### UNITED STATES OFAMRI

+ + + + + DEPARTMENT OF ENERGY

WATER HEATER ENERGY EFFICIENCY STANDARDS WORKSHOP

+ + + + + FRIDAY JULY 23, 1999

+ + + + + The workshop met in Room 1E-255, 1000 Independence, S.W., Washington, D.C. at 9:00 a.m., Douglas Brookman, Facilitator, presiding. Present: DOUGLAS BROOKMAN, Facilitator ERIC LANNES, Bradford White Corporation WILBUR HAAG, A.O. Smith Water Products FRANK STANONIK, GAMA GORDON STRETCH, Rheem Manufacturing Company OTTO VAGO, State Industries, Inc. JERRY MILLER, American Water Heater Group GEORGE KUSTERER, Bock Water Heaters STEVE NADEL, ACEEE CHARLIE STEPHENS, Oregon Department of Energy STEVE ROSENSTOCK, Edison Electric Institute JAMES RANFONE, American Gas Association MARK KREBS, Laclede Gas Company ROBERT HEMPHILL, Gas Research Institute TERRY LOGEE, DOE MICHAEL McCABE, DOE DAN REICHER,Assistant Secretary forEnergyEfficiency and Renewable Energy DEBORAH MILLER, DOE MARK SCHWARTZ, DOE MARK MAZUR, DOE



## NEALR.GROSS COURTREPORTERS ANDTRANSCRIBERS 1323 RHODEISLANDAVE., N.W. (202)234-4433 WASHINGTON,D.C. 20005-3701 www.nealrgross.com1 P-R-O-C-E-E-D-I-N-G-S 2 (9:11 a.m.) 3 MR. BROOKMAN: Okay, let's start. Good 4 morning, everybody. 5 My name is Doug Brookman. I am from the 6 small company Public Solutions and I'm here to 7 facilitate the meeting today. I've had a chance to 8 work with many of you in the past. Welcome. I'mglad 9 you made it. Thanks for being here on time so we can 10 get an early start onwhat will be a very busy day, I 11 predict. 12 With no further ado, let me introduce 13 Assistant Secretary Dan Reicher. 14 ASSISTANT SECRETARY REICHER: Good 15 morning, everybody, on this lovely day inWashington. 16 I have a feeling that somebody can put a tank of water 17 outside and not even need gas or electricity to keep 18 it warm today. It's a mess out there. 19 Anyway, I want to welcome you to this 20 importantworkshopon energyefficiencystandards for 21 water heaters. This is a meeting that I think I'm 22 looking forward toverymuchbecause it's going to get 23 right to the heart of some key matters that involve 24 the Department's decision making on potential 25 standards for water heaters. I look forward to the 

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### 1 discussion. This is one of a series of workshops 2 we're doing in various standards areas and we found 3 them to be extremely useful, very substantive and 4 helpful in away that Ithink that in thepastwe have 5 notbeen able topursue these. Ithink we'repursuing 6 these standards in anewway that I think is going to 7 really improve the way we ultimately make a decision 8 on this important issue. 9 Sowith that, letme turn itback toDoug. 10 MR.BROOKMAN: Thank you. It's customary 11 at these meetings to give everyone a chance to 12 introduce him or herself. And so I'd like toproceed 13 with that. And Eric, may I start withyou? Will you 14 say your name and your company affiliation. We're 15 just going to go around the room. 16 MR. LANNES: Eric Lannes, Bradford White 17 Corporation. 18 MR. HAAG: Wilbur Haag,A.O. Smith Water 19 Products Company. 20 MR. STANONIK: Frank Stanonik, Gas 21 Appliance Manufacturers Association. 22 MR. STRETCH: Gordon Stretch, Rheem 23 Manufacturing Company. 24 MR. VAGO: Otto Vago, State Industries. 25 MR.MILLER: JerryMiller,AmericanWater 

## NEALR.GROSS COURTREPORTERS AND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON,D.C. 20005-3701 www.nealrgross.com5 1 Heater Group. 2 MR.KUSTERER: GeorgeKusterer,BockWater 3 Heaters. 4 MR. STEPHENS: Charlie Stephens, Oregon 5 Office of Energy. 6 MR. ROSENSTOCK: Steve Rosenstock, Edison 7 Electric Institute. 8 MR.RANFONE: Jim Ranfone of the American 9 Gas Association. 10 MR. KREBS: Mark Krebs, Laclede Gas 11 Company. 12 MR.HEMPHILL: BobHemphill, Gas Research 13 Institute. 14 MR. PAUL: Darrell Paul. 15 MR. PRINDLE: Bill Prindle. 16 MR. LOGEE: Terry Logee, Department of 17 Energy. 18 ASSISTANTSECRETARYREICHER: DanReicher, 19 Department of Energy. 20 MS. PINTO: Francine Pinto, Department of 21 Energy. 22 MR.MARGOLIS: Eugene Margolis, Office of 23 General Counsel, Department of Energy. 24 MR. BARBOUR: Ed Barbour, Arthur D. 25 Little. 

### NEALR.GROSS COURTREPORTERS ANDTRANSCRIBERS 1323RHODEISLANDAVE., N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com6 1 MR. SOMASUNDARM: Sriram Somasdundaram, 2 Pacific Northwest National Laboratory. 3 MR. KRUPA: Mike Krupa, BASF Corporation. 4 MR. JOHNSTON: David Johnston, Washington 5 Gas. 6 MR.GARDNER: BrianGardner, Departmentof 7 Energy. 8 MR. BRUNDAGE: Don Brundage, Southern 9 Company. 10 MR.BROOKMAN: Brenda, introduceyourself. 11 MS. JONES: I'm Brenda Edwards Jones, 12 Department of Energy. 13 MS. BELL: Sandy Bell, Department of 14 Energy. 15 MR. WILLIAMS: TedWilliams, American Gas 16 Association. 17 MR. SCHLEEDE: Glenn Schleede, Energy 18 Market and Policy Marketing Analysis. 19 MR.HAUSERMAN: BobHauserman,Connecticut 20 Natural Gas Corporation. 21 MR. CALDARERA: Mike Caldarera, Gas 22 Appliance Manufacturers Association. 23 MR. HOSLER: Daryl Hosler, Southern 24 California Gas Company. 25 MS. CASENTINI: Lauren Casentini, Pacific 

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### 7 1 Gas and Electric Company. 2 MR. HEISS: Harold Heiss, American 3 Electric Power. 4 MS. WILKINS: Anne Wilkins, Natural 5 Resources Canada. 6 MS. TAYLOR: Glenda Taylor, Natural 7 Resources Canada. 8 MR. COSTA: Jose Costa, New England Gas 9 Association. 10 MR. WIEL: Steve Wiel, Lawrence Berkeley 11 National Laboratory. 12 MR. SHIN: David Shin, American Gas 13 Association. 14 MR. DROLL: Paul Droll, Effikal 15 International. 16 MS. HUBBARD: Elizabeth Hubbard, Effikal 17 International. 18 MS. SCHLEEG: Robin Schleeg,Department of 19 Energy. 20 MR. HOLT: John Holt, National Rural 21 Electric Cooperative Association. 22 MS.BLANCHARD: BrendaBlanchard,Piedmont 23 Natural Gas. 24 MR.CAPPS: Larry Capps, Public Service of 25 North Carolina, also representing Southern Gas 

### NEALR.GROSS COURTREPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com8 1 Association. 2 MR. REA: Jack Rea, Oklahoma Natural Gas 3 Company. 4 MR. ECKMAN: Tom Eckman, Northwest Power 5 Planning Council. 6 MR.HEALY: BillHealy,National Institute 7 of Standards and Technology. 8 MR. WILLIAMS: Dave Williams, Allied 9 Signal. 10 MR. STRAUSS: Brian Strauss, Allied 11 Signal. 12 MR. JACKSON: Barry Jackson, WaterHeater 13 Innovations. 14 MS. McGEE: Irene McGee, Bayer 15 Corporation. 16 MR. INGOLD: Kerry Ingold, Bayer 17 Corporation. 18 MR.BROOKMAN: Did anyonenot get a chance 19 to introduce themselves -- him or herself, I guess 20 that's the correct -- 21 MR. WALL: Bruce Wall, Northeast Energy 22 Efficiency Partnership. 23 MR. BROOKMAN: Thank you. Anybody else? 24 I think all of you in your packets have received a 25 copy of the agenda. I'm going to go through that 

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### 1 briefly, then deal with the other housekeeping items 2 and then we're going to go straight to work. 3 As you can see, following this 4 introductorysegment, Assistant SecretaryDanReicher 5 is going to make some opening remarks. Following 6 that, TerryLogee fromthe Department isgoing togive 7 a summary of DOE results of price efficiency, life 8 cycle costs, energy savings and moving on to 9 manufacturing impacts. We'll have a mid-morning 10 break. 11 Following the mid-morning break, around 12 about 10:30,wewillbegin tohavediscussion, focused 13 discussionhopefully,on the summaryof comments. And 14 you can see five, six, seven or so bullets listed 15 there. You can read them: engineering, small water 16 heaterclosets, etcetera,etcetera,etcetera. Wewill 17 run through these specific elements for almost three 18 hours, two and a half hours. We'll take a break 19 midway through for lunch, round about noon,but we're 20 going to just try to get through as much of this as 21 completely,as efficientlyasdirectly and quicklyas 22 possible. So it's going to take some real focus for 23 us to really stay on these points and keepmoving. 24 Letme emphasizeas it says inthe agenda, 25 lunch today, you're on your own today. At the lunch 

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### 1 break,we'll tellyou where to gothat's nearby that's 2 convenient. Following finishing those seven or so 3 bulleted items, round about 2 o'clock in the 4 afternoon, you'll see on the back page of the agenda 5 four specific questions that are listed that are 6 really at the heart, I believe, of the Department's 7 interest here today. It relates to industryand other 8 persons, other interested persons comments related to 9 standard levelsandrecommendations that areafoot and 10 the mechanics, really, of rule making and steps to 11 take -- related to rule making. So that is the bulk 12 of the afternoon conversation, thediscussion and the 13 plan presently is we'll adjourn at 4 o'clock. We've 14 got a lot on the agenda. If we don't stay basically 15 on time,we're likely togoover 4o'clock. I'll just 16 give everybody the heads up right now. That's our 17 goal and expectation at the outset. So is everybody 18 with me on that? Okay. 19 A few minor housekeeping items. Draft 20 reports, slides and other materials are available at 21 the table with Brenda and Sandy over here at the 22 registrationtable. Anyoneattendingtoday'sworkshop 23 or anyonewho submitted commentswill be added to the 24 mailing list, DOE'smailing list. Soyouwill receive 25 a listing of future mailings and notices. 

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### 1 The Departmenthas alsopostedall around 2 the room here a schedule as it relates to water 3 heaters. I hope you see the boxes that are on the 4 walls. Please take note that the commentperiod ends 5 August 3 for this particular workshop, that is, any 6 written comments and Iknow theDepartment invites and 7 welcomes your written comments, your expanded 8 comments, yourmore detailed comments inwritten form 9 by August 3rd. 10 In approximately two weeks, a complete 11 transcript ofthismeeting,plusthe comments received 12 to date will be available for inspection and copying 13 at the Freedom of Information Reading Room which is 14 just down the hall here, 1E190. And for those of you 15 who would like to purchase a copy of the transcript, 16 you can talk to Jonathan, get his business card. His 17 company will supply that to you. 18 Also, you'll note here on the wall to my 19 left, the webpage address for this activity, long as 20 it is, is posted over there. And letme just confirm 21 one thing. Bryan or somebody help me. It says 22 doe.gov/buildings -- is that aslash afterbuildings? 23 That's a slash after buildings. Okay. 24 The good news is once you put it in your 25 machine, you don't have to type it in one more time. 

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### 1 Right? So everybody take note of the web page. 2 Virtuallyall of these materials and Ithink those of 3 you that have been working in this area for a while 4 have realized that virtually all of these materials 5 are accessible throughthewebpage. It's areal good 6 wayto access,pulldown andnot only the information, 7 but the modeling tools as well. 8 We are fortunate to have coffee and some 9 snacks here with us this morning. Anybodywho needs 10 to find an additional snack bar, there's one on the 11 ground floor, but we're going to try and staypretty 12 close to thisarea and stayon task here thismorning, 13 at least until lunch. 14 There are rest rooms locatedat the endof 15 this hallway, down here, both for men and for women 16 and at the very other far end of the hallway over 17 there, if you're walking around in the halls of 18 Forrestal, you need to have your visitor badge on or 19 some sort of identification or someonemight actually 20 stop you and try to escort you elsewhere. So please 21 do that. 22 Thoseofyouwhobroughtcomputers inwith 23 you today, ifyou expect towalkout ofhere withthat 24 same computer, you need to get a property pass from 25 Sandy or Brenda. They're pretty serious about 

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### 1 security around here, so please take care of that at 2 the break or at the lunch hour. 3 All written comments anddata submissions 4 will be available for public inspection. Ten copies 5 of comments or data are requested. That's ten. The 6 Department wouldappreciate an electronic copyof the 7 comments or data as well. The Department is using 8 Wordperfect 6.1. 9 No faxed comments will be accepted. 10 There's anew aspect to receiving comments. E-mailed 11 commentswillbeaccepted,providedahardcopy that's 12 signed is also sent to the Department. So please do 13 send e-mails and the hard copy, signed. And those 14 shouldbe addressed to Terry Logee at EERE, Office of 15 Codes and Standards. Or Brenda Edwards Jones. 16 Any persons thinking that they're 17 submitting materials that should be confidential, 18 please, those ofyouwhohave done thisbefore,please 19 note that they are confidential. The Departmentwill 20 make an independent judgment about whether they see 21 themasbeing confidential ornot. It's arequirement 22 that they have to go through. 23 There'sno smokingallowedin thisroomor 24 in any of these open areas. There are smoking areas 25 outside the building and I saidwhere the rest rooms 

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### 1 are and that's the end of the housekeeping items. 2 Did I forget anything? Ithink Icovered 3 most of it. 4 Questions or comments on any of that, let 5 me just say something very briefly about the norms 6 thathave emergedoverthe spanofprocess improvement 7 and regulatory reinvention. We startedoff about two 8 or three years ago with ground rules and they've 9 emerged asnorms for these meetingsand Iask foryour 10 help and indulgence to work what's emerged as the 11 standard. Please speak one at atime. Sayyour name 12 for the record. This proceeding will be taped and 13 transcribed and use the microphone. I'll try and 14 remind you. It's hard when you've got something to 15 say. Always remember to pull the mike in front of 16 your face. These particular mikes don't pickupmuch 17 unless they're right up close. 18 Please listen as an ally. What we found 19 over time is that the quality of the exchange, the 20 quality of the discussion hinges entirely on the 21 quality of the listening and I'm pleased to report 22 that inmyexperience over the span of the last twoor 23 three years every single person in this room has 24 expanded their capacityto listen. That's averygood 25 friend. That's expanded the capacity for exchange. 

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### 1 So let's see if we can keep on with that today. 2 I'mgoing to also ask that you try andbe 3 concise. You can seehowmanyofus there are in this 4 room. There's a whole lot to cover here. If people 5 wander andmeander on and on, we're not going to get 6 to the points that we need to make, so please be 7 concise and share the air time. 8 Itry tomake it so that everybody gets a 9 chance to speak and Icuepeople to speak, but Ialso 10 try andallow for the follow on. TheDepartmentwants 11 to have thekind of exchange thatprovides more light 12 than heat. Sometimes that comes in the exchange back 13 and forth. So please indulge me, stick withme. If 14 I've got you cued to speak and Idrop you out because 15 I forget or something, don't letme get awaywith it. 16 Raise your hand and keep me on track, but otherwise, 17 we'll try and keep this moving aheadas expeditiously 18 and directly as possible. 19 Questions, comments at the outset before 20 we get into it here? Okay, I seenone. Let's start. 21 Thanks again for being here, so we can get going. 22 Assistant Secretary Dan Reicher. 23 ASSISTANT SECRETARYREICHER: Again,good 24 morning andwelcome to you all. Today's workshop is 25 an important next step in our continuing dialogue to 

### NEALR.GROSS COURT REPORTERSAND TRANSCRIBERS 1323RHODEISLANDAVE., N.W. (202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com16 1 review the results of extensive analyses of the 2 possible impacts of standards on water heaters. This 3 information andyour feedbackprior to the issuance of 4 a notice of proposed rulemaking is a critical element 5 which allows the Department to make appropriate and 6 informed decisions on our standards rulemaking. 7 Asmanyofyouknow, inrulemakings issued 8 before the Department adopted the appliance process 9 rule, we would gather data and conduct analyses 10 without extensive outside input and then issue our 11 findings in the notice of proposed rulemaking. We've 12 come a long way from that antiquated black box model 13 and have been at the forefront of redefining the 14 regulatory process. 15 The appliance standards analytical work 16 has,with your supportive efforts and the hardwork of 17 our staff and contractors improved the information 18 available to decision makers in this important area. 19 Severalmonths ago, the Department shared 20 detailed rulemaking schedules for water heaters and 21 our three other priority products. Let me reiterate 22 that we are committed to meet these schedules and have 23 added needed resources in order to do so and I just 24 want to highlight again the schedule in the case of 25 water heaters that are posted on the wall. 

### NEALR.GROSS COURTREPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com17 1 Let me review these important dates with 2 you. Comments from this workshopare due onAugust 3, 3 1999. The proposed rule is scheduled to be published 4 on December 7 of this year. The workshop following 5 the issuance of the proposed rule is tentatively 6 scheduled for January 20thnext year. Comments on the 7 proposed rule are due on February 21, 2000, and the 8 final rule is expected to be published on July 3rd, 9 next year. 10 As I mentioned earlier, today's dialogue 11 is key to informing the Department about the results 12 of the Department's analyses and what proposed rule 13 you believe they would support. The appliance 14 standards program legislation requires the Department 15 of Energy in reaching a standards decision to weigh 16 the benefits and burdens of the standard. This 17 includes considering the impacts on consumers, 18 manufacturers and the nation. We recognize there are 19 strong feelings on all sides as to whether there 20 should be standards forwater heaters. We would hope 21 that all parties could reach a consensus 22 recommendation and offer it to the Department. 23 However, that is not the central purpose of today's 24 workshop. 

### 25 The Department has not decided whether 

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### 1 there should be further standards for water heaters. 2 The decisionwill bemade after consultation with the 3 Department's seniormanagement team,some ofwhomwill 4 be here today to listen to this discussion and Iwant 5 toparticularly recognize thatwe expect to be joined 6 byMark Schwartz who is our Deputy General Counsel in 7 the energy area andMarkMazur who is the head of our 8 PolicyOffice, hereat theDepartment andthey'reboth 9 veryvital members of the overall time at DOE that's 10 looking at this issue of standards. 11 There is no specific formula for making 12 this decision. All information provided to the 13 Department today and in written comments will be 14 considered inmakingourfinal decision. Thedecision 15 will bemade byweighingburdens as well as benefits. 16 Wewill consider all of the impacts, bothpositive and 17 negative. Wewill consider, forexample, the range of 18 nationalenergysavingsandemissionreductionslikely 19 as a result of the standard. We will consider the 20 range of consumer impacts, both with respect to life 21 cycle, cost changes andpayback. We will consider the 22 impacts of standards on manufacturers' viability and 23 on jobs. We will consider the effect on competition 24 among energy suppliers at the national level. The 25 range of impacts we must consider are broad and they 

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### 1 are complex. 2 We're particularly interested in your 3 views about how to weigh the results, what standard 4 levels you believe the analysis justifies. We have a 5 recommendation from the Gas Appliance Manufacturers 6 Association that appears to be the beginning of a 7 consensus process. What should DOE do to continue 8 this dialogue? 9 The analyseswe are discussingtoday have 10 changed significantlyfrompreviousstandardsanalyses 11 and were developed with extended stakeholder 12 consultations. They include, for example, a range of 13 estimate for energy savings, not a single value as in 14 previous analyses. The life cycle cost analysis 15 considers arange of inputvalues such ashours ofuse 16 and energyprices. The manufacturer impact analysis 17 now examines manufacturers' cash flow under two 18 scenarios. Yet even with all these new refined 19 analyses, there is often no single right answer. 20 TheDepartment has receivedcomments from 21 different parties that disagree as to whether these 22 analyses overestimate or underestimate the impacts. 23 The Electric Power Research Institute, GAMA and 24 BradfordWhite allbelieve that DOE has overestimated 25 the contribution of heat traps on water heater 

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### 1 performance. The Edison Electric Institute and 2 Laclede Gas believe that our marginal energy crisis 3 are incorrect. The American Council for an Energy 4 Efficient Economy and the Oregon Energy Office 5 disagree with the American Gas Association, Gas 6 Research Institute and Battelle about the impacts of 7 high recovery efficiency of gas water heaters in the 8 venting system. 9 Manufacturers and the energy advocates 10 disagree about the availability of HCFC 245fa, an 11 insulation blowing agent replacement for HCFC 141b. 12 We are interested inbetterunderstanding 13 the market demands and the impacts of standards on 14 manufacturers. For example, if theDepartmentwereto 15 proceed with the revised standard that raises the 16 minimum standardby several percent, what can be done 17 to minimize the impact of the new standard on 18 manufacturing? 19 Additionally,what can DOE do to help the 20 industry meet the new standards in the time between 21 the final ruleand the effectivedateof the standard? 22 I've highlighted a few of the complex 23 issues that we're here to discuss today. The 24 informationthatyouprovide to us today is critically 25 important to the decision making process. I expect NEALR.GROSS COURT REPORTERS AND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com21 1 that we will have a livelyand stimulating exchange of 2 views. Thank you for your participation in today's 3 workshop and in helping us make an informed and 4 appropriate decision. 5 I want to particularly recognize Doug 6 Brookman who does a very excellent job as the 7 facilitator/moderator and otherwise spiritual leader 8 of this effort. I appreciate that. 9 MR. BROOKMAN: Questions, comments 10 following the Assistant Secretary's remarks? 11 Yes? Please say your name. 12 MR. RANFONE: Jim Ranfone, American Gas 13 Association. Is a copy of your opening remarks 14 available? 15 MR. BROOKMAN: They will be and they will 16 be in the complete record of this document and I 17 imagine they could also be made available. They can 18 be and they will be made available. 19 Steve Rosenstock? 20 MR. ROSENSTOCK: Steve Rosenstock, EEI. 21 It was mentioned about the GAMA proposal and I was 22 wondering if that's going tobe discussed later inthe 23 workshop? 24 MR. BROOKMAN: Maybe Michael McCabe or 25 Dan, someone could say, Terry, someone -- where you 

### NEALR.GROSS COURT REPORTERS AND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON,D.C. 200053701 www.nealrgross.com22 1 anticipate that might come up. 2 MR. LOGEE: That's going to occur in the 3 discussion of comments, so right near the very end. 4 MR.ROSENSTOCK: Steve Rosenstock. You'll 5 describe what the proposal was? 6 MR. LOGEE: Yes. 7 MR. ROSENSTOCK: Thank you. 8 MR. BROOKMAN: Iwas wondering, Terry, is 9 there anything written about the proposal that's 10 available to people to look at, since it's going to 11 happen at the end of the day they could look at at 12 lunch, for example? 13 MR. LOGEE: In the comments received, we 14 have a very -- under measured EF versus rated EF, we 15 didn't provide the exact recommendation, different 16 verbiage to describe it. Frank probably could

-- 17 MS. STANONIK: Frank Stanonik with GAMA. 18 To just summarize, ourproposal was to the degree you 19 might be familiar with the analysis that's been 20 available from DOE, we basically suggested that DOE 21 adopt what is presented as I believe standard level 2 22 for gas and electric with the modification that in 23 both cases the requirement be reduced by 01 energy 24 factor point. And so our proposal is essentially 25 standard level 2 minus .01. And I guess if you want 

### NEALR.GROSS COURTREPORTERSAND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON,D.C. 20005-3701 www.nealrgross.com23 1 thedetail, there are certainlycopies of our comments 2 are available to whoever wants them. I'll gladly 3 provide youwith a copy. They're in the reading room, 4 wherever, but that's the essence of the proposal. 5 MR. BROOKMAN: Thank you, Frank. And do 6 you have copies with you now? 7 MS. STANONIK: I have one. 8 MR. BROOKMAN: I imagine we can get a few 9 copies made? 10 MS. STANONIK: Yes. 11 MR. BROOKMAN: Okay, good. So then 12 Michael McCabe. 13 MR. McCABE: Michael McCabe. One 14 correction on what she said. It's the last item on 15 the agenda summary of comments we discussed -- if we 16 stick to the schedule is right before lunch. 17 MR. BROOKMAN: Thankyou. I see it there. 18 Thank you. Thanks for the correction. 19 MR. McCABE: Last item on the summary of 20 comments. 21 MR. BROOKMAN: Which would be standards 22 recommendation which -- since this time frame runs 23 from 10:30 to 2, I don't expect we'll get there until 24 1:30, after lunch. 25 (Laughter.) 

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### 1 Iknow Michael McCabe frequently takes 2 2 o'clock lunch because I've seen him out there at the 3 hot dog stand. 4 (Laughter.) 5 So then hopefully at lunch or sometime 6 prior to that Frank canmake those available to those 7 that wish to look at them. Then let's proceed. 8 Terry? 9 MR. LOGEE: Good morning. I'm Terry 10 Logee. I'm the program manager for water heaters. 11 Always in hot water. That's really no pun intended. 12 I'm going tobe going quickly through the engineering 13 results and the life cycle cost results, just sort of 14 reminding you what we came up with. 15 We do have one new page. It was that 16 single sheet that waspassed out late on your chairs 17 on life cycle cost results, late breakingnews, as it 18 were. Now I'll show it toyouwhen Iget there. It's 19 a ways down the pile yet. 20 Starting out, these are the engineering 21 results for electric water heaters and we have 22 selected design option combinations, selected from a 23 much larger list, I wouldn't say inexhaustible, but 24 fairly inexhaustible listing,yes sir? 25 MR. BROOKMAN: Sorry to interrupt. This 

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### 1 is inyourpacket. Andit readsWaterHeaterAnalysis 2 Results. It's, I think, the second page in there. 3 MR. LOGEE: Thank you. So we do an 4 existing baseline combination to calibrate our model 5 and get to an EF of .86 and thenwe do a baseline of 6 245fa, in this case, with 245fa blown foam to get to 7 a .86baseline recognizingthat in 2003, theHCFC 141b 8 foams will be phased out. And so we've done 9 essentially two analyses here using water blown foam 10 and HFC 245fa as a blowing agent. 11 Overonthe right hand side in thebox,we 12 have the energy factors and then the total installed 13 cost to the consumer. For the water blown foam we 14 have selected a very similar design option 15 combinations except you'll notice there's no 2 inch 16 combination on this one because water blown foam, to 17 get to the baseline level of .86 exceeds two inches 18 cavity thickness. So we've had to exclude that one. 19 We used the Watson Simulation Model 20 calibrated to the minimum standard and then we 21 verifiedthat against someNIST test data todetermine 22 all of these energy factors. The costs wereprovided 23 by GAMA for many of the design options and then we 24 used consultants for those design options where GAMA 25 was unable to get enough information from enough 

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### 1 manufacturers to provide that to us. 2 Lookingat thenextpage, thegas results. 3 Since we have a few more design option combinations 4 the two don't fit onone page. Again,we have the HFC 5 245fa foam and the baseline levels .54. This time, 6 the baseline level also includes the flammable vapor 7 ignition resistance designs. We included a cost for 8 it, that is, and so that's why you see this large 9 increase of about $46 between the baseline for HCFC 10 141 and the baseline for 245fa. 11 Thenwe included in the gaswater heaters 12 a 78 percent recovery efficiency, that's what the RE 13 stands forandalsoan 80percent recoveryefficiency. 14 If you recall, if you were here last November we did 15 a 78.5 percent. Due to comments, we changed our 16 approaches and used twodifferent recovery efficiency 17 levels. For the 78 percent recovery efficiency, we 18 include some venting costs and Type B vent costs in 19 the installation cost part of it and for the 80 20 percent recovery efficiency,we include not only Type 21 Bvent costs,but also some costs for reliningmasonry 22 chimneys. 23 For all of the gas firedwater heater,we 24 used the tank model which was developed by GRI. 25 Again, we calibrated that to the minimum efficiency 

## NEALR.GROSS COURTREPORTERSANDTRANSCRIBERS 1323RHODEISLAND AVE.,N.W. (202) 234-4433 WASHINGTON,D.C. 200053701 www.nealrgross.com27 1 levels. 

### 2 For the model with gas with water blown ,3 foam

-- 

### 4 MR. BROOKMAN: We're now at page 4. 5 MR. LOGEE: Page 4, thank you. I'm 6 flipping throughthese fairly quickly, just trying to 7 draw your attention to some of the highlights. You 8 notice that there's a larger cost here, $50. That 9 again includes the flammable vapor, but also there's 10 an extra thickness of foam for the water blown foam, 11 so it costs a little more on the baseline level. 12 Then we flip quickly to page 5, the oil 13 results. The oil results are based on a spreadsheet 14 calculation. We don't have a simulation model for 15 that kind of equipment. We have again the baseline 16 with 245fa and there, we get about a $3 increment 17 because it's very similar, just a little extra foam 18 cost. 19 And as we move down the list, down the 20 list of insulations andwe get tothicker insulations, 21 we've had to include costs for a burner installation 22 kit becausewhenyou go to the replacement situations 23 and you had an old one inch thick insulation, you 24 rather not throw that expensive burner away, so we 25 called around and got some prices for a burner 

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### 1 installation kit which would have lengthened the 2 length of the last tube and the oil tube and we've 3 included those costs in the replacement situations. 4 For new tanks, of course, with a burner, we didn't 5 include those. 6 Then moving on to page 6, again the oil 7 results with water blown foam, I just wanted to draw 8 your attention now to the baseline with water blown 9 foam. It jumps by about $34 and that is because at 10 that point with the water blown foam it's so much 11 thicker. We had to include that cost of the burner 12 installation kit with our baseline.And that's all I 13 have on the engineering results. 14 What I'd like to do now is to sort of 15 shift gears andgo into the life cycle costs and this 16 is what's inyour package right nowand it only shows 17 water blown foamover on this side. I'll get to the 18 -- Iwanted to include the new page just after this, 19 but for right now I wanted to point out the design 20 option standard levels, just to review those. 21 These standard levelsare selectedby the 22 lowest payback from the engineering analysis, so we 23 prioritize these by the payback that we get from the 24 engineering analysis. 25 So for standard level 1 on electric, we 

### NEALR.GROSS COURT REPORTERSAND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com29 1 have a heat trap, an insulated tank bottom. On 2 standard level 1 on gas, we have just heat traps, gas 3 and oil. 4 For standard level 2, we add -- we go to 5 2.5 inch insulation on electric and for gas we do the 6 75 percent recovery efficiency by a more efficient 7 flue baffle and 2 inches of insulation. And for oil, 8 we just go to 2.5 inch of insulation. 9 Standard level 3 and 4 are the same in 10 electric and there we pull out all the stops. We go 11 to 3 inch insulation and a plastic tank. So our max 12 tech version, so called. 13 In gas, standard level 3, we go to 80 14 percent recovery efficiency and add a half inch of 15 insulation. And then inoil, the standard level 3, we 16 have 78 percent recovery efficiency and improved flue 17 baffle and 3 inch insulation. 18 Standard level 4, for gas, again there 19 we're pulling out all the stops, going to a side arm 20 heater,plastic tank, 3 inch insulation and electronic 21 ignition. And likewise for oil, we go for 3 inch 22 insulation, interrupted ignition and an improvedheat 23 exchanger in addition to the 78 percent recovery 24 efficiency on the flue baffle. 25 MR. BROOKMAN: Terry, we have some 

## NEALR.GROSS COURT REPORTERS AND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com30 1 questions. 2 MR. LOGEE: Yes. 3 MR. BROOKMAN: I saw SteveNadel and then 4 Steve Rosenstock. 5 MR.NADEL: Terry, asyou go through trial 6 standard levels, I had a question specifically about 7 gas. In trial standard level 3 you combined 80 8 percent recovery efficiency and 2.5 inches of 9 insulation. Did you give any consideration to 10 separating those? The reason that I suggest that is 11 that if you look at your e-cal life cycle cost 12 analysis, the first one does seem to have positive 13 life cycle costs. The second one, the 2.5 inch 14 insulation does not have positive life cycle costs. 15 By combining them, you create a package that has 16 negative life cycle costs and when you separate them 17 you may have improved life cycle costs compared to 18 Option 2. 19 MR. LOGEE: Didyou mean, Steve, that you 20 would want to, as I recall from your comment, you 21 wanted to apply, consider the combination of 80 22 percent recoveryefficiencywith2 inch insulation, is 23 that what you're -- 24 MR. NADEL: Correct, yes. 25 MR. LOGEE: -- driving at? 

### NEALR.GROSS COURT REPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com31 1 MR. NADEL: Yes. First to 80 percent 2 recovery efficiency, and then as a next step to 2.5 3 insulation. That, at least fromyour analysis, is the 4 order in which of cost effectiveness. 5 MR. LOGEE: We didn't order the design 6 option combinations based on the life cycle cost 7 analysis. We used the paybacks that we got from the 8 engineering analysis to order the design option 9 combinations and those, that combination in 10 particular, didn't come out as the least, lowest cost 11 for the engineering and the engineering payback. 12 MR. BROOKMAN: I saw several people who 13 wish to follow on. Michael McCabe, then Mark Krebs 14 and I'm going to get back to you, Steve. 15 Michael McCabe? 16 MR.McCABE: Michael McCabe, DOE. Just to 17 expand on what Terry has said, in the engineering 18 analysis, the first step we did was to order design 19 options. As Terry indicated that was done by a 20 central payback. 21 Once we had the cost efficiency curve 22 developed, as you can see by looking at some of the 23 earlier slides, for example, with gas fired water 24 heaters, we had 2, 4, 6, 8, 10 different combinations 25 of design that had been evaluated. We reduced those 

### NEALR.GROSS COURT REPORTERS AND TRANSCRIBERS 1323RHODE ISLANDAVE., N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com32 1 to standard levels as we've committed in the process 2 ruled by the first efficiency level that was the most 3 efficient. That was the one that was selected. The 4 second that was selected was that which has a minimum 5 life cycle costing point. A third point that we 6 identified in the process where we were explicitly 7 looking at was a 3 year payback. I think the comments 8 that was made by a number of parties were quite 9 interesting and we will consider those, review those 10 with the standard levels, the trial levels that we 11 would evaluate for the proposed rule. 12 MR. BROOKMAN: Steve and then I'll go to 13 Mark. You want to follow on? 14 MR. NADEL: Yes. 15 MR. BROOKMAN: Briefly, and then I'm 16 coming to mark. 17 MR.NADEL: Right, I'm not seeinga reason 18 why one item would be more cost effective on payback 19 and another item on classical costs since all of these 20 have assumed same measure lives. So the order should 21 be the same. 22 I guess my question is did you do your 23 ordering on the most recent analysis or was the 24 ordering done a little earlierbefore you had changed 25 some of the costs and maybe in an earlier analysis, 

### NEALR.GROSS COURT REPORTERSAND TRANSCRIBERS 1323RHODE ISLANDAVE., N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com33 1 these two options may have been not caught when you 2 did your final ordering? 3 MR. LOGEE: No, as far as I'm aware, we 4 used the most recent engineering analyses. 5 MR. BROOKMAN: Steve, you are suggesting 6 this doesn't make sense. 7 MR. NADEL: I don't think it makes sense. 8 Maybe we should go over the math at a break. 9 MR. BROOKMAN: Mark Krebs? 10 MR. KREBS: Mark Krebs, Laclede Gas. In 11 the last couple of minutes, I've heard a lot about 12 life cycle costs. I'veheard a lot aboutpaybacks and 13 I just heard Michael McCabe say that they will 14 consider the differences. I really think what we 15 need, what the stakeholders need is for DOE to decide 16 what they're going to use to determine the consumer 17 effectiveness of these measures. Is it going to be 18 anything with a positive life cycle savings? Is it 19 going to be payback? What's it going to be? 20 MR. BROOKMAN: Michael McCabe. 21 MR.McCABE: MichaelMcCabe. I thinkDan, 22 in his opening remarks had touched on that, but the 23 question that you raise, Mark, is a similar one to 24 what EEI raised in their comments, that is, to put it 25 another way, what level of consumer hurt is 

## NEALR.GROSS COURTREPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON,D.C. 20005-3701 www.nealrgross.com34 1 acceptable, where is the cutoff point? 2 As Dan had indicated in his opening 3 remarks, there is no single specific equation, a 4 factor which we use in making the determination. We 5 will take and evaluate all the results together so it 6 may very well be that for one particular rule making 7 the standard level that we had, sticking with the 8 consumer benefit example, could be for one rule 9 making. 10 When you look at what is rejected as far 11 as the standard level, there maybe some benefits that 12 are very different than what would be rejected in 13 another rule making because all of the results would 14 be weighed, no single value would be a determinant. 15 MR. KREBS: To followup on that, just for 16 a minute -- Mark Krebs, Laclede Gas -- it's kind of 17 like building a house on shifting sands versus 18 building one on bedrock. If you can define what the 19 effectiveness measure is going to be, how it's going 20 to be measured, then we know where we're going and I 21 think it will generate a lot of positive effects, if 22 we can define that. To not define it, we don't know 23 where we're going. We don't knowwhether ornot we're 24 on shifting sands or solidground, one rule making to 25 another and Iurge DOE to define what it's going to do 

### NEALR.GROSS COURT REPORTERS AND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com35 1 and maybe it should be different for either any 2 specific rule making, but at least it should be 3 defined what it's going to be.k. 4 MR. BROOKMAN: Steve Rosenstock, you're 5 next. 6 ASSISTANT SECRETARY REICHER: I just had 7 a question. 8 MR. BROOKMAN: Dan Reicher. 9 ASSISTANT SECRETARY REICHER: This is Dan 10 Reicher. You're looking, Mark, for a point, a single 11 number? 12 MR. KREBS: No, I'm looking for a 13 definition. If DOE's intent is to base minimum 14 standards, for example, on anything that has a 15 positive life cycle savings, then at least we know 16 what we're dealing with and we know what calculations 17 should be used and what the variables are. If we 18 don't know what you're going to use as the basis of 19 determiningconsumer costeffectiveness, it inessence 20 gives DOE free license, really, and disallows 21 stakeholders from providing comment in an effective 22 way. 23 We need to know, we need to have those 24 definitions in order to efficiently proceed and 25 provide valuable input to DOE on its recommendations. 

### NEALR.GROSS COURT REPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com36 1 It's kind of like a shell and pea game in a sense. 2 MR. BROOKMAN: Steve Rosenstock is next. 3 MR.ROSENSTOCK: Steve Rosenstock,Edison 4 Electric Institute. A quick question about electric 5 standards level 1. 6 MR. BROOKMAN: On page? 7 MR. ROSENSTOCK: It's page 7. 8 MR. BROOKMAN: Thank you. 9 MR. ROSENSTOCK: Page 7. And also on the 10 one page handout, it's the same thing. Just looking 11 over the -- on the web, the spreadsheet analysis on 12 the web, the electric water heater life cycle costs 13 uncertainty model, they show on the coverpage, on the 14 -- I'll say the default spreadsheet there, under the 15 LCC and payback tab, it shows just in terms of 16 payback, talkingabout ranking, it shows heat trapsby 17 themselves are the paybackof 0.84 for a year for that 18 one particular .1 calculation. And heat traps and 19 tank bottom insulation with 1.06 year payback. So I 20 don't knowhow they all came out when you did all the 21 runs, but I would assume, did the paybacks for the 22 heat traps and the tank bottom insulation always come 23 out ahead of the heat traps by themselves? I'm just 24 kind of curious as a clarification because it looked 25 like the heat traps by themselves just in terms of the 

### NEALR.GROSS COURTREPORTERS ANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com37 1 payback, at least from looking at the spreadsheet, by 2 themselves had a quicker payback

-- 3 MR.LOGEE: Steve,wedidn't considerheat 4 traps by themselves. We considered heat traps always 5 combined with insulated tank bottoms. 6 MR. ROSENSTOCK: Oh, because on all the 7 technical support document

-- 8 MR. LOGEE: Well, we have a limited 9 number. We don't want to do 15 different standard 10 level trials, standard levels. So we make some 11 choices and those were our choices. 12 MR. BROOKMAN: Just to confirm then what 13 you see on page 7 and the other documents you've 14 received,that listing for standard level 1, 2, that's 15 a complete description of the additional things to 16 reach that level? 17 MR. LOGEE: That's correct. 18 MR. BROOKMAN: Okay. 19 MR. ROSENSTOCK: Steve Rosenstock here. 20 MR. BROOKMAN: Final question. 21 MR. ROSENSTOCK: This reflects DOE's 22 choices in terms of the design option standard levels. 23 MR. BROOKMAN: And specifies them, I 24 think, rather clearly. 25 MR. ROSENSTOCK: Thank you. 

### NEALR.GROSS COURTREPORTERSAND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com38 1 MR. BROOKMAN: Thank you. 2 MR. LOGEE: One thing -- oh, did you have 3 more questions? 4 One thing I was going to add here, oh, go 5 ahead, sorry. 6 MR. BRUNDAGE: Don Brundage, Southern 7 Company. I would respectfully disagree with Mr. 8 Krebs' comment onhaving a single definition. Youmay 9 have -- these are complex issues. You may have a 10 payback or a benefits level that has a segment of the 11 population that's severely impacted, that you would 12 need to treat differently than one where there were 13 not a large number of losers. I think these are 14 complex issues and there needs to be some flexibility 15 and judgment on the part of DOE. Thank you. 16 MR.BROOKMAN: Thankyou. Terry,proceed. 17 MR. LOGEE: Okay, one other thing that I 18 shouldmention on these, we're showing here just sort 19 of average values and the number of percent of 20 households or people who will benefit. The actual 21 values are distributions and perhaps you are not 22 aware, but we use ranges or distributions of input 23 data as well, to generate these through a Monte Carlo 24 analysis scheme, sampling 10,000 households and we 25 have about 5,222 households from the RECS database 

### NEALR.GROSS COURT REPORTERS AND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com39 1 that we plug these ranges in. There are ranges of 2 prices for fuels. There are ranges of costs of the 3 equipment and we have a usage equation that we apply 4 to each individual household to determine how much 5 water they will use and we also then generate the 6 energy levels of the -- for their usage based on the 7 design option combinations that we're looking at at 8 that point. 9 So these results arewhat wewould say are 10 the average results and there's a tremendous amount of 11 effort and work that goes behind them and we look at 12 the distributions now as well as just these average 13 levels. That's important to keep in mind. 14 Now I'd like to turn to the handout sheet 15 because that has some later information. We were 16 requested by several commenters to include the life 17 cycle cost analysis and, in fact, the National Energy 18 Savings analysis for HFC245fa. We had not done it 19 earlier because we had a resource constraint on time 20 and money and so we didn't get to that and we had

-- 21 MR. BROOKMAN: This was a handout. 22 MR. LOGEE: That's right. 23 MR. BROOKMAN: I think most everybody 24 received it. We may need more copies. Do we have 25 more copies of this, Brenda? It's been distributed. 

### NEALR.GROSS COURT REPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com40 1 It looks just as it appears on the screen. 2 MR. LOGEE: There are a couple more 3 underneath my tablet there, Jim. 4 MR. BROOKMAN: Who else? Okay. 5 MR. LOGEE: These are hot off the press, 6 so to speak. We ran these this morning. LBNL just 7 completed the final page last night. So this shows 8 the water blown life cycle cost savings and percent 9 benefitting and the 245fa or HFC245fa blowing agent 10 and the standard levels 1, 2, 3 and 4 are the same as 11 the previous page. There wasn't room to detail them 12 on this page. 13 Let's see, from -- it's clear in both 14 standards levels 1 and 2 for gas and electric in both 15 water and 245fa, we have positive savings. The 16 negative savings are in parens and in this slide 17 they're in red color. So those are negative savings 18 or you would say that those do not benefit, on 19 average, do not benefit the households on a national 20 average basis. 21 Thepercentbenefitting ranges fromfairly 22 high, almost 100 percent, not everybody though, but 23 almost 100 percent, down to well, 1 percent or even 0 24 percent in the case of the standard level 4 in oil. 25 It's interesting tonote that althoughwe get positive 

## NEALR.GROSS COURTREPORTERS ANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 200053701 www.nealrgross.com41 1 savings for water blown foam, we get slightly more 2 than 50 percent of the households that would benefit 3 from that. That benefit increases because of the 4 improved insulation for 245fa to 83 percent with a 5 significant increase in savings for standard level 2 6 on electric. 7 Whenwe go to the gaswater heater,we get 8 significant benefits, percent benefits in both water 9 blown and 245fa forboth standard levels 1 and 2, with 10 a slight increase of $10 for the life cycle cost 11 savings. Here, the increase is smaller because the 12 difference in foam is not as large. 13 Yes, Jim? 14 MR. RANFONE: Jim Ranfone, AGA. On the 15 gas and some of the others, level 3, I'm having a 16 problem understanding on your life cycle savings of 17 $17, yet 72 percent benefit and that runs through a 18 couple of other scenarios. Can you explain how

-- 19 MR. LOGEE: I was just going to get to 20 that, Jim, thank you. You anticipated my remarks. 21 Okay, on standard level 3 on gas and 4, as Jimnotes, 22 those are negative savings. Those are not benefits on 23 average. However, 72 percent benefit in the case of 24 water blown foam and 73 percent benefit in the case of 25 HFC245fa. If you recall earlier, I mentioned this 

### NEALR.GROSS COURT REPORTERSANDTRANSCRIBERS 1323RHODE ISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com42 1 standard level is an 80 percent recovery efficiency 2 with 2.5 inches of insulation. And earlier, I had 3 stated that at that standard level we have a 4 significant installation cost for type B vent 5 connectors and relining of masonry chimneys. Those 6 vent connectors and chimney relinings don't occur in 7 all cases. They'repretty expensivewhen theydo hit, 8 but they don't occur in all cases. We assume 25 9 percent of the cases that would be the case. 10 I see Mark Krebs. 11 MR.KREBS: This is aprime example ofwhy 12 we should know what you're going to use. Is it going 13 to be the majority of people benefit as economic 14 criteria? Is it going to be positive life cycle 15 savings? What's it going to be? 16 MR. BROOKMAN: Keep going, Terry. 17 MR. LOGEE: Let's see, just note that for 18 oil we onlyget positive savings withheat traps which 19 is standard level 1 and we get pretty good benefits. 20 It drops off very quickly as we go to standard levels 21 2, 3 and 4 with almost nobody benefitting in the case 22 of 245fa. 23 MR. LANNES: Eric Lannes, Bradford White. 24 Why does this chart conflict with the summary page 7 25 that you showed earlier? 

### NEALR.GROSS COURT REPORTERSAND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com43 1 MR. LOGEE: In which way, Eric? 2 MR. LANNES: Well, standard level 2 you 3 show $32 and 16 percent which is the same with this, 4 but when you to go to standard level 3, it says $52 5 and 9 percent and it's $153 and 1 percent on the 6 summary sheet? 7 MR. LUTZ: JimLutz, LBL. That was a late 8 night copying error. 9 MR. LANNES: Which one is wrong? 10 MR. LUTZ: The new sheet is wrong for 11 design option 3. 12 MR. LANNES: And it should read? 13 MR. LUTZ: It should read as on page 7. 14 MR. LOGEE: That's $153 instead of $17. 15 MR. LANNES: That makes more sense. 16 Thanks for that clarification. 17 MR. LOGEE: Is the percentage also wrong 18 there, Jim, 1 percent, instead of the 9 percent? 19 MR. LUTZ: I think so. 20 MR. LOGEE: Okay. 21 MR. LUTZ: It was awfully late. 22 MR. LANNES: That's no problem. I just 23 wanted to make sure. It is significant. 24 MR. BROOKMAN: Thanks for noting that. 25 Steve Nadel. 

### NEALR.GROSS COURTREPORTERSAND TRANSCRIBERS 1323RHODEISLANDAVE., N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com44 1 MR. NADEL: In this new chart, when you 2 define standard level 1, 2, 3, 4, are those defined in 3 terms of energy factor or are they just defined in 4 terms of design options? 5 MR. LOGEE: Those are design options. 6 MR. NADEL: Thank you. 7 MR. LOGEE: And they were sort of -- in an 8 outline way, they're shown here on page 7. 9 MR.NADEL: So froman energy factorpoint 10 of view, there's roughly a .02 difference in the 11 energy factor between the water blown foam levels and 12 the heat trap -- 13 MR. LOGEE: Right. You cangoback to the 14 engineering sheets and see what the differences are. 15 Okay, moving on to National Energy 16 Savings, you need to make a note now that these are 17 for water blown foam only. We expect to get the 18 National Energy Savings for the HFC245fa completed in 19 the next several days andwe shouldhave it on the web 20 by the end of the week, barring some electronic 21 problems that we frequently encounter. So here we 22 have three scenarios, the AEO low growth reference 23 level andhigh growth,AEO, referringtoAnnual Energy 24 Output. It's Energy Information Administration's 25 projections. They go out for 20 years and then we've 

## NEALR.GROSS COURTREPORTERSANDTRANSCRIBERS 1323RHODEISLAND AVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com45 1 pushed them out to 2030, so we chose these scenarios 2 because they bound the other economic growth 3 projections such as the Gas Research Institute's 4 projection. And so we chose them. 5 We were advised or requested by the 6 AdvisoryCommittee to choose three economic scenarios 7 so that's what we have done. You notice that the 8 energy savings, of course, in all cases are positive 9 and significant, runningperhaps frommoderatehere at 10 1 quad to quite large at 9.5 quads down at level 4. 11 However, the net present value, NPV, on this column is 12 only positive for standards levels 1 and 2. Going 13 negative, a fair amount at standard level 3 and a lot 14 negative at standard level 4. That kind of follows 15 along with ourresults from the life cycle costs where 16 we negative benefits for standard levels 3 and 4 on 17 both gas and electric. 18 Yes? 19 MR. ROSENSTOCK: Just a clarification. 20 The savings for energy savings were for 2003 to 2030, 21 that's the time frame that you're using? 22 MR. LOGEE: Yes, that's the time frame. 23 MR. ROSENSTOCK: Same for the net present 24 value, that's a cumulative number too? Steve 25 Rosenstock. 

### NEALR.GROSS COURT REPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com46 1 MR. BROOKMAN: Thanks, Steve, thanks. 2 Mark? 3 MR. KREBS: Mark Krebs. Yet another 4 method of consumer effectiveness that we should know 5 howDOE plans, if it wants tomaintain its discretion, 6 at least let us understand how it plans to rate these 7 different possibilities of consumer effectiveness. 8 MR.BROOKMAN: Would that be -- letme ask 9 the Department, if I may, would that be an aspect of 10 your description of how you arrive at the standard? 11 MR. KREBS: Are you asking me? 12 MR. BROOKMAN: No, I'm asking the 13 Department. That's the third time you've made the 14 comment, I think, and Iwas wanting the Department to 15 see if they can respond to it in a way -- 16 MR. LOGEE: Doug, are you implying -- by 17 that, you're implying that we would weigh the life 18 cycle cost results and the national energy savings and 19 net present value results and themanufacturing impact 20 results and other things? Yes, if that's what you're 21 saying,yes, we'll be weighing all of those and other 22 considerations. 23 ASSISTANT SECRETARY REICHER: This is Dan 24 Reicher. And in the proposed rule, we will describe 25 forpublic commenthowwe weightedvarious factors and 

## NEALR.GROSS COURTREPORTERS ANDTRANSCRIBERS 1323RHODE ISLANDAVE., N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com47 1 I think that's an important aspect. At this point, we 2 are taking it and looking at the analysis andpart of 3 the decision making challenge here is, in fact, to sit 4 down and weigh all of these things and then do a good 5 job of describing howwe arrived atwhat we ultimately 6 propose and then take comment on it. So I think 7 that's part of the process. We can't sit here today, 8 give you a ranking at any particular area, tell you 9 that there's an on/off switch with respect to a 10 decision,because there aremultiple factors that have 11 to be weighed by a variety of people looking at a 12 whole host of data that some of which is still not 13 fully developed. 14 MR. BROOKMAN: Thank you. 15 MR. LOGEE: Okay, the next slide, page 9, 16 is in your packet is national water heater energy 17 consumption. This shows the amount of growth actually 18 in the energy use in the water heater sector of the 19 consumer economyand avery top line is the base case. 20 Then the next one that's almost on top of it is 21 standard level 1, moving down to standard level 4. 22 One thing that we notice, looking at the 23 slide, it's inescapable. No matter what we do with 24 these standard levels at least, we always have a rise 25 in energyuse. And -- but as we look at the slide, as 

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### 1 we go out here to about Year 2015, thereabouts, why 2 the curves straighten out. There's more bend in the 3 early years and that is because by about 2015 we've 4 pretty much replaced all of the oldwater heaters in 5 the marketplace with these new, more efficient 6 varieties, whether they're standard level 1, all the 7 way down to standard level 4. 8 And just looking thenonthe outyears, at 9 the difference between the base case and standard 10 level 2,we see that there'sprettysignificant yearly 11 savings of perhaps about a point, two tenths of a 12 quad. 13 Yes, Frank? 14 MS. STANONIK: Terry, I think I know the 15 answer, but I guess I want to confirm it. This 16 particular chart here, each of these lines is 17 inherently has an assumption that all the water 18 heaters that arebeing installed are installed at the 19 standard level. They are products that are at the 20 standard level? 21 MR. LOGEE: That's right, theywouldmeet 22 the standard level, but there are some -- let's say 23 standardlevel 1, thereare someproductthat is above 24 standard level 1 and of course, we go to standard 25 level 2. So there are some products that are at 

## NEALR.GROSS COURTREPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON,D.C. 20005-3701 www.nealrgross.com49 1 standard level 2 and standard level 3, for each kind 2 of water heater. 3 As we go to standard level 2, we absorb 4 those products and we have fewer products that are at 5 the higher levels of efficiency. So finally at 6 standard level 4, there's just 100 percent. 7 MR. BROOKMAN: Michael McCabe. 8 MR. McCABE: Terry, this is Mike McCabe. 9 Do I understandyou correctly that in the analysis we 10 assume a distribution of efficiency of products sold? 11 MR. LOGEE: Correct. 12 MR. McCABE: And so as the standard comes 13 into place, it's lopping off those units in that 14 distributionthat didnot meet the standardandmoving 15 them to the standard level. So if the standard is low 16 such as standard level 1, there will be a number of 17 units that are still assumed to be sold above the 18 standard

-- 19 MR. LOGEE: That's correct. 20 MR.McCABE: As itmoves up, that fraction 21 decreases. 22 MR. LOGEE: That's correct. 23 MS. STANONIK: All right, so you answered 24 that question. So the line really does -- I was 25 trying to figure out whether the line was, if you 

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### 1 will, conservative or not,but in fact, the line, each 2 of these lines is anattempt tobe, to thebest anyone 3 can be, let's say fairly realistic in that it's an 4 assumption that there's a mix of products that 5 actually get installed and not just all products are 6 at the minimum. 7 MR. LOGEE: That's right. Okay, nomore 8 questions on this one. Then let's move to projected 9 shipments slide, page 10. These shows projected 10 shipments for levels -- standard levels 1 through 4. 11 And there are four fuels on each little graph: gas, 12 being at the very top, then electric, then liquid 13 petroleumgas andthenoil. Oil is justveryslightly 14 above the axis line. 15 Also I want to note that to the left of 16 the line that's about 1998 with the open squares, 17 triangles, circles and diamonds, we have the 18 historical data, so we get quite a bit of wiggle in 19 the gas and electric market shares, sometimes almost 20 crossing over. They come fairly close together inthe 21 1990s. Then beyond that are the projections. And 22 they don't have very muchwiggle in those and theygo 23 out to 2030. The projections are based on the 24 historical data and so that we didn't think these up 25 out of clear air or fuzzy air, hazy air as it is 

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### 1 today. 2 On standard levels 1, 2 and 3, although 3 it's not too obvious on standard level 1 is this 4 little bumphere in the gas and the electric line, as 5 you go out just beyond the Year 2000, probably 2003. 6 That's the point at which the new standard would 7 become effective and that bump is causedby a change 8 inmarket share do primarilyto the change in cost of 9 the new equipment. And we have a couple of 10 constraints onwhatwe allow to shift our fuel switch 11 in the market. We only allow fuel switching on new 12 construction, so that's probably about 20 percent of 13 the market that's in the new construction area and 14 that was based on our -- we had an ad hoc working 15 groupand itwas aprettygood consensus in thatgroup 16 that replacement water heaters usually are replaced 17 with like fuels. So if someone has a gas water 18 heater, theywill replace it with agas waterheater. 19 They're not likely to put in some other fuel. Or if 20 they have an electric, they're going to stay with 21 electric. 22 Mark Krebs? 23 MR. KREBS: What do you mean you're only 24 allowed fuel switching in new construction? 25 MR.LOGEE: Just exactlythat. If there's 

## NEALR.GROSS COURT REPORTERS AND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com52 1 a new house being built, then someone, either the 2 builder or the buyer makes a decision as to what kind 3 of fuel they're going to use for their appliances and 4 in the model, we have some discount rates that help us 5 decide that based on the price of the new equipment. 6 And we only allow it in new construction. 7 MS. STANONIK: Frank Stanonik. Again, I 8 think, Terry,whatyou've said, it's reallynot per se 9 a question of fuel switching,but perhaps a change in 10 the proportion of new construction that ends up with 11 a gas water heater or an electric water heater. 12 MR. LOGEE: Thank you, Frank. 13 MS. STANONIK: It's a change in let's say, 14 the existing pattern or existing ratio. 15 MR. LOGEE: Right, right. 16 MR. BROOKMAN: I just want to note what I 17 said before. There's a lot of better listening going 18 on as we progress here. 19 MR. LOGEE: It really is a change in 20 market share because new construction has not yet 21 chosen a fuel andpresumably if there's a gas pipeline 22 in that subdivision,people are probably going to use 23 gas for water heating and gas for cooking and so 24 forth. 25 MR. BROOKMAN: Thanks for clarifying 

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### 1 remarks. 2 MR. LOGEE: I just wanted to call your 3 attention to standard level 4. There's no bump. And 4 if you look closely enough you can see that the top 5 line for gas has sort of shifted down some and the 6 electric line as shifted up. That represents this 7 other change in the market share due to the fact that 8 the electric high level standard stays the same for 3 9 and 4 where gas gets an increased cost for that max. 10 tech design option combination. 11 Charlie Stephens? 12 MR. STEPHENS: Charlie Stephens. On what 13 basis did you make, decide on the magnitude of that 14 shift in standard level 2and 3where thebump occurs? 15 How did you come upon the mathematical size of that 16 shift? 17 MR. LOGEE: It depends on those 18 elasticities and the cost of the equipment which we 19 looked at in the engineering slides. Ifyou find the 20 design options, I don't know the exact costs of the 21 equipment, but for standard level 4 with gas it gets 22 prettymuch like $1,000 or something. So the cost of 23 equipment is a factor and then there's elasticities 24 that themodel uses to choose between equipment based 25 on -- they're based on the elasticities. 

## NEALR.GROSS COURT REPORTERS AND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 200053701 www.nealrgross.com54 1 MR. STEPHENS: And the elasticities came 2 from? 3 MR. LOGEE: Theywere derived frommaking 4 the life cycle cost of any particular piece of 5 equipment equivalent to the same or similar equipment 6 with adifferent fuel. So they try to equivobrate the 7 prices or life cycle costs between two different kinds 8 of equipment. 9 MR. LUTZ: For the existing market. 10 MR. LOGEE: Jim? 11 MR. LUTZ: For existing costs. 12 MR. LOGEE: For the existing market. 13 MR. BROOKMAN: Name again? 14 MR. LUTZ: Jim Lutz. 15 MR. BROOKMAN: Thanks, Jim. Bill Prindle 16 is next. 17 MR. PRINDLE: Bill Prindle. Iwonder how 18 you -- how the model was able to predict an increase 19 in gasmarket share when the data shows that the price 20 of gas equipment goes up about 20 percent where the 21 price of electric equipment goes up between 5 and 8 22 percent, depending onwhich insulation type you used. 23 MR. LOGEE: Bill, you have to remember 24 that 80 percent of the market is replacement market, 25 so that -- people continue to replace gas with gas 

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### 1 water heaters. It seems tomemy limitedknowledge of 2 the marketplace that people prefer gas for water 3 heating also. 4 MR. BROOKMAN: Additional questions or 5 comments at this point? 6 Yes, please use the microphone. 7 MR. SHIN: David Shin, American Gas 8 Association. In looking at the spreadsheet you do 9 make some key assumptions that affect theprojections 10 of shipments. I'd like for you to justify why you 11 made some of these assumptions. Number one, you 12 assume that the income elasticity for gas water 13 heaters is positive. Why did you make that 14 assumption? And number two, the implicit discount 15 ratesyouuse the spreadsheet are quitehighand these 16 implicit discount rates affect your projection of 17 shipments. Can you justify the differential between 18 the gas and the electric implicit discount rates as 19 well? 20 MR. BROOKMAN: What wouldyou suggest to 21 be the appropriate discount rate? 22 MR. SHIN: Well, the literature discount 23 rates suggest 20 to 80percent. I'm not exactly sure 24 what the correct one is. I'd just like theDepartment 25 to justify why there's such a huge differential 

## NEALR.GROSS COURTREPORTERS ANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com56 1 between gas and electric. 2 MR. LOGEE: I am not going to take that 3 one on, David,because I'mnot knowledgeable enough to 4 do justice to it. I think that's something that we'll 5 have to refer and get back to you with. 6 There is one comment that youmade though 7 that I think we can address, and that is that we -- I 8 can't remember just what it was now. 9 MR. BROOKMAN: He asked about the 10 assumptionyoumade. The first pointyou made, David? 11 MR. SHIN: Whyyou assumed that the income 12 elasticity for gas water heaters was positive. 13 MR. BROOKMAN: Jim McMahon, can you 14 respond to this question? 15 MR. McMAHON: Jim McMahon, Lawrence 16 Berkeley National Lab. David, the answer to the 17 question is this is based upon historical data andwe 18 can provide more information about that later. 19 The second part, why the discount rates 20 are different, these are derives. It depends upon the 21 relationship of the price of the product to 22 efficiency, so it comes, inpart, from the engineering 23 data and the relationship of price to efficiency is 24 different for gas and electric. 25 MR. BROOKMAN: David, I presume you can 

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### 1 go to the Department directly and they can get you to 2 Lawrence Berkeley National Laboratory to provide you 3 that data, that information. 4 Additionalquestions onthispoint? Okay, 5 Terry, keep going. 6 MR.LOGEE: All right, we're not going to 7 make ourbreak, are we? 8 MR. BROOKMAN: We're doing fine. 9 MR. LOGEE: Food is up here. Cumulative 10 emission reductions, just very quickly. They were 11 calculated from theNEMS EPCAmodel. By that, we mean 12 the NEMS model is the EIAmodel and we've adopted it 13 and modified it to calculate emissions for our 14 particular standard level cases, mostly the 15 modificationcomes inandwehave toinclude household 16 emissions. 17 The tons are metric tons and this one is 18 a million metric tons and the K is a thousand metric 19 tons for NO, and SO2

### . Note that the sulphur dioxide 20 levels are only for household emissions reductions. 21 They're relatively low because utilities, the 22 utilities that save sulphurdioxide, theyget credits 23 and they can trade those. 24 That's that one. 25 MR. BROOKMAN: Steve Rosenstock and then 

## NEALR.GROSS COURTREPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com58 1 Frank. 2 MR. ROSENSTOCK: Steve Rosenstock, Edison 3 Electric Institute. I made comments for another 4 rulemaking, but is the Department going to look at 5 other emissions such as carbon monoxide or hydro 6 carbons or other emissions that are out there as well 7 because as far as I'm concerned this is -- it's 8 basically in the household and energy sector, so it's 9 kind of an incomplete analysis because, as I've said 10 before, you're not looking at the production side at 11 all, especially if there's overseas production. 12 MR. BROOKMAN: Steve, canyou saybriefly 13 what the benefits would be of including those others 14 in the analysis? 15 MR. ROSENSTOCK: Well, right now you're 16 just -- ifyou're trying to be cumulative and overall 17 the advantage is is that you're looking at all sectors 18 of the actual process ofproduction as well as the use 19 of the equipment. Right now, you're just looking at 20 the use of the equipment. So you're forgetting 21 possibly key aspects of any sort of emissions 22 analysis, plus, you're only limiting it to three of 23 them when there's more out there. 24 MR. BROOKMAN: It would seem on its face 25 to a third party observer to do a lot more would take 

### NEALR.GROSS COURT REPORTERSAND TRANSCRIBERS 1323RHODE ISLANDAVE., N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com59 1 a lot more effort as well, so I'm wondering if this is 2 zeroing in on themajor ones or whether the other ones 3 are of major constituent as well. 4 MR. ROSENSTOCK: Well, it all depends on 5 if you think those other emissions really are 6 important or not. I would say that they are. If 7 you're going to do it, do them all or -- because this 8 right now, U.S. households and U.S. energy sector, 9 whenyou're not looking atproduction site orpossibly 10 overseas production, when they could be significant. 11 MR. LOGEE: Steve, what do you mean by 12 production side? Do you mean the utilities? 13 MR. ROSENSTOCK: No, production of the 14 water heaters, productionof the components that make 15 up the equipment. 16 MR. LOGEE: Okay. Thank you. I was 17 confused. 18 MR. BROOKMAN: That's a useful 19 clarification. 20 Dan Reicher. 21 ASSISTANT SECRETARYREICHER: Let me just 22 ask a question because I thought you were actually 23 getting back to the source of the energy. 24 MR. ROSENSTOCK: Idon'twant togo there. 25 (Laughter.) 

### NEALR.GROSS COURT REPORTERS AND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com60 1 ASSISTANT SECRETARY REICHER: That 2 explains the amazed look. I kept looking atyour name 3 plate to see whether something had changed. But now 4 let me understand your point, going back to the 5 factory where the water heater is made. 6 MR. ROSENSTOCK: Correct. 7 ASSISTANT SECRETARY REICHER: And where 8 associated equipment is

-- 9 MR. ROSENSTOCK: Correct, and other 10 emissions such -- I'll say carbon monoxide associated 11 with other energy types. 12 ASSISTANT SECRETARY REICHER: Other 13 emissions, again, from the

-- 14 MR. ROSENSTOCK: Use and production. 15 ASSISTANT SECRETARY REICHER: Okay, so 16 it's two things? Other emissions that come from the 17 actual operation of the water heater. There's also 18 other emissions that come from the -- or all 19 emissions, I should say, that come from the 20 construction of the water heater. 21 MR. ROSENSTOCK: Correct. 22 MR. BROOKMAN: Charlie Stephens. 23 MR. STEPHENS: Charlie Stephens, Oregon 24 Office of Energy. I think someone would have to make 25 a case to DOE that there's a serious or noticeable 

### NEALR.GROSS COURT REPORTERS AND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com61 1 incremental change in that, at least for the standard 2 levels that are under serious consideration and given 3 our own delving into industrial processes lately, I 4 think I'd have a hard time making that case, that at 5 least for the bottom half of the standard level case 6 that there's going to be anynotable change in energy 7 emissions at the production level. 8 MR. BROOKMAN: That was useful. Thank 9 you, Charlie. 10 Mark Krebs and then I'm going to ask the 11 group to inhibit slightly, so we can get through the 12 rest of these slides. 13 Mark? 14 MR. KREBS: What Steve is talking about is 15 the embedded energy inmanufacturing of the equipment 16 and that pales in comparison to the life cycle energy 17 consumedbythe equipment, therefore I think it's safe 18 to simplify in this case, rather than overly 19 complicate and get lost in the minute of embedded 20 energy. 21 MR. BROOKMAN: Okay, thank you. Terry, 22 I'd like you to press on with manufacturing impact 23 analysis. 24 MR. LOGEE: Okay, let's move on with the 25 MIA,manufacturing impact analysis. Here,weused the 

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### 1 GRIM or Government Regulatory Impact Model. It's a 2 cash flow model. I want you to note that we used 3 three regulatory scenarios and it's kindof important 4 to note that word regulatory scenarios. Base case, 5 which is as is; standards case, which is just the DOE 6 regulations, only; and acumulative casewhich is all 7 regulations facing the industry. And Ed Barbour and 8 Iwent around to fourof the five majormanufacturers 9 and discussedthese with them inquite detail and got 10 a number of qualitative viewpoints as well as the 11 quantitative numbers that we'regoing todiscuss this 12 morning. 13 Imight add the cumulative case includes 14 the HCFC phaseout and the flammable vaporprevention 15 resistance. So the industry cash flow was estimated 16 from the GAMA data submittal and both independent 17 consultants when we didn't have GAMA cost data. 18 That's themanufactureof cost. Financial information 19 frompubliclyavailable sourcesandshipments,we just 20 saw from the spreadsheet developed by LBNL. 21 I'mmovinga little fasterhere,butwe'll 22 slow down now to look at the results. What we have 23 here are the results forbusiness scenario 3whichwe 24 call the manufacturer's expected cost to the 25 distributors. Therewere two other scenarios that we 

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### 1 looked at, one was to maintain the value of the 2 manufacturerwhichwouldbetomaintaintheir industry 3 net present value at $295 million and the other one 4 would be they were unable to recover their 5 investments. 6 So lookingat -- inboth cases, we have a 

### 7 significant negative change in the industry net 8 present value. Yes? 9 MR. BROOKMAN: Terry, could you say it 10 again? What is business scenario 3? 11 MR. LOGEE: It's the expected cost to 12 distribute. That'swhat it'sbasedon. So it assumes 13 thatmostof theinvestmentwillberecovered. Allof 14 the variable costs, manufacturing costs will be 15 recovered,but not atotal recoveryof investment. 16 MR. BROOKMAN: Okay. 17 MR. LOGEE: Anyway, for all standard 18 levels inthecumulativecase,we get asignificant

-- 19 something very significant in the case of standard 20 level 4, change in the net present value of the 21 industry. With standard level 1 and the DOE's case 22 alone, very little change in the industry, but 23 beginningto get significant at standardlevel 2. We 24 like to show -- andthat difference canbe illustrated 

### 25 a little better, perhaps in the next slide which 

## NEALR.GROSS COURT REPORTERSAND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com64 1 doesn't have a page number on it. This slide shows 2 the price curves and the investments that were 3 required. 4 The price scale is -- the manufacturer 5 price scale is on the right hand side and the 6 investment scale is on the left hand side of the 7 graph. Trial standard levels 1 through 4 across the 8 bottom. For theprice curves, the cumulative curve is 9 the top curve and the standard level curve is the 10 middle curve. Base case is down at the bottom. 11 There'sabout a $25 differencebetweenthe 12 standards case and the cumulative case in terms of 13 price. But you notice that the price for the 14 standards case at level 1 starts out very near the 15 average price and this is an average price for all 16 waterheaters soldand it wouldbe the high efficiency 17 models as well as the baseline models. As we goup in 18 standard level, why then the price is increased quite 19 dramatically. 20 The investments required are down here on 21 the bottom and roughly $100 millon investment for the 22 cumulative case and most of that investment is due to 23 the Consumer Product Safety Commission initiative for 24 flammable vapor ignition resistance. But the 25 investments get pretty significant out at standard 

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### 1 level 2 and beyond. 2 The next slide

-- 3 MR. BROOKMAN: Questions on this slide? 

### 4 There'salot onthis slide. Questionsonthis slide? 5 MR. LOGEE: Good. Let's move on. The 6 industry cash flow comparison of -- these are short 

### 7 term cash flow, short term being 5years, comparison 8 between the cumulative case and the standards case. 9 The baseline is represented here at the top with no 10 change and as you can see cash flows for standard 11 level 1 through 4 are quite negative, significantly 12 negative, starting in 2000, all the way through 2003 13 forthenext threeyears. Andthereason is that some 14 of the cumulative initiatives have already begun and 15 are fairly well along, so there's a significant 16 expenditure for some of those. 17 And they go negative by 20 million,down 18 to about 40 million, all the way to negative 150 19 million. 20 In the standards case alone, why then 21 standard levels 1and 2 just barely -- standard level 

### 22 1does not go negative; standard level 2 just barely 23 ticks down below the line in 2003. 24 One more slide. This is the qualitative 25 impacts on manufacturing capacity. As I said, Ed 

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### 1 Barbour and I went to some of the manufacturers and 2 talkedwith them and they were pretty confident that 3 they could standard levels 1 and 2 along with the 4 cumulative burdens of the CPSC initiative and the 5 phase out without a major impact. But as we get to 6 level 3, why then they're talking about product that 7 wouldbe obsolete. That is the electricwater heaters 8 because we're going -- we used the design option of 9 plastics tanks and so that electric water heater 10 product, steel tanks nowwouldbe obsolete. And then 11 at standard level 4 for gas water heaters, we're 12 talking about a side arm water heater which is a 13 totally different way of heating the water, external 14 to the gas water heater. So that's the product that 15 wouldbe obsoleteon standard level 4. Those standard 16 levels 3and 4have significant impact. That'spretty 17 obvious also from the preceding two slides. 18 That concludes

-- 19 MR. LANNES: Excuse me, Terry. I think 20 you'remaking an assumption there that that's gas and 21 electric only. Oil has a significant impact at 22 standard level 2. 23 MR.LOGEE: That's true. Thankyou, Eric. 24 Iwas making that assumption. 25 MR. LANNES: So it's very significant

-- 

### NEALR.GROSS COURTREPORTERS ANDTRANSCRIBERS 1323RHODEISLAND AVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com67 1 what you see under standard level 3 applies to oil at 2 earlier standard levels. 3 MR.LOGEE: That's true. Thankyou, Eric. 4 MR. BROOKMAN: Eric Lannes. Frank 5 Stanonik? 6 MS. STANONIK: Frank Stanonik with GAMA. 7 Just perhaps an editorial comment. I mean I 8 understand what you've done here and this analysis 9 really, if you will, stops at Year 2004 and you 10 connected the dots because it does give you some sense 11 of what appears to go on here. 12 MR. BROOKMAN: You are referring to page 13 16? 14 MS. STANONIK: Yes, I'm sorry. I'm one 15 page back. 16 MR. BROOKMAN: Yes. 17 MS. STANONIK: But to that extent if you 18 just looked at that and if someone mistakenly assumed 19 that this line continued on in future years and I 20 understand you guys really didn't address that and I 21 guess what I'm saying is perhaps make it clear that 22 this analysis does stop in the Year 2004. My concern 23 is somebody may look at this and say well, heck, in 24 2004 everybody is back to their cash flow has become 25 positive again and in fact, in the case of let's say 

### NEALR.GROSS COURT REPORTERS AND TRANSCRIBERS 1323RHODE ISLANDAVE., N.W. (202)234-4433 WASHINGTON, D.C. 200053701 www.nealrgross.com68 1 the gasproduct at the standard level 4, it looks like 2 you have apossibility of infinitepositive cash flow. 3 MR. BROOKMAN: Look at the slope of that 4 line. 5 MS. STANONIK: Yes. And I realize that's 6 not what you've done and that's not clear what the 7 analysis says. I'm just concerned that not everyone 8 will necessarily understand that and you're giving us 9 the graph. I guess I'm just asking to make sure you 10 put a little words there that says wait a minute, this 11 analysis stops at 2004. We didn't look at what the 12 hell happens after that. 13 MR. BROOKMAN: It's a useful note. 14 Additional comments? 15 Yes, Steve Nadel. 16 MR. NADEL: Or question. As I understand 17 it, this analysis is all based on water blown foam. 18 My question is what happens to the analysis if people 19 were to use 245fa? Did you look into that at all and 20 if not, what would it take to look into that issue? 21 MR. LOGEE: We've only begun to consider 22 that, Steve. We're going to probablyhave to redo the 23 analysiswith that consideration and then send it back 24 to the manufacturers to get their input. 25 MR. BROOKMAN: Additional questions or 

## NEALR.GROSS COURTREPORTERS AND TRANSCRIBERS 1323RHODEISLANDAVE., N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com69 1 comments on these slides? Terry, does that conclude 2 your presentation? 3 MR. LOGEE: Yes, it does. 4 MR. BROOKMAN: I'm going to suggest we 5 take a break. It's now 10:30. We're going to start 6 up again at 10:45. If you're going to be walking the 7 halls of the Forestall, please wear your badge. 8 (Off the record.) 9 MR. BROOKMAN: We had a request that the 10 sound level in the room be taken up just a tad. In 11 the back -- you need a little more. We're going to 12 try to do that. We're going to get the sound folks in 13 here and bear with us, we'll try andget it taken care 14 of. 15 The next segment on the agenda is to have 16 a discussion following on a brief description of the 17 summary of comments. And you can see in your agenda 18 those elements listed, those being engineering -- I'm 19 going to ask everybody to take a seat, please. 20 Engineering, e.g., venting, heat traps, hot water 21 usage, insulation, small water heater closets, price 22 and markup, gas equipment markups, insulation costs, 23 marginal energy rates, life cycle costs, e.g., RECS 24 data, blended fuel projects, national energy savings, 25 e.g., fuel switching, measured EF versus rated EF and 

## NEALR.GROSS COURT REPORTERS AND TRANSCRIBERS 1323RHODEISLANDAVE., N.W. (202)234-4433 WASHINGTON,D.C. 20005-3701 www.nealrgross.com70 1 standards recommendations. 2 Mike McCabe, as you think about these 3 eight bullets, do you envision that they'll all take 4 about the same amount of time? 5 MR. McCABE: No. 6 MR. BROOKMAN: Which are the ones that 7 will take a lot of time, do you think? 8 MR. McCABE: I've been out of school a 9 number of years ago. I'm not ready for the test. 10 MR.BROOKMAN: I'm trying to calculate, if 11 we spend 20 minutes on each that gets us in the right 12 ballpark. So until we find a better formula, I'm 13 going to tryanddeal with that and that waywe'll get 14 through all of it. That's the plan I'm proposing. 15 Speak now, we're doing it. 16 MR. NADEL: Doug, your first is going to 17 take quite a bit more than that. 18 MR.BROOKMAN: Okay, so that's the kind of 19 notation I wished to receive. That's helpful. Okay. 20 So then let's press on with this. 21 Michael McCabe from the Department. I 22 think you all know Michael. You're going to proceed. 23 MR. McCABE: I am going to proceed. I 24 also will rely on Terry Logee, my staff and Jim Lutz 25 from LBNL as well. 

## NEALR.GROSS COURT REPORTERSAND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com71 1 Those of us with chemical engineering 2 backgrounds are somewhat limited in our ability to 3 understand some of the electronic technologies in 4 their best application. 5 As Doug is holding up the bullet, the one 6 identified is "Comments Received on the Water Heater 7 Analysis." This is by nomeans representative of all 8 the comments, but rather the staff's culling through 9 the comments and views as to what appeared to be 10 either comments shared by a number of people or those 11 that may have been, appeared to us to be more 12 significant than others. 13 If there are issues that have not been 14 touched on,we certainlywill entertain that. We may 15 not be as prepared to discuss those today, but we 16 certainly will give it a shot. 17 Venting issues was raised by a number of 18 comments. GAMA, Battelle, Bradford White. 19 Essentiallywith respect togas waterheaters that the 20 recovery efficiency proposed should not be above 21 certain levels. There were different recommendations 22 made and it was tied to the fuel loss efficiency and 23 safety factors. The range that was recommendedwas 76 24 to 80 percent. Also Battelle had recommended that if 25 we come out with a standard that pushes the envelope 

## NEALR.GROSS COURT REPORTERS AND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com72 1 that we should include in the technical support 2 document, anyamendments that we wouldbeproposing to 3 the National Fuel Gas Code, Kerry and Jim had 4 discussed this somewhat earlier today. One point 5 which they did not touch on is that the model that 6 we're using is the Watts tank now has the fuel loss 7 efficiency includedaswell as the recovery efficiency 8 and as you get to higher efficiencies, that the 9 difference between the two, we believe shrinks and 10 I'll look to Jim andTerry ifyou have anypoints that 11 you'd like to add at this point. I get your message 12 that you're both

-- 13 MR.BROOKMAN: If we coulddo it, I'd like 14 you to make it through this bullet. It's only four or 15 so. 16 MR.McCABE: Let's touchon one at a time. 17 MR. BROOKMAN: Okay. Questions, comments 18 related to venting? Iguess one question is does this 19 brief summary capture adequately the major stream of 20 the comment? Yes? 21 MR. PAUL: Darrell Paul, Battelle. Your 22 response to 78 percent recovery efficiency is 5.5 23 percent below the Fuel Loss Efficiency limit for 24 condensation in the vent system as determinedby GRI, 25 we don't agree with that. We did that work for GRI 

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### 1 and I think we need to go back and look at the study 2 that was done inwhich that informationwas extracted 3 andput it in context. 4 First off, we developed the venting 5 guidelines for the high efficiency gas furnaces and 6 vents as a result of the improvements efficiency for 7 the last rulemaking and therewas a four step process 8 that we developed for generating the new venting 9 guidelines. The first step was establishing a 10 categorizationcriteriaandanANSI testprocedurefor 11 categorizing gas furnaces. We'reproposing to do the 12 same thing for water heaters. 13 The second thing is to, again, workwith 14 the manufacturers and the code groups to develop 15 reasonable criteria for establishing those venting 16 guidelines and those criteria would be what's an 17 acceptablewet time limit for condensationin thevent 18 connectors inboth single wall and type Bvents. The 19 vertical vents, whether they're type B or masonry 20 chimneys, againyouneed to establishwet time limits 21 to adequately account for not only the amount of 22 condensate that's generated in getting ridof it, but 23 also the corrosion potential generated as a result of 24 the condensate. 25 Nowthe corrosionpotential is a function 

### NEALR.GROSS COURT REPORTERS AND TRANSCRIBERS 1323RHODEISLAND AVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com74 1 of primarily the amount of wet time and the number of 2 wet-dry cycles, so it changes depending on the type of 3 appliance that is connected to the mount. 4 And then thirdly, you generate venting 5 tables and again go through the codeprocess, working 6 with themanufacturers and the code groups to generate 7 new venting guidelines. 8 We started thatprocess, the first step in 9 the process, the categorization step in a report 10 that's quote there. If you look at our report, what 11 it was was a scoping study in which we identified 12 possible categorization criteria and proposed anANSI 13 test procedure. Those considerations were brought 14 before the ANSI standard committee for water heaters 15 and are currently under consideration and we're 16 working with the ANSI rules to develop the 17 categorization criteria. 18 MR. BROOKMAN: Areyou saying that this is 19 not accurate what's here, or that it's much more 20 complicated than this? 21 MR. PAUL: Both. 22 MR. BROOKMAN: Okay. 23 MR. PAUL: It is not accurate. The 5.5 24 percent limit that you have up there is a 25 misinterpretation of our results and the reason I'm 

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### 1 going through this procedure here is because the 2 second stepof theprocess isto establishappropriate 3 wet time limits for condensationpotential and growth 4 potentialandwedon't knowwhat thosewet time limits 5 currently are for water heaters and vents. 6 In that scoping study that we did, we 7 assumed awet time limit of approximately 18 minutes. 8 Again, a scoping criteria. After the corrosion 9 testing would have to be done to establish what an 10 acceptable limit is, basedon that 18 minute wet time 11 limit though,thenwewent throughandsaidwhatwould 12 be the impact and the impact was that if you look at 13 the current guidelines in theNational FieldGas code, 14 three thingswouldthing. First off, themaximumvent 15 capacity values would be lower because of the higher 16 efficiency. Secondly, there wouldbe additional, not 17 recommended, introduced as a result of condensation 18 limits being put on the vent systems and as a result 19 of that study we actually said that, again, based on 20 an 18 percent -- 18 minute wet time limit, that the 21 current field gas code, you could probably go up to 22 about an 80 percent recovery efficiency andyou still 23 have impacts in terms of the maximum capacity and 24 possibly some minimum capacities to limit 25 condensation, but if you're going to encompass the 

## NEALR.GROSS COURT REPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE., N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com76 1 entire range of currently acceptable installations as 2 a result of the current guidelines in the code, you 3 could go up to 80 percent, but again that wasbased on 4 a 18 minute wet time capacity. 5 MR. BROOKMAN: Right. I'm sure the 6 Department would like the process that you described 7 as well as these comments in detail, submitted. So I 8 encourage you to do that. 9 MR. PAUL: Yes. 10 MR. BROOKMAN: That was useful. Thank 11 you. 12 MR. PAUL: Now one last comment -- 13 MR. BROOKMAN: I want you to be very 14 brief. 15 MR. PAUL: -- and I'll be quiet. We did 16 offer tomeetwith Charlie Stephens and the Department 17 several months ago to review our work andprovide the 18 proper interpretation of ourwork and Iguess I'd just 19 like to keep that offer open. 20 MR. BROOKMAN: Thank you, thank you. 21 Appreciate that. Other comments? Frank Stanonik. 22 MS. STANONIK: Frank Stanonik with GAMA. 23 I feel I have to clarify a little bit our comment 24 also. Our issue really is not per se that the 25 recovery efficiency should not exceed 76 percent, but 

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### 1 our point was in determining a minimum efficiency 2 requirement it should not be based on an assumption 3 that the recovery efficiencywill have to be at least 4 78 percent in order to -- our point was that the 5 minimum shouldn't be such that it would require a 6 minimum recovery efficiencyof 78 percent in order to 7 achieve the minimum standard level. Our point was 8 really to say you shouldn't push it to that level, 9 that really I guess I don't want to give the 10 impression that any product that has a recovery 11 efficiency of greater than 76 percent is somehow 12 inherently unsafe. That's not true. The real issue 13 is that if you establish a minimum that all of a 14 sudden raises that minimum, there are a lot of 15 associated, in our opinion, a lot of associated 16 problems that come with that particularly when you 17 consider the millions of existing installations that 18 are out there that are predicated on a certain 19 different level efficiency and which the common 20 practice is going to be the people in a replacement 21 installation tend to look at the water heater as a 22 drop in replacement. They don't anticipate messing 23 with the vent, if you will. They don't anticipate 24 that it even needs to be looked at and that is really 25 the heart of our issue that if we establish aminimum 

## NEALR.GROSS COURT REPORTERSAND TRANSCRIBERS 1323RHODEISLANDAVE., N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com78 1 at a level that would assume the minimum recovery 2 efficiency has become 78 percent, that represents a 3 significant concern to the 40, 45 million existing gas 4 water heater installations that have a venting system 5 that's been sized on a different criteria. 6 MR. BROOKMAN: Okay, that's helpful. And 7 you would understand or you would anticipate, I 8 believe, that this very brief -- these few parsed 9 words that the Department has tried to summarize would 10 leave out that kind of detail. So that's helpful. 11 MS. STANONIK: Yes. 12 MR. BROOKMAN: Charlie Stephens. 13 MR.STEPHENS: Ihad submitted comments on 14 this earlier based on my study of the Battelle work 15 and I didn't find any particular fault with the 16 Battelle work. It seemed very straight forward and 17 thorough. The only discrepancy I found between their 18 work and what DOE's charge is here is that they were 19 developing for the most part in their work a worse 20 case situationwhich is not how standards are founded. 21 Now I agree that you have to take into 22 account the range of situations that you'll find in 23 the field, but based on the research, I think 24 everybody would agree that there's no problem with 25 interior chimneys. That was pretty much concluded by 

## NEALR.GROSS COURT REPORTERSAND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com79 1 the studies. Whenwe lookedat exterior chimneys, the 2 study concluded that the occasional firing, if I can 3 quote, "the occasional firing of a residential water 4 heater in a common vented exterior chimney had very 5 little impact." 6 MR. BROOKMAN: On the moisture levels. 7 MR. STEPHENS: On the wet times in the 8 exterior chimney. The furnace governs flue 9 conditions. 10 When you get to whether or not you should 11 use a double wall vent for just a straight water 12 heater venting situation, the National Field Gas Code 13 does call for a Type B vent for places -- in unheated 14 spaces, unconditioned spaces. And that's not 15 conditioned on the efficiency of the water heater. 16 That's all water heaters. And if you look at the wet 17 times that come out of Battelle's research that it 18 actually makes a lot of sense. You can see the 19 differences in the wet times that they got in their 20 research. 21 Now for heated spaces or conditioned 22 spaces, even a single wall vent connector, under the 23 conditions they looked at under the typical 24 installation, not the 30 gallon, 25,000 BTU per hour 25 installation, but the 40 gallon, 35,000 BTU per hour 

## NEALR.GROSS COURTREPORTERS ANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 200053701 www.nealrgross.com80 1 installation withthe typicalvent configuration, then 2 you could, according to their charts and tables, with 3 a 3 inch or a 4 inch or a 5 inch flue or the 4 combinations thereof, go up to about an 80 percent 5 recovery efficiency or their flue loss efficiency is 6 what they were using, about 84 percent. And I've 7 looked at that data. I looked at their conclusions 8 and I said,you know, it makes sense to me, as long as 9 you stay in category 1. Then there shouldn't be a 10 problem and there should be no cost, additional cost 11 associated with venting. 12 MR. BROOKMAN: Category 1 in this case, 13 Charlie is? 14 MR. STEPHENS: Is 83 percent flue loss 15 efficiency or below. 16 In any case, 80 percent recovery 17 efficiency does not exceed the limits based on their 18 research of what might be expected to cause wet time 19 problems in the situations as I outlined them. 20 MR. BROOKMAN: Several people wish to 21 comment. Mark, I saw you first. 22 MR. KREBS: I think I can summarize this 23 very succinctly. Charlie is right that energy 24 efficiency standards are not based on worse case 25 scenarios. However, safety standards are and DOEmust 

## NEALR.GROSS COURT REPORTERS AND TRANSCRIBERS 1323RHODE ISLANDAVE., N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com81 1 consider safety standards. 2 MR. BROOKMAN: Thank you. Daryl, you 3 wanted to comment also? Please, please use the 4 microphone, state your name for the record. 5 MR. HOSLER: Daryl Hosler, Southern 6 California Gas Company. Also Chairman of the ANSI 7 Z2183 Committee. 8 I just want to comment on this slide that 9 DOE should be very careful about presenting 10 information that makes it look like GRI is somehow 11 setting standards levels and picking how standards 12 levels are going to be done. There's a committee of 13 experts fromacross the countrywho are a subcommittee 14 of the ANSI Z2183 Committee who are the ones that will 15 pickwhat this categorization criteriawill be. It is 16 true, there is a categorization criteria for furnaces 17 and boilers, but there is none for water heaters. 18 That has not been deducedyet and it's improper to say 19 that somehow that committee is going to pick recovery 20 efficiency as a driver for that. So you're putting 21 the cart ahead of the horse and implying that this is 22 the end of the line just because there is some data 23 out there on furnaces and boilers. 24 The committee has asked GRI to provide 25 data to help them make a decision. They will make 

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### 1 that. There are hundreds of experts who will make 2 that decision. It won't be made by DOE. It won't be 3 made byACEEE. It's going to be done by the industry 4 experts and it's a problem with you put this kind of 5 a commentup there. Itmakes it seems like GRI set in 6 stone what categorization criteria for water heater 7 is. So I just caution you to be careful about howyou 8 make these statements. 9 MR. BROOKMAN: That's a useful 10 amplification. Darrell? 11 MR. PAUL: Yes, a couple of points. 12 Again, the standardsprocess is an iterativeprocess. 13 Commentsare submittedto thevarious standardsgroups 14 and based on the technical information that's 15 submitted, standards are changed. 16 But it's an iterativeprocess in the sense 17 that feedback is given. We go back and redo our 18 analysisbased on the information thatwe get andthis 19 first report that was written, again was a scoping 20 study. It was never meant to set, to provide the 21 standards forventinghigherefficiencyappliances and 22 that statement up there, you will not find in our 23 report, 78percent recovery efficiency is 5.5 percent 24 below the flue loss efficiency limit. That is not in 25 our report and I would challenge the Department of 

## NEALR.GROSS COURT REPORTERS AND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON,D.C. 20005-3701 www.nealrgross.com83 1 Energy to find where that statement is made. 2 MR. BROOKMAN: That's the second timeyou 3 said it. We heard you. 4 Yes. 5 MR.KUSTERER: George Kusterer,BockWater 6 Heaters. Again, as normal, I'm confused. I see 7 recoveryefficiencies and I see Charliementioned flue 8 loss efficiencies and I think I brought this up at a 9 number of meetings. Recovery efficiency has nothing 10 to do with flue loss. It's one or the other. Canwe 11 clarify that? 12 MR. BROOKMAN: That is, use one term 13 consistently or make sure that use is used 14 consistently where it applies? 15 MR. KUSTERER: In other words, recovery 16 efficiencies with regard to water heaters is how fast 17 it recovers water. What does that got to do with flue 18 loss? 19 MR. BROOKMAN: Okay. 20 MR. KUSTERER: Can we clarify that? 21 MR. BROOKMAN: Okay. 22 MR. KUSTERER: Because I think we're 23 talking two different subjects here. Can DOE make 24 that determination now or do we have to do that at a 25 later date? 

## NEALR.GROSS COURT REPORTERS AND TRANSCRIBERS 1323RHODE ISLANDAVE., N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com84 1 MR.McCABE: There is a loose relationship 2 between recoveryefficiency and flue loss efficiency. 3 Flue loss efficiency is not a measure of efficiency 4 that DOE uses and the standard is not part of the 5 water heater standard. Recovery efficiency is one of 6 the inputs to come out with the energy factor, but we 7 are considering it in evaluating the impacts of the 8 standard and as I remarked earlier that as you change 9 recovery efficiencies, there is not a direct 10 relationship between recovery efficiencyand flue loss 11 efficiency as you move up and increase your recovery 12 efficiency. The difference between the two, if you 13 would, actually is as I understand it, becomes less. 14 So we only talk about flue loss efficiency with the 15 concerns about the impacts that a particular standard 16 level would have on the house, on the consumer, 17 particularly with respect to the safety issue. 18 MR. KUSTERER: My confusion is that 19 recovery efficiency is far less damaging or with 20 regard to condensation than flue loss efficiency. 21 Flue loss efficiency is what causes the lower 22 temperatures in the flue, iswhat causes corrosion and 23 venting, not recovery efficiency is what causes the 24 lower temperatures in the flue is what causes 25 corrosion and venting, not recovery efficiency. 

## NEALR.GROSS COURT REPORTERS AND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com85 1 MR. McCABE: You're absolutely correct. 2 MR. KUSTERER: So recovery efficiencyand 3 corrosion and venting should be two separate items. 4 MR. BROOKMAN: So I hear your plea for 5 clarity on the use of these terms. 6 MR. KUSTERER: Thank you. 7 MR. BROOKMAN: Thank you. Heat traps. 8 MR. McCABE: Heat traps. A couple of 9 comments? 10 MR. BROOKMAN: Steve Nadel. 11 MR. NADEL: Right. Two comments on this 12 issue. One, a lot of it comes down to a judgment call 13 about how conservative you want to be. In the 14 Battelle study, they found in a typical installation 15 you can have flue loss efficiencies of 83, 84 percent 16 and not have problem. And then proceed to apply a 17 whole bunch of, see if we take the worse here and the 18 worse here and the worse here and the worse here nd 19 the worse here, how far do you have to go down and 20 that's bypiling on about a dozen of those worse case 21 things. They can start coming up with numbers like 22 78, 80 percent and so on. 23 The question for DOE is do you want 24 something where there's noproblems guaranteed across 25 100 million households in the country? That would 

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### 1 drive you lower. Do youwant -- most say if you just 2 ban gas waterheaters because chances are one of them 3 is going to explode somewhere. Clearly, you need to 4 have some accessible limits. 5 MR. BROOKMAN: Steve Rosenstock, do you 6 wish to comment now? 7 (Laughter.) 8 I thought I saw your hand go in the air 9 there. 10 MR.NADEL: At least from all of the stuff 11 I've seen, from all of thedata, thatyou are goingto 12 have extremely, extremely small number of problems, 13 evenwhen you said 80 percent andyouprobably cango 14 higher than that, but DOE has got to decide how safe 15 is safe enough. 16 The other comment I say is we're 17 concentrating on recovery efficiency or flue loss 18 efficiency and how they are or are not related, but 19 thishappens tobegiven theway themodelinghas been 20 done, given some of the limitations of the tank andso 21 on, it has become a proxy for efficiency issue that 22 helps determine whether the energy factor which is 23 ultimately what we're going to be regulating, may or 24 may not goup to aroundup .6range. And ifyou look 25 at the GAMA directory, you will see that there are 

## NEALR.GROSS COURTREPORTERS AND TRANSCRIBERS 1323RHODE ISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com87 1 hundreds of models with energy factor to the .6 and 2 above that do not start pushing 80 percent recovery 3 efficiency. It just happens to be that's the way to 4 model it in tank, but there's lots of different ways 5 that manufacturers can meet a .6, .61, .62 energy 6 factor and if they decided that they wanted a lower 7 recovery efficiency, all power to them. There's 8 hundreds of models that have done exactly that. So 9 let's not blow this issue out of proportion. 10 MR. BROOKMAN: Okay, thank you. On to 11 heat traps. Final comment from Frank and then we're 12 on to heat traps. 13 MS. STANONIK: Frank Stanonik, again, I 14 have to clarify that last point. There are not 15 hundreds of models. There may be hundreds of 16 listings, all right, but in fact, I was looking for 17 the letter because I did this analysis for Terry and 18 I wrote a letter to Terry and I don't remember 19 exactly,butmyrecollectionwas somewhere inthe area 20 of 25 to 40 actual models and the energy factor was in 21 the .61, .62 range. Don't quote me because I don't 22 have the letter in front of me, but the point is that 23 I hope everybody understands that a lot of those 24 listings are simply the same model in a different 25 version. It's no different than when you go look at 

## NEALR.GROSS COURT REPORTERSAND TRANSCRIBERS 1323RHODE ISLANDAVE., N.W. (202)234-4433 WASHINGTON, D.C. 200053701 www.nealrgross.com88 1 car models in a Ford. Model X is the same as a 2 Mercurymodel Y orwhatever. It's the same thing. So 3 don't be -- I can't let past this idea that there's 4 hundreds of models. There are not. It's in the tens 5 of the kind he's describing. 6 MR. BROOKMAN: Steve, briefly. 7 MR.NADEL: Let me clarify. If you do the 8 count, there are 538 listings in the GAMA directory, 9 a little more than 20 percent of the total listing, so 10 I don't care whether you call it models listings, 11 whatever, it's a significant share of the market. 12 MR. BROOKMAN: On to heat traps. 13 MR. McCABE: We received comments, a 14 couple of comments on heat traps specific to 15 contribution of efficiency. 16 MR.BROOKMAN: Let memake a comment. I'd 17 like for all of you to accept that anybody who tries 18 to summary a mound of comment is going to have to do 19 some sorting, sifting andparticularly reducing. All 20 of these comments in here we can acknowledge and 21 expect they're going to be short form I would think. 22 So I do think it's useful for people to come forward 23 and say this sends the wrong impression or message. 24 This is wholly wrong and that sort of thing, but I 25 wish for you to be accepting of the fact that these 

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### 1 are condensations and aren't parsed in words to the 2 extent a full paragraphwould be. 3 Michael, proceed. 4 MR. McCABE: Thank you. We received at 5 least two comments dealing with heat traps, GAMA and 6 EPRI questioning the values for the effect of metal 7 and plastic heat traps including whether or not the 8 heat traps areused the same. Theplasticheat traps, 9 GAMA argues are internal units and at the same time, 10 GAMA and BradfordWhite have provided data and their 11 comments and those datawill be considered in coming 12 up with values for the proposed rule. 13 MR. BROOKMAN: Steve Rosenstock. 14 MR. ROSENSTOCK: Steve Rosenstock, EEI. 15 Carl Hiller couldn't be here today, but he wanted me 16 to ask about -- he was concerned because in his 17 interpretation, the analysis appeared togiveplastic 18 heat traps much better energy savings potential than 19 the metal heat traps and I think you'd want to know 20 that well, what is the data showing in terms of the 21 relative energy savings effectiveness of the plastic 22 versus the metal heat traps, if you're allowed to 23 share that. 24 MR. LOGEE: Sure, Iactuallyhave thedata 25 here that Bradford White sent in for electric heat 

## NEALR.GROSS COURTREPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON,D.C. 20005-3701 www.nealrgross.com90 1 traps. They sent in aplus .012 andGAMA hadprovided 2 us earlier in their manufacturers data .013 so we're 3 considering using an average of those numbers in our 4 future and revised analysis. 5 MR. ROSENSTOCK: Clarification, was that 6 for the metal or the plastic? 7 MR. LOGEE: Theydidn't indicatewhat kind 8 of heat traps those were. I presume that these are 9 probably internal and therefore plastic heat traps, 10 but I don't know. They didn't indicate it. 11 MR. BROOKMAN: Steve. 12 MR. NADEL: He was just in terms of 13 relative performance -- I think he was really 14 interested in that sort of data. 15 MR. LOGEE: What the Department is 16 interested in, of course, is what is the performance 17 of the device. We let the manufacturers decide what 18 kind of device they're going to use. We're trying to 19 get to the better performance. 20 MR. BROOKMAN: Steve, I saw a couple of 21 manufacturers going like this, nodding in agreement. 22 Steve Nadel. 23 MR. NADEL: Terry, I was just curious, 24 what is the source of the estimates they've beenusing 25 thus far, are those the defaults in the tank and wat. 

## NEALR.GROSS COURT REPORTERSAND TRANSCRIBERS 1323RHODEISLANDAVE., N.W. (202)234-4433 WASHINGTON,D.C. 20005-3701 www.nealrgross.com91 1 sim. or is it something else? 2 MR. LUTZ: It was the defaults in tank. 3 MR. BROOKMAN: That was Jim. Additional 4 questions, comments, related to heat traps? Steve 5 Nadel. 6 MR. NADEL: I guess, I assume we're going 7 to get into the whole calibration issue of tanks and 8 wat. sim. later. To the extent we started adjusting 9 their inputs that may affect efforts to calibrate and 10 validate those models, we need to cycle back to that. 11 MR. BROOKMAN: Okay. 12 MR.McCABE: As Terryhad indicated in our 13 life cycle cost analysis, we use a range of values as 14 far as usage, energy prices and the like. Much of 15 that information comes from the Residential Energy 16 Conservation Survey of EIA and there were comments 17 dealing with how we calculated hot water usage and 18 that the household, the average household hot water 19 usage for gas and electric, as we're using is 20 different. We received comments that we should be 21 using the same. We also received comments that there 22 are no data to support some of the values that we use 23 in our estimate where weuse thermostat set point and 24 a number of other factors that are not explicitly in 25 the RECS survey. The Laclede, Battelle, AGA, all 

## NEALR.GROSS COURT REPORTERS AND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com92 1 commented on one ormore of these. They're correct as 2 far as the RECS data does not include all those 3 values. We did extrapolate from other work for some 4 of those values and Jim Lutz can touch on some of 5 that. 6 Also, there was a comment that the data 7 had beenprovided earlier in EEI and GRI studies that 8 would appear that there is no difference in the 9 average water usage for gas and electric households. 10 Given theRECS data,we still believe that 11 there is some difference. The difference has been 12 reduced for this analysis than what it had been in 13 November. The upper end of the gas level daily use 14 water consumption has dropped down slightly and the 15 electric has gone up. But we're evaluating all those 16 comments again andbeforewe come upwith the analysis 17 for the proposed rule. 18 I appreciate any extrapolation expounded 19 that you may have on your comments now. 20 MR. BROOKMAN: Darrell? 21 MR. PAUL: Darrell Paul, Battelle. Yes, 22 we hadmade some comments on the hot waterusage model 23 and again, we don't really have a problem with the 24 range of values that you're predicting with that 25 model. We think a range of 45 to 50 gallons as an 

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### 1 average use for a household is reasonable, so we're 2 not quibblingwith absolute value. 3 But yet, when we looked at the hot water 4 usage in the spreadsheets, we found that there were 5 different coefficients used in thatmodel forwhether 6 you had a gas household or an electric household and 7 we didn't understand where some of those differences 8 came into play, so that when we -- we were under the 9 impression that the same hot water usage model was 10 being used for both the households with gas water 11 heaters and electric water heaters and when we, in 12 fact, plugged the gas household into the equation 13 that's beingused for electric households,we cameup 14 with values that were significantly different andwe 15 didn't understandwhere those differenceswere coming 16 from. And then last of all, again, we're not 17 concerned with the absolute values per se, but we 18 understand that there's a large uncertainty in the 19 coefficients that went into this model and when you 20 quote averageusages for householdswithelectric and 21 gas water heaters to three significant digits, it 22 makes it sound like there is -- those differences in 23 the mean values are real and we contend that they're 24 not and would like the Department of Energy to at 25 least put some uncertainty limits on those values. 

### NEALR.GROSS COURT REPORTERS AND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com94 1 MR.BROOKMAN: Terry Logee, doyouwish to 2 respond? 3 MR. LOGEE: We realized after we got the 4 spreadsheet on the web that there were errors in the 5 coefficients between gas and electric. In the 6 scramble to get things together,why they left -- they 7 had something left over, I guess, from a previous 8 spreadsheet. So we thank you for those comments. It 9 takes lots of eyes to look through these things very 10 carefully and

-- 11 MR.BROOKMAN: SoTerry,youwould confirm 12 that the coefficients are supposed to be the same? 13 MR. LOGEE: They are supposed to be the 14 same. 15 MR. BROOKMAN: Okay, thank you. 16 MR. LOGEE: We have not rerun the model, 17 the spreadsheets yet. 18 MR. BROOKMAN: What about Darrell's 19 question about uncertainties, creating, Iunderstood, 20 an understanding of the uncertainties. 21 MR. LOGEE: I'm not sure. We will -- we 22 can report less significant figures and we can round 23 off, I guess, the results for each individual 24 household. Andwe canprovide an uncertaintyrange as 25 well. We actually have done sensitivities on the 

## NEALR.GROSS COURT REPORTERS AND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com95 1 results. 2 MR.RANFONE: Jim Ranfone. Two questions. 3 Mike, you said that your reanalysis showeda lowergas 4 usage and higher electric usage. Nowwhat are the new 5 figures that you're using? 6 MR. McCABE: That's compared to the 7 analysis that hadbeen presentedayear, sixmonths or 8 so ago. So I think in both cases it's approximately 9 a half a gallon. 10 MR. RANFONE: So you had 49 and 44 and 11 you're saying now it's 48.5 and 44.5? 12 MR. McCABE: In that range, I'll look to 13 Jim and Terry. 14 MR.RANFONE: Secondquestion is if you're 15 going to run -- if you're going to do a reanalysis 16 with the corrected coefficients

-- 17 MR. BROOKMAN: Are they alreadyup on the 18 web? Or they will be up on the web? 19 MR. LOGEE: They aren't on the web yet. 20 They haven't had time to rerun them. I think the 21 electric came up above 45, as I recall, Jim, but the 22 gas was still around 48.5, I guess. I don't know 23 exactly. 24 MR. RANFONE: With the new coefficients? 25 MR. LOGEE: No,with the new coefficients 

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### 1 -- no, those are not the corrected coefficients. We 2 still need to correct them. 3 MR. BROOKMAN: Additional questions, 4 comments on this? 5 MR. McCABE: Getting back to the point 6 that Doug had made that somewhat shorthands the 7 issues. There was a comment that -- really actually 8 two separate, but related comments regarding the

-- 9 how we've estimated water use, how we're projecting 10 water use. The question was whether or not we 11 considered the possible clothes washer standards and 12 whether or not we are considering in the future that 13 water consumption patterns will change, for example, 14 the use of more low flow shower heads and the like. 15 With respect to thewater heater, clothes 16 washer standards, that is not factored into the 17 analysis. With respect tousagepatterns in general, 18 we are assuming that there's going to be a constant 19 usage pattern, sowe're notprojectinghouseholds are 20 going to change the way they use the products in the 21 household that have an impact on hot water 22 consumption. 23 Those are questions thatwere raisedboth 24 by EEI and Battelle. 25 MR. BROOKMAN: Comments on that? Okay, 

### NEALR.GROSS COURT REPORTERS AND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com97 1 Michael. 2 Darrell? 3 MR. PAUL: I do have one additional 4 comment concerning the use of the RECS data and you 5 touched on it briefly and that was the fact that the 6 RECS data base that is currently in your spreadsheet 7 models has a number of parameters that were not part 8 of the original RECS database that have been assigned 9 to specific households and some of those parameters 10 are the water heater thermostat set point temperature 11 for that house and the RECS survey, the volume of the 12 water heater tank, whether it was a 30, 40, 50 gallon 13 tank and the average air temperature in the room in 14 which the water heater was located. 15 Iguesswe'd like toget some feedback and 16 there were several others that we list in our 17 comments, but we like to get some feedback as to how 18 those specific values were assigned to the RECS data. 19 I don't expect to get that now, but I would like to 20 follow up and get the information from the 21 contractors. 22 MR. BROOKMAN: Thankyou, Darrell. We'll 23 make that available. As I mentioned, we have 24 extrapolated from other data sources or even to that 25 that I believe looking at Jim Lutz for the water 

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### 98 1 heater size that we looked at the households and the 2 households size inRECSandtried toextrapolate that, 3 the temperature settings, the temperature in the 4 environment all came from other data sources, but 5 we'll get back to you on that one. 6 MR. BROOKMAN: Thank you. Steve 7 Rosenstock? 8 MR.ROSENSTOCK: Just aquick followup in 9 our comments. Steve Rosenstock, EEI. Just in our 10 comments, it was my opinion or our contention that 11 because clothes washers are one of the prime uses of 12 hot water in the households that standards will have 13 a downward push on the amount of hot water used 14 regardless of field type so itwas our thought that it 15 should be taken into account for the projections. 16 Thank you. 17 MR.BROOKMAN: Yes sir,please come to the 18 microphone. 19 MR. ROLF: My name is Paul Rolf from 20 Effikal. If you don't mind, I'd like somebody to 21 indulgeme forabout 30 seconds. Myunderstanding is 22 a heat trap is a heat trap. It doesn't make any 23 difference whether it's a gas water heater or an 24 electric water heater. Is that correct? 25 MR. BROOKMAN: Who can answer that 

### NEALR.GROSS COURTREPORTERS ANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com99 1 question? 2 MR. ROLF: I come to the microphone with 3 that in mind, but when I look at the data and I look 4 at option 1 or standard level one which is the most 5 important it seems, I see a major difference between 6 the influence of heat traps on the electric appliances 7 versus the gas appliances. Is that consistent? 8 MR. LANNES: I'm comment. Eric Lannes, 9 Bradford White. You can look at the energy factor of 10 comparable units. That will tell you why there's a 11 difference. You can havemuch lower standby losses on 12 an electric product versus a gas or oil products. 13 MR. ROLF: And that's where the influence 

### 14 15 MR.LANNES: Right, so essentially you'll 16 see the differences associated with that. 17 MR. ROLF: Thanks. 18 MR. BROOKMAN: Additional questions on 19 these points before we move on? Okay. 20 MR. McCABE: We also received some 21 comments on blowing agents and again with the 22 shorthand, I'mgoing to expandon this and essentially 23 treat two separate comments. One is about the 245fa 24 which was discussed in Terry's comments that we are 25 expanding the analysis to include the life cycle cost 

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### 1 and National Energy Savings Analysis for the

-- 2 looking at 245fa. There were also a series of 3 commentswithrespect totankbottominsulation,EPRI, 4 BradfordWhiteandGAMA,amongthe commentssubmitted, 5 comments on that. EPRI's, for example, comment as I 6 interpreted it saidwe've overestimated the effect of 7 the -- putting insulation on the tank bottom. Also 

### 8 hadcomments fromBradfordWhite about the lowerwater 9 temperature, consistent with, I think with EPRI's 10 comments, that the lower temperature of the water at 11 the bottom of the tank gives a stratification that 12 they'requestionableas towhatbenefit the insulation 13 canhave in the bottom and GAMAtalked about both the 14 cost, as faras on a dollarbasis and the improvement 15 in energy factor due to bottom insulation. 16 Ashadbeendiscussedat the lastworkshop 17 andHunter Fanneywhenhe showed some of his pictures 18 of units that he had tested, when you looked at the 19 infrared photographs and the amount of heat that was 20 escaping from the bottom, that was what drove us to 21 look at this andwe believe and I'll look to JimLutz 22 to expandon this, that there is a significant loss of 23 energy from the bottom of the tank. 24 Wouldyou want toaddanything to it, Jim, 25 before there are any questions or comments? 

### NEALR.GROSS COURT REPORTERSAND TRANSCRIBERS 1323RHODE ISLANDAVE., N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com101 1 MR. LOGEE: We've seem from sort of a -- 2 not qualitative type of data from NIST in the 3 thermograms that most of the tanks that they test, 4 today's tanks, have a fair amount of heat coming off 5 of the base of the tanks from the -- and we don't see 6 the -- the thermograms don't show that off of the 7 jacket, just off the very bottom pan. So we think 8 that there is an improvement that can be made there 9 and Iguess we candebate or argue about the amount of 10 the improvement. 11 MR. BROOKMAN: Questions or comments, 12 following up on that? Yes? 13 MR. STRAUSS: Good morning, my name is 14 Brian Strauss and I'mthemarketing manager forAllied 15 Signal. We're in the blowing agent business and it's 16 been alluded to earlier today that perhaps some 17 questions would come up as to the status of 245fa and 18 It will be available on the marketplace, upon the 19 phase out of 141b in 2003, and so I'd just like to 20 address that subject today. 21 Allied Signal has been in the blowing 22 agent business for a number of years and indeed the 23 floor covering business for in excess of 40 years. 24 With respect to 245fa Allied Signal has spent 25 considerable time and effort since 1994 in the active 

### NEALR.GROSS COURTREPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 200053701 www.nealrgross.com102 1 development of 245fa. Our company has spent in the 2 order of $27 million on the development of 245fa. We 3 feel very comfortable that 245fa will be available to 4 customers in the marketplace, in advance, slightly in 5 advance of the 141b phase out. We have recently filed 6 forourpre-manufacturernoticewiththeEnvironmental 7 ProtectionAgencyas well as seeking SNAF approval for 8 245fa as a 141b replacement. We verymuch anticipate 9 those approvals going through. We stay in contact 10 with EPA on those subjects. We anticipate those 11 approvals going through and so we anticipate in the 12 very near future being able to announce our intention 13 to make 245fa available in advance of the 141b phase 14 out. I'm very comfortable and it is my job, it is my 15 day to day job to manage this program. I'm very 16 comfortable that 245fa will be available in the 17 marketplace prior to the 141b phase out. 18 MR. BROOKMAN: Thank you. Can I ask you 19 a question? 20 MR. STRAUSS: Sure can. 21 MR. BROOKMAN: I know from earlier 22 workshops, Iwas just conferring withMichael McCabe, 23 briefly, and earlier workshops there was not only a 24 concern that theproductmight not be available, there 25 was also a concern that once theproduct was available 

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### 1 that all known manufacturers might not be able to 2 respond to the quantity of demand. 3 MR. STRAUSS: All known manufacturers 4 meaning competitors to Allied Signal? 5 MR.BROOKMAN: That is to say thosepeople 6 that -- I've stated that wrong. But all those people 7 that might be in the business of producing this 8 material. 9 MR. STRAUSS: Of producing floor 10 coverings? 11 MR. McCABE: As that the manufacturers 12 demand, appliance manufacturers demand could not be 13 met. 14 MR. BROOKMAN: Satisfy that demand. 15 MR. STRAUSS: Again, we have a very good 16 understanding of the marketplace today with 141b. 17 141bas abusiness thatwe are in todayandwe sell to 18 a number of the systems houses that provide 19 formulations to this industry. Icertainlythink that 20 any 245fa facility thatAllied Signal constructs will 21 have ample excess capacity to support what I 22 understand to be a 3 to 4millionpound blowing agent 23 segment as represented bywater heaters. 24 We do not have direct contact with water 25 heater manufacturers. Indeed, you should know that 

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### 1 Allied's position is we're not in the water heater 2 business. So we take no position on this standard. 3 But I think what you should know is that there are 4 other segments out there that are much larger, that 5 usemuchmore 141bandso this segment relative inour 6 business is a fairly small segment and so we would 7 anticipate any facility that Allied were to build to 8 be able to accommodate the blowing agent requirements 9 of the water heater segment in the United States. 10 MR. BROOKMAN: Thank you. Thank you. 11 Additional questions or comments? 12 MR.VAGO: Ihave a question. OttoVago, 13 State Industries. Thegentlemanmadeastatement that 14 245 willbe available prior to the phase out of 141b. 15 Could he give us an approximate time frame, how far 16 ahead of the phase out time? 17 MR. STRAUSS: You shouldknowthatwe have 18 made 245fa previously. We have a pilot plan in 19 Buffalo, New York that we have run extensively to 20 produce 245fa. We run that pilot plan for two 21 reasons: one, to develop a commercial manufacturing 22 process to produce the molecule. We were very 23 successful in that endeavor. We have a number of 24 process patents on how to make 245fa. We believe we 25 have the best low cost process to make 245fa. 

### NEALR.GROSS COURT REPORTERSANDTRANSCRIBERS 1323RHODE ISLANDAVE., N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com105 1 Secondly,we runour pilotplan to support 2 ourvarious customers, some ofwhich are in this room, 3 systems houses who indeed supply you with foam 4 formulations. But we also ran that pilot plant to put 5 samples onto the market place. And so we have 245fa 6 available today. Nowyou wouldn't like the economics 7 because it comes out of a pilot plant that certainly 8 isn't designed toproduce 245fa on agrand, economical 9 scale. With regards to a commercial facility, any 10 commercial facility ally were to build, we have 11 targeted to be on line in the middle of 2002 to allow 12 for a six month ramp up period of time between that 13 and the 1-1-2003 phase of 141b. 14 245fa, for us, is a large investment and 15 we've been very diligent and been very careful in 16 analyzingthis project. Itwill requireAllied Signal 17 to expend $75 million plus in capital to construct a 18 facility. Now we've done this before. This is our 19 business. We makea number of fluorocarbons, not only 20 for foam blowing, but for refrigeration, solvents, 21 aerosols, etcetera, etcetera and so, we know a lot 22 about this business. But toanswer your question, our 23 goal in the construction of a 245fa facilitywould be 24 to be on line to allow for a sixmonth ramp up period 25 prior to a 141b phase out. 

### NEALR.GROSS COURT REPORTERS ANDTRANSCRIBERS 1323RHODEISLANDAVE., N.W. (202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com106 1 MR. BROOKMAN: Otto? 2 MR. VAGO: Otto Vago, State Industries. 3 My question to the foam supplier. I do understand 4 that there are some here. Is this six months enough 5 time for them to provide -- also with the foam, the 6 ultimate product that we basically use. As I 7 understood it from the gentleman, there's about six 8 months lead time that we're talking about. 9 MR. INGOLD: Kerry Ingold with Bayer 10 Corporation. Sixmonths, we'vebeen doing development 11 work with the 245fa systems for some time. The 12 samples have been available fromAllied as he stated. 13 Six months time for production quantity trials in the 14 facilities, in my opinion, will be short. I think 15 that will be pushing the envelope and maybe some of 16 the manufacturers can expand some on the logistics of 17 that, but I think that that is going to be a somewhat 18 short time frame. 19 MR. BROOKMAN: We have several additional 20 people who wish to comment, please. 21 MR. BEAUCHAMP: Brad Beauchamp, Business 22 Manager with Stepan Company. We're also a foam 23 supplier. I would concur with Bayer that the six 24 month time frame is a rather tight time frame to be 25 able to run and execute successful plant trials to get 

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### 1 kind of a baseline established on that. 2 Iwouldalso like to comment or it should 3 be known, it's pretty well known here that Allied 4 Signal is the onlyproducer of 245, so there isnot -- 5 they are a single source for when that goes into 6 production. 7 MR. BROOKMAN: Thank you. Does Allied 8 Signal wish to comment also? 9 MR. STRAUSS: Ican certainly understand 10 your question on a time line in the six month 11 availability. We haveapilotplanasset currentlyin 12 Buffalo that is available to support the industry 13 shouldwe need togeneratematerial out of that pilot 14 plant facilityto support the trials. There areother 15 options that may be available to us that we are 16 working on for some sort of larger scale interim 17 supply. There'snothingdefinitive,butwe dohave an 18 asset in the ground today that produces 245fa in a 19 pilot plant basis. 20 Sowe want to work very closely with the 21 industry and with our customers, the systems houses 22 and in turn, with your industry, should it be 23 somethingyou want to pursue. 24 ASSISTANT SECRETARY REICHER: Can I -- 25 this is Dan Reicher -- the pilot plan is what scale 

## NEALR.GROSS COURT REPORTERS ANDTRANSCRIBERS 1323RHODE ISLANDAVE., N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com108 1 relative to a -- 

### 2 MR. STRAUSS: It's a small scale. 3 ASSISTANT SECRETARY REICHER: What 4 percentage of what you'd ultimately build and put on 5 line in 2000? 6 MR. STRAUSS: I'll give you -- our pilot 

### 7 plan is 150,000 pounds if we ran it 365 days a year. 8 It's a small scale. 9 ASSISTANT SECRETARY REICHER: I don't 10 know, what's a big

-- 

### 11 MR. STRAUSS: A big plant, what we would 12 call a world class fluorocarbon scale would be in 13 excess of 30 to 60 million pounds, per year, because 14 in addition to this industry, of course, we sell 15 products to others. 16 MR. BROOKMAN: Terry Logee. 17 MR. LOGEE: I was wondering if either 18 KerryorBradcould identifyapproximately -- you said 19 six months was too short. What kind of time frame 20 wouldyou need to be able to supply themanufacturers 21 with adequate product? 22 ASSISTANT SECRETARY REICHER: Actually, 23 this is Dan Reicher, he said it was short. Ididn't 24 hear that they said it was too short. Iwas actually 25 interested to hear what you reallymean by that. 

## NEALR.GROSS COURT REPORTERS AND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON,D.C. 20005-3701 www.nealrgross.com109 1 MR. BROOKMAN: Go ahead and then this 2 gentleman will go next. 3 MR. INGOLD: Kerry Ingold, Bayer 4 Corporation. If you just take a look at the testing 5 that you've done for the purpose of these workshops, 6 you can understand the time frame and the involvement 7 it takes to complete a reasonable size sample, if 8 nothing else for the EF testing and I don't want to 9 speak on behalf of the manufacturers, but any design 10 changes that might be required across the board of 11 their product. So I'm mean -- 12 ASSISTANT SECRETARY REICHER: Just so I'm 13 clear, this is Dan Reicher. The availability of the 14 245fa for the pilot plan, is that

-- 15 MR. INGOLD: Allied hasmade the material 16 available to us as requested to this point. If you're 17 looking at production size line trials and I don't 18 understand, I'm not fullyapprised of the total demand 19 it would take say if all of the manufacturers were 20 apprising thatmaterial, Iwouldn't know if they could 21 make that supply,using thepilot plant facilities, as 22 it is. I don't want to speak for Allied. 23 MR. STRAUSS: Iwould suggest that this is 24 something that our businesses would maybe talk about 25 off line, but I'm very comfortable with the asset we 

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### 1 have todayand I'mverycomfortablewiththedirection 2 our 245 program is going and certainly if we need to 3 develop somethingin the interim, theremaybeoptions 4 that are available. 5 MR. BROOKMAN: We have another gentleman 6 waiting to speak. The comment I heard earlier that 7 I'd like to repeat was about -- you spoke mostly not 8 to the issue of scale, you spoke mostly to the issue 9 of quality, that is, doing the runs, getting the 10 product done to spec, making sure that stuff is taken 11 care of. 12 MR.BEAUCHAMP: BradBeauchamp againwith 13 Stepan. I think the time line was spoke to pretty 14 well fromBayer's standpoint. There are other factors 15 being involved in the water heater industry that 16 affect more than just the polyurethane foam that we 17 supply, so those have to be taken into account. 18 Production scale of quantities, obviously, involve 19 more than just batches beingmade in a lab in awater 20 heater here and there. I think Steve Nadel has 21 touched on there's many different models we have to 22 consider as we're supplying to the different 23 manufacturers and you need adequate time to be able 24 evaluate the impact of a foam and a blowing agent on 25 each individual production model. 

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### 111 1 MR. BROOKMAN: That's helpful. And this 2 other gentleman,please sayyour name for the record. 3 MR. KRUPEL: Mike Krupel with BASF 4 Corporation andwe are one of the foam suppliers also. 5 I want to remind everyone that we had a lot of 6 problems whenwe went from freon 11 to 141b and there 7 was quite a learning curve that went along with that 8 and it is expected that all the models need to be 9 tested pretty exclusively to see how it's going to 10 work. 11 The other concern Ihave is in the cost of 12 245fa as compared to 141b today. 13 MR. BROOKMAN: How wouldyou characterize 14 those cost differences in your opinion? 15 MR. KRUPEL: The cost differences between 16 245 and 141b? I thinkBrian's going to approach that. 17 MR. STRAUSS: Actually freon is a trade 18 name of our competitor, DuPont. 19 MR. McCABE: Brian, this is Mike McCabe. 20 Before you answer the question because this is really 21 a two part question of which you can only deal with 22 part of it, the other -- you can deal with the cost, 23 potential cost for the 245fa. But the other half of 24 the question as I see it is the insulation material 25 itself, including the 245fa, the blown insulation. 

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### 1 How muchdifference is the cost of the insulation and 2 that's not yours. 3 MR. STRAUSS: And actually to be quite 4 honest, I'm afraid I'm not going to be much help to 5 you on the issue of pricing in 245fa. I mean it's a 6 policy of Allied Signal not really to comment on 7 pricing in a public forum. And quite frankly, we 8 don't sell blowing agent to water heater 9 manufacturers. We sell blowing agent to systems 10 houses who then price theirproducts accordingly and 11 sell it towater heater manufacturers. So Ithink the 12 overallprice impact is one thatneeds tobediscussed 13 betweenwater heater manufacturers andsystems houses 14 and foam formulators and people where they actually 15 directly buy their product from. 16 It's a small segment for us. We sell to 17 large segments direct. We sell to rigid board stock 18 segments direct. We sell to appliances, 19 refrigerators, freezers direct, but we don't sell 20 direct to water heaters because they enjoy a service 21 of the systems houses and so Ican't reallycomment on 22 the cost aspect of it. 23 245fa is a more expensive molecule. The 24 5 in thenumber indicates a 5 fluorinemolecule andby 25 nature it's more expensive to make. It requires a 

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### 1 capital investment and sowhat Ican say is it's more 2 expensive. 3 MR. BROOKMAN: Thank you. It seems as 4 thoughwe'regettinganswershere that are indicative, 5 but Idon't thinkwe'regoing toget answershere that 6 are definitive. It's what's occurring to me inwhat's 7 just occurred. So I want us to make sure that we 8 don't spent all of our time chasing an answer we're 9 not going to get at this moment. 10 IsawSteve Nadel, Isaw George and Isaw 11 Otto. 12 MR. NADEL: One comment on the timing 13 issue. As IunderstandtheDOE schedule, the standard 14 will be completed in July of 2000. Under NAECA, 15 there's at least a three year phase-in period before 16 we go into effect, so the standard would not go into 17 effect until July 2003, so there wouldbe an extra 7 18 months to complete testing for energy factor beyond 19 the six months that was indicatedpreviously. 20 MR. BROOKMAN: Thank you. George? 21 MR.KUSTERER: GeorgeKusterer,Bock Water 22 Heaters. I think what we have here is a two-fold 23 problem and obviously I'm sure everybody is aware of 24 it. Number one, single source supplier. If is avery 25 big word. My fatherhad asayingwhich Ican't repeat 

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### 114 1 on tape -- 

### 2 (Laughter.) 3 However, as a farmer, if is a very big 4 word. If we had a lot of rain, Iprobablywon't have 5 to cut my herd this year. Unfortunately, Iwill. So 6 if that plant is not in operation by mid-2002 as a 7 single source supplier, Ithinkwe have aproblem. I 8 think we have a big problem. The plant has not yet 9 been constructed and we're very close to that time 10 frame andaplant of thatmagnitude isnot going to be 11 -- like in Pennsylvania, driven down the road, two 12 sides put together and we're going to start 13 production. So that's my two major concerns that I 14 think DOE needs to consider. 15 What if theplant is not intheprocess of 16 or is not ready forproduction inmid-2002 and single 17 source supplier. A lot can happen. 18 MR. BROOKMAN: Thankyou. Otto. 19 MR. VAGO: Otto Vago, State Industries. 20 Once again a time frame, we heard foam suppliers are 21 telling us here, at least that six months is a 22 somewhat short time for them. At thatpoint,wewater 23 heater manufacturers haven't done any work and 24 preliminaryworkwemayhave done of 245 at that time, 25 but at thatpointwe haven'tdoneanything in terms of 

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### 1 a production line of ours using that particular 2 material. 3 MR. BROOKMAN: Okay. Dan? 4 ASSISTANT SECRETARY REICHER: I just 5 wanted to be clear about something, Dan Reicher. Is 6 it sixmonths or is it 13 months? 7 MR. LANNES: It's six months from 2003, 8 January 2003 when the phase out begins. 9 ASSISTANT SECRETARY REICHER: Okay, so 10 that's the

-- 

### 11 MR.LANNES: That'scompletelyindependent 12 of your rule. 13 ASSISTANT SECRETARY REICHER: No, I 14 understand that. 15 MR. BROOKMAN: That was Eric Lannes. 16 ASSISTANT SECRETARY REICHER: No, I 17 understand that, but what's the driver -- if the 

### 18 effective date of the rule is in July of 2003

-- 19 MR. McCABE: If I can try to -- what ismy 20 understanding

-- 

### 21 MR. BROOKMAN: Michael McCabe. 22 MR. McCABE: -- as you comment on it is 

### 23 that since you are using 141b now, if I understand 24 your comment, is that you're going to have to do 25 somethingbyJanuary 2003 without regards to what DOE 

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### 1 does. 2 MR. STRAUSS: The Clean Air Act and EPA, 3 the EPA has mandated -- you have to stop consuming 

### 4 141b on January 1, 2003. Now consumption is defined 5 by the EPAasproduction,plus imports,minus exports. 6 So if you have 141b in a storage drum on December 7 31st, you can continue to use it on January 1st. 8 MR. BROOKMAN: Okay, thank you. And I'm 9 going back to my earlier comments. I think we're 10 getting answershere that are indicative, but perhaps 11 not fully definitive and hopefully more information 12 will come forward in the comments and Idon't want to 13 drag this -- I don't want to beat this to death, I 14 want to keepmoving on. Soyou get the final comment 15 and thenwe're going. 16 MR. BEAUCHAMP: BradBeauchamp againwith 17 Stepan. Two questions. One would be a question for 18 Allied Signal in terms ofhow long it would take them 19 to produce a plant once they made the decision to go 20 ahead and the second comment is he is correct about 21 the ability or the availability of 141b. The 22 difficulty from a foam manufacturer standpoint is 23 we're not going to carry inventories of HCFC 141b if 24 there'snot demand fromour owncustomers. Sowhether 25 we can have it onour floorand available topeople is 

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### 1 really a moot point at this point until we know more 2 about what's available as we get close to the phase 3 out date. 4 MR.BROOKMAN: It seems likehewas asking 5 you a specific answer. What was that question again? 6 MR.BEAUCHAMP: What typeof time framedo 7 you anticipate going from actually throwing out the 8 golden shovel to actuallybeing able to produce? 9 MR. STRAUSS: This is not an exact 10 science. There are multiple time lines that we can 11 adhere to, but we certainly do not see any problem 12 with making a decision and finalizing that decision 13 and being on line in the middle of 2002. As a basis 14 for comparison sake our recent plant that we built 15 five, six years ago in Guismer, Louisiana, our 134a 16 multi-products plant, we built from start, concept, 17 drawings to completion and throw the switch in 18 18 months. 19 MR.BROOKMAN: Andstart to completionand 20 then ramp up in production from there. 21 MR. STRAUSS: Start, completion and 22 initial ramp up phase on the back end, all in 18 23 months. 24 MR. BROOKMAN: Thank you, thank you. I 25 want to move off this subject. Michael, we're moving 

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### 1 on. 2 For those of you that are hungry, we're 3 going towork through lunch a littlebit here untilwe 4 catch up. 5 MR.McCABE: Iamgoing tomove the slides 6 outof order. That is the testprocedure issue. It's 7 an issue that SteveNadel raised in oneofhis earlier 8 comments on engineering issues. 9 In your handout I believe is the -- near 

### 10 the end of the packet. 11 MR. KUSTERER: Page 13. 12 MR.McCABE: Page 13. Thankyou,George. 13 At the lastworkshop therewas aquestionwith respect 14 to what efficiency was being observed in the 15 marketplace andwhat efficiencywas coming out of the 16 wat.sim. and tankmodels? What DOE was going touse. 17 The National Resources Defense Council, I believe, 18 Oregon Energy Office andAmerican Council for Energy 19 Efficient Economy all pointed out a discrepancy of 20 about -- and it'sbeendiscussed Iguess earliertoday 21 aboutan energyfactordifference ofabout .02 for the 22 high efficiency electric water heaters. 23 Since then we have examined data from a 24 number of sources, data from GAMA certification 25 program,data from testing which is being done at the 

## NEALR.GROSS COURT REPORTERS AND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 200053701 www.nealrgross.com119 1 National Institute of Standards andTechnologyaswell 2 as manufacturer data andbased on thatwe believe that 3 the engineering analysis, the wat.sim. model is 4 correctly projectedpredicting energy factorand it is 5 going to be the output from that model that we are 6 using. I hope that answers the question as far as 7 what we're going to be using and why. 8 MR. BROOKMAN: Steve Nadel. 9 MR. NADEL: Two questions. I was 10 wondering if there's any data you can share with the 11 rest of us to support that conclusion in terms of test 12 data, in terms of data verifying the performance of 13 wat.sim.or tank athigh efficiency levels. It sounds 14 like you're comfortable, but it would be useful to 15 provide some of that data to help other people be 16 comfortable. That's one question. 17 The second is given the fact we've had 18 this discrepancy in the past, what is DOE going to do 19 to make sure that in the future reported values are 20 true as opposed to basing a standard on a set of 21 calculations, but enforcing them based on something 22 else? 23 MR. McCABE: With respect to the last 24 question, those data are being reviewed and being 25 discussed within the Department. A position and a 

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### 1 course of action has not been decided on yet. 2 And the same answerwould generallyapply 3 to the first questionbecause someof those datagiven 4 how they'vebeen collected,we are tryingtodetermine 5 how they should be released and whether or not they 6 canbe released. 7 MR.NADEL: When doyou anticipate having 8 an answer or is it always going to be "trust us"? 9 MR.McCABE: Well, the check isn't in the 10 mail yet, Steve. It's a legitimate question. Iwish 11 I could give you a specific answer. The answer, my 12 answer to that is Ihope that itwouldbe rather soon. 13 MR.RANFONE: JimRanfone. Quickquestion 14 on this. Is your analysis also applied to the 15 baseline units for both gas and electric? 16 MR. McCABE: The information that we 17 looked atwas not as extensive for thebaseline units 18 andmy interpretationof some of thatmore limitedset 19 is that whenyou look at thewhole data set, you can - 20

- and I'm most familiar with the data on electric. 21 I'll talk about electric. 22 Thatwhenyou divide itup into thirds,as 23 far as the high efficiency, mid-efficiency and low 24 efficiency cohorts, that there's different 25 performances, that the high efficiency appears to be 

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### 1 overrated. The mid-efficiency appears tobe right on 2 target and the low efficiency appears to be 3 conservatively rated, so that when you look at the 4 whole range of data, it appears that on average that 5 they appear to be on target. But if you break it 6 down, slice it and dice it. 7 MR. BROOKMAN: Steve and then

-- 8 MR. McCABE: Let me just -- we have

-- 

### 9 it's a limited -- whenyou startgettingaway fromthe 10 highefficiencyelectric, thedata setbecomes smaller 11 and I would not want to extrapolate from that any 12 position the Department may take. 13 MR. BROOKMAN: Steve Rosenstock. 14 MR. ROSENSTOCK: This is again from Carl 15 Hiller's -- he would be happy to talk about it, all 16 the details about wat.sim. if he were here, but he 17 said wat.sim. can predict energy consumption of 18 electricwaterheaters typically within3to 6percent 19 accuracy. The type of analysis represented by DOE, 20 energy factor tests the accuracy would typically be 21 around 3 to 4percent range. So again, some of these 22 numbers are within the range of errors for wat.sims. 23 MR. BROOKMAN: Okay, thank you. Final 24 comments on this? Yes, Frank. 25 MS. STANONIK: Frank Stanonik, GAMA. Two 

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### 1 quick comments. We've certainly commented to DOE 2 before that none of GAMA's water heater manufacturer 

### 3 membersusewat.sim.inanyoftheirworksowe really 4 don't haveanyexperiencetoaddresstowhatdegree it 5 is accurate or whether there may be inaccuracies. 6 Obviously, Carl Hiller has a lot of faith in it, but 7 I guess I just want to point out that the industry 8 certainlyhasn't embraced it and reallydoesn't have 9 much experience with it. 10 Theotherpoint is recognizingall of the 11 caveats that this is abasic condensationof alot of 12 issues anda lotof comments. Iguess I'm just going 13 to say at this stage I don't know -- let me rephrase 

### 14 that. I don't agree that there's an overrating of 15 .02. There are certainly a lot of issues involved. 16 We've heard some of them in discussions that related 17 to the insulation and all that, but I think it is 18 something that certainlywe're very willing to take 19 into a dialogue and see what we really know and what 20 we don't know. 21 MR. BROOKMAN: Thank you. Other comments? 22 We're nowback topage 6. 23 MR. McCABE: There were a couple of 24 comments regarding changes in the designof products 25 that may come about as a result of increased NEALR.GROSS COURT REPORTERS AND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com123 

### 1 efficiency both with respect to electric and gas and 2 what I've characterized here is one that dealt with 3 the electric, that is, that if you -- the lowboy, 4 tabletop water heaters, the various designs of water 5 heaters that are limited inheight or indiameter, one 6 or the other and maybe both, that as you go with 7 thicker insulation, we're going to be limited as to 8 how much larger you can make the unit and have to 9 sacrifice the internal volume to make it a smaller 10 tank. There's also an issue that was raised with 11 respect to gas water heaters that if you have to go 12 with a smaller unit, in order to satisfy the first 13 hour rating that consumers will demandwill go with a 14 larger burner and larger vent and the question is 15 whether DOE has taken that into consideration. 16 With respect to some of those issues, we 17 have added installation costs as discussedhere to 10 18 percent premium to cover some of the designs. That 19 does not capture all of the different issues that are 20 there. We're trying to get a better handle of what 21 the impacts are. We think by making some of the 22 changes for certain segments of the market, adding 23 costs, that we are capturing some of those impacts. 24 MR. BROOKMAN: Mark Krebs. 25 MR. KREBS: Did I hear your correctly? 

### NEALR.GROSS COURT REPORTERS ANDTRANSCRIBERS 1323RHODEISLANDAVE., N.W. (202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com124 1 You said you added a 10 percent premium? Or is that 2 10 percent of the water heaters? 3 MR. LOGEE: Can I clarify that? This is 4 Terry Logee. We added installation costs ina form of 5 removing and reinstalling the door jamb on 10 percent 6 of the water heaters that were indicated in the RECS 7 data set that were inside the house. So that's the 8 cost that we added for the electrics. For the gas,we 9 added those vent costs that I had mentioned earlier. 10 MR. BROOKMAN: Additional comments or 11 questions on this point? Yes sir. 12 MR. THOMASTON: Bill Thomaston, Alabama 13 Gas. I've worked withmulti-familymarket, both as a 14 contractor and a utility employee for better than 30 15 years and of course space has always been a problem 16 withgas equipment, particularly gas furnaces and gas 17 waterheaterswhichare usually installed in tandem in 18 amechanical closet. And getting the additional space 19 has always been aproblem. You werevery fortunate to 20 get one inch of clearance for whatever size equipment 21 was available at that time andas equipment sizeshave 22 increased in diameter, small furnaces and now with 23 NAECA 1 water heaters, this has become an increasing 24 problem. 25 We recently had a major project that we 

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### 1 had toput outdoorwater heaters at becauseyou could 2 literally not get anything in and contractors, 3 developers, owners, investors, are not willing to 4 spend themoney to eitherhave another utilitycloset 5 or to relocate the water heaters. So where this is 6 critical, it'smore than just 10percent critical. It 7 literally means a major structural change. The 8 particular instance I'm referring, I think, the cost 9 per unit was about $1,000. It's amazing, frankly, 10 that theywent alongwith the project, but these are 11 the kinds of issues that we're facing andwe're very 12 concerned about the next level of efficiency 13 rulemaking that this will make more and more, 14 particularly in thepublic housing areawhich asmost 15 of youprobably knowyouhave very low square footage 16 per bedroomand space is absolutely critical. Sothis 17 is going to be a major issue as far as water heater 18 diameter is concerned. 19 MR. BROOKMAN: Thank you. 20 ASSISTANTSECRETARY REICHER: This is Dan 21 Reicher. What's the significance of going to an 22 outdoor water heater? 23 MR. THOMASTON: Well, they're rather 24 larger, somewhat unsightly. Then there's the matter 25 of protection. In this particular project, we had to 

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### 1 even get zoning out because it was major outside 2 construction. The zoning department got involved and 3 then, of course, the expense involved with those. 4 You've got to rerun the water lines. You've got to 5 rerun the gas lines. You have to have concrete slabs 6 on and on and on. And so it's quite a major 7 construction project. 8 MR. BROOKMAN: Thank you. Additional 9 comments on this point? Frank Stanonik? 10 MS. STANONIK: Frank Stanonik with GAMA. 11 I just wanted to add something because this is an 12 issue that came up in the analysis that DOE was 13 looking for comments and sowe have tried togather a 14 better snapshot at least on electric water heater 15 issue, what percentage of product sold are the 16 lowboys, the 36 inches or less in height. I don't 17 have a final numberyet. I've got enough information 18 that I can now process it, but based on just looking 19 at what Ihave andmaking some estimate, it looks like 20 this segment of the electric water heatermarket may 21 be as much as 20 percent of the market. 22 And that actually may link to Bill 23 Thomaston's comment about themulti-familymarket and 24 stuff. That is certainly one area where the 25 installation of electric water heaters perhaps is 

### NEALR.GROSS COURTREPORTERS ANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com127 1 contrary to the overall national average because you 2 get into these limited space applications, you get 3 intomulti-storage situations and allof a sudden, the 4 electric water heater for the builder, investor, 5 whoever, becomes a more attractive option because he 6 can't put a small one in. 7 MR. BROOKMAN: Perhaps we'll let Terry 8 follow on and then this gentleman. I can't read your 9 name tag. 10 MR. LOGEE: Very quick follow on. Frank, 11 are you going to be able, have that done so that you 12 can include that in your comments August 3rd? 13 MS. STANONIK: Unless there's some major 14 catastrophe, yes. 15 MR. BROOKMAN: Robert Hemphill. 16 MR. HEMPHILL: Robert Hemphill, Gas 17 Research Institute. Just to follow-on a littlebit on 18 what Frank just said. I totally agree that something 19 that hasn't taken place to my knowledge in the process 20 to date brings up fuel switching and so far I think 21 fuel switching has tried to be forecasted based on 22 economic issues of price, if the price gets so high, 23 fuel switching will take place. 24 I think that fuel switching also needs to 25 take account of a physical constraint. If the gas 

## NEALR.GROSS COURTREPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 200053701 www.nealrgross.com128 1 water heater can't be relocated into a closet with a 2 gas furnace, then an alternative is to put in an 3 electric water heater and it might be in addition to 4 an economic basis, but a physical basis and I don't 5 think any of the analysis takes into account that 6 physical basis for fuel switching. 7 MR. BROOKMAN: Thank you. Additional 8 comments on this subject? Mark Krebs. 9 MR. KREBS: Mark Krebs, Laclede Gas. The 10 whole issue of fuel switching, Terry Logee alluded to 11 a little ad hoc effort that occurred for a short 12 duration, but it was really bad without going the 13 distance as we could go. Excuse me, yes, and Bob's 14 right, BobHemphill is right about this. Howyou look 15 at it, it's a very complex issue. It's not just 16 related to fuel prices. It's really more related, I 17 believe, toall theseminuscule incremental costs that 18 have this funny way of adding up and becoming a major 19 disincentive and this whole issue in being able to 20 look at all these variables and how they interact, I 21 think, strikes at the heart of the intent of what 22 transparency and robustness is all about and the fact 23 of the matter is we have very little ability to look 24 at these things in the present forum of the 25 spreadsheets. 

### NEALR.GROSS COURTREPORTERS ANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com129 1 MR. BROOKMAN: You, sir, were next. 2 MR.LEKOV: AlexLekov. LawrenceNational 3 Laboratory. This is the question, Frank, regarding 4 the 20 percent you mentioned about the installation. 5 I wondered if those percentage basically points to 6 older, inferior installations in good lowboys and 7 regular units or just lowboy type of units? My 8 understandingwas that lowboys and itwasmentioned in 9 some GAMAmaterials is around 7percent of the market? 10 MS. STANONIK: Now I am trying to recall 11 what thatprevious correspondencemight havebeen,but 12 Iguess at this point the only way I can answer it is 13 based again on the question that DOE specifically 14 identified when the analysis was releasedor at least 15 when they announced the workshop or whatever. We 16 purposelywent out andaskedmanufacturers strictlyon 17 the basis of shipments and Iwouldassume this is 1998 18 shipments. We asked them, okay, what percentage of 19 your product that you shipped electric water heaters 20 in this year to the best that you can determine were 21 i.e., lowboy less than 36 inches in height and that 22 was, that information that's finallycomeback is what 23 I saw indicates tome again, it could be as muchas 20 24 percent. 25 I'm hedging because I have the raw data. 

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### 1 What I haven't done and what I believe needs to be 2 done is I'vegot to realisticallyapply someweighting 3 to that. Ten percent for the smallest company in 4 business as opposed to 10 percent for the biggest 5 company in business. Those are really two very 6 different numbers andsothere's some further analysis 7 that has to be done there, but just looking at what 8 I've got so far, when I asked the question we asked, 9 the numbers coming back it looks to me could be as 10 high as 20 percent. Like I say, I'm trying to 11 remember the previous one you're mentioningwhere we 12 thought maybe it was 7 and 8 and I just have to look 13 at that and what the context of that was. It does 14 appear to be a discrepancy and I don't know how to 15 answer it right now. 16 MR. LEKOV: What I knew from before was 17 that it does apply in some markets such as this type 18 of housing for places like Florida, retirement 19 communities. 20 MR. BROOKMAN: Thank you. I am going to 21 let you do the analysis and Steve Nadel, did youhave 22 a question before we go on? 23 MR. NADEL: The question I was going to 24 ask, how small does the standard apply to? Does the 25 standardapply -- Iknow it applies to 30 gallonwater 

### NEALR.GROSS COURT REPORTERS AND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com131 1 heaters. Does it also apply to 20? 2 MR. LOGEE: Twenty to 120 gallons on the 3 electric water heaters. 4 MR.NADEL: Okay, sopotentiallythere may 5 be some room to play a little bit with that lower end 6 is one way to deal with it, the lowboy issue and which 7 tend to be 20 and 30 gallons as I recall. 8 MS. STANONIK: Well, there certainly are 9 40s and there's probably a good demand for the 50 10 gallon one. 11 MR. BROOKMAN: Please follow onwithyour 12 comment? 13 MR. THOMASTON: Bill Thomaston with 14 Alabama Gas again. Generally, the electric 15 configuration is the short water heater in the bottom 16 of the closet and the electric air handler and/or air 17 handler strip heater in the top half of the closet. 18 It's in our area that's the dominant installation in 19 multi-family and in high density is the over-under 20 with electric. With gas it's side by side. And so 21 what is happened is furnaces have gotten wider as a 22 result of NAECA 1 and then as water heaters have 23 gotten wider, it's pushed one or the other out and 24 sometimes you have the carryover effect of possibly 25 losing both of them in a major rehab. So this is a 

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### 132 1 critical issue for us. 2 MR. BROOKMAN: Thank you. Additional 3 comments on this subject? 4 I think we should go to lunch. We've 5 covered good ground this morning. Let me acquaint 6 those of you that arenew in Forrestal withwhereyou 7 might eat. 8 (Whereupon, at 12:15 p.m., the workshop 9 was recessed, to reconvene at 1:15p.m., Friday, July 10 23, 1999.) 11 

### 12 13 14 15 

### 16 17 18 19 

### 20 21 22 23 24 25 

## NEALR.GROSS COURT REPORTERSANDTRANSCRIBERS 1323RHODEISLAND AVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com133 1 A-F-T-E-R-N-O-O-N S-E-S-S-I-O-N 2 (1:24 p.m.) 3 MR. BROOKMAN: Thanks to all of you for 4 getting back here on time. We've got a lot to cover, 5 and I appreciate your being timely. It's very, very 6 helpful. 7 Is Bradford Beauchamp here? 8 A couple of housekeeping items. We have 9 several copies of Dan Reicher's opening remarks for 10 those that wish to obtain a copy from Brendaand Sandy 11 over there. And also over there on the registration 12 table is GAMA's comments, and specifically the 13 proposal that theyoutlined thismorning briefly, that 14 Frank outlined. And there is also a few copies, a 15 limited number of copies, of materials off the web 16 site. But once they're gone, I'm told they're gone, 17 so you'll have to access them yourself. 18 Are there any other housekeeping items 19 before we proceed, Sandy? Any other items before we 20 start up? I don't think so. Okay. 21 So thanks again for being back here on 22 time. Michael McCabe? We left off with price and 23 markup. 24 MR. McCABE: This is probably the one 25 comments that had -- one area that had more comments 

## NEALR.GROSS COURTREPORTERSAND TRANSCRIBERS 1323RHODEISLAND AVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com134 1 than any other. And I would correctly describe it as 2 the equipment markup, not necessarily just for gas, 3 but it was pointed out by many -- Southern, GAMA, 4 Battelle, AGA,Bradford White -- were the differences 5 in the comments. There were differences in the 6 markup. 7 Questions were raised about those and 8 specifically how low the gas water heater markup was 9 relative to the electric. I think they were comments 10 that if Iwere to put in my own terms I would say that 11 they were counterintuitive, that some would say that 12 it should be based on cost basing. 13 There were a number of recommendations 14 that the markups should be the same for gas and 15 electric; others saying that you cannot base the 16 markups on loss leaders. 17 We have spent a great deal of effort 18 trying to sort through this. Working with GAMA we 19 have identified cost, going to themarket we've gotten 20 price, and price has always been one that's very 21 difficult to deal with because the same item, same 22 model, made by the same manufacturer, sold in two 23 different outlets, in some cases even with the same 24 store but two different units, will have different 25 prices. 

### NEALR.GROSS COURT REPORTERS AND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com135 1 It appears to us, lookingat the data that 2 we have, that the markups are different between -- for 3 the gas and electric water heaters. We will review 4 the comments again, but right now based on what we 5 have seen, dealingwith specific -- for example, with 6 the comment that we should use in the same markup

-- 7 for the data we have, we do not see any basis for the 8 same markup for gas and electric. And then, 9 similarly, for the oil-fired products, we are seeing 10 substantially higher markups. 11 MR.BROOKMAN: Questions, comments onthis 12 issue of markups? 13 MR. BRUNDAGE: Don Brundage, Southern 14 Company. I gave rather scathing comments on this 15 because of what seemed to be a very large difference 16 in markup in the life-cycle cost spreadsheet of 1.32 17 for electric and 2.82 for gas equipment. It appears 18 that the life-cycle cost spreadsheets were not 19 actually using the same markup as some other areas in 20 the analysis, and I'm somewhat confused about which 21 ones were actually used. 22 I know there was a comment made earlier 23 about some otheraspects of the spreadsheets whichhad 24 not been completely updated. Is there a date that the 25 spreadsheets will be complete and consistent so that 

## NEALR.GROSS COURT REPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com136 1 we can base our comments on that? 2 MR.BROOKMAN: Thankyou for thequestion. 3 Let me turn to Terry or Michael or Jim. Can you 4 comment on the run, the discrepancies in those? 5 MR. LOGEE: Well, it appears -- I think 6 everyone needs to realize that the life-cycle cost 7 spreadsheet that we posted on the web is merely the 8 one that the program ended up with when it made its 9 last Monte Carlo run. And in order to get the kind of 10 numbers that we got, the average numbers that we got, 11 or get the distributions, you have to do the Monte 12 Carlo analysis. 13 You have to run the entire 10,000 runs, 14 and you have to start with the seed and the 15 appropriate statistical characteristics that we have 16 used. Otherwise, you cannot get there. 17 MR.BRUNDAGE: Okay. It wasnot intuitive 18 looking at that spreadsheet that it was the last run 19 of a Monte Carlo as opposed to -- 20 MR. LOGEE: Right. It was -- 21 MR. BRUNDAGE: -- amplifying on the other 22 results of the study. 23 MR. BROOKMAN: Thankyou. Thanks for the 24 clarity. That is helpful. And so I presume that 25 those

-- 

### NEALR.GROSS COURT REPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON,D.C. 20005-3701 www.nealrgross.com137 1 MR. LOGEE: Now, the second part of this 2 question is: when will the, you know, new revised 3 spreadsheetsbe available? And that'sa harder one to 4 answer. We don't have an answer for that at this 5 point. 6 MR. BROOKMAN: Can you give a rough 7 estimate? 8 MR. LOGEE: Well, I would prefer to have 9 a little time to confer with

-- 10 MR. BROOKMAN: Okay. 11 MR. LOGEE: Maybe I can return a little 12 later with a better estimate. 13 MR. BROOKMAN: Sure. Okay. 14 MR. McCABE: But one comment on that is 15 that the gentleman that we all -- that Terry and I 16 both report to will want it done sooner rather than 17 later. 18 MR. BROOKMAN: Thank you. 19 Bill, I saw this gentleman first. 20 MR. SHIN: David Shin, American Gas 21 Association. I actually followed the instructions

-- 22 MR. BROOKMAN: Excuse me. David, excuse 23 me. Yes, we got it. Go ahead. 24 MR. SHIN: I actually implemented the 25 Monte Carlo analysis to figure out what the average 

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### 1 markupwas, andthenumber Igotwas 1.79 forbothgas 2 and electric. Somyquestion toDOE is: what exactly 3 is the markup? 4 I'm assuming the mean results from the 5 simulation is a weighted average of all of the water 6 heaters. Sowhenyou saythemarkup isdifferent, the 7 numbers in the spreadsheet indicate that they are the 8 same. 9 MR.McCABE: Iamgoing to look to Jim to 10 that level of detail toanswer the question. Ithink 11 it probably -- looking at -- it's not what I think 12 that you -- 

### 13 MR. LUTZ: It's not something I have

-- 14 MR. BROOKMAN: Jim Lutz, speak into the 15 microphone. 16 MR.LUTZ: I'llhave togetback toyou on 17 that one. Judging from the confusion here, it looks 18 likewe'll have topresent amuchclearer explanation 19 ofwhatwedid and results that explain itmuchbetter 20 thanwe have. 21 MR. BROOKMAN: I saw the implication of 22 those questions crying out for footnotes. 23 MR. McCABE: Yes. I think this is more 24 than footnotes. 25 MR. BROOKMAN: That's where I thought we 

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### 1 were going with this. 2 Darrell? 3 MR. PAUL: Yes. I guess my question is 4 related to the one that was just asked, and that

-- 5 rather than the average markup across all the 6 different sizes of water heaters, I believe that you 7 do know what the markup is for a given water heater 8 size, because that is an input to the program, isn't 9 it? 10 MR. LUTZ: No. The reason -- what we do, 11 we have a -- from our database, we have the retail 12 prices from calling around to abunch of stores on the 13 different sizes of the baseline water heaters and 14 wholesale distributors. 15 Sowehave theretail price for, youknow, 16 30-gallon electrics, 40-gallon gas, 50-gallon gas, 17 etcetera. They are under distribution. It's a 18 discrete distribution. So it's sort of bunchy, and 19 it's not a smooth distribution. It's from what data 20 we did collect. 21 We have the distribution of the 22 manufacturer's cost, which was provided by GAMA, for 23 the typical size for each water heater. We adjusted 24 that by the cost of sheet metal and foam for the 25 different sizes. So for each house, when we do the 

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### 1 10,000-run sample, each house we sample, we pick one 2 -- say the house has a 50-gallon electric water 3 heater. 4 Wepicka 50-gallon electric waterheater 5 baseline price, divide that by something -- a sample 6 from GAMA's distribution, and that's the markup that 7 we used for all of the design options for that one 8 house. 9 The next house inthe sample of 10,000has 10 a different sized water heater. We picked from the 11 different size distribution, pick again from the 12 GAMA'sdistribution. So themarkupvaries byhouseby 13 house, trying to capture the variation that really 14 exists in the market and the variation that really 15 exists in the manufacturing. 16 Everybody is looking confused. Ithink I 17 may -- 

### 18 MR. PAUL: Well, I guess our concern is 19 that that's such a critical factor in the life-cycle 20 cost analysis that it's important to know, you know, 21 what those values are, an averagevalue as a function 22 of water heatersize or acrossall water heaters. And 23 I realize that it's a Monte Carlo technique, so it's 24 a sampling technique. 25 But if you run in your Monte Carlo, you 

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### 1 shouldbe able to comeupwithanaveragevalue that's 2 pretty consistent from run to run. 3 MR. LUTZ: Right. Right. 4 MR.BROOKMAN: JimMcMahon,doyouwishto 5 followon in this? And then you're next. Thank you. 6 MR. McMAHON: Jim McMahon, LBI. I guess 7 I just -- what Jim just described, Jim Lutz just 

### 8 described, is the procedure that's followed. And I 9 guess I want to call your attention to the fact that 10 we are properly using the cost data as provided, and 11 the retailprice data as observed in themarketplace. 12 And the market to us is a derivative. 13 It's not what's causing us to get the result; it's 14 somethingthat comes out of comparingretailprices to 15 cost. 16 MR. BROOKMAN: One thing I took from 17 Michael McCabe's opening remarks is there is 18 significantvariability surrounding this in theminds 19 of lots of different people. That's one thing Itook 20 from that. 21 You're next. 22 MR.KOCH: It'sClaus KochfromUnionGas. 23 I'm familiar with Monte Carlo simulations and all of 24 that. But it strikesme that ultimatelyyou alsohave 25 to put your data to a sanity test. And we have some 

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### 1 of the best experts in water heater costs right here 2 in the room. And I was wondering whether they were 3 asked whether some of those ranges, like margin

-- 4 1.09markup -- is somethingthat theywouldreasonably 5 expect to see in the industry. 6 In other words, I give a water heater 7 manufacturer a $10 manufacturing cost increase. Is a 8 $11 margin increase in the field a reasonable 9 expectation to see? That's what a 1.09 factor really 10 means. 11 MR. BROOKMAN: That's an interesting 12 question. Is there somebody that would wish to 13 respond to that question? Frank? 14 MR. STANONIK: Frank Stanonik with GAMA. 15 Imean, Mike briefly alluded to it. Our comments -- 16 we are on record as saying that the 1.28 markup for 17 gas water heaters, fromourperspective, doesn'tpass 18 a -- I don't know what else to call it -- the common 19 sense test. 20 It doesn't -- it just doesn't look -- you 21 know, it doesn'tmake sense tome that a companycould 22 be profitable at that kind of a markup for this kind 23 of a product. And

-- 24 MR.BROOKMAN: Evenwhenyou consider the 25 full distribution of products and averaging and some 

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### 1 models phasing in and out, and all of that? 2 MR. STANONIK: Well, I guess realizing 3 that all of this analysis tends to revolve around 4 baseline products, Imean, Ican't really answer yes 5 or no on your question because I think we are just 6 looking at it as being applied to the baseline

-- 7 MR. BROOKMAN: Okay. 8 MR. STANONIK: -- andwhether that makes 9 sense or not. 10 Butwherewe thinkthe significantpartof 11 the error creeps in is that while -- and I'll say it 12 again because I've said it before -- we certainly 13 applaud the attempt to go out in the market and see 14 what products sell for. But the fact is that indoing 15 that, we think that if nothing else itprobably shows 16 the complexity of what products do actually sell for 17 to the consumer. 18 And in trying toget that information,we 19 suspectthatDOEhas, let's say, inadvertentlystepped 20 into some other factors that involve the ultimate 21 retail pricing. Andwhile the theory says, "Well, if 22 I look at the manufacturer's cost and look at what I 23 sell for, divide whatever -- I got the markup," our 24 comment was that, unfortunately, this case -- what 25 determined what the ultimate price was has other 

### NEALR.GROSS COURT REPORTERS AND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON,D.C. 20005-3701 www.nealrgross.com144 1 complicating factors in it that you can't apply the 2 theory, that will not really give you the markup 3 because there is too many other things involved, 4 including the possibilitythat some of the models that 5 they asked for at a given store, or whatever, might 6 have been models that were treated as a loss leader, 7 or whatever, get your attention price, whatever you 8 want to consider it, and that that gets factored into 9 the retailer's price, not the manufacturer's markup. 10 And it's just -- our bottom line is we 11 think that it's much too complicated in terms of what 12 the retailerdecides to sell thatwaterheater for, or 13 what the plumber decides to sell that water heater 14 for, to just simply say, "Okay. We did a survey. 15 Here is the average price, and here is the data from 16 the manufacturer's cost. One divided by the other. 17 This must be the markup." 18 In this case, we just think it didn't

-- 19 you know, it isn't that simple. 1.28 just is not a 20 reasonable markup. 21 MR. BROOKMAN: And going back to the 22 baseline there. 23 Yes, sir? 24 MR.KOCH: Claus Koch oncemore fromUnion 25 Gas. We were in the business of buying, until they 

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### 1 separated our businesses, of buying about 50- to 2 80,000 waterheaters a year. And our expectationwas 3 if the manufacturerwas required tomake a $10, a $20 4 change, thatwould look like a $10 manufacturing cost 5 increase, we would expect the retailer -- or the 6 retailmarket tobe something like three times thatby 7 the time it finally hits the street. 8 Now, recognizing the big box stores, and 9 all of that kind of stuff, reducing that, going from 10 .28 to 300, there's a big gulf there. 11 MR. BROOKMAN: Mark, go ahead. 12 MR. KREBS: Mark Krebs, Laclede Gas. My 13 companyretails and installsgaswaterheaters,andwe 14 do a lot of it in the St. Louis area. And,you know, 15 sometimes we see loss leader sales that occur. You 16 know, their selling price is more than our,you know, 17 wholesale -- is less than our wholesale purchase 18 price. 19 And I'm just wondering if, you know, 20 anyone checked when they did this phone survey that 21 all of this is based on, you know, if maybe it wasn't 22 a week that HQ, or whoever, some large national, you 23 know, retailer, was having a special, you know, that 24 skewed the results significantly. 25 MR. BROOKMAN: Glenn Schleede? I think 

## NEALR.GROSS COURT REPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE., N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com146 1 we're starting to double back on this issue. Glenn? 2 MR. SCHLEEDE: Glenn Schleede. Has LBL 3 ever made available to this group the details of this 4 survey or how itwas conducted, the data that resulted 5 from it? Something that would permit judging how 6 representative it waswhen itwas conducted, all that? 7 If not, why not, and will it be made available? 8 MR. LOGEE: Partial answer, Glenn, the 9 database is on the web at that address. It's called 10 aprice database, or something like that. The details 11 about how the survey was conducted are -- I don't 12 believe they are part of that, but the database

-- 13 MR.SCHLEEDE: Can thatbemadeavailable? 14 It makes a lot of difference

-- 15 MR. LOGEE: Yes. 16 MR. SCHLEEDE: -- how this thing was 17 conducted, and whether any validity should be 18 accredited -- accorded it. 19 MR. BROOKMAN: Robert Hemphill? 20 MR. HEMPHILL: Yes. Let me say that in 21 the background that I have that the company that I 22 work for, a large national merchandising company, we 23 saw huge problems with telephone surveys to try and 24 determine the cost to theconsumer of installed goods. 25 I challenge -- I can understand what Jim McMahon is 

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### 1 saying. This is what the data says. 2 But when the -- what the data says is 3 responded to from manufacturers saying, "That's an 4 unbelievable number," you've got to attack the 5 methodology. And I think the methodology is under 6 question here. 7 MR. BROOKMAN: Yes. Jim? Tom, I mean. 8 Tom Eckman? And then Ted Williams. 9 MR.ECKMAN: I'd like to come up andmake 10 a short presentation on data that was collected from 11 actual purchases. 12 MR. BROOKMAN: Okay. We -- I want to see 13 if -- I thought there was -- hang on just a second. 

### 14 I don't think they're quite ready for you. 15 MR.WILLIAMS: TedWilliams,AmericanGas 16 Association. Have we been messing around with the 17 reasonability of thesemarkups andtrying to identify 18 is there consistency between the data? I think we 19 have a fundamental application of Monte Carlo 20 technique here. 21 Monte Carlo, whenyou assume these random 22 distributions, that they shouldbe random variables. 23 And given that you're looking at a house, and the 24 price of a water heater for that house, it's 25 critically dependent -- that price is -- on the cost 

## NEALR.GROSS COURTREPORTERSAND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON,D.C. 20005-3701 www.nealrgross.com148 1 of the underlying -- of the water heater being sold. 2 So they are not independent, random variables. And 3 it's a first order mistake in the application of a 4 Monte Carlo technique. 5 MR. BROOKMAN: Other comments on this 6 before we go to Tom? 7 Steve Nadel, did you -- 8 MR. NADEL: I would like to comment on I 9 think what he's going to say. I have one thing to 10 complement that. 11 MR. BROOKMAN: Okay. I understand, Tom, 12 you have a few slides. 13 MR. ECKMAN: Yes. 14 MR. BROOKMAN: Okay. 15 MR. McCABE: I believe the slides have 16 been handed out. 17 MR. BROOKMAN: Brenda, have they not been 18 handed out, or -- you've them. Okay. You've got 19 them. Thank you. 20 Retail price? Retail prices for electric 21 water heaters, Northwest Power Planning Council. 22 MR. ECKMAN: This is the cover slide that 23 was handed out; it should have been in your chair 24 after lunch. What I'm about to report on -- since 25 1993, the city of Eugene, Oregon,which is amunicipal 

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### 1 utility, Eugene Water and Electric Board, has been 2 offering a financial incentive for the installation 3 andpurchase of electric waterheaters that achievean 4 EF of 93. 5 The compilation that I've got distilled 6 here isbasedon 50-gallonunits of capacity installed 7 between the period of 1993 to 1998 for -- in their 8 sample -- or in the sample of houses in Eugene that 9 actually did this, 5,360 water heaters. 10 These are water heaters that were 11 purchased. The numbers that are being reported are 12 what were on the invoices that were submitted to 13 document the desired rebate. So these were what 14 consumers actually paid inthe storewhentheydid the 15 deed. 16 I segmented out the data by warranty 17 periodbecause that has an influence onprice. Asyou 18 can see from this second chart, looking at the last 19 three years -- 1996, 1997, 1998 -- the retail price 20 and the number of units that were rebated at that 21 particularwarranty period is shown. 22 The retail price in 1997 and in 1998 is 23 roughly $170 for the five-year warranty tank, and it 24 switches from over $200 to around $190 for the six25 yearwarranty tank, andgoes substantially above that 

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### 1 for the 10-year warranty tank. 2 Sobetween the -- in the 1998 sample, you 3 got roughly 550 water heaters for the five-year 4 warranty, and a six-year warranty of about $175. So 5 somewhere around $170 to $190 iswhat an EF-93 tank is 6 selling for in Eugene, Oregon, today. 7 Now, this is the last slide. I'll skip 8 one in the interest of time. It looks at this time 9 series and it shows you what the EF-93 tank has sold 10 for inEugene, Oregon, regardless ofwarrantyperiod. 11 This aggregates five-, six-, eight-, 10-year 12 warranties, all under the same group of purchases. 13 Italso indicates that -- italsosupplies 14 theN orthe number thatwere in thatgrouppurchased. 15 As time goes on, the number gets larger because the 16 program has been more successful. What's more 17 important is the market is beginning tomature. And 18 as you can see that market mature, you can see the 19 price come down. 20 Now,what'smore important tonote is that 21 Oregon doesn't have a sales tax. So the numbers 22 before thispoint in time that Ishowedyoudon'thave 23 the sales tax included. These numbers have sales tax 24 equivalent to that assumed in the LBL analysis, which 25 is roughly five percent as a national average, added 

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### 1 on to the Eugene prices. So they're a little bit 2 different than you'll see in prior pages. They also 3 are adjusted for inflation, so they're in constant 4 1998 dollars. 5 MR. BROOKMAN: So the bars

-- 

### 6 MR. ECKMAN: The bars up to 1998, N-553, 7 are Eugenenumbers. The three columns on the right of 8 that are various alternative scenarios, standard 9 levels that are in the LBNL price analysis. 10 If you look on -- I believe it's page 16, 

### 11 Tables 5A and 5B in the price -- engineering price 12 assumptions under the electric water heater, these 13 numbers were taken from that table for the EF, in one 14 casewith 245, EF-.907, inthe caseof theH20blowing 15 agent, EF-889 and EF-899. 16 One point Iwant to make -- ifyou look in 

### 17 those two tables at the baseline case, it's $190. 18 This case is for the EF-93 tank, and it's $195. 19 Mark, you had a -- 

### 20 MR. KREBS: Idon't questionyourdata at 21 all, Tom. All Iwas wondering is, you know, it kind 22 of implies that this is some kind of incentive 23 program. Iwaswondering if there is some rebate that 24 theywere offering as well. 25 MR. ECKMAN: They were offered a rebate, 

## NEALR.GROSS COURT REPORTERS AND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com152 1 but this is the invoice price prior to rebate. They 2 are given -- it varied between $35 and $50, depending 3 on the year. 4 MR. KREBS: It does have an impact. 5 MR. BROOKMAN: The ultimate consumer 6 got -- 7 MR. ECKMAN: The ultimate consumer got 8 that. But this is what they paid at the store. 9 MR. KREBS: Before they got the rebate. 10 MR. ECKMAN: Before they got the rebate. 11 MR. BROOKMAN: Steve -- 12 MR. ECKMAN: They couldn't get the rebate 13 until they sent in the invoice. 14 MR. BROOKMAN: Steve Rosenstock? 15 MR. ROSENSTOCK: Steve Rosenstock, EEI. 16 Do you have any information about the baseline water 17 heater incremental cost between EF-.86 and .93 that 18 you're showing? 19 MR. ECKMAN: Yes. I don't have it here. 20 It's in a database that's on this disk. 21 MR. ROSENSTOCK: It might be interesting 22 to see that versus, you know, what

-- 23 MR. ECKMAN: The incremental cost is 24 sizably less than the $160 to $99 increment that we're 25 seeing in this data. 

## NEALR.GROSS COURT REPORTERS AND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 200053701 www.nealrgross.com153 1 MR. ROSENSTOCK: Okay. 2 MR. BROOKMAN: Steve Nadel? 3 MR. NADEL: There has been a lot of talk 4 here about the markup assumption, and the markup is 5 just an artifact of the manufacturer cost supply data 6 and what's in the retail store. One possible -- it 7 could well be that the problem is not so much the 8 markup, but the problem could be with some of the 9 manufacturer supply costs -- that he has thousands of 10 price points, you've got lots of price points. 11 There's one other data source that I put 12 into the record with my last comments dealing with 13 incremental cost. There's a big study in California 14 of 288 different models, and they also found 15 substantially lower incremental cost than DOEhas been 16 using. And all of this is driven off of the 17 manufacturer cost estimates. 18 Sothosemanufacturer costestimates could 19 be conservative, and then, you know, high, and that 20 would be entirely consistent with all of the retail 21 price information and allow for greater markups, 22 because clearlypeopleare makingmoneyhere. They're 23 not losing money. 24 MR. BROOKMAN: And now let me just state 25 -- and I think it's restating the obvious -- the 

### NEALR.GROSS COURTREPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON,D.C. 20005-3701 www.nealrgross.com154 1 Department certainly wouldwelcome these comments, if 2 they haven't received them already, and all of these 3 data for their use. 4 Charlie, and then Frank Stanonik. 5 MR. STEPHENS: Yes. Charlie Stephens. I 6 wanted to add, too, that this data can be run by, and 7 has been run by by me, past a lot of other utilities 8 in the Northwest, and they don't disagree with the 9 numbers that we've come up with. Eugene is not 10 statisticallydifferent thanmost of the othermarkets 11 in the Pacific Northwest. 12 There will be some further number13 crunching required, but we're going to do the same 14 thing for the gas water heaters in the region. And 15 based on what I've learned just in my preliminary 16 forays into the market, the relationship between the 17 gas prices that we'll uncover won't be different than 18 for the electric ones that you've just seen. 19 It will be about the same fraction of the 20 current prices being usedbyDOE as the electricwater 21 heater prices are a fraction of the current electric 22 prices being used. 23 MR. BROOKMAN: Thanks for that last 24 explanatory clause. 25 Frank Stanonik? 

## NEALR.GROSS COURTREPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com155 1 MR. STANONIK: Frank Stanonik,GAMA. I've 2 just got a couple of questions, I guess to get a 3 better handle on what I'm seeing here. The receipts 4 you received -- was this, I assume, a mixture of 5 people buying from both, let's say, a major do-it6 yourself outlet and alsobuying it through a plumber, 7 or was it just purchasing through more of a retail 8 store? 9 MR. BROOKMAN: Tom, go ahead. 10 MR. ECKMAN: The database includes 11 primarilypurchasesthrough localhardware stores, big 12 box retail, what haveyou. Within the data set, there 13 are some where the utilitydid not get an invoice. It 14 separated out tank cost from total installation cost, 15 and they are still in the data set, so the influence 16 of the average -- if you take those out, the average 17 would drop even more, because the task -- there's a 18 10, maybe 15 percent of the sample has plumber19 installed cost in it, which ranges up to $750 for a 20 50-gallon tank. 21 MR. STANONIK: So you didn't try and 22 proportion out the unit cost versus the installation 23 cost? 24 MR. ECKMAN: No. What I was giving was 25 just the equipment cost, to the best I could. 

## NEALR.GROSS COURTREPORTERSAND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com156 1 MR. STANONIK: Okay. 2 MR. ECKMAN: I didn't know where the 3 cutoff ought to be, so I didn't take and cut out any 4 of those. So it's -- you know, in the data set there 5 are prices -- as a matter of fact, the highest price 6 I have for 1998 for installed costs is $450, which is 7 what the meanprice in the engineering estimate is for 8 installed cost on the EF-90 tank. 9 MR. STANONIK: Okay. What

-- 10 MR. ECKMAN: So, you know, we're a lot 11 apart. 12 MR. STANONIK: To the best you can guess, 13 if you can,what wouldyou guess the proportionof the 14 electric to gas water heater market is in -- let's 15 just talk about Eugene. 16 MR. ECKMAN: Eugene is probably on the 17 order of 50/50, with gas increasing. 18 MR. STANONIK: And what is the average 19 cost of electricity in

-- 20 MR. ECKMAN: In Eugene? 21 MR. STANONIK: Yes. 22 MR. ECKMAN: About three and a half cents 23 residential. 24 MR. STANONIK: Okay. I guess where I was 25 going with this is that, I mean, again, this is I 

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### 1 think -- well, this isuseful information,but Iwould 2 certainly caution taking information like this and 3 trying to give it significant weight on a national 4 average basis. 5 Imean, I'mprobablygoing to be a little 6 glib about this,but Ireallywonderif someone looked 7 at the -- to the consumer, the cost benefit of a .93 8 waterheaterwhenthey'reonlypayingthree andahalf 9 cents for their electricity. 10 But the other point is this information 11 also, if you really look at the numbers, and, yes, 12 there may be some trends here, but it certainly 13 indicates that thereare someveryothermajorfactors 14 that affect price that appear to have no relation to 15 any kindof logic that anybodycan figure out. And as 16 an example

-- 

### 17 MR. ECKMAN: Well, the market works that 18 way sometimes. 19 (Laughter.) 20 MR. STANONIK: All the time. All the 21 time. 22 MR. ECKMAN: Yes. These are 5,000 plus 23 sales. People purchased this, and somebody made or 24 lost money on it. I don't know; they are still in 25 business. I am presuming that because the price is 

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### 1 relatively constant and slightly declining over time 2 that theyhave discovered that this is enoughmoney to 3 make it work. 4 Otherwise, you would see the price 5 escalating over time, because their margins aren't 6 enough at retail to sell this product. 7 MR. STANONIK: Well, as an example, 8 clearly, somebody has discovered that they certainly 9 should be charging more for a 10-year warranty 10 product. Imean, that price has gone up. 11 MR. ECKMAN: Yes, and I've had some 12 experience with that. 13 MR. STANONIK: Again, I understand. To 14 me, it seems to indicate that a lot of very 15 significant factors go into this, and we -- I still 16 think we have a -- the PacificNorthwest for electric 17 products is a fairly unique market relative to the 18 entire United States. And Iwould just caution, this 19 is useful information, but care has to be taken if 20 you're going to expand it to apply it to the national 21 average situation. 22 MR. ECKMAN: I want to comment on that. 23 I would assert that once the standard changes, the 24 level playing fieldof themarket has a different set 25 of rules for the high efficiency brand market, or 

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### 1 water heater. And so this is an illustration of a 2 mature market without a standard in place that says 3 93's are cost competitive. 4 MR.BROOKMAN: Evengiven thevariability 5 in electricityprices. 6 MR. ECKMAN: Right. I mean, you know, 7 these are national manufacturers. They're not niche 8 market manufacturers selling into this market. They 9 are Home Depot, Sears, selling this product in there 10 at this price. You know, so far they seem to be a 11 viable entity. 12 MR.BROOKMAN: Frank, followon, and Isaw 13 Eric and then Mark. 14 MR. STANONIK: Just a quick comment, and 15 I'm getting uncomfortable because price is not 16 something Iknow much about. But in thismarket that 17 we're talking about looking at here, the minimum .86 18 electric heater was still out there. 19 If, in fact, the minimum was .92, or 20 something like that, I wouldn't be bold enough to 21 claim thatwhat you see here is -- whatyou're calling 22 yourmaturemarket -- wouldstill reflectwhat happens 23 when that is the only thing that can be bought. 24 MR. BROOKMAN: And, Frank, you described 25 other factors. So I'm sure the Department would 

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### 1 welcome your comments, and others' comments, about 2 those other factors in enough detail so that they can 3 trace those other factors. 4 Eric, you were next. 5 MR. LANNES: Yes, Eric Lannes, Bradford 6 White. To Steve's comments, manufacturers must be 7 makingmoney. What happens in a situation is we will 8 provide product to a marketplace, and if that 9 marketplace has aprice thatmaybe artificially low, 10 we may be forced to meet that artificially lowprice 11 in an effort to maintain market share. 12 And I think if you look at the 1998 data 13 that's what happened. In 1998, there were two 14 significant things that happened, and that's what 15 drove that price down. One, there was a significant 16 change in market share by specific manufacturers. 17 Secondly, therewas avery large shift on thewarranty 18 side. 19 Products that were typically five years 20 were shifting to six years, and that became the norm 21 and Ithink that'swhyyou're seeing that shift in the 22 direction that you're seeing. 23 MR. BROOKMAN: Did you derive that from 24 the table? 25 MR. LANNES: I see that from the 1998 at 

## NEALR.GROSS COURT REPORTERS ANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com161 1 $195 versus 1997 at $214, and a rough average 2 continuing along that way. 3 The other thing is I -- 4 MR. ECKMAN: I want to caution -- remember 5 that that lastdata set includeswarrantyperiods from 6 five-, six-, eight-, and 10-year warranties. If you 7 look at the five-year warranty product, it's $170. 8 MR. LANNES: I understand that. I'm 9 looking at your table here that says 1998 average for 10 five-year, $169, a six-year for $186, and that's 11 because the five-year is moving to a six-year as a 12 standard with no price change. That's why you see 13 that. And I think the 1998 datawould reflect that if 14 you came back and took a look at what happens with 15 market share in that time period. 16 The other question Ihave for you is why, 17 in 1996, didn't you sell more 10-year heaters when 18 they're $200, and the six-year was at $201, and the 19 five-year is at $195, when you look at 1998 and you 20 see an $89 difference between five-year and 10-year? 21 MR. ECKMAN: I don't know. Ask the 22 market. I wasn't there. 23 (Laughter.) 24 MR. LANNES: That's why Iquestioned some 25 of the data. 

## NEALR.GROSS COURT REPORTERSAND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com162 1 MR. BROOKMAN: Mark, and then Steve 2 Rosenstock. 3 MR. KREBS: One of the factors that DOE 4 should be looking at is utility rebates. The more 5 massive the rebate,youknow, themore influence there 6 will be. And I know from personal experience that a 7 lot of utilities give away water heaters. 8 MR. BROOKMAN: You mean literally for 9 zero? 10 MR. KREBS: Right. They give them away. 11 MR. BROOKMAN: I see. 12 Steve Rosenstock? 13 MR. ROSENSTOCK: I would just say that 14 this could be -- again, just like everything else, 15 there is going to be a range like -- I said that 16 before. This could be used as one data set, but also 17 the fact that, you know, there was -- Idon't knowhow 18 aggressive the incentive program was, but that might 19 also -- you know, there might bemore shipping of high 20 efficiency units out there. Therefore, there is more 21 on the market. That willpush the prices downbecause 22 of the incentive out there, if the retailers are aware 23 of it. 24 Again, I don't know what all of the 25 detailswere about the Eugene, Oregon, incentives,but 

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### 1 that also might be an underlying factor. 2 MR.BROOKMAN: Tom,thanks forbringing it 3 forward. 4 This gentleman is next. 5 MR. JOHNSTON: David Johnston with 6 Washington Gas. I think one factor that hasn't been 7 discussedin thismost recent roundof conversation

-- 8 and Ibelieve is evident in these statistics and may 9 very well be in the general study -- may be one of 

### 10 those complicatingfactors that Frankreferred to,was 11 the relationship between the retail price of the 12 product itself and the installed cost. 13 I think it's very -- potentially very 

### 14 dangerous to try to separate those out as neatly as 15 has beenattemptedhere. For instance, ifyou look in 16 the 1998 figures, you'll see for the EF-93's, for 17 instance, thatwehadanaverage of $186 retailprice, 18 a low of $100, but a maximum of $795. And I would 19 suggest that's probably not for the tank. That's 20 probably one of those installed costs you're looking 21 at. 22 Now, the question would be: for all of 23 those -- for the rest of the 1,552 units that were 24 sold at a given price and then installed, what was 25 their installed cost? 

## NEALR.GROSS COURTREPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON,D.C. 20005-3701 www.nealrgross.com164 1 One of those things that the market does 2 is sell theproduct at anattractive advertisedprice, 3 and then make the money back up in installation. So 4 I would suggest that it is not appropriate to glibly 5 separate out the price of the product from the total 6 installedcost, which iswhat the consumer is actually 7 going to have to pay. 8 MR. BROOKMAN: Tom, go ahead. 9 MR. ECKMAN: Yes. We canpick any cutoff 10 you want to say, "This is tank; this is installation." 11 The database was put together parsing out where they 12 had the information to split between those where they 13 knew it was solely tank costs and where it was 14 installed costs. And, indeed, that $795 strikes me as 15 a lot more than a tank and probably includes 16 installation. 17 The question I really have is whether or 18 not the deals that are cut between the tank and how 19 muchhe is charged for installationvaryby efficiency 20 level. Once there is a national standard, it's hard 21 for me to conceive of why that would be a 22 distinguishing characteristic at a given efficiency 23 level. 24 MR. BROOKMAN: These last few comments 25 have been especially useful because they have 

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### 1 identified other factors, other things for the 2 Department to consider. I'd likemore of those. And 3 in a moment, in fact, we shouldbe moving on. 4 Charlie? 5 MR. STEPHENS: Charlie Stephens. I just 6 wanted toadd acouple of things about how to take the 7 data. If you go to apply most of the conceptions 8 people have about influences in the marketplace, 9 you'll find they are counterintuitive in ourmarkets. 10 In many of these markets in the Northwest, as I said 11 earlier, Icouldgo toanymarket in theNorthwest and 12 get numbers prettymuch like this, and Ihave. 13 It's a widespread phenomenonbecause for 14 a long time we have beenbuilding that market, and it 15 comprises, in some areas, well over 50 percent of the 16 market for the higher efficiency tanks. In some 17 areas, it's less than that. 18 But Ialsowould say that in the presence 19 of incentives it usually increases the price. It has 20 beenour experience withall of ourprograms, andyou 21 put incentives out there. The retailers tend to step 22 in and try to get a little bit of that incentive, if 23 not all of it. We're seeing it now in furnaces, but 24 it's not uncommon. 25 Theother thingIwouldcaution iswe have 

## NEALR.GROSS COURT REPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE., N.W. (202)234-4433 WASHINGTON,D.C. 20005-3701 www.nealrgross.com166 1 very low electric prices, as you just heard. You 2 shouldn't have to discount an electric tank to get 3 people to buy an electric water heater in our market 4 at three and a half cents a kilowatt hour. There is 5 no reason to do that. That would be counterintuitive. 6 You should be able to raise the price in our market 7 because the operating cost is so low. 8 So if you start messing around with the 9 economics of this thing, it's not going to play out 10 well. It's just -- it's a mature marketplace at this 11 point, operating like we presume it will after the 12 standard. In fact, we think it's the closest that we 13 have to what the market will look like after the 14 standard, which is why we brought the data. 15 MR. BROOKMAN: Okay. Thankyou, Charlie. 16 Other -- Steve Nadel? 17 MR. NADEL: Just to put this in a larger 18 perspective, if you look at past DOEanalyses on, say, 19 clothes washer, refrigerator, estimated costs tomeet 20 certain efficiency standards during a rulemaking, and 21 look at the actual price in the market afterwards, 22 there is a tendency forDOE tooverestimate that price 23 increment. 24 What this data tends to imply is that we 25 may be doing the same thing here with water heaters. 

## NEALR.GROSS COURT REPORTERS AND TRANSCRIBERS 1323RHODEISLANDAVE., N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com167 1 The DOE analysis of what the incremental cost will be 2 when it plays out in the mature market, the actual 3 incremental cost, may well be quite a bit less. And 4 all of these analyses are quite conservative in terms 5 of the winners or losers. 6 MR. BROOKMAN: Mark Krebs? 7 MR. KREBS: I'm going to go back one more 8 time to the robust and transparency issue. Obviously, 9 this is a major variable. And,you know,we need the 10 opportunity to go in there and do these what-ifs. 11 What if a utility is giving them away on one hand, and 12 on the other hand what if it is -- you know, there are 13 no subsidies, and,you know, what is happening there? 14 And these things, in conjunction, need to 15 be -- with the other variables we've been discussing, 16 you know, is the basis of what I believe the Modeling 17 Subcommittee, throughthe whole committee, had inmind 18 when they talked about, you know, scenario 19 engineering. We ain't there yet. 20 MR. BROOKMAN: Okay. As I reflect on the 21 conversation we just had, we have talked quite a bit 22 about price and markup. We touched on installation 23 cost. Is there more to be said about installation 24 cost? Because I thinkwe're about ready to move on is 25 the point. 

## NEALR.GROSS COURT REPORTERSAND TRANSCRIBERS 1323RHODEISLANDAVE., N.W. (202)234-4433 WASHINGTON, D.C. 200053701 www.nealrgross.com168 1 MR. NADEL: I did have a question about 2 installation. Or do you want to move on? 3 Mike, do you want to present that first, 

### 4 or is

-- 5 MR. McCABE: That's next. 6 MR. BROOKMAN: Okay. We have made a 7 glancing blow at it. Michael, why don't you go ahead 8 and

-- 9 MR.McCABE: This has beendiscussed; much 10 has been discussed by Terry already in his 11 presentation. Andwhat I'moffering here is specifics 12 as to how we have tried to capture some of the costs 13 that -- for example, for the electric water heaters, 14 with the larger water heater, thicker walls. 15 In many instances, they will not be able 16 to fit into the space. They may not be able to fit 17 through the door, so we have taken -- for 10 percent 18 of the electric water heaters assumed an additional 19 cost of $160 per unit for installation. This is for 20 replacement, not for new construction. 21 Similarly, forgas, asTerrytalkedabout, 22 for the -- modifying the venting system, 25 percentof 23 them, there is going to be an additional cost. Andwe 24 looked at the life-cycle cost with the -- and the 25 percent winners, and you saw the 75 percent winners, 

## NEALR.GROSS COURTREPORTERSAND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 200053701 www.nealrgross.com169 1 but you sawnegative life-cycle cost change. And that 2 was because of this value that was being -- on the gas 3 beingput into the analysis, how large it is, and how 

### 4 much of an effect it has. 5 Terry, wouldyouhave anything that you'd 6 want to add as far as additional information on 7 installation cost? 8 MR. LOGEE: Well,not reallymuch. Wedid 9 not assume that there was going to be any significant 10 amount of condensation that we would have to supply 11 some kind of condensate pump and extra plumbing to 12 take care of that. That was not added into the 13 installation cost in any of these homes. 14 MR.BROOKMAN: If Iinterpret that, you -- 15 at this level, you thought that you would have the 16 margin, so condensate would not be an issue. 17 MR. LOGEE: Correct. 18 MR. BROOKMAN: Largely an issue. 19 Eric? 20 MR.LANNES: Eric Lannes, BradfordWhite. 21 There are somewaterheaters out there thatdo require 22 condensate removal. And ifyou haven't included that 23 in there, you should certainly take a look at that, 24 because asyou force the levelsup there is two issues 25 that surface -- one, condensate, and then condensate 

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### 1 can give the wrong impressionthat you have a leaking 2 water heater. And, obviously, we're talking about 3 gas-typeproducts,whichcanobviouslydrive theprice 4 up, but also creates a substantial nuisance for some 5 installations. 6 And then, secondly, those products that 7 are trying to remove condensate can't, in some 8 jurisdictions, dump the condensate into adrain. And 9 theydo have to remove it and remove it outside or to 10 someothermeans ofdisposal. So it maybe small, but 11 it could increase as levels change. I strongly 12 suggest the Department of Energy to take that into 13 consideration. 14 MR. BROOKMAN: Steve Nadel? 15 MR.NADEL: I have a question, first, for 

### 16 Eric, and then forMike. When you saidyou have seen 17 some withcondensate, has that happenedat around the 18 .60 energy factor, or is that at a higher energy 19 factor level? 20 MR. LANNES: Eric Lannes again. It's 21 actuallyat both levels. Andthehigherenergy factor 22 products andthe lowerenergyfactorproductshave two 23 condensate levels -- one that's comingout the bottom 24 of the product from combustion, and the other one in 25 the venting system itself where we have to provide 

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### 1 relief for condensate in the venting systems. 2 A lot of times you'll see it on the 3 venting systems forpowerventtypeproducts thathave 4 pressure switches because you get condensate buildup 5 in thepressure switch line, and that can create some 6 problems whenyou lookat thepressure differentials. 7 MR. BROOKMAN: Mark Krebs? 8 MR. KREBS: I think he had a second 9 question. 10 MR. BROOKMAN: Oh, I'm sorry, Steve. Go 11 ahead. 12 MR. NADEL: Question for Mike McCabe on 13 that slide. Youhad the figureof 25 percentof homes 14 above 5,000 heating degree days will need these 15 various correctivemeasures. Iwas curious,where did 16 those numbers come from? 17 MR. McCABE: I'm going to pass the 18 question off. 19 (Laughter.) 20 I can't answer because I don't know. 21 MR. LOGEE: Terry Logee from DOE. We had 22 data from the GRI studies, fairly old data, that said 23 75 percent of the homes would need some kind of 24 improvement inventing or some kindof improvement of 25 masonry chimneys. 

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### 1 Wealsogot comments fromCharlie Stephens 2 he alluded to that theydon't have anyproblemsup in 3 the Northwest. And we did a -- we looked around and 4 we did some surveys, and we asked a lot of questions, 5 and we made an engineering estimate that in today's 6 marketplace we thought 25 percent was a reasonable 7 level to go to. 8 If people have data, we would appreciate 9 that. We could make an adjustment in here. 10 MR.NADEL: So this is just your educated 11 guess effectively? 12 MR. LOGEE: That is precisely correct. 13 MR. BROOKMAN: Jim, and then Mark Krebs. 14 MR.RANFONE: Jim RanfonewithAGA. Just 15 a question and a comment on the price and markup, 16 because that's such a critical issue. Is DOE -- and 17 we'vehadsomediscussion withthemanufacturer saying 18 that the markups between gas and electric should be 19 the same. 20 We'vehadsomediscussionabout lookingat 21 and evaluating the spreadsheets and the analysis that 22 has already been done, and questioning some of the 23 methodology. Does DOE intendto standby itsresponse 24 that based on industry datawe find the markups, the 25 1.28 and the 1.57, are you going to stand by that in 

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### 1 your analysis as the basis formarkup? Because that 2 certainly has an impact on the evaluation of the 3 design options. 4 MR. LOGEE: Jim, I don't have a precise 5 answer for you right now. I think we'll need to 6 evaluate these comments that we've received on this 7 and take another look at our data sources and the 8 spreadsheets, you know, and it's going to take a 9 little while forus to comeupwith some resolutionto 10 this. 11 MR. BROOKMAN: Mark Krebs? 12 MR. KREBS: If you add installation to a 13 waterheater,gas orelectric, it's the same analysis. 14 You're going to change the geometry, probably the 15 diameter, correct? 16 MR. LOGEE: The outside diameter? 17 MR. KREBS: Yes. 18 MR. LOGEE: Yes. 19 MR.KREBS: Okay. Sowhydoyou onlyhave 20 $160 to remove and replace door jams on 10 percent of 21 water heaters for electric and not for gas? 22 MR. LOGEE: We didn't realize that that 23 would be a problem with gas water heaters as well. 24 We've heard this morning from Bill Thomaston, I 25 believe, who said that's a problem with gas water 

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### 1 heaters. So we'll have to consider that. 2 MR. KREBS: Okay. I guess I'm just 3 reiterating that. It's a problem. 4 MR. BROOKMAN: Thank you. 5 Additional comments on this? 6 MR.McCABE: Well, if Icould followupon 7 that as well. I think -- and Terry and Jim Lutz 

### 8 correctme ifyoumaydiffer -- one of the reasonswhy 9 I believe that we didn't view it as significant for 10 gas as for electric is that the size of the tank

-- 11 the typical tank sold forgas tank is smaller than the 12 typical electric tank. So that the geometry is such 13 that it becomes more of a factor, we thought, for 14 electric than for gas. 15 MR. LANNES: Well, that's a questionable 16 assumption, and I think the objective of all of this 17 is, you know, to minimize those kind of assumptions. 18 You know, what if it's not 10 percent? What if it's 19 20 percent of the homes that need the jam? Andwhat 20 if it's 50 percent of thehomes needchimney relinings 21 instead of 25 percent? 22 All of these things need tobe lookedat, 23 and theyneed tobe lookedat -- Iknow Ikeep saying 24 this again and again, but you've got to understand, 25 you know. You've got, you know, a negligible 

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### 1 difference here, a negligible difference there, you 2 know,andyou've gotawholebunchof negligible -- in 3 andof themselvesthey'renegligible perhaps, theyare 4 small, but they're multiplicative. 5 And overall, you know, it can be a very, 6 very big error that you introduce. And I think that 7 looking at the sensitivity of this stuff is really 8 requiredby NAHB. 9 MR. BROOKMAN: Bob Hemphill? 10 MR. HEMPHILL: I was just going to say 11 that Ithink the assumptionthatgaswater heatersare 12 -- have a smaller diameter because the baseline unit 13 is a 40-gallon versus a 50-gallon electric; and, 14 hence, youdon't have to take into account changes in 15 the geometry, and the costs involved are in error, 16 because thehuge percentage of the installations that 17 are out there that have gas water heaters are still 18 type installations. 19 Ithink you'll findthat thehomes kindof 20 build aroundthewater heater, furnace, and the like. 21 So if you startedwith a smallerwater heater andyou 22 make it bigger, then you do run into the geometry 23 problems withgas. That hasbeenprovenoutverywell 24 with the electric -- sorry, with the furnace, higher 25 efficiency furnaces getting larger. 

### NEALR.GROSS COURTREPORTERS ANDTRANSCRIBERS 1323RHODEISLANDAVE., N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com176 1 MR. KREBS: Andbe reminded that electric 2 water heaters don't have that big empty hole down the 3 middle of them. 4 MR. BROOKMAN: Additional comments on 5 installation topics? I think we've covered it. 6 ASSISTANT SECRETARYREICHER: Ihave togo 7 to a meeting that I didn't expect to have to go to at 8 the White House, and I'm going to do my best to come 9 back before this is done. Doyou expect you are going 10 to go slightly beyond 4:00? 11 MR. BROOKMAN: I suspect we'll go on at 12 least until 4:00. 13 ASSISTANTSECRETARYREICHER: Iapologize. 14 I will come back as soon as I can. I appreciate

-- 15 it's been a very good conversation, and Iwill return 16 as soon as I can. 17 MR. BROOKMAN: Thank you. 18 Yes, you're next. 19 MR. THOMASTON: Bill Thomaston, Alabama 20 Gas. I hate to add some complexity to this, but it 21 just dawned on me while we're having this discussion, 22 particularly in multi-family orper the codes and per 23 manufacturer's installation instructions, any 24 installation where there might be damage from water 25 must have a condensate or a drain pan installed under 

## NEALR.GROSS COURTREPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com177 1 the water heater. 2 The question I've got is: for all of 3 those existing pans that are out there under water 4 heaters, ifyou increase the size of the water heater, 5 whether it's gas or electric, what do you do with the 6 existing pan? Number one. And number two, can you 7 get an adequately large pan under a larger water 8 heater, whether it's gas or electric? 9 MR. BROOKMAN: Thank you. 10 Additional comments/questions on 11 installation-related issues? 12 Michael, is there anythingelse, or should 13 we be moving on? 14 MR. McCABE: Let's head on. 15 MR. BROOKMAN: I think we're moving on. 16 MR. McCABE: Marginal energy rates -- 17 you're not interested in this at all, are you, Steve? 18 MR. ROSENSTOCK: No. 19 MR. McCABE: There were a number of 20 questions, comments, with respect to the marginal 21 energy rates. Someof them werea misunderstanding of 22 what was being done, question as -- generally, two 23 comments from what Laclede Gas and EEI, so that the 24 figures were not calculated correctly. 25 Specifically for, Steve, your comment 

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### 1 dealing withthe Inflator 93, haveyou had achance to 2 follow up on that? 3 MR. ROSENSTOCK: Steve Rosenstock. Yes, 4 I -- Ihaven't heard anything

-- 5 MR. McCABE: Okay. 6 MR.ROSENSTOCK: -- interms of,you know, 7 why -- because I had commented before I really 8 hadn't

-- 

### 9 MR. McCABE: Okay. 10 MR.ROSENSTOCK: -- heard anyexplanation 11 until

-- 

### 12 MR. McCABE: In the life-cycle cost 13 analysis, as has been said before, we used the RECS 14 data,which includedenergyprices that consumerswere 15 paying. From the RECS energy price information we 16 were able to calculate the consumer marginal energy 17 rate for specific years. What we did is that we then 18 took-- andthese are actuallyusing the energyprices 19 for each year for that house. 20 We then took and reduced them down to 21 constant dollars, so we used the consumer price 22 inflator/deflators in order to get it down to the 23 constant dollars. So your comment with respect to 24 Inflator 93 was in order to get it down to constant 25 dollars, but we were using the rate -- the marginal 

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### 1 rate that the consumer was paying in that year, and 2 then reducing it down to fixed dollars. 3 MR. ROSENSTOCK: Steve Rosenstock, EEI. 4 Well, I'll say looking at the spreadsheet, the life5 cycle cost uncertaintymodel, it seems likeyou're -- 6 there's an equation in here -- and it's probably the 7 same for gas or oil. 8 Thereis electricmarginal price,whichis 9 the output that seems to be used, equal to the 10 electric marginalrate thathasbeen calculated,times 11 the Inflator 93, times the electric scaler. And the 12 electric scaler is what is actually based on the 13 prices, I guess, gathered from the Census data or 14 other calculations. 15 Like I've said before, I've had trouble 16 because it seems you're using the Inflator 93 to 17 inflate the costs of a product where that inflation 18 has not been seen in the market for that product. 19 MR.McCABE: We'vegot twoprices that

-- 20 not being an economist, and chemical engineers can 21 botch a lot of things up -- 22 MR. ROSENSTOCK: I don't

-- 23 MR. McCABE: Most of them have left, but 24 there is a few still around -- that trying to do

-- 25 look at what the price that has beenpaid in that year 

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### 180 1 for the energy -- 

### 2 MR. ROSENSTOCK: Right. 3 MR. McCABE: -- but then separately we're 

### 4 trying to take what that price is and using 5 Inflator 93 to get it down to constant dollars. 6 MR. ROSENSTOCK: Steve Rosenstock. I 7 guess, again, the problem I have is that in this 8 calculationyouhave theelectric scaler therealready 9 to bring it down. Since you're multiplying by the 10 inflatorrather thandividing,you'renot -- since the 11 price -- I'll just assume -- if you have a price, it 

### 12 was $1.93 and $1.98, and you're multiplying the 13 inflator -- let's say it's 12 percent -- to say that 

### 14 the price of that product is $1.12 when you have 15 market data that shows it was just $1. And you're 16 using that in the rest of the calculations. That I 17 kind of have aproblem with. 18 MR. BROOKMAN: Say how you would suggest 19 they do it. 20 MR.ROSENSTOCK: Take out the Inflator 93 21 and just leave in the electric scaler or gas scaler, 22 because those are actually based on data that has 23 shown what has actually happened to the price of the 24 product from '93 to '98. 25 MR.BROOKMAN: Therefore, the inflator is 

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### 1 not needed. 2 MR.ROSENSTOCK: Ordivideby the inflator 3 whenyou get right down to it, because -- okay. Yes, 4 take the inflator out. I'm sorry. 5 MR.BROOKMAN: Let's let Jim Lutz comment 6 on this from LBNL. 7 MR. LUTZ: Jim Lutz, LBNL. Steve, the 8 inflator was to convert everything to '98 dollars. 9 That's what that was for. The scaler was -- from 

### 10 EIA's records of average energy price in constant 11 dollars has dropped. So we have to do two things

-- 12 we have to convert '98 dollars and then track the 13 change in energyprice in, youknow, constant dollars 14 -- has dropped. So there's two things going on. 

### 15 MR. ROSENSTOCK: Okay. I guess 16 theoretically -- maybe this is my mechanical 17 engineering mind here -- is that you're -- shouldn't 

### 18 it be dividing by that rather than multiplying, to 19 keep it constant? 20 MR.BROOKMAN: I'mgoing to let the twoof 21 you consider this and take this arcane discussion 22 offline. 23 MR. ROSENSTOCK: Okay. 24 MR.BROOKMAN: It's useful. But, Imean, 25 I -- you can return to this in amoment, if you like, 

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### 1 but I'll see if -- Darrell, and we'll go to Mike. 2 MR.PAUL: Yes. Ihad-- oureconomist at 3 Battelle, Bill Sheppard, also looked at this, and he 4 was very confused about it also. 5 MR. BROOKMAN: Okay. 6 MR. PAUL: Looking at the '93 data, and 7 then scaling it up to '98 dollars, and then adjusting 8 it. What we're really interested, though, in is how 9 those marginal energy rates compare with the annual 10 energy outlook forecast. And so if DOE couldgive us 11 an average consumer marginal energy rate over the 12 years in which the standard would be in effect, we 13 could compare that with the annual energy outlook 14 prices, just to get an idea of how the two compare. 15 Again, we weren't comfortable with the 16 scaling up '98 dollars either and then adjusting it 17 based on the annual energy output data. 18 MR.McCABE: Our responseto that, Ithink 19 I'll have to check -- Terrywill checkwithLBNL. But 20 since that analysis was done on ahouseholdbasis, we 21 canprobably just take the results and sumthem upand 22 calculate an average. Idon't believe theyhave that 23 now,but Ipresume it's somethingthat couldeasilybe 24 done. 25 MR. BROOKMAN: We've been going a while 

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### 1 since lunch now. We're going to take abreak as soon 2 as we finish with this segment. 3 MR.SCHLEEDE: Question. Glenn Schleede. 4 Could somebody from LBNLgive me a page reference or 5 a brief description of how you allocated household 6 energy costs to each appliance? Either apage number 7 or an oral. 8 MR. KREBS: I'd like to see that one, too. 9 MR. McMAHON: This is Jim McMahon from 10 LBL. We didn't do an allocation to all of the 11 appliances. Right now, we're dealing with water 12 heaters. So you're asking about the energy 13 consumption? 14 MR. SCHLEEDE: Yes. 15 MR. McMAHON: We calculated the energy 16 consumption for water heaters for each of the 17 households based upon the variables that were 18 described earlier fromRECSas wellas a fewvariables 19 that are not inRECS. And that is documented -- it's 20 in the LTC report. I'll pick one up and give you a 21 page reference in a second. 22 MR. BROOKMAN: Okay. Thank you, Jim. 23 Okay. So, Michael, in response to 24 Darrell's question, Terry can trace that down 25 hopefully and see whether -- what's possible to 

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### 184 1 produce. 2 Mark Krebs? 3 MR. McCABE: Do youwant to get me after 4 the break? Or do youwant it now? 5 MR.BROOKMAN: No, Iwant topress onwith 6 this. Iwant to finish on marginal energy rates. 7 MR. KREBS: Okay. 8 MR.BROOKMAN: And thenwe'regoing to all 9 take a break, and even have cookies. 10 MR.KREBS: Speaking,youknow, forone of 11 the three people that formed the subcommittee on 12 modeling, and all of the iterations and discussions, 13 what -- you know, what we wanted, you know, in my 14 words -- and Steve Rosenstock or Charlie Stephens may 15 ormaynot agree -- butwhat we wantedto do is ensure 16 that we came up with a way that consumer savings are 17 measured in a way that's appropriate with how those 18 savings are realized, and that's by utility rate 19 structures. 20 Andwe have theRECSdatathat's 1993 that 21 we -- there is some kind of inflator adjustment. I 22 don't know what way that's going, but at the last 23 workshop meeting JimMcMahon agreed that the future, 24 you know, is probably towards a larger percentage of 25 fixed costs, like you've seen in your residential 

### NEALR.GROSS COURT REPORTERS AND TRANSCRIBERS 1323RHODEISLANDAVE., N.W. (202)234-4433 WASHINGTON, D.C. 200053701 www.nealrgross.com185 1 phone bill. 2 You know, long distance has gotten cheap, 3 but, you know,most of your residential phone billnow 4 is fixed cost. And maybe the same thing would apply 5 here. 6 And then I guess the question maybe to 7 Jim, you know, is that part of this inflator? Is it 8 -- you know, andhow can you go in and adjust that for 9 your what-if scenario maybe? 10 MR. BROOKMAN: I will tell you that I'm 11 havinga hard time following the discussionright now. 12 I want to make sure we're staying on point and 13 targeted. 14 So, Jim, tell us howwe can stay onpoint. 15 I think we're still talking about

-- 16 MR.McMAHON: Iwould ratheranswerMark's 17 question. 18 (Laughter.) 19 MR.BROOKMAN: AnswerMark's question. It 20 seems to mewe're kind of spinning aroundhere. Maybe 21 I'm missing it. Answer Mark's question first, and 22 then we'll make sure we're going where we're supposed 23 to be going. 24 MR. McMAHON: Mark, the answer to your 25 question is, no, we did not try and forecast a change 

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### 1 in the proportion of total energy costs that will be 2 fixed projects. We just used the rate of change of 3 the averageprice inaproject to themarginal prices. 4 MR. KREBS: Well, I guess I'm not 5 comfortable that that has captured the intent of the 6 consensus of the committee. And maybe that -- you 

### 7 know, maybe you didn't want to. After all, DOE only 8 has to consider consensus. But I'd just -- for the 

### 9 record, you know, it fell short in my mind, not to 10 mention the fact that, you know, it's 1993 data. 11 The data that AGA developed for gas 12 marginal energyrateswasconsiderablynewer,and,you 13 know,wewent back andrechecked it, youknow,because 14 afterall we're talkingabout a 50 percent difference 15 between, you know, what your margin is and what our 16 margin is, and that's significant. I think it

-- 17 MR.BROOKMAN: Mark, canyou saydirectly 18 what it is that you'd like them to do with these 19 marginal energy rates? 20 MR. KREBS: Well, Iguess significantly I 21 want to try to resolve the differences between the 22 marginal energy rates that arebeing usednow and the 23 ones thatAGAgenerated that are several years newer. 24 MR. BROOKMAN: Okay. So do you have a 25 major consensus about themethodology that would span 

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### 187 1 that gap? 2 MR. KREBS: Well, we have a 50 percent 3 disparity. 4 MR. BROOKMAN: Okay. Charlie Stephens? 5 MR. STEPHENS: Just to help Mark along 6 here, I just wanted to say that I don't think the 7 fixed cost is the issue, but the marginal rate is, if 8 themarginal rate happens tobe affectedbygoingdown 9 when fixed -- when the fixedportion goes up. That is 10 a possibility. 11 It sounds to me like you could look at 12 that possibility simplyby lookingat a steeper slope 13 on whatever you're doing with marginal energy rates, 14 byassuming that if fixedcosts go up, and at the same 15 time themarginal energyrategoes down in response to 16 that. I'm not sure that's a given, but it could 17 happen, and you could look at it by just reducing 18 marginal energy rates more as one scenario. 19 MR. KREBS: Mark Krebs again. They are 20 what-ifs. They are legitimate what-ifs. And it's 21 basically,youknow,DOE iscompelledunder the robust 22 and transparency language of NAECA to consider these 23 things. 24 MR. BROOKMAN: Okay. Thank you for your 25 comment. 

### NEALR.GROSS COURTREPORTERSAND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 200053701 www.nealrgross.com188 1 Jim McMahon and Michael McCabe also have 2 a comment. 3 MR. McMAHON: Brief follow on. With 4 regard to the currencyof the data, the 1993 RECS data 5 is the latest EIA data that is publicly available. 6 There was a 1997 survey. We have been inquiring with 7 EIA about when they will make that data publicly 8 available. As of last week, their best estimate is 9 end of August of this year. 10 As soon as we have that data, our 11 intention is to update our estimates of marginal 12 prices, and we will then have numbers that we can 13 compare to the AGA numbers. 14 With regard to your second issue about 15 doing the what-ifs, ifyouwould care, either today or 16 in the comments, to specify a specific scenario, we'd 17 be happy to analyze it. 18 MR.BROOKMAN: Jim, thatnew RECSdata, do 19 you think that will help to explain the gap that Mark 20 wants to have explained? 21 MR.McMAHON: Idon't know because Idon't 22 have the data. 23 MR. BROOKMAN: Okay. Thanks. 24 MR. McMAHON: We'll see. 25 MR. BROOKMAN: Michael McCabe? 

## NEALR.GROSS COURT REPORTERS AND TRANSCRIBERS 1323RHODEISLANDAVE., N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com189 1 MR. McCABE: Jim touched on it. We're 2 going to look to usewhatever dataare available. The 3 approach that was usedhere was that whichDan Reicher 4 haddescribed inhis letter to theAdvisoryCommittee. 5 We believe that it is flexible and that it can 6 accommodate the space conditioning or the seasonal 7 products which the -- some of the other alternatives 8 could not. But we will review it as information

-- 9 more information becomes available to us. 10 MR. BROOKMAN: Yes, Jim? 11 MR. RANFONE: Jim Ranfone, AGA. Quick 12 question, I guess, on the marginal energy rates. I 13 assume you're going to be using the same methodology 14 for the other products that is currently underway in 15 Delaware? 16 MR. McCABE: Similar methodology. The 17 commercial products is not based on the RECS 18 information. The central air conditioners and clothes 19 washers is essentially the same. The difference 20 between the two is that using the RECS data we can 21 split out the seasons and get heating and cooling 22 figures, so the marginal rates for the different 23 seasons. And certainly with air conditioners that's 24 a factor where it is not a factor with the clothes 25 washers and water heaters which are used year-round. 

### NEALR.GROSS COURTREPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE., N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com190 1 MR. RANFONE: Okay. How about on gas 2 ranges under that rulemaking? 3 MR. McCABE: No. 4 MR. RANFONE: You are not using that? 5 MR. McCABE: We are not using that. 6 MR. BROOKMAN: Mark Krebs? 7 MR. KREBS: Going back to Jim, I 8 appreciate Jim's offer, you know,that he'dbe willing 9 to run these scenarios. But that wasn't the deal. 10 The deal -- and I quote Dan Reicher's letter -- is DOE 11 and stakeholders will be able to easily substitute 12 alternativeassumptions in the spreadsheets toexamine 13 additional scenarios, as needed. 14 You know, basically, the deal was the 15 stakeholders, you know, do their scenario engineering 16 and the spreadsheet is accommodated. So what you -- 17 you know, what you need to do is have this system of 18 spreadsheets designed in a way where you've got, you 19 know, a page of input, so we go to one page andall of 20 the inputs we want to play with are right there. 21 Thenwe choose the onewewant, put in the 22 values we want, and hit "run." I mean, I know it's 23 more complicated than that, and I'm way 24 oversimplifying it. But that was effectivelyat least 25 what I expected. 

### NEALR.GROSS COURT REPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com191 1 MR. BROOKMAN: Jim McMahon? 2 MR.McMAHON: Yes, Iappreciate thatMark. 3 We are trying to be true to the commitment that Dan 4 Reichermade. We haveprovided a spreadsheet inwhich 5 we believe you can -- or any stakeholder can -- 6 replace a single columnof forecasted energyprices to 7 create whatever scenario you want. 8 But ifwe haven't explainedit adequately, 9 if you're having trouble doing it, we'd be happy to 10 walk you through it or do it for you. 11 MR.BROOKMAN: Are you ready tomove on to 12 the next -- the next comment? Michael McCabe? 13 MR. McCABE: The next comment is one that 14 I have probably mangled as I was trying to boil it 15 down to some simple language. We've somewhat covered 16 it already, but there were -- in looking -- in 17 reviewing some of the comments, there were questions 18 about, did we use a single set of energyprices? Are 19 there distribution curves, and what have you? 20 And as we touched on, we relied on the 21 RECS survey. From that we backed outmarginal energy 22 rates for individual households. So when we present 23 the numbers, since we have different energy rates for 24 different households, that may have been the cause of 25 some of the confusion and also some of my confusion 

## NEALR.GROSS COURTREPORTERS AND TRANSCRIBERS 1323RHODE ISLANDAVE., N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com192 1 trying to characterize the comments. 2 MR. BROOKMAN: Steve Rosenstock? 3 MR.ROSENSTOCK: Steve Rosenstock. As an 4 electric institute, with RECS '93 data, how -- I'm 5 just maybe -- you were able to get all of this data 6 out of RECS '93, or how did you -- how were you able 7 to accomplish this with the '93 data? I'm just -- I 8 just want -- or just as a clarification. 9 MR. McMAHON: Yes, it was from '93 RECS 10 data. The original report that was on the table 11 here

-- 12 MR. ROSENSTOCK: Okay. 13 MR.McMAHON: -- that describes the entire 14 methodology, and if that doesn't answer your 15 questions, we'd be happy to -- 16 MR. ROSENSTOCK: Okay. 17 MR. McMAHON: -- answer them. 18 MR. BROOKMAN: Thank you. 19 Other comments/questions related to the 20 distribution curves for marginal energy prices? No 21 additional comments/questions ondistribution curves? 22 Okay. It'snow 2:35. Let's take a break. 23 We'll start up -- at 2:50 we'll start. 24 (Whereupon, the proceedings in the 25 foregoing matter went off the record at 

## NEALR.GROSS COURTREPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 200053701 www.nealrgross.com193 1 2:35 p.m. and went back on the record at 2 2:55 p.m.) 3 MR. BROOKMAN: Okay. Take your seats. 4 First and foremost, we should probably 5 give a round of applause to Sandy and Brenda for 6 providing cookies. 7 (Applause.) 8 Second, Terry Logee, I understand the 9 Department has copied several diskettes. You don't 10 have a ton of them, but you have several of them. 11 MR. LOGEE: Yes, there are two diskettes, 12 and they relate to -- they are the spreadsheets for 13 the shipments and the national energy savings. 14 There's about 30 copies over there. And this is the 15 spreadsheet for the national energy savings that 16 actually works. The one that was posted on the web 17 site isn't actuallya functional spreadsheet. It just 18 has a results level. So we'll get this posted 19 sometime next week, allowing for any electronic 20 difficulties, and so forth. 21 MR.BROOKMAN: Okay. Soyou have about 30 22 copies of them now. 23 MR. LOGEE: Correct. 24 MR.BROOKMAN: Brendamentioned this tome 25 -- she suggested that no more than one person per 

## NEALR.GROSS COURT REPORTERSAND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com194 1 company take the diskettes. So theywillbe available 2 over there. 3 Okay. Other questions or commentsbefore 4 we proceed? Given where we are with the -- and the 5 amount of workwe have to cover, I'm suggesting we're 6 on a timeline to finish more like 4:30 than 4:00, if 7 we're lucky. So I just want us to stayreally focused 8 and see if we can keep plugging through this and get 9 out before the end of the day. 10 Michael McCabe? We finished marginal 11 energy rates. Are we now on life-cycle cost, RECS 12 data, blended fuel projections? 13 MR.McCABE: Yes. 14 MR. BROOKMAN: Yes, that's where we are. 15 Okay. We're on page 10 of the handout, life-cycle 16 cost analysis. 17 MR. McCABE: The first point I believe 18 that we have covered. Jim made the comment about the 19 soon expected release of the RECS '97, and that we 20 will have LB&L take a look at that as soon as it 21 becomes available. 22 The second point that is here is the 23 question that was raised by Battelle, one, EPRI 24 another, in one form or another. The question was 25 raised about RECS and the fuel type. Some have 

## NEALR.GROSS COURT REPORTERS AND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com195 1 questioned the training of the surveyors to their 2 ability to discern -- to get accurately whether ornot 3 the house has an electric or gas water heater. 4 Given the discussions that we've had

-- 5 I've had with the staff, we're familiar with it. 6 Looking at the data, there maybe something there, but 7 we don't have any information to indicate if there is 8 anything, or, if there is, to what extent. 9 The RECS data, as I understand, was a 10 telephone -- included a telephone survey of the 11 households where they got questions as to fuel type 12 for the different appliances. There may be some out 13 there who don't know what they have downstairs in the 14 basement, in the garage, in the carport, in the 15 closet, wherever it is. 16 But until we see some information that 17 would indicate if there is an error, and what the 18 magnitude is, then we're just not sure how -- if it 19 can be -- how it could be incorporated into the 20 analysis. 21 The comments that EPRI had made with 22 respect to some of the additional factors that were 23 considered in the life-cycle cost variability, which 24 went beyond what is in the RECS database that 25 encouraged that -- we'llpoint out that they hadnever 

### NEALR.GROSS COURTREPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com196 1 seen it and asked that it be something that would be 2 published in peer reviewed literature first. 3 I suspect that many -- that there are 4 going to be a number of articles that are going to 5 come out of this work at some time in the future, and 6 we would like to have your comments on the approach 7 taken. But as far as holding upuntil the peer review 8 can be completed, it's something that we don't have 9 that time. 10 Questions/comments on this? 11 MR. BROOKMAN: Yes, Bob Hemphill? 12 MR. HEMPHILL: Bob Hemphill, Gas Research 13 Institute. I'm just curious as to what decisions led 14 up to using the RECS data. Imean, that's a whole new 15 process, as far as I'm aware of, in the rulemaking. 16 And I think just from a gut feeling, if the data is

-- 17 if you're unsure of the correctness of the number of 18 even gas to electric water heaters, how can you then 19 take that kind of data and add to it and get the 20 detailed, significant figures out of it? 21 I really wonderwhat the process was that 22 led you to using the RECS data and how that was 23 derived as being accurate enough to indeed be the 24 basis onwhichyouwould addmore data to it and still 25 come up with good results. 

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### 1 MR. McCABE: There were a number of 2 different things which led up to this, and most of 3 themare centered around theprocess improvement, the 4 Advisory Committee. First, is that the Department 5 recognized that doing an analysis which focused on 6 single point estimates, that the impact on the 7 consumer is going to be X, that we know that there 8 isn't -- youknow, that one consumeror that everybody 9 is the same, that there is a range of consumers, the 10 RECS data is very robust in that regard. It captures 11 that. 12 So we wanted to get away from doing the 13 single point life-cycle cost analysis,whichwasbased 14 onnationalaverages, becausewiththat informationwe 15 could say, on average, this is the effect. But when 16 you start talking about what fraction of the 17 marketplace was going to be impacted and to what 18 extent, we were not able to capture that. 19 We were able to look at certain -- we 20 looked at certain scenarios in the past, said, "What 21 if the energyprices were 10 percent different? What 22 if the usage rates were seven percent different?" 23 What-if scenarios. But that still gave you a very -- 24 a single number and hard to interpret. 25 Using RECS, we are able to get a 

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### 1 distribution of impacts and to be able to estimate 2 better, orhave abetter understanding, as towhat the 3 consumer impacts are. 4 RECSalsohas theenergyprice information 5 per household,which when responding to the Advisory 6 Committee's recommendation that we look at marginal 7 energyprices and look at that impact -- because it's 8 that last bit of energy savedthat the -- the lastbit 9 of energypaid for is where the savings is -- that we 10 tried to capture the marginal impacts. 11 The Advisory Committee made a 12 recommendation to look at removing the fixed costs, 13 andhad made a specific suggestion. We had done that 14 analysis early on with I believe it was clothes 15 washers to get a sense as to what that impact would 16 be. 17 But in responding to the Advisory 18 Committee's recommendation, Dan Reicher committed us 19 to going to using the RECS data for residential 20 productsbecause the removing fixed cost approachhad 21 a problem that it gave you essentially an average -- 22 annual average consumer marginal energy rate and did 23 not allow you to capture any differences between 24 seasons. Whereas, we foundwithRECS thatwe coulddo 25 that. So we felt that it was a better analysis than 

## NEALR.GROSS COURT REPORTERS AND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com199 1 what we -- the other approach. So there are a couple 2 of different points that led us to RECS. 3 Mark, you've got a comment or question. 4 MR. KREBS: Yes. Imean, I admit I don't 5 understand, you know, everything that's in RECS. You 6 know,we've heard from somepeople that understand it, 7 and they have commented on some things that have been 8 added. But, you know, in order to do this correctly, 9 you've got to know the rate structures. 10 And, Jim, you know, tell me, how is it 11 done? You know, if you're doing CMER, you know, 12 you've got to know the rate structures. And I can 13 guarantee you if you call up a consumer,youwon't get 14 them to give you their rate structures. They don't 15 know. So how is it done? 16 MR. BROOKMAN: Jim McMahon? 17 MR. McMAHON: How much do I have to -- 18 (Laughter.) 19 MR. BROOKMAN: We always relied on your 20 brevity to date. 21 MR. McMAHON: Thank you. The answer is 22 this is not done through rate structures. We did 23 explore, other than using RECS, doing a survey to 24 capture the current rate structures across the 25 country. There are more than 3,000 utilities, 

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### 1 counting all themunies and co-ops. Eachof thosehas 2 some number of rate structures. And we found that 3 that was an impossible task. 4 We actually gathered rate structures for 5 about 20 percentof the customers in the country,both 6 residential and commercial. But we found that that 7 was pretty tough. 8 We looked, as an alternative, at the RECS 9 database,becauseRECSgatheredhouseholdenergybills 10 house by house for 12 to 16 months -- 12 to 16 11 different bills -- for each of the households. And 12 what somebody at EIA came up with was that if we 13 plotted the household bill versus the energy 14 consumption, and we looked at those plots, we could 15 take the slope, change inbill as a functionof change 16 inenergyconsumption,andthat is themarginalprice. 17 The rates are implicit inwhat you see in 18 bills frommonth tomonth. So that's whatwewoundup 19 doing. And as Michael correctly summarized, sincewe 20 have month-by-month bills in RECS, we can separate 21 winter from summer. And it's not so important for 22 this rulemaking, but for central air conditioners 23 there's a great deal of interest on the part of the 24 Department ingettingrates that are applicable toair 25 conditioners. And you can't get there by taking an 

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### 1 average price andmaking up a fixed charge. That's a 2 short history. 3 Idon't know if you were able to pick up 4 a copy of the report, but there is a report on the 5 marginalprice method thatwas available on the table 6 this afternoon. 7 MR. BROOKMAN: Thank you, Jim. 8 Darrell? 9 MR. PAUL: Getting back to the RECS data 10 and how you identify whether the household has a gas 11 or electric water heater, and the fact that it's a 12 telephone survey and you're talking to people on the 13 phone and asking them, "Well, do you have a gas or 14 electric water heater?" I know that, you know, most 15 people in this roomknowwhether theyhave agas or an 16 electric, but

-- 

### 17 MR.McMAHON: Excuse me. Idon't mean to 18 interrupt, but it was not a telephone survey. It was 19 an onsite survey. 20 MR. PAUL: Okay. 21 MR. McCABE: Ithought it was an onsite, 22 supplemented by telephone. 23 MR. PAUL: Okay. Well, yes, even so, if 24 it's an onsite survey, but the -- it's my 

### 25 understanding that the survey taker doesn't actually 

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### 1 go down and check to see whether they have a gas or 2 electricwaterheater,that theyrelyonthe responses 3 of the panel. 4 And Iguess my point is that there could 5 be a significant number of people who may not know 6 whether they have a gas or an electric and may guess 7 one way or the other. And there are a significant 8 number of households that have a gas furnace but an 9 electric water heater, and that -- so just because 10 they have gas in the home doesn't mean they 11 necessarily have both a gas furnace and a gas water 12 heater. 13 Iguess my question is: is the raw data 14 available for theRECS survey? Andby "therawdata," 15 Imean the actual address of thehousehold, telephone 16 numbers. Some utilities may be able to go back and 17 check, because they have records of equipment 18 installed in various homes in various locations, 19 some -- 

### 20 MR.McCABE: Those data are not available 21 by design. Probably the only one who knows that is 22 the organization that has done the survey for EIA. 23 Glenn may add some to that, because I think Glenn 24 Schleede has examined it in great detail. 25 MR. SCHLEEDE: Not enough detail. But I 

## NEALR.GROSS COURT REPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com203 1 think people recognize that this is 6,000 households 2 which are used by EIA to come to conclusions about 3 some 92 millionhouseholds. Andwhat's happeninghere 4 isyou're looking atvery small cellswithin that, and 5 this is a huge matrix. 6 And there is a huge potential for error 7 involved, and I asked Jim if he had ever done the 8 standard error calculations and make them available, 9 which he has not. But if anyone is going to bet their 10 farm on the data, you ought to understand RECS and 11 ought to get deeply involved in how the data are 12 calculated. And those data are not available, and 13 there's a lot more here that ought to be done. 14 MR. BROOKMAN: Let's let Jim follow on, 15 and then to Charlie Stephens and Frank. 16 MR. McMAHON: I'm not here to defend the 17 RECS survey, but let me try and put this in context a 18 little bit. The RECS survey was designed by the 19 Energy InformationAdministrationwitha lot of effort 20 by statisticians whose job it was tomake sure it was 21 nationallyrepresentative. And they took agreat deal 22 of effort to do that. 23 They have also gone back with subsamples 24 of the survey to do followups, where they actually do 25 things like Darrell suggested of checking the 

## NEALR.GROSS COURT REPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON,D.C. 20005-3701 www.nealrgross.com204 1 equipment -- I don't knowwhat the numbers are -- but 2 probably in hundreds of households out of the 3 thousands that they did the full survey on. And they 4 found very good agreement. 5 I can't certify that there is no one who 6 responded incorrectly to the question, "What fuel do 7 you use for your water heater?" But I'm sure EIA has 8 been very careful about trying to do the best they 9 can. Any survey is likely to have -- with human 10 respondents is likely to have errors in it. And all 11 I can tell you is this is an extremely well-designed 12 careful national survey, which is not to say it 13 doesn't have any errors. 14 For the rest of the context, we havemoved 15 from a methodology where we had assumptions about the 16 average values for all of these inputs to a 17 methodologythat uses anational survey to capture the 18 variability among households. 19 And ifyou're suggesting that this is not 20 complete until there is direct house-by-house 21 compilation of data where if someone goes into the 22 house and looks at the water heater, for the 92 23 million households in the country, I don't think that 24 that's reasonable. 25 Iwouldalso remindyouthat everydayyou 

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### 1 read in the newspaper surveys that are done by 2 telephone of severalhundred to athousandpeoplethat 3 tell you what people think in this country about any 4 issue that you want. And most of us tell those 5 stories over the water cooler, or whatever, about 6 what's going on, what popular opinion is. There are 7 a lot of politicians who rely upon this. 8 This is a better survey than that. So 9 let's just keep that inmind. 10 MR. SCHLEEDE: Glenn Schleede again. If 11 Jimwill remember,one day you brought theguy in from 12 EIA that runs the survey. And the questionwas asked 13 about the use of the data, andhe said that it's okay 14 to use it for reaching conclusions about national 15 matters, but here you're using it in very discrete 16 cells and reaching conclusions from it. And I am 17 still not sure that EIA would tell you that that is a 18 proper use of the survey -- 

### 19 MR. BROOKMAN: Charlie Stephens? 20 MR. SCHLEEDE: -- survey data. 21 MR. BROOKMAN: And then Bill -- and then 

### 22 Frank, and Bill Prindle next. 23 MR. STEPHENS: I just wanted to be on 24 record as suggesting that the Department has gone out 25 of theirway to do anextraordinary amount of work to 

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### 1 do anawful lot better job thanwe've everhadbefore. 2 And I don't think it's productive to nitpick any 3 further on the way the data has been generated. 4 I think we know more than we've ever 5 known, and Ithinkwe know everythingwe need to know 6 for a national standard. There is more error in 7 probably not having the '97 data, which we've been 8 toldwe're going tohave. And Ithink once that is in 9 hand, and we have the most current information we 10 have, then Ithink it's notproductive to slow things 11 up trying to refine it further. We have a lot bigger 12 issues, I think, to resolve than that one. 13 MR. BROOKMAN: Otto, go ahead and follow 14 on. 15 MR. VAGO: Otto Vago, State Industries. 16 I concur with Charlie. I think that DOE has done an 17 excellent job. So I think that any further study in 18 this area would be just a waste of time. 19 MR. BROOKMAN: In the queue are Frank 20 Stanonik, Bill Prindle, and then Mark Krebs. 21 MR. STANONIK: Frank Stanonik with GAMA. 22 Just a quickcomment. There is concern as to whether 23 ornot the answers as towhatkindofwater heaterwas 24 in the house -- whether the correct answer was 

### 25 determined or not. 

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### 1 If, in fact, the information relative to 2 themonthlybills is stillavailable in some form,you 3 could at least have apretty closevalidationbecause 4 the summer bill for a residence with a gas water 5 heater is basically going to be driven by the water 6 heater. And so it would be very different than a 7 summer bill of a house that has a gas furnace and an 8 electric water heater. 9 Idon't know if it's there, but that may 10 be at least a second order of

-- 11 MR.BROOKMAN: IthoughtMichael suggested 12 that, by design, that's -- well, anyway. 13 Bill Prindle? 14 MR. PRINDLE: Just acoupleof comments in 15 support of thewayDOE and LBLhave handled theuse of 16 the RECS data and theuse -- and the kind of marginal 17 energy analysis they'vedone. RECS is definitely the 18 best methodology and data source we have. Probably 19 the closest alternative I could think of is the kind 20 of appliance saturation surveys that utilities 21 routinely do. 22 I've seen a number of them myself as a 23 consultant. Andmost ofthose arebasicallytelephone 24 surveys. You're not going to get any better data 25 from, you know, anything that any utility would have 

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### 1 done on its own. 2 Secondly, on marginal energy prices, 3 looking forward it is extremely inappropriate to use 4 rate structures formarginal energy cost becausewith 5 competitive energy markets now in place in several 6 states, and likely to be in the majority of the 7 country by the time the standard takes effect, 8 marginal energy prices are going to be all over the 9 map. 10 There are somepeople that aregoing tobe 11 on time of use rates, real-time rates, flat rates. 12 You know, there is going to be virtually no way to 13 systematicallypredictactualmarginal energycostson 14 aper customer basis. So theway LBL is doing it now 15 is really the only way, I think, that you can 16 appropriately do it. 17 MR. BROOKMAN: Thank you. 18 Mark, and then this gentleman. 19 MR. KREBS: Listening and speaking as an 20 ally

-- 

### 21 MR. BROOKMAN: Thankyou. 22 MR. KREBS: -- I think we learned that. 

### 23 Ithinkwe learned thedifficultyof trying tokeepup 24 the data on all of the gas and electric rates across 25 the country, you know, and I warned Dan Reicher in 

## NEALR.GROSS COURT REPORTERSAND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com209 1 writing about underestimating that effort. 2 You know,maybe RECS is a necessary evil. 3 Hopefully, it's going to be improved with the 1997 4 version. But I think the problem is, you know, we 5 reallydon't understand it, we reallydon't understand 6 how these other things were addedto it, and above all 7 we reallydon't understand the sensitivity of certain 8 assumptions, you know, and variables built into it. 9 MR. BROOKMAN: Okay. 10 MR.KREBS: And that'swhy,youknow, that 11 whenyou talk about robust, andwhenNAECA talks about 12 robust and transparency, it talks -- it uses the words 13 "fully documented." And I appreciate the fact that 14 Jim McMahon and LBL and their staff can't be blazing 15 new trails, you know, and spreadsheets simultaneous 16 with the need to document things as well as they can. 17 But regardless,youknow, it does cause -- 18 it causes problems. We don't understand. And, you 19 know, I guess, you know, we need to be cautiously 20 optimistic about where this is headed, at a minimum. 21 MR. BROOKMAN: You're next. We're 22 starting to get slightly repetitive here. So I'm 23 going to get Michael ready to move on to the next 24 subject. 25 MR. KOCH: Okay. Claus Koch from

-- 

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### 1 MR.BROOKMAN: Final element of this. Go 2 ahead. 3 MR.KOCH: ClausKoch fromUnionGas. Let 4 me put some brackets on the accuracy of surveys. Our 5 companyhas recentlydone asurvey -- one that theydo 6 every few years -- a fairly detailed survey, 1,200 7 customers, asking them about their furnaces, asking 8 them about what their water heaters -- what kind of 9 water heaters, duh, duh, duh, duh, duh, duh, duh. 10 Andthe results camebackto ourdepartment, and 11 I looked at the results and said, "That's doesn't 12 sound right." Unbeknownst to the communications 13 group, Ihad adatabase of 1.2millionwater heater

-- 14 rental water heaters that I could go back and then 15 have somebodydo some work on. 16 The resultswerethat the survey-- fairly 17 detailed telephone survey, 1,200 people in our 18 franchise -- said 22 percent of our customers had 19 power vented water heaters. It turns out that the 20 real number was 31.6. So we're talking about a 50 21 percent higher number. 22 MR. BROOKMAN: And would you make an 23 equivalent prediction about the difference between 24 electric and gas? 25 MR. KOCH: I'll leave that to somebody 

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### 1 else. But Iwill tellyouthat the averagepersonhas 2 no idea what theyhave down in theirmechanical room. 3 MR. BROOKMAN: Okay. Thank you. 4 Michael, lead us on. 5 If we don't keep moving, folks, we're 6 going to be here -- I'll tell you, we're going to be 7 here late. I ask for your indulgence to be concise 8 and keep us moving ahead, because I'm going to be 9 here, I'll guarantee you. We're going to keep going 10 until we get this done. 11 MR.McCABE: The firstpoint as faras the 12 household-- using householdcharacteristicsnot found 13 in the RECS data -- we've already discussed that. I 14 don't know if there's anything else to add at this 15 point. We're going to be getting back with some 16 answers to the questions there. 17 The second one here

-- 18 MR. PAUL: Quick question on this one. 19 You say in the response, the second sentence there, 20 the thermostat set point and these other things were 21 calculatedusing climate andhousehold heatingdegree 22 days. But that thermostat setpoint is the thermostat 23 set point of the water heater. 24 MR. McCABE: Correct. 25 MR. PAUL: So that couldnot becalculated 

### NEALR.GROSS COURTREPORTERSAND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON,D.C. 20005-3701 www.nealrgross.com212 1 based on climate or household heating degree days. 2 MR. McCABE: You are correct on that one. 3 Again, one of the problems with trying to condense 4 this into fewer words, there are a variety of data 5 sets that we used toextrapolate the differentpoints. 6 And as far as the cold water temperature and room air 7 temperature, if I could extrapolate from those two, 8 the thermostat set point, I'll look to Jim as far 9 as -- 

### 10 MR.BROOKMAN: Doyouwant himto identify 11 the data set? 12 MR. McCABE: That's

-- 13 MR. LUTZ: We took the RECS data set. 14 They include for 1993 heatingdegree daysat thehouse 15 with some error, so you can't identify the house 16 exactly. From the heatingdegree days, 1993, yougot 17 weather data, identifiedwhichairport is the closest 18 to in the region that they identify, sowe know which 19 climate zone it's in. 20 From that, we get annual average air 21 temperature. We assumedcoldwater inlet temperature 22 was acouple degrees above that, togive usan average 23 annual coldwater inlet temperature. And then, from 24 there,we said thehot water temperature is a function 25 of cold water temperature. The colder the inlet 

## NEALR.GROSS COURTREPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE., N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com213 1 temperature, the hotter the tank temperature is going 2 to be set at. 3 Just to balance off, we have a little bit 4 of data from CEC. And if you've got real cold inlet 5 water, whenyou get in the shower youwould -- to make 6 it last longer, you're going to turn the thermostat 7 up, in general. There's a lot of scatter on that 8 data, so we did add a random scatter onto that to try 9 to capture the whole variation that was -- but no, 10 there isn't. 11 And if you know of -- or anybody knows of 12 a good data set on inlet water temperatures and 13 thermostat set points, we would love to see it and 14 would love to put it in. 15 MR. PAUL: Darrell Paul, Battelle. Was 16 there any difference between how you applied the 17 thermostat set point temperature for gas versus 18 electric? 19 MR. LUTZ: No. It was identical. 20 MR. BROOKMAN: Thank you. 21 Additional comments/questions on this? 22 Michael, you -- additional comments or questions? 23 MR. McCABE: An issue was raised by at 24 least three commenters about the natural gas -- what 25 appeared to be natural gas and LPG price blending. 

### NEALR.GROSS COURT REPORTERS AND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com214 1 And as mentioned, the analysis was done on a per 2 household basis that was not blended. My apologies. 3 What we did is we did provide some -- we 4 pouredout some summary information, where we took the 5 results, summarized them, and in doing that we added 6 LPG and natural gas results of it. It appeared from 7 the documentation that therewas some blending,but it 8 was not done, and we'll be working on that 9 documentation to clarify that. 10 MR. PAUL: Just a quick clarification 11 point. Darrell Paul, Battelle. So the life-cycle 12 cost numbers that you have in the summary documents 13 here for gas are only natural gas? Or are they both 14 natural gas and propane? 15 MR. LUTZ: They are both. 16 MR. KREBS: They are blended is what 17 you're saying. 18 MR. BROOKMAN: They are both. Okay. 19 National energy savings. Oh, Frank? 20 MR. STANONIK: I'm sorry. I heard two 21 things now. 22 MR. McCABE: The calculations were done 23 for the individual fuel, and then those results were 24 summarized andpresentedas blended. Whatwe'll do is 25 in the documentation correct that to make it clearer 

## NEALR.GROSS COURTREPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 200053701 www.nealrgross.com215 1 -- the results -- and split them out. 

### 2 MR. BROOKMAN: Okay. Thanks for that 3 clarification. Does that work for everybody? Okay. 4 National energy savings. Let me queue up 5 the discussion questions which will follow. You'll 6 see them -- we're almost near the end of this 7 presentation material -- so that you're ready to 

### 8 respond to them concisely. 9 What standard levels do you believe the 10 analysis justifies? 11 We have a recommendation from GAMA that 12 appears to be the beginning of a consensus process. 13 What should DOE do to continue this dialogue? 14 What can DOEdo to help the industrymeet 15 the new standards in the time between the final rule 16 and the effective date of the rulemaking, e.g. NFGC 17 and CPSC initiatives? 18 And, finally, when DOE completes this 19 rulemaking, what steps could the Department take to 20 support and increase the market demand for water 21 heaters which will exceed the new minimum standards, 22 e.g. Energy Star, FEMP executive order, etcetera? 23 Okay. That's whatwe're going to take up 24 whenwe finish with this grouping here. 25 Mark? 

## NEALR.GROSS COURT REPORTERSAND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 200053701 www.nealrgross.com216 1 MR. KREBS: I have a suggestion that, you 2 know, we don't even talk about that stuff untilwe get 3 the analysis right. 4 MR. BROOKMAN: Thank you. 5 Do you want to proceed with the rest of 6 these? 7 MR. McCABE: In Terry's presentation, 8 therewas a lengthy discussion onhow the analysiswas 9 performed, looking at shipments projections. There 10 has been some comments raised. Bob Hemphill, for 11 example, was talking about earlier today, in looking 12 at the change in price of products and change in 13 geometry, how that may affect fuel switching. He 14 actuallywas getting the fuel switching. He wrote the 15 discussion this morning was really talking about 16 market share. 17 I'm not sure what we can add to that 18 discussion. Thesepoints have alreadybeendiscussed. 19 I'll throw it back to the audience if there is 20 anything they would like to add to what has already 21 been covered today. 22 MR. BROOKMAN: Please. 23 MR. SHIN: I have a question about

-- 24 MR. BROOKMAN: David. 25 MR. SHIN: David Shin, American Gas 

## NEALR.GROSS COURTREPORTERS AND TRANSCRIBERS 1323RHODE ISLANDAVE., N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com217 1 Association. In the national energy savings results 2 spreadsheet that was releasedon the 14th, if you look 3 at the conversion factors that areused to convert the 4 reduction in site gas consumption with source gas 5 consumption, the conversion factors range from about 6 .78 to .81. 7 My reading of the EIAdata indicates that 8 the conversion factor shouldbe about .9. What gives? 9 MR. LUTZ: We are using .9. So I'm not 10 sure what you -- 11 MR.SHIN: That's what the numbers said in 12 the spreadsheet. It's a simple calculation. 13 MR. BROOKMAN: Jim Lutz? 14 MR. LUTZ: Our intention was that they 15 should be .9, and I'll talk to you to make sure that 16 that's what we used. 17 MR. BROOKMAN: Mark Krebs? 18 MR. KREBS: Mark Krebs, Laclede Gas. You 19 know, Ialready discussedthe fuel switching concerns. 20 But just for the record, since we're on that subject, 21 it says -- the comment here says, "It appears that 22 analysis is biased towards showing impacts on fuel 23 switching." Where did that come from? What are you 24 really saying there? What are you trying to 25 communicate, you know, that

-- 

## NEALR.GROSS COURTREPORTERSANDTRANSCRIBERS 1323 RHODEISLAND AVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com218 1 MR. BROOKMAN: Well, this was a comment 2 from -- these were commenters. 3 MR. KREBS: Because, Imean, inmy comment 4 I think I'm going -- I think my comment was that 5 you're going out of your way to minimize the fuel 6 switching debates. 7 MR. BROOKMAN: So thanks for that 8 clarification. 9 MR. KREBS: So it's doing the opposite of 10 what

-- 11 MR. BROOKMAN: Yes. 12 MR. KREBS: -- you know, you say here in 13 your comment on page 12. 14 MR. McCABE: I'll insert a "no" after 15 "showing." 16 MR. BROOKMAN: Okay. So that's a typo 17 there. Or that is something that should have been in 18 there. 19 So, otherwise, it might be -- it appears 20 the analysis is biased towards showing no impacts on 21 fuel switching. 22 Other comments related to that which is 23 listed here? Steve Nadel? 24 MR. NADEL: The one observation I'd make 25 is yesterday at the workshop on clothes washers there 

## NEALR.GROSS COURT REPORTERSAND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com219 1 was some discussion about how survey data on how 2 consumers respond to energy savings or energy cost 3 operating savings may be overstated. 4 And I wonder whether some of that same 5 factor is going on here in this modeling, the fact 6 that, yes, you're showing more savings from the more 7 efficient gas water heaters, and you're getting a 8 pretty significant market share switch, and whether 9 those trends are overstated. 10 I would not expect the shift to be as 11 great as you're showing, and you may want to look at 12 your assumptions in this analysis in light of some of 13 the analysis and the discussion of yesterday. 14 MR. BROOKMAN: Thank you. 15 Charlie? 16 MR. STEPHENS: I just have one quick 17 question about how you derive the new construction 18 estimates for what kind of market share shifts would 19 occur. 20 MR. McMAHON: There are elasticities in 21 there which -- I'm trying to recall the exact source. 22 I was late on two days of hearings, so I can't tell 23 you. Let me get back to you on that, Charlie. 24 MR. STEPHENS: Okay. I justwanted to ask 25 if you had in your possession any data that

-- 

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### 1 historical data on -- fromNAHB orone of these folks 2 who can show you what the -- how fuel choices have 3 changed, or what the trends look like. 4 MR.McMAHON: Yes. Ican tellyou some of 5 the sources that we have. I can't exactly

-- 6 MR. STEPHENS: Okay. 7 MR. McMAHON: -- but there is Census data 8 on new construction

-- 9 MR. STEPHENS: Okay. 10 MR. McMAHON: -- that tells you the fuel 11 type. There is the American Housing Survey every 12 couple of years that tells you the fuel types. So 13 those sorts of

-- 14 MR. STEPHENS: So you can check against 15 that. 16 MR. McMAHON: Yes. 17 MR. STEPHENS: Okay. Good. 18 MR. BROOKMAN: Mark Krebs? 19 MR. KREBS: Again, the language here is 20 confusing. Your response on page 12 reads, "In the 21 analysis, we take current market share of water 22 heaters by fuel type and assume fuel switching may 23 occur only in new construction, and that in existing 24 households water heaters are replaced with the same 25 fuel type." 

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### 1 Now, when you say "mayoccur," does that 2 mean it's condoned? What isyourdefinitionof "may"? 3 MR. BROOKMAN: I guess I -- can someone 4 operationalize that forus, or say what that implies 5 for the modeling? 6 MR. LOGEE: I think maybe it was a poor 7 choice of words, but what we were thinking of, Mark, 8 was that the discount rates and the prices, the price 9 structureof the equipment, andthe installationcosts 10 in the model would develop the result. 11 So itwasn't something thatweplugged in 12 is going to be acertain percentage of fuel switching 13 occurring or something like that. It was left up to 14 thewaythemodelwouldoperate, so that's whyweused 15 the word "may." I'm not sure what word we would 16 otherwise use, but with the model

-- 17 MR. KREBS: Mark Krebs, Laclede Gas. In 18 regards to that,you guyshandedout somedata that is 19 showing those plots. And interestingly, in the 20 original PDFdocuments, it went back to 1950, but the 21 stuff you gave us was -- onlywent back to 1980. So 22 ifyou did -- youknow, if youdid a linearregression 23 on those, you'd get way different results. 24 Youknow, Ithink that it would show that 25 thegap is closingandhasbeen closing for quite some 

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### 1 timebetweengas andelectricwater heaters, andwe're 2 just about at parity right now. 3 And it isequally -- no less subjective or 4 equally objective, depending on your perspective, 5 that, you know, to the extent that one water heater 6 type increases market share, the other would fall. 7 And those things could change rapidly. 8 Very, very infrequently in life do things 9 carry on,youknow, in the linear fashion. You know, 10 things happen. "Feces occurs," as us engineers like 11 to say. 12 But,you know,that'swhy Icommentedthat 13 I thinkyou've been trying to avoid the issue of fuel 14 switching rather than embracing it. 15 MR. BROOKMAN: We noted that. Okay. 16 Thank you. 17 Additional comments on national energy 18 savings? I see none. Did we do measured EF and

-- 19 MR. McCABE: Yes. 20 MR. BROOKMAN: -- RF? 21 MR. McCABE: Yes. 22 MR. BROOKMAN: I thought we did. Okay. 23 So thenwe are ready to move on to a different aspect 24 of the agenda, which are these discussion questions. 25 And hopefully some of the institutional 

## NEALR.GROSS COURT REPORTERS AND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com223 1 representatives here have thought about some of these 2 questions a little bit. 3 I know the Department really wishes to 4 have your comments on these because it is going to be 5 helpful to themas they consider what to do with these 6 analyses. 7 Steve Nadel? 8 MR. NADEL: I have a question. It occurs 9 to me that at some point, perhaps now,perhaps later, 10 we should summarize what are some of the followup 11 action steps from this whole discussion to make sure 12 things don't fall between the cracks. 13 MR. BROOKMAN: I have not been writing 14 them as I have been going, but I have seen Jim taking 15 notes consistently throughout, among others. I 16 imagine we could do that. When we finish today, can 17 you -- you and Terry, the two of you, canyou put your 18 heads together and create a listing? I think there 19 has been quite a few things. 20 MR.LOGEE: I'd like tobeg the indulgence 21 that we do it early next week, just so we can get 22 home. These fellows have to catch a plane. Theyhave 23 to leave at 5:00, so -- 24 MR. BROOKMAN: Okay. 25 MR. LOGEE: -- we can't -- 

## NEALR.GROSS COURTREPORTERS AND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com224 1 MR.STANONIK: Weweren'tplanning to stay 2 while you did it anyhow. 3 (Laughter.) 4 MR. LOGEE: Thank you for that, Frank. 5 MR. BROOKMAN: Would that be okay, Steve, 6 if they get back to you with the items? 7 MR. NADEL: I have been thinking of, you 8 know, not even five-minute summaries so things won't 9 fall between the cracks. I think it will bemuchmore 10 time consuming

-- 11 MR. BROOKMAN: I would be happy to do 12 that, capture that real time. I'd be more than happy 13 to do that. Okay. And they can scan through their 14 documents. 15 The first question on the list is: what 16 standard levels doyoubelieve theanalysis justifies? 17 AndGAMA thismorning -- Frank Stanonik spoke to that. 18 Do you want to repeat that again, Frank? 19 MR. STANONIK: Well, if you look on 20 page 14, it does really indicate -- and in our 21 comments we were specifically relating this to the 22 baseline. And so indoing that standard level -- what 23 was identified as "standard level 2" would result in 24 a minimum energy factor of .89 for an electric water 25 heater and .58 for a gas water heater. 

## NEALR.GROSS COURT REPORTERS AND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON,D.C. 20005-3701 www.nealrgross.com225 1 And as it indicates here, our suggestion 2 was that we believe that the appropriate level would, 3 in fact, be .88 for an electric water heater, .57 for 4 a gas water heater. And if you're interested, I can 5 do the translation of that into a formula to cover all 6 volumes, but I'm not going to bother with it right 7 now. I've got the information. 8 But that's really -- the essence is we 9 think that standard level 2 is close to the right 10 level. Our comment was to just back off .01 on each 11 fuel type. 12 We didn't say much about oil, except the 13 fact that to us it's fairly clear that the analysis 14 shows the only thing justified on oil is standard 15 level 1, which is heat vent system. 16 MR. BROOKMAN: It's always useful to have 17 a proposal on the table. Maybe we can get some 18 comments on what is being suggested here. 19 Charlie Stephens, and then Mark Krebs. 20 MR. STEPHENS: I don't think we're going 21 to be prepared to offer a whole lot of comment on 22 number 1 and 2, because I think we have so much work 23 to do on the analysis that, quite frankly, I don't 24 known that I can guess what we think the ultimate 25 analysis would point to. 

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### 226 1 MR. BROOKMAN: Would any of the rest of 2 you comment on whether this proposal seems in the 3 ballpark? Imean, kindofwhere the analysis seems to 4 be leading you. 5 Mark, you're next. 6 MR. KREBS: Mark Krebs, Laclede Gas. My 7 main concern is that Ihave to knowwith great detail 8 howwe're going to get there. Okay? What's going to 9 happen to the geometry of the waterheater, etcetera, 10 etcetera. 11 MR.BROOKMAN: Thank you. Thanks for that 12 comment. 13 Steve Rosenstock? 14 MR. ROSENSTOCK: Steve Rosenstock, EEI. 15 One of the manufacturers, small manufacturers

-- 16 Vaughn -- was not here, but he had expressed concern 17 about standards with the insulated tank bottom and 18 also, again, the geometry as well on his production 19 line. So I justwant to throw that in there. Thanks. 20 MR. BROOKMAN: So I'm not hearing any

-- 21 noting that there is a lot of work to be done on the 22 analysis, and noting that geometry isvery important, 23 no additional comments on what GAMA is suggesting so 24 far. And I see -- go ahead, Frank, and then I saw 

### 25 Tom, and then Steve.

## NEALR.GROSS COURTREPORTERS ANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON,D.C. 20005-3701 www.nealrgross.com227 1 MR.STANONIK: I justwanted to respond to 2 Mark's comment, because he more than likely hasn't 3 seen our complete comments. But from our judgment, 4 our knowledge, at these levels we think you avoid the 5 problem of -- Idon't knowwhat -- of a toowide water 6 heater. And we think you avoid any problems related 7 to condensation in vents for longer than you wanted 8 it, or for whatever. 9 So we think that these levels avoid 10 venting issues, and they avoid the installation issues 11 of waterheaters that are either too tall or too wide. 12 MR. BROOKMAN: Go ahead. Follow on. 13 MR. KREBS: Mark Krebs, Laclede Gas. I 14 think we're willing to take it under consideration, 15 contingent upon, you know, knowing those kind of 16 details. We don't dismiss it at this point. 17 MR. BROOKMAN: Steve and Tom, Michael 18 McCabe has got a specific question. Will you let him 19 follow on with that? 20 MR.McCABE: I'd like to followup onyour 21 comment, Frank. And what I understand you to say -- 22 to mean by your comment is that the level 2, as it is 23 in the DOE analysis, is right on the cusp with some 24 issues, such as geometry and safety, and that the one25 point dropprovides that cushion to deal withboth the 

## NEALR.GROSS COURT REPORTERS ANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com228 1 safety andgeometry issues. Would that be anotherway 2 to put it? 3 MR. BROOKMAN: While Frank is -- several 4 -- I see -- I'm not going to say that. Go ahead, 5 Frank. 6 (Laughter.) 7 MR. STANONIK: Yes. 8 MR. BROOKMAN: I was going to say, I saw 9 similar manufacturers' heads going up and down yes, 10 but that's not for the record. 11 Bill Prindle? 12 MR. PRINDLE: Yes, Bill Prindle. There 13 seems to be an implied assumption that there is only 14 one way for the industry to respond to a given energy 15 factor level, and I would like to challenge that 16 assumption. 17 The assumption seems to be that if the 18 energy factorgoes to a certain level, then insulation 19 has to expand by a certain fixednumber of inches, and 20 that's going to have a fixed effect on closet door 21 openings. And it seems to me thatmanufacturersmight 22 make different decisions. 23 MR. BROOKMAN: Okay. 24 MR. PRINDLE: Itmight decide that because 25 average wateruse is declining because of things like 

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### 1 EPACT shower head and aerator standards, they might 2 decide that, well, maybe we can shrink the tank size 3 a little bit and still fit that same product, you 4 know, in the same cabinet. Imean, Iwouldnot want 5 the audience to think that there is some sort of 6 linear fixed relationship here between an energy 7 factor and specific component designs. 8 And I don't really know anything about 9 water heater design, but I am -- I do know that 

### 10 manufacturers can be creative. And so I just want to 11 throw that on the table. 12 MR. BROOKMAN: Steve and Tom. 13 MR.NADEL: To add some more comments on 14 the GAMA recommendation, and also where maybe we are 15 heading, I agree with Charlie that there is some 16 additional analysis needed, so it's hard to have a 17 definitive statement. 18 Iwouldpoint out, though, that based on 19 my looking at the -- all of the DOE analyses, 

### 20 including some of the more detailed life-cycle cost 21 analyses, it appeared to me that this current DOE 22 analysis finds theminimum life-cycle costpoint is at 23 about .91 energyfactor for electric,andat about .61 24 energy factor for gas. That is based on 245 fa. 25 Ipoint out, then, ifyou lookat theGAMA 

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### 1 numbers, what it breaks down to is GAMA has the .016. 2 There's about an additional .02 factor dealing with 3 one orbelowandversus 245 fa. Andyet there is some 4 uncertainty there. And then there is an additional 5 .01differencebecauseneitherDOEnorGAMAconsidered 6 the 80 percent recovery efficiencyoption forgas, or 7 alternative ways to start getting a gas water heater 8 up into the .6/.61 energy factor. 9 So I'd like to see some further analysis, 10 butmy inclination at thispoint is to looktowards an 11 interim life-cycle cost point. I don't really see a 12 need for a broad .01 safety. 13 Ithink that venting issues are entirely 14 overblown, andwe don't need a safety there. To the 15 extent there are some issues dealingwith lowboy, I'd 16 like to point out a bit more about what the market 17 share of those is. If it's a small market share, 18 maybe we can consider some slightly looser standards 19 to the lowboy,but that's where the real installation 20 problem is. Youknow, let's start thinking creative. 21 Likewise, on the 245 fa, let's start 22 thinking creatively. I know in the case of the 23 refrigerator standard, the standardwas adoptedbased 24 on -- assuming245 fa, but had anout to say, "If this 25 isnot provento beavailable, there is apartitioning 

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### 1 process to consider either delays or changes to the 2 standard." 3 MR. BROOKMAN: Okay. 4 MR.NADEL: So I'd say ifwe have somekey 5 uncertainties, let's think creatively about how to 6 deal with them rather than just say, "Oh, let's take 7 the lowest thing andthenadd anextra safety factor." 8 MR.BROOKMAN: And Iappreciateyourbeing 9 specific in your comments. 10 Let me call your attention, everybody, 11 beforewe turntoTom-- thisdiscussionquestion, the 12 second one, "Wehave a recommendation fromGAMAwhat 13 appears to be -- that appears to be the beginning of 14 a consensusprocess, or the suggestionof a consensus 15 process. What should DOE do to continue this 16 dialogue?" 17 I'd like to go in that direction by the 18 time we finish with this question. 19 Tom, you're next. 20 MR. ECKMAN: Yes, I want to address the 21 first question. Ithink in light -- youknow, I'll be 22 a little bit parochial, but in light of the fact that 23 the data we think on incremental cost is roughly a 24 third of what we see in the DOE analysis to date, in 25 terms of incremental cost, not just absolute cost, I 

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### 1 think it's pretty hard to argue for any particular 2 standards level based on the present analysis. 3 MR. BROOKMAN: Okay. Thank you. You are 4 confirming other people's thoughts as well. 5 Yes, sir? 6 MR. BRUNDAGE: Don Brundage, Southern 7 Company. I've read Frank's letterorcomments, and it 8 looks reasonable tome. It's difficult, aswe've all 9 said,tomake statements on thesewhen thenumbers are 10 still changing. 11 I would disagree a little with Steve 12 Nadel's comment that it was an arbitrary drop. 13 There's a very specific reason in electric water 14 heaters that Frank has suggested dropping it by .01. 15 It's to avoid two and a half inch tank insulation. 16 And that's going to affect doorways; it's 17 going to affect fitting things into slots. And as 18 someone who personally once had to spend over $500 19 extra to replace a water heater due to code and 20 technologychanges, this is somethingthatyoumust -- 21 even if there are a smallnumber of losers, theywill 22 lose very badly if that happens, and you need to be 23 very sensitive to that -- that youdon't do something 24 that is going to causemajorrenovationandchanges to 25 a house in order to fit a replacement water heater. 

## NEALR.GROSS COURTREPORTERSAND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com233 1 MR. BROOKMAN: Eric, and then George. 2 MR. LANNES: Ihave a couple of comments. 3 On the oil issue, I thinkyou'll find in the comments, 4 at least that I submitted, that I don't think there is 5 justification to change oil to any level. Just adding 6 heat traps is going to overcome the loss that you see 7 with the 141B falling out of the marketplace. 8 Secondly, with regard to the comment from 9 Mr. Prindle with regard to how creative manufacturers 10 can be, when you have 40 gallons of water you can't 11 change 40 gallons of water. So if I take a tank and 12 change it from 18 inches in diameter and make it 16 13 inches indiameter, the heater is going toget taller. 14 There is no way to redistribute that or move it 15 somewhere else. 16 And as we have seen in the data that has 17 been provided, height is a serious issue, much the 18 same as we see with a less than 36-inch product. So 19 as far as making a change to try and compensate for 20 that, it's not a matter of being creative. You can 21 only put 40 gallons in a certain area, and you can't 22 change that volume unless you try to put it under 23 pressure and that's very difficult to do. 24 The other thing is -- and I submitted my 25 comments -- the information as far as K factors that 

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### 1 were used in the insulatingmaterials are -- I'm not 2 going to say grossly -- there is an error in those 3 numbers andtheway that theywere extrapolated to the 4 tank itself. 5 Making an assumption that the K factor is 6 equivalent from the bottom to the top of the tank is 7 not correct. So as you make a change to see what 8 happens in the real world with regard to application 9 of foam, you're going to find that the size actually 10 increases overthe threepercent, 42 percent, thatwas 11 assumed by the numbers from DOE. 12 When you recalculate based on that, it 13 changes the diameter, which then also comes back, if 14 you try to keep the diameter the same, then your 15 energy factor changes. And in my comments I brought 16 that to the surface. 17 With regard to 245, you heard Allied 18 Signal this morning tell you where they are. They 19 still have not made a comment. Theyhave not planned 20 to make a commitment. They are going through the 21 process of having the material evaluated. 22 Manufacturers cannot hold their hats on 23 that because you're talking a gas versus a liquid, 24 which is a significant change in our process. And 25 what I mean by "significant change" is our equipment 

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### 1 will require to beupdated to apointwherewe have to 2 replace it all because we go to a high pressure 3 system. 4 Andthat'snotasimple change that canbe 5 done within the six-month program or the concurrent 6 program they had suggested. It's a very significant 7 change, and the manufacturers have to incur not only 8 a substantial amount of cost, but there is also a 9 substantial amount of time that is necessary to make 10 the change and still to continue to have the product 11 available to the marketplace. 12 Secondly,when it comes to the materials 13 that are available out there, youhave a situation of 14 the phase-in date is January 1st of the year 2003. 15 Regardless of where DOE goes, or whenever they make 16 the effective date, we still have tomake a change in 17 theblowing agentsprior to that. Andwe have tomake 18 changes within our process prior to that. 19 That's not a matter of making the change 20 onDecember 31st, theyear 2002. That change isgoing 21 to have tohappen within the next sixmonths if we're 22 going tomake anykind of changes, and that's going to 23 tell us which direction we go. And without Allied 24 Signal making a commitment -- and they still have not 25 made a commitment -- we cannot make a decision where 

### NEALR.GROSS COURT REPORTERS AND TRANSCRIBERS 1323RHODEISLAND AVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com236 1 to go. 2 Recovery efficiency. The comments were 3 made -- 78 percent is a maximum limit. Now, to design 4 to a level you have to design to the minimumplus the 5 safety factor in there. And when the comments are 6 submittedthat 78 percent is themaximum level, that's 7 a level based on -- whether it's one or 50 percent, 8 that's based on a certain safety factor that's 9 associated with the product. 10 When you start looking at litigation and 11 us sitting in court, and you see what CPSC has done 12 with regard to flammable vapors, whether it's one 13 possibility or 50 possibilities, we have to be 14 concerned with the one. And that's why we made the 15 commentswith regard to 78 percent, and that is a real 16 issue and is an issue that seriously has to be 17 considered. 18 MR. BROOKMAN: Thank you. Thank you for 19 your comments. 20 George? 21 MR. KUSTERER: Eric, great minds think a 22 lot -- think alike, rather. 23 (Laughter.) 24 Well, actually both. And I would just 25 like to echo mycolleague's comments. Iwould like to 

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### 1 address Mr. Prindle's comments with regard to 2 manufacturers can be creative regarding efficiency 3 standards. Yes, but atwhat price? Not onlyprice to 4 the consumers but also price to the manufacturers. 5 If you'll remember, or you may not 6 remember, 10 or 15 years ago there were quite a few 7 water heater manufacturers here in theUnited States. 8 There are very few of us left. So at what price? 9 And,again,asEric said,you canonlyput 10 40pounds in a 40-pound bag. So we have to reduce

-- 11 if we have to become creative, we have to reduce the 12 size of the volume of the water heaters. So, 13 therefore,you won't be able to fillyourhot tubwith 14 a 28-gallon water heater. Very simple. 15 And, basically, there is not reallymuch 16 to know about water heaters. Energy in; hot water 17 out. It's very simple. 18 So I just would like to make those 19 comments. And, really, I've said this, I can't 20 rememberhowmanytimes I've said this with regard to 21 the foam issue. Eric has mentioned that Allied has 22 still not made a commitment. 23 Whetherhewas inWashington,D.C., where 24 we don't make commitments, or whatever the case may 25 be, they are stillgoing tobe the only supplier,even 

### NEALR.GROSS COURT REPORTERSAND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com238 1 though they haven't even made a commitment -- and I 2 think DOE needs to hear that over and over and over 3 again, because what if. Thank you. 4 MR. BROOKMAN: Okay. Thank you. 5 Mark Krebs? I'd like to move us towards 6 the second half of this question. What should DOE do 7 to continue this dialogue? And then move on to the 8 other two. Mark Krebs? 9 MR. KREBS: Mark Krebs, Laclede Gas. I 10 really appreciate the last two commenters, and it 11 occurred to me that if you force going to a smaller 12 water heater, you're affecting the utility of that 13 device. And that's something, according to NAHB, 14 you're not supposed to do. 15 MR. BROOKMAN: Thank you. 16 What about -- we've noted that additional 17 analysis and more information may be necessary to 18 evaluate the GAMA proposal. If it appears that the 19 analysis supports what GAMA suggests broadly, what 20 should DOE do to continue this dialogue? That's the 21 question on the sheet. If anything. 22 Yes? 23 MR. ROSENSTOCK: Steve Rosenstock, EEI. 24 I think DOE has been very open about their process. 25 And, again, with all of the communications format, I 

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### 1 just -- youknow,once the analysis is done -- redone, 2 I should say -- whatever the timeframe is, just alert 3 all of the stakeholders and, you know, either by 4 e-mail or teleconference or something, again, just to 5 speed the process, to save time. If people want to 6 comment on the revised analysis, just send them in. 7 We can'tput the cartbefore thehorse, so 8 I -- DOE has done a very good job of keeping all of 9 the stakeholders informed, to try to keep everyone 10 informed,and especiallyputting the revised analysis 11 on the web site as quickly as you can, and then 12 contacting people -- e-mail or phone, or whatever. 13 MR. BROOKMAN: Jim? 14 MR. RANFONE: Yes, Jim Ranfone, AGA. We 15 do need to take a stronger look at the analysis and 16 hope that we get a more complete analysis prior to 17 making any of our recommendations. One of the 18 concernswehave is that, youknow, we're now looking 19 at a GAMA recommendation and are supposed to make a 20 comment on that. But the analysis that you're doing 21 today is going to impact future rulemakings. 22 And in agreement to what GAMA is 23 suggesting, without further understanding all of the 24 bases, because it's not complete, there are some 25 things that aren't even up on the web site yet -- 

### NEALR.GROSS COURT REPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com240 1 we've got a very short timeframe now. We're supposed 2 to comment on the issues by -- from this workshop by 3 August 3rd, and we don't -- I think there are some 4 things that are still coming up on the web site that 5 need to come up. 6 So our concern is that we really can't 7 comment on the proposal from GAMA until we see all of 8 the backup. This information, this analysis, the 9 methodologyyou're using right now, is going to be the 10 basis for future rulemakings. And if one would buy 11 off -- I'll put it in those terms -- on a 12 recommendationwithout justifying it, which Ibelieve 13 the Department has to do under NAECA, it would be 14 premature from our perspective. 15 MR. BROOKMAN: Thank you. 16 Mark Krebs? 17 MR. KREBS: Mark Krebs, Laclede Gas. In 18 going back and reviewing this stuff that was put on 19 DOE's web site, the ironywas not lost onme that this 20 facilityon 1000 Independence Avenue, over the course 21 of the 4th of July holidays, effectively gave people 22 10 working days. Okay? That is unjust, pure and 23 simple. 24 MR. BROOKMAN: So you would like to see a 25 longer lead time for review in the future? 

### NEALR.GROSS COURT REPORTERS AND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com241 1 MR.KREBS: Well, unlessyour intent is to 2 reduce stakeholder input, and, if it is, it's unjust. 3 MR. BROOKMAN: Okay. Thank you. 4 MR. KREBS: We have a lot to deal with 5 here, and we're trying to give it due diligence. And 6 I think that's the issue is due diligence. 7 When we talk about the GAMA reg. neg. 8 issue here, you know, when I say we need to know the 9 details,we need to knowthe details inclusive of NFGC 10 and CPSC. 11 MR. BROOKMAN: I'm glad you raised that 12 because that's where I'd like to direct the comment 13 going forward now. What can DOE do to help the 14 industry meet the new standards in the time between 15 the final rule and the effective date of the 16 rulemaking, the NFGC, and the Consumer Product Safety 17 Commission initiatives? 18 MR. ROSENSTOCK: Steve Rosenstock, EEI. 19 Clarification -- CPSC and NFGC initiatives, what is 20 their timeframe? You know, that might make

-- 21 MR. BROOKMAN: We touched on them briefly 22 this morning. 23 Terry or Michael, can you describe what 24 the time tables are for NFGC and CPSC, how it affects 25 this prospective rulemaking? 

## NEALR.GROSS COURT REPORTERS AND TRANSCRIBERS 1323RHODEISLAND AVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com242 1 MR.LOGEE: I can't say about the National 2 Fuel Gas Code. I think Daryl Hosler is much -- you 3 know, much betterprepared to answer to that. As far 4 as the Consumer Product Safety Commission, I believe 5 that the ANSI committee has approved the test method 6 for whether their designs are resistant to flammable 7 vapor and ignition of flammable vapor. 8 And the next step there I think is to get 9 the final approval by the ANSI governing body of 10 whatever that is. That was supposed to occur this 11 fall or late fall. And I think that theywant -- they 12 would like to see models on the marketplace by 2001. 13 MR. BROOKMAN: Can you comment further? 14 MR. HOSLER: Daryl Hosler, speaking for 15 the

-- 16 MR. BROOKMAN: Daryl, please move closer 17 to the mike. 18 MR. HOSLER: I thought you were going to 19 tell me to stand up. 20 (Laughter.) 21 They usually say -- 22 MR.BROOKMAN: Closer tothemike,please. 23 MR.HOSLER: Iwas struckby this comment, 24 just tomake a comment on it, that says, "What can DOE 25 do to help the industry meet the new standards?" 

## NEALR.GROSS COURT REPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com243 1 Well, what new standards? Imean, Idon't think we've 2 really agreed that there is even going to be a change 3 yet. So I'd like to point that out. 4 MR. BROOKMAN: In this application of 5 words. 6 MR. HOSLER: Yes. 7 MR. BROOKMAN: Okay. 8 MR. HOSLER: Then, the issue on the

-- 9 MR. BROOKMAN: Isn't the intent of this, 10 though, understood? Irrespective of

-- 11 MR. HOSLER: No, I think we understand it 12 after the dialogue. 13 MR. BROOKMAN: Okay. Thank you. 14 MR.HOSLER: The National Fuel Gas Code

-- 15 I am presuming that you mean changing to the venting 16 tables. That's a presumption that I have to make. 17 That gets very interesting because this is a very 18 complex issue, especially for water heaters which 19 aren't furnaces, which aren't boilers, and, in my 20 opinion, would require a fairly significant amount of 21 research work that has not been done yet to really 22 look at this issue. 23 The subcommittee has looked at data from 24 GRI and has not been able to make a snap decision on 25 how you should categorize water heaters because they 

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### 1 recognize that even though it is this tank of water 2 with aburner or an electric elementunder it, it's a 3 little more complex than that when it actually gets 4 installed in the field out there. 5 Imean,as some commentshavepointedout, 6 you can see there is complexity in this. It doesn't 7 work the same way every place you go. So DOE could 8 help,but Ithinkyou'vegot to first determine if you 9 want to change the venting tables. Some of the 10 proposals may not require that, so there wouldn't be 11 any work done there. 12 So that's the first thing we'vegot to'get 13 to is, is there really going to be a need to change 14 the venting tables? 15 And on the CPSC initiatives, so you all 16 understand, a consortium was formed by a majority of 17 water heater manufacturers who have worked with the 18 Consumer Product Safety Commission, who have a 19 proprietaryagreementwiththe ConsumerProduct Safety 20 Commission on dates of when they would like to get 21 these water heaters in the field. And nobody on this 22 committee, orothers, reallyknows what that date is. 23 That is a date that has never been given. 24 You hear lots of speculation about what 25 that date may be; anywhere from 2001 to 2003 to 

### NEALR.GROSS COURTREPORTERSANDTRANSCRIBERS 1323RHODE ISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com245 1 tomorrow, depending onwhatpeople feel theycando in 2 the markets. 3 But the one thing that they do want is to 4 have a standard to test to, and that's going to be 5 done and taken care of in the Z2183 committee. At our 6 April meeting, the committee voted to adopt a test 7 procedure in the standard for residential water 8 heaters, those water heaters 75,000 btu's and below. 9 And that decision has now been appealed by an 10 interested party. 11 So there is an appeal process that our 12 committee has. We will be responding to that appeal. 13 They will have an additional step that they can go 14 within our committee procedure, andthen, ifwe decide 15 to move forwardwith the proposals, and we sent it to 16 ANSI for ultimate approval by ANSI, the other party 17 has the opportunity to appeal it at the ANSI level 18 also. 19 So itcouldbeNovember/Decemberbeforewe 20 ever get close to knowing how ANSI is going to do 21 this. Then you have to set the implementation dates, 22 which I'm sure will be negotiated between CPSC, the 23 manufacturers, and all of those other people. 24 The committee is not a part of that 25 process. Those dates are done in another manner, 

### NEALR.GROSS COURT REPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com246 1 other than through the ANSI committee. 2 I might also point out that the water 3 heater standard is a binational standardwith Canada, 4 and it was -- that happened because of the Fair Trade 5 Agreements, recognizing the standards can be trade 6 barriers. So we, a number of years ago, started the 7 effort of combining these standards. 8 And this requirement for flammable vapor 9 ignition resistance has not been addressed by the 10 Canadian parties yet, and so it is unclear whether or 11 not they will adopt this. And that will actually 12 affect the market also, since most of these water 13 heaters are sold on both sides of the border. 14 If that's not adopted up there, or even if 15 it is and it gets appealedup there, theprocess could 16 go out even farther. So, and that is the consensus 17 process. 18 MR. BROOKMAN: Thank you for that 19 explanation. 20 Comments following on his comments, his 21 recommendation? His explanation, I should say. 22 The final question, if there are no more 23 responses to the issues of NFGC and CPSC, is, "When 24 DOE completes this rulemaking, what steps could the 25 Department take to support and increase the market 

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### 1 demand for water heaters which will exceed the new 2 minimum standards, e.g. Energy Star program, FEMP 3 executive order, etcetera, etcetera?" 4 MR.McCABE: Let me add to that. Dan is 5 particularly interested in knowing if there is 6 anything that the Departmentcando, and it's actually 7 broader thanthis,both inthe current environmentbut 8 alsowithany future standard,as towhatwe can do to 9 support the voluntarymarket activities, to increase 10 the demand for more efficient products. 11 The two that are mentioned here -- the 12 Energy Star -- the Department is evaluating extending 13 the Energy Starprogram to include water heaters. We 14 are also looking at early replacement programs for 15 some of thewhitegoods, andwhether ornot thatwould 16 be applicable to water heaters. 17 Under the FEMP program, we're looking

-- 18 the Federal Energy Management Program -- looking to 19 the mass purchase or directed purchase of federal 20 agencies to the high efficiency units in order to 21 stimulate the demand and support your efforts in 22 producing more efficient products. 23 He isboth interested currently,but also 24 with a new standard, what may be able to be done to 25 aid the transition to that new standard. And also 

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### 1 after the standard -- if there's a new standard, in 2 effect,what couldbedone to encourageproducts to go 3 into the marketplace that are more efficient than 4 that. So it's -- there are a variety of issues that 5 are balled up in this. 6 I'm interested in an open discussion. 7 MR. BROOKMAN: Mark Krebs? 8 MR. KREBS: I have three specific 9 suggestions. One would be to include source 10 efficiency on the yellow stickerprogram. Two would 11 be to fully disclose emissions on utility bills. Do 12 you want to hear three? 13 MR. BROOKMAN: Yes. You said you had 14 three. 15 MR. KREBS: Three

-- 

### 16 MR.BROOKMAN: We can come back to you if 17 you want to tease us. We'll come back to you. 18 MR. KREBS: Steve hasn't had a coronary 19 yet, so, you know, maybe I can say it's okay. 20 MR. BROOKMAN: We'll give you a few 21 moments to -- 

### 22 (Laughter.) 23 Michael McCabe I believe just broadened 24 this question slightly, in thinking and talkingabout 25 the Secretary's specific interest in this question. 

## NEALR.GROSS COURTREPORTERSANDTRANSCRIBERS 1323 RHODEISLAND AVE., N.W. (202)234-4433 WASHINGTON,D.C. 20005-3701 www.nealrgross.Com249 1 Are there others that can respond to it? 2 Steve Rosenstock? 3 MR. ROSENSTOCK: Steve Rosenstock, EEI. 4 The Department -- I think it's already in some of the 5 -- like in one of ourpublications, like Buying Energy 6 Efficient Products, which goes out to a lot of the 7 agencies I thought. They have already recommended 8 certain levels for water heaters, regardless of the 9 fuel type. You know, these are -- they are 10 recommended levels forbuyingefficient waterheaters. 11 In terms of Energy Star, I wasn't sure. 12 I didn't know if Energy Star covered waterheaters or 13 not. 14 MR. McCABE: Not presently. 15 MR. ROSENSTOCK: Not presently. 16 MR. McCABE: We're evaluating that. 17 MR. ROSENSTOCK: Evaluating it? Because 18 I thought it seemed like Energy Star seemed to be like 19 20 percent above the minimum efficiency. It would 20 seem to be kind of a criteria for other appliances, so 21 whether that applies to water heaters, I don't know. 22 But, you know, DOE already has all of the 23 publications on the web site, you know, the energy 24 saverweb site, whereyou're already -- I thinkDOE is 25 doing a lot in terms of talking about energy 

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### 1 efficiency of all products. And, you know, I think 2 you're doing -- right now, DOE is doing aprettygood 3 job right now. Thank you. 4 MR. BROOKMAN: Additional comments? 5 MR. RANFONE: Jim Ranfone, AGA. Just a 6 quick question. DOE is looking at making 7 recommendations for Energy Star water heaters, then, 8 is that what you said? 9 MR. McCABE: Yes. Evaluating the 10 potential to include that in the program, but no 11 decision has been made yet as to whether or not to 12 include it. 13 MR. RANFONE: and considering a certain 14 criteria, 20 percent and above, existing, or how

-- 15 MR. McCABE: Part of the evaluation is 16 looking at whether ornot a level can be set, looking 17 at manufacturers, what they're offering, what -- if 18 the level is set at a particular level, what effect 19 that would have on the market, in particular on 20 manufacturers. 21 In thepast,we have been concernedabout 22 numbers of manufacturers that could participate. We 23 do not want to have a program where only one 24 manufacturer, for example, would qualify. That has 25 been in the past, so those sorts of factors are being 

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### 1 considered by the staff who are responsible. 2 MR. RANFONE: For example -- Jim Ranfone 3 again, AGA -- only a few manufacturers made a heat 

### 4 pump water heater. You wouldn't consider that an 5 Energy Starproduct because manyof themanufacturers 6 don't produce it? 7 MR. McCABE: Iknow that factor wouldbe 8 considered as to whether or not it would be rejected 9 on that reason or not. Idon't know. 10 MR. RANFONE: Okay. 11 MR. BROOKMAN: Mark? 12 MR.KREBS: Well, having contemplated the 13 disclosure being the better part of value issue, I 14 decided Iwouldn't bringup -- but rather I'dkind of 15 augment the first, because really what I'm talking 16 about is empowering consumers with good information. 17 Themore you empower consumers withgood information, 18 then it follows that, at least hopefully, the better 19 decisions you can make. 20 It's kind of like at DSM. Everybody knew 21 that, you know, the most cost effective DSM was 22 consumer informationandeducationprograms. Butyet, 23 you know, people dwelled on trying to buy their 24 business under the guise of DSM through efficiency 25 rebates. 

## NEALR.GROSS COURT REPORTERS AND TRANSCRIBERS 1323RHODEISLANDAVE., N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com252 1 So,you know,what I'menvisioninghere is 2 really, you know, trying to make anybody capable of 3 doing -- you know, of dealing with

-- 4 MR. BROOKMAN: Making these product 5 decisions. 6 MR. KREBS: Imean, really open the glass 7 box is what I'm saying. Let's get serious about it. 8 MR. BROOKMAN: Okay. 9 MR. KREBS: Okay? So, I mean, with 10 computers these days, and the internet, there is a lot 11 more possible thanwe're even talkingabout. If we're 12 serious about this, let's start talking about it. 13 MR. BROOKMAN: Okay. 14 MR. KREBS: If we're serious about the 15 consumer and doing what's right for the consumer, 16 let's start doing something about this. 17 MR. BROOKMAN: Okay. 18 MR. KREBS: Thank you. 19 MR. BROOKMAN: Final comments on any of 20 these four questions? I think we have basically

-- 21 surprisingly,we have reallygained ground in the last 22 half an hour and really got through what I thought 23 would take significantly longer. 24 Steve Nadel made the comment that he'd 25 like to see some action items and next steps. And I 

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### 253 1 think that would be a worthwhile thing to do. 2 MR.LOGEE: Understand that this isavery 3 quickly drawn up list, and I'm going to try to hit 4 some of the high

-- 5 MR. McCABE: Terry, if I could interject 6 first. What Ibelieve you are going tobe presenting 7 is those items of -- action items that have been 8 discussed. TheDepartment isreceiving commenton the 9 material that is posted on the web until August 3rd. 10 We are going to be having to make presentations

-- 11 summarize itandmake recommendations tomanagementas 12 to what is and isn't necessary. 13 And given information that will be 14 submitted, that may affect the decision. So you're 15 summarizing what has been discussed here today. 16 MR. LOGEE: That's right. And so the 17 first thing is an error that was noted in the hot 18 water usage equations, and we're going to correct 19 those coefficients. 20 Then we moved to the changes to the 21 analysis. Wehad saidweweregoing to addHFC 245 fa 22 to the national energy savings. We have already done 23 that for the life-cycle cost, in record time Imight 24 add. 25 We will consider the space problem with 

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### 1 the gas equipment and small closets. 2 Andthe otheranalysis item is ontheheat 3 traps. Wehave data fromGAMAandBradfordWhite, and 4 our intention at this point is to average that and 5 plug those coefficients into the water -- into the 6 energy equation. 7 Then we have one data item, and that is 8 from GAMA, on the market share of lowboys. And we 9 expect to see that at least in the comment. 10 And then we have several documentation 11 items. Let's see, if I can readmywritinghere. We 12 need to provide some documentation on the RECS 13 database, on how we've applied that and the 14 assumptions we've made, especially with regard to 15 thoseparts of the characteristicsthatweren't there, 16 as Darrell carefullypointed out to us. 17 Hot water usage will be developing the 18 explanation of that and the standard deviation for 19 that. 20 Marginal energy price and a range -- and 21 we'll be comparing -- making a comparison to the AEO 22 averages on that. 23 For the life-cycle cost, we will need to 24 domore todescribe the assumptions that we made, and 25 we'll also split the LPG and natural gas out. And 

## NEALR.GROSS COURT REPORTERS AND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com255 1 we'll explain or try to explain the fuel switching 2 equation or equations. 3 MR. BROOKMAN: Mark? 4 MR. KREBS: I can go for it. Okay? I 5 suggest that, you know, kindof a change in roles here 6 is -- is that we have -- our duty is to tell DOE when 7 they've achieved the objectives of Subpart C of 8 Appendix A, Section 1G, of NAECA, otherwise known as 9 10 CFR 430, which reads, "The Department seeks to use 10 qualitative and quantitative analytical methods that 11 are fully documented for the public and that product 12 results that can be explained and reproduced so that 13 the analytical underpinnings for policy decisions on 14 standards are as sound andwell acceptedas possible." 15 Undertheguidelines inthis appendix,DOE 16 will solicit input from interested parties in 17 identifying analysis data and modeling needs with 18 respect tomeasurement of impacts onmanufacturers and 19 consumers. Okay? 20 Imean, this kindof -- this is what we've 21 been talking about all day. When it all comes down to 22 it, this is the robust and transparent requirements of 23 NAECA. And it set some pretty lofty goals that, you 24 know, I think we're moving towards, but I think we 25 reallyunderestimated thedifficultyof getting there. 

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### 1 And Idon't thinkwe're really looking at 2 all of the alternatives. I mentioned a moment ago 3 about, you know, what is possible these days to 4 empower consumers with good information, with 5 computers and the internet. 6 And I think it really offers an 7 alternative to thepathwe're on, and I'd like that to 8 be, you know, anaction item if possible, or at least 9 somethingthatwe canget into seriouslyat somepoint 10 in time, maybe in the advisorymeeting, or whatever. 11 Andthennext time the frameworkis there. 12 We don't have to reinvent the wheel, and, you know, 13 we've got a fundamental engine for doing this stuff. 14 And that's efficient government. 15 MR.BROOKMAN: Othercomments? SteveNadel? 16 MR. NADEL: Okay. In my notes, I have 17 three other items thatyoudidn't list, and Ithinkat 18 least one of them youpromised todoand the other two 19 I thought you were going to do. 20 Theone that Ihaveyoupromisingtodo is 21 provide information on testing of models in order to 22 helpprovide furtherinformationonthe appropriate

-- 23 the accuracy of the tank and Watson model, and also 24 why the analysis results don't agree with catalog 25 ratings. You werepullingtogethersomedocumentation 

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### 257 1 on that. 2 Second, Ibelieve youwere going to check 3 on the trial standard levels and whether you truly 4 captured the minimum life-cycle cost point. And at 5 least from myview, it appears that you didn't. 6 And then, third, I think there is some 7 additional work lookingat the cost database in light 8 of some of the figures that Tom presented, like why 9 some of the data from California, even some of the 10 data that LBL has collected, which implies low 11 markups, a lot of this will imply that some of the 12 cost estimates are going to be high. And we need to 13 look at what to do with that. Maybe we're talking a 14 sensitivity analysis with lower prices or something. 15 MR. BROOKMAN: Thank you. 16 Any other items or action items that we 17 would note that we didn't capture already? Yes? 18 MR.WILLIAMS: This isn't reallyanaction 19 item. Ted Williams, American Gas Association. Just 20 tomakeyouaware, we have a list of about 15 problems 21 wehave identifiedin thespreadsheetanalysis ranging 22 anywhere fromerrors suchas incorrect cell references 23 to inconsistencies which may be explainable by 24 background documentation to the types of things Terry 25 talked about, maybe residuals from previous model 

## NEALR.GROSS COURT REPORTERSANDTRANSCRIBERS 1323RHODE ISLAND AVE., N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com258 1 runs. We identified another one at lunch,by the way. 2 So we're going to continue to look at 3 these spreadsheets with that mind. But what we also 4 need is we need more detail put up on the web, 5 particularly on the emissions spreadsheet. You know, 6 it's not -- it's provided strictly asa results table. 7 We don't know how you get those calculations done. 8 Also, wewere madeaware that thenational 9 energy savings results page is, in fact, not the one 10 that is used to calculate the final numbers. And we 11 need a complete list of the spreadsheets up on the web 12 in order to really do a decent job of this. 13 MR.BROOKMAN: It's averyuseful thing to 14 provide that detailed -- those specific comments. 15 It's -- you know, thank you for offering those. 16 ASSISTANT SECRETARY REICHER: Can I -- 17 MR. BROOKMAN: Yes? 18 ASSISTANT SECRETARY REICHER: I am back, 19 but I have to, unfortunately, run again on ourbudget, 20 which is in some trouble right now. And I want to 21 first thank everybody for a very good meeting. I 22 apologize for the parts of the meeting that I wasn't 23 here. 24 The good news is that we do have the full 25 transcript, and so we're going to be able to study 

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### 1 this very carefully. 2 And I think this action list will be an 3 important one,because, obviously,out of thismeeting 4 has come a lot of issues and data gaps that Ithinkwe 5 need to take some time and resolve. But we will do 6 that expeditiouslyand stick to the schedule andkeep 7 going, because Ithinkwe'remaking good progress. I 8 appreciate everybody's input. I thank you. 9 MR. BROOKMAN: Thank you. 10 I known that several people have to try 11 andhit the road and catchplanes. Iwant to capture 12 any additional action items that we should at this 13 point, and then I'm going to turn it over to Terry 14 Logee andMichael McCabe to close us out. 15 I saw Steve first, Steve Nadel -- Steve 

### 16 Rosenstock. 17 MR. ROSENSTOCK: Steve Rosenstock, EEI. 18 Just kind of a global one. Since NOPR is -- the 

### 19 schedule is for December of 1999, maybe some sort of 20 overall goal for when everything gets posted to the 21 web, all of the changes that DOE isgoing todo, since 22 our comment period is now until -- from now until 

### 23 August 3rd, if there is a way to set some sort of 24 deadline. 25 I'll say, you know, ideally before the 

## NEALR.GROSS COURT REPORTERS AND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON,D.C. 20005-3701 www.nealrgross.com260 1 NOPR is announced would be pretty good, because that 2 gives us at least a month and a half to look over the 3 materials before the NOPR workshop. So just if

-- 4 that's just a suggestion, if -- just as a stakeholder. 5 Thank you. 6 MR. BROOKMAN: Thank you. 7 Steve Nadel? 8 MR. NADEL: I just wanted to check, and 9 maybe Mike couldn't get to that, about what 10 information can be provided before we comment on 11 things versus what information can be provided post 12 comment. 13 MR. McCABE: I'm sorry. I'm awfully 14 tired. Could you try it again? 15 MR. NADEL: I know. It's been two long 16 days. In terms of the comments where it's prepared, 17 is that due date strictly on what is already 18 available, or is there additional information that 19 will be available on this stuff that we should be 20 including in our comments? 21 MR. McCABE: I would ask you, first, to 22 comment on what is out there, certainly by the 23 August 3rd date. As Terry had indicated, next week, 24 andhopefully it willbe Tuesdaymorning,we will have 25 the NES spreadsheet on the web, so that you can 

### NEALR.GROSS COURTREPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com261 1 include that in your comments. 2 I recognize that there will be limited 3 time. As Ted Williams had indicated, we've got a 4 number of questions. I suspect that there will be 5 others, and Iwould encourage you to provide comments 6 on other issues such as that as quickly as possible, 7 recognizing that you may not be able to make the 8 August 3rd deadline. 9 As analyses are completed, they will be 10 reviewed by staff here at DOE and presented to Dan. 11 And wewill be addingmaterial to the web site for all 12 of the rulemakings, and so we fully expect that 13 everything -- all of the analyses that will be used 14 and considered in any one of the rulemakings will be 15 on the web sitebefore theproposed rule ispublished. 16 As to how soon before the proposed rule, 17 there are -- I can't answer that because there are a 18 variety of factors that would affect it. But we're 19 going to try and get it out as quicklyas possible, so 20 that you have as much time as possible to review 21 material prior to any workshops, public hearings, or 22 what have you. 23 MR. BROOKMAN: Steve Nadel? 24 MR. NADEL: I've got two little things. 25 Given all of this, I'm wondering, since August 3rd is, 

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### 1 I think, the middle of the week

-- 2 MR. McCABE: Tuesday. 3 MR.NADEL: -- some of thenewdatacoming 4 in, does it make sense to just sayAugust 6thmightbe 5 a deadline, give people the week, a little bit more 6 time to digest things, particularly some of the new 7 data, so they don't tend todribble in. Thatwouldbe 8 one. 9 And,two, to the extentnewdataisposted 10 after that date, could you be sending out e-mails as 11 new data is posted, sopeople know to look for that? 12 MR. McCABE: To the second little item, 13 yes, we will send out e-mails notifying people as to 14 what is happening. As to the first one, I cannot 15 extend the comment period as it was announced in the 16 Federal Register. 17 But Icansay that our -- theDepartment's 18 policy is to consider all of the comments, to the 19 extent possible, even those that are submitted after 20 -- all of the comments that are received, including 21 those received after the close of the comment period, 22 will be considered to the extent possible. 23 And there is no question in mymind that 24 if comments were received on August 6th that they 25 wouldbe fully considered. 

### NEALR.GROSS COURT REPORTERSANDTRANSCRIBERS 1323RHODE ISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com263 1 MR. BROOKMAN: Thank you. 2 Additional questions or comments? We're 3 down to describing the other action items and next 4 steps for this group. 5 Darrell? 6 MR. PAUL: Just a quick question. In 7 terms of our submitting comments, the Department of 8 Energywill take those into consideration. Will we be 9 getting any feedback on those comments? Imean, what 10 happens after August 3rd? 11 MR. McCABE: There are -- we have already 12 identified some areas where there is going to be some 13 dialogue. As to the specifics as to how it's going to 14 happen,what -- andwhether or not there's going to be 15 dialogue on everything, and to what extent, I'm not 16 certain whether it's going to be -- to the extent 17 possible, Iwould say that we're going todo it -- try 18 to do it electronically, so as to keep the majority of 19 the people informed. 20 Then, when it comes to individual's 21 comments as to suggestions as to changes to make, 22 their questions and trying to understand it, we'll 23 deal with individuals directly and then post the 24 material to the web. 25 MR. BROOKMAN: That is, those individuals 

## NEALR.GROSS COURTREPORTERS AND TRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com264 1 that put direct questions to you, you'll try to be 2 responding to them individually? 3 MR. McCABE: With recommendations as to 4 changes and try to understand that and see whether or 5 not it can be done. 6 MR. BROOKMAN: I see. But, for example, 7 this listing that Terry and Jim developed, and that 8 we've developed here together

-- 9 MR. McCABE: Most of that will be done. 10 It will then be posted on the web. 11 MR. BROOKMAN: Onto the web. Will it be 12 flagged somehow, or will it just be

-- 13 MR. McCABE: E-mail notices going out. 14 MR.BROOKMAN: E-mailnotices, and they'll 15 be listing these things with references to where they 16 can be found, that sort of thing. 17 Mark Krebs? 18 MR. KREBS: Mark Krebs, Laclede Gas. 19 Today is July 23rd. August 3rd comments are due. You 20 know, it's the same unjust issue. Okay? It's not 21 enough time if you want quality responses. I think 22 you ought to issue an extension. 23 MR. BRUNDAGE: I would -- Mark will be 24 shocked at this, but I will concur with him on that 25 comment. 

### NEALR.GROSS COURTREPORTERS ANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON,D.C. 20005-3701 www.nealrgross.com265 1 Don Brundage, Southern Company. I would 2 point out that this set of comments, the three-week 3 period comment on the web materials, included a week 4 that of large portion people in this room were at 5 ASHRAE. 6 And the projected comment schedule of a 7 NOPR hearing on the 20th of January, and comments due 8 on the NOPR February 21st, also includes the February 9 ASHRAE meeting included within the comment period 10 also, which reduces by a week the usable time many of 11 us have to comment. 12 So I'm sure this is just coincidence, but 13 I wish DOE would be sensitive to that, because there 14 is only so many hours in the day. Thank you. 15 MR. BROOKMAN: Mark Krebs? 16 MR. KREBS: Mark Krebs, Laclede Gas. By 17 the way, they were at ASHRAE in another conspiracy. 18 MR. BROOKMAN: So I guess, then, I think 19 that we're drawing to the end of this day. And so let 20 me just close, before I turn it over to Terry Logee 21 and Michael McCabe, by thanking everybody for the 22 spirit of engagement and the cooperation thatyou have 23 extended here today. 24 One thing I would observe as a third 25 party, having participated in this for several years 

## NEALR.GROSS COURT REPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com266 1 now, is the level of these meetings, the quality of 2 it, the level of exchange, the level of the listening 3 and discussion improves every single time. That's 4 much to your credit, not only to your individual 5 interests but your collective interests. 6 So thank you for that, and travel safely. 7 Terry Logee, it's yours. 8 MR.LOGEE: Thank you, Doug. And I'd like 9 to echo my thanks for your hard work. I apologize for 10 the limited time and the July 4th holiday included, 11 and apologize in advance for ASHRAE. Our rulemaking 12 schedule is such that we don't have a lot of -- you 13 know, we just -- we can't really take that much 14 account of those situations. 15 But I do appreciate your efforts, and 16 thank you for coming here. I have certainly learned 17 a lot, and have noted a number of ways that we can 18 improve our analysis. We endeavor to do that and get 19 the improved analyses out on the web and out to you 20 folks as soon as we can. 21 Michael? 22 MR.McCABE: You said it all. Thankyou. 23 MR. BROOKMAN: Travel safely. 24 (Whereupon, at 4:29 p.m., the workshop 25 was adjourned.) 

### NEALR.GROSS COURTREPORTERSANDTRANSCRIBERS 1323RHODEISLANDAVE.,N.W. (202)234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com267 CERTIFICATE



### This is to certify that the foregoing transcript in the matter of: WATER HEATER ENERGY EFFICIENCY STANDARDS WORKSHOP

Before: DEPARTMENT OF ENERGY

Date: JULY 23, 1999

Place: WASHINGTON, D.C.



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



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