount that was 21 set aside but it never got spent. 22 So if there is something like that,

### 202-234-4433 Neal R. Gross & Co., Inc. Page 74 1 I guess my comment would be, and this is often 2 not something that you control, but if you are 3 going to do educating of consumers, set some 4 money aside in the budget so that consumers do 5 get educated. 6 FACILITATOR BROOKMAN: Okay. 7 Thanks, Charlie. Harvey Sachs. 8 MR. SACHS: Harvey Sachs with a 9 follow-on to Frank Stanonik's comment on a 10 separate DOE label. I am to infer from your 11 remarks perhaps that your members will support 12 incorporation of information on the FTC label, 13 referring to perhaps where a product can be 14 installed as the alternative to a separate DOE 15 label. We certainly would prefer to see a 16 single label.

17 FACILITATOR BROOKMAN: Frank 18 Stanonik. 19 MR. STANONIK: Frank Stanonik, 20 AHRI. Harvey, I won't go so far as to say 21 "support," because don't necessarily know what 22 that label would look like. But I would

### 202-234-4433 Neal R. Gross & Co., Inc. Page 75 1 certainly feel confident that our members 2 would agree that if there is going to be some 3 indication of the regionality and appliance it 4 should be incorporated into that label.

5 FACILITATOR BROOKMAN: Good. 6 MR. SACHS: Thank you. 7 MR. VERSHAW: Jim VerShaw with 8 Trane. The labeling marking, like the FTC 9 label, might work on furnaces, because a 90 is 10 a 90, an 80 is an 80. But if you get into 11 split systems, where it depends upon what the 12 indoor match is, where a 14 SEER might be a 15 13 somewhere, or a 13 could be a 14 somewhere 14 else, I don't see how you could label that -- 15 those combinations. 16 So that's going to get trickier 17 when you move to the next set of equipment. 18 So I would think that labeling might work on 19 furnaces. It is not going to necessarily work 20 on split systems. 21 FACILITATOR BROOKMAN: It's always 22 helpful for the Department if you raise what

### 202-234-4433 Neal R. Gross & Co., Inc. Page 76 1 is going to happen out there in the field. It 2 is even more helpful if you can tell the 3 Department how they might approach it, what 4 the solution might be. So if you have 5 thoughts on that, any of you, then that would 6 be especially helpful to the Department to try 7 and prescribe what the solution might be. 8 Jim, additional comments? No,

9 none. 10 Harvey Sachs. 11 MR. SACHS: Harvey Sachs with a 12 follow-on for Jim VerShaw. I am not sure that 13 I completely understand how the match system 14 issue differs from today, where it certainly 15 would be conceivable that someone could take a 16 SEER 13 -- a condensing unit designed for a 17 SEER 13 and install it with a mismatched18 evaporator, indoor coiled, and get a non19 compliant unit. And this has been a matter of

20 some concern to AHRI. 21 What I'm missing is how this issue 22 differs in kind as opposed to extent, if the

### 202-234-4433 Neal R. Gross & Co., Inc. Page 77 1 Department moves to regional standards. 2 FACILITATOR BROOKMAN: Jim. 3 MR. VERSHAW: Okay. This is Jim. 4 If we are thinking about enforcement, and we 5 are saying that we are going to -- part of the 6 enforcement is going to be to label the 7 product, so that they know which area they are 8 going to go into, a split system air 9 conditioner or heat pump outdoor unit could be 10 sold across the country, depending upon what 11 it's matched with. 12 And so, therefore, how would you 13 label the outdoor unit? Since it's labeled 14 based on its highest sales volume tested 15 combination match, but it could actually be a 16 little higher or a little lower depending on 17 what the indoor system is. 18 So for an enforcement procedure it 19 is difficult to say for sure that unit can't 20 go there or can go there. 21 DR. AMRANE: Karim Amrane. I would 22 like to follow up on what Jim just said. We

### 202-234-4433 Neal R. Gross & Co., Inc. Page 78 1 are talking about mismatching here, Harvey. 2 We are talking about today, the way the split 3 systems are labeled, is that you look at the 4 highest sales volume combination test in each 5 matched system, and then you have -- you have

6 the label made for that. 7 But then, it says in small frame 8 that the rating might change, depending on 9 which -- which indoor coil you have. It was 10 easier to do it with a national standard, 11 because you had, you know, 13. You have to be 12 13. That's fine. But here we are talking 13 about a region where you have 14 in the south, 14 13 in the north. That could be an issue, so 15 that's what Jim was just trying to say. 16 FACILITATOR BROOKMAN: Okay.

17 Thanks for that. John Proctor. 18 MR. PROCTOR: Well, I was just 19 going to say I don't see it as being any 20 different than what we have today, which is 21 you have no idea what's out there. And -- 22 well, actually, you probably do, and you

### 202-234-4433 Neal R. Gross & Co., Inc. Page 79 1 recognize that there are units installed out 2 there that are not SEER 13 units for a variety 3 of reasons. And you have units out there that 4 are called SEER 13 units and they are doing

5 14. 6 So it is the same -- you know, 7 you've got thousands -- hundreds of thousands, 8 600,000 somebody said, combinations in the 9 database. I think the labeling will be no -- 10 it is certainly not going to be any easier 11 than it is today, and probably will be worse. 12 FACILITATOR BROOKMAN: Talbot, did 13 you wish to comment? 14 Okay. Yes, Karen. 15 MS. MEYERS: Karen Meyers, Rheem 16 Manufacturing. A separate label on furnaces 17 could be very complex, just because furnaces 18 are required to have several safety labels on 19 there, and the practical real estate that is 20 available on a furnace for another label, I 21 mean, I just -- it is pretty much, you know, 22 complete labels as it is now. So I don't know

### 202-234-4433 Neal R. Gross & Co., Inc. Page 80 1 how another label would even fit. 2 And to maintain the font size that 3 is required by law, it would be kind of 4 impractical to have another label that had all 5 of the information required for enforcement. 6 So for that reason alone I think a separate 7 DOE label would be impractical. 8 FACILITATOR BROOKMAN: Do you have 9 a perspective on the FTC label? 10 MS. MEYERS: If we are going to 11 include labeling, then we would certainly 12 advocate it be incorporated onto an existing 13 label. So the FTC label, in our -- at this 14 point would probably make the most sense, but

15 we would have to understand what all those 16 changes were.

17 FACILITATOR BROOKMAN: Gotcha. 18 Okay.

19 Mohammed Khan. 20 MR. KHAN: Yes. Mohammed Khan, 21 DOE. Thanks for that comment, Karen. I have 22 a question, though. I'm not sure whether or

### 202-234-4433 Neal R. Gross & Co., Inc. Page 81 1 not there is a requirement for all of the 2 labels to be placed on the exterior surfaces 3 of the furnace jacket, or can they also be 4 placed on the inside?

5 I know that there are some labels 6 that are placed on the inside, such as maybe a 7 wiring diagram or certain specifications, 8 about the burner and things like that. So, 9 you know, again, I understand the concern 10 about the real estate or space available, so 11 can we also put such labels on the inside, if 12 there is not enough space on the outside?

13 FACILITATOR BROOKMAN: Karen? 14 MS. MEYERS: This is Karen Meyers 15 again. I'm not sure how much is even left on 16 the inside of the furnace doors at this point 17 as well. So, I mean, we just have to look at 18 it, because I know that Rheem has labels on 19 both the outside, where the safety labels are 20 required to go, and we also have such things 21 as wiring diagrams on the inside. 22 So I still think you are going to

### 202-234-4433 Neal R. Gross & Co., Inc. Page 82 1 have a real estate issue with a separate DOE

2 label 3 FACILITATOR BROOKMAN: Thank you. 4 Charlie? 5 MR. McCRUDDEN: Charlie McCrudden, 6 ACCA. On the last bullet, competitively 7 driven enforcement, I think this is sort of 8 commonly called whistle blowing. Our 9 experience with Section 608 EPA Clean Air Act 10 rules and whistle blowing violations is pretty 11 poor.

12 Our members have called EPA. There 13 is a hotline or a number that you call when 14 you see a non-compliant contractor, and it 15 happens. I get stories from contractors up on 16 one roof looking over and seeing another 17 contractor on another roof just going along 18 and cutting lines. And they have made the 19 call, and the call goes to a regional office 20 at EPA three states away. 21 I just -- the other problem we have 22 is you could have a disgruntled ex-employee

### 202-234-4433 Neal R. Gross & Co., Inc. Page 83 1 who would like to make life for his ex-boss 2 miserable, and, you know, drop a dime on him. 3 So, you know, I understand that it 4 may work at other levels of the supply chain, 5 and I'm not saying that it should be pushed 6 off at those other levels of the supply chain. 7 But, you know, I just - - whistle blowing at 8 this level is fraught with peril. 9 FACILITATOR BROOKMAN: Yes, please. 10 So, once again, if what the Department 11 describes as a possible way of addressing 12 this, if you can offer what would more likely 13 work, that would be helpful. Please. 14 MS. DAKEN: This is Abigail Daken 15 from EPA's ENERGY STAR, and I want to support 16 that point. We have -- a lot of our 17 compliance happens through whistle blowing, 18 but that is among manufacturers, so we are 19 dealing with a relatively small number of 20 players and not so much trouble geographically 21 as well. We don't have to have somebody on 22 the ground.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 84 1 So I wish I could offer a better -- 2 and as we look forward to, you know, where our 3 specifications are going, similar questions 4 are arising. So we would be interested in 5 hearing -- we will be following this 6 discussion with great interest as well. 7 FACILITATOR BROOKMAN: Thank you. 8 Jim. 9 MR. VERSHAW: This is Jim VerShaw 10 with Trane. We were talking earlier about 11 bullets on the handout. Item 1 says labeling 12 and marketing. Now, if you go to the RAP, it 13 is item number 2 says, "Requirements that 14 marketing literature for systems clearly 15 indicate in which regions a product can be 16 installed." 17 So actually the suggestion there I 18 believe is that our -- the literature that we 19 -- we don't handle, but the contractors -- 20 (Laughter.) 21 We create it; you guys buy it. But 22 it shows what regions it would go into. So I

### 202-234-4433 Neal R. Gross & Co., Inc. Page 85 1 think that the comment earlier about marking 2 off the ET, that's not right. I think that 3 was actually -- two in the RAP was suggesting 4 that the marketing literature show that. 5 FACILITATOR BROOKMAN: Okay. Thank 6 you for that clarification. 7 MR. VERSHAW: Secondly, I am not so 8 sure how good in general -- we will come back 9 with written comments on this -- how good the 10 labeling in itself is going to help. I mean, 11 boxes usually disappear before the contractor 12 shows up at the house. 13 The homeowner, the purchaser, 14 usually doesn't see the product before he buys 15 it or she buys it, if the label is on the 16 inside. Most homeowners are afraid of 17 furnaces in most respects, you know, so I'm 18 not sure how well labeling is going to work at

19 all. 20 I mean, it is possible, so I think 21 it is going to have to be a combination of 22 local codes, the willing to be good citizens

### 202-234-4433 Neal R. Gross & Co., Inc. Page 86 1 of all of the people who buy and install them 2 to make sure that we're following the rules, 3 and local codes and other things like that. 4 So I'm not sure we're -- labeling by itself is 5 really going to work at all. 6 FACILITATOR BROOKMAN: Okay. Thank 7 you. Andrew deLaski. 8 MR. DELASKI: I will just make a 9 couple of comments. 10 FACILITATOR BROOKMAN: Hey, Andrew,

11 let's let a few of the other manufacturers 12 follow-on and then I'll return to you.

13 MR. DELASKI: Sure.

14 FACILITATOR BROOKMAN: Talbot. 15 MR. GEE: Maybe one day I'll grow 16 up to be a manufacturer. 17 (Laughter.) 18 FACILITATOR BROOKMAN: I should say 19 those representing the interests of 20 manufacturers. Go ahead. Go right ahead. 21 Talbot, you're next. 22 MR. GEE: Yes. Well, I just wanted

### 202-234-4433 Neal R. Gross & Co., Inc. Page 87 1 to reiterate the fact that the industry has 2 been thinking about enforcement alternatives 3 since 2007, and so it is not that we are kind 4 of holding off and hoping this never really 5 happened, and we are going to just ignore it 6 and think it might go away. 7 I want to just make sure it is very 8 clear that we have tried, and continue to try 9 very hard, to find an enforcement policy for 10 this that could actually work, and are just 11 really having a very difficult time finding 12 it. 13 So every intention to give DOE 14 suggestions on enforcement policy is what 15 we're seeking, but it is a very steep climb

16 for us. 17 I would suggest, too, that we have 18 interests here who have a lot of experience in 19 California. We are also part of a task force 20 that is trying to help increase building code 21 or energy code compliance in California, and 22 they, too, have wrestled for several years on

### 202-234-4433 Neal R. Gross & Co., Inc. Page 88 1 enforcement policy for that compliance, which 2 is a very similar issue, frankly, to this kind 3 of thing. 4 So I would just point out that it 5 is not through lack of effort that we are not 6 getting specific recommendations here. 7 FACILITATOR BROOKMAN: Thank you. 8 John, please. John Proctor.

9 MR. PROCTOR: John Proctor. I 10 would say putting it in the model energy code 11 is a good idea, and I think it is a way that 12 makes it available. 13 The second thing is that -- that 14 the people in the field have to be able to 15 determine what a particular unit is rated at. 16 And, therefore, easily assessing the ratings 17 of these units on the internet, without secret 18 passwords and back doors into the system, is 19 absolutely essential if you want this to be

20 enforced. 21 FACILITATOR BROOKMAN: Okay. Thank 22 you. Andrew deLaski, thanks for being

### 202-234-4433 Neal R. Gross & Co., Inc. Page 89 1 patient. 2 MR. DELASKI: Sure. So I just want 3 to support the Department's continued 4 consideration of each of these points, you 5 know, taking into consideration the -- make 6 sure that they are legal, as the point Talbot 7 made earlier about the warranty item. 8 I also want to just comment on a 9 couple of them. With respect to education, I 10 agree with the comment made earlier that some 11 sort of federal funding for education 12 containment makes a lot of sense. I also 13 think that it won't be just the feds. 14 I think there will be a significant 15 role for utilities, a significant role for the 16 states and other stakeholders who care about, 17 you know, good efficiency conformance to spend 18 resources and encouraging good compliance. 19 And that is going to be outreach to 20 contractors, it is going to be outreach to 21 consumers, there's going to be a whole set of 22 things in terms of education, but it won't

### 202-234-4433 Neal R. Gross & Co., Inc. Page 90 1 fall all on the U.S. Treasury. 2 The other comment I would make is 3 with respect to the labeling issue, I just 4 checked the statute -- the FTC is required to 5 do a rulemaking once DOE promulgates final 6 standards that are regional standards. So FTC 7 will do a rulemaking. They've got to. And 8 that is actually done 90 days after this 9 rulemaking is complete, if it promulgates 10 regional standards. 11 And in that forum, this is where we 12 will all get together again and talk about 13 what is the label going to look like. But 14 there will be a label of some sort. You know, 15 it is going to have to be hashed out. It is 16 going to have to be something -- it is a 17 complicated question, which is why I think 18 Congress kicked it to FTC, particularly for 19 the air conditioners, but less so for the

20 furnaces. 21 I agree with the comment that a 22 label on a box is of minimal use. Therefore,

### 202-234-4433 Neal R. Gross & Co., Inc. Page 91 1 a label on the product I think is important. 2 So when the homeowner goes down to the 3 basement and looks at the furnace, if they got 4 a furnace from a contractor and say, "This one 5 doesn't belong in my state," they can call 6 that contractor back and say, "You installed a 7 product that is illegal in my state." 8 When they go to sell that house, 9 it's going to be a problem for them. So I 10 think you need to put it on the product. 11 That is going to create better compliance, 12 because the consumer will come back to the 13 contractor and say, "You installed an illegal 14 product." And that is going to be the biggest 15 detriment or the biggest thing that is going 16 to discourage the contractors from selling 17 illegal products is when -- is going to be the 18 callback from their consumers.

19 So let's make sure that the 20 consumer knows or can easily look at the 21 product on the -- you know, on the product 22 itself to see that they got a product that's

### 202-234-4433 Neal R. Gross & Co., Inc. Page 92 1 legal -- 2 FACILITATOR BROOKMAN: Thank you. 3 MR. DELASKI: -- for their 4 location. 5 FACILITATOR BROOKMAN: Charlie. 6 MR. McCRUDDEN: I was going to 7 follow up on your comment about education. 8 What I was going to say is that I guess one of 9 the things you do control on that in terms of 10 funding is you probably will be making your 11 budget requests sometime soon for FY I guess 12 '12. So my encouragement there is to put a 13 little buffer in there for the education. 14 On the contractors and the labeling 15 and the boxes, I don't -- I didn't -- I don't 16 know if we were talking about labeling on the 17 box, the cardboard box, or, as Mohammed said, 18 the jacket of the -- and I think that's what 19 Karen was saying is that the real estate on 20 the jacket, on the metal part, is limited. 21 Certainly, on our end we want to

22 make sure that the label -- that the homeowner

### 202-234-4433 Neal R. Gross & Co., Inc. Page 93 1 who is afraid of his furnaces is as clear as 2 possible. I mean, we have a stake here, 3 because what we don't want to see is the 4 moonlighter, is the illegal, unscrupulous 5 contractor who goes out, you know, and tries 6 to avoid it, and undercuts the legitimate 7 guys. 8 But I don't know how -- I think 9 that still gets to the -- we have to make sure 10 it's clear, and we have to make sure that it 11 doesn't limit I think the ability of the 12 product to move around in some ways. And 13 then, this is way deeper in the weeds than I 14 can get to, but, yes, this is going to be a 15 thorny issue.

16 FACILITATOR BROOKMAN: Talbot. 17 MR. GEE: Yes. To follow on that, 18 the second part to that is the bigger 19 enforcement concern here is the consumer who 20 simply doesn't want what the federal minimum 21 might be. In other words, the market starts 22 demanding non-compliance, which, if it's an

### 202-234-4433 Neal R. Gross & Co., Inc. Page 94 1 unenforced standard, has a precedent of 2 happening already.

3 So the label doesn't address that. 4 And without the real enforcement it encourages 5 low bidders who are non-compliant with the law 6 and gives them an advantage in the 7 marketplace, because you have homeowners who 8 may not want a condensing-only furnace, for 9 example.

10 FACILITATOR BROOKMAN: I want to 11 take final comments on these enforcement 12 issues, because otherwise we are not going to 13 be out of here by late afternoon. 14 MR. GEE: Well, one last point on 15 that, Andrew did mention the utilities, which 16 I think could perhaps play a role in this. 17 However, we might want to have some 18 consideration about what interaction or 19 guidance there is to regulatory commissions 20 who right now would probably not look kindly 21 on utilities devoting many resources to help

22 an enforcement measure.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 95 1 Perhaps there needs to be some part 2 of this that would extend to regulatory 3 commissions to give them some incentive to 4 support what we need to do with the products.

5 FACILITATOR BROOKMAN: Steve

6 Rosenstock. 7 MR. ROSENSTOCK: Steve Rosenstock, 8 Edison Electric Institute. In terms of 9 utility roles, that would be kind of a new 10 role for utilities, because the utility 11 programs in the past has been for DSM programs 12 for going above and beyond what the minimums

13 are. 14 And so the utility programs are 15 designed to make sure that the rebate to the 16 residential customers for a, you know, 95 AFUE 17 or a 15 SEER unit, it is not about the minimum 18 standards. So it would be kind of a different 19 role, and, again, there would be -- have to be 20 regulators that would have to approve any sort 21 of new role in that regard. 22 Thank you.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 96 1 FACILITATOR BROOKMAN: Okay. Thank 2 you. 3 Adam, let's press on here. 4 Slide 24. 5 MR. DARLINGTON: Okay. So DOE is 6 also considering the impacts of regional 7 standards on market participants. And DOE has 8 performed some preliminary analysis of these 9 impacts, which is in Chapter 17 of the Central 10 Air Conditioners and Heat Pumps TSD. And DOE 11 has identified impacts on the three major 12 categories of market participants, which were 13 identified as distributors, general 14 contractors, and contractors. And DOE divided 15 the impacts of the market participants into 16 two categories -- the non-enforcement related 17 impacts, which DOE did -- analyzed in the TSD 18 chapter, and these mainly deal with the 19 increased inventory to meet the needs of 20 multiple regional standards, as well as the 21 enforcement-related impacts, which DOE has 22 still not analyzed directly, because, as I

### 202-234-4433 Neal R. Gross & Co., Inc. Page 97 1 mentioned earlier, DOE has not yet determined 2 what the enforcement mechanism will be. 3 And the preliminary conclusions in 4 Chapter 17 were that distributors -- for 5 distributors, the regional standards would 6 require additional inventory, which would 7 cause adverse impacts, whereas for general 8 contractors and contractors the impacts would 9 be confined mostly to the border areas and 10 would be mostly enforcement-related. 11 And so DOE is seeking any kind of 12 data or information to assist us in the 13 identification and the analysis of the impacts 14 of regional standards on the market 15 participants.

16 FACILITATOR BROOKMAN: Comments? 17 No comments on these issues? Talbot. 18 MR. GEE: Confirm that we do agree 19 that there will be inventory cost impacts with 20 the regional standard. And then, depending on 21 what other -- you know, there will be probably 22 some level, some degree of enforcement-related

### 202-234-4433 Neal R. Gross & Co., Inc. Page 98 1 costs as well. 2 And then, you know, I think the 3 other consideration is if we have any type of 4 lost opportunity cost, too. If, for example, 5 we see any type of decline in equipment 6 replacements, because of a higher standard, 7 then we'd have to try to factor something like 8 that in. But that's kind of a hard one to 9 quantify, because you're projecting forward, 10 but absolutely on the inventory side. 11 And then, if we are talking -- 12 well, it's a little premature for the AC side, 13 but if, again, we start talking about larger 14 pieces of equipment, there is just basic 15 carrying costs, transportation costs, that 16 will increase, too. 17 FACILITATOR BROOKMAN: Okay. Thank 18 you. Mohammed Khan. 19 MR. KHAN: Mohammed Khan, DOE. 20 Talbot, I appreciate that. You and I, we have 21 discussed those same points before. 22 But I’m wondering -- and, you know,

### 202-234-4433 Neal R. Gross & Co., Inc. Page 99 1 you made clear in those conversations that, 2 you know, these are issues that are likely to 3 have cost impacts. But I don't think we were 4 every really able to talk about those cost 5 impacts in real numbers, or projected numbers. 6 So I guess I would appeal to you at 7 this point to, in your written comments, if 8 there is any way that you could generate a 9 range of values, that would be very helpful to

10 us. 11 FACILITATOR BROOKMAN: Andrew, 12 anything you want to add here? 13 MR. DELASKI: I want to bring us 14 back a little bit, because I am -- in the case 15 of furnaces, the market today supplies a 16 pretty wide range of efficiency -- 80 percent 17 up to 96 percent or so, with the equipment at 18 90 percent and higher having, you know, a 19 significant market share on a national basis. 20 I am curious -- what is it -- and 21 your first bullet under Preliminary 22 Conclusions isn't about the change that the

### 202-234-4433 Neal R. Gross & Co., Inc. Page 100 1 Department found would impose adverse 2 financial impacts.

3 FACILITATOR BROOKMAN: Rob. 4 MR. CARMICHAEL: This is Rob 5 Carmichael with Navigant. So the -- while the 6 impacts were minimal in terms of increased 7 inventory, DOE's analysis did show some 8 increase in inventory and that was a result of 9 having a larger distribution of product for 10 those contractors that were serving, or for 11 those, excuse me, distributors that are 12 serving along the border region. 13 So whereas they had a higher 14 concentration of product at one efficiency 15 level, under a regional standard where there 16 are certainly two different markets, that 17 would become more bi-modal, and, in that 18 sense, they need a larger safety stock, 19 because it is all about being able to meet 20 customer's demand when they come into the 21 distributor's site. 22 So that's where that increase in

### 202-234-4433 Neal R. Gross & Co., Inc. Page 101 1 inventory, although relatively small in our 2 analysis, did come into play. 3 FACILITATOR BROOKMAN: Thank you. 4 Andrew, go ahead. 5 MR. DELASKI: Now, you've looked 6 obviously more closely at the data than I 7 have, and of course Talbot has as well. But 8 it would strike me that -- you know, that the 9 inventory today is already bi-modal. We're 10 seeing in border states -- I would think in 11 some border states, maybe not in all, but we 12 are seeing, you know, a relatively high market 13 share of equipment at 90 percent, for example. 14 So it strikes me that you are shifting that 15 mix as opposed to creating a whole new mode. 16 The other question I have for you 17 is: did you consider or have you begun to 18 consider the impact on distributors in the 19 northern regions, say away from the border? 20 It strikes me that their inventory costs -- I 21 mean, their situation may become simpler. 22 You have just gotten rid of the 80

### 202-234-4433 Neal R. Gross & Co., Inc. Page 102 1 percent, and now they have to offer a 2 collection of products that are 90 percent and 3 higher. So they may actually have a simpler 4 situation than they have today in terms of 5 projecting. 6 I also would comment that is a 7 somewhat transitory situation, as they figure 8 things out, as they get -- and that can happen 9 with any new standard. They have to figure 10 out: how is the market going to react? And 11 that is going to impose costs that are 12 specific to the standard as opposed to 13 specific to the regional nature of it. 14 FACILITATOR BROOKMAN: Harvey 15 Sachs. Rob, go ahead. 16 MR. CARMICHAEL: Rob, Navigant. 17 Yes, we did look at those in the northern 18 region as well as in the southern region, and 19 so these impacts were isolated to those in the 20 border regions. So your point is well taken

21 on that front. 22 And in terms of it being transitory

### 202-234-4433 Neal R. Gross & Co., Inc. Page 103 1 and not necessarily permanent, these were 2 highlighted as more of a short-term impact, as 3 the market does adjust to -- and they become 4 -- distributors become better at forecasting

5 the demand. 6 FACILITATOR BROOKMAN: Harvey. 7 MR. SACHS: Harvey Sachs. And, 8 certainly, I am not a distributor and don't 9 have that level of understanding, so I really 10 phrase this as sort of a declarative question. 11 But in my experience, distributors have other 12 options to increasing inventory. One of them 13 is substitution -- for example, the next 14 larger unit being shipped in response to a 15 customer need when the desired unit is out of

16 stock. 17 So there is an incremental cost to 18 the distributor in shipping a slightly larger 19 unit at the same price as the one the 20 contractor had ordered, but that may be a 21 lower cost than increased inventory. And if 22 the analysis does not consider substitution, I

### 202-234-4433 Neal R. Gross & Co., Inc. Page 104 1 would think it to be incomplete. 2 FACILITATOR BROOKMAN: Final

3 comment from Talbot? 4 MR. GEE: Yes, two points. First 5 of all, especially the larger distributors, 6 their inability perhaps, while maybe a little 7 bit more mitigated in a furnace setting, but 8 obviously a larger issue with air 9 conditioning, is the portability of the 10 product. 11 Shifting around from stronger -- 12 from weaker markets to stronger markets as 13 need be. That becomes a cost issue, because 14 you essentially create multiple demand curves 15 without portability of the product. So that 16 adds risk. That adds carrying cost. That 17 adds financing cost. 18 The other part of it is, just kind 19 of anecdotally, is there was a similar 20 argument made to how it should actually lean 21 the channel to have, you know, more stringent 22 duct insulation requirements, and things like

### 202-234-4433 Neal R. Gross & Co., Inc. Page 105 1 that. However, in actual practice in some 2 cases where it is not well enforced, we found 3 that our members have still ended up having to 4 go back and stocking lower R-value duct 5 insulation, because that's what the market 6 continues to demand. 7 So point being is, unfortunately, 8 you can't get too far away from the 9 enforcement side of this. In a perfect world, 10 yes, in the far northern region you would just 11 stop stocking 80s, but in actual practice, if 12 we don't have a strong enforcement policy, 13 there is going to be a market for 80s, and you 14 are still going to have to deal with the 15 fulfillment side of it. 16 FACILITATOR BROOKMAN: Thank you. 17 Okay. We're going to move on, then. 18 MR. DARLINGTON: So as mentioned 19 earlier, DOE received a consensus agreement 20 from many interested parties, including many 21 of you here today. This consensus agreement 22 contains proposed standards for both central

### 202-234-4433 Neal R. Gross & Co., Inc. Page 106 1 air conditioners and heat pumps and 2 residential furnaces. 3 The consensus agreement was also 4 submitted to Congress for consideration as a 5 law. And here on the side it says, "If 6 approved, would become effective in 2013." 7 That effective date is for non-weatherized gas 8 furnaces, whereas the effective date for gas 9 weatherized furnaces is 2015, and I will get 10 to that in a second. 11 As you can see here, the map on the 12 side shows the north versus the south. The 13 south and southwest regions are for the 14 central air conditioners rulemaking. For the 15 purposes of the furnaces rulemaking, those two 16 regions would be combined into a single 17 southern region. 18 And then, the map that is shown

19 there are the same -- the states are the same 20 as what's -- what was shown there in the table 21 for each of the regions.

22 FACILITATOR BROOKMAN: Frank

### 202-234-4433 Neal R. Gross & Co., Inc. Page 107 1 Stanonik. 2 MR. STANONIK: Frank Stanonik, 3 AHRI. Just a quick connection -- correction. 4 On your map, West Virginia, as was noted in 5 your other slide, does move into the north. 6 So it should be that pea green, or whatever it 7 is. 8 (Laughter.) 9 MR. DARLINGTON: Thanks, Frank.

10 FACILITATOR BROOKMAN: Just 11 checking to make sure you're paying attention. 12 (Laughter.) 13 MR. STANONIK: Always. 14 FACILITATOR BROOKMAN: Always. 15 Okay, thank heavens. Yes.

16 MR. PROCTOR: John Proctor. I 17 wonder what that little state is between

18 Oklahoma and Colorado there? 19 PARTICIPANT: It's in Ohio, New 20 York. They've annexed Buffalo. 21 (Laughter.) 22 FACILITATOR BROOKMAN: Okay. No

### 202-234-4433 Neal R. Gross & Co., Inc. Page 108 1 more comments on the graphic. We're moving

2 on. 3 MR. DARLINGTON: All right. This 4 slide shows the proposed levels for 5 residential furnaces in the consensus 6 agreement. As I mentioned, non-weatherized 7 gas and oil furnaces have a compliance date of 8 May 1, 2013, whereas gas-packs, which are also 9 known as weatherized furnaces, would have an 10 effective date of January 1, 2015. 11 And you can see the levels there on 12 the slide, and DOE is just seeking comment on 13 the aspects of the consensus agreement, 14 including the proposed regions, the proposed 15 levels, and the compliance dates. 16 FACILITATOR BROOKMAN: Thank you. 17 In opening remarks, we heard a lot on this. 18 So any additional comments, or maybe any 19 counterpoints, that would be heard at this 20 point. Harvey? Let me go to John Proctor 21 first. 22 MR. PROCTOR: Yes. I know you guys

### 202-234-4433 Neal R. Gross & Co., Inc. Page 109 1 worked really hard on this, and I'm sorry that 2 I wasn't part of it. I'm not sure you're 3 sorry that I wasn't part of it. 4 But I will make some additional 5 comments, primarily in the area of the air 6 conditioning stuff, which is the area that we 7 have a lot of data in on what actually happens 8 out there in the field and the need for 9 something that represents what you actually 10 have in the field, as opposed to what we 11 developed a number of years ago as a test 12 procedure. 13 So I'm not a signatory to the 14 agreement, and think that there are some 15 things that should be changed. 16 Thank you. 17 FACILITATOR BROOKMAN: Okay. Thank 18 you. Harvey Sachs. 19 MR. SACHS: This is Harvey Sachs. 20 Just a note on the compliance dates. For many 21 of us, the thought going into the consensus 22 discussions was that simultaneous compliance

### 202-234-4433 Neal R. Gross & Co., Inc. Page 110 1 dates for all equipment classes, not just 2 weatherized and non-weatherized, but also 3 furnaces and air conditioners, would be 4 desirable from the perspective of 5 implementation and enforcement. 6 And there were tradeoffs made in 7 the conversations, and in particular other 8 parties at the table felt very strongly that 9 engineering resource constraints made it 10 desirable to accelerate the two at different 11 rates for furnaces and air conditioners. And 12 that is why we wound up with the 2013 and 2015 13 separate implementation dates for different 14 product classes. 15 In a perfect world, we might have 16 been able to do the cutover simultaneously. 17 It might have made some aspects of customer 18 information and implementation easier, and 19 that's the way we wound up. 20 FACILITATOR BROOKMAN: Okay. Thank 21 you -- an explanatory note. 22 Additional comments that the

### 202-234-4433 Neal R. Gross & Co., Inc. Page 111 1 Department is seeking on the consensus 2 agreement? Okay. 3 MS. KOHL: I just have one -- 4 FACILITATOR BROOKMAN: Betsy. 5 MS. KOHL: -- thing. This is Betsy 6 Kohl from DOE. Just to echo what Michael -- 7 FACILITATOR BROOKMAN: Get close, 8 Betsy. 9 MS. KOHL: -- what Michael McCabe 10 was saying about seeking comments on the legal 11 issues, this is another one that we had 12 reservations about, the compliance date and 13 the provisions of 6295(f) that we are 14 operating under. So if you guys have input on 15 that, we would appreciate that as well. 16 FACILITATOR BROOKMAN: Thank you, 17 Betsy. That's helpful. Harvey Sachs. 18 MR. SACHS: This is Harvey Sachs. 19 I don't understand law, and I'm glad there are 20 those who claim to. But is the standing such 21 that the Department's obligation to seriously 22 consider consensus agreements, are you

### 202-234-4433 Neal R. Gross & Co., Inc. Page 112 1 suggesting that this might be overridden by a 2 statutory provision that affects these 3 implementation dates? 4 MS. KOHL: Yes. I mean, we are 5 required, as we said, to consider -- this is 6 Betsy Kohl -- these consensus agreements. But 7 we have to also follow the law in adopting 8 that as a potential standard. So all of the 9 legal provisions in the statute that would 10 still be applicable to any consensus agreement 11 that is given to us. 12 MR. SACHS: Will you elaborate on 13 how these implementation dates affect that? I 14 didn't catch the cite you gave. 15 MS. KOHL: Sure. It's 6295(f). 16 And Congress has given us in that provision 17 certain lag times, required lag times. So, 18 you know, we want to make sure that we adhere 19 to whatever one is applicable, and we are 20 still considering that issue. 21 MR. SACHS: Harvey Sachs again with 22 follow-up. This is a very important issue,

### 202-234-4433 Neal R. Gross & Co., Inc. Page 113 1 and my sense is that these lag times for the 2 effective dates after the proposed rule goes 3 into effect were designed to allow the 4 manufacturers time to reengineer their 5 products and their production facilities. 6 And it would seem to me the common 7 sense observation that if the manufacturers 8 have said, "We've got enough time under the 9 consensus agreement, and we have some 10 tradeoffs in terms of longer time 11 predictability of our standards," that we 12 accept this, that this would be something to 13 be seriously considered by the Department. 14 MS. KOHL: Yes. Yes, we understand 15 that. I mean, we understand the 16 manufacturer's point of view, but we still 17 have legal requirements that we have to 18 consider. And we're still thinking about the 19 issue. So, you know, if you have analysis of 20 these statutory provisions that would help 21 support your position, that would be helpful. 22 MR. SACHS: So you can't do what

### 202-234-4433 Neal R. Gross & Co., Inc. Page 114 1 makes sense, if the law prevents it. 2 MS. KOHL: We are bound by 3 Congress. 4 MR. SACHS: Thank you.

5 FACILITATOR BROOKMAN: Let's hear 6 from Andrew and Tim. I'm coming to you Jim.

7 Andrew? 8 MR. DELASKI: So we'll respond to 9 you, Betsy. We'll work up some specific -- 10 MS. KOHL: Thank you. 11 MR. DELASKI: -- comments on this 12 topic. 13 FACILITATOR BROOKMAN: Tim as well. 14 MR. BALLO: We'll do written 15 comments. I think the states, in their brief 16 in the Second Circuit case that challenged the 17 furnace standards, also discussed this issue. 18 And I think to summarize that very briefly, 19 those deadlines in EPCA are long since passed, 20 and the Department has a lot of discretion to 21 adopt what makes sense, as Harvey said. 22 FACILITATOR BROOKMAN: Thank you,

### 202-234-4433 Neal R. Gross & Co., Inc. Page 115 1 Tim. Jim Ranfone. 2 MR. RANFONE: Yes. Jim Ranfone, 3 American Gas Association. Just a quick 4 question I guess on the mobile home -- I guess 5 we call them manufactured home -- gas 6 furnaces. Now, that is going to require a 90 7 percent condensing furnace in both new and 8 replacement market, if I understand the 9 agreement. 10 And I believe the manufactured 11 housing safety standard or requirements in 12 there already require that the gas furnace be 13 in a closet, combustion air from outside. Is 14 DOE going to look at that aspect in terms of 15 the replacement market and how that would 16 impact consumers that would -- the only 17 product available to them in that 5,000 18 heating degree days is going to be a 90 19 percent AFUE. 20 Will you evaluate that impact on 21 consumers in terms of, first, cost? I know 22 you did some evaluation earlier on the

### 202-234-4433 Neal R. Gross & Co., Inc. Page 116 1 minimums, but now this is a replacement issue

2 also.

3 FACILITATOR BROOKMAN: Mohammed.

4 MR. KHAN: Mohammed Khan. Thanks 5 for that comment. Department of Energy does, 6 in its modeling, take into account a variety 7 of different kinds of installations that would 8 be required, looking at where "major" 9 reconstruction or remodeling might be 10 necessary in case of the different kinds of 11 venting systems that would be required going 12 from non-condensing to condensing, for 13 example. 14 So the point about manufactured 15 homes, as well as, you know, something that we 16 would also be looking at.

17 FACILITATOR BROOKMAN: Let's move

18 on. 19 MR. DARLINGTON: Okay. So DOE is 20 also considering a combined rulemaking 21 approach for residential furnaces, residential 22 central air conditioners, and heat pumps, and

### 202-234-4433 Neal R. Gross & Co., Inc. Page 117 1 furnace fans. DOE, in such a rulemaking, 2 would be able to examine the interaction 3 between the three products. And if DOE 4 pursues this approach, DOE would issue a final 5 rule for all three by May 1, 2011, which is 6 the date required in the furnace remand 7 agreement. 8 And also, DOE also is seeking 9 comment from interested parties relating to 10 the possibility of the combined rulemaking 11 approach for these three products.

12 FACILITATOR BROOKMAN: Don 13 Brundage. 14 MR. BRUNDAGE: Don Brundage, 15 Southern Company. I was very confused by the 16 statement on this. Are you looking at any 17 issues other than coordination of 18 implementation dates? Because to try to look 19 at combining economics between the 20 rulemakings, I can see a lot of potential 21 problems with them. And can you elaborate on 22 how far you are talking about combining? Is

### 202-234-4433 Neal R. Gross & Co., Inc. Page 118 1 it just the implementation and rule dates? 2 MR. DARLINGTON: I don't think -- 3 the implementation dates would still be 4 separate. I mean, the final rule would be 5 issued, but the actual compliance dates for 6 each product would be separate. And the 7 standard would also be set separately for each 8 different product type. 9 Basically, they would just be able 10 to interact -- examine how the different 11 products interact I guess in terms of the 12 energy savings between the products, since, I 13 mean, as many of you know, the efficiency of a 14 central air conditioner is heavily dependent 15 on the furnace fan that it is installed with, 16 the air handler.

17 FACILITATOR BROOKMAN: Let's hear 18 from Ashley. 19 MS. ARMSTRONG: Yes. I mean, Adam 20 kind of just summarized it. I think that's 21 the issue. From an analytical standpoint, 22 when DOE does its models, if we were to look

### 202-234-4433 Neal R. Gross & Co., Inc. Page 119 1 at a combined rulemaking, combining all three 2 components, we'd look at the interactive

3 effects. 4 So if one component affects the 5 efficiency of another one, we would capture 6 that as DOE deems appropriate in its models. 7 Does that make sense? Does that help? 8 MR. BRUNDAGE: Yes. Obviously, you 9 need to consider the competitive impacts and 10 fuel switching that is always done as part of 11 the analysis, and that would be appropriate. 12 MS. ARMSTRONG: Okay. Thank you.

13 FACILITATOR BROOKMAN: So we heard 14 some from you earlier on combined rulemaking. 15 Karim first, then to Charlie. 16 DR. AMRANE: Karim Amrane, AHRI. 17 Of course, as you heard me, we were part of 18 the consensus agreement, so we support DOE 19 combining the furnace efficiency and central 20 air conditioner rulemaking together. 21 However, we don't believe it will 22 be appropriate to combine -- to include the

### 202-234-4433 Neal R. Gross & Co., Inc. Page 120 1 furnace fan within that rulemaking, because I 2 don't think to do justice to that -- to the 3 furnace standard efficiency. It will give DOE 4 less than a year to basically look at that, 5 and we think, since DOE has more time, we feel 6 that it should be separate. So --

7 FACILITATOR BROOKMAN: Is that a 8 part of your consensus agreement? Did you 9 specify that?

10 DR. AMRANE: No. The consensus 11 agreement was -- just addressed the AFUE and 12 SEER, whatever, I mean, for, you know, 13 efficiency levels, but not the fan efficiency. 14 And that's what we would like DOE to adopt 15 right away, as soon as possible. 16 FACILITATOR BROOKMAN: Thanks very 17 much. Charlie. 18 MR. McCRUDDEN: So you have -- and 19 I don't know if this question has been asked 20 yet or not, but you have a final publication

21 date for these three rules. What would be the 22 effective dates or the compliance dates, then?

### 202-234-4433 Neal R. Gross & Co., Inc. Page 121 1 Would they be the same?

2 MR. DARLINGTON: I'll defer to 3 Betsy. 4 MR. McCRUDDEN: Okay. 5 MS. KOHL: Betsy Kohl, DOE. Could 6 you clarify a little bit what you're asking? 7 MR. McCRUDDEN: Well, if you 8 combine them -- I mean, I think what this 9 chart here is showing is the final publication 10 dates when you combine them. Or are those the 11 effective dates? 12 MS. KOHL: That's -- go ahead. 13 MR. DARLINGTON: This is the -- 14 what is shown on the slide here is what the -- 15 if DOE were to pursue separate rulemakings, 16 this is the publication date that each final 17 rule would be published by. 18 FACILITATOR BROOKMAN: And you also 19 said earlier, what would happen if they were 20 combined? 21 MR. DARLINGTON: If they were 22 combined, DOE would publish a single final

### 202-234-4433 Neal R. Gross & Co., Inc. Page 122 1 rule for all three by May 1, 2011. 2 MR. McCRUDDEN: And then, there is 3 this lag time.

4 MS. KOHL: Yes.

5 MR. McCRUDDEN: So where do we -- 6 if we were to have a third column -- 7 MS. KOHL: I gotcha.

8 MR. McCRUDDEN: -- what would the

9 -- 10 MS. KOHL: The third column -- 11 MR. McCRUDDEN: -- The third column 12 and the heading was Effective Dates --

13 MS. KOHL: Yes. 14 MR. McCRUDDEN: -- what is that 15 saying? 16 MS. ARMSTRONG: This is Ashley at 17 Navigant. The effective dates would still all 18 be different, and they would be based on the 19 statutory provisions for each product 20 separately. 21 MR. McCRUDDEN: Okay.

22 MS. ARMSTRONG: I don't know the

### 202-234-4433 Neal R. Gross & Co., Inc. Page 123 1 exact date off the top of my head, but, you 2 know, whatever lead time is provided, or date 3 is provided, in the statute for each product 4 would be the ones that we would be considering 5 at this point.

6 FACILITATOR BROOKMAN: Mohammed? 7 MS. KOHL: Oh, sorry. This is 8 Betsy. So we would have to hit the earliest 9 issuance state for the rules, and then from 10 that date is actually set -- the compliance

11 dates would be there. 12 MR. McCRUDDEN: Mohammed, yes. 13 MR. KHAN: Yes, Mohammed. I was 14 just going to add that the effective dates of 15 course, as Ashley indicated, you know, would 16 be as they would be. But to Harvey's point 17 about possibly changing or expediting the 18 effective dates, whether or not there is that 19 legal wiggle room, if you will, to be able to 20 do so is something that still we would 21 consider.

22 FACILITATOR BROOKMAN: Steve

### 202-234-4433 Neal R. Gross & Co., Inc. Page 124 1 Rosenstock. 2 MR. ROSENSTOCK: Steve Rosenstock, 3 EEI. Again, with that third invisible column 4 on effective date, for residential furnaces, 5 since this is a reconsideration, would the 6 effective date still be the same? Again, if 7 for some reason you don't use the consensus 8 agreement, and you decide just to go with the 9 current rulemaking the way it is, for 10 residential furnaces, would the effective date

11 be the same? November of 2015? 12 FACILITATOR BROOKMAN: Betsy? 13 MS. KOHL: Betsy Kohl, DOE. Steve, 14 we are still considering that issue. It is 15 kind of wrapped up in this -- 16 MR. ROSENSTOCK: Okay. And then, I 17 guess -- and also as a follow-up, since the 18 furnace fans -- this would be the first 19 rulemaking for furnace fans, what is the 20 suggested, I'll say, lead time? Would it be 21 three years or five years for furnace fans?

22 MS. KOHL: I'm not sure whether

### 202-234-4433 Neal R. Gross & Co., Inc. Page 125 1 that one is specified in the statute or not.

2 MR. ROSENSTOCK: I can't remember 3 if it was specified in ISSA 2007 either. I

4 can't remember. 5 MS. KOHL: We'll look it right here 6 and get back to you. 7 MR. ROSENSTOCK: Okay. I'm just 8 kind of curious if it's -- 9 FACILITATOR BROOKMAN: Tim Ballo. 10 MR. BALLO: This is Tim Ballo. 11 It's not specified in the statute. It just 12 says that not later than December 31, 2013, 13 the Secretary shall dah, dah, dah, dah,

14 standards for -- 15 FACILITATOR BROOKMAN: Do you have 16 the cite there, Tim?

17 MR. BALLO: It's 42 U.S. Code 18 6295(f) or (d). 19 FACILITATOR BROOKMAN: Thanks very

20 much. Frank. 21 MR. STANONIK: Frank Stanonik, 22 AHRI. Just one comment on this effective date

### 202-234-4433 Neal R. Gross & Co., Inc. Page 126 1 issue. What Steve Rosenstock was alluding to 2 was that when the rule that came out in 3 November of '07, I believe it had an effective 4 date that provided a five-year lead time? 5 Eight-year lead time. Eight-year lead time. 6 Okay. Well, I want to make the 7 point, because it is significant to the 8 significance of the consensus agreement. 9 Okay? Clearly, we have some difference of 10 opinion. But if DOE just goes through and 11 does a final rule that is different than the 12 consensus agreement, okay, we would still 13 maintain the effective date specified by the 14 law is eight years.

15 FACILITATOR BROOKMAN: Thanks for 16 that clarification. 17 Okay. Additional comments on this 18 -- these issues related to the combined 19 rulemaking approach? 20 (No response.) 21 Okay. I think -- are you going to 22 continue with test procedures?

### 202-234-4433 Neal R. Gross & Co., Inc. Page 127 1 MR. DARLINGTON: Yes.

2 FACILITATOR BROOKMAN: You are?

3 MR. DARLINGTON: Yes. 4 FACILITATOR BROOKMAN: Pretty soon 5 here I think we are going to take a break, but 6 maybe at 11:00. And let me note that we are 7 on Slide 29, and there are approximately 80 in 8 this packet. The last 10 to 15 go pretty 9 rapidly in my experience, so maybe we're not

10 so far off the mark. But we need to -- I 11 don't want to truncate any comment, but we 12 need to keep going efficiently. 13 MR. DARLINGTON: Okay. So I will 14 quickly touch on the test procedures for 15 residential furnaces. The current test 16 procedures for residential furnaces are in the 17 Code of Federal Regulations at 10 CFR Part 18 430, Appendix N to Subpart B. And those 19 heavily reference the ANSI/ASHRAE Standard 20 103, 1993. And these test procedures fully 21 account for the standby and off mode fossil 22 fuel energy consumption of gas and oil-fired

### 202-234-4433 Neal R. Gross & Co., Inc. Page 128 1 furnaces. 2 As Mohammed mentioned earlier, DOE 3 is also conducting a rulemaking to include the 4 measurement of standby and off mode energy 5 consumption, and DOE has proposed to measure 6 standby and off mode energy consumption using

7 the IEC Standard 62301. 8 Now, the Energy Independence and 9 Security Act also requires DOE to modify the 10 efficiency metric, which in the case of 11 residential furnaces is AFUE, to incorporate 12 the standby and off mode energy use, if it is 13 technically feasible, so DOE is planning to 14 modify the AFUE descriptor to include the 15 standby and off mode energy consumption. 16 And the resulting descriptor would 17 be AFUE sub I, which is integrated -- an 18 integrated annual fuel utilization efficiency 19 metric, which also includes the standby and 20 off mode electrical energy consumption. And 21 DOE is addressing this in a separate 22 rulemaking for which I believe Mohammed stated

### 202-234-4433 Neal R. Gross & Co., Inc. Page 129 1 this morning that the SNOPR has gone to the 2 Federal Register today. So more details about 3 that should be forthcoming very soon. 4 Now, in measuring the standby and 5 off mode energy consumption, DOE assumes that 6 furnaces operate on standby mode during all 7 non-active mode hours. And so essentially 8 standby mode and off mode energy consumption 9 could be defined as being the same. 10 And so DOE is welcoming comments on 11 that assumption, as well as the comment that 12 -- on DOE's assumption that manufacturers 13 typically don't provide an off switch that 14 would allow for a furnace to just be turned 15 off, basically. 16 And then, DOE is also seeking 17 comment on the approach to using the 18 integrated AFUE metric, AFUE sub I, to amend 19 the standards for residential furnaces. 20 FACILITATOR BROOKMAN: Harvey

21 Sachs. 22 MR. SACHS: Harvey Sachs. Based on

### 202-234-4433 Neal R. Gross & Co., Inc. Page 130 1 work published in 2003 by Scott Pigg at 2 Wisconsin Energy Center, a field study of some 3 31 furnaces, we expect the average furnace to 4 have standby power of eight watts. Eight 5 watts is in the range of 75 kilowatt hours per 6 year. Some are much more, some are much less. 7 There is technical potential for 8 improving that. The problem we have with AFUE 9 I, sub I, is that it completely masks the 10 potential, because the standby power, even 11 though it's high quality electricity, works 12 out to be in the range of a half a percent of 13 the total annual site energy use. And, in 14 fact, it is only a few percent of the fan use. 15 So in the context of other devices 16 in the house, that 75 kilowatt hours a year is 17 significant. There is significant potential 18 for improvement. But in the context of the 19 potential improvement, the opportunities will 20 be completely masked in this case, if an 21 integrated measure is used. Even if you save 22 two-tenths of a percent of the total use, it

### 202-234-4433 Neal R. Gross & Co., Inc. Page 131 1 just doesn't show up as a design constraint 2 for any rational manufacturer. 3 FACILITATOR BROOKMAN: Harvey, how 4 would you suggest they address that? 5 MR. SACHS: First of all, we 6 recommend that we proceed to the direct final 7 rule. And if we have to do it now with the 8 integrated, we will -- we will have to eat 9 that. But we believe that furnaces are one 10 product category, one of the few perhaps, for 11 which a separate measure of standby power is 12 appropriate, is feasible, and is justified. 13 FACILITATOR BROOKMAN: Thank you. 14 Yes, please. 15 MS. DAKEN. Abi Daken. I just have 16 a clarifying question. So with this metric, 17 AFUE I, the -- so furnaces are generally 18 listed with an AFUE, and also with an annual 19 electrical consumption. And it sounds like 20 the AFUE sub I, and the annual electrical 21 consumption, would both have -- take account 22 of the standby mode power. Is that correct?

### 202-234-4433 Neal R. Gross & Co., Inc. Page 132 1 FACILITATOR BROOKMAN: Ashley?

2 MS. ARMSTRONG: The manufacturers 3 or AHRI can correct me if I'm wrong, but I 4 think the annual electrical consumption only 5 is the active mode. So it's the furnace fan 6 blower, and it is not the standby and off mode 7 electrical consumption that we are speaking of 8 here. So the AFUE_I would only have the 9 standby and off mode electrical consumption in 10 it, whereas the furnace fan blower would still 11 be separate.

12 FACILITATOR BROOKMAN: I see 13 manufacturers nodding their head yes. Is that

14 correct? 15 MS. ARMSTRONG: Thank you.

16 FACILITATOR BROOKMAN: Yes. He's 17 nodding his head. 18 Okay. Karim? 19 DR. AMRANE: Karim Amrane, AHRI. I 20 guess as far as -- it seems to us that DOE has 21 already decided that the only way to move 22 forward with standby losses is to have -- is

### 202-234-4433 Neal R. Gross & Co., Inc. Page 133 1 to account that those losses inside the -- 2 within the AFUE metric encourage AFUE I.

3 And I don't -- we don't have the 4 same interpretation of ISSA. And, actually, 5 we would like -- we don't have an official 6 position today as to whether the standby 7 losses should be part of AFUE or separate. 8 But I think we -- DOE in our opinion should be 9 open to both options. And I think as an 10 industry we will come back to DOE with some 11 recommendation, and also with the joint 12 stakeholders, will have a discussion on this 13 -- on the standby losses and come back with 14 some recommendations. 15 FACILITATOR BROOKMAN: Okay.

16 Mohammed Khan. 17 MR. KHAN: This is Mohammed with 18 DOE. Thank you for that comment, and I also 19 want to maybe revisit a little bit on the 20 comment or the points that Harvey made about 21 the -- I guess the potential for improvements 22 in standby and off mode energy consumption

### 202-234-4433 Neal R. Gross & Co., Inc. Page 134 1 savings being I guess characterized as maybe a 2 loss in the noise of AFUE I -- AFU -- AFUE sub

3 I total. Excuse me. 4 So I think it would be very helpful 5 if we could have some follow-up comment, 6 written comments, and data, that provides very 7 good example to that point, to perhaps 8 substantiate maybe some of the reasons why it 9 should be separate or not.

10 FACILITATOR BROOKMAN: Steve

11 Rosenstock. 12 MR. ROSENSTOCK: Steve Rosenstock, 13 Edison Electric Institute. I would hope that 14 there are technologies that reduce the 15 standby, but I have a -- just a thought about 16 this. Suppose an AFUE -- a furnace has an 17 AFUE of 80, but you do the AFUE I and it's 18 79.8 once you do it, if you do it with some

19 sort of number. 20 It is the same furnace, same amount 21 of gas consumption, same amount of electric 22 consumption, same amount of standby

### 202-234-4433 Neal R. Gross & Co., Inc. Page 135 1 consumption, but to a consumer that "sub I" 2 might be kind of invisible. And it hasn't 3 really -- and there might be the old furnaces 4 out there that just show AFUE. 5 So I think I am going to make 6 Harvey faint and say I think I agree with him. 7 Why not just do it separately and keep it 8 easier, and then it is just much more 9 straightforward for the consumer and the 10 marketplace. 11 Thank you.

12 FACILITATOR BROOKMAN: Frank 13 Stanonik. Do you want to -- Betsy, do you 14 want to -- please. 15 MS. KOHL: I just wanted to pipe in 16 for a second. This is Betsy Kohl from DOE 17 D.C. When you guys are looking at this issue 18 and providing us with comments and analysis, 19 if you can look at the statutory provision 20 that requires us to integrate them, if 21 technically feasible, that would be helpful as

22 well.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 136 1 FACILITATOR BROOKMAN: Thank you. 2 Okay. Frank Stanonik. 3 MR. STANONIK: Well, actually, that 4 was -- my first point is that in considering 5 feasibility, I guess I want to ask or suggest 6 that the Department consider also what is 7 involved in implementing it, because if you do 8 -- again, I have read this to assume that AFUE 9 I would replace AFUE. If that's done, the 10 Department then becomes obligated to what -- 11 I'll say translate all efficiency requirement 12 to the new descriptor. 13 We went through that in the early 14 1990s with water heaters when the test 15 procedure changed. It was an abomination. 16 (Laughter.) 17 Okay? Now, we're potentially 18 talking about something that, again, on paper 19 looks easy for the sake of whatever it was, 75 20 kilowatts. Let's say it's 100 kilowatts a 21 year, okay? 22 PARTICIPANT: Kilowatt hours.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 137 1 MR. STANONIK: Oh, I'm sorry, 2 kilowatt hours. Okay. Kilowatt hours, okay. 3 But you would have to -- you would have to 4 change the federal minimum standard to reflect 5 this AFUE sub I. Okay? 6 Every program out there in the 7 United States that in any way incentivizes 8 people to buy more efficient furnaces, or have 9 to change their descriptor at some point, 10 there will be rampant confusion. Okay? 11 But no, the point is, for the sake 12 of these small number of kilowatt hours, I 13 would argue feasibility says it isn't really 14 feasible. Okay? 15 But the other point I wanted to in 16 fact make sure is we are -- my assumption was 17 correct. We are talking about an AFUE I that 18 would replace AFUE, correct?

19 MR. KHAN: That's correct. 20 MR. STANONIK: Okay.

21 FACILITATOR BROOKMAN: Mohammed 22 Khan, thank you.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 138 1 Okay. So other -- yes, Talbot. 2 MR. GEE: Yes. This is Talbot with 3 HARDI. I was -- I am not an engineer, don't 4 ever want to be one, and was kind of looking 5 forward to checking out during this part of 6 the discussion. However -- 7 (Laughter.) 8 -- the Edison Electric Institute 9 comment that a change in the test procedure 10 could end up down-rating existing equipment is 11 something that I don't think you want 420 12 distributors pounding on your door complaining 13 about, because that is an unacceptable 14 outcome, if that is what happens to all of 15 this. So I hope that's not what happens. 16 FACILITATOR BROOKMAN: Harvey

17 Sachs. 18 MR. SACHS: Harvey Sachs. I must 19 be in the wrong place if I'm having agreement 20 with HARDI, Edison Electric, and AHRI. 21 (Laughter.)

22 FACILITATOR BROOKMAN: Thanks for

### 202-234-4433 Neal R. Gross & Co., Inc. Page 139 1 noting that for the record. 2 (Laughter.) 3 Final comments on this segment? 4 Frank Stanonik. 5 MR. STANONIK: I apologize, but I 6 do have one comment, because I want to 7 clarify. Otherwise, Andrew threatened to 8 pummel me. 9 (Laughter.) 10 Clarify my comment on the test 11 procedures. AHRI certainly is committed to 12 the consensus agreement, and I want everybody 13 to recognize -- as part of that agreement, as 14 part of the package, we agreed to earlier 15 effective dates with those levels. 16 My point was that if DOE is going 17 to come out with a final rule that perhaps is 18 different than those levels, they should not 19 assume the industry is still willing to these 20 earlier implementation dates. 21 FACILITATOR BROOKMAN: Okay.

22 MR. STANONIK: That was the essence

### 202-234-4433 Neal R. Gross & Co., Inc. Page 140 1 of that. 2 FACILITATOR BROOKMAN: Okay. Final 3 comments now? Harvey, yes. 4 MR. SACHS: Let me see if I can

5 take what Frank and Steve and HARDI have been 6 saying, and carry it to the logical extreme, 7 which is establishes why this is not feasible 8 to maintain the same safety factor relative to 9 the testing methods with which they are 10 challenged. 11 If this indeed was half a percent, 12 the manufacturers might feel the need to 13 redesign all products that are today barely 14 compliant, to reengineer those products in 15 some respect or another to assure that they 16 remain compliant with this decrement from the

17 AFUE sub I. 18 And darn it, if I want to ask for a 19 redesign, I would like it to be for 20 significant energy gains and not just for half 21 a percent. 22 FACILITATOR BROOKMAN: I see Betsy.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 141 1 MS. KOHL: Yes, I just -- I know 2 you are wrapping up. The SNOPR that is going 3 out on this metric integration issue, as 4 Mohammed said, the comment period is 15 days, 5 because we had a big comment period on the 6 NOPR and this was a discrete issue. But it 7 was -- should be in the Federal Register 8 shortly, so please give us comments on the 9 issue and the technical feasibility aspect as

10 well. 11 FACILITATOR BROOKMAN: Molly. 12 MS. TROMBLEY-McCANN: Molly McCann. 13 I just want to comment that in the NOPR, if I 14 recall correctly, there was a statement that 15 AFUE would not be affected by the measurement 16 of the standby losses. So shortening the 17 comment period to 15 days when we were told 18 that this wasn't going to happen in the NOPR, 19 which had a long comment period, is a little 20 bit frustrating. 21 MS. KOHL: If you get into the 22 SNOPR and find that you need more time to

### 202-234-4433 Neal R. Gross & Co., Inc. Page 142 1 comment, you can request an extension, and, 2 you know, given what time constraints we have, 3 if we are able to do it, we will look at it. 4 Thank you.

5 FACILITATOR BROOKMAN: Thanks for 6 that. Thanks for the clarification. 7 Okay. We really actually I think 8 covered a lot of ground, made very good 9 progress this morning. We are going to need 10 to make more if we are going to end by around

11 about 1:00. 12 It is now five minutes after 11. 13 I'm going to suggest we break now. 14 We are going to keep going through 15 the lunch hour and try and finish. So that's 16 1:00. If it's 1:30, that's my plan for us, 17 and to release you early if at all possible. 18 So if that means you need a snack to tide you 19 over, during the break do it. 20 It's now 11:05. We're going to 21 resume at 11:20. Everybody knows where the 22 coffee shops are and everything? Go quickly,

### 202-234-4433 Neal R. Gross & Co., Inc. Page 143 1 because they're not very efficient downstairs. 2 (Laughter.) 3 Yes, go quickly. We'll resume at 4 11:20. 5 (Whereupon, the proceedings in the foregoing 6 matter went off the record at 11:07 a.m. and 7 went back on the record at 11:29 a.m.) 8 FACILITATOR BROOKMAN: Briefly, 9 Brenda is about to make Xerox copies of 10 everybody's business cards, and she's missing 11 a few, so if you haven't handed her a business 12 card yet, please do so, so we've got a 13 complete record of the attendees for this 14 meeting today. And Mohammed also has an th 15 announcement surrounding the May 5 date. 16 MR. KHAN: Yes, there was question 17 about the public meeting for the Air th 18 Conditioning rule happening on May 5 . I 19 checked with the Project Manager, Wes 20 Anderson, on that activity, and it is going to th 21 be on the 5 . 22 FACILITATOR BROOKMAN: It is

### 202-234-4433 Neal R. Gross & Co., Inc. Page 144 1 confirmed.

2 MR. KHAN: Yes. 3 FACILITATOR BROOKMAN: Okay. Thank 4 you for that. So, we're proceeding then. 5 We're still hearing from Adam. Thank you. 6 MR. DARLINGTON: So, we're going to 7 get into the NOPR analyses, and I'm going to 8 start off talking about the market and 9 technology assessment, and the screening 10 analysis, and the engineering analysis before 11 passing it on to Alex. So, we'll start off 12 with the market and technology assessment. 13 Basically, the purpose of the 14 market and technology assessment is to 15 characterize the current market for 16 residential furnaces, which includes 17 manufacturers, historical shipments, 18 regulatory and non-regulatory initiative 19 programs, and the products, and the 20 performance characteristics, and other 21 characteristics of products on the market. 22 And then in the technology assessment, DOE

### 202-234-4433 Neal R. Gross & Co., Inc. Page 145 1 will identify technologies that are available, 2 and are being used to improve the efficiency 3 of residential furnaces. 4 So, the first in the market 5 assessment, DOE creates, or, I guess, decides 6 what product classes will be considered. EPCA 7 gives DOE the authority to create product 8 classes based on the three criteria shown, 9 which are the type of energy used, the 10 capacity, or other performance-related 11 features. And DOE, for this rulemaking, is 12 planning to maintain the same product classes 13 that were analyzed in the November 2007 Final 14 Rule, which were non-weatherized gas furnaces, 15 weatherized gas furnaces, mobile home gas 16 furnaces, and non-weatherized oil furnaces. 17 And DOE is welcoming comments on the planned 18 product classes for this rulemaking.

19 FACILITATOR BROOKMAN: Comments on 20 the product classes? 21 MR. DARLINGTON: DOE determines the 22 technologies to improve each product by

### 202-234-4433 Neal R. Gross & Co., Inc. Page 146 1 surveying the market to determine what 2 technologies are currently being used to 3 improve efficiency. DOE also looks at 4 technologies that have been used in the past, 5 as well as prototype designs that are being 6 used to improve efficiency. And, now, DOE 7 will consider further in the analysis only 8 those technologies that would improve the AFUE 9 that would be measured by DOE's test 10 procedure, as those technologies would be most 11 likely to be implemented in response to an 12 amended energy conservation plan. 13 So, DOE has developed a very 14 preliminary list here of technology options 15 that would potentially improve the efficiency 16 of residential furnaces. Now, this list is 17 not in the Rulemaking Analysis Plan, but this 18 presentation is on-line if you need to review 19 this later, so you can see of the preliminary 20 technology options that have been identified 21 are here on the slide. And we are welcoming 22 comment on these technologies, as well as any

### 202-234-4433 Neal R. Gross & Co., Inc. Page 147 1 additional technologies that DOE should 2 consider for residential furnaces. 3 FACILITATOR BROOKMAN: Jim. 4 MR. VerSHAW: Jim VerShaw of Trane. 5 Could you give us a definition of fuel 6 filtration? 7 MR. DARLINGTON: Fuel filtration is 8 mainly for oiled-fired furnaces, and that 9 would reduce, I guess, the contaminants in the 10 fuel to help for a cleaner, possibly more 11 efficient combustion. 12 FACILITATOR BROOKMAN: I guess, in 13 particular, as you look at this list, thoughts 14 on obvious omissions, and things that should 15 not be included. Okay. Yes. 16 MR. PROCTOR: Maybe you guys can 17 help me out here, and I know it would be a 18 change, but if we're going to do the blower 19 efficiency over here, why are we doing to do 20 the blower efficiency over here, too? 21 FACILITATOR BROOKMAN: Thank you,

22 John Proctor.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 148 1 MR. PROCTOR: Do you understand 2 what I'm saying? In other words, if there's 3 going to be one for the furnace fan, then why 4 are we throwing it in here, other than the 5 fact that traditionally we have. 6 MR. DARLINGTON: Yes. I'd just 7 like to point out that this is a really kind 8 of all-encompassing list, and DOE is going to 9 whittle these down more and more to actually 10 what would be used, what would impact AFUE. I 11 know there's been some discussion in the past 12 as to whether the blower efficiency actually 13 impacts AFUE or not. We'll analyze that, and 14 examine the actual impacts on AFUE, as well as 15 considering it in the -- as part of the 16 separate rulemaking for furnace fans, too. 17 FACILITATOR BROOKMAN: Yes, Harvey

18 Sachs. 19 MR. SACHS: Harvey Sachs. One of 20 our concerns is the threshold for including 21 among the technology options, in a recent 22 proceeding we saw exclusion of technology

### 202-234-4433 Neal R. Gross & Co., Inc. Page 149 1 options that were not used in the particular 2 product class in the United States, but were 3 used in other product classes, or 4 internationally. And given the globalization 5 of the market, it would be extremely 6 disappointed if the Department adopts such a 7 narrow criterion for inclusion in this 8 rulemaking.

9 FACILITATOR BROOKMAN: Is there 10 anything specifically missing here that - 11 MR. SACHS: We will reserve that, 12 but to set the initial screen at technologies 13 which are already used in furnaces 14 manufactured in large numbers in the United 15 States, as well as the screen that it impacts 16 AFUE, as opposed to end-use efficiency, 17 recognizing that AFUE is a model of 18 efficiency, we believe is unnecessarily 19 restrictive to the Department's consideration 20 of options, and the paths by which 21 manufacturers might comply. 22 FACILITATOR BROOKMAN: Thank you.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 150 1 Ashley. 2 MS. ARMSTRONG: Okay. Just a 3 follow-on to Harvey's point to the technology 4 options we consider, and their impacts as far 5 as outside the U.S. Adam will get to the 6 screening criteria, which are coming up on the 7 next slide, but these are just technologies 8 that DOE could consider. To be considered 9 further downstream in the analysis, they have 10 to meet the four screening criteria. As part 11 of that screening criteria, one of them 12 references the ability for manufacturers to 13 produce equipment, the ability for servicers, 14 and sellers, and contractors to adequately 15 service on equipment on a scale necessary to 16 apply to the entire market by the effective

17 date of the standard. 18 If the U.S. infrastructure is 19 greatly different from that of other 20 countries, then that's something DOE does 21 consider in its application of the four 22 criteria for the screening analysis, as

### 202-234-4433 Neal R. Gross & Co., Inc. Page 151 1 appropriate. So, Harvey, when you send in 2 your comments about what DOE should consider 3 for the U.S. as applicable to -- from what 4 you've learned, lessons learned from world 5 markets, I ask you to keep that in mind. 6 MR. SACHS: Thank you, Ashley. 7 This is Harvey Sachs, and I would suggest that 8 it is very different to screen out, initially, 9 from consideration, to preclude consideration 10 of technologies that are not in widespread use 11 in furnaces in the U.S. today, to screening 12 out for the criteria that you have raised of 13 labor force or other issues during 14 consideration of technologies. The latter is 15 certainly appropriate, the former we felt was 16 quite inappropriate. 17 FACILITATOR BROOKMAN: Thank you. 18 Other comments on this slide? 19 MR. DARLINGTON: So, as Ashley just 20 alluded to, the next step is the screening 21 analysis. And the purpose of the screening 22 analysis is to screen out the technology

### 202-234-4433 Neal R. Gross & Co., Inc. Page 152 1 options that should not be considered further 2 in the downstream analysis. And the Code of 3 Federal Regulations gives DOE some guidance as 4 to the criteria that DOE should use for 5 screening out options, which are technological 6 feasibility, practicability to manufacture, 7 install, and service, impacts on product 8 utility or availability to consumers, and 9 impacts on health or safety. And if any 10 technology option does not meet these four 11 criteria, or any one of these four, then DOE 12 would exclude it from consideration further in 13 the analysis. So, next we'll get into the 14 engineering analysis. 15 The main purpose of the engineering 16 analysis is to characterize the relationship 17 between achieving an increase in efficiency, 18 and the increase in cost that comes with that. 19 And the engineering analysis results are used 20 in the downstream analysis, the life cycle 21 cost and payback period, the manufacture 22 impact analysis, and the employment impact

### 202-234-4433 Neal R. Gross & Co., Inc. Page 153 1 analysis is shown here on the slide. 2 FACILITATOR BROOKMAN: Harvey

3 Sachs. 4 MR. SACHS: It's become part of the 5 ritual for these proceedings, but we, again, 6 note that the depiction in Slide 41 is a 7 static depiction, and DOE has never done the 8 historical or retrospective analysis to see 9 what the time dependent change in price and 10 efficiency levels is subsequent to adoption. 11 We recognize that some of these technologies 12 have incremental costs, but we also recognize 13 that like all manufactured products, there has 14 been a consistent decline in price relative to 15 the CPI, even as efficiency levels have risen 16 for most products. And, consequently, this 17 static depiction is an incomplete analysis 18 that should be complemented at some point by a 19 more thorough DOE retrospective analysis. 20 FACILITATOR BROOKMAN: Okay. Thank 21 you. 22 MR. DARLINGTON: Okay. DOE,

### 202-234-4433 Neal R. Gross & Co., Inc. Page 154 1 basically, there are four main steps in the 2 engineering analysis. The first step is 3 defining the baseline models. These are 4 typically the lowest technology products on 5 the market. They just meet the current 6 Federal Energy Conservation Standards, and DOE 7 uses them as a comparison point for the higher 8 efficiency products. Next, DOE identifies the 9 more efficient products on the market at 10 higher efficiency levels. Then DOE selects 11 units both at the baseline and higher 12 efficiency levels for the tear-down analysis, 13 which DOE disassembles individual products, 14 and creates a Bill of Materials for each 15 product that contains detailed information 16 about the product and its manufacturing. And 17 then DOE uses the information in the Bill of 18 Materials to develop the manufacture 19 production costs using a cost model that 20 contains information about typical pricing, 21 and labor rates, and things of that nature.

22 And I'll talk about each of these more as we

### 202-234-4433 Neal R. Gross & Co., Inc. Page 155 1 move on. 2 FACILITATOR BROOKMAN: Let's pause

3 there. Talbot. 4 MR. GEE: I'm sorry for the delayed 5 response here, but I do have to just have one 6 response for Harvey on that. I don't, 7 necessarily, disagree that over time the costs 8 or affordability of a high-efficiency product 9 may decrease, but if the DOE is going to add 10 that to its analyses, then it needs to make 11 sure it is absolutely still quantifying the 12 effect of the marketplace during those peak 13 price points at the point of implementation, 14 because granted, it's great if five, ten years 15 down the road it becomes a more affordable 16 product, but that doesn't, necessarily, mean 17 that our guys will last five to ten years, if 18 it's a significant change that costs us 19 business in those five to ten years. So, 20 that's just an addition I'd put to that.

21 FACILITATOR BROOKMAN: Let's return 22 to the slides. Thank you.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 156 1 MR. DARLINGTON: So, DOE initially 2 identified some representative characteristics 3 of each of the furnace product classes, and 4 these characteristics are based on a review of 5 the current furnaces market, and what DOE 6 found the majority of furnaces were 7 characterized by. So, DOE is welcoming 8 comments about the representative 9 characteristics that DOE has identified for 10 each of the four product classes.

11 FACILITATOR BROOKMAN: 12 Representative characteristics. 13 MR. VerSHAW: Jim VerShaw with 14 Trane. One thing that you've got to be 15 careful of when you look comparing furnaces of 16 different manufacturers is on the firing rate, 17 their input capacity, is to make sure that 18 you've got reasonable apples-to-apples 19 comparison. So, one manufacturer may have a 20 75,000 input in a 14-inch width cabinet, and 21 the other manufacturer may have a 60, and an 22 80, but not a 75, so then you'd compare that

### 202-234-4433 Neal R. Gross & Co., Inc. Page 157 1 to the 60 that has the same number of burners, 2 and the same cabinet width, and you compare 3 that to the 80 that's got one more burner and 4 heat exchanger, and a wider cabinet. So, if 5 you look at the key players in the furnace 6 industry, 75 is not typical for every one of

7 them. 8 MR. DARLINGTON: Right.

9 FACILITATOR BROOKMAN: Other 10 comments? Okay. 11 MR. DARLINGTON: So, as I 12 mentioned, one of the first steps is selecting 13 the baseline models. Now, each product class, 14 DOE will select a baseline model that 15 represents the typical characteristics of that 16 product class for the minimally efficient 17 products. And shown here on the slide are the 18 baseline AFUE ratings, which are the existing 19 current Federal Energy Conservation Standards 20 for residential furnaces. And then DOE uses 21 the baseline models as a comparison point for 22 higher efficiency models. And DOE is seeking

### 202-234-4433 Neal R. Gross & Co., Inc. Page 158 1 comment about the typical characteristics of 2 the baseline models for residential furnaces.

3 FACILITATOR BROOKMAN: No 4 additional comments? Okay. 5 MR. DARLINGTON: So, DOE also 6 identifies efficiency levels for analysis, and 7 DOE will select efficiency levels spanning the 8 entire range from the baseline to the maximum 9 technologically feasible level, which is also 10 known as the max tech level. DOE is required 11 to analyze the max tech level by EPCA. The 12 max tech may be based on prototype designs 13 that are not, necessarily, already 14 commercially available. 15 Now, DOE has tentatively identified 16 the max tech efficiency level as being the 17 highest efficiency that's currently available 18 on the market at the representative rated 19 input capacity. And the max tech AFUE for 20 each of the product classes of residential 21 furnaces are shown here on the slide. And DOE 22 is seeking comment regarding the max tech

### 202-234-4433 Neal R. Gross & Co., Inc. Page 159 1 efficiency levels. 2 FACILITATOR BROOKMAN: Harvey

3 Sachs. 4 MR. SACHS: Harvey Sachs. With 5 respect to the max tech on weatherized 6 furnaces, just a note that this is the 7 intersection of max tech with limitations of 8 the AFUE rating method, that one can well 9 imagine a rating method that took account of 10 the fact that a unit running at part load 11 might deliver the same comfort with less 12 energy, and that might not be reflected in the 13 rating method, because of the need to keep it 14 in non-condensing mode at peak output. So, 15 there's just a standing comment that the AFUE 16 measure is an imperfect model, even if it's 17 what we're locked into. 18 FACILITATOR BROOKMAN: Jim. 19 MR. VerSHAW: Harvey, we have to20 keep those heat exchangers in the non21 condensing mode no matter what input. So, I 22 didn't understand your comment about the lower

### 202-234-4433 Neal R. Gross & Co., Inc. Page 160 1 input. 2 MR. SACHS: I would have thought 3 there are some improvements we still can make 4 when we're less heavily loaded, but I could be 5 wrong, and please instruct me later. 6 MR. VerSHAW: Okay. 7 MR. SACHS: Thank you.

8 FACILITATOR BROOKMAN: No 9 additional comments? Okay. 10 MR. DARLINGTON: Moving on. So, as 11 I mentioned, DOE selected efficiency levels 12 for analysis at the baseline, the max tech 13 level, as well as the most commonly available 14 efficiencies on the market. This slide shows 15 in the tables the efficiency levels DOE plans 16 to analyze for non-weatherized gas furnaces, 17 as well as weatherized gas furnaces. And then 18 on this slide we have the efficiency levels 19 that DOE plans to analyze for mobile home gas 20 furnaces, and for non-weatherized oil 21 furnaces. And DOE is also seeking comment 22 about the efficiency levels that DOE plans to

### 202-234-4433 Neal R. Gross & Co., Inc. Page 161 1 analyze in the NOPR analysis. 2 FACILITATOR BROOKMAN: Additional 3 comments here? No. Okay. 4 MR. DARLINGTON: So, as I 5 mentioned, DOE does a tear down analysis for 6 the engineering analysis, which is basically a 7 reverse engineering of products available in 8 the market. DOE physically disassembles these 9 products to examine the existing designs at 10 each efficiency level. And then DOE records 11 all the characteristics of each of the 12 components, including the manufacturing 13 processes required for fabrication. And those 14 all go into the Bill of Materials. 15 Now, for this -- for residential 16 furnaces, DOE is planning to select over 40, 17 about 40 furnaces for a tear down analysis. 18 And the different criteria for selecting units 19 for tear down analysis are shown here on the 20 slide. These will cover the full range of 21 efficiencies analyzed in each product class, 22 and will also span multiple manufacturers, as

### 202-234-4433 Neal R. Gross & Co., Inc. Page 162 1 well as conform to these other criteria. And 2 DOE is seeking comment on the criteria that 3 was used to select units for the tear down 4 analysis.

5 FACILITATOR BROOKMAN: Steve

6 Rosenstock. 7 MR. ROSENSTOCK: Steve Rosenstock, 8 Edison Electric Institute. I would guess the 9 last big tear down analysis was done in 2005 10 or 2006 for the last rulemaking, and I guess 11 my question is, has a lot changed since then 12 in furnaces in those last five years? 13 FACILITATOR BROOKMAN: Ashley. 14 MS. ARMSTRONG: To answer Steve, 15 since the previous rulemaking started in the 16 mid-`90s, the tear down analysis was done much

17 before. 18 MR. ROSENSTOCK: It was? Okay.

19 MS. ARMSTRONG: 2005. And I would 20 gauge that there has been some changes, 21 especially in the higher efficiency markets, 22 for which DOE will -

### 202-234-4433 Neal R. Gross & Co., Inc. Page 163 1 MR. ROSENSTOCK: Well, the NOPR 2 didn't come out until like 2005, or early

3 2006. 4 MS. ARMSTRONG: Correct, but ANOPR 5 and previous to that, previous analysis to

6 that were - 7 MR. ROSENSTOCK: Okay. Thank you.

8 FACILITATOR BROOKMAN: John

9 Proctor. 10 MR. PROCTOR: To do a bad step 11 back, but non-weatherized gas furnaces, go in 12 attics in California, you may all have noticed 13 in the winter it's cold in the attic, and in 14 the summer it's hot. So, AFUE isn't properly 15 calculating what happens with real furnaces in 16 California. 17 FACILITATOR BROOKMAN: Jim. 18 MR. VerSHAW: Could you explain a 19 little bit more about how that affects AFUE? 20 MR. PROCTOR: Because the cabinets, 21 you can correct me if I'm wrong, but then I'll 22 learn something new, which is good. Is that

### 202-234-4433 Neal R. Gross & Co., Inc. Page 164 1 the jacket loss on a non-weatherized furnace 2 is not counted in AFUE. Is that correct? 3 MR. VerSHAW: No, that's not true. 4 It's assumed to be isolated combustion with 5 about a 45 degree ambient temperature, so they 6 take the jacket loss and multiply by 1.7, and7 that's included in the AFUE for all non8 weatherized furnaces. The weatherized here I 9 think means can't sit outside in the rain and 10 everything. So, a weatherized furnace, you've 11 got a 3.3 multiplier due to wind and other 12 things on it. So, it is assuming that you 13 have cooler air, 45 degree combustion air, and 14 it's assuming that you have that -- well, you 15 test in the lab so you don't get that, but you 16 do have the jacket loss included at 1.7 17 multiplier. 18 MR. PROCTOR: Okay. Thank you. 19 FACILITATOR BROOKMAN: Thank you. 20 That's illuminating. Is it Cyril? 21 MR. FOWBLE: Cyril Fowble. I was 22 wondering, has DOE generated a list, and if

### 202-234-4433 Neal R. Gross & Co., Inc. Page 165 1 they have, they shared, of what you consider 2 non-efficiency-related premium features, 3 because one of the concerns I have is looking 4 at standby energy potentially as part of this 5 rulemaking. There are some features that are 6 -- that don't AFUE, necessarily, that may have 7 higher standby power consumption than the 8 normal plans.

9 MR. DARLINGTON: DOE has not 10 generated an official list, but, I mean,11 certainly we do consider non-efficiency12 related premium features, such as those that 13 are mainly related to interaction with the 14 user, if there's a special type of premium 15 controls. And sometimes those do impact 16 efficiency, the AFUE rating, as well, in which 17 case they would be included. But we can 18 certainly try to be more -

19 MS. ARMSTRONG: Let me follow-on to 20 Adam, just with the units that we did select, 21 we did select some that have features that 22 might not show up in the AFUE specifically to

### 202-234-4433 Neal R. Gross & Co., Inc. Page 166 1 look at the standby and off mode energy 2 consumption, and how it might change, and how 3 those optional features would affect that 4 calculation. And if you have certain features 5 in mind of furnaces that you think we should 6 consider, let us know what that should be, but 7 we definitely did take that into 8 consideration, as well. Thank you. 9 FACILITATOR BROOKMAN: Thank you. 10 Jim. 11 MR. VerSHAW: In reading the RAP on 12 page 35, it states that, "In order to 13 understand incremental manufacturing costs, 14 products chosen for tear down should be from 15 the same manufacturer and product series to 16 the extent possible," which conflicts with 17 what you said a minute ago about multiple

18 manufacturers. 19 MR. DARLINGTON: Yes. So, for each 20 different manufacturer, we try to analyze a 21 series of products, so we could see kind of a 22 good, better, best from each manufacturer.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 167 1 So, it's kind of from the same manufacturer 2 and product series across several 3 manufacturers, is sort of what that means

4 there. 5 FACILITATOR BROOKMAN: Ashley. 6 MS. ARMSTRONG: I'll just - 7 MR. VerSHAW: The intent sounds 8 right. 9 MS. ARMSTRONG: I'll just clarify 10 with an example. Say Manufacturer A offers an 11 80, a 90, a 92, and a 95. We look at that as 12 one whole product line with the same, more or 13 less, user features, no optional features. We 14 do the same thing for Manufacturer B, for 15 Manufacturer C, Manufacturer D, normalize the 16 differences, and try to isolate those 17 incremental efficiency gains, and their cost. 18 Does that help?

19 MR. VerSHAW: Yes.

20 FACILITATOR BROOKMAN: Good 21 question. 22 MR. GEE: This is Talbot, maybe a

### 202-234-4433 Neal R. Gross & Co., Inc. Page 168 1 process question. We've seen some market 2 shares of high efficiency products increase 3 recently because of unprecedented efficiency 4 incentives, be it federal, or utility, or 5 something like that. How is that taken into 6 account? In other words, those -- that 7 adoption, or the growth in that market may not 8 have happened without that heavy 9 subsidization, so how is that factored in when 10 you're doing market penetration analysis, that 11 sort of thing?

12 FACILITATOR BROOKMAN: Alex Lekov. 13 MR. LEKOV: Alex Lekov. So, there 14 is specific analysis called regulatory impact 15 analysis where DOE addresses the issue of 16 incentives, programs like ENERGY STAR, and 17 other similar non-regulatory impacts. 18 MS. ARMSTRONG: I'm going to follow

19 on - 20 MR. LEKOV: And, also, within the - 21 - for example, life cycle cost analysis, we 22 have distribution of efficiency in the base

### 202-234-4433 Neal R. Gross & Co., Inc. Page 169 1 case, and those also account for the impact of 2 programs, such as ENERGY STAR. 3 MS. ARMSTRONG: Okay. And just as 4 a follow-on, this is Ashley. So, one of the 5 things is like how DOE shipments might change, 6 and you're saying maybe, possibly, that the 7 shipments today, because of the incentives and 8 whatever else may be different than the 9 shipments were five years ago, and they may be 10 different than the shipments are five years

11 from now. 12 I would say DOE shipments model is 13 based on historical data, not just from one 14 year, multiple years. And then it's going to 15 project based on a number of different things, 16 including new housing starts, new incentives 17 that might come into the picture that might 18 change the efficiency mix of products, along 19 with historical factors and trends within the 20 industry. And all of those will be available 21 for comment, so if you feel that these 22 incentives might impact the market differently

### 202-234-4433 Neal R. Gross & Co., Inc. Page 170 1 five years from now, we welcome your comments

2 on that. Does that make sense? 3 MR. GEE: Well, no, but it might 4 just be my problem. 5 (Laughter.) 6 MR. GEE: I guess, my question is, 7 it could be easy in a vacuum to assume that 8 there is a strong penetration of certain 9 products. And, frankly, it could just be over 10 the last two to three years where some of that 11 could have spiked. And I just -- I'm curious 12 how you could take into account -- well, first 13 of all, those incentives won't exist for a lot 14 of these types of products if the standard 15 increased significantly, so then there's an 16 affordability issue there. And then how does 17 it factor in the market price of the product, 18 if it, in a sense, was discounted by all the 19 incentives? 20 MS. ARMSTRONG: So, the pricing 21 starts off -- this is Ashley. The pricing 22 starts off with the manufacturing cost. The

### 202-234-4433 Neal R. Gross & Co., Inc. Page 171 1 manufacturing cost, we calculate it from the 2 bottom up, with a manufacturing cost model as 3 if the entire market was at that level. So, 4 in other words, that's the new minimum 5 standard, so it's not, necessarily, reflective 6 of the market penetration of that efficiency 7 level today, but as if that becomes the new 8 manufacturing standard and the volume goes 9 there, the complete volume.

10 FACILITATOR BROOKMAN: How does 11 that address his concern, Ashley? 12 MS. ARMSTRONG: I think it goes to 13 the pricing. Our pricing is going to be what 14 it is, irrespective of those incentives. You 15 might disagree with that approach, but -- I 16 see him shaking his head over there, but 17 that's how we do it. And we welcome comments 18 on that approach. 19 FACILITATOR BROOKMAN: Or any 20 alternative approach to capture the spike, 21 based on incentives. 22 MR. GEE: We'll work with you guys

### 202-234-4433 Neal R. Gross & Co., Inc. Page 172 1 and - 2 MS. ARMSTRONG: Okay. That's fine. 3 MR. GEE: -- figure out how to do 4 this. 5 MS. ARMSTRONG: I mean, I think the 6 crux of the matter is, it wouldn't matter, 7 incentives, or otherwise, if you're taking it 8 as a baseline price. 9 MR. GEE: Okay.

10 FACILITATOR BROOKMAN: Do we have 11 additional comments on this point? Yes,

12 Frank. 13 MR. STANONIK: Yes, just one 14 additional comment, because in -- I think a 15 general answer to the question is, this 16 analysis for DOE is going to be extremely 17 difficult, because, in fact, we are -- well, 18 whether in the middle or in the back-end, 19 we're in a situation, as far as the furnace 20 industry, that is by all accounts, if not 21 unprecedented, extremely rare. Okay? The 22 downturn in the appliance industry that

### 202-234-4433 Neal R. Gross & Co., Inc. Page 173 1 started in probably the late `07, maybe `08, 2 okay, was major, and now we have unprecedented 3 incentives in forms of tax credits from 4 Congress and other places promoting really 5 products at the highest efficiency levels. 6 Okay? And the one thing we know, those 7 incentives are not going to be around forever. 8 We hope the downturn in the economy isn't 9 around forever. Okay? But, in fact, that's 10 the condition we're in, so to try and forecast 11 where the product is going to go for the next 12 10 or 15 years, when you've got this very 13 anomalous situation is a very difficult -- 14 going to be a very difficult task. And I 15 would just think if somebody gave you an 16 agreement that you could do a direct Final 17 Rule would be very attractive. 18 (Laughter.) 19 FACILITATOR BROOKMAN: So, Frank, I 20 just want to note for the record, DOE 21 appreciates your empathy, I'm sure. 22 (Laughter.)

### 202-234-4433 Neal R. Gross & Co., Inc. Page 174 1 FACILITATOR BROOKMAN: Do we have 2 additional comments on this series of issues, 3 because we're going to keep moving on. Okay. 4 MR. DARLINGTON: So, as I 5 mentioned, the results of the tear down 6 analysis will be a complete Bill of Materials. 7 DOE will use the Bill of Materials to 8 calculate the manufacturer production cost 9 using a cost model that contains the price of 10 materials, labor rates, cost of overhead and 11 appreciation, and convert the BOM data into 12 dollar values. And then the last step in the 13 engineering analysis, DOE will apply 14 manufacturer markup to the manufacturer 15 production cost to get the manufacturer 16 selling price, and construct the cost 17 efficiency curves. And DOE is seeking comment 18 about the markup used for the previous 19 analysis, and whether a markup of 1.26 would 20 still be applicable for the residential

21 furnaces market.

22 FACILITATOR BROOKMAN: We almost

### 202-234-4433 Neal R. Gross & Co., Inc. Page 175 1 always get some comment on markup. None at 2 this time. Okay. We're moving on. 3 MR. GEE: Are we isolating this 4 just to manufacturer markup? 5 MR. DARLINGTON: This is 6 manufacturer markup, yes. 7 MR. GEE: Okay. 8 FACILITATOR BROOKMAN: Okay. 9 MR. DARLINGTON: Also, DOE 10 recognizes that there may be large variations 11 in the manufacturer production costs across 12 the range of input capacities. And, as a 13 result, DOE is planning to analyze a couple of 14 additional common input capacities in addition 15 to the representative products that were 16 identified earlier. And DOE is planning to 17 perform tear downs above and below the 18 representative input capacity at 50,000 BTU 19 per hour, and 125,000 BTU per hour to help DOE 20 to better characterize the relationship 21 between manufacturer production cost, and 22 input capacity. And DOE is welcoming comment

### 202-234-4433 Neal R. Gross & Co., Inc. Page 176 1 about the appropriateness of these two input 2 capacities for analysis. 3 FACILITATOR BROOKMAN: Yes, Jim. 4 MR. VerSHAW: Back to my comment 5 earlier on 75. If you look at the market 6 share of furnaces, find out what percentage of 7 the market share actually has increments of 8 25,000.

9 MR. DARLINGTON: These were based 10 on an initial review of the products in the 11 AHRI Directory. So, I think they should be -- 12 they're pretty common input ratings. 13 FACILITATOR BROOKMAN: They would 14 appreciate you supplying the data that shows 15 the increments that we think are more 16 prominent. Frank Stanonik. 17 MR. STANONIK: Frank Stanonik, 18 AHRI. I think on this point, especially if 19 you're talking about the tear downs, I think 20 rather than, necessarily, focus on discrete 21 input levels, the real point that I think is 22 underlying Jim VerShaw's comment is that every

### 202-234-4433 Neal R. Gross & Co., Inc. Page 177 1 manufacturer has what they would consider, 2 let's say, their baseline of their family, 3 their model family, whether it's 75, 66, 72, 4 whatever. Okay? But I think the point of 5 this is that you should look at some models

6 that are on the - near the ends of that model 7 family. It doesn't, necessarily, have to be a 8 50, it would probably be something near there. 9 There are not many smaller, but where one 10 manufacturer may make the end of the family, 11 125, another one might make it 118, or 12 whatever, but I think -- so, really, I think 13 the point of this is don't get locked in on 14 those values when you do the tear downs, if 15 you get to that point. But just recognize 16 that you're looking at ends of whatever would 17 be the model family for the manufacturer. 18 You're looking at the variation, right, 19 anyhow, when you're tearing down. 20 FACILITATOR BROOKMAN: Ashley. 21 MS. ARMSTRONG: To answer you both, 22 I think it's fair to say that's what we are

### 202-234-4433 Neal R. Gross & Co., Inc. Page 178 1 doing. There is some wiggle room within those 2 hard numbers, depending on what exactly 3 manufacturer series you're looking at. 4 MR. VerSHAW: Jim VerShaw. 5 Condensing and non-condensing furnaces have 6 different upper ends. You won't find many

7 above 120. 8 FACILITATOR BROOKMAN: Okay. 9 That's helpful, those comments. Harvey. 10 MR. SACHS: Harvey Sachs. Last 11 time I tried to do any analysis of the AHRI 12 Directory, one of the things that fell out is 13 that an awful lot of furnaces are shipped in 14 two similar models of the same size, differing 15 in the fan diameter, and fan power. And we 16 casually refer to these as northern and 17 southern models, and got beat up pretty bad, 18 but, nonetheless, the fact that we commonly 19 see alternative fan sizes at cost of capacity, 20 I think is a perturbation you'll have to be 21 sensitive to. 22 MR. DARLINGTON: And DOE will try

### 202-234-4433 Neal R. Gross & Co., Inc. Page 179 1 to maintain the same fan sizes when looking at 2 different models. 3 FACILITATOR BROOKMAN: Okay. 4 MR. DARLINGTON: With that, I'll 5 hand it over to Alex.

6 FACILITATOR BROOKMAN: Next we'll

7 hear from Alex Lekov. 8 MR. LEKOV: Alex Lekov, LBNL. I 9 will focus on several components of the LCC 10 analysis, starting with the markup for 11 equipment price determination. So, the 12 purpose of this analysis is to determine the 13 consumer furnace prices based on manufacturer 14 cost, and to characterize furnace distribution

15 channels. 16 DOE will estimate the consumer 17 prices by applying markups consistently of 18 distribution channel markups, as well as sales 19 tax to manufacturer selling price estimates. 20 This slide lists the sources that we used in 21 the previous rulemaking. For example, a big 22 part of the input to determine the wholesaler

### 202-234-4433 Neal R. Gross & Co., Inc. Page 180 1 and the contractor's input are the income 2 statements from wholesale profit reports, for 3 contractors in this particular case, previous 4 rulemaking we used financial analysis from

5 ACCA. 6 For the general contractors and 7 builders, we used builders -- we used source 8 from the census which is listed here. And the 9 output of the markup analysis are baseline and 10 incremental markups aggregated to total markup 11 for the product. 12 As discussed this morning, DOE 13 plans to address the impact of regional 14 standards on furnace distributors and 15 contractors. Two main ways in which regional 16 standards could impact furnace distributors 17 and contractors relate to the inventory 18 management cost, which could increase, or the 19 overall investment in inventory could also 20 increase. New compliance cost for 21 distributing contractors if only at the 22 minimum additional record keeping and

### 202-234-4433 Neal R. Gross & Co., Inc. Page 181 1 reporting, also could cause change in costs. 2 DOE believes that any additional 3 cost that regional standards may impose on 4 furnace distributors and contractors would be 5 reflected by a change in the markups used. As 6 a result of this conclusion, DOE plans to 7 estimate changes in markups based on an 8 assessment of the inventories, as well as the 9 potential cost of the enforcement 10 requirements. 11 Item 16 in the list for comment 12 request, basically, asks for comment and 13 seeking data that will assist with the 14 analysis of the impact of the regional 15 standards on furnace distributors and

16 contractors. 17 FACILITATOR BROOKMAN: Yes, Talbot. 18 MR. GEE: Yes, this is Talbot with 19 Hardi. First of all, we commend the DOE for 20 adding this section of analysis. I know it 21 was part of the statute, as well, but the 22 specific formulas that were offered for

### 202-234-4433 Neal R. Gross & Co., Inc. Page 182 1 analyzing distributor cost impacts, price 2 impacts, I think are, in general, something 3 that can work. We will supply more detailed 4 comments in writing on this. We think there 5 may be still some confusion between markup and 6 margin. The terms are used awful 7 interchangeably in the RAP, and we get a 8 little concerned that the analysis is using 9 the wrong figures at the wrong time, 10 sometimes. So, again, we'll provide some more 11 detailed analysis on that to clarify that 12 point in written comment. 13 There's also -- depending on how, 14 again, the analysis works at the different 15 efficiency levels, in general, good, better, 16 best-type options enjoy slightly different 17 gross margins on those products. I don't know 18 if you can take that back in a regression 19 analysis, if you assume that minimum raises to 20 one of those levels. In other words, that you 21 can't, necessarily, assume that gross margin 22 will maintain the same on Product B, if B

### 202-234-4433 Neal R. Gross & Co., Inc. Page 183 1 becomes the new minimum standard. So, again, 2 we will try to work with you as best we can to 3 clarify this. We very much appreciate the 4 added attention to exploring and analyzing the 5 distributor impacts on this. We think the 6 formulas, in general, should work, but we want 7 to make sure we're clarifying exactly what 8 you're using for markup sometimes, versus 9 margin in other parts. 10 FACILITATOR BROOKMAN: Charlie. 11 MR. McCRUDDEN: On the previous 12 slide under the inputs it lists ACC 1995 13 Financial Analysis Industry. Was this covered 14 in the RAP, or in the Chapter 17? 15 MR. LEKOV: It's covered partially 16 as a source in Chapter 17. 17 MR. McCRUDDEN: Okay. 18 MR. LEKOV: And it's also explained 19 in detail in the 2007 Rulemaking in the markup 20 chapter. 21 MR. McCRUDDEN: Okay. 22 FACILITATOR BROOKMAN: Harvey

### 202-234-4433 Neal R. Gross & Co., Inc. Page 184 1 Sachs. 2 MR. SACHS: Harvey Sachs, and just 3 to request that, in particular, where we're 4 talking about distributors, contractors in 5 border regions, that the marginal cost of 6 upsizing product as an alternative to 7 increasing inventory needs to be considered, 8 since we'd expect the smart distributors to 9 take the lower cost option in almost every

10 case. 11 MR. LEKOV: Okay. Thank you. With 12 that, other part of the LCC analysis related 13 to the energy use analysis, where DOE will 14 identify the energy use of furnaces in the 15 field, and potential energy savings associated 16 with energy efficiency improvement. The key 17 components are listed in here. DOE will 18 estimate the household heating load based on 19 the EIA's 2005 Residential Energy Consumption 20 Survey known as RECS for the specific 21 household samples for each product class. 22 Also, will determine the burner

### 202-234-4433 Neal R. Gross & Co., Inc. Page 185 1 operating hours, and fuel and electricity 2 consumption based on algorithms associated 3 with current ASHRAE test procedures. And DOE 4 will account for effects of annual weather 5 variation by adjusting consumption estimated 6 for RECS 2005 homes, using 30-year averages 7 separated for each division, and large state. 8 As well as, DOE will use the forecast for 9 weather conditions for the next period. In 10 addition, DOE will consider incorporating a 11 rebound effect of 15 percent.

12 FACILITATOR BROOKMAN: John. 13 MR. PROCTOR: So, when you say 14 ASHRAE test procedures, you're talking about 15 the procedures that produce AFUE? 16 MR. LEKOV: That procedure that 17 produces AFUE, particularly the component 18 associated with Appendix C, which relates to 19 the burner operating hours calculations. 20 MR. PROCTOR: Okay. And my concern 21 is the air handler portion of that, so I'll 22 submit comments on the air handling portion of

### 202-234-4433 Neal R. Gross & Co., Inc. Page 186 1 that.

2 FACILITATOR BROOKMAN: Steve

3 Rosenstock. 4 MR. ROSENSTOCK: Steve Rosenstock, 5 Edison Electric Institute. I'm just curious 6 if the 2009 RECS data set won't be available 7 soon for your use in this analysis? 8 MR. LEKOV: DOE commonly uses the 9 most currently available data set. It's 10 unknown when the next one, you refer to 2009, 11 will be available. If it's available on time, 12 DOE will consider applying it.

13 MR. ROSENSTOCK: And the second 14 thing, the rebound effect you're just saying 15 it's across the board, national, 15 percent.

16 Correct?

17 MR. LEKOV: It's - 18 MR. ROSENSTOCK: National, across 19 the board. Thank you. 20 FACILITATOR BROOKMAN: Cyril. 21 MR. FOWBLE: Cyril Fowble. I just 22 want to follow-up on the comment about the

### 202-234-4433 Neal R. Gross & Co., Inc. Page 187 1 RECS data. Obviously, we talked earlier about 2 all the non-regulatory, like tax credits, for3 example, rebates that have driven high4 efficiency furnace sales here over the last 5 couple of years. That's all occurred since 6 the last RECS data, so I'm curious -- I think 7 energy consumption in the U.S. today per 8 household basis is probably less now than it 9 was in 2005. And I think if we don't include 10 the latest data, we're missing something here 11 in terms of what the true energy savings would 12 be for the new rulemaking. So, I really think 13 you need to find the -- use the 2009 data, or 14 find a way to estimate what the savings would 15 be based on the recent push in high-efficiency 16 appliances.

17 FACILITATOR BROOKMAN: If the RECS 18 data is not available, do you have any other 19 sources you'd recommend? 20 MR. FOWBLE: At this point in time, 21 no, but in our comments we'll suggest it, if 22 we have it.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 188 1 FACILITATOR BROOKMAN: Okay, that 2 sounds fair. Don Brundage. 3 MR. BRUNDAGE: Don Brundage, 4 Southern Company. By a rebound effect of 15 5 percent, does that mean that the usage of the 6 appliance goes up by 15 percent due to the 7 increased efficiency and lower cost? Is that 8 what you're saying?

9 MR. LEKOV: That's the common 10 assumption. 11 MR. BRUNDAGE: Okay. You're going 12 from an 80 percent efficient furnace, to a 90 13 percent efficient furnace in northern regions, 14 and only from 80 to 83 percent for the rest of 15 the country, so at best, you're going to have 16 a 15 percent increase in efficiency, so across 17 a national basis, that's saying they're 18 spending more money for heating their home 19 because they've upped the thermostat so high 20 in response to the efficiency. That looks 21 like way too large a rebound effect. It seems 22 like it should be lower than that, because

### 202-234-4433 Neal R. Gross & Co., Inc. Page 189 1 that's saying they're going to be burning more 2 gas when you get through with this than they

3 are now. 4 FACILITATOR BROOKMAN: Don, in your 5 comments, or now, if you can suggest what that

6 rebound effect would be.

7 MR. BRUNDAGE: No more than - on a 8 national average weighted basis, the 9 efficiency is going to go up by no more than 10 about 8 or 10 percent, so perhaps half is what 11 we usually look at doing for a rebound effect. 12 So, I would think no more than about 5 13 percent. And I'm not an expert on gas. Our 14 friends at AGA could comment on that. 15 FACILITATOR BROOKMAN: Okay. Thank 16 you. Karl? Yes, Talbot. 17 MR. GEE: This is Talbot from 18 Hardi. We were just talking that 19 hypothetically, you might be able to get some 20 sort of information to update that RECS-type 21 information based on, perhaps 25C tax credit 22 claims, perhaps. Now, you wouldn't know

### 202-234-4433 Neal R. Gross & Co., Inc. Page 190 1 exactly what the improvement is, but they were2 all a list of specified, qualified energy3 saving improvements. Maybe if you could get 4 an idea of how many claimed them, could give 5 you some insight. 6 FACILITATOR BROOKMAN: Okay. 7 Charlie. 8 MR. McCRUDDEN: I was just going to 9 add that the IRS comes out with, I think it's 10 called the Data Line Sets, and it's 11 information specifically by IRS form, how many 12 have claimed -- you can look at the 5695, how 13 many claims were made per line item, so you 14 can sort of break it down by class. And I 15 think line 5A, B, and C are for HVAC. You can 16 see how many claims were filed. It doesn't 17 tell you the type of improvement, doesn't tell 18 you the level of efficiency of that 19 improvement, it just says that these were 20 claims made. The data is out for 2006 and 21 2007. IRS holds the data for three years, so 22 we won't see numbers for 2009 for a while,

### 202-234-4433 Neal R. Gross & Co., Inc. Page 191 1 probably not before this concludes. But it's 2 a good indication of how popular or effective 3 -- it's just got some good numbers, these tax 4 credits. And, remember, in `06 and `07, it 5 was the $500 tax credit where you were maxed 6 out at, I think $300 for heat pumps, and $150

7 for furnaces. 8 FACILITATOR BROOKMAN: Thank you. 9 Harvey Sachs. 10 MR. SACHS: Harvey Sachs. I very 11 much appreciate Cyril's perspective in the 12 follow-up on this. My sense is that if we can 13 get the 2009 data, it's going to be very neat 14 to incorporate that, but my sense is also that 15 the impact of the tax credits, which perhaps 16 have affected in round numbers a million units 17 over several years, are probably small against 18 an installed base that's in the range of 70 to 19 80 million gas furnaces, as I recall. That 20 number may not be exactly right, so it's going 21 to be a second order adjustment, I think. 22 And, perhaps, less important than the inherent

### 202-234-4433 Neal R. Gross & Co., Inc. Page 192 1 errors and moving from ASHRAE to data. 2 MR. ROSENSTOCK: I guess all this 3 would be moot if you just adopt a consensus 4 agreement. 5 (Laughter.)

6 FACILITATOR BROOKMAN: Don 7 Brundage. 8 MR. ROSENSTOCK: I had a little --

9 FACILITATOR BROOKMAN: You have 10 something else.

11 MR. ROSENSTOCK: I have some - 12 yes. If you don't - 13 FACILITATOR BROOKMAN: This is 14 commercial brought to you by - 15 (Laughter.) 16 FACILITATOR BROOKMAN: Jim, go

17 ahead. 18 MR. VerSHAW: I think we've seen a 19 big shift in high-efficiency furnace sales 20 since 2005. I think if you're using 200521 data, it may not represent how many high22 efficiency furnaces have gone in since that

### 202-234-4433 Neal R. Gross & Co., Inc. Page 193 1 period of time. And, also, I'm looking here, 2 you're talking about using census regions and 3 everything else. How is -- I don't think the 4 regions you're talking about for climate is 5 matching up with the regions we're talking

6 about for furnaces. And I want to make sure 7 we don't get that overlay in there, such that 8 you over-estimate, or under-estimate the 9 effect of an improved standard. How are you 10 doing to accomplish that? 11 FACILITATOR BROOKMAN: Thank you.

12 Karl. 13 MR. ZIA: Karl Zia. The analysis 14 anticipates some consumer behavior in the 15 rebound effect. Correct? My question is, 16 does the analysis also take into account fuel 17 switching, or alternative system usage by the 18 consumer in light of changes in efficiency 19 requirements? 20 MR. LEKOV: The answer is yes, and 21 I will come to this when talking about the 22 national impact analysis.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 194 1 FACILITATOR BROOKMAN: Don 2 Brundage.

3 MR. BRUNDAGE: I would not 4 recommend using RECS 2009. I'm sure that 5 census will do a fine job on it, but it's not 6 typical times. We've seen some very puzzling 7 effects of energy usage in our own area in 8 2008 and 2009, maybe a large number of vacant 9 houses. It may be economic trauma, and people 10 are more cost-sensitive than normal. But I 11 would not rush into just dropping in 2009 and 12 using it, if it suddenly becomes available, 13 because I suspect the data is going to be very 14 non-typical. Thank you. 15 FACILITATOR BROOKMAN: Thank you.

16 Steve Rosenstock.

17 MR. ROSENSTOCK: Just as a follow18 up for the rebound effect, since I agree with 19 what Don Brundage said, is it really more that 20 in the analysis that if you do you technical 21 analysis, and you say per customer you're 22 saving, I'll just use that round number, 100

### 202-234-4433 Neal R. Gross & Co., Inc. Page 195 1 therms in kilowatt-hours, the rebound effect, 2 because the rebound effect nationally, you can 3 really count on 85 kilowatt hours, or 95 4 therms at a discount to the amount of energy 5 you're saving because some people are going to 6 readjust their thermostats. Is that a better 7 way to say it, or are you just saying you're 8 just going to use 15 percent more energy, 9 period? 10 MR. LEKOV: Effectively, we will 11 say 15 percent more energy. And there are 12 sources behind this. The topic has been 13 discussed on and off the last 15 years. There 14 are several articles in referee journals that 15 document the impacts of the rebound effect, as 16 well as the number we have here is kind of the 17 medium value as used in the National Energy 18 Modeling Systems, NEMS. Basically, this is 19 part of their algorithm. More details on this 20 were available in the previous rulemaking. 21 MR. ROSENSTOCK: Again, Steve 22 Rosenstock. Yes, again, to follow-up with

### 202-234-4433 Neal R. Gross & Co., Inc. Page 196 1 Don, that says if the standard goes from 78 to 2 80 or 81, and you assume a 3 to 4 percent more 3 efficiency, that your actual energy use would 4 go up by a net of 10 percent. 5 FACILITATOR BROOKMAN: Thank you. 6 I'm certain the Department would welcome your 7 comments, if there was some way to give them 8 actual data, modeling, whatever, that would 9 show a difference in rebound effect. 10 MR. LEKOV: And the Department 11 seeks comment on that approach using RECS data 12 for determining energy consumption, as well as

13 comments on the rebound effect. 14 FACILITATOR BROOKMAN: Any 15 additional comments on these? 16 MR. LEKOV: Going into the basic 17 assumption associated with core LCC analysis 18 and payback calculations, just as a reminder 19 to everybody, life-cycle cost essentially 20 equals the total installed cost, plus the sum 21 of the operating costs discounted to a 22 particular base year. Analysis, DOE's

### 202-234-4433 Neal R. Gross & Co., Inc. Page 197 1 analysis modeled uncertainty in variability of 2 input using probability distribution through 3 Monte Carlo approach, and the analysis are 4 implemented in Excel spreadsheets combined 5 with the Crystal Ball software.6 A full illustration of the life7 cycle cost approach, the upper part shows the 8 derivation of the total installed cost, bottom 9 part, the derivation of the operating cost. 10 The yellow boxes are inputs, green boxes are 11 intermediate calculations, and the blue boxes 12 are the final results. And the next slides 13 will discuss some of the boxes in detail. 14 Important component to determine 15 operating cost are the energy prices. DOE 16 will derive average monthly energy prices 17 using EIA data for each of the census 18 divisions, and large states. And in terms of 19 the projections, DOE will utilize the most 20 recent EIA's Annual Energy Outlook to forecast 21 the future energy price. 22 Next component of the inputs

### 202-234-4433 Neal R. Gross & Co., Inc. Page 198 1 relates to the discount rates. Essentially, 2 it's used to determine the present values of 3 lifetime operating expenses. Will derive the 4 discount rates from estimates of finance cost, 5 the core source is the Federal Reserve Board's 6 Survey of Consumer Finances, very credible and 7 rich source, more than 200,000 data points. 8 And the finance cost is interpreted in two 9 parts, as a finance cost of any debt, such as, 10 let's say, lost loans or credit card, and 11 opportunity cost of any equity which is 12 checking, savings account, CDs, and different 13 investment. Overall, DOE seeks input on the 14 planned approach for estimating discount rates

15 for consumer. 16 FACILITATOR BROOKMAN: Charlie. 17 MR. McCRUDDEN: One of the things 18 that we've heard in the last -- that our 19 contractors have told us about through 20 surveys, and other meetings, is that more and 21 more consumers are being turned down for 22 financing, so whatever the rate is, they can't

### 202-234-4433 Neal R. Gross & Co., Inc. Page 199 1 even get there. And part of this is because 2 the Fed has released rules recently dealing 3 with, same as cash promotions, otherwise known 4 as low-interest -- a lot of -- I think a lot 5 of manufacturers may offer financing through6 themselves. A lot of our members use a third7 party vendor, like GE Capital, and some

8 others. And what we've heard from some of 9 those third-party vendors is that the 10 restrictions, and the tightening of 11 restrictions on them from the Fed have 12 basically caused them to either pull out, or 13 put a lot more scrutiny on loans. And we held 14 -- AHRI and ACCA held a meeting last summer to 15 talk about this. I don't know how you work 16 this into the analysis. I mean, I'm not an 17 economist, and I don't know if this is 18 something you're looking at. And I don't -- 19 and I hope that this isn't a problem in 2015, 20 or whatever it is we're looking at making 21 these rules effective, but I think it's 22 something that's out there. So, it's not a

### 202-234-4433 Neal R. Gross & Co., Inc. Page 200 1 matter of the discount rate that the Fed has 2 published, it could be that more and more 3 homeowners are unable to finance these types 4 of improvements. And, again, not sure if this 5 is something that can be put into the model, 6 but I just -- I'd be remiss if I didn't make 7 this comment, because it is a problem. 8 MR. LEKOV: If it will help, I will 9 very briefly mention the basis. Essentially, 10 the source mentioned here are tri-annual 11 surveys, starting in 1989, and DOE will use 12 every one available, `89 up to 2007. All the 13 values you mentioned are, for example, the 14 type of debts, or equity, are presented as 15 distribution, including extreme situations, 16 the one you explained.

17 FACILITATOR BROOKMAN: Talbot. 18 MR. GEE: Yes. Hardi also tracks 19 and collects distributor average day's sales 20 outstanding, and I don't know if that's 21 factored in into the cost analysis, but that 22 is, obviously, a cost of money to be financing

### 202-234-4433 Neal R. Gross & Co., Inc. Page 201 1 over that period of time, so we can give 2 averages over certain years of what those DSOs 3 have been. And then the factor of important 4 note here is, if you're talking about more 5 efficient, more expensive product, there's 6 actually a higher carrying cost, of course, to 7 financing those products, as well. So, we can 8 give that data, and try to see if there's a 9 way to make sure that's accounted for, because 10 it is a significant cost of doing business 11 with these products. 12 FACILITATOR BROOKMAN: Okay. Thank 13 you. Other comments? Yes, Jim. 14 MR. VerSHAW: Jim VerShaw. I think 15 if you look up the average credit card debt 16 for the average family, it's about $16,000 at 17 fairly high interest rate, and with harder to 18 get home equity loans. You need to look at 19 that whole thing, as we were just talking 20 about, because it seems like this discount 21 rate is going to be much higher than a 3 to 7 22 percent range in order to be realistic.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 202 1 FACILITATOR BROOKMAN: The $16,000 2 you're referencing, is that -- what is that, 3 again? 4 MR. VerSHAW: That's the average 5 household credit card debt. 6 FACILITATOR BROOKMAN: Okay. Thank 7 you. 8 MR. LEKOV: Just to mention that, 9 essentially, we're talking about real interest 10 rate, so not accounting for inflation. 11 FACILITATOR BROOKMAN: So, other 12 comments on discount rate? We're about to

13 move on. 14 MR. SACHS: Harvey Sachs. If you 15 go to direct rule - 16 (Laughter.)

17 FACILITATOR BROOKMAN: There's a 18 recurring theme in this meeting. It's like an 19 echo in this room. I appreciate your 20 endurance, if nothing else. Alex. 21 MR. LEKOV: The next has to do with 22 how DOE will account for installation,

### 202-234-4433 Neal R. Gross & Co., Inc. Page 203 1 maintenance, and repair. So, we'll evaluate 2 how the installation cost, and maintenance and 3 repair costs change with increased 4 efficiencies. The sources will be RS means, 5 expert consultants, manufacturer literature, 6 any inputs from interested parties. We know 7 for sure that DOE will account for regional 8 differences in labor cost, and the approach, 9 essentially, insures that an installation cost 10 is calculated individually for each household 11 based on the RECS household characteristics. 12 FACILITATOR BROOKMAN: Yes,

13 Charles. 14 MR. McCRUDDEN: As I alluded to in 15 my opening statement, this is one where I 16 think expert consultants -- I don't know if 17 our members are considered expert consultants, 18 but they'll consider themselves expert 19 consultants, and provide information. And we 20 don't have a big pot of money to run our own 21 analysis to provide you, but we're going to do

22 the best we can.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 204 1 FACILITATOR BROOKMAN: Thanks. 2 That's helpful. Are there comments on these 3 important features, installation, maintenance 4 and repair costs? 5 Jim. 6 MR. VERSHAW: Jim VerShaw. At what 7 point in the analysis do you look at the 8 effect if a new standard would drive people to 9 repair rather than replace? I think if you 10 look at the manufacturers' parts sales since 11 the 13 SEER went into effect, you see a spike 12 in repair. 13 MR. LEKOV: The approach, as it is 14 right now, looks at distribution of lifetime 15 of the individual components, in particular, 16 fan failure. 17 MR. VERSHAW: You can get 18 replacement fans and blowers. You can get 19 replacement heat exchanger, burners. You 20 could replace the whole guts of the thing.

21 FACILITATOR BROOKMAN: Mohammed. 22 MR. KHAN: Yes. This is Mohammed

### 202-234-4433 Neal R. Gross & Co., Inc. Page 205 1 Khan, DOE. I think that typically homeowners 2 will elect, in the case of furnaces, to repair 3 versus replace major components such as a heat 4 exchanger. I think that the cost of replacing 5 a heat exchanger might be to a point where 6 it's probably cost effective to change the 7 whole thing and upgrade to something newer 8 entirely. And in general when a heat 9 exchanger goes, it corresponds basically to 10 the end of the life of the product. 11 MR. LEKOV: For components such as 12 blower or ignition system, DOE plans to assume 13 that it's always repaired.

14 FACILITATOR BROOKMAN: Yes. 15 MS. MEYERS: This is Karen with 16 Rheem and, Mohammed, I would agree with your 17 comment if you are replacing a product that 18 has alike venting system. But when you are 19 not doing that and are changing the venting 20 system due to a new minimum efficiency I think 21 the repair instances will increase 22 significantly. That is clearly an instance

### 202-234-4433 Neal R. Gross & Co., Inc. Page 206 1 that happened with the 13 SEER rule because of 2 the size issues as well as the cost. But 3 there was in our analysis a lot of times that 4 repair escalated significantly because the 5 product size increased and it was just 6 physically almost impossible or cost 7 prohibitive to replace the product. 8 FACILITATOR BROOKMAN: Thank you.

9 Ted. 10 MR. WILLIAMS: Ted Williams, 11 American Gas Association. We concur with 12 that. In fact, when you're talking about 13 modification of the venting system, relining 14 chimneys and the like, you know, cost in the 15 neighborhood just for the venting system is 16 $1500 to $2000 to install a Category 4 17 furnace. Replacing heat exchangers is a 18 viable option and a business opportunity. 19 FACILITATOR BROOKMAN: Thank you.

20 Talbot. 21 MR. GEE: I concur with the 22 manufacturer's statement on this, but I'd also

### 202-234-4433 Neal R. Gross & Co., Inc. Page 207 1 point out again the impact of the incentives 2 in the near term here where that has turned 3 what probably or what we would project would 4 have been a normal repair job. Because it was 5 heavily incentivized, they went ahead and did 6 the replacement. And I just want to make sure 7 that the analysis gets clouded there assuming 8 that there's been a decrease in repair rates 9 all of a sudden. But the fact is just because 10 they're being paid not to repair, but to 11 replace it which won't be the case going

12 forward.

13 FACILITATOR BROOKMAN: Karl. 14 MR. ZIA: Karl Zia. To further 15 comment on consumer behalf, there's a certain 16 amount of collateral, if you will, furnace 17 installations that take place when an outdoor 18 system is replaced. And so the economic 19 burden of requirement of the 90 percent 20 minimum in some areas may actually lead some 21 consumers not to replace a furnace during 22 whole system review that they might otherwise

### 202-234-4433 Neal R. Gross & Co., Inc. Page 208 1 replace. 2 FACILITATOR BROOKMAN: All good

3 comments. Alex. 4 One more here. Harvey Sachs. 5 MR. SACHS: Harvey Sachs. I'm a 6 little concerned about what I heard as a 7 pretty large discrepancy in the estimated cost 8 of replacing a noncondensing furnace with a 9 condensing furnace and providing the chimney 10 liner from the DOE analysis relative to the 11 AGA statements. And I hope that we'll see a 12 little bit more referencing and elaboration on 13 that. Thank you. 14 FACILITATOR BROOKMAN: Thank you.

15 Ted. 16 MR. WILLIAMS: Ted Williams, 17 American Gas Association. Yes, you'll see 18 that and I think the fundamental problem with 19 the TSD furnace so far through the 2007 rule 20 is it did not consider all the venting issues 21 for properly dealing with taking an 22 atmospheric Category 1 furnace off a common

### 202-234-4433 Neal R. Gross & Co., Inc. Page 209 1 vented system, for example. So we'll be 2 providing data to the process on that. 3 FACILITATOR BROOKMAN: Thank you. 4 MR. LEKOV: Another essential 5 component is the determination of the 6 lifetime. DOE plans to utilize an approach 7 which determines the distribution of lifetime 8 using shipments data, stock of furnaces, RECS 9 data on the age of furnaces in homes. 10 FACILITATOR BROOKMAN: Anything 11 else on the furnace lifetimes? 12 (No verbal response.)

13 MR. LEKOV: And DOE seeks comments 14 on this methodology as well as references to 15 potential lifetime differences among the four16 product classes to be considered in this rule17 making. 18 FACILITATOR BROOKMAN: Additional 19 thoughts? 20 (No verbal response.) 21 MR. LEKOV: LCC analysis DOE also 22 develops projected shares of products by

### 202-234-4433 Neal R. Gross & Co., Inc. Page 210 1 efficiency under the base case assuming that

2 there are no new standard for each Census 3 Division and large state. And, in this 4 analysis, DOE will use data on recent market 5 trends for furnace efficiency, also the 6 potential impact of Energy Star Program and 7 other policies that may affect the demand for 8 more efficient furnaces.

9 FACILITATOR BROOKMAN: Frank 10 Stanonik. 11 MR. STANONIK: Frank Stanonik, 12 AHRI. On this little trailing piece here 13 about using large state, I mean it's clear 14 that RECS says of late included information 15 besides the consensus regions on these large 16 state. I believe the large states are four, 17 California, New York, Texas and I think 18 Florida.

19 MR. LEKOV: Correct. 20 MR. STANONIK: Okay. In the 21 context of a furnace rule-making, I would 22 suggest that there really isn't a lot of value

### 202-234-4433 Neal R. Gross & Co., Inc. Page 211 1 of focusing on the four large states because 2 in some -- Well, taking out New York those

3 other three states are at best I'll call them 4 mild winter climates. They have furnaces. No 5 question. But they're mild winter climates 6 and focusing on them I think gives you a 7 distorted picture particularly if you're going 8 to do the Census thing and if somebody 9 mentioned that issue of overlying the Census 10 regions over the two heating regions. Okay. 11 That should be adequate. But dragging in the 12 four states for a furnace rule-making I think 13 is not going to give you anything of 14 additional value. 15 FACILITATOR BROOKMAN: Thank you.

16 Yes. Talbot. 17 MR. GEE: Talbot with HARDI. To 18 add to that, our Midwest members, upper 19 Midwest members, have a serious concern about 20 losing access to 80 percenters because of the 21 growth in hybrid systems that they've been 22 selling and their customers have been

### 202-234-4433 Neal R. Gross & Co., Inc. Page 212 1 installing. And they have concerns about 2 losing the cost of the effectiveness of such 3 systems if you don't have access to an 80 4 percent furnace. So I point that only because 5 you may have market shares in some of those 6 states that need a little bit more weighted to 7 the mid-efficiency furnaces. But perhaps you 8 might find that it's weighted to a much more 9 efficient heat pumps for example. So I don't 10 know how you take that into account, but that 11 might not have been the option of choice for a 12 lot of those homeowners if they have not had 13 access to a mid-efficiency furnace. 14 MR. LEKOV: Just as mentioned for 15 maybe two slides later, I'll talk about the 16 equipment and fuel switching. But to use the 17 opportunity, any data on fuel or equipment 18 switching would be helpful for DOE.

19 FACILITATOR BROOKMAN: Then on to 20 shipments analysis. 21 MR. LEKOV: Okay. The next are 22 shipment and national impacts analysis. So

### 202-234-4433 Neal R. Gross & Co., Inc. Page 213 1 shipments, the purpose is to estimate the 2 shipments in base case and standard cases. 3 DOE looks at several markets including 4 replacement in kind, new housing 5 installations, conversions from non-central 6 heating to furnaces. 7 The slide here basically addresses 8 the issue of determination of the base case 9 shipments forecasts compared to the standard 10 case shipments forecasts. So the base case 11 shipment, in case there are no standards, DOE 12 will consider products market share in new 13 housing as a major driver as well as the 14 mixture of furnace efficiency sold in the 15 absence of standards and in the case for the 16 standard case forecasts, DOE will account for 17 fuel and equipment switching that may result 18 from standards requiring higher-efficiency

19 furnaces. 20 And we'll apply the roll-up 21 scenario to estimate the effective standards 22 in the effective year where the roll-up

### 202-234-4433 Neal R. Gross & Co., Inc. Page 214 1 assumes that the product efficiency in the 2 base case in fact do not meet the standard 3 level. And the consideration will roll up to 4 meet the next standard level. And the product 5 efficiency above the standard level under 6 consideration would not be affected.

7 FACILITATOR BROOKMAN: Steve

8 Rosenstock. 9 MR. ROSENSTOCK: Steve Rosenstock, 10 Edison Electric Institute. I think that this 11 will be an important part of the analysis and 12 I would urge DOE to start this analysis. In 13 January, as of January 2006 when the standards 14 for heat pumps significantly increased and 15 there were no other increase in other 16 competing heating products. So I really think 17 it's good for this analysis that there's 18 little background in terms of going back to 19 2006 what happened with the fuel switching 20 back then to create today's market and then 21 going forward. Thank you. 22 FACILITATOR BROOKMAN: Thank you.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 215 1 Karl. 2 MR. ZIA: Karl Zia. What types of 3 equipment switching are taken into account in 4 the analysis? 5 MR. LEKOV: At this point, DOE 6 looks at all electric furnaces including heat 7 pumps. However, if there are other 8 considerations like as mentioned by Talbot, 9 combined system, if there is information about 10 those DOE will also include that in the fuel 11 switching and equipment switching model. 12 FACILITATOR BROOKMAN: Okay. 13 Yes, Talbot. 14 MR. GEE: Talbot with HARDI. Just 15 so I understand, the roll-up scenario assumes 16 that anything you think would be replaced, a 17 retiring furnace in the effective year, would 18 automatically be replaced by what the new

19 standard would be.

20 MR. LEKOV: That's correct. And 21 everything above the considered standard is 22 not going to change.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 216 1 FACILITATOR BROOKMAN: Andrew 2 deLaski. 3 MR. deLASKI: I think you need a 4 model, a shift scenario, as you've done on 5 other dockets for this docket as well. I 6 think the market we've seen and just about 7 every market that sort of is marketing 8 according to a good, better, best approach is 9 what works. That's not going to go away with 10 the new standard so that some portion of 11 consumers will -- Well, what's now marketed as 12 good will become the new standard and then 13 you're going to still have a distribution 14 that's going to shift above whatever that new 15 standard is. It isn't just going to all go 16 right to that new standard. You'll have 17 Energy Star will be recalibrated. You're 18 going to have utility programs recalibrated

19 and a whole set of market factors that are 20 going to push efficiency towards a shift 21 scenario. So I think at a minimum I think it's

22 reasonable to model as at least one of the

### 202-234-4433 Neal R. Gross & Co., Inc. Page 217 1 scenarios. 2 FACILITATOR BROOKMAN: Thank you. 3 Frank Stanonik. 4 MR. STANONIK: I just want to go to 5 a point of clarification about the fuel 6 switching and other options. I understood 7 when Talbot was talking about hybrids that he 8 was talking, that you were talking, about a 9 combination gas furnace combined with a heat 10 pump system. Alex, if that's correct, that's 11 not a fuel switching issue.

12 MR. LEKOV: No. I don't -- 13 MR. STANONIK: He just said yes. 14 When he was talking about hybrids, he was 15 talking about in the Midwest and probably 16 other places there's a growing popularity of 17 combining a gas furnace with a heat pump so 18 that you're using the heat pump I'll say as 19 long as you can and then when it gets too cold 20 for that you use the gas furnace. If somebody 21 goes with that system, there's no fuel 22 switching there.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 218 1 And then going to the point I think 2 whatever DOE is going to analyze as a fuel 3 switching issue needs to be a little more 4 spelled out. 5 MR. LEKOV: So basically you're 6 saying in terms of the supplementary heat 7 instead of provided by electrical resistance 8 it is provided by the heat pump unit. Is this 9 what you mean? 10 MR. STANONIK: I'm sure it's 11 promoted as the best of both worlds, but yes.

12 FACILITATOR BROOKMAN: I see Ted. 13 MR. WILLIAMS: Ted Williams, AGA. 14 I understood Talbot's question to be what 15 happens to the alternative of hybrid systems. 16 Actually, the alternative may be to go away 17 from a hybrid system to an all electric 18 system. That would be a fuel switching 19 situation. Is that correct, Talbot? 20 MR. GEE: That's one scenario. But 21 the other scenario is you don't go with this 22 efficient cooling capable equipment and you

### 202-234-4433 Neal R. Gross & Co., Inc. Page 219 1 end up going kind of mid-efficiency all the 2 way across. So I don't know if that's the 3 outcome we want either. 4 But while I got here I also want to 5 respond to Andrew's point though because I'm 6 not so convinced about the total upward shift 7 when you raise the minimum standard because -- 8 And again, maybe I should defer to the 9 utilities on this. I'm not so convinced 10 regulatory commissions are going to leave it 11 that way also. So if you set the standard at 12 90, are they going to be real crazy about the 13 same incentives you offer at 92, for example, 14 when there's no longer that delta. I'm not 15 convinced that will happen.

16 FACILITATOR BROOKMAN: If the 17 proportions don't stay the same in the --

18 MR. DeLASKI: I don't know what the 19 proportions are, this is Andrew, to follow up 20 on Talbot's response. I don't know what the 21 shift is. I don't know whether it's going to 22 be exactly the distribution we have today. I

### 202-234-4433 Neal R. Gross & Co., Inc. Page 220 1 also don't think it's all going to go exactly 2 to 90 if the new standard is 90. If the 3 standard were to go to 96, for example, which 4 would be contrary to our recommendation, then 5 a roll-up would be a perfectly reasonable

6 model. 7 But the point is that what the 8 ultimate standard is will affect the 9 distribution above that and I think the 10 Department has to take that into account. It 11 rolls through the analysis in many ways and I 12 think it's important to model that. 13 FACILITATOR BROOKMAN: Thanks,

14 Andrew. 15 MR. LEKOV: DOE is open to both 16 approaches. 17 FACILITATOR BROOKMAN: Karim, are 18 you all set? Okay. I want to keep us moving

19 on here.

20 MR. LEKOV: So -- 21 (Off the record comment.) 22 FACILITATOR BROOKMAN: I'm sorry.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 221 1 (Off the record comments.) 2 MR. LEKOV: So here is DOE's 3 request on the topics we just discussed 4 related to the potential practical standards 5 on the product shipment including fuel and6 equip switching and also comments on the roll7 up. We've got the comment that the shift 8 scenario could be as good.

9 FACILITATOR BROOKMAN: Those are 10 good comments. Additional comments on these 11 points? 12 (No verbal response.) 13 Okay. 14 MR. LEKOV: National impact 15 analysis. So once the shipment models 16 generates results, DOE looks at the 17 calculation of the national energy savings and 18 the next present value of those savings. So 19 DOE calculates the annual equipment 20 expenditures by modifying the price per unit 21 by the forecast achievements. The difference 22 between base and standard case is the national

### 202-234-4433 Neal R. Gross & Co., Inc. Page 222 1 energy savings and it's converted to dollar 2 values. The difference each year between 3 energy savings and the increased equipment 4 expenditure essentially will present the net 5 savings and net costs. 6 The next two slides will illustrate 7 essentially the approach for the national 8 energy savings, the next one the NPV. As you 9 see here, the base case annual energy 10 consumption is calculated annually and 11 summarized. In the standard case, the same 12 thing calculated annual, summarized. 13 Site to source conversion to apply 14 for the inefficiencies associated between the 15 power plant and the site are applied. And the 16 Department arrives at the projected national 17 energy savings. 18 In terms of NPV, net present value, 19 of the savings, basically the Department looks 20 at operating costs which is associated with 21 the cost of energy minus the maintenance and 22 repair and also on the other side the total

### 202-234-4433 Neal R. Gross & Co., Inc. Page 223 1 install costs which include the product costs, 2 install costs, accounts for this in the base 3 case project, accounts in the standard case 4 projection, assumes applied discount rate, 5 arrives at the national value. 6 The Department also looks at the 7 consumer subgroups. So basically the point is 8 to look specifically at subgroups, consumer 9 subgroups, who may be disproportionally 10 affected compared to the general population. 11 In the past, the focus was on low income 12 consumers or senior citizens in terms of 13 heating systems. And the Department does it 14 is by creating essentially a separate LCC 15 analysis using a specific sample for those 16 groups and does exactly the same calculation 17 as for the general population and reports the 18 results as they are applicable to the 19 subgroup.

20 FACILITATOR BROOKMAN: Talbot.

21 MR. GEE: Talbot from HARDI. I 22 want to talk, for example, condensing

### 202-234-4433 Neal R. Gross & Co., Inc. Page 224 1 furnaces. Could this be more application 2 specific or considerations that you made for 3 applications rather than the status of the 4 actual pennant, in other words, urban setting 5 with townhomes, multi-unit, things like that 6 where you are going to find more common 7 installation issues?

8 MR. LEKOV: It comes to the core of 9 the RECS information. RECS actually states 10 whether there is low income consumers or 11 seniors. So the sample created is for RECS 12 illustrated using the low income consumers. 13 If the low income consumer is according to the 14 standard supposed to get a condensing furnace, 15 the Department will evaluate what's the impact 16 on this particular household type will be. 17 MR. GEE: I guess my point would be 18 that you could essentially say this impact 19 will apply to anyone who lives in this type of 20 a building. 21 MR. LEKOV: No, because it's -- It 22 essentially could be a condo, but the income

### 202-234-4433 Neal R. Gross & Co., Inc. Page 225 1 of the people could be high. This information 2 is available. 3 FACILITATOR BROOKMAN: Yes, Jim. 4 MR. VERSHAW: I think what Talbot 5 is trying to get is that when people are 6 speculating on multi-family buildings they're 7 going to put in the least cost system they 8 can. And so what you'll see is it'll be 9 harder for them to put 90s in through a large 10 multi-apartment building because of the extra 11 plumbing and everything else and that you 12 might find that they're going to go to heat 13 pumps or something that's less costly. 14 And then looking at just consumer 15 groups, low income or seniors, which I've got 16 to get a definition of senior by the way as 17 I'm getting close to that. 18 (Laughter.) 19 FACILITATOR BROOKMAN: I'm right 20 there with you. 21 MR. VERSHAW: But it may not really 22 cover what's really going to happen.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 226 1 FACILITATOR BROOKMAN: Okay. 2 MR. VERSHAW: And another question 3 which I had which kinda of goes bad. Sorry. 4 FACILITATOR BROOKMAN: That's okay. 5 MR. VERSHAW: Let's say a 90 6 percent standard goes in across the nation and 7 we use less gas. What's going to happen to 8 the gas utilities? Are they going to be 9 allowed to raise their rates because the gas 10 consumption has gone down, but they have 11 infrastructure they have to maintain. And is 12 that type like electricity -- I think 13 California, I don't think the electrical 14 companies out there care how much they sell 15 because they're told by the public how much 16 they can make. 17 So I'm not sure. That's a question

18 I have. How does that work?

19 FACILITATOR BROOKMAN: We'll hear 20 from Molly first and then go to Don. 21 MS. TROMBLEY-McCANN: This is 22 Molly. That's a simplification of an actually

### 202-234-4433 Neal R. Gross & Co., Inc. Page 227 1 pretty complicated situation. 2 (Laughter.) 3 But is it true that in California 4 the utilities are what's called decoupled such 5 that the amount of money they make per year is 6 not tied directly to the number of kilowatt 7 hours or the number of therms that they sell. 8 That's unique to California. There are 9 different states that have similar setups. 10 But each state is different.

11 FACILITATOR BROOKMAN: We have Don. 12 Or pardon me. Either Don or Ted. Which one? 13 MR. WILLIAMS: Go ahead, Don. 14 MR. BRUNDAGE: This subgroup 15 analysis, this is basically not something 16 that's, correct me if I'm wrong, defined with 17 the EPCA legislation. This is something that 18 is part of the process rule and has been 19 determined a way to look at impacted 20 subgroups. And, yes, in the past you've done 21 them based on low income consumers, senior 22 citizens, things that can be broken out of

### 202-234-4433 Neal R. Gross & Co., Inc. Page 228 1 RECS. 2 But I don't see any reason you 3 couldn't do something like retrofit water 4 heaters in places where it's expensive in 5 multi-family or gas furnace where you're 6 redoing, having to redo, the venting system. 7 I don't see why that could not be an impacted 8 subgroup for purposes of who's going to get 9 really killed by doing this. 10 Since this is part -- Since this is 11 not really defined by legislation, I think you 12 are free to define some subgroups that are not 13 defined under RECS. Thank you.

14 FACILITATOR BROOKMAN: Ted. 15 MR. WILLIAMS: Yes. Ted Williams, 16 AGA. Thanks for going first. That's exactly 17 my point that I was tempted to bring this 18 comment up during the life-cycle cost analysis 19 generally. But, yes, indeed subgroups could 20 be defined in terms of replacement for new 21 construction. There is no restriction on how 22 that's done. The fact that it's been done on

### 202-234-4433 Neal R. Gross & Co., Inc. Page 229 1 low income and seniors is more of a history of 2 the implementation of the process rule. 3 But I think it's imperative that 4 the Department takes a look at replacement 5 versus new construction. I mean it's hard to 6 say. Replacement is 70 percent of the market 7 being a subgroup. But if that's where it 8 belongs that's where it should be. 9 If you look at the analysis, it was 10 done for the 2007 final rule and the breakout 11 of the 5,000 plus 80 degree day population you 12 can't tell where those costs lie with respect 13 to the replacement versus a new construction 14 market. And the fact that the analysis showed 15 that 70 percent of consumers would receive no 16 benefit from a 90 percent minimum in that 17 analysis I think is telling. And that needs 18 to be explored in more great detail. 19 I think Harvey Sachs and I may 20 disagree on the cost of relining chimneys and 21 so forth. We're not happy with the way DOE 22 put the cost adders on the venting system.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 230 1 But those facts aside these two markets need 2 to be analyzed separately. 3 FACILITATOR BROOKMAN: Okay. Thank 4 you.

5 Yes. Steve Rosenstock. 6 MR. ROSENSTOCK: Steve Rosenstock, 7 Edison Electric Institute. Two different 8 points again. The heat pump rule there was 9 also an issue with spacing and sizing. And it10 was brought up about well what about multi11 family building with space constrained areas 12 and now we have six years of, excuse me, four 13 years of experience of what has happened in 14 those markets that might be an instructive 15 type of -- If that data is available, it might 16 be rather interesting for DOE to look at that. 17 In terms of the impacts on 18 utilities, the next section is utility impact 19 analysis and, yes, rates are decoupled in 20 California. Also they do get extra benefits 21 for meeting demand management goals as well 22 and other areas of the countries are different

### 202-234-4433 Neal R. Gross & Co., Inc. Page 231 1 and that's just one of the factors in utility 2 rate making. There's a whole bunch of fuel 3 costs and deregulated versus regulated, a 4 bunch of fun stuff to think about. 5 FACILITATOR BROOKMAN: Final 6 comments on subgroup analysis. Let's move on. 7 MR. DeLASKI: I have one quick 8 comment on this. 9 FACILITATOR BROOKMAN: Yes, please. 10 MR. DeLASKI: I think I want to 11 concur with the point that was made that it's 12 the subgroup analysis definitely required. 13 The Department has a history of giving to 14 seniors and low income families. 15 I also think that as people suggest 16 additional groups where does this end. We 17 could do subgroup analysis for people who pay 18 over 20 cents a kilowatt hour, people who pay 19 four cents a kilowatt hour. You could 20 subgroup this thing to the point where you've 21 just got no new information. So I think you 22 need to be careful in terms of how many of

### 202-234-4433 Neal R. Gross & Co., Inc. Page 232 1 these analyses you want to do and how does 2 that really give us additional information to 3 get to the decision. 4 FACILITATOR BROOKMAN: We're going 5 to move on then to the next item which is 6 manufacturing impact analysis and we're going 7 to hear from Rob Carmichael. 8 MR. CARMICHAEL: Okay. Good 9 afternoon. My name is Rob Carmichael and I'm 10 going to go through the next NOPR analysis 11 which is the manufacturing impact analysis or

12 the MIA. 13 And there are three primary 14 purposes for the MIA. The first is obviously 15 to assess the impacts, both quantitatively and 16 qualitatively, of amended energy conservative 17 standards. The second is to, similar to the 18 subgroup analysis for the LCC, identify 19 subgroups, manufacturer subgroups, those 20 groups of manufacturers that may be 21 differentially or more severely impacted by 22 standards than others. And the third is to

### 202-234-4433 Neal R. Gross & Co., Inc. Page 233 1 examine the impact of cumulative regulatory 2 burden, to look at some other affected 3 regulations to which manufacturers are also 4 subjected and to take that into account. 5 And the methodology, there are two 6 primary tools that we utilize. The first is 7 the Governmental Regulatory Impact Model or 8 the GRIM, and that is an industry cash flow 9 model. It checks cash flows going forward 10 throughout the analysis period and then 11 calculates from that a net present value of 12 the industry, both in the base case and then 13 in the standards case. 14 And the second major tool is 15 interviews with manufacturers. We use these 16 interviews to refine the inputs that go into 17 the GRIM, into the cash flow model, to also 18 develop and identify those subgroups that I 19 spoke about and then also to address other 20 qualitative issues, such as impacts on 21 competition, manufacturing capacity and the 22 like.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 234 1 And so the major output obviously 2 of the GRIM are the industry NPV impacts. 3 Also you'll have a subgroup impact, whether it 4 will be small businesses or niche

5 manufacturers. Whatever the rule and the 6 industry dictates, you'll also have INPV 7 impacts from those. And you'll also have a 8 direct employment impact, impacts on 9 manufacturing capacity and competition.

10 FACILITATOR BROOKMAN: Yes. Steve

11 Rosenstock.

12 MR. ROSENSTOCK: Steve Rosenstock. 13 Yes, just a quick question. I haven't really 14 seen it in the past, but is there going to be 15 a breakout of impact on domestic versus 16 nondomestic manufacturers at some point? Or 17 impacts of possible shifting to nondomestic?

18 MR. CARMICHAEL: We addressed the 19 manufacturing capacity whether the current 20 industry that's in the United States is 21 capable of continuing to produce the products 22 that would be required. There is not a

### 202-234-4433 Neal R. Gross & Co., Inc. Page 235 1 separate international perspective or a 2 separate international industry that's 3 analyzed. 4 FACILITATOR BROOKMAN: Please say 5 your name. 6 MR. ARNOLD: Dan Arnold, Nordyne. 7 I was just wondering if your model took into 8 account warranty impacts on manufacturers 9 between different levels. For example, the 10 complexity if you looked at a 95 percent 11 furnace versus an 80 percent furnace is much 12 greater and we'd like to think as 13 manufacturers we manufacture products that 14 don't break. But the reality is they do and 15 the more complex they get the more we have to 16 increase our warranty reserves as

17 manufacturers. 18 And also if you look historically 19 at what's in the marketplace those products 20 are considered premium products today. They 21 carry a longer warranty. So again, it has a 22 greater impact as a manufacturer. And once

### 202-234-4433 Neal R. Gross & Co., Inc. Page 236 1 these warranties are in place it's tough to

2 take them back. 3 Look what happened ten versus 4 thirteen SEER, for example. We moved to what 5 was then considered a premium product. The 6 warranty pretty much stayed as it was. I just 7 wondered if that was included in your model. 8 MR. CARMICHAEL: Yes. There will 9 be a section on the manufacturing interview 10 guides that tries to get at this issue. So we 11 can try to ascertain what those costs are as 12 the products increase in efficiency level. 13 Okay. So briefly the MIA consists 14 of three main phases. The first is the 15 industry profile, basically an industry 16 characterization that builds on the market and 17 tech assessment that Adam spoke about earlier. 18 Also takes into account what we've learned 19 here today and any and all publicly available 20 information that we can find including 21 industry reports, manufacturing annual 22 reports, 10Ks, etc.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 237 1 The phase two begins with the 2 development of a strawman GRIM. So we're 3 taking any inputs from the engineering 4 analysis, also the shipments analysis and that 5 publicly available information to develop a 6 strawman GRIM which gives us a basic idea of 7 what the impacts may be. It represents 8 basically the starting point for our 9 interviews. 10 And for those interviews, we 11 developed an interview guide where we take 12 into account what we've learned here today and 13 also from your comments. And we use that 14 interview guide to guide our subsequent 15 discussions with manufacturers.

16 17 And so phase three begins with those 18 interviews. I would like to mention two 19 quick things on the interviews. First, we'll 20 look to schedule those in the latter half of 21 May and June most likely. And, second, DOE 22 emphasizes confidentiality in those

### 202-234-4433 Neal R. Gross & Co., Inc. Page 238 1 interviews. Generally we establish a non 2 disclosure agreement with each manufacturer 3 before doing the interview. 4 Based on what we learn in this 5 interviews and subsequent research and 6 revision to the other analyses, we move onto 7 completing the GRIM and the industry wide and 8 subgroup calculations of INPV. And finally 9 look to finish the direct employment 10 assessment, impacts on competition and 11 accumulative burden. 12 So DOE recognizes that for a 13 variety of reasons small businesses may be 14 more severely or disproportionately affected 15 by energy conservation standards. So the 16 Department makes an effort to identify and 17 contact those small businesses ahead of time 18 to inquire about what those impacts may be. 19 As you can see, the Small Business 20 Administration has set the threshold at what 21 constitutes a small business as those having 22 750 employees or fewer. So in its tentative

### 202-234-4433 Neal R. Gross & Co., Inc. Page 239 1 preliminary research, DOE has identified the 2 following listed manufacturers here as 3 potential small businesses. Now I want to4 note. This list isn't actually in the rule5 making analysis plan. So please take a look 6 at these and if you know of any others that 7 are missing or that are here that shouldn't be 8 please let us know and we'll continue to 9 follow up on those. 10 FACILITATOR BROOKMAN: Charlie. 11 MR. McCRUDDEN: Is this a list of

12 manufacturers?

13 MR. CARMICHAEL: Yes. It's 14 intended to be. There may be some 15 distributors or contractors that snuck on

16 there. 17 MR. McCRUDDEN: Okay. Because the 18 last one there is Xenon Heating and Air 19 Conditioning and Clockwork Home Services. 20 MR. CARMICHAEL: See, what happens 21 is the Small Business Administration has a 22 list as you probably know.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 240 1 MR. McCRUDDEN: Yes. 2 MR. CARMICHAEL: And when you plug 3 in that NAICS code the small businesses that 4 register tend to put in 100 NAICS codes and so 5 it's not entirely clear what their business 6 is. So that's where that follow-up will come 7 in. 8 MR. McCRUDDEN: So are you looking 9 for contractors or you just want manufacturers 10 for the purposes of this slide? 11 MR. CARMICHAEL: For this, yes.

12 MR. McCRUDDEN: Just manufacturers.

13 MR. CARMICHAEL: Just 14 manufacturers, yes. 15 MR. McCRUDDEN: Okay. Will you get 16 to the reg flex later? 17 MR. CARMICHAEL: It's probably safe 18 -- This is basically a pre-cursor to the 19 regulatory flexibility analysis. 20 FACILITATOR BROOKMAN: Additional

21 comments? 22 (No verbal response.)

### 202-234-4433 Neal R. Gross & Co., Inc. Page 241 1 MR. CARMICHAEL: That's it for my 2 section. 3 FACILITATOR BROOKMAN: Okay. Back

4 to Alex. 5 MR. LEKOV: So, sequentially, we'll 6 talk about the utility impacts, employment 7 impacts, environmental impacts and regulatory 8 impacts. 9 Starting with the utility impacts, 10 the purpose is to assess -- DOE would like to 11 assess the impacts on energy supplies that 12 could result from the imposition of standards. 13 The tool to do this evaluation is NEMS, the BT 14 variant. And the way it's termed is 15 essentially we utilize these two scenarios, 16 one is without standard and the other with the 17 standard. And the output of this is 18 essentially a forecast of electricity 19 generation and avoided capacity.

20 FACILITATOR BROOKMAN: Comments on 21 utility impact analysis? Yes please. Molly. 22 MS. TROMBLEY-McCANN: Molly

### 202-234-4433 Neal R. Gross & Co., Inc. Page 242 1 Trombley-McCann again with PG&E. I just 2 wanted to go back for a moment. This relates 3 more to an earlier discussion, but there is a 4 question about utility rebates programs and 5 how those will impact shipments and the 6 efficiency distribution. And I did want to 7 clarify just for the State of California that 8 all of the utility rebates programs are 9 essentially redesigned once every three years. 10 So when this standard goes into 11 effect the next round of program design for 12 our utility programs will account for that 13 standard. There will be changes in the 14 minimum rebate level and also probably the 15 rebate quantity. So in terms of Andrew's16 comment about a shift scenario versus a roll17 up scenario, I do think it's important to look 18 at both because the utility rebates are not 19 going to remain static as the standard 20 changes.

21 FACILITATOR BROOKMAN: In the State 22 of California.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 243 1 MR. ROSENSTOCK: Steve Rosenstock, 2 that would be nationally.

3 FACILITATOR BROOKMAN: Good. Good 4 to know. That's what I was hoping to get. 5 Thank you. Okay. 6 Comments on utilities before we

7 move on? 8 (No verbal comments.) 9 MR. LEKOV: Employment impacts from 10 outset to state there are two types of 11 impacts, direct employment impacts and 12 indirect employment impacts. The direct, that 13 have been described I believe in the 14 manufacturing impacts analysis. What this 15 component here relates to is the so-called 16 indirect employment impact. 17 And in fact this is the employment 18 impact resulting from shifting consumer 19 expenditures to illustrate it from the savings 20 that will result on the manufacturing side to 21 the other sectors of the economy. So people 22 to have more money to spend. And the method

### 202-234-4433 Neal R. Gross & Co., Inc. Page 244 1 to do this is a standard program called ImSET 2 which is a model of the evolution of dose 3 impact. 4 FACILITATOR BROOKMAN: Yes. Jim. 5 MR. VERSHAW: I'm not familiar with 6 ImSET. How can we get information on what 7 that model is? 8 MR. LEKOV: It's a publicly 9 available model developed by PNNL. There is a 10 website which includes the model plus manual 11 explaining the details. 12 MR. VERSHAW: PNNL website? 13 MR. LEKOV: Yes. And also in DOE's 14 documentation generally there's some 15 background about it, too.

16 FACILITATOR BROOKMAN: Frank 17 Stanonik. 18 MR. STANONIK: I'm certainly not an 19 economist. But having been through what is20 soon to be a finished water heater rule21 making, this particular aspect of the 22 analysis, the deployment impact analysis,

### 202-234-4433 Neal R. Gross & Co., Inc. Page 245 1 listening to you again, Alex, if I understand 2 this basically if the consumer saves money 3 because of some new efficiency requirement 4 there's an assumption they're going to go out 5 and spend that money and stimulate the 6 economy.

7 MR. LEKOV: It's not that the 8 consumer will spend money but will open other 9 job opportunities because of actually having 10 an excessive money supply. This is my 11 understanding of how this model works. 12 MR. STANONIK: Okay. Well, I'm 13 going to make my comment and maybe based on 14 what you just said totally missing the point. 15 But it seems to me that the way this is 16 structure when you're talking about a rule 17 that is intended to drive efficiency 18 requirements to be the maximum feasible and 19 economically justified, within that construct, 20 it's always going to result in a huge increase 21 in indirect employment. That's what we saw in 22 water heater rule. The number of indirect

### 202-234-4433 Neal R. Gross & Co., Inc. Page 246 1 employment dwarfed whatever happened to the 2 poor manufacturers. And I think in these 3 kinds of rules it seems you've almost 4 predetermined that's going to be the 5 circumstance. But it says to me, "Why is this 6 even included in the analysis?" It doesn't

7 make sense to me at all. 8 FACILITATOR BROOKMAN: Thank you. 9 I saw Harvey first in fact. 10 Harvey. 11 MR. SACHS: Harvey Sachs. And I've 12 been thinking about Dan Arnold's comment about 13 the potential for increased warranty costs and 14 trying to overlay that on the employment 15 impact. And it would seem to me that 16 logically if the Department is to consider the 17 potential for increased warranty impacts, 18 warranty cost impacts, at higher efficiency 19 levels, then that directly rolls into 20 increased direct employment on the 21 contractor's side as well as some on the 22 manufacturing side to service those warranty

### 202-234-4433 Neal R. Gross & Co., Inc. Page 247 1 costs. 2 So I'm just not sure how far out 3 into the second order we can go with some of 4 these things. Thank you.

5 FACILITATOR BROOKMAN: Steve

6 Rosenstock.

7 MR. ROSENSTOCK: Steve Rosenstock. 8 Yes, again thinking about this again is a 9 matter of how much of this is domestic versus 10 international, especially some of these 11 indirect employment impacts. If there's more 12 spending on goods and services but they're 13 manufactured overseas is it really indirect, 14 nondomestic impact and shouldn't that be 15 highlighted in the analysis? Thank you.

16 FACILITATOR BROOKMAN: Talbot. 17 MR. GEE: This is Talbot from 18 HARDI. If we're going to go this route, I 19 have to throw in there, too, though. If we're 20 talking about changing a minimum standard 21 where you affect negatively the gross margin 22 on the product that has a negative impact on

### 202-234-4433 Neal R. Gross & Co., Inc. Page 248 1 the wholesale level which could be contrary to 2 this analysis to some degree. And then when 3 you talk about warranties, that's a lost 4 leader. So I don't see how increased warranty 5 activity is a benefit. 6 FACILITATOR BROOKMAN: Thank you. 7 Any other comments on employment 8 impact analysis? 9 MR. DeLASKI: A quick comment. 10 Andrew deLaski. The ImSET model I think has 11 been used for a long time. I think it's 12 pretty well established as being an overall 13 well-established model of the economy and 14 employment and how energy factors into that. 15 It strikes me that we need to be 16 careful about how we get all these second 17 order effects as Harvey is saying. So using 18 an overall model I think is appropriate. I 19 can't recall that it's been -- I think we've 20 used it in every docket for quite a number of 21 years. And I think to Steve's point I think 22 it did a model of the U.S. economy.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 249 1 MR. LEKOV: That's correct. DOE is 2 just one of the government branches that uses 3 it. Many other government branches are using 4 the tool. 5 FACILITATOR BROOKMAN: Other 6 comments? 7 (No verbal response.) 8 Okay. We're moving on. 9 Environmental impact. 10 MR. LEKOV: The purpose of the 11 environmental assessment is to report the 12 changes in emissions, power plant emissions, 13 as well as site emissions due to the use of 14 gas and oil furnaces based on the proposed 15 standard. 16 The method again utilizes the NEMS, 17 too. And the result is an estimate of 18 national emission reductions of CO, NOx and

2 19 mercury. Also there is a separate tool, that 20 assesses the emissions at the site for the 21 fossil fuel emissions such as the one that are 22 included in this rule-making.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 250 1 FACILITATOR BROOKMAN: Comments? 2 (No verbal response.) 3 MR. LEKOV: And DOE also plans to 4 monetize the emission reductions using the 5 current cost of carbon as developed by the 6 interagency reviews. Basically, the social 7 cost of carbon is intended to be a monetary 8 measure of the incremental damage resulting 9 from green gas emissions as explained here. 10 At present, this is essentially the 11 approach itself. It's constantly, slightly 12 refining. There are quite a few changes almost 13 constantly coming. But recently it essentially 14 estimates the cost based on the global benefit 15 at four levels as listed here from 4.7 to 64.9 16 dose per metric ton and those also are both 17 escalated for the future years and discounted 18 for a specific year. DOE in addition to CO,

2 19 also plans to estimate the potential monetary 20 benefit of reduced NOx. 21 FACILITATOR BROOKMAN: Steve 22 Rosenstock.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 251 1 MR. ROSENSTOCK: Steve Rosenstock, 2 Edison Electric Institute. I have a lot of 3 concerns with this part of the analysis for 4 several reasons. Number one, you're saying 5 global benefits for a domestic policy. I'm a 6 little worried about that, how that affecting

7 the dollar amount. 8 Number two, you're showing values 9 that are the factors are from the minimum to 10 the maximum, a factor of 15. You're going 11 from $4 to $64 and then you inflate them over 12 time. So the bandwidth of results can be 13 quite interesting. 14 Also in certain parts of the 15 country like New England, there is a carbon 16 market on the -- There are carbon caps on 17 power plants and there is a carbon market in 18 New England that's been around for at least 19 three years now. The actual prices on that 20 carbon market have ranged basically between $2 21 and $3 a ton. That's actual. And then, of 22 course, there's a European experience where it

### 202-234-4433 Neal R. Gross & Co., Inc. Page 252 1 was like $30 a ton and then it collapsed to 2 about $10. So I'm very worry. 3 And also if you look at some of the 4 legislation that's being proposed there are 5 proposed to have floors and caps on the carbon 6 costs in the future. So I'm very worried 7 about this because (1) for those New England 8 the cost of that carbon has already been put 9 into their electric rates. So in a form it's 10 a way of double-counting in a way for those 11 customers. And if it becomes national, if 12 there's a national policy and some of these 13 costs get incorporated into gas and oil and 14 electric costs, then again it could be another 15 form of double-counting in the future. So I 16 have a lot of concerns about this and we'll 17 try to add more in our comments. Thank you. 18 FACILITATOR BROOKMAN: Thank you. 19 Don Brundage. 20 MR. BRUNDAGE: Along those same 21 lines, we could be here all day and I'm not 22 going to go there. But you show four

### 202-234-4433 Neal R. Gross & Co., Inc. Page 253 1 different numbers there. What does those four 2 numbers mean? Are those four different 3 estimates of different agencies or what are 4 they? 5 MR. LEKOV: First, I would like to 6 point to DOE's publication of the most current 7 rules, particularly small motors at the end of 8 February. It includes a summary of this 9 interagency document that describes in detail 10 the derivation of the approach and since this 11 is something which is kind of side to DOE and 12 essentially DOE is required to do, the13 detailed explanation of pretty complex multi14 agency approach in this particular tool. 15 Just in summary, this essentially 16 presents a range of costs. So to allow DOE to 17 show what's essentially the monetization 18 markets will be within those particular 19 ranges. 20 MR. BRUNDAGE: Okay. Is this plan 21 to be used just as informative within the 22 analysis or actually included any sort of cost

### 202-234-4433 Neal R. Gross & Co., Inc. Page 254 1 benefit in the life-cycle cost calculation or 2 is this just informative of the societal

3 costs? 4 MR. LEKOV: Probably the policy 5 people will have a better explanation. I will 6 just summarize that DOE in fact provides this 7 in the main part of the analysis. 8 FACILITATOR BROOKMAN: Betsy. 9 MS. KOHL: Just to clarify. This 10 is Betsy Kohl, DOE. We consider it as part of 11 our seven factor analysis, but it's separate 12 from the life-cycle reg guide.

13 MR. LEKOV: Correct. 14 MR. BRUNDAGE: Okay. That was the 15 -- That was my concern. 16 FACILITATOR BROOKMAN: Molly and 17 then Karim. Karim. 18 DR. AMRANE: Karim Amrane, AHRI. 19 We have expressed concern with this analysis 20 in the past and I think we would continue this 21 concern with it I think for several reasons as 22 Steve Rosenstock expressed. I mean it's

### 202-234-4433 Neal R. Gross & Co., Inc. Page 255 1 double-counting because the cost of CO will

2 2 be somehow factored in into the cost of fuel. 3 So again, I mean if it's just for information 4 maybe but we would never recommend it should 5 be included in the life-cycle cost analysis.

6 FACILITATOR BROOKMAN: Yes. 7 Talbot. 8 MR. GEE: This is Talbot with 9 HARDI. I concur with Karim on that. I 10 question the last statement talking about 11 potential monetary benefit. I'm unclear who's 12 supposed to be enjoying that monetary benefit 13 in the analysis. In other words, if for 14 example you don't agree with where DOE is 15 going, are you there or pinned into a corner 16 of costing the nation of some beneficiary some 17 millions of dollars because of the lost carbon 18 benefit? I don't understand how this works. 19 FACILITATOR BROOKMAN: Okay. Final 20 comments on this one? 21 (No verbal response.) 22 MR. LEKOV: A summary of DOE's

### 202-234-4433 Neal R. Gross & Co., Inc. Page 256 1 regulatory impacts analysis. So essentially2 investigates the national impacts of non3 regulatory alternative and comparative to the 4 potential mandatory energy conservation 5 standard and also alternatives are consumer 6 rebates, consumer tax credit, manufacturer tax 7 credit, voluntary efficiency target, early 8 replacement and bulk government purchases. 9 The tool we are using is the 10 existing NIA spreadsheet. However we replaced11 the projections, shipments, to reflect non12 regulatory scenarios, estimating impacts based 13 on the part of the inputs to it. We estimate 14 the inputs of the non-regulatory base on the 15 experience with the considered policies. And 16 the output is very similar to what you are 17 seeing from the NIA analysis, essentially 18 national energy savings and net present values 19 of those non-regulatory approaches. 20 FACILITATOR BROOKMAN: Questions 21 and comments on this last substantive slide, 22 regulatory impact analysis?

### 202-234-4433 Neal R. Gross & Co., Inc. Page 257 1 (No verbal response.) 2 I've just handed out now the 3 Xeroxed copy of the -- Thank you, Alex -- 4 listing of those that have been attending the 5 meeting today. Thanks all of you for doing 6 that. In a moment, I'm going to hand out the 7 evaluation form. 8 The Department provides at this 9 point in the meeting an opportunity for 10 anybody to make brief closing remarks if they 11 wish to do so now, especially things you don't 12 think have been covered sufficiently that need

13 to be addressed.

14 Talbot. 15 MR. GEE: I'll just have one 16 observation. We continue to have a little bit 17 of concern here that appliance standards are 18 being viewed now perhaps more as a goal or 19 objective rather than what is actually capable 20 or possible for 100 percent of the population. 21 And I just express that because especially 22 when we're talking condensing furnaces I mean

### 202-234-4433 Neal R. Gross & Co., Inc. Page 258 1 we absolutely know there are applications out 2 there where there are significant barriers to 3 adopting a condensing furnace. I mean we 4 absolutely know there are applications out 5 there where there are significant barriers to 6 adopting a condensing or transitioning to a 7 condensing furnace. 8 And if we're considering adopting a 9 standard that goes that way it seems like the 10 idea is they're kind of -- they have to suck 11 it up. And I'm not sure that's really where 12 we want to go in terms of federal standards 13 policy. 14 FACILITATOR BROOKMAN: Thank you. 15 Additional comments? 16 Yes, Don Brundage.

17 MR. BRUNDAGE: There's been a lot 18 of comments about the consensus agreement and 19 just going to a direct final rule. I would 20 like to point out that while there were two 21 major stakeholder groups that were included 22 within the consensus agreement it was a very

### 202-234-4433 Neal R. Gross & Co., Inc. Page 259 1 limited number of electric and gas utilities, 2 not the major trade groups. 3 There were a number of significant 4 stakeholder groups that were not included 5 within that and, to talk about a direct final 6 rule without doing all of the paperwork and 7 justification, I don't think is appropriate 8 for this sort of limited stakeholder 9 agreement. You need at a minimum to do the 10 full NOPR documentation and do cost 11 justification numbers on the proposed 12 standards and provide opportunities for 13 comments on that. Thank you. 14 FACILITATOR BROOKMAN: Thank you. 15 Thanks for listing the stuff that you think 16 would be necessary to actualize that.

17 John.

18 MR. PROCTOR: John Proctor. I

19 concur. 20 FACILITATOR BROOKMAN: Thank you. 21 Ashley. 22 MS. ARMSTRONG: I'm going to turn

### 202-234-4433 Neal R. Gross & Co., Inc. Page 260 1 the question around on you. I think we'd be 2 interested to know what the utilities think of 3 the consensus agreement that we're not 4 signatories and why you may have a certain 5 opinion the way you do. 6 FACILITATOR BROOKMAN: Don, are you 7 speaking on behalf of the utilities? 8 MR. BRUNDAGE: No, I'm speaking -- 9 I'm not even speaking on behalf of Southern 10 Company at this point because we're still 11 studying. But I would say particularly over 12 the air conditioner side there's a lot of 13 unanswered questions on how it would be done 14 in the Southern region with the humidity 15 issues which sort of got left out. A lot of 16 it is going to be in the details of 17 implementation because we're going through 18 this process for the first time with regional

19 standards. 20 FACILITATOR BROOKMAN: Okay. John

21 Proctor. 22 MR. PROCTOR: This is John Proctor.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 261 1 And on behalf of a lot of energy efficiency 2 people who were not consulted in the midst of 3 this agreement, I would say there was an awful 4 lot of us left out and we don't think that the 5 air conditioning side in particular addresses 6 the problems that we need to deal with in hot, 7 dry climates or in moist climates. 8 FACILITATOR BROOKMAN: Thank you. 9 Yes, Charlie. 10 MR. McCRUDDEN: Just a general 11 comment. The notice came out the 15th. We're 12 here two weeks later. We've got two weeks to 13 do comments. It would have been great to have 14 more time. I realize that you're under 15 constraints, but that's -- And you're always 16 going to hear that. So I'll just have to say 17 it. Thanks. 18 FACILITATOR BROOKMAN: Thank you. 19 MS. KOHL: Betsy again. Just if 20 you think you're going to need more time once 21 you get into it like I said earlier you can 22 always request an extension.

### 202-234-4433 Neal R. Gross & Co., Inc. Page 262 1 FACILITATOR BROOKMAN: Can they 2 just request that as they would with their 3 normal submission? That way? 4 MR. GEE: Right. 5 FACILITATOR BROOKMAN: Karen, for 6 the record, you're requesting it. 7 MS. MEYERS: For the record, Rheem 8 is requesting an extension on the time to file 9 comments. I do have actually one other thing 10 that I want to say.

11 FACILITATOR BROOKMAN: Go ahead. 12 MS. MEYERS: Rheem was a signatory 13 to the consensus agreement and as the only 14 manufacturer in here who is impacted from the 15 water heater where a condensing standard will 16 have a significant impact we do support the 17 consensus agreement. 18 And I guess I'm a little concerned 19 that DOE is going through all of this and this 20 consensus agreement was not arrived at in a 21 short matter of time. There was two years 22 actually of negotiation between a lot of

### 202-234-4433 Neal R. Gross & Co., Inc. Page 263 1 people. And it concerns me that manufacturers 2 are still being called to DOE stakeholder 3 meeting and are having to put in time on all 4 of these different products when a consensus 5 agreement across a very cross section of 6 interest was arrived at. And there's a lot of 7 money being spent at DOE and on the 8 manufacturer's side when a consensus agreement 9 has been presented that not only addresses 10 federal minimum appliance standards but goes 11 further and looks at additional ways that the 12 country can save money. 13 So just for the record we are 14 disappointed in these additional rule-makings 15 that are continuing on furnaces and air 16 handlers when DOE has been presented with an 17 alternative route that has been authorized by 18 Congress. 19 FACILITATOR BROOKMAN: Thank you.

20 Steve Rosenstock. 21 MR. ROSENSTOCK: Steve Rosenstock, 22 Edison Electric Institute. To answer your

### 202-234-4433 Neal R. Gross & Co., Inc. Page 264 1 question about what utilities think, some 2 utilities were part, know about the 3 negotiations. Others did not. So a lot of 4 our members, you know, we're sent this 5 information and we're getting feedback, bits 6 and pieces.

7 We understand the hard work that 8 went into it and as I said in the previous 9 rule-making is that a lot of utilities are

10 more concerned about EERs and SEERs. And so 11 EERs do matter in areas outside of California, 12 Arizona, New Mexico and Nevada. 13 And there is the issue that Mr. 14 Proctor raised in his comments about switching 15 over to R410A and the impact on peak demands. 16 How R410A works at higher temperatures and is 17 there a degradation of the EER by switching? 18 Mr. Proctor, and I hope I'm not misquoting, 19 said in his paper that there was some sort of 20 degradation. 21 And we've seen in the past where 22 you can have higher SEERs and lower EERs. So

### 202-234-4433 Neal R. Gross & Co., Inc. Page 265 1 if you combine that with new refrigerant lower 2 EERs, there is a concern I think among some 3 utilities that again it's a matter of on the 4 average day your test conditions are great. 5 But on the peak day when it really counts for 6 utilities, it actually might increase peak 7 demands. That's one thing that we're 8 concerned with. 9 MR. SACHS: Harvey Sachs, ACEEE. I 10 appreciate the efforts the Department has 11 made. I appreciate the feedback and even the 12 pushback from others at the table. I want to 13 comment on a couple of things that are in the 14 consensus agreement which I believe address

15 some of the concerns. 16 First of all, with respect to my 17 good friend John Proctor's comments on humid 18 climates, a large number of us and I think 19 John was involved as a reviewer of some of 20 this struggled for a number of years with 21 trying to find a really good metric to define 22 a humid climate air conditioner, something

### 202-234-4433 Neal R. Gross & Co., Inc. Page 266 1 that would be enforceable. And we eventually

2 had to table that on our own. We could not 3 get to something. The manufacturers have 4 agreement to disclose latent heat or 5 respectfully sensible heat capacity under 6 standard conditions as part of this agreement 7 and disclose it pretty prominently. 8 Secondly, in terms of high 9 temperature performance and EER as addressed 10 by Steve Rosenstock, my other good friend -- I 11 have two -- one of the pieces of fine print in 12 the consensus agreement which we are starting 13 to work on now is national disclosure in a 14 standard format of EER by BIN. This will 15 allow the tailoring of utility and other 16 voluntary programs to look at incentives that 17 are tuned to meet their regional needs. If 18 anything, there will be increased 19 opportunities for utility programs based on 20 the engineering information that will be 21 provided by manufacturers. 22 The consensus agreement doesn't do

### 202-234-4433 Neal R. Gross & Co., Inc. Page 267 1 everything that everybody wanted. But I think 2 that considering the alternatives, the 3 advocates and utilities and manufacturers that 4 are involved probably get at least as good a 5 job as DOE would be able to do.

6 FACILITATOR BROOKMAN: So those 7 closing remarks are helpful. 8 Don Brundage. 9 MR. BRUNDAGE: This is a remark 10 more on the air conditioning standard. We'll 11 be here in about a month and I'm bringing it 12 up so that I can respectfully request general 13 counsel to do some homework on it. The big 14 issue, one of the big issues, I see when 15 looking at the consensus agreement is it's 16 very unclear and I'm saying right now that I 17 don't think you ought to stick latent capacity 18 performance into the DOE regulations into the 19 energy efficiency standards. 20 But it is very unclear when you get 21 to local codes what they can do to restrict 22 the use of NAECA approved equipment and limit

### 202-234-4433 Neal R. Gross & Co., Inc. Page 268 1 its use where it would not be appropriate. If 2 you have a very humid area of Tampa and 3 there's nothing to keep somebody from putting 4 a unit in that would be best suited for 5 Phoenix it's a real issue. 6 And I've been to building code. 7 I've been to energy code hearings in the State 8 of Florida where they were seriously talking 9 about requiring supplemental dehumidification 10 systems because of the feeling that they had 11 no ability to control what sort of humidity 12 performance if it's a NAECA approved 13 equipment. 14 So there is a huge screaming need 15 for clarifying what the limits are on states 16 and local authorities on requiring humidity 17 performance. Just some guidelines from you. 18 Because if you don't and if people stick in 19 things like separate dehumidifier systems 20 you're going to get a system performance 21 that's more like a SEER 10 or 11, not 13 or 22 14. And that's not going to serve anybody's

### 202-234-4433 Neal R. Gross & Co., Inc. Page 269 1 purpose on saving energy. 2 I'm not asking you to define 3 anything. Just say where the ground rules are 4 and what tools are available for doing what's 5 basically a safety and human safety issue. 6 Thank you. 7 FACILITATOR BROOKMAN: Okay. From 8 my perspective, I'll thank all of you. I 9 really appreciate the spirit of open exchange, 10 the quality of the comments. We really 11 covered a lot of ground very efficiently here 12 today and I'll turn it back to Mohammed Khan. 13 MR. KHAN: Thank you all for 14 coming. Your participation today I think was 15 very worthwhile. I apologize that we went 16 over the schedule that we handed out this 17 morning. But again, it was definitely worth 18 the added time that we spent today. 19 I want to point out again the value 20 of the written comments that we'd like to 21 receive from you. The comment period closes 22 on April 14th, but there might be some wiggle

### 202-234-4433 Neal R. Gross & Co., Inc. Page 270 1 room there for some comments that come in a 2 little longer and might take a little longer 3 to generate. Again, I appreciate your input 4 today and look forward to your comments. 5 Thank you. 6 MR. SACHS: Mohammed, I'm going to 7 ask you the -- Harvey Sachs -- same question I 8 asked Wes a week ago and that question is 9 framed as given the constraints you've 10 established and our need to probably take more 11 than two weeks, will it possible if we submit 12 comments in a timely manner to edit them after 13 your two week deadline? 14 (Laughter.)

15 MR. KHAN: Yes. 16 MR. SACHS: Thank you very much. 17 MR. KHAN: Thank you. 18 FACILITATOR BROOKMAN: Please fill 19 out the evaluation forms. Off the record. 20 (Whereupon, at 1:42 p.m., the 21 above-entitled matter was concluded.)

22

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Douglas Brookman

March 31, 2010

Washington, DC

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NEAL R. GROSS COURT REPORTERS

AND TRANSCRIBERS 1323 RHODE ISLAND

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Matthew Mawhin

(202)234-4433 www. nealrgross.com