# E **C** 

# / **R Incorporated**  **Providing Environmental Technical Support Since 1989**

501 Eastowne Drive , Suite 250  Chapel Hill, North Carolina 2751 4 Telephone: (919)484

- 0222  Fax: (919) 484

- 0122 TEL E CONFERENCE CALL DATE OF CALL : July 16, 2010 PARTI CI PANTS : Mike Haefner, American Energy Sy stems B eth Friedman , EC/R, Inc. SUBJECT: Clarification of Pellet Stove I CR and Discussion of Cost Impacts Mr. Haefner was contacted to clarify some o f the information provided in his company ’s response to the April 7, 2010 (EPA) information collection request (ICR). I also asked for clarification and additional information related to his July 9, 2010 letter to EPA in his role as a small entity

represe ntative . We also discussed the elements to be considered in a cost impact anal ys is , particularl y as they relate to flex fuel stoves . The discussion is organized below according to topic. 1. Definition of “Sales Price” in Table 1 of the ICR Response. Mr. Haefner confirmed that the sales prices listed in table 1 reflect the sales cost to the dealer. This represents the average sales price, but actual prices vary by dealer depending on their volume of sales. The sales prices to consumers are listed on the company website for models currentl y being offered. 2. Distinguishing B etween the I CR, W ebsite, and EPA and WA Certified Lists. I asked for Mr. Haefner’s help in distinguishing the various model names and numbers that appear on IC R, company website and the EPA and WA certified lists. He agreed to have one of his staff prepare a table that cross references the various names and numbers and send it to me. 3. Acquisitions and Market Share.. AES is known primarily

as a manufacturer of flex

- fuel biomass pelle t stoves , particularl y devices capable of burning corn. Five y ears ago, they covered approximately

80% of this market, but over time more manufacturers have started competing with them. At present, the pellet stove lines dominate both sales and revenue ( approx. 90%) f or the company

. In 2008, the company

purchased the complete line of Country Flame appliances (mostly wood burning stoves and fireplaces) to expand its list of products. These products currentl y represent approximately

10% of sales/revenu e. They ended up having to discontinue some models because certifying paperwork is no longer available, and recertif yi ng the affected units is cost prohibitive. Certification costs are also the reason that the company has not added an y currentl y EPA

- exempt pellet stoves to the WA list of certified units that can be sold in the state.2

4. Costs to Develop New Models. Mr. Haefner said that it is fairly inexpensive to bring an appliance to a certain level of performance (e.g., 70%), but that the costs incre ase dramatically to obtain even small emissions reductions. Products have to balance heat transfer efficiency with emissions reductions and increasing one can decrease the other. (He said he will be providing more detailed comments on this relationship i n additional SER comments.) Mr. Haefner said it can take 6 to 8 y ears to develop new products to achieve these marginal improvements. As a small manufacturer, they need a long lead time to develop new technology . Since implementation of the original NS PS, they have been making incremental improvements as time and resources allow. The reason that so many units perform better than the standard is because of this transition. A key

element is to know the target they are aiming for. 5. Potential Impacts of Increased Emission Reductions. Overall

. For a small company , AES has a wide range of products, but they do not sell a lot of each product. The combination of these models leads to a viable business. But, if they have to drop a number of models, the compan y may not survive. This recognizes that a basic engine may

drive 2 or 3 models. Wood Stoves . Mr. Haefner worries that they would have to discontinue units that do not meet the WA standard and then abandon additional units if the standard is tigh tened further. They would lose the substantial investment they made to acquire these units if this was the case. He is also concerned that currentl y certified units would face the expense of retesting just to show they

meet the new NSPS (if it is equival ent to the WA standard). He suggested that these units should be grandfathered into the program. Pellet Stoves . All of the company ’s flex fuel stoves are exempt from the NSPS and only very limited test data exist. Fireplaces . The In glenook model is EPA certified and could qualify as a Phase II model. The problem is the company does not sell a lot of these. The Smart Fireplace is a very low volume product and would be discontinued if faced with regulation. The MagnuM ZC might be able to meet Phase II , and the compan y has considered adding it to the voluntary program. Test Lab Availability . AES cannot afford to set up their own test lab and relies heavil y on the existing testing labs. They are concerned about test lab availability with a more stringent standard with broader applicability . This will hinder their abilit y to develop new products and to certify existing ones. Industry Wide Impacts . Mr. Haefner noted that if they go out of business, this also affects their suppliers, dealers, and installers. Test Methods . Mr. Haefner is concerned that changes in the EPA test method could void existing certifications.3

6. Price Trends. Mr. Haefner said that are facing a lot of consumer pressure to lower prices. One appliance that used to sell fo r $1895 is now listed at $1695. There is also pressure resulting from steel companies try ing to boost steel prices. The new regulation would add several hundred dollars to the sales price at a time when margins are eroding. 7. Nature of Flex Fuel Appliance s. Flex fuel appliances are more expensive to produce because they operate under more complex burning conditions. Corn units have to cope with a higher ash content, which requires good heat exchange to burn clean. They reburn the ash, which is an expen sive component. It is also harder to change their design because of this complexity

. Consumers are attracted to flex fuel appliances because the suppl y of readily available wood pellets is slowly

eroding due to changes in forest harvesting techniques an d building techniques . In the face of shortages of good quality wood pellets, consumers want alternatives to use to operate their appliances. Consumers are also receptive to government calls to use renewable energy

. AES participated in a blind study on corn burning (EPA should have the data) and the unit was shown to meet the WA standard under the current testing protocol. 8. Efficiency

vs. Emissions. It is very difficult to get the correct balance between the efficiency of a unit and the level of emi ssions. For example a unit might meet the WA standard, but it could not meet the specified efficiency

standard required for tax credits or changeout programs. Similarly , these appliances have to meet safet y standards and changes to emissions or efficienc y could affect their ability

to meet a safety

standard. Mr. Haefner gave an example of a unit for which they had to decrease efficiency

to meet a venting standard. This is because the higher efficiency unit created water in the vent stack, which would re quire a PVC vent. However, PVC vents are not allowed b y the venting standard. They elected not to certify this unit for the 75% efficiency tax credit because of this, and this appliance has lost a lot of market share and may be discontinued. 9. Costs vs. S ize Larger units do not necessary cost more to manufacture than smaller units. Smaller units can cost more because of the need to squeeze more equipment/function into a smaller volume. Larger units can cost more because as size increases, it is harder to balance efficiency and emissions. 10. Frequency

of Model Changes Every couple of y ears they

review and refresh products to meet consumer demand. To the extent they

can make cosmetic changes without changing the certification or combustion performance th ey

do. Consumers care about the look of the unit first and automation and simplicity of operation second. Consumer confusion leads to unit failures. Less than 10% care whether a unit is clean burning, but more are concerned with efficiency . Finally , pr ice is a factor too.