E

C

/R Incorporated Providing Environmental Technical Support Since 1989

501 Eastowne Drive, Suite 250  Chapel Hill, North Carolina 27514

Telephone: (919)484-0222  Fax: (919) 484-0122

TELECONFERENCE CALL

DATE OF CALL: July 16, 2010

PARTICIPANTS: Mike Haefner, American Energy Systems

Beth Friedman, EC/R, Inc.

SUBJECT: Clarification of Pellet Stove ICR and Discussion of Cost Impacts

Mr. Haefner was contacted to clarify some of 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 representative. We also discussed the elements to be considered in a cost impact 

analysis, particularly 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 currently being offered. 

2. Distinguishing Between the ICR, Website, and EPA and WA Certified Lists.

I asked for Mr. Haefner’s help in distinguishing the various model names and numbers 

that appear on ICR, 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 pellet stoves, particularly 

devices capable of burning corn. Five years 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%) for 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 currently 

represent approximately 10% of sales/revenue. They ended up having to discontinue some 

models because certifying paperwork is no longer available, and recertifying the affected units is 

cost prohibitive. Certification costs are also the reason that the company has not added any 

currently EPA-exempt pellet stoves to the WA list of certified units that can be sold in the state.
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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 increase 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 in additional SER comments.) Mr. Haefner said it can take 6 to 8 years 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 NSPS, 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 company 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 tightened further. 

They would lose the substantial investment they made to acquire these units if this was the case. 

He is also concerned that currently certified units would face the expense of retesting just to 

show they meet the new NSPS (if it is equivalent 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 Inglenook 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 company has considered adding it to the voluntary program.

Test Lab Availability. AES cannot afford to set up their own test lab and relies heavily 

on the existing testing labs. They are concerned about test lab availability with a more stringent 

standard with broader applicability. This will hinder their ability 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.
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6. Price Trends.

Mr. Haefner said that are facing a lot of consumer pressure to lower prices. One 

appliance that used to sell for $1895 is now listed at $1695. There is also pressure resulting from 

steel companies trying 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 Appliances.

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 expensive component. It is 

also harder to change their design because of this complexity.

Consumers are attracted to flex fuel appliances because the supply of readily available 

wood pellets is slowly eroding due to changes in forest harvesting techniques and 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 emissions. 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 safety standards and changes to emissions or efficiency 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 require a PVC vent. However, PVC vents are not 

allowed by 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. Size

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 years they review and refresh products to meet consumer demand. To 

the extent they can make cosmetic changes without changing the certification or combustion 

performance they 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, price is a factor 

too.