**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 U.S. DEPARTMENT OF ENERGY

**PUBLIC MEETING ON THE PRELIMINARY ANALYSES FOR RESIDENTIAL WATER HEATERS, DIRECT HEATING EQUIPMENT,**  **AND POOL HEATERS** Room 1E-245 U.S. Department of Energy 1000 Independence Avenue, S.W. Washington, D.C. 20585 9:00 a.m. Monday, February 9, 2009 DOUG BROOKMAN, Facilitator U.S. Department of Energy Attendees MARK FRIEDRICHS MOHAMMAD KHAN FRANCINE PINTO, ESQ. ERIC STAS, ESQ. Attendees KARIM AMRANE, Ph.D., Vice President Regulatory and Research Air Conditioning, Heating and Refrigeration Institute (AHRI) 2111 Wilson Boulevard, Suite 500 Arlington, Virginia 22201-3001 ASHLEY ARMSTRONG, Managing Consultant Navigant Consulting, Inc. 1801 K Street, NW, Suite 500 Washington, D.C. 20006 TIMOTHY BALLO, Esq., Associate Attorney EarthJustice 1625 Massachusetts Avenue, Suite 702 Washington, D.C. 20036 MIKE BEYERLE, Marketing Manager GE Consumer and Industrial Appliance Park, AP35-1312 Louisville, Kentucky 40225**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 Attendees JOSEPH BOROS, Engineering Manager Rheem Water Heater Division 2600 Gunter Park Drive East Montgomery, Alabama 36109 DONALD M. BRUNDAGE, Principal Engineer Southern Company Services 241 Ralph McGill Boulevard NE Atlanta, Georgia 30308 LANE WESLEY BURT, Energy Policy Analyst National Resources Defense Council 1200 New York Avenue, NW, Suite 400 Washington, D.C. 20005 JOSHUA BUTZBAUGH, Research Analyst D&R International 1300 Spring Street, Suite 500 Silver Spring, Maryland 20910 BELINDA CARR, Administrative Analyst Energetics, Inc. 7067 Columbia Gateway Drive Columbia, Maryland 21046 ANDREW deLASKI, Executive Director Appliance Standards Awareness Project (ASAP) 20 Belgrade Avenue, Suite 1 Boston, Massachusetts 02131 LANCE DeLAURA Market Strategy, Codes & Standards Manager Southern California Gas Company (SoCal Gas) Sempra Energy Utilities 555 W. Fifth Street Los Angeles, California 90013-1045 PHIL L. GAUTHIER, Manager Certification Services Air Conditioning, Heating & Refrigeration Institute (AHRI) 2111 Wilson Boulevard, Suite 500 Arlington, Virginia 22201-3001**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 3 Attendees ROBERT S. GLASS Director of Engineering Raypak, Inc. 2151 Eastman Avenue Oxnard, California 93030 JEFFREY KINGMAN, Senior Consultant Navigant Consulting 1801 K Street, Suite 500 Washington, D.C. 20006 ALEX LEKOV, Staff Research Associate Lawrence Berkeley National Laboratory One Cyclotron Road, MS 90-4000, Building 90 Berkeley, California 94720 ROGER MARRAN, President Energy Kinetics 51 Molasses Hill Road Lebanon, New Jersey 08853 KAREN B. MEYERS, Manager Industry Relations Rheem Manufacturing Company 5600 Old Greenwood Road Fort Smith, Arkansas 72917-7010

MIKE RIVEST, Managing Director Navigant Consulting, Inc. 1801 K Street, Suite 500 Washington, D.C. 20006 GREGORY ROSENQUIST, Program Manager 3 Lawrence Berkeley National Laboratory One Cyclotron Road, MS 90-4000, Building 90 Berkeley, California 94720**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 4 Attendees STEVEN J. ROSENSTOCK, P.E. Manager, Energy Solutions Edison Electric Institute (EEI) 701 Pennsylvania Avenue, NW Washington, D.C. 20004-2696 HARVEY SACHS, Ph.D., Senior Fellow Buildings Program American Council for an Energy-Efficient Economy (ACEEE) 529 14 th Street, NW, Suite 900 Washington, D.C. 20004 FRANK STANONIK, Chief Technical Advisor Air Conditioning, Heating and Refrigeration Institute (AHRI) 2111 Wilson Boulevard, Suite 500 Arlington, Virginia 22201-3001 MOLLY TROMBLEY-McCANN, Project Manager Energy Solutions 1610 Harrison Street Oakland, California 94612 CONSTANTIN von WENTZEL, Associate Director Navigant Consulting, Inc. 77 S. Bedford Street, Suite 400 Burlington, Massachusetts 01803 TED WILLIAMS, Director Building Codes & Standards American Gas Association (AGA) 400 N. Capitol Street, NW Washington, D.C. 20001 KEN SAGAN, CGP, Program Manager Energy Efficiency Energy & Green Building Department Advocacy Group National Association of Home Builders 1201 15 th Street, NW Washington, D.C. 20005-2800**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 5 Attendees THOMAS STROUD, Senior Manager Codes & Standards Hearth, Patio & Barbeque Association 1901 North Moore Street, Suite 600 Arlington, Virginia 22209-1726 ERIC TRUSKOSKI, Design Engineer Bradford White Corporation 200 Lafayette Street Middleville, Michigan 49333 MATT WATKINS, Environmental Policy Analyst Air, Waste and Wildlife Advocacy National Association of Home Builders 1201 15 th Street, NW Washington, D.C. 20005-2800 GEORGE M. KUSTERER Director of Technical Services Bock Water Heaters, Inc. 110 S. Dickinson Street Madison, Wisconsin 53703 RAY LONG, Renewable Energy Analyst D&R International, Ltd. 1300 Spring Street Silver Spring, Maryland 20910 TERRENCE J. MULLEN, President & CEO Bock Water Heaters, Inc. 110 S. Dickinson Street Madison, Wisconsin 53703 JOHN CONFREY, Vice President Engineering and Service Division Noritz 11150 Grace Avenue Fountain Valley, California 92706 ADAM DARLINGTON, Consultant Navigant Consulting 1801 K Street, NW, Suite 500 Washington, D.C. 20006**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 6 Attendees PAUL DANA, Vice President Global Product Engineering A.O. Smith Water Products Company 500 Tennessee Waltz Parkway Ashland City, Tennessee 37015 WILLIAM M. HEALY, Ph.D., Group Leader Heat Transfer & Alternative Energy Systems Group Building and Fire Research Laboratory United States Department of Commerce National Institutes of Standards & Technology 100 Bureau Drive, Stop 8632 Gaithersburg, Maryland 20899-8632 MATTHEW O’HARE, Consultant Navigant Consulting, Inc. 1801 K Street NW, Suite 500 Washington, DC 20006**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 7 A G E N D A ITEM : PAGE : Welcome 8 U.S. Department of Energy Opening Remarks, Introductions and Agenda Review 8 Doug Brookman Rulemaking Overview 14 Mohammed Khan Brief Opening Remarks from Interested Parties 19 Doug Brookman Market and Technology Assessment, Screening Analysis, Engineering Analysis, and Preliminary Manufacturer Impact Analysis 30 Ashley Armstrong and Matthew O’Hare Markups to Determine Product Price Analysis, Energy Use Characterization, and Life-Cycle Cost Analysis 135 Alex Lekov Afternoon Session Shipments Analysis and National Impact Analysis 230 Alex Lekov NOPR Analysis 280 Ashley Armstrong, Jeff Kingman and Greg Rosenquist Discussion of Other Issues and Final Remarks From Interested Parties 300 Doug Brookman Next Steps and Closing Remarks 303 Mohammed Khan**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 8

P R O C E E D I N G S 1 2 (9:07 a.m.) Welcome 3 Opening Remarks, Introductions and Agenda Review 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. BROOKMAN: Okay. Let’s begin, ladies and gentlemen. Good morning, everybody, and welcome. This is the U.S. Department of Energy’s Public Meeting on Preliminary Analyses for Residential Water Heaters, Direct Heating Equipment, and Pool Heaters. Today is Monday, February 9 th . It’s a beautiful day in Washington, D.C. So glad you could join us. Thanks for being here on time so we could get started on time. My name’s Doug Brookman from Public Solutions in Baltimore. I’ll be helping to facilitate this meeting today, along with all of you. It’s our tradition to start with introductions and so let’s do that. So we’ll go around the room, if we can, and your name and organizational affiliation. We’re fortunate to have new microphones for those of you who haven’t been here in the last few weeks. They work rather well. Those of you that are seated on the periphery, your name will not be in the record, but we**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 9 got a listing of you when you registered, so that will be distributed at the end of the day today. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 George, we’ll start with you. MR. KUSTERER: George Kusterer, Bock Water Heaters, Madison, Wisconsin. MR. STROUD: I’m Tom Stroud with Hearth, Patio and Barbeque Association, Arlington, Virginia. MR. DANA: Paul Dana with A.O. Smith. MR. BEYERLE: Mike Beyerle, General Electric. MS. MEYERS: Karen Meyers, Rheem Manufacturing. MR. BOROS: Joe Boros, Rheem Manufacturing. MR. GLASS: Robert Glass, Raypak. MR. deLASKI: Andrew deLaski, Appliance Standards Awareness Project. MR. DeLAURA: Lance DeLaura, Southern California Gas Company and San Diego Gas and Electric Company. MS. TROMBLEY-McCANN: Molly Trombley-McCann, Pacific Gas and Electric Company. MR. BRUNDAGE: Don Brundage, Southern Company. MR. TRUSKOSKI: Eric Truskoski, Bradford White Corporation. MR. STANONIK: Frank Stononik, Air**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 0

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Conditioning, Heating and Refrigeration Institute. DR. SACHS: Harvey Sachs, American Council for An Energy Efficient Economy. MR. ROSENSTOCK: Steve Rosenstock, Edison Electric Institute. MR. WILLIAMS: Ted Williams, American Gas Association. MR. CONFREY: John Confrey, Noritz North America Corporation. MR. BROOKMAN: Do you want to introduce yourself, Eric? MR. STAS: Eric Stas, DOE. MR. BROOKMAN: Thank you. MR. KHAN: Mohammed Khan, Department of Energy. MR. BROOKMAN: Alex. DR. LEKOV: Alex Lekov, Lawrence Berkeley National Laboratory. MR. O'HARE: Matt O’Hare, Navigant Consulting. MS. ARMSTRONG: Ashley Armstrong, Navigant Consulting. MR. von WENTZEL: Constantin von Wentzel, Navigant Consulting. MR. KINGMAN: Jeffrey Kingman, Navigant**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 1

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Consulting. MR. MARRAN: Roger Marran, Energy Kinetics. MR. MULLEN: Terry Mullen, Bock Water Heaters. MR. BROOKMAN: We’re doing introductions. Would you introduce yourself, please? Name and organizational affiliation. Yes, we’re going to go around this way. MR. WATKINS: Matt Watkins, Home Builders Association. MR. SAGAN: Ken, Energy Efficiency. MR. LONG: Ray Long, D&R International. MR. BUTZBAUGH: Joshua Butzbaugh, D&R International. MR. GAUTHIER: Phil Gauthier, Air Conditioning, Heating and Refrigeration Institute. MR. BROOKMAN: Thank you. Thanks to all of you, and thanks once again for being here on time. Oh, we missed somebody. Tim. MR. BALLO: Tim Ballo, EarthJustice. MR. BROOKMAN: Thanks, Tim. I think many of you are familiar with these proceedings. I’m going to do a very brief Agenda Review and then we’re going to have a brief overview and then we’ll provide an opportunity for each of you, any of you that wish to do**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 2

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 so, to make introductory remarks. I think all of you received a copy of the packet when you registered and walked in the door. In that packet is an Agenda and the slides that will be the basis of the presentation and the precursors for discussion today, as well as the Federal Register Notice. We are now doing this first opening segment which will end shortly. Following that, Mohammed Khan will do a Rulemaking Overview. Immediately the overview, as I said, there’s an opportunity for any of you that wish to do so to make brief summary introductory remarks about key issues and concerns from your perspective. Immediately following that, Market and Technology Assessment, Screening Analysis, Engineering Analysis, and Preliminary Manufacturer Impact Analysis, all those analyses described. We’ll take a break midmorning, around about 11:15 or so, and then we’ll go from there to Markups to Determine Product Price Analysis, Energy Use Characterization, and Life-Cycle Cost Analysis. That might run us all the way till, say, 12:30 or 1 o’clock. We’ll take lunch when we finish with that segment, and then return from lunch and do Shipments**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 3

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Analysis, National Impact Analysis. We’ll take a break midafternoon, and then describe the various elements of the NOPR Analyses. Around about 4 o’clock or so, there’s an opportunity for anybody that wishes to do so to make final remarks, raise any other additional issues you wish to raise at that point, and we intend to close today somewhere between 4 and 5. That’s our plan. Questions, comments here at the outset? (No response.) MR. BROOKMAN: How many of you are new to these kind of proceedings? (Show of hands.) MR. BROOKMAN: So most of you are familiar. Those of you that are new, please feel free to speak up. This is your opportunity to ask questions. We try and make as many opportunities for that to happen as possible. I would ask for your consideration for what we consider, I believe, common courtesy. I’d ask that, if you would, please, speak one at a time. Please say your name for the record each time you speak. The microphones, they’ve got a little bright green LED. If it’s not bright green, it’s not on and you can just leave it on, I think.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 4

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 I’m going to be queuing people to speak as best I can by name. I also wish to encourage follow-up comment. It’s useful for the department to hear the back and forth between different points of view and so we’ll make sure the record somehow reflects the name exchange following that dialogue. Please keep the focus here. Turn your cell phones on silent mode. If you need to have a sidebar conversation with the person next to you, please keep it very brief and if it’s going to be more than about 20 seconds, especially since these microphones work well now, take it out of the room. We’ll understand. It’s no problem. I’m going to ask you to please be concise and share the air time as we’re going along today. So then, additional questions, comments here at the outset? (No response.) MR. BROOKMAN: Okay. I see none. Rulemaking Overview 20 21 22 23 24 25 MR. KHAN: Good morning, everyone. Welcome, and thank you for participating in today’s meeting on Energy Conservation Standards for Residential Water Heaters, Pool Heaters, and Direct Heating Equipment. My name’s Mohammed Khan. I’m the project**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 5

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 manager for this activity, and I’ll be providing a brief overview of the rulemaking process and then throughout the day we’ll hear from analysts on the details of the analysis that we’ve performed to date from the Lawrence Berkeley National Laboratory as well as Navigant Consulting. The purpose of today’s meeting. There are several purposes of today’s meeting. First, we want to explain the analyses, methodologies and also characterize our preliminary analysis results. Second, we want to have a two-way discussion. We want to discuss some specific issues associated with this rulemaking and also hear and listen to your thoughts and potential concerns about what we’ve done so far, and, lastly, we want to describe what are the next step and what you should be anticipating from the department. EPCA. This is the Energy Policy and Conservation Act. It requires the Department of Energy to consider seven important factors when promulgating new efficiency standards. This table lists the factors and shows the corresponding analysis the department performs to satisfy the EPCA requirement. So as an example, DOE performs an LCC Analysis and also Manufacturer Impact**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 6

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Analysis to determine the potential economic impacts to consumers and also manufacturers, respectively. Okay. Steps in the rulemaking. Here’s a flow chart showing the relationships between the various analyses the department has performed at this stage of the rulemaking. The upper flow chart in yellow depicts the major steps associated with the overall rulemaking process. We’re currently in the preliminary phase, as highlighted in the red circle and then broken out in the other chevron charts below. Specifically what we want to convey here are the relevant analyses and their relationships. So starting with the first major analysis segment, the Engineering Analysis, which correlates equipment costs and equipment efficiency, it uses data from both the Market and Technology Assessment as well as the Screening Analysis. Next, the cost data is combined with energy use data to generate LCC results, and, finally, this information, in combination with shipments projections, yield projections for national energy savings as well as net present value. Key documents. Last month the department published in the Federal Register its Notice announcing**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 7

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 a public meeting for this rulemaking. The Notice provided a broad summary of the applicable statutory authority, rulemaking history and the pre-NOPR analyses. The Notice also says that details of the analyses are collectively contained in the Technical Support Document or TSD for short, and it also can be found online. What’s most important about the TSD? The Executive Summary and Chapter 2 are the key components. The Executive Summary provides an overview of the preliminary phase of the rulemaking process, while Chapter 2 provides an indepth review of the analysis’s key results and a discussion of the comments received from the Framework Document just prior. Okay. Now similar to the earlier flow chart, this flow chart shows the various analyses that are associated with the next phase of the rulemaking which is the development of the Notice of Proposed Rulemaking or NOPR for short. This phase begins with the refinement of the Preliminary Analyses, based on data and feedback the department receives from stakeholders and other interested parties. Based on certain criteria, Trial Standard**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 8

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Levels or TSLs are then selected and also applied throughout the remainder of the analyses sets. So prior to the final rule, a manufacturer analysis along with other essential analyses are then completed. As I said at the very beginning, we want to have -- we want to make this as a two-way discussion. So comments from all participants are very, very important. I cannot over-emphasize that. Your feedback, your data, input and so forth is critical to us in making it as robust as possible. So again, thank you for participating and we look forward to getting a two-way discussion going on here. Thank you. MR. BROOKMAN: Thank you. I forgot to mention one thing at the outset. This meeting will be recorded. There will be a complete transcript of the meeting today. I just wanted to make sure everybody’s clear on that point. So now there’s an opportunity, for anybody that wishes to do so, to make brief introductory remarks, summary of your concerns and issues, particularly relevant to these proceedings, and I know Frank Stanonik has requested the opportunity to speak, so I’m going to queue him up first. He has prepared**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 9

1 2 3 written remarks and I’m going to pass them around right now, Mohammed. Frank Stanonik. Brief Opening Remarks from Interested Parties 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. STANONIK: This is Frank Stanonik, and as Doug mentioned, I’m not going to read these comments and I hope I’m not the only one, but in any event, we do have a couple of issues we want to bring up at this time. Probably most significantly, and I’m not going to belabor this, but I think everybody appreciates the tough economic conditions that we’re currently experiencing in the United States, particularly in the manufacturing industry and the appliance manufacturing industry, and as this analysis goes forward, we think it is very important that this current economic situation for our members be factored in. It does change things a lot and I’ll just, as an aside, mention that -- and we’ll provide data to DOE and further comments, but we’ve seen drops in shipments in this last period, I’d say in the last year, that I’ve never seen in 30 years, never. So a significant change and it does change everything in the analysis. We also have some concerns with particular**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 0

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 products. Some of the issues we have is we’re concerned that the analysis is not really capturing the significance of keeping the size of the water heater small enough to fit through doorways and to be able to be installed where the -- well, whatever millions, tens of millions of water heaters currently are installed. I mean, you can’t get in a situation where you’re going to force people to basically rebuild or tear down some structure just to get their water heater in and out and so we’re not sure DOE’s really fully appreciating that. We also have some questions regarding the estimates of the consumption. I’d just make that point. Regarding water heaters, one other issue that we’re concerned about is in the case of particularly the gas-fired instantaneous water heaters. In this analysis, DOE has applied an 8.8 percent reduction factor in looking at the efficiency of these products. This is based on one study, one study looking at one household, looking at one water heater. We just think that something as important as this analysis, that’s just not acceptable to treat that piece of information as, if you will, the “gospel.” If I walked in here and said that I found one**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 1

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 household in the United States where the average hot water use was 20 gallons and suggested or recommended that DOE redo their analysis to assume everybody uses 20 gallons of water, I’d be laughed out of the room, as I should be, and we’re not commenting on whether that study was good or bad. That’s not the issue. The point is it’s one data point and it’s a little bit hard to accept that that becomes a significant factor in this analysis just on one piece of field information. Then as for direct heating equipment, room heaters, we really have two issues there. Again, we think it’s important to recognize that these products, many of these products don’t require electric supply, and in fact people use them as emergency heat in power outages and that’s a very real utility that needs to be factored into the analysis for direct heating equipment. And then, currently, the analysis is dividing fireplace heaters into two categories, depending on whether they’re recessed or not, and at least to our experience that particular feature, as far as we can tell, really doesn’t impact the efficiency of the product, but if that continues in this analysis, they will have very different efficiency requirements,**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 2

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 depending on whether they’re sticking on to the wall or in the wall, and we’re not sure that that’s really an appropriate division. Then I’ll just mention we’re very interested to hear, see what we learn at this meeting. There’s a lot of information in the TSD and hopefully no one is surprised, but we are asking the department to extend the comment period past March 16 th

. MR. BROOKMAN: Thank you. Other brief summary remarks here at the outset? Yes, Don Brundage. MR. BRUNDAGE: Don Brundage, Southern Company. I agree with everything Frank just said. I have some additional concerns. Heat pump water heaters. Some of the specific issues related to those seem to be sort of glossed over in the Technical Support Document. One in particular seems to be the Technical Support Document seems to be saying that as long as, okay, it’s blowing cold air, you run the heater higher, that will take care of it. That does not address the fact that you’ve got an intermittent -- basically an air conditioning you can’t cut off that is in the middle of a dwelling unit and it’s going to cause uneven temperatures within the space and that’s a utility and comfort issue that needs to be included. Thanks.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 3

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. BROOKMAN: Thank you. Tim. MR. BALLO: Tim Ballo, EarthJustice. Just to raise one point that I don’t think was an issue DOE specifically sought comment on. The department is, I think, assuming that five years is the appropriate lead time, based on the statutory requirement, that DOE completed rulemaking in 2000 to impose standards effective in 2005. DOE is maintaining or proposing to maintain that five-year lead time. The fact is the deadline has expired. Standards were required to be implemented in 2005, and I think there is ample authority for DOE to narrow the amount of lead time it’s going to provide, particularly if it, you know, is not going to impose something that’s going to force the market, like a heat pump water heater, water heater standard for electric water heaters. MR. BROOKMAN: Thank you. Yes. MR. STROUD: As an add-on to -- MR. BROOKMAN: Please say your name. MR. STROUD: Oh, I’m sorry. Tom Stroud, HPBA. Just an additional comment on Frank’s comment about adding fireplaces, recessed fireplaces into a standard that is equal to wall furnaces.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 4

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 These fireplaces are designed as decorative products to a CSA ANSI standard that has a side benefit of heat. They’re not designed as furnaces. They’re designed as a yellow flame decorative piece that has that ability to put some heat and to put them into the same category as a furnace, I think, is going to be very restrictive. MR. BROOKMAN: Thank you. Andrew deLaski. MR. deLASKI: Thanks, Doug. Andrew deLaski, Appliance Standards Awareness Project. I want to make just a couple of opening comments about mostly providing a little bit of context from our perspective. I think most of the context that we need for today’s meeting and for this proceeding was provided by President Obama last Thursday when he came over here to the department, and I think probably for the first time in American history, a president of the United States called out this particular program and he issued a memorandum and in that memorandum he made a commitment to meet all the deadlines for appliance standards due over the next few years, actually specifically those due by August 8 th , and then to accelerate deadlines, if possible, for standards due after August 8 th

. It’s a remarkable, I think, commitment. It**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 5

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 may sound small to say I’m going to meet my legal commitments, but as those of you who work in the department and in the consulting team know, it’s no small feat and I think he would the first president since George I, George Bush, to do so. In his remarks and in the press coverage, the Administration touted the savings numbers on the order of 50 quads from the standards that will be completed in the next few years. Fifty quad is an enormous amount of energy savings. By my reckoning, it’s the primary energy involved in producing electricity for every American household for two and a half years. It’s a big commitment and a big opportunity. I want to make two points in reaction. One is first to congratulate the staff and the consulting teams of DOE. The president couldn’t make that commitment, couldn’t make that directive to the agency absent the work that the staff’s been doing for the past two plus years, once the Consent Decree was signed to get the rulemakings on track. He couldn’t make that commitment because most of these rulemakings, indeed nearly all, are underway. It’s work that has been started for nearly all those 30 products. I think it almost must be a huge boost, I mean, to have the United States president say what you**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 6

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 do is integral to the energy policy of the nation is huge and I think it’s a testament to the work that the department staff does every day to develop energy efficiency standards and to the consulting teams. It’s also, I think, a charge to those of us who are outside stakeholders to engage and to work to find the standards that meet the statutory criteria, to achieve the largest energy savings that are technically feasible and economically justified. The second point I want to make is about small decisions. The 50 quads can’t all happen at once. This isn’t like cars. This isn’t NHTSA setting standards for automobiles where we have one technology. It’s 30 technologies. Many, I’d say probably more than two dozen, rulemakings, with each one entailing dozens, if not hundreds, of decisions that affect the ultimate energy savings that can be achieved. It’s only by the step by step work of the staff and through meetings like this one that those 50 quads of energy savings will be achieved. Every seemingly small decision has an impact on our ability as a nation to meet the overall savings objectives, whether it be about test methods, about the levels analyzed, the treatment of external benefits, legal interpretations, these are all part of the small**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 7

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 decisions that build up towards achieving the massive energy savings that are possible through this standard, through the standards we’re discussing today and through the overall package of standards that the president called out last week as being one of the centerpieces of how we’re going to meet our energy objectives in the years ahead. So we look forward to participating in this proceeding and in helping to meet those objectives. Thank you. MR. BROOKMAN: Thank you, Andrew. Other summary remarks here at the outset. Yes, George. MR. KUSTERER: George Kusterer, Bock Water Heaters. When the analysis was done with regard to the MPC which is the Manufacturer’s Production Cost, that was done just almost two years ago, the price of steel has increased tremendously since that was done, and I would hope that DOE can recalculate those figures because it would have a direct impact. The other item of concern is DOE used the Water Heater Analysis Model, WHAM, to estimate energy use for water heaters. This is a very, very old analysis and may be outdated and in some cases does not consider other types of water-heating products. So I would request that DOE again find a**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 8

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 better analysis model to calculate estimated energy

use. One other item that, looking through the documentation, the TSD, and I could not find it and maybe it was done, but DOE performed no environmental impact study in the TSD. Thank you. MR. BROOKMAN: Thank you, George. Other comments here at the outset before we launch into the materials. Harvey Sachs. DR. SACHS: Harvey Sachs, American Counsel for An Energy Efficient Economy, and I’d like to bring up a general point that the department has stated in Chapter 2 of the TSD that it has the ability to use relevant factors, including size categories, as determining classes for the purposes of this analysis and for the purposes of the rulemaking. I want to park that because I think it may become important in some of our discussions later. The second comment is really seeking a response that I was gratified to hear the recognition that certain of the hearth-type products are designed to be decorative. They’re not designed as heat products, yet if used year-round, as they may well be, they are putting heat into the house year-round, and it**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 9

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 would seem appropriate to consider a capacity limitation for these, perhaps analogous to the energy use of other parasitics during the summer season, such as large plasma televisions. So I will queue up the thought that if these are decorative rather than heating appliances, we may want to consider a BTU input limit or BTU output limit for them. MR. BROOKMAN: Okay. So thanks for looking for a possible solution there. Yes, please. MR. STROUD: I just want to respond quickly to that, in that there are actually two different product categories. There is a decorative product and there is a heating product, and what I was saying actually refers to the heating product. It has that element of decorative to it and when you change it into a high-efficiency unit, it turns into blue flame and looks like a furnace, it even looks like a furnace, it’s not quite the same animal. MR. BROOKMAN: Okay. So thanks, Tom, for that and there will be many opportunities for ongoing discussion as we go along today. Steve. MR. ROSENSTOCK: Steve Rosenstock, Edison Electric Institute. Just a real quick comment. I wanted to thank the department for**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 3 0

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 following the spirit of NAECA in that it’s trying to analyze as many competitive products in this category as possible. This will reduce market shifts caused byefficiency standards. It is taking a market- and fuelneutral type of approach, and I really appreciate the fact that the department is really doing again a very thorough job in trying to analyze all of the markets for this rulemaking. Thank you very much. MR. BROOKMAN: Thanks, Steve. Okay. Other comments here at the outset? (No response.) MR. BROOKMAN: So then let’s proceed and go right straight into the Market and Technology Assessment. Ashley Armstrong.

Market and Technology Assessment, Screening Analysis, 16 Engineering Analysis, and Preliminary Manufacturer 17 Impact Analysis 18 19 20 21 22 23 24 25 MS. ARMSTRONG: Good morning, everyone. For those that don’t know me, my name is Ashley Armstrong. I’m going to begin today’s presentation by talking about three of the analyses the department developed as part of the Preliminary Rulemaking. The first is the Market and Technology Assessment. As far as the Market and Technology**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 3 1

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Assessment goes, we attempt to characterize the market that includes manufacturers, product classes, product definition, the efficiency that’s available in the market, shipments, just to name a few characteristics. The next analysis is a Screening Analysis. The purpose of the Screening Analysis is to apply DOE’s four criteria to establish what technologies to evaluate further in the analysis and which of those to screen out. And the last analysis is the Engineering Analysis and the purpose of the Engineering Analysis is to characterize the manufacturer cost versus efficiency relationship. So to start off with the market characteristics for the water-heating industry, we found that there’s three major manufacturers, domestic, that hold 90 percent of the storage water heater market. The majority of the products are manufactured in the United States. However, there are several manufacturing facilities located overseas. We found there’s roughly 4.4 million gas, 4.5 million electric, and 24,000 oil-fired storage water heaters shipped annually. The instantaneous gas-fired market is primarily manufactured overseas. We identified five**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 3 2

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 manufacturers of those products. Most of these companies are foreign-owned and foreign-operated, and there’s over 322,000 shipments per year. So these are the six product classes for which DOE currently has standards. As you can see, the two that are laid out, tabletop and electric instantaneous, are not being considered for amendment to the standard as part of today’s rulemaking. We’re only considering the other four. To go into the next, the market characteristics for direct heating equipment, DOE identified eight manufacturers of direct heating equipment. That includes three manufacturers of all 16 types of direct heating equipment and five manufacturers exclusively of fireplace-type heaters. At least three of the manufacturers produce direct heating equipment domestically. Some of these products are sold exclusively into the replacement market-only and there is over a 170,000 units shipped in 2005 and that does include fireplace heaters. So on the next slide are the 16 existing product classes as established by NAECA for direct heating equipment. You can see that there’s four product types and then they’re further disaggregated by heating capacity in order for standard-setting**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 3 3

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 purposes. So the first issue. We’re going to go through the slides today and you’ll see slides like this that say request for comment and I’m going to present the information. Then I’m going to turn it over to you guys for a discussion of the issues. So the first issue DOE’s seeks your input on is vented fireplace heaters. As some of you noted in your earlier discussion, DOE did not separate fireplace heaters into a separate product class. Instead, they put them into their existing product classes. DOE determined that fireplace heaters use the same function. They use the same fuel. They functionsimilarly and they do not contain any performancerelated features that would affect the measurement of AFUE, Annual Fuel Utilization Efficiency, using DOE’s Test Procedures. DOE notes that the AHRI Directory also includes fireplaces within their existing room heater or wall furnace categories. So I’m going to pass the discussion to you guys as to whether fireplace heaters should be included in DOE’s existing product classes for direct heating equipment and I’m going to show them on the next slide. So we’ve proposed new descriptions to those**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 3 4 in the CFR which kind of help manufacturers figure out which product classes they would cover, whether it be recessed or non-recessed. So we would like your feedback on this and whether you think that they should be included in the existing categories. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. BROOKMAN: Are vented fireplace heaters distinctive enough so they do not require special definition? MS. ARMSTRONG: Are you asking me? MR. BROOKMAN: Yes. MS. ARMSTRONG: We believe that they fall into the existing categories, that they would be able to pilot light gas logs. You would be able to distinguish where they should fall. MR. BROOKMAN: Frank Stanonik. MR. STANONIK: Frank Stanonik. There’s two different fixes, I guess. Certainly, we think that they need a definition. The current situation -- MR. BROOKMAN: That bright green means go. MR. STANONIK: Fireplace heaters certainly need a unique definition. There is in fact today a specific standard, safety standard for that product, but we do agree that within this rulemaking, they can be included with one of the other current existing**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 3 5

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 types and our recommendation would be that they would just be included with room heaters, as I mentioned in the earlier comments, to -- currently, at least as proposed in the preliminary TSD, there’s some implication that, depending on whether it sticks out of the wall or is in the wall, somehow it’s more efficient one way or the other and from our experience in terms of what is out there as fireplace heaters, you don’t see that distinction in the market. So at least at this point, our recommendation continues to be to just put them into the same grouping as vented room heaters and I’d just make one other point here and apologize for not being a 100 percent sure on this, but we have in place, at least, the intent, if we haven’t done it already, in fact, in our directory, to specifically identify fireplace heaters. You know, right now we show wall furnace, floor furnace, room heater. We will have a separate denotation, I guess, for fireplace -- MR. BROOKMAN: In the next round? In your next -- MR. STANONIK: Some time soon. It’s in the works, but I think it may have got temporarily put aside as we had a significant merger over the last year.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 3 6

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. BROOKMAN: Okay. So other comments related to this Equipment Class Designation, Vented Fireplace Heaters? Yes. MS. ARMSTRONG: I actually have a question for Frank. MR. BROOKMAN: Yes, Ashley, please. MS. ARMSTRONG: Frank, you had mentioned that you had recommended the department considered adding a definition for fireplace heaters, and I don’t know what it would do at this time, but do you have a definition from like an industry standard that you have recommended that DOE should review and at least consider if they decide to? MR. STANONIK: Oh, yeah. I mean, the first place I would go is just look at the safety standard which is ANSI Z.21-88, I believe, which is Vented Fireplace Heaters. I think they probably have at least a workable definition in there. MS. ARMSTRONG: Okay. Thank you. MR. BROOKMAN: Tom, go ahead. MR. STROUD: I guess my position or our position is that we don’t have a problem working on an efficiency standard for that fireplace, but I don’t think it needs to be grouped together in the same category as a furnace, you know, and I guess perhaps**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 3 7

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 what I’d advocate for is having separate efficiency standards for that kind of a product because it’s never going to get to the point where it’s 90-92-94 percent. It’s not going to happen in that product. MR. BROOKMAN: Okay. Frank Stanonik. MR. STANONIK: I have a question for Ashley and I really feel bad because I haven’t read the whole TSD yet and so I may be asking things that are already there. But you mentioned that you’ve identified eight manufacturers of direct heating equipment. Are those manufacturers identified some place in the TSD information? MS. ARMSTRONG: They are. They’re in Chapter 3. MR. STANONIK: Okay. MS. ARMSTRONG: And that includes fireplace manufacturers. MR. STANONIK: Okay. MR. BROOKMAN: So, Ashley, do you have any additional cues for our group? MS. ARMSTRONG: I think that sums it up, unless anyone has anything else to say. MR. BROOKMAN: Andrew deLaski. MR. deLASKI: Doug, I have a question on a**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 3 8

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 slide that’s not directly on the point raised here but one of the previous slides. Is now the time? MR. BROOKMAN: Please. MR. deLASKI: In your Market Characteristics for the Water Heater Market, -- MR. BROOKMAN: Slide 12. MR. deLASKI: -- there are several manufacturing facilities located overseas for storage water heaters. Are those manufacturer facilities in North America or are they truly overseas? Are they North American facilities or are they somewhere else? MS. ARMSTRONG: I think they’re both. MR. deLASKI: Both. And they manufacture for the U.S. domestic market? MS. ARMSTRONG: Correct. MR. deLASKI: Okay. MS. ARMSTRONG: And Chapter 3 has additional information about that, too. MR. deLASKI: Okay. Great. Thanks. MR. BROOKMAN: Okay. Yes, Alex. Please use the microphone. DR. LEKOV: Alex Lekov, Lawrence Berkeley National Laboratory, and just to add to the discussion about the decorationization of the fireplaces, the**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 3 9

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 reasons DOE did it this way is because AHRI’s Directory of Certified Products essentially separates the products into the room heater category and wall furnace category. About 20 percent of the fireplace models are in the wall furnace category. This led the entire analysis to account for this particular fraction. MR. BROOKMAN: Okay. Thank you. MS. ARMSTRONG: Okay. Okay. So the next issue I’d like to request is the Product Class Organization for Direct Heating Equipment. So DOE specifically analyzed the relationship between annual fuel utilization efficiency and the input rating for direct heating equipment by reviewing AHRI’s Directory as well as the available product literature which has efficiency information in it for gas wall fan-type direct heating equipment. DOE found that the market data kind of shows two trends. For lower-efficiency products, those with efficiencies ranging between 73 and 77 percent, DOE found that the market data generally shows an increasing efficiency with increased capacity trends, and for high-efficiency products, those with efficiencies greater than 78 percent AFUE, DOE found the opposite trend. For gas wall gravity-type direct heating**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 4 0

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 equipment, DOE found that manufacturers are not currently producing product over the full range of efficiencies. For gas floor-type direct heating equipment, DOE found that the directory only lists 23 models. Seventy-five percent of them have an input rating above 37,000 BTUs per hour and they also have an AFUE that corresponds with the AFUE requirements of the current standard for the higher-capacity equipment and DOE believes that some of this information suggests that this existing product class could actually be consolidated into one, and for the last one, for gas room-type direct heating equipment, the market data shows the general trend of increasing AFUE with input capacity, and DOE believes that some input capacity ranges could possibly be consolidated, and this is something we discussed at the Framework meeting. So you can see on the next slide DOE has proposed to reduce the number of equipment classes for direct heating equipment. There’s currently 16 as established by NAECA. This would take it down to 10. They would still be distinguished by heating capacity but some of the intermediate capacities got lumped into

one. So we request your comments specifically on the consolidation of the direct heating equipment**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 4 1

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 product classes. MR. BROOKMAN: Yes, Lance. MR. DeLAURA: This is Lance DeLaura. I have a question about -- and this pertains not only to the direct heating equipment but also to water heating when we get there. MS. ARMSTRONG: Sure. MR. DeLAURA: In our area we have a unique situation with the South Coast Air Quality Management District, both in the L.A. and Riverside Counties, and also Orange County, as well, but now it’s moving down into the San Diego Area. I just got notice that they’re going to be adopting very similar air quality regulations to that of the SCAQMD. So my question is, as you’re assessing this, and I realize it’s a regional issue, are you considering those additional costs that would be necessary for equipment to comply in those areas? MS. ARMSTRONG: I’m guessing you’re talking about the super-ultra-low NOX -- MR. DeLAURA: Yes. MS. ARMSTRONG: -- requirements, right? Okay. So at this point in time DOE has lumped them all together in one product class. In order for DOE to**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 4 2

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 separate them out, you would have to make the argument that there’s some performance-related feature with respect to those type of products which would cause them or which would warrant them to be considered differently than, say, a regular water heater that would be shipped to all the rest of the regions for direct heating equipment. MR. DeLAURA: I don’t think it’s a performance issue. I think it’s a cost issue. MS. ARMSTRONG: Okay. MR. DeLAURA: The cost for the water heaters alone in Southern California is dramatically higher. We have manufacturers in here that can verify that. I see heads bobbing. It will be similar in terms of the cost increase. It’s a different product, different burners, different product for that type of equipment. MS. ARMSTRONG: Okay. MR. BROOKMAN: I see Mike Rivest wishes to comment. MR. RIVEST: Mike Rivest. I think what would drive the analysis would be if the incremental costs were different. So if the base costs are higher but the cost to achieve the efficiency are no different, then it wouldn’t warrant the separate product class. So that would be the investigation and the decisions to**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 4 3

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 be made. MS. ARMSTRONG: Exactly. MR. BROOKMAN: So those comments, those specific comments surrounding that incremental cost would be especially helpful to the department. Yes, Frank Stanonik. MR. STANONIK: I’m Frank Stanonik. To answer the question that Ashley asked, we certainly agree with the concept of trying to whittle down these number of input categories. You know, whether you’ve captured it or not, we’re still looking at that and discussing it with our manufacturer members, but we certainly think that this is a situation where we can reduce the number of input categories and correspondingly different efficiency levels for this type of product. MR. BROOKMAN: Thank you. MR. STANONIK: We agree with that idea. MS. ARMSTRONG: Okay. MR. BROOKMAN: Other comments on consolidation of product classes, taking them down to 10? (No response.) MR. BROOKMAN: Okay. MS. ARMSTRONG: Okay. The next industry I’m going to speak about is the pool heater industry.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 4 4

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 DOE identified five manufacturers of pool heaters. All the manufacturers were domestically-owned and operated. The majority of the products were shipped domestically, as well, and DOE estimated that there was approximately 300,000 pool heaters shipped in 2007. The only product class DOE is considering for this rulemaking is gas-fired residential pool heaters. At the Framework meeting, we discussed possibly the idea of having an input capacity range to distinguish what is a residential gas-fired water heater -- I mean gas-fired pool heater. We did not, for the purposes of the Preliminary Analysis, establish an input capacity range. That is because EPCA did not specifically establish an input capacity limit for determining scope of coverage for residential pool heaters. EPCA does, however, define the idea of a consumer product and that is any article which, to any significant extent, is distributed in commerce for personal use or consumption by individuals. So manufacturers should consider pool heaters intended for residential use, i.e., those marketed foruse in a residence, as covered by the residential gasfired pool heater energy consumption standards,**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 4 5

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 regardless of input capacity. So we also received a question regarding spa heaters. Spa heaters are not a separate product class. Section 321 of EPCA does define a pool heater as being capable of heating water in swimming pools, spas, hot tubs or similar applications, as spa heaters perform similar functions as pool heaters and they are included in the pool heater definition. DOE did not include electric equivalent, i.e., heat pump pool heaters, in this rulemaking. So the next -- sorry. MR. BROOKMAN: Let’s just pause here. Yes, is it Robert? Say your name, Robert. MR. GLASS: Robert Glass, Raypak. I just wanted to make a comment concerning DOE’s not considering the electric heaters for spas in that the majority of the spas and hot tubs that are manufactured are actually manufactured with electric heaters that are built into them. So there’s actually a very small amount of gas spa heaters that are manufactured and sold and distributed in North America. MR. BROOKMAN: Thank you. Okay. MS. ARMSTRONG: Okay. So the next rulemaking analysis I’m going to speak about is the Technology**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 4 6

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Assessment. DOE reviewed the old TSDs from previous rulemakings, literature regarding the markets, product tear -- we tore down products of available equipment on the market, and we gathered input from interested parties to develop a list of technologies for each of the products in the rulemaking, as well as the technologies actually described in Chapter 3 of the TSD because of the long list of technologies and the number of products in this rulemaking, I’m not going to go through each of them. However, one I’m going to highlight is add-on heat pump water heaters. Add-on heat pump water heaters were not considered in this rulemaking. Anadd-on heat pump water heater is defined as an air-towater heat pump designed for use with a storage-type water heater or storage tank that is not specified or supplied by the manufacturer. So for add-on heat pump water heaters that are not considered water heaters from the actual point of manufacturer, they are field-installed and added on to an existing storage-type water heater which is purchased separately. Add-on water heaters cannot function as a water heater until they are coupled with a storage**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 4 7

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 tank, thus DOE did not consider them in this rulemaking. DOE believes that they do not meet the definition of a water heater from the point of manufacture. MR. BROOKMAN: Don Brundage. MR. BRUNDAGE: Don Brundage, South Company. Not including them raises another issue which hasn’t really, I don’t think, been very valid before. If you have an add-on heat pump water heater, this could be added to a water tank which does not have any elements associated with it. Is there any regulation on a water storage tank as far as insulation levels on it? If not, you potentially would have a situation with heat pump water heaters or if you were to stick a very high standard on electric water heaters where someone could get a poorly-insulated tank and after-market add elements to it and bypass the rulemaking. I’m just asking is there any regulation on a water -- on a residential-type water storage tank at this time? MR. BROOKMAN: A stand-alone storage tank. MS. ARMSTRONG: Well, there’s standards for them, correct? So like the purpose of this rulemaking**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 4 8

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 is to consider amended standards for all types of storage tanks. So any of the ones that would be coupled with them would have to meet the existing and then future standards. MR. BRUNDAGE: Well, that was my question. I haven’t seen any standards on insulation levels for a tank. MR. BROOKMAN: Just a stand-alone tank. MR. BRUNDAGE: Just a stand-alone tank. MS. ARMSTRONG: Oh, a separate tank. MR. BROOKMAN: Yeah. Not connected -- MS. ARMSTRONG: Just a separate tank. MR. BROOKMAN: Not characterized or classified as a water heater. Harvey Sachs. MS. ARMSTRONG: I see what you’re saying. DR. SACHS: Harvey Sachs, ACEEE. MR. BROOKMAN: Harvey, pardon me. So what would be the utility in doing that? Just to circumvent the rule? MR. BRUNDAGE: I’m just concerned about possible circumventing the rule because these add-on heat pump water heaters would be not covered under this rulemaking. So what sort of tank are they going to put them into?**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 4 9

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. BROOKMAN: Yeah. But what would be the utility and the application? MR. BRUNDAGE: Well, I was thinking more in terms of if you go to some of these extreme things with like four-inch tank insulation, what happens if someone just gets a tank and adds some elements to it? MR. BROOKMAN: Okay. Harvey, thank you for being patient. DR. SACHS: Thank you. Harvey Sachs, ACEEE. A couple of comments, one of them with respect to Don Brundage’s question. Part of the very impressive accomplishments of this industry is the very low cost of the resistant electric water heater and I suspect the challenge of do-it-yourself would be very much like the challenge of trying to build your Chevrolet from the parts bin. That would be extremely expensive. The broader comment is that this discussion of the add-on water heater brings to mind the conversation last week in this room on walk-in coolers where it seemed to be a general consensus emerging that if a contractor were to buy from manufacturer A the structure for a walk-in cooler and from manufacturer B the refrigeration engine for that, that contractor would be the manufacturer under the definition of the**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 5 0

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 law. So that in fact, one could argue that the add-on heat pump water heater is a manufactured product but regulation would de facto fall to the local code officials because the manufacturer would be the person who assembled that add-on unit to a tank supplied by another vendor. So it’s not at all clear that under -- for the purposes of the law and this regulation that the add-on heat pump water heater, which is on the market, is not a covered product. MR. BROOKMAN: Or that anybody that assembled it would successfully circumvent. DR. SACHS: That whoever attempted to sell to an end user and, please, I’m not going to be guilty of committing law, would appear from the discussion last week to be under the terms of the law as interpreted by General Counsel last week to be in fact the manufacturer of that product for sale. MR. BROOKMAN: Let’s go to Frank first, then to Steve. MR. STANONIK: Frank Stanonik, AHRI. Just to answer Don’s question, while I don’t think there is a federal requirement for an unfired storage tank, there certainly is and has been an ASHRAE 90.1 requirement that specifies a maximum standby loss or a maximum --**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 5 1

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 minimum level of insulation for an unfired storage tank. I’m not sure everybody -- MS. ARMSTRONG: That’s true. MR. STANONIK: -- recognizes that, but in your situation, you know, you would start with an unfired storage tank and if you were in a state that did have some energy code that at least matched 90.1, as all the states are being encouraged to do, you’d at least have that regulation. MR. BROOKMAN: So, Ashley, say that again. We didn’t hear you. MS. ARMSTRONG: I’m pretty sure -- I could go back and check this, but, Frank, I’m pretty sure the unfired storage tank in 90.1-99 was subsequently adopted by DOE, the standby loss requirements, the commercial ones. MR. STANONIK: I’m sorry. Could you repeat that again? MS. ARMSTRONG: Sure. The ASHRAE requirements for unfired storage hot water tanks that fall under the ASHRAE preview were subsequently adopted by DOE. MR. STANONIK: They were? Okay. MS. ARMSTRONG: I think. I’m pretty sure. I can go back and doublecheck that for you after -- I**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 5 2

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 know there’s a standby loss requirement. MR. BROOKMAN: Steve Rosenstock. MR. ROSENSTOCK: Steve Rosenstock, EEI. To kind of follow on Harvey’s comments, one of the big questions of the walk-in cooler and freezer workshop last week was, you know, what percentage of these products are custom built in the field versus, you know, kind of -- I don’t want to say off-the-shelf but a manufactured product pretty much is standardized product. Again, if it was in the Technical Support Document, I think the more custom it is, I think the -- I would especially agree with the decision because it’s harder to make -- you know, if they’re literally building them in the field one by one, with certain base components but still just separate field conditions, I think it makes it almost impossible, it makes it very hard to make a standard, unless it’s, you know, regularly-manufactured product, you know, with production lines. Thank you. MR. BROOKMAN: So additional comments on this point before we proceed? Harvey Sachs. DR. SACHS: Harvey Sachs, ACEEE. I think it is a matter of general concern as the market develops**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 5 3

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 that certainly the Energy Star Product Classes do not include, to the best of my knowledge, the add-on water heater, but the development of the heat pump water heater under the umbrella -- market under the umbrella of Energy Star is likely to also induce additional activity for the add-on water heaters. It will be competing in the same product class as seen by the customer and do not have a referenceable standard for those is going to lead to some market inefficiencies that should be of concern to the department, to the manufacturers and to the efficiency advocates alike. Thank you. MR. BROOKMAN: Thank you. Okay. We’re going to proceed now. MS. ARMSTRONG: Okay. So the next analysis is the Screening Analysis. DOE uses four criteria in the Screening Analysis. They include technological feasibility, practicality to manufacture, install and service, and by that we mean is it practical to manufacture, install and service the entire market pursuant to the standard, the average impact on product utility and product availability, and whether there would be adverse impact on health and safety.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 5 4

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 So for the Screening Analysis for waterheaters, DOE applied the screening criteria to gasfired, oil-fired, electric storage and instantaneous water heaters. DOE was able to screen out 10 of the technologies and DOE selected 16 and I didn’t go through all of them but Chapter 4 has the complete details of those technologies for which DOE is considering and those technologies for which DOE is not. One important technology to note and where we would like your comment is integral heat pump water heaters. I’m going to present a couple of slides and then I’m going to turn it over to the floor for some discussion on heat pump water heaters. So DOE found approximately that there might be in the future 10,000 shipments per year, less than one percent of the storage water heater market. DOE recently announced an incentive program for heat pump water heaters. That’s the Energy Star Program. The requirements include an energy factor of two for a star rating of 50 and warranty requirements. DOE wanted to point out that some major manufacturers have released product announcements for heat pump water heaters, including GE. DOE reviewed some more recent studies since the 2001 previous**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 5 5

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 rulemaking regarding the reliability of heat pump water heaters. That includes the Oak Ridge National Lab study, the California Energy Commission study, and where they actually tested some of the heat pump water heater components and units that were previously available on the market. So to key up the discussion, DOE invites comments as to whether heat pump water heaters are practical to install. What we mean by that is can heat pump water heaters replace the existing installations of all electric-type equivalents? Are there any air flow requirements that would impede them from going into certain spaces? Are there any impacts on small residences? Just to name a few. DOE also seeks comments on whether heat pump water heaters would be practical to service and whether they are reliable. Could you service the entire market for heat pump water heaters by the time an amended standard is promulgated? That would be in 2015. The next one would be DOE invites comments on whether heat pump water heaters are practical to manufacture. Would manufacturers have time to turn over all their production lines to meet the demand of the market by the effective date of the standard? DOE would like to begin a discussion of all**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 5 6

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 these issues with respect to integral heat pump water heaters. MR. BROOKMAN: Four different issues. Installation, service, reliability and practicality for manufacturer. Let’s see if we can address them all. Harvey Sachs. DR. SACHS: Harvey Sachs, ACEEE. I’d like to begin with a question with respect to Slide 28. The statement is Bullet 1, “Approximately 10,000 per year, less than one percent,” which I think we would all agree is characteristic of today’s market. Is that the department’s estimate which is what I thought I heard you saying of what sales would be -- MS. ARMSTRONG: No. DR. SACHS: -- at some point in the Energy Star Program? MS. ARMSTRONG: And if I did say that, I messed up. Alex can talk about this later in the Shipments Analysis, but so far as the DOE projections of how heat pump water heaters and how that market might grow as the Energy Star Program comes, you know, more into the market, but I think that Alex will touch on that later in the Shipments Analysis, if that’s okay with you.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 5 7

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. BROOKMAN: This 10,000 per year, what is that? MS. ARMSTRONG: Currently. MR. BROOKMAN: Current. Okay. So four items that the department requested comment on. Maybe we’re not quite to it yet. Yes, Andrew. MR. deLASKI: Andrew deLaski, Appliance Standards Awareness Project. Ashley, I guess I want to question the premise of your question. You have set up your question saying can this be done by 2015 and as Tim outlined in his opening remarks, the 2015 date is an arbitrary date. The law says that this standard must be set by 2005 or should be effective in 2005 which has gone by, the last I checked. The department is obligated to use time as a variable in determining the proper standard, the standard that meets the criteria in the statute of seven criteria that you laid out earlier, economically justified, technically feasible. So the reason why I say your question is misframed is that if it had to be effective in a year, it can’t be done, but if it’s 2015, perhaps. If it’s**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 5 8

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 2020, it’s a different question. So the time frame -- so the question is, is it practical to make heat pump water heaters certainly is within some time frame and the question is what’s the cost to do so within a certain time frame, and I think the department is obligated to look at a range of implementation dates for all the standard levels to determine what is going to meet the statutory criteria. So we’re kind of going -- we’re picking 2015 or you picked 2015 in your question, but it has no basis in the law. So we need to be asking this question, I think, more with respect to can it be done within some time frame and if it can, then the department must analyze these higher levels. MR. BROOKMAN: Andrew, would you suggest a time frame, or Tim, since you included him in your comment? MR. deLASKI: I think the department should look at a range of time frames for each of the standard levels, starting with as short as perhaps 18 months and as long as perhaps seven or eight years. MR. BROOKMAN: Okay. Don, go ahead. MR. BRUNDAGE: Don Brundage, Southern Company. I find it kind of difficult to even address this question because it’s are they practical to**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 5 9

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 install, are they practical to service, are they reliable. When we were looking at the last round of water heaters and chose incremental gains in water heaters, the stuff the -- the products that were similar to what was going to be implemented were, for the most part, on the market. There were some issues with refrigerant foam and things like that that provided uncertainty, but there’s really not a product out there to compare against. It doesn’t exist yet for what would be mass produced and available in 2015. So that makes it very difficult to answer your questions here. MR. BROOKMAN: Nevertheless, the department would at least like to hear from manufacturers on what they perceive to be the practicality for installation, service, reliability and manufacturer, as well, whether it’s in 2010 or 2015. So maybe we could address that point. Steve, go ahead. MR. ROSENSTOCK: Steve Rosenstock, EEI. Again getting back to the Slide 28, again just to -- in terms of the way you’ve described it, the Energy Star, it’s not an incentive program. There’s no monetary issues involved with it whatsoever. It’s a criteria**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 6 0

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 that they’ve set to get a label, but there’s no financial incentive whatsoever. In terms of incentive, there’s a federal tax credit for heat pump water heaters and I believe the level is 1.7 for those tax credits. I’d have to doublecheck but again just -- MS. ARMSTRONG: Not for energy -- MR. ROSENSTOCK: What? MS. ARMSTRONG: It’s 2.0, right, Josh, for Energy Star? MR. ROSENSTOCK: I know, but I’m saying but for the federal -- MS. ARMSTRONG: For the federal tax credit. MR. ROSENSTOCK: For the federal tax credit which is an incentive program, -- MS. ARMSTRONG: They’re the same. MR. BROOKMAN: Okay. Thank you. Frank Stanonik. MR. STANONIK: Frank Stanonik, AHRI. A couple of points. First of all, just to state the obvious in case some of the new people aren’t aware of it, but we would certainly disagree with Andrew deLaski that DOE has some latitude in the five-year effective date. We have a very clear different view of what the law says and where DOE is in this process and we think**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 6 1

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 right now they’re obligated to provide five years. Having said that, obviously there will be more discussion about it. But on the issue of heat pump water heaters, well, the heat pump water heater has been held up as the Holy Grail to the water heater industry for 20+ years and it certainly is appropriate to ask these questions, but these questions have been asked and have been tried to be answered in that same time period. It’s a very complex situation and I think we need to recognize that we have in place certain things that perhaps weren’t there before, including and Energy Star Program, certainly a much greater recognition by all stakeholders about the need to save energy. I would hope to not reveal secrets, that probably every water heater manufacturer is looking at, you know, to what extent they can maintain a feasible business providing heat pump water heaters, if that can be done, but to, at this point in time, to really look at, you know, can we get to a situation where that might be a minimum requirement in five years or three years or whatever number years. Right now, I’m going to say is -- I’ll say that question should be taken off the table. Again, I’m going to go back to my prefacing remarks. The**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 6 2

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 water heater industry is in a very tight situation at the moment, as are American consumers. You know, who’s going to buy these much higher heat pump water heaters? Last time I checked I don’t think our members were on the list to get any bail-out money and so again, I mean, everyone recognizes that, you know, electric resistance water heaters, you can’t go much farther than you are and that product has to evolve and it’s legitimate to talk about perhaps helping the market evolve the product, but I don’t think we’re anywhere near a situation where one can talk about setting a minimum that would require a heat pump water heater. MR. BROOKMAN: Molly, can I ask you to defer for just a moment? So the department is issuing an invitation here for manufacturers to be rather specific, not speak in generalities, about what they would face in the manufacture of a heat pump water heater, about the practicalities related to installation, service, reliability and manufacture, all four, and then we will take the other side of that coin, since Frank framed that up just then. So would anybody wish to take the department up on their offer to do this? MR. BEYERLE: Sure. Mike Beyerle, GE.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 6 3

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. BROOKMAN: Thank you. MR. BEYERLE: We’ve obviously announced that we will be producing a heat pump water heater some time in the near future. The question’s a little bit rhetorical from our standpoint. Obviously we believe it’s practical to manufacture, install and service. We believe that there will be a great deal of consumer acceptance and this market will in the future be much larger than the 10,000 pieces that you’ve identified at the present time and we think it should be a minimum standard some time in the near future. I think that remains to be seen. The product is not out yet, but we expect it to do very, very well once it comes out. MR. BROOKMAN: Okay. And so all aspects of installation, service, reliability and manufacture, you noted all four. MR. BEYERLE: Right. GE Consumer and Industrial is in the appliance manufacturing business. We make over 10 million appliances a year. Obviously if our products were not reliable, we wouldn’t still be in business. If we couldn’t service them, we wouldn’t be in business. We have facilities to do both. MR. BROOKMAN: Thank you. Anybody else that**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 6 4

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 wishes to comment from the manufacturing side before we move to the counterpoint? (No response.) MR. BROOKMAN: No additional manufacturing input. Harvey Sachs. Oh, pardon me. I left Molly out. Molly, you’re first. MS. TROMBLEY-McCANN: Molly Trombley-McCann, PG&E. I wanted to direct a question back at Frank. You were saying that everybody is looking at heat pump water heaters as an option but that you don’t feel that in a five-year time frame it could be a practical minimum standard. I’m wondering what you think needs to happen in the interim time frame in order to advance water heaters to the point where they could become a minimum standard. What would you be looking for to make that happen? MR. BROOKMAN: Frank Stanonik. MR. STANONIK: Frank Stanonik, AHRI. At this point, realistically, patience. I think things have been put into the market, including other companies entering and providing the product, that in fact are changing circumstances that may actually, if you will, allow that product to take root, just as in the last whatever number of years we’ve seen residential**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 6 5

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 instantaneous tankless water heaters take root in the U.S. market. You know, there’s some analogies there and so I honestly think it’s just a question of letting some of the things, the structure that’s been put there, letting it mature a little bit and in fact see how the market responds, see how the American consumers respond to the availability of this higher-technology electric water heater that is reliable, that will give them the hot water they want and that will hold up. MR. BROOKMAN: Harvey Sachs. Microphone. DR. SACHS: Harvey Sachs, ACEEE. I guess my reputation for complimenting the department is not quite as well established as I would like, but I am concerned that the questions on Slides 30 and 31 really miss a very important opportunity, that when we look at historical record of failures, we’re looking at a very different class of market entrants from the class of market participants that has announced or has discussed heat pump water heaters today. We’re talking about the difference between laboratory-based applied R&D companies in some cases, commercial niche companies in some cases, versus major consumer appliance companies, as Mike Beyerle has stressed, companies that have an enormous stake**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 6 6 themselves in the reliability of their products, and an analysis which ignores that is bound to misrepresent the potential of the heat pump water heater. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 I’m also concerned that cost effectiveness has to be looked at several different ways, one of which is that the unit profits on a higher-cost product are likely to be greater even in a very competitive market than on a lower-priced product, that the heat pump water heater and the condensing water heater may be a good business even in this time of difficulty that we’re in now I want to say that consumer preference can be very strong. We have seen this in market studies where consumers showed a very sophisticated understanding of the values of very expensive heat pump water heaters and we have seen this in the consumer preferences exhibited for condensing furnaces and other high-priced products in another thought-to-be-commodity market. And finally, questions on 30 and 31 take a very different cast if the department avails itself of the opportunities to consider capacity-based classes of products, that, for example, the issues of air flow, small impacts on small residences, and so on, are very different for 50-gallon and above heat pump water heaters that produce much more hot water than they are**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 6 7

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 for 30-gallon and below, and we believe that the department will not adequately reflect the potential of the product classes without considering larger and smaller products as separate classes without committing to where that line should be at this point. MR. BROOKMAN: Okay. Thank you. So that other data you cited, Harvey, I know the department would welcome seeing that in great detail in your comments. That will help them. DR. SACHS: Harvey Sachs again. The results of our heat pump water heater and other water heater preferences study that was done in conjunction with the labeling program a number of years ago. MR. BROOKMAN: Thank you. So then other comments on this series of issues before we move on? Frank Stanonik. MR. STANONIK: Frank Stanonik with AHRI. First of all, I just want to certainly tell DOE that, to the extent we can because obviously, you know, this does get into some sensitive private information for the manufacturers, but to the extent we can, we will include in our written comments some responses to these questions. But I think you’ve also missed a question and again because we’ve seen it come up with the tankless,**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 6 8

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 residential tankless gas-fired water heaters, I think if we go forward here and really look at heat pump water heaters being part of the American water heater market, there may be a need to look at the question of, okay, how do they perform in use versus what the test procedure says and I say that without having really any prejudice or knowledge to suggest, you know, how that -- which way that goes, but obviously if -- I can tell you that the test procedure -- pretty much that heat pump is always doing the work, is doing the heating, and if we know anything, when you look at residential hot water use patterns, they’re all over, and so there might be an issue of in the real use to what extent is the heated water coming from the heat pump as opposed to some back-up. I mean that’s the question. I don’t know what the answer is. MR. BROOKMAN: Okay. Thank you. Yes. MR. BEYERLE: Mike Beyerle, GE. Along those lines as part of our product development, we obviously have product in the field. We’d be glad to supply the department with some of our data concerning field usage of product and give you some information to work off of. MR. BROOKMAN: Thank you. Very helpful from**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 6 9

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the department’s point of view and other manufacturers, as well, if they’re willing to do so. Okay. So then let’s go. Move on. MS. ARMSTRONG: Okay. The next industry we’re going to speak about is Direct Heating Equipment and Pool Heaters. We applied the same four screening criteria. For direct heating equipment, we screened on 13 technologies. For pool heaters, we screened on five, and like I said previously, Chapter 4 has all the details of the screening criteria and the discussion of those for which we screened in and screened out. The next analysis we’re going to speak about is the Engineering and I’m actually going to pass the presentation to one of my colleagues, who’s going to give you all the details about our Engineering Analysis. MR. BROOKMAN: Yes, Frank Stanonik. MR. STANONIK: Frank Stanonik, AHRI. Ashley, just one comment on your Screening Analysis for Direct Heating Equipment and it’s more of a caution. One of the product categories is a gravity wall furnace. At least as far as we had looked at the Technical Support Document, we would just caution that in the analysis, don’t add too many devices to a**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 7 0

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 gravity wall furnace that require electrical energy because in fact at some point you’re going to make it be a fan-type wall furnace. You’re going to basically take it out of the category. MS. ARMSTRONG: Yeah. And Matt is going to speak about what efficiency levels we exactly -- we did an efficiency level approach, so which efficiency levels we did consider and then just as a reference point for clarity what technologies are included in those efficiency levels. MR. STANONIK: Okay. MS. ARMSTRONG: Thank you. MR. O’HARE: Hello. My name is Matt O’Hare, and I’m going to discuss the Preliminary Engineering Analysis results conducted for the Residential Heating Products Rulemaking. The Engineering Analysis results develops the cost-efficiency relationship to demonstrate the incremental manufacture cost of achieving increased energy efficiency. The results of the Engineering Analysis are used downstream in the Life-Cycle Costs, the National Impacts, and the Manufacturing Impacts Analyses. So, first, I’d like to talk about the representative products. For analysis purposes, DOE**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 7 1

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 examined products with specific characteristics. Since the energy efficiency can vary depending on the characteristics of those products, DOE refers to these as the representative products. For example, DOE examined a specific rate of storage volume for storage water heaters since the heat losses from the tank and ultimately the energy factor are a function of the storage volume. DOE identified these representative products in order to facilitate the Engineering Analysis because each of our product classes covers a range of storage volumes and input capacities. DOE determined the representative products by reviewing publicly-available data, including the AHRI Directory and Shipments data. DOE based representative products on those models with the highest number of shipments within each product class. DOE conducted the Engineering Analysis with representative products and then expanded that analysis to the entire range of products within each product class. Here are the representative products that DOE identified for the Engineering Analysis for each of the product classes that were analyzed in today’s rulemaking.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 7 2

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. BROOKMAN: Let’s just pause here. Comments on these representative product classes? Should there be any? (No response.) MR. BROOKMAN: Okay. MR. O'HARE: All right. The first step in developing the cost-efficiency curves is to identify the baseline products. The baseline unit is the reference point against which DOE measures the changes in the manufacture and production costs and energy efficiencies. For the baseline unit, each product class represents the basic characteristics of the products in that class, and the baseline efficiency levels typically correspond to the lowest energy efficiency level that is available on the market and which in this case is the current Federal Energy Conservation Standards for each of the product classes. The baseline efficiency levels for this analysis correspond to the current Federal Energy Conservation Standards that were previously identified for each product class. All right. So next, DOE identified the maximum technologies available for each product class at the time this analysis was completed. The maximum**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 7 3

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 technologies, or Max-Tech, for a given product class, the maximum improvement in energy efficiency that is technologically feasible. DOE reviewed manufacturer product literature and prototype information to determine the maximum technologies for each product class. The Max-Tech efficiency levels for each product class are shown here and similar to the baseline units, these correspond to the representative products within each product class. Okay. So next, DOE used an efficiency level approach to develop the cost-efficiency curves. The efficiency level approach calculates the relative cost of increasing energy efficiency from one level to the next. DOE conducted tear-downs of representative products at a variety of efficiency levels from a variety of different manufacturers. This information was added to the cost model to calculate our manufacturer production costs. The cost model generated product costs which are direct costs, such as direct material and labor costs, as well as non-production costs or conversion costs which are indirect costs, such as building, tooling, and equipment costs. These production costs and conversion costs**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 7 4

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 total the full cost of production which we refer to as the manufacturer’s selling price after a profit is added. DOE also received feedback from manufacturers during the engineering interviews and implemented this feedback in the cost model to generate today’s results. MR. BROOKMAN: Frank Stanonik. MR. STANONIK: Frank Stanonik, AHRI. Matt, I’m sorry, I’m going to take you back one slide. MR. O'HARE: Yes. MR. STANONIK: The .77 EF, was that for a 40- gallon gas product that had an input less than 75,000 BTU? MR. O'HARE: DOE identified that the condensing gas-fired water heater that is available in the market is at an input capacity that is slightly above that input range that’s specified -- MR. STANONIK: So -- MR. O'HARE: -- for residential products, but for the cost model, we scaled down a product within that range. MR. STANONIK: So, in a sense, it’s a projected EF? MR. O'HARE: Yes, we used the cost model to scale that.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 7 5

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. STANONIK: Okay. MR. BROOKMAN: Harvey Sachs. DR. SACHS: Harvey Sachs, ACEEE. I guess I’m a little bit puzzled that the Max-Tech level considered by DOE for standards is lower than the Max-Tech level, if I recall correctly, in the Energy Star Program for the equivalent condensing storage water heater category which I believe is set at .8 and may be at .82. So I don’t know if you all have met each other in terms of the two sides of DOE but it is curious. MR. BROOKMAN: Ashley Armstrong. Microphone, please. Is probably is not on. MS. ARMSTRONG: Is that it? So for the condensing gas-fired water heaters, the ones currently on the market are tested with a thermal efficiency because they have the input rating just above the residential limit. DOE reviewed several studies which found a range of EFs and then we also gathered feedback during our engineering interviews. We heard ranges, you know, between .77 all the way up to .82. Actually, we heard ranges below .77, too. So, Harvey, we picked the number to be representative of that product class because there’s**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 7 6

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 not a gas-fired residential product that’s certified with an EF rating. DR. SACHS: I appreciate that -- Harvey Sachs again. I appreciate that, Ashley, and it’s very helpful, but it will bias the results of the analysis to have a roughly five percent lower EF representation which corresponds to less gas use avoided and it is a matter of concern that we would see such divergence between the Energy Star Program of DOE and the rulemaking analysis of DOE. Thank you. MR. BROOKMAN: Thank you. Additional comments in this vein? Otherwise, we’re going to go forward. Yes, to Robert. MR. GLASS: Robert Glass, Raypak. I’ve got a question, Matt, with the product tear-down analysis. In the document, it identifies the total number of products that were identified, but because we’re looking at water heaters, direct heating, and pool heaters, is there a breakdown of how many of those 39 units or 36 units that were done in each of those different classifications, just from water heating, direct heating, and pool heating? MR. O'HARE: I don’t have that information in front of me right now.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 7 7

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MS. ARMSTRONG: And that’s not something we would follow separately. This is Ashley again. MR. BROOKMAN: Ashley, you need to stick your

-- MS. ARMSTRONG: I’ve got a microphone in front of me. MR. BROOKMAN: Yeah. MS. ARMSTRONG: So I can tell you -- MR. BROOKMAN: You’ve got to -- MS. ARMSTRONG: -- products from all three industries, I can tell you there’s a range of efficiencies and a full range of manufacturers, but we don’t distinguish exactly which ones those are and how many are -- it was a good amount. MR. GLASS: Well, I don’t think -- Robert Glass with Raypak. I don’t think it’s too much to ask just how many units were torn down because that has a bearing on what is the effect of analysis that has been done. So, I mean, if in pool heaters, if there were six, then you ought to be able to say six. If there was two, you ought to be able to say two. We’re not asking for any type of clarification on what models, what efficiencies or anything else. MS. ARMSTRONG: I’ll get back to you. I**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 7 8

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 don’t know the number off the top of my head, but I can find the number. MR. BROOKMAN: Do we have them here? MS. ARMSTRONG: We might be able to get them for you. MR. BROOKMAN: So maybe after the break, we can have that information. Let me see. George. MR. KUSTERER: George Kusterer, Bock Water Heaters. Can I then assume, which I shouldn’t really do, the baseline efficiency for the gas-fired waterheater, that was a standard atmospheric non-condensingtype unit? MR. O'HARE: Yes. MR. KUSTERER: At .59? MR. O'HARE: Yes. MR. KUSTERER: And then the .77, that was a condensing-type water heater? MR. O'HARE: Yes. MR. KUSTERER: Thank you. MR. O'HARE: And we’ll go over some of those specifics. MR. BROOKMAN: Other questions about these three matrices, 36, 37, 38, before we move on to the further description of the efficiency level approach?**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 7 9

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Tom. MR. STROUD: Well, I’d like to ask Frank Stanonik a question to see if he can respond to this any better than I. Is it realistic that a fan unit, gas wall fan direct, would be 10 percent higher than a gas wall gravity? What I’ve heard in the past is that there are not those kind of differences in efficiency, but maybe we’ll have to deal with that separately. MR. STANONIK: Frank Stanonik, AHRI. I mean, the baseline levels are the current federal minimum. MR. STROUD: Okay. MR. STANONIK: So to the extent those products, they’re out there. MR. STROUD: Okay. MR. BROOKMAN: Okay. MR. O'HARE: Okay. I think we’re on Slide 40 now. This is Matt O’Hare. DOE conducted the efficiency level approach to the Engineering Analysis by first analyzing the representative products within each product class. DOE then expanded the analysis to the full range of products within each product class using the cost model and the cost model was expanded using inputs that include information on market data technologies that**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 8 0

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 DOE identified as well as input from manufacturers. Now, I’d like to present the methodology that DOE used to generate the inputs for the cost model, the bill of materials used for the cost model, then ultimately the manufacturer production costs were developed using reverse engineering, representative units were selected and torn down to generate a bill of materials, and the bill of materials included both raw materials and purchase parts. The cost model then captures the cost of raw materials and those purchase parts as well as any fabrication processes and final assembly that was required to create the final product. All right. Then, lastly, DOE developed the cost efficiency results. DOE first defined the baseline unit specifications which include cost and the features that manufacturers typically include in those units. Next, DOE identified the maximum technologies available as well as common efficiency levels between the baseline and the Max-Tech. Next, DOE conducted tear-downs for a variety of efficiency levels and used that information in the cost model to generate manufacture production costs, and then, finally, DOE calculated the manufacturer production costs for all**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 8 1

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the efficiency levels being considered. MR. BROOKMAN: Harvey Sachs. DR. SACHS: Harvey Sachs from ACEEE. I guess I have some concerns about Slides 34, 41, and 42. The department has been presenting this reverse engineering and cost-efficiency curve development information over a period of many of these rulemakings over a period of decades. We’ve certainly seen indications of great efforts to improve the methodology for doing the tear-downs, for doing the cost-efficiency curve development, and yet we have a very strong sense that in essentially every case the department has significantly over-estimated the cost to the consumer of compliance with the next generation of standards. This is almost a unique opportunity in that we’re dealing with both very mature technologies, for example tank installation, gas burners, and with a variety of things which have enormous potential for learning curve improvements. We think it’s time for the department to sit back and review on its own for the public record the history of the success and shortfalls in its estimates of projecting costs for efficiency as actually delivered in the standards. That work must be done**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 8 2

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 with due respect to what Mr. Kusterer has pointed out, the near-term changes in commodity prices which have affected so many products over the last four years or so, but let’s do a sanity check. Let’s see how well we have done and how much credence we should give to the third decimal estimates that we’re getting from this process. Thank you. MR. BROOKMAN: Thank you. Don Brundage. MR. BRUNDAGE: Don Brundage. Quick note on that. In the case of the air conditioning rulemaking, I would not agree with that. The air conditioning rulemaking for CR-13 was done at a time of depressed commodity prices and if you look on the market when it actually was implemented, the prices were substantially higher in real life than what the DOE had projected. So often they’re lower, not always. MR. BROOKMAN: Harvey Sachs. DR. SACHS: Harvey Sachs. Point very well taken, Don. We’ve done a little bit of work, not at the level of sophistication we would expect of the department, to try to look at the effects of commodity price changes, and we certainly are asking that that be done as a variable the department could not have**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 8 3

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 forecast. We absolutely agree that there were a variety of things which led there, but let’s stay on water heaters and I’d be happy to share our information with you later on air conditioners. MR. BRUNDAGE: In general, I think an approach like a long-term, maybe five-year, rolling average of commodity prices might be better than trying to take the snapshot at the time of the rulemaking. MR. BROOKMAN: Okay. Thank you, Don. Okay. Yes, Constantin. MR. von WENTZEL: Constantin von Wentzel, Navigant Consulting. We actually do use five-year averages for the raw material prices going into the cost model. MR. BROOKMAN: Yes, please, Karen. MS. MEYERS: This is Karen Meyers with Rheem, and I just want to say for the record that Rheem does agree with the comment made by Don. In the case of the air conditioning rulemaking, it was devastating to the industry and a lot of domestic manufacturing, and we urge the department to be very careful in estimating the cost to the consumer. It cost a lot of manufacturing jobs when we get it wrong and it’s been devastating for this**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 8 4

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 industry and as the water heater rule affects us, also, we ask that a lot of diligence be put into this because we don’t want another rulemaking to cost even more U.S. manufacturing jobs. MR. BROOKMAN: Thank you. Frank Stanonik. MR. STANONIK: Frank Stanonik with AHRI, and, you know, in general, I certainly would agree with Harvey because, you know, obviously we’re a strong believer in having the best information we can have, but I think -- and this is a little bit off the topic and I apologize for that, but I think what needs to be recognized here, just because to me, it’s become -- the light’s go on, is the installed cost -- I mean, we’re talking about the manufactured cost and the price of this commodity, okay, and yet when the SEGWHAI project out in California was going, they did some, at least what I understand to be, fairly good surveying and the average installed cost of a garden-variety gas water heater was approaching a thousand dollars. Now, you can talk about whether this product costs $200 or $250 or whatever, but when the installed -- the cost of the installation is factors more than the commodity, you know, I’m not sure we’re looking at the right part of the equation anymore or, more importantly perhaps, and again I’m all for having**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 8 5

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 better information, but if we have better information on that, how does that look in the bigger picture of what that consumer pays at the end of the day when they’re paying the hopefully qualified technician two or three times more than what they bought the product for to put it in. MR. BROOKMAN: Okay. Thank you. We’re going to keep going here. MR. O'HARE: Okay. MR. BROOKMAN: Did they address, Matt, the slides you wanted them to address? MR. O'HARE: I think so, yes. MR. BROOKMAN: Okay. MR. O'HARE: Okay. So the next three slides are a summary of the Engineering Analysis results for gas-fired, oil-fired and electric storage water heaters. I’m going to briefly go through these results and additional details can be found in Chapter 5 of the Preliminary Technical Support Document and first presented here is the Engineering Analysis results for gas-fired storage water heaters at the representative rated storage volume of 40 gallons. MR. BROOKMAN: Yes, Alex. DR. LEKOV: Alex Lekov, Lawrence Berkeley**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 8 6

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 National Laboratory. I’d just like to use the opportunity to go back to the slide for gas-fired storage water heaters, to supplement the information the department provided about the selection of the condensing level at .77. MR. BROOKMAN: Which slide are you on? DR. LEKOV: I’m on Slide 43. MR. BROOKMAN: Okay. Thank you. DR. LEKOV: And we’re looking at the Max-Tech level. So there are no residential products internal condensing water heaters. The department utilized two studies, one from GPI and one from California Energy Commission. In one of the studies, the folks who did the study converted thermal efficiency matrix to energy factor and it was reported at .77. Therefore, the department selected this level as the only available currently as the measure. MR. BROOKMAN: Thank you, Alex. Okay. Let’s hear from this gentleman. First, your name.MR. GAUTHIER: Phil Gauthier, AHRI. The MaxTech product for .77 is an interpolation from a commercial product. Did this -- my question is did this price analysis include the flammable vapor ignition resistance requirements for residential**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 8 7

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 products? MR. O'HARE: Yes, we included that. MR. GAUTHIER: Okay. MR. BROOKMAN: Don Brundage. MR. BRUNDAGE: I’m curious on the proposed efficiency levels on gas equipment, why, when on Standard Level 3, when you added electronic ignition, the power vent was added there. It was not my understanding you really were required to do a power vent if you did electronic ignition. MR. O'HARE: Because DOE used an efficiency level approach to this analysis, these are the efficiency levels that we identified as the most prevalent on the market and then they’re associated manufacture production costs and these are just the technologies that DOE identified that are typically included by the manufacturers and the incremental increase in the manufacturer production costs isn’t tied directly to any one particular technology here. So this is the total cost of manufacture at each of these efficiency levels. MR. BRUNDAGE: So you would look separately at things like electronic ignition versus power vent? MR. von WENTZEL: Constantin von Wentzel,**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 8 8

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Navigant Consulting. We certainly priced them out separately, if that’s what your question is. MR. BRUNDAGE: Okay. MR. BROOKMAN: Okay. Harvey Sachs. DR. SACHS: Harvey Sachs, ACEEE. What’s conspicuously lacking here, even admitting that this is an engineering efficiency level analysis, is the option of doing a pair of flue and vent dampers as opposed to a power vent, and in part that doesn’t show well because of the implied defect in the test method that doesn’t account for the value of the entrained bypass air, but in part this is an alternative technology path that may have much lower costs than the power vent and it actually also may have much less entrained air cost than the large amounts of air associated with the power vent and its need to reduce the exhaust temperature down to the level PVC can handle. MR. BROOKMAN: Okay. Thank you, Harvey. So additional comments on 43 since we’re there before we present 44 and 45? MR. KUSTERER: Yes. MR. BROOKMAN: Yes, please, George. MR. KUSTERER: George Kusterer, Bock Water Heaters. Just to add on to Mr. Sachs’s comment, I**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 8 9

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 don’t know if it’s an add-on, but I’m somewhat confused. With Level 3, Level 4 and Level 5, you’reclassifying a power vent that’s a power fan-assistedtype device or are you saying this is a vent damper? A power vent or a vent damper are two different things.So this is a fan-assisted, the power vent is a fanassisted-type device? MR. von WENTZEL: It’s a power vent. It’s a fan-assisted device. MR. KUSTERER: Okay. MR. BROOKMAN: Thanks, Constantin. Okay. MR. O'HARE: Okay. Here are the Engineering Analysis results for oil-fired storage water heaters at the representative-rated storage volume of 30 gallons and here are the Engineering Analysis results forelectric storage water heaters at the representativerated storage volume of 50 gallons. For this next part of the analysis, I’d like to go through the next six slides and then open the floor for discussion. As part of the Engineering -- yes? MR. BROOKMAN: Let’s pause for these, 44 and 45, before we move on. Frank. MR. STANONIK: Frank Stanonik with AHRI.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 9 0

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Harvey’s always forever pushing buttons. (Laughter.) MR. STANONIK: Frank Stanonik, AHRI. MR. BROOKMAN: Let’s see if I can remember that one. MR. STANONIK: On the Engineering Analysis for electric storage water heaters, I guess I’m curious as to the analysis shows some benefits, some value in going from three inches to four inches of foam insulation. First of all, we all recognize that the insulation has diminishing returns as you increase in the thickness, but more importantly, certainly our experience and the manufacturers’ experience doing their own tests as well as the ones we do in ourcertification program is that I guess I’d be hardpressed to actually see real tests or have seen real tests where you went from three to four and you saw some change in the energy factor without other design changes to that water heater, in fact to a limit -- to eliminate many of the thermal short-circuits. I just don’t think that adding one inch of foam and leaving everything else alone on that water heater a this level, three to four, is necessarily going to get you a point of energy factor in the real**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 9 1

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 world. MR. BROOKMAN: Steve Rosenstock. MR. ROSENSTOCK: Steve Rosenstock, EEI. In terms of these .95 water heaters, I know they’re out in the market because I have one and I was just wondering, do they all have four inches of foam insulation? MR. O'HARE: We identified this -- Ashley? MR. BROOKMAN: Ashley. MS. ARMSTRONG: Frank, to your first comment about the one inch of insulation and its return, so the reason we put the technologies up here is not to describe the only design option that’s included to get you to the next level, but it’s so people have just the sense of what the costs include. Now that being said, from our tear-down analysis, yes, we found water heaters that had a variety of these technologies and the efficiency level. So that’s what you’re seeing there. That might not be the only difference, though, Frank, between like a .94 and a .95, though, but the costs will reflect all the differences that we found because they’re going to be included. MR. BROOKMAN: Thank you. Molly. No? Okay. Andrew deLaski. MR. deLASKI: Andrew deLaski, Appliance**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 9 2

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Standards Awareness Project. Just to flag for the department a point that we’ll look to, perhaps elaborate in our written comments, that it strikes me that we may be missing some efficiency levels that should be looked at. So, for example, on the electric side, I think I heard someone commented earlier that the Energy Star level is 2.0 as opposed to 2.2. So that is, there may be some level between the Max-Tech and Level 5 that would merit analysis. If we’re pushing the technology to the max, we may be testing some of those limits that may not exist if we choose a level that, for instance, the Energy Star Program is designed to promote and the same on the condensing water heater side. You know, you’ve chosen a Max-Tech level for condensing that includes a variety of features that get you to that level. There may be an intermediate level. Harvey suggested .82 as perhaps being the Max-Tech level. Maybe .77 is a condensing that doesn’t go to the Max-Tech. So fleshing out these step change technologies may be a valuable way to flesh out the efficiency levels. MR. O'HARE: And as far as supplying, you know, your written feedback to us, if you could identify those specific efficiency levels, that’s the**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 9 3

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 type of feedback that DOE would definitely be looking for. MR. deLASKI: Okay. Thank you. MR. BROOKMAN: Molly, please. MS. TROMBLEY-McCANN: Molly Trombley-McCann, PG&E. I’m curious because not all of the technological differences are included in the table description, are they included somewhere in the Technical Support Documents so we can see exactly what all of the differences are between the different efficiency levels? MR. BROOKMAN: Constantin. MR. von WENTZEL: Constantin von Wentzel, Navigant Consulting. I’m afraid we haven’t listed all of them because we had so many tear-downs and so many products. It really depends on the manufacturer and what path they chose. So it’s not a universal list, so to speak. It’s not like everybody uses the same approaches to reduce the energy consumption of their products. MS. TROMBLEY-McCANN: Molly Trombley-McCann, PG&E. I’m just concerned that the way the table is formatted, that it implies that the one inch of**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 9 4

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 insulation is what gets you to that next level of efficiency, but it sounds like that might not actually be the case, that it might be other technologies that are making that possible. MR. von WENTZEL: It is the main driver. Constantin von Wentzel. I apologize. That is the main driver. That’s why we listed it, but there might be other minor factors, depending on the manufacturer and the implementation that also work into that. MR. BROOKMAN: If it was a significant factor, you would have listed it separately? MR. von WENTZEL: Correct. MR. BROOKMAN: Correct. Okay. Harvey Sachs. DR. SACHS: Harvey Sachs, ACEEE. We will ask in our comments about the level chosen at EF 2.2 for the heat pump water heater. Again, the Energy Star Program shows a slightly lower level at 2.0 which I believe may allow evaporative -- resistance evaporators for the condensate and a lot of traditional analysis has been at the level of EF 2.5 and which is substantial additional savings. So the actual level chosen, I hope, has been well treated by the materials I’ve not had time to finish reading. MR. BROOKMAN: Okay. So we’re going to keep**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 9 5

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 moving here. MR. O'HARE: Okay. As I said, I’d like to go through the next few slides and then open the floor for discussion. As part of the Engineering Analysis, DOE also reviewed energy efficiency equations that define theexisting Federal Energy Conservation Standards for gasfired and electric storage water heaters. DOE looked at the slopes for these equations. In particular, DOE added this part of the analysis in response to a request from AHRI and several manufacturers and the current equations consider that the increase in standby losses as the tank volume increases -- considers that there’s a standby in the losses as tank volume increases because of the increase in the tank surface area. The current energy efficiency equations show that as the rate of storage volume increases, the energy factor decreases. The energy efficiency equations allow DOE to expand the analysis on the representative products to the entire range of storage volumes within each product class. As an example to facilitate this discussion, DOE plotted the models of the 2008 AHRI Directory for electric storage water heaters. The horizontal axis**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 9 6

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 here shows the rated volume and the vertical axis shows the energy factor for each of the models. DOE also plotted each efficiency level being considered for the representative rated storage volume and extended those efficiency levels to the full range of storage volumes. DOE did this by maintaining the slopes specified by the current Federal Energy Conservation Standard for each of those efficiency levels and from this graph, DOE found that manufacturers do not currently offer models that would meet all of the efficiency levels that DOE is considering for the full range of storage volumes. This data also reveals that the relationship between energy factor and rated storage volume may have changed as manufacturers have introduced new designs since the 2001 water heater rulemaking. As one alternative for developing revised energy efficiency equations for electric storage water heaters, DOE reviewed current market data from the AHRI Directory as well as manufacturers’ product literature. DOE conducted a regression analysis on models across a range of efficiencies and rated storage volumes and the resulting slopes from that regression analysis were -- the slopes were less steep than that -- than the slope defined by the current Federal Energy Conservation**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 9 7

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Standard and on this example, the graph also shows the cap at 0.95 EF. This is to address the thermodynamic characteristics of electric storage water heaters which may not be able to meet levels beyond 0.95 EF with traditional insulation improvements and we could also use this same approach for revised energy efficiency equations for gas-fired storage water heaters as shown in this example. In order to further verify the relationship between energy factor and rated storage volume for the development of these alternative energy efficiency equations, DOE is currently testing and tearing down various models that are currently available and on the market from a variety of different manufacturers in order to identify those characteristics beyond those that are described in publicly-available market literature. This analysis will also allow DOE to determine the changes that manufacturers employ for given model series and the changes that -- the manufacturers -- the changes that manufacturers employ as the rated volume for that given model series changes, and more information on this can be found in Section 15 of Chapter 5, the Engineering Analysis of**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 9 8 the Preliminary Technical Support Document. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 At this time, DOE requests comments as to the development of these alternative energy efficiency equations for gas-fired and electric storage water heaters and DOE’s approach to this, and Doug, if I could pass it back to you to facilitate the discussion. MR. BROOKMAN: Thank you. Steve Rosenstock. MR. ROSENSTOCK: Steve Rosenstock, EEI. To go back to your Slide 48 or 49, whichever one, when you mean model series, and again I probably should have read that part of it, do you mean that within each manufacturer that you would go kind of, I’ll say, model by model within a size capacity and saying, okay, for model series A of manufacturer B, this is the efficiency level, then for model -- for 40-gallon model C of manufacturer B, it will be a separate -- because aren’t there like hundreds of model series by each manufacturer, dozens? MR. O'HARE: Yes, we tried to go through all of those and look at groupings of series as well as groupings of similar technologies and tried to aggregate that all right here. MR. BROOKMAN: The series correspond to the broader characteristics. MR. ROSENSTOCK: So how many more ranges**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 9 9

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 could you possibly have under this approach in terms of -- you know, you have the category 40-gallon storage? How many model series could you have in that -- MR. BROOKMAN: Ashley. MS. ARMSTRONG: For the purposes of studying a standard, DOE is not proposing to do a different one for each series, right, just for the development of a new slope for the equation, we looked at each series independently and then aggregated it to find just one new slope across the range for the entire product class. MR. BROOKMAN: Mike Rivest. MR. RIVEST: Taking a step back, the intent of this analysis is to use real-world data to observe what is in fact the slope of current product based on variations in volume. So the idea of looking within a manufacturer’s product series is just to try and to make sure that we don’t -- that we focus on the volume and try to eliminate other factors in the product design that could account for differences in efficiency. So the goal here is simply to derive new equations based on empirical data as opposed to just relying on the old federal equation and doing our**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 00

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 analysis at one volume and then assuming that old slope. MR. BROOKMAN: Okay. Thank you. That was helpful. Harvey Sachs. DR. SACHS: Harvey Sachs, ACEEE. As I look at these two graphs, the effect would seem to be to somewhat relax the EF requirements for the smaller units and somewhat stiffen the requirements, make them more stringent for the larger units under a range of alternative EF default values for the 50. That seems to be the effect with the combination of capping in the lower slopes. Is that what I should be seeing here or am I misreading? MS. ARMSTRONG: This is Ashley. This is just one example of one of the things that caught our eye as this example, was that we needed to further investigate the changes that were being employed across like a model series because I’ll just say, for example, you can see on the graph right there that between 30 and 80, there’s manufacturers offering, and I’m not sure off the top of my head if these are in the same model series, but there are manufacturers offering water heaters at the same volume and for some model series, we found that those water heaters say that they have**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 01

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the same improvements in efficiency in them. So in order to capture the small changes that might be made, whether it be to the EF or whether it may be to the design, we decided to take it a step further and test and tear down a variety of different products in the marketplace so we could actually capture the changes in EF and also decide that if the exact improvements were being made across the board which would be able to group them in the same model series. MR. BROOKMAN: Frank Stanonik. MR. STANONIK: Frank Stanonik, AHRI. I think partially to answer Harvey’s question, first of all, as mentioned here, this was something we requested the department to look at and rather than -- I would ask you to, rather than think that perhaps it’s a question of relaxing for the smaller volumes, I think what we saw was in fact for the larger volume products, there may be more options for saving some more energy as opposed to what you might be able to do with the 40- gallon gas or 50-gallon electric, and as Mike said, Mike Rivest said, if you just look at what is out there on the market and we published that information in our directory, in this case we’re perhaps suggesting that with some alteration in that slope, perhaps there is**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 02

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 some additional energy that can be saved that you wouldn’t see if you only looked at the baseline model. That’s really the point of this. I would just put one other thing out there, well, because we discussed it a little bit, is that again in the interests of trying to, you know, save energy that we can at reasonable costs and so on, you know, another option that may come out of this, as we develop this whole issue, is, you know, maybe there’s two equations. At a certain point you just change the equation for a size of products. MR. BROOKMAN: Ashley. MS. ARMSTRONG: Yeah. Just to follow-up, Frank. This is Ashley. Just a follow-up with a question back to you regarding changing the equations and by that, do you mean maybe a flat line up to a certain volume and then a decreasing slope line or do you mean two separate slopes or the possibility of both? MR. STANONIK: Well, a flat line -- Frank Stanonik, AHRI. A flat line is a slope. MS. ARMSTRONG: Well, okay. MR. STANONIK: At this point, Ashley, you know, I’m not going to presume what the answer would be. I’m just saying it may be two different equations.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 03

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MS. ARMSTRONG: Sure. MR. BROOKMAN: Okay. Thank you. Molly. MS. TROMBLEY-McCANN: Molly Trombley-McCann, PG&E. This is a question for both the manufacturers and possibly for Ashley. What do you think is accounting for this increase in efficiency for the larger volume models? Primarily, why are we seeing that these are getting more efficient while the smaller volumes aren’t? MR. BROOKMAN: Since you’re there, Ashley, you want to start? Oh, Frank’s ready. Frank, go ahead. MR. STANONIK: Well, I mean -- Frank Stanonik, AHRI. I think it’s a very basic example of, let’s say, theoretical analysis meets reality of manufacturing products and, in fact, you know, when people manufacture products, they put the hardware together and stuff. You don’t necessarily see this nice smooth incremental change when you go from -- in fact, you know, you’re going to look at the logic. Why are the 30-, 40-, 50-, 75-gallon storage water heaters? Who knows why they evolved to that, but that’s what the market wanted, but as you build the**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 04

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 product and you introduce those energy-conserving measures, you know, well, in some cases, they do better than what the analysis says when you get to a larger product. Once you’ve made that investment, you just end up with a more efficient than the smooth continuum. You go up every size and you get two more points or whatever. You know, it’s reality meeting the theory. MR. BROOKMAN: Joe. MR. BOROS: Joe Boros with Rheem Manufacturing Company. Frank, I should also add that size is a real constraint. There are certain doorways and attic installations that physically will not be able to install water heaters and so I think as we look at the equations and the slope of the line, there are clear size constraints that must be considered when we’re talking about replacement of water heaters. MR. BROOKMAN: Thank you. So the department’s still seeking comments. Constantin, you want to add in here or you’re just standing? Sorry. Just letting you back to your seat. Frank, please. MR. STANONIK: Doug, I’m sorry, but I have one -- Frank Stanonik, AHRI. I do have one question on, I guess it is, Slide 50. There is a statement, “DOE is conducting**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 05

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 testing to confirm and validate energy factors,” and then underneath it says, “conducting testing to verify EFs beyond the required two significant figures.” Why? What do you hope to gain from that? MR. BROOKMAN: Ashley. MS. ARMSTRONG: It gets to my point earlier. Matt, if you’d show that graph for the .950 across that board? Frank, that kind of raised some questions in our eyes because we found a couple model series, and you and I have talked about this before, where for like between 30 and 80, you’ll have a .95 across the board and the manufacturer will be like, well, it might be two inches of insulation. Well, doesn’t seem quite right and it might be that it’s attributable, so it might be .952, .954, .958, whatever, or obviously .958, but -- and then we further take them apart to make sure that, you know, two inches is across the board or maybe it’s .875, maybe it’s two and a quarter, depending on the range size. So we can vary that slope just to make sure because with the model series you would get a straight line out of that across the board. MR. STANONIK: Frank Stanonik, AHRI. And, Ashley, I assume you’ve seen some of the work that Bill did about the inherent accuracy of the --**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 06

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MS. ARMSTRONG: Yes, I know -- MR. STANONIK: Okay. MS. ARMSTRONG: -- where you’re going with this. MR. STANONIK: All right. I’m not going any further. MS. ARMSTRONG: I knew where you were going, but we’re trying to figure out what distinguishes, you know, a 30-gallon with a .95 and, say, a 60 or 70 with a .95. MR. BROOKMAN: Okay. So let me refer you back to the slide that asks for comments on validatingthe alternative energy efficiency equations with teardown analysis. Should there be additional comments on this? Harvey Sachs. DR. SACHS: Harvey Sachs, ACEEE. Given the points that have just been made about the third decimal, I think it’s a very interesting research area, but I’ve looked at a little bit of the literature myself on the inherent accuracy and I hope there is no consideration being given to thinking that a third decimal would have any consumer value at all. MS. ARMSTRONG: No. DR. SACHS: Thank you. MR. BROOKMAN: Okay. Thank you. So for the**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 07

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 record, Ashley says no. Additional comments on this series of slides because I think we’re due for a break now. Let’s take a break and when we return, we’ll take up Manufacturing Impact -- I guess we have -- we’re not quite through with Engineering Analysis, are we? MR. O'HARE: No, we’re not quite through. MR. BROOKMAN: How much more? MR. O'HARE: We got about, I think, 10 more slides, maybe. MR. BROOKMAN: Let’s take a break. Folks, it’s now 10 minutes after 11. We will resume at 11:25. Please wear your badges inside the building. (Recess.) MR. BROOKMAN: Okay. Let’s resume. Okay. We are continuing on with the Engineering Analysis segment. Matthew. MR. O'HARE: Okay. This is Matt O’Hare again. These are the Engineering Analysis results for instantaneous gas-fired water heaters at the representative input capacity of 199 KBTUs per hour. Okay. Then during the Framework, DOEreceived comments regarding safety concerns for nearcondensing instantaneous gas-fired water heaters. DOE considered both condensing and near-condensing**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 08

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 efficiency levels because DOE identified products that are currently available and on the market and at this time, DOE requests comments as to how manufacturers would change current designs to mitigate the corrosive effects of condensation that may be present in some installations and how manufacturers might alter their designs and practices if a potential energy conservation standard required all installations to operate at a near-condensing efficiency level. Doug, if I could pass it back to you for discussion? MR. BROOKMAN: Please. So comments. You see the specific query there from the department. Comments on safety issues, instantaneous gas-fired water heater operating at near-condensing efficiency levels. We’ve heard from this in the past. Let me see. Is it John? MR. CONFREY: John Confrey from Noritz North America Corporation. MR. BROOKMAN: Thank you. MR. CONFREY: Well, you know, I’m only speaking for us as a company, -- MR. BROOKMAN: Sure. MR. CONFREY: -- but it’s pretty standard, you know, throughout the market that we deal with the**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 09

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 acidic condensation with the stainless steel heat exchanger specifically for our condensing product which runs about .92. We have a primary copper heat exchanger and a secondary stainless steel heat exchanger. I’ve heard some companies also talk about using titanium in the secondary heat exchangers. I don’t know if that’s realistic on a cost basis, but I’ve heard talk about that. So in the 83-84-85 range, you know, using the phrase “near-condensing” is actually maybe a little bit of a misnomer because condensing actually means fully condensing. So near-condensing actually means near fully condensing. So it is quite a bit of condensation that may happen in that range. So we would want to change our copper heat exchanger in our standard product, most likely the two stainless steel or something better, to deal with that acidic condensate. MR. BROOKMAN: At those lower ranges? MR. CONFREY: It would certainly be a consideration, certainly be a consideration. We have some product on the LP side that bumps into that range, but if the minimum was going to be in that range, we definitely would be leaning towards a stainless steel.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 10

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. BROOKMAN: Okay. Is that nationwide? MR. CONFREY: Yeah. I mean, for cost consideration we would want to keep the standard product nationwide as much as possible. MR. BROOKMAN: Yes, Frank Stanonik. MR. STANONIK: Frank Stanonik, AHRI. Just building on that a little bit, I think, as John raised a good point, I mean, again it’s fine in this kind of analysis to talk about near-condensing, but you have to keep in mind that this -- the manufacturers, you know, want to build a water heater they can sell anywhere in the United States and in the DOE Test Procedures, the incoming cold water is 57 -- 58, 57 degrees, all right, and one thing you can be sure of is that there are parts of the United States where the incoming cold water is not that warm and so while in this, you know, analysis you may see precondensing, as John said, from the manufacturer’s standpoint, and keeping in mind that safety always comes first, you’re really talking about probably forcing them to make a product that they have to design that soon will be fully condensing, that you’re asking them to walk up to this edge and trust both their skill in manufacturing and skill ininstallation and the hundred percent knowledge of reallife hot water use in the United States and then assume**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 11

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 that nothing bad will happen. I’m not going to roll those dice. MR. BROOKMAN: Harvey Sachs. DR. SACHS: Harvey Sachs, ACEEE. Frank, with his great experience, always see the glass as being about a quarter full and in my naiveté, I think it’s about three quarters, but what I heard from John and I’m really asking this as a sanity check is that the so-called near-condensing levels he is required to engineer with a heat exchanger that resists condensate. On the other hand, what I’m not hearing is any assertion that for the never steady state operation of an instant water heater, that he has to design a condensate collection and disposition system, as well. So that we have some of the costs of the condensing unit, but we probably are not going to be involved in condensate collection, is that appropriate? MR. CONFREY: Well, that assumes the contractor is going to install the product properly. We now, even with our 82-83 energy factor products, ask that a condensate collector be installed in the vent pipe. However, we know very well that, you know, in a large percentage of the installations that doesn’t happen. At the higher energy factor levels, it becomes**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 12

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 even more dangerous. So we would have to have the stainless steel heat exchanger and our condensing product has a stainless steel heat exchanger with the condensate collector inside it. So we would likely go with that or a similar type. MR. BROOKMAN: George. MR. KUSTERER: George Kusterer, Bock Water Heaters. In my combat dictionary, near is only good for horseshoes and hand grenades. So I’m not quite sure what near-condensing is. However, in the Engineering Analysis, my question to DOE is not only investigating the product but also investigating the venting system, and I think that is the major issue for safety, would be the venting issues, that were the venting issues taken into to consideration during the analysis? Thank you. MR. BROOKMAN: Yes, Alex. DR. LEKOV: Alex Lekov, Lawrence Berkeley National Laboratory. I’ll have more details during the explanation of the installation when we did the LCC Analysis, but the answer to George’s question is yes, at those efficiency levels, DOE accounts for venting system in**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 13

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the stainless steel category treatment. MR. KUSTERER: Thank you. MR. BROOKMAN: Let me ask the consulting team. Did you define near-condensing anywhere? Is that a standard definition in some -- MS. ARMSTRONG: This is Ashley. 83-84-85 is what we’re talking about. MR. BROOKMAN: Okay. 83-84-85 range. Okay. John. MR. CONFREY: John Confrey, Noritz North America Corporation. I think, in general, the rule of thumb is 83is the borderline between condensing and noncondensing. That’s not necessarily the design. I mean that’s not the design rule but that’s the rule of thumb. MR. BROOKMAN: Okay. So other comments on this series here? (No response.) MR. BROOKMAN: Okay. MR. O'HARE: Okay. Now, continuing with the remainder of the Engineering Analysis results, I’d like to proceed through the next few slides and additional detail again can be found in Chapter 5 of the Preliminary Technical Support Document.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 14

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 These are the Engineering Analysis results for gas wall fan-type direct heating equipment at the representative input capacity range of over 42,000 BTUs per hour, and here’s the Engineering Analysis results for gas wall gravity-type direct heating equipment at the representative input capacity range of over 27,000 and up to 46,000 BTUs per hour. The Engineering Analysis results for gas floor-type direct heating equipment at the representative input capacity range of over 37,000 BTUs per hour. Lastly, for direct heating equipment the gas room-type direct heating equipment at the representative input capacity range of over 27,000 and up to 46,000 BTUs per hour. If you want to stop for any comments, Doug? MR. BROOKMAN: Let’s stop here, sure, and see if there’s any comments on these tables. Frank Stanonik. MR. STANONIK: Frank Stanonik, AHRI. If you go back to, I guess it’s Slide 55, the gravity wall furnace, this -- specifically, I guess the issue I was pointing out, if you look at efficiency levels 4 and 5, 4 and Max-Tech, you essentially have brought an external electric supply to a gravity-type furnace and**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 15

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 in our assessment, you’ve really -- you’ve redefined it. I mean, it’s no longer a gravity wall furnace. You might as well just call it a fan-type wall furnace because with bringing that electric supply, again the practical result will be that it’s going to jump categories and just be a fan-type wall furnace. So I guess to be clear on this, we really don’t think efficiency levels 4 and 5 for this product class are realistic. MR. BROOKMAN: Okay. Thank you. Harvey Sachs. DR. SACHS: Harvey Sachs, ACEEE. Again a question that will reveal my lack of homework. On these product classes, what are we assuming for the supply air, room or outside, and if it’s room, did we consider the outdoor supply air option with these installation implications? MR. O'HARE: As far as the question regarding if this is assuming indoor air used for combustion or outdoor air, is the assumption that we’re using indoor for combustion that’s being exhausted out of the room? Yeah. They’re all vented. DR. SACHS: So we’re -- Harvey Sachs again. We’re assuming for all of these that we are looking at indoor air exhausted outdoors, but we did not look at**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 16

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the technology option for the wall-hung equipment where there’s no duct work involved of using outdoor supply air? MR. O'HARE: Well, at these efficiency levels, again our efficiency level approach, we identified the most prevalent efficiency levels and their associated manufacturer production costs. So these technologies that we have identified here do not directly -- as far as the incremental increase in the manufacturer production costs, those don’t tie directly to any specific of the technologies that we identified in the manufacturer technology assessment, the Market and Technology Assessment. DR. SACHS: Harvey Sachs, ACEEE. Did you consider at any time the costs of outdoor supply air across this range of technology of levels? MR. BROOKMAN: Alex, please. DR. LEKOV: Alex Lekov, Lawrence Berkeley National Laboratory. I believe Harvey’s question, it essentially relates to the installation of the equipment, is this correct? DR. SACHS: Harvey Sachs. It has some implications for installation. It has some implications for manufacturing design.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 17

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. BROOKMAN: Would you restate the question, Harvey? DR. SACHS: Harvey Sachs, ACEEE. In the department’s Technical Analysis -- analyses for theTechnical Support Document, did you consider for wallhung or wall-mounted equipment the use of outdoor air supply as opposed to indoor air? MR. BROOKMAN: Alex. DR. LEKOV: The efficiency aspect of this is addressed by the Test Procedure. The Test Procedure tests this equipment under certain temperature settings. There are installation parts which you referred to bringing outdoor air through certain vents or taking air from the conditioned space. Basically, it’s addressed in the analysis. We are applying a set of false venting arrangements similar to the ones that were applying in the furnace rulemaking where we utilized the so-called furnace model. MR. BROOKMAN: Frank, follow-up there. Go ahead. MR. STANONIK: Frank Stanonik with AHRI. I think, first of all, to recognize that this is an AFUE Test Procedure for this type of equipment, in many ways similar to the AFUE Test Procedure that you would want**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 18

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 on a residential boiler, and I say boiler because of the indoor procedure, and to some -- because of that, to some degree, the -- let’s call them the losses associated with using room air for combustion and that are not specifically captured in the test procedure but there is some measurement -- not measurement but some attribution of that and that, similarly and perhaps more importantly, that those test procedures -- again, that’s the tool we have to measure, but that AFUE Test Procedure really doesn’t, the best I can recall, doesn’t provide any significant boost in your efficiency because you have a direct vent product. In terms of certainly the AFUE procedure for things like boilers and direct heating equipment, the fact that you might have a direct vent product, I’m not aware that the Test Procedures provides a significant accounting of that. DR. SACHS: Thank you. MR. BROOKMAN: Thank you. So if I’m not mistaken, we’re up to Slide 57 and we’re about to proceed. George. MR. KUSTERER: One quick comment. MR. BROOKMAN: Yes. MR. KUSTERER: George Kusterer, Bock Water Heaters.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 19

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Just to kind of add a little credence to -- not that he needs it -- to Mr. Stanonik’s comment withregard to gas wall gravity-type, you’ve got Max-Techinduced draft. That no longer makes that a gravitytype heater. Thank you. MR. BROOKMAN: Thank you, thank you. MR. O'HARE: Okay. We’re on 58 now. This is Matt O’Hare. Engineering Analysis results for gas-fired pool heaters at the representative input capacity of 250,000 BTUs per hour and please note that for the baseline levels 1, 2 and 3, the numbers on the left, for the manufacturer production costs numbers on the left are for standing pilot models, and the numbers on the right are for electronic ignition models, and just as with the instantaneous gas-fired water heaters during the Framework, DOE received comments regarding safety concerns for near-condensing gas-fired pool heaters.DOE included both condensing and nearcondensing efficiency levels because DOE identified products at these efficiency levels that are currently available and on the market and DOE requests comments as to how manufacturers would change current designs to**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 20

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 mitigate the corrosive effects of condensation that may be present in some installations and how manufacturers might alter their designs and practices if a potential energy conservation standard required all installations to operate at a near-condensing efficiency level. Doug, if I could send it back to you? MR. BROOKMAN: So comments? John. Pardon me. Robert, Robert. MR. GLASS: Robert Glass with Raypak. Got a couple of questions on your Slide 58. Number 1. You show between your pilot and electronic ignition, you’re showing a $3 cost difference between that. That’s way understated. I mean, when you have an electronic ignition control, you don’t get it for $3 and so recognizing it is the sum of the components that are there but that’s way understated through the analysis. The other question that I have is as far as the Efficiency Level 6, you indicate that it’s a sealed combustion condensing system and yet when you look at your costs between 7 and 8 that is condensing and condensing, the costs there are just barely above the Category 5 that’s there. If a product is condensing, it’s condensing and as a result, the materials of the design have to be**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 21

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 suitable for the condensing application. So I think the costs there are severely understated, as well. MR. BROOKMAN: Thank you. Frank. MR. STANONIK: Frank Stanonik, AHRI. Just adding to something Robert just said, this level about sealed combustion condensing and the corresponding efficiency level, I think again in terms of the tools we have available to measure that if that was simply a condensing pool heater that vented and used the indoor air for combustion, you’d still see the same efficiency level. So I’m not sure how sealed combustion becomes part of the factor of obtaining that efficiency level. I mean, it might be done simply because of the convenience, if you will, but whether the air is coming from the indoor or outdoor to supply the combustion doesn’t change in this case the resulting thermal efficiency measure. MR. BROOKMAN: Constantin. MR. von WENTZEL: Constantin von Wentzel, Navigant Consulting. To address both comments, certainly we value feedback from manufacturers regarding the costs they encounter with the components they use. We noted differences in prices between the gas valves, for instance, whether they’re a milivolt or a 120 or 24**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 22

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 VAC-operated model versus the other components that are required and that was the cost difference that we came up with at the time and we solicited feedback from all manufacturers that got back to us. So that’s to address the first comment. The second comment regarding sealed combustion, that’s just to illustrate the construction of the heat exchanger and the whole combustion system. It’s not to draw a difference between indoor versus outdoor air supply. It really has more to do with how the pool heater’s constructed. MR. BROOKMAN: Yes, Robert. MR. GLASS: Robert Glass, Raypak. One of the things that you may find from the standpoint of the pricing of the gas valves as far as the milivolt versus the DSI is it’s purely a supply issue. There are very few milivolt valves that are used and hence the manufacturers charge a whole lot more for them. So the volume of the product that’s used is much, much less on the milivolt side than it is on the electronic ignition and that’s the difference in your cost of just the gas valves themselves. I also did want to mention something as far as the 86 percent efficiency level that is out there. The one thing that is unique about pool**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 23

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 heaters than most other gas appliances is that a large number of them are installed outdoors and there are some manufacturers that have stated efficiencies of 86 percent. That may work on a design that is installed for outdoors and has no venting actually attached to it because the vent is integral to the unit. So they’re actually able to obtain slightly higher thermal efficiencies because there is no venting attached to it, but once you attach vent, you have that same product that’s installed indoors, you can no longer have that 86 percent efficient unit because then you will condense in the unit. That condensate will go back into the unit and then you’ll have damage to it. So there’s something that’s unique about the pool heater design that the same unit can be installed indoors or outdoors and I think DOE needs to be aware of the efficiency limitations, very similar to the boiler rulemaking, from the standpoint of staying away from the condensing. Eighty-four percent is about as high as youcan go with the pool heater to not have condensaterelated issues. MR. BROOKMAN: Harvey. DR. SACHS: Harvey Sachs, ACEEE. We’ve seenseveral times in the last few minutes the recently**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 24

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 concluded boiler and furnace standard evoked and there’s something very important there that I would like to remind all of us about, which was that for residential boilers, there was consensus agreement proposed by the manufacturers and the environmental advocates which used a performance standard, an AFUE, coupled with a couple of prescriptive measures in terms of controls. This was rejected by the prior administration. Frank has referred to a couple of things that are efficiency options that may not be fully reflected in the Test Procedure as we know it but which would be amenable to inclusion as prescriptive features, if that were a joint desire or a finding by the department of cost effectiveness. So we would hope that the new Administration, with its aggressive goals, is going to be a little bit more open to this approach of some prescriptive plus performance standards and would be looking for products for which that might offer the opportunity for win-win. MR. BROOKMAN: Okay. Thank you. MR. STAS: Eric Stas, DOE. I just want to clarify for the record that DOE was under Consent Decree when the proposal Harvey’s talking about came in. We approached the court with that and we were not**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 25

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 given the leeway at that time to do an SNOPR. We went with the final rule. MR. BROOKMAN: Thank you for that clarification. Okay. So other comments on this gas-fired pool heaters and other issues related because we’re about to conclude Engineering Analysis? (No response.) MR. BROOKMAN: Keep going. MR. O'HARE: So 60? MR. BROOKMAN: Yep. MR. O'HARE: So the last thing I’d like to present is the methodology DOE used to translate manufacturer production costs to manufacturer selling prices. The manufacturer selling price is the price at which the manufacturers can recover all productionand non-production costs and earn a profit. Nonproduction costs can include selling, general and administrative costs, for example. DOE calculated the manufacturer’s selling price by multiplying the manufacturer production costs by the calculated manufacturer markups. DOE determined the manufacturer markups by reviewing 10-K reports filed by publicly-traded heating products companies as**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 26

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 well as by talking with the manufacturers during the engineering interviews. These manufacturer’s selling prices are used in the downstream analysis and the manufacturer markups are shown here on the screen, and then that concludes the presentation for the Engineering Analysis. Doug, if I could send it back to you, if there are any remaining questions or comments for the Market and Technology Assessment, the Screening Analysis, or the Engineering Analysis? MR. BROOKMAN: Okay. Thank you. MR. O'HARE: Thank you. MR. BROOKMAN: So there are all kinds of -- lots of content here in the Engineering Analysis and we haven’t heard comment yet on the manufacturing selling prices and the potential markups. So let’s hear about any of those at this time. (No response.) MR. BROOKMAN: No additional comments, no confirmation or refutation on these markups? I knew I could get somebody. Frank. MR. STANONIK: Frank Stanonik, AHRI. This is obviously one particular issue where, as a trade association, we are not going to be able to give**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 27

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 detailed specific answers, but I can tell you that in some of the discussions we’ve had so far, in certain, I’ll say, subcategories, there is some concern that the markup has been miscalculated or misrepresented, and hopefully between the written comments we submit and some follow-up, possibly some private conversationswith some of the manufacturers, we can perhaps finetune some of these. But we thought in some cases it was -- missed the mark. MR. BROOKMAN: Thank you. The department would welcome the specifics there. Okay. Let’s proceed then with Manufacturer Impact Analysis. MS. ARMSTRONG: Okay. My name is Ashley, and the next thing I’m going to speak about is the Preliminary Manufacturer and Engineering Interview that we conducted as part of these Preliminary Analyses. DOE conducted onsite and telephone interviews with manufacturers of the three industries. Some of the topics that we discussed are the Engineering Analysis development and results, some of the key issues, the current market conditions, along with the others represented on the slide. So to go kind of quickly just to try to cut**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 28

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 some time here, but for the key issues identified by some of the residential water heater manufacturers include the Energy Star Program and setting any potential standard with enough room so that you still have an Energy Star Program at the end of the day, any increases in installation costs, whether that be attributed to electrical connections, vent configurations, these increases in cost may decrease their market share, and further calls for storage water heaters which are instantaneous. The increases in shipping costs, so as their products grow larger, they can get less in an actual freight container and how that will affect their prices, and will they be able to further pass that on to the consumer? Will the consumer absorb that additional cost or will the manufacturers have to eat a portion of it? Then the safety concerns forinstantaneous which you’ve already gone through. Nearcondensing levels. The next one is fuel switching and for fuel switching, that means setting a level, setting gas storage water heaters and electric storage water heaters at levels that they don’t distort the current market. So, in other words, setting, just as an example, heat pump water heaters for electric while you**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 29

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 allow gas water heaters to be unchanged and then how will that affect the market and what portion of consumers might switch on the basis of increases in the cost alone? The next one is equipment switching and that’s just within the gas market. So causing the gas storage water heaters to switch market share to instantaneous water heaters and vice versa, depending on first cost effects as to where the levels fall out. For direct heating equipment, there were increases -- MR. BROOKMAN: Go ahead. Steve Rosenstock. MR. ROSENSTOCK: If possible, can we, before we get to direct heating, can we just talk about water heating? MS. ARMSTRONG: Yeah. Go ahead. MR. BROOKMAN: We are just a tab -- MS. ARMSTRONG: You can stop me at any time. MR. BROOKMAN: We are just a tad behind. As we’re going through, if you have questions, let’s address them, unless there’s a block we can do all in one chunk, but go ahead, Steve. MR. ROSENSTOCK: Okay. Just going back real quick, just a couple comments on Slide 64 and then Slide 66.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 30

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MS. ARMSTRONG: Sure. MR. ROSENSTOCK: You mentioned the Energy Star Program, and we’re going to have some written comments about it, but we think there’s some issues with the way -- what happened with the Energy Star requirements for residential water heaters. I think the DOE and the consultant should review all the testimony that happened before that standard was announced. I think there’s still a lot of issues with what happened as a result and the levels that were set. Slide 66, in terms of I think you’ve characterized it correctly, but again you said it was just for the gas side. It’s not necessarily just for the gas side. There are instantaneous electric water heaters out there where that could be -- that could happen, as well. Thank you. MS. ARMSTRONG: Great. I’m just summarizing the feedback that we got from manufacturers and since electric instantaneous water heaters were included. MR. BROOKMAN: George. MR. KUSTERER: George Kusterer, Bock Water Heaters. I was going to say Harvey Sachs, ACEEE, but that’s okay.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 31

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 With regard to the Energy Star Program, it definitely was extremely unfair to the oil-fired water heater industry. It totally excluded us which I think was irresponsible. The second item is because there are quite a few oil-fired pieces of equipment out there, they’re extremely efficient, and secondly, with regard to equipment switching, again oil was excluded. There is a tremendous amount of oil switching obviously due to the cost of the product, the way it skyrocketed, and the different types of manufacturing. So there is a lot of fuel switching which I don’t think DOE took into consideration. Thank you. MR. BROOKMAN: Thank you. MS. ARMSTRONG: So the next one I’m going to talk about are the direct heating equipment preliminary manufacturer interviews. This included increases in installation costs, similar to what I just spoke about, regarding electrical connections, regarding the power vents, et. cetera, condensate removal, and how that will increase the installation costs to the consumers and if they will -- it may further decrease their market share as a result of consumers purchasing alternative equipment,**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 32

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 and then another thing manufacturers noted was the effect of derating their products. So instead of -- because these are space-constrained products, some of them are recessed into the wall and they have to fit into that space, possibly derating such that it would adversely impact the product utility. I’m going to keep going to pool heater key issues, if there’s no others. Similar story here. Increases in installation costs with respect to the venting and the electrical connections, depending at certain efficiency levels, requiring those. The product price increases resulting in a declining market. Not everyone has to purchase a pool heater for their home and any increases in equipment costs, the worry that this might further decrease their shipment levels and decrease their market share, and lastly, which we’ve already been over, the safety issues at the near-condensing levels and what manufacturers might have to do to accommodate designs at those levels or to change the designs for all of the installations at those levels. MR. BROOKMAN: So let’s pause for all of those preceding slides, take -- now that you’ve had a chance to catch your breath, unlike Ashley. Frank. MR. STANONIK: Frank Stanonik, AHRI. I guess**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 33

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 this is a good place to just put this reminder out, but in the direct heating equipment key issues, as I mentioned earlier today, we certainly think that one of the things that needs to be looked at is the ability to continue to provide direct heating equipment that can be operated when the power goes out. There is a segment of that market that’s the product people have and they have recognized that it has that added feature that when for whatever reason they lose their electric power, they can still get some heat into the house and, admittedly, I think if you look at -- you know, we’re not talking about necessarily houses that have been added to the stock, housing stock in the last five or 10 years. These tend to be older, smaller homes and perhaps even a little different socioeconomic situation there. MR. BROOKMAN: Thank you. Yes, Robert. MR. GLASS: Robert Glass with Raypak. One of the things that you had just mentioned concerning the increase in efficiencies and things was affect, that it would affect the market share. I think that’s incorrect. I think it would affect the market size because it’s an opportunity. Somebody does not have to buy a pool heater in order to do it. So if the**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 34

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 efficiency goes up and the cost goes up, it’s going to -- there’s going to be less people buying them, so actually it’s market size, not market share. MS. ARMSTRONG: Right. I was referring to total shipments, so a decrease in total shipments. MR. BROOKMAN: Thank you. Okay. Additional comments? Yes, Frank. MR. STANONIK: Sorry, Doug. Frank Stanonik, AHRI, and this one -- again, I’m not sure if this is the place and in this case, I’m bringing this up without having really talked to any of the involved manufacturers. But it just struck me that at least in Southern California, the manufacturers of gas-fired tankless water heaters come, I believe it’s 2012, 2010, 2012, will have to provide -- will have to comply with a NOX emission limit that heretofore they hadn’t been required to comply with and I don’t have any information how drastic redesign or changes that will require, and I don’t, you know, have any sense they will be necessarily as severe as what happened with the storage water heater industry, but that is a change, that is a good market for them, and that is an impact that they, I would guess at this point, are already trying to deal with, but I think it may have to be**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 35

1 2 3 4 5 6 7 8 9 10 11 12 13 rolled into this impact -- this analysis. MS. ARMSTRONG: That will be considered as part of the cumulative regulatory burden and the MIA which we’ll speak about this afternoon. MR. STANONIK: Okay. All right. MR. BROOKMAN: Other comments on these features in the Preliminary Manufacturer Impact Analysis? (No response.) MR. BROOKMAN: Okay. So -- MS. ARMSTRONG: Great. I’m going to pass the presentation to Alex to discuss Markups, Energy Use and Life-Cycle Cost. Markups to Determine Product Price Analysis, Energy Use 14 Characterization, and Life-Cycle Cost Analysis 15 16 17 18 19 20 21 22 23 24 25 DR. LEKOV: Hello, everyone. My name is Alex Lekov from Lawrence Berkeley National Laboratory, and I’ll be presenting details on the Life-Cycle Cost Analysis that DOE performed for the three products included in this rulemaking. As shown under the slide here, I’ll be addressing at this point the three analyses circled in red, Markups for Product Price Determination, Energy Use Characterization, and Life-Cycle Cost and Payback Analysis.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 36

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 The purpose of the Markups for Product Price Determination is to characterize the channels for how the products are distributed from the manufacturer to the consumer. Once the distribution channels are determined, the next step is to determine the prices paid by the consumer based on the manufacturer’s selling price. The Energy Use Characterization allow to develop the energy consumption savings for selected product efficiency levels. Overall, the Life-Cycle Cost Analysis and the Payback Period Analysis are to develop the consumerlife-cycle cost savings and payback for higherefficiency standards. This chart is the key for the entire presentation. In fact, throughout the presentation, I’ll focus on each of the components you see on this chart. The upper essentially outlines the entire flow of the LCC and Payback Period Analysis. The middle part of the chart shows the analysis to develop the equipment install cost. The lower part of the chart again includes an analysis to develop the operating expenses. Both of those are used as the final inputs to the Payback Period and Life-Cycle Cost Analysis.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 37

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 In terms of total installed costs, the major inputs are the baseline and standard level manufacturer costs and essentially selling price coming from the Engineering Analysis, the markup values which will be explained a little bit later on combined with the sales taxes to arrive at the consumer price. At that point, the consumer price is combined with the installation cost to derive the total installed cost. As I said, the lower part of the chart shows the derivation of the operating expenses. We started the development of the energy consumption and everything is done at the household level. It’s combined with the energy prices to arrive at the energy cost. At that point, we also -- it’s necessary to estimate the repair and maintenance costs associated with the specific household to arrive at the annual operating expenses. Annual operating expenses, combined with several economic parameters and the energy price standard, give us the lifetime operating expenses. So those two final parameters are key for the entire analysis set that I’m presenting. On this chart, we have a summary of the math utilized within the LCC Analysis. LCC Analysis**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 38

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 essentially evaluates the total installed costs, plus the sum of the operating costs, discounted to the effective year of the standard. As shown on the full chart at the bottom, we are talking about the first costs and the operating costs in terms of the consumer. So all this economic evaluation is done from the consumer perspective. The specific math DOE utilized is that it accounts and models the uncertainty and variability of different inputs. The LCC results are expressed as the difference between two LCC calculations, one for the baseline and one for the considered standard levels. For transparency, DOE utilizes spreadsheet format combined with the Crystal Ball which essentially allows to acquire a statistical sampling, called Monte Carlo Simulation. Some of the attendees here are familiar with this approach which has been used by DOE in multiple rulemakings. With that, I am switching to the first major analysis block which is the Markup Analysis. As briefly mentioned, the purpose is to determine the consumer product price based on manufacturer cost and to characterize the product distribution channels and market segments. Major inputs are here and listed here are**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 39

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 sources from the major inputs. As Ashley just a bit ago mentioned, manufacturer markups are determined within the Engineering Analysis and after that we have other parties involved with the distribution and delivering the product to the consumer. The sources for all of those are listed here. Basically, mostly the data come from U.S. Census Bureau, information from Air Conditioning Contractors of America publication as well from IRS and so on. The basic inputs from the Markup Analysis are the baseline and incremental markups. The next two slides, I’ll talk about the distribution channels for the three products as determined by DOE. DOE looked separately at the distribution channels for replacement and for new homes. In terms of replacement, there were identified two major channels through the retailers and through the wholesale distributors. In case of the new homes market segment, the distribution happened through the wholesale distributors and after that, we have the builder involved in the process of delivering the product to the consumer. I need to mention here that in the case of new homes, DOE distinguishes between two groups of**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 40

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 builders. New homes Channel A essentially reflects the participation of builders with annual revenues of more than $10 million which account for about half of the value of the new residential single-family constructions and in this particular case, this type of participants generally employ their own master plumber rather than contractor which is reflected in Channel B where we have smaller builders. MR. BROOKMAN: Yes, go ahead, George. MR. KUSTERER: George Kusterer, Bock Water Heaters. With the distribution channels with regard to water heaters, replacement A shows manufacturer, retailer and then consumer. Most municipalities, states, local government, anybody that has the authority having jurisdiction over the installation of equipment generally must be installed by a qualified whether it’s a plumber or a contractor, whatever the case may be. Now, we know that the Lowes, the Home Depots and so forth, we know that consumers go in there and buy the product, generally install it themselves, generally have a problem with it. So I would suggest in the replacement A, that DOE consider putting contractor-installer in there. In**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 4 1 replacement B, it says manufacturer, distributor, contractor, consumer. I would suggest that they add one more line in there with regard to the distribution channel. Some of us, storage water heater manufacturers, do not sell to distributors directly but we sell through rep agencies. Rep agencies therefore put a markup on it and I don’t think that was taken into consideration by DOE. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. BROOKMAN: What’s a rep agency? MR. KUSTERER: A rep agency are people who rep our products. We sell directly to them. We don’t sell through distributors. They sell to distributors. MR. BROOKMAN: Okay. MR. KUSTERER: Go ahead, Mohammed. MR. KHAN: Mohammed Khan, DOE. I just wonder if you could maybe elaborate on the differences between a rep agency and distributor. MR. KUSTERER: Okay. I would define a distributor as a wholesaler, supplier, HVAC supply house, where contractors will purchase their equipment. A rep agency is an agency that reps a variety of products and they actually buy from the manufacturer, in turn sell to the distributor. So there is another chain of events there where a markup is added. With regard to --**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 42

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 DR. LEKOV: I apologize. Just an interruption in terms of a clarification question. So you’re suggesting in case of the replacement market to have a third chain which replaces the distributors with the representative? MR. KUSTERER: No, no, no. You need to add a representative. DR. LEKOV: Okay. If there is any information or fraction of the market to work through this path? MR. KUSTERER: We can get you that information. That’s not a problem. But basically for our product, everything is sold through -- not sold to the distributor/wholesaler but is sold through a rep agency. All our product throughout the country is sold through a rep agency. They in turn sell it to the wholesaler who then in turn sells it to the contractor. DR. LEKOV: Just another clarification. During the 2001 rulemaking, this particular chain was discussed in detail. So it was established at that time. Now your note basically suggests a change to -- MR. KUSTERER: No. That information was provided during our interviews. DR. LEKOV: Thank you. MR. KUSTERER: With new homes, again**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 43

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 manufacturer, distributor, you would have to again put in that rep agency, so that would be an additional there, and new homes, B, you’d probably have to add it to there, as well. So in all four categories, you need to put that rep agency in there and again for lack of a better word, that’s all I know. MR. BROOKMAN: Is that Bock Water Heaters or is that the -- MR. KUSTERER: Well, I can only speak for Bock Water Heaters. I can’t -- but I know a number of other tank-type water heater manufacturers who do distribute through rep agencies. MR. TRUSKOSKI: This is Eric Truskoski with Bradford White. We follow the same practice. MR. BROOKMAN: Okay. Thank you. Thank you. Yes, Frank Stanonik. MR. STANONIK: Frank Stanonik with AHRI, and since we’re on this slide, a couple questions, Alex. First of all, in the Channel A for new homes, you show a manufacturer, distributor, builder, and then to the consumer. It seems to me that the distributor in this case might also be a retailer and, I guess, have you, in looking at this analysis, have you considered, let’s say, a broader term of distributor include, you know, the fact that maybe the new home**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 44

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 builder just buys literally a truckload from a major retailer and, I mean, I assume that goes on to some level. I don’t know if it makes a difference or not. I just wondered if you had considered that. DR. LEKOV: DOE did not consider this particular scenario. What I would say, DOE explored significant amount of sources and got information from an expert. Nobody pointed us to this particular distribution path, but we’ll look for some evidence. MR. STANONIK: Just kind of a question, but the other question which I think perhaps is a little more significant, in all of the analysis in terms of what we have seen in the TSD, I daresay that in every case, the contractor markup, whether it’s new construction or replacement, is the same number and I just wonder, is that -- I mean, do you have some, you know, real information to back that up or is that just an assumption that was done for the analysis? I mean, first of all, you know, again I’ve stepped out of what I know about. It just seems to me that when you’re dealing with a new home situation and the contractor in fact is dealing with the builders of new homes, I guess I just always had the thought that -- in terms of what that -- whatever deal that contractor might have negotiated with the builder would**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 45

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 have been very different than -- especially if he’s selling, you know, a large quantity -- the contractor’s getting a large quantity of business as opposed to selling one water heater to one person. DR. LEKOV: DOE utilized R.S. Means to estimate for the contractor equipment markup which is the value used across the board. MR. STANONIK: Okay. All right. Well, then -- Frank Stanonik with AHRI. I’ll just make the point that we will certainly discuss that point with our members and see if have with R.S. Means as an estimate that the contractor markup is universally the same. MR. BROOKMAN: Okay. So let’s look at the distribution channels for direct heating equipment and pool heaters. DR. LEKOV: In terms of direct heating equipment and pool heaters, the department again looked at separate and replacement new homes distribution channels. Direct heating equipment mirrors the distribution channels shown here, mirror the ones done for central heating equipment. So there are no changes here. In terms of pool heaters, the equipment comes from distributor and depending whether there is**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 46

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 replacement or new homes, there is an additional step which involves a service company or a pool builder. MR. BROOKMAN: So comments on these distribution channels? Yes, Frank Stanonik. MR. STANONIK: I hope I’m not jumping the gun on Robert here, but Frank Stanonik, AHRI. The pool heaters on new homes, just because it’s different it kind of strikes me, so the assumption here is that, okay, I’ve got a new home and the manufacturer marked it up, the distributor marked it up, the contractor who built the pool marked it up, but then the guy who sold me the new home didn’t. I think that’s a little unusual. DR. LEKOV: In fact, that is very well documented in the expert report we got and utilized here. The actual builder of a house has nothing to do with the pool. There is a full discount. So the consumer receives the house and once the house is owned by the consumer, he starts to handle the construction of the pool and the associated pool heater. So the pool heater at this time, the pool builder at this time also supplies the equipment. MR. BROOKMAN: So the new home does not come with the pool. It’s after the new home has been purchased, then the pool is put in. Lance.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 47

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. DeLAURA: In a former life, I was a home builder for 20 years and I absolutely agree with what you just said. They’re not connected. MR. BROOKMAN: I see. Robert. MR. GLASS: Robert Glass with Raypak. You’re actually talking different things here. You’re talking new homes but you can also be talking new pools. People can have existing homes and then decide to go ahead and build a pool in the backyard and so from that standpoint, with what we’re looking at, you’ve got a replacement meaning they already have a pool and they’re replacing the unit. Under the new homes side, you have two different classifications that are being addressed here. The new home side would probably be more what Frank was talking about, that if you’re building a home and somebody is building a home and a pool that goes along with that, you always have the opportunity for the builder to contract out to have a pool builder build the pool and do it, but then how he transfers that cost on to the actual consumer at that point, there may be markups associated with it. MR. BROOKMAN: Okay. Thank you. So additional comments on these distribution channels? This has been useful to this discussion.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 48

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (No response.) MR. BROOKMAN: Okay. So keep going. DR. LEKOV: So markup relates the consumer price to cost of goods sold and I’ll provide the definition. The cost of goods sold represents what the retailer or distributor pays for purchasing and handling the equipment. On this slide, I’ll discuss the concept of the baseline and incremental markups and I would like to bring to everybody the fact that this is not a new concept. Some of the attendees are familiar with it. It’s used across the rulemakings, standard rulemakings done by DOE. The baseline markup relates the price to costs prior to increase the efficiency of the equipment and essentially it indicates the consumer price that covers all of the retailers’ or distributors’ expenses plus profit. In addition, it includes also the direct labor costs. Incremental markup, on the other hand, relates to the incremental change in consumer price to the incremental change in cost of goods sold. The key here is that some part of the equipment cost is marked up at the different value than the cost of the baseline part of the equipment and in reality the incremental**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 49

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 markup essentially does not account for the or does not include the direct labor cost. This slide provides a summary of the overall markups developed for all product classes. With the completion of the Markup Analysis, we have the information to make the next step and determine the consumer price. So the manufacturer’s selling price as developed in the Engineering Analysis, plus the markups and sales tax, gives us the consumer price of the products. A big part of the total installed cost of the equipment is the installation cost. On the next couple of slides, I’ll present some details of how DOE determined the installation costs for these three products. Installation costs represents the labor and material necessary to install the appliance. The installation cost is developed separately for new construction and replacement. This slide shows the components involved in the installation cost for water heaters. The table, left part of the table lists the components and the right part of the table, its applicability to the four water heater product classes. As you see here, the installation components involve a summary term called “basic installation,”**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 50

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 also the issues of venting, drain pan, larger burner kit, electrical configurations, condensate filter, space constraints, as well as the additional costs associated with heat pump water heaters. I will say in front that the big part of this information comes from the R.S. Means which is North America’s leading supplier of construction cost information. The basic installation for water heaters includes items, such as setting up and putting in place new water heaters, removal of old water heaters, the fees associated with it, trip charge for the contractor, gas and water piping, and DOE also included additional charge for handling larger equipment. On the next slide, I’ll focus on a couple of key parts of the installation cost work done for this product, starting with the venting cost. In the case of gas storage water heaters, DOE accounted for commonly-vented water heaters that are together with the central furnace and isolated water heaters separately vented. I also forgot to say that for all of the products, DOE always develops separate installation costs for replacement situation and for the new construction. Again about the storage water heater, DOE did**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 51

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 a specific installation cost for the power vent design that include venting system which is configured to sit on the side of the wall and it’s composed of plastic vent pipes. In the case of the condensing efficiency level, the venting system is similar to the one for power vent design. In the case of instantaneous gas water heaters, DOE accounted for the power vent design which includes the cost of electricity outlet as well as the required venting. For replacement situation, again accounted for the installation of new vent system as well as for commonly-vented water heater which includes different costs, like a disconnecting water system and

so on. The installation costs for the condensing design further includes plastic vents and the cost of the condensate, to remove the condensate disposal. For oil storage water heater, I’ll just mention that we distinguish between the cost of applying regular type L vents versus the usage of the stainless steel vent at the efficiency levels above .62. A lot of details about venting approach are in the TSD, Chapter 8. As well, there is specific**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 52

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Appendix 8-A, which addresses many of these issues. MR. BROOKMAN: Let’s pause for a moment on water heaters. Frank Stanonik. MR. STANONIK: Frank Stanonik, AHRI. Alex, it’s -- in what you’ve gone over here, particularly Slide 83, at least the indication is that the analysis doesn’t consider that there are any space constraints relative to gas storage water heaters or, for that matter, oil storage water heaters, and I guess I would just want to point out that -- and maybe just a question of what measures you’ve looked at, but obviously there is still a need with those types of storage water heaters to make sure the tank, the finished tank doesn’t get too wide. It still has to go through a door and you have the added situation that -- and again it’s not necessarily identified here, but certainly some ways to improve efficiency on these products is to increase the heat exchange area which in some cases means you end up making a taller water heater. In replacement situations, that also presents some difficulties, introducing a taller product where a shorter one existed, particularly in the case of the venting and the vent connector because the vent connector needs to be sloped upward to the vent and**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 53

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 again we’re dealing with the real world and some of these replacement installations as far as the venting system are already marginal systems and trying to now put in a higher water heater and still have that -- without replacing the vent connector, if one wants to do it properly, those two things don’t -- are incompatible. In fact, there’s now an added cost because I have to redesign part of the vent system. MR. BROOKMAN: Okay. DR. LEKOV: Here is the answer. DOE, in fact, did an extensive analysis to assess the space constraints associated with increasing the installation of the water heaters above two inches installation and it is an additional cost that’s added and the matters how to do this is described in the document. MR. BROOKMAN: In the TSD? DR. LEKOV: Right. MR. BROOKMAN: All right. Frank, keep going. MR. STANONIK: Frank Stanonik, AHRI. So, Alex, I’m going to -- so are we to interpret that at least in the case of -- and again I didn’t read it all yet, but in the case of gas and oil storage water heaters, none of these levels in the analysis would require more than two inches of insulation? DR. LEKOV: For gas, you’re right, that’s for**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 54

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 gas. There is no more than two inches of insulation. MR. STANONIK: Okay. DR. LEKOV: For oil, the space constraint issue is applied and it’s very expensive to apply in the case of electric water heaters. MR. BROOKMAN: Yes, George. MR. KUSTERER: George Kusterer, Bock Water Heaters. I just need to allude to what Mr. Stanonik had just mentioned with regard to flues and so forth with the higher efficiencies. As Frank alluded, some of these heat exchangers may have to be taller. We’re concerned about getting it through a door, but what we need to be concerned about is the venting system, as Frank alluded to, and again in some cases, even in a replacement situation, we may have to redesign the entire venting system. Where it’s no longer natural draft, we may have to put in some type of a power venting device which is another added cost. So these are things that DOE needs to take into consideration. MR. BROOKMAN: Thank you. Let’s proceed. Yes, Mohammed. MR. KHAN: Mohammed Khan, DOE. Just to follow on the same issue here about the growth in**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 55

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 height as a result of increased surface area of the internal heat exchanger. I was just wondering whether manufacturers consider versus making that taller, making the heat exchanger wider in diameter or bigger in girth as -- in an attempt to maintain the same height. I was just wondering whether that’s an approach or if you have any comment or any idea, you know, what’s more frequent. Do you tend to make them taller? Do you tend to make them wider, the heat exchanger part? MR. KUSTERER: George Kusterer, Bock Water Heaters again. Normally flue diameters are generally -- can run anywheres from four -- well, on the oil side, they’re generally six inches for a residential application. Again now, if we were thinking of making it wider, say go to seven or eight inch, it’s going to decrease the volume of the stored water which definitely has an impact. It would again make the water heater wider if we wanted to keep the same storage and we would still have to change the ventingsystem because most appliances out there today are sixinch vent. So here we come out with an eight-inch flue or an eight-inch exhaust vent. Now we have to tell the**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 56

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 consumer they have to go to full eight-inch because that’s what the Code requires. So, in other words, you know, FAP-31 for oil-fired water storage heaters basically tells you what the flue diameter of the appliance is, is the flue diameter that you have to put in to the venting system or to the chimney. So again, with -- it may be an option, but it would be a difficult option. MR. BROOKMAN: Okay. Thank you. Yes, Frank. MR. STANONIK: Frank Stanonik, AHRI. One other factor, and I’m sure every one of the manufacturers could give you a better sense of how significant this is or isn’t, okay, but if you increase the diameter of the flue, all right, the ratio of the surface area that you have for heat exchange versus the volume of products of combustion passing through thatflue is different at a four-inch flue versus a threeinch flue and different, I think, in the wrong direction. You know, you want to maximize how much surface area is, if you will, touching the products of combustion. You make a bigger flue and you’re changing that ratio, I think, in probably the wrong direction, but again what the real impact is, the experts could tell you.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 57

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. BROOKMAN: Lance. MR. DeLAURA: One other quick comment. I’d mentioned this previously. In California, we have water heater cabinets that are outside because of the modest climate and so there’s a size constraint there. If you get too big in girth or too high in the height, it’s not going to fit in the cabinet. Also, a number of builders in the early to late ‘60s, maybe all the way up through the mid ‘70s, put water heaters, my house is one of them, where the hinges are for the garage, between the hinge point of the garage and the garage wall, and the water heater barely fits in there. So you actually run into a point where you’re going to have to relocate the water heater if you get much bigger in girth. MR. BROOKMAN: Molly. MS. TROMBLEY-McCANN: So it sounded like there was about a two-inch clearance in width where you could tolerate an increase of about two inches in width, that sounded like what Dr. Lekov was saying before you get into increased installation costs. Is there a sense of how much taller you could go before you start running into these flue and venting problems? Is there -- like could we -- is it two inches? Is it five inches? Like how much play is**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 58

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 there in the system? MR. DeLAURA: Could I answer that relative to the situation I just described? At two inches, the water heater will not fit in that configuration between

-- MR. BROOKMAN: Two inches broader, bigger girth? MR. DeLAURA: Bigger girth, will not fit between the opening of the wall and the door hinge. MR. BROOKMAN: In your house? MR. DeLAURA: In my house in particular, which is a fairly stock design for that vintage. The other issue in the water heater cabinets, depending on what the size of the water heater is that’s already installed, you could be running up against a problem. MR. BROOKMAN: What about height? MR. DeLAURA: Height, there’s a little more forgiveness in the water heater cabinets. MR. BROOKMAN: George, you’re next. MR. KUSTERER: George Kusterer, Bock Water Heaters. Height is -- and again depending on the scenario, but we have situations where we have water heaters in crawl spaces. So in some cases -- and in**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 59

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the majority of the standard homes, in my particular house which is a standard home that was built, I guess, when Columbus came here, but if I had a water heater that was -- let me say it -- let me put it to you this way. I have a 30-gallon water heater in my house. If I were to put in a 50-gallon water heater which is just a little bit higher, there is no way, my vent would be pointing down and again it would be against Code and create a problem. So even an inch or two in some cases would be significant to the installation of that equipment. MR. BROOKMAN: Frank. MR. STANONIK: Frank Stanonik, AHRI. I think George was primarily talking about the oil-fired product and the answer, unfortunately, to your question is there isn’t an easy answer because the -- when you look at the gas and electric products, the manufacturers historically offered short models, what I would call even a medium model, which I’m not sure -- there was a universal definition of medium, but there was -- and then a tall, okay, and so it’s not so much what is the right size but dealing with the fact that, again whatever the number is, 90, 100 million water heaters out there, more than that probably, but**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 60

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 whatever that number, the manufacturer has to -- would like to have and we hope he can have a replacement model that will go in there and so the issue is not there’s this magic number you can’t exceed the height, the issue is trying to write a regulation that will still allow the manufacturer to build a complying product that fits that height. MR. BROOKMAN: Molly. MS. TROMBLEY-McCANN: So just to follow up, if -- assuming that a water heater of a certain size has been installed, how much bigger could the water heater get for that same installation location before it would become a problem? Is there, you know, -- you could go up two inches from whatever you were previously? Do you understand what I’m saying? MR. STANONIK: I think I understand what you’re saying. Frank Stanonik, AHRI. And again, all right, let’s -- I’m going to hopefully answer it but maybe a little bit differently. All right. I’ve got whatever this existing installation is and in fact the draft for the vent connector just meets the Code and the basic Code is, if I remember right, like one inch -- MR. KUSTERER: Quarter of an inch per foot of rise.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 61

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. STANONIK: Okay. Quarter of an inch per foot of rise. Thank you, George. Okay. I just made it, okay, and so I’ve got right now a properly-designed venting system, all right, and if you’ve looked at drafters on water heaters, they’re -- I don’t know that anybody makes them any smaller than they do today. Okay. So if I -- literally, if I brought in another water heater that’s an inch taller, that vent connector no longer is to the Code and, more importantly from our aspect, probably won’t operate properly. You probably won’t get proper venting out of that system and so that vent connector now has to be changed out and hopefully that’s all. Hopefully you have room to just change where it enters the venting system. So there isn’t, you know, an answer because what we don’t know is, okay, of whatever size, how were they installed? Were they installed with venting systems had room for adjustments or were they installed with venting systems that, you know, made it but literally just made it? I mean, you know, nobody likes -- you know, everybody wants to put the water heater out of the way. They don’t want to devote any floor space to it. It’s the ugly child and it just goes in the back somewhere.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 62

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. BROOKMAN: Alex, take us pretty quickly through Preliminary -- pardon me. I left a couple people out. Joe, and then Robert. MR.BOROS: Joe Boros with Rheem Manufacturing. I’m looking at -- maybe a question for Alex. I’m looking at Appendix 8 where you’ve provided calculations for space constraints for three-inch insulation. If I understand correctly that’s for electric water heaters. DR. LEKOV: That’s correct. MR. BOROS: There’s a $219 adder that’s identified here. Was that put into the cost analysis in the Payback? There’s a note here relating to a $36 adder as what is being applied rather than the $219. Could you explain that? DR. LEKOV: It has to do with the applicability -- to the type of installation, the location of the water heater, and there’s some assumptions of which part of this applies to the average cost. So I would say I don’t remember this exact statement there, but I assume that you are talking**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 63

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 about the average cost which is applicable to all households, but it will be distribution as with all other parameters which will vary from zero to the whatever costs we calculate. MR. BROOKMAN: Robert. MR. GLASS: Thank you. Robert Glass with Raypak. One question on the comment on the water heaters we’re talking about here is that with the recognition with new home construction an increase in height, the diameter, whatever else is really not a big deal, but when you’re talking that that’s -- represents a very, very small percentage of the overall market of the water heaters, the thing that you need to look at is these units are certified with minimum clearances to combustibles and as a result of that, as they’re installed, they can’t be installed any closer than what those minimum clearances are, but if you come in and try to put a replacement that is of larger diameter or height that affects the clearances, if they were installed at minimum clearances at one diameter and you’re looking to put a replacement in that’s larger diameter, it may not fit because you may not meet the minimum clearances that are required. So that’s one thing that DOE has to take into**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 64

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 account from the replacement side of the market and the replacement side of the market is the ultimate vast majority of the water heating market. MR. BROOKMAN: Okay. Thank you. Now, Alex, quickly, push us through pool heaters and direct heating equipment. DR. LEKOV: Okay. About -- first, let me mention about the heat pump installation. So, in addition to other costs, in the case of heat pump water heaters, DOE added costs for condensate pump, for longer water line to the drain, as well as accounted for space constraints, including adding ventilation provision using a fully-levered closet door, and one additional cost is for a larger drain panel. In the case of direct heating equipment, DOE derived the installation cost from the -- using the same approach which was outlined in the 1993 TSD. It’s added installation costs for designs that require electricity and this was done, of course, for the replacement market only. For pool heaters, DOE derived the installation costs data from using essentially R.S. Means mostly. The main additional installation costs are for the electronic ignition and electronic and**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 65

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 condensing design. MR. BROOKMAN: Yes, Robert. MR. GLASS: Robert Glass with Raypak. With the higher-efficiency equipment that you indicate you’ve included condensate drain piping, the one thing that DOE may not have taken into account is that you’re probably going to need a condensate pump because these units are not located necessarily right next to the house and many times they’re located as far away from the house as possible and as a result of that, you can’t just take that condensate and put it in the grass or in the flowers. They’re not going to like the acid of the condensate. So you may also have to factor in a condensate pump and appropriate piping, more than just piping from the unit to a drain, in order to account for that with the high-efficiency units that you have here, and I don’t believe DOE’s taken that into consideration. MR. BROOKMAN: Okay. Thank you. DR. LEKOV: We accounted for a longer time to this so-called PT Trap, essentially, which is apparently mandated by the Code in this situation, and regarding the adding the condensate pump, we added this for the part of the installation. I need to doublecheck this, but it’s definitely a point to be**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 66

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 considered. MR. BROOKMAN: Okay. Direct heating equipment. DR. LEKOV: I already mentioned what we did for direct heating equipment. MR. BROOKMAN: Great. Okay. So then additional comments on that before we go to the next -- go to the next slide, Installation Costs Flow Chart. DR. LEKOV: Yeah. Basically, this flow chart

-- MR. BROOKMAN: Let me interrupt. Folks, we’re going to take a break for lunch in about five minutes, so hang in there. Okay? DR. LEKOV: I would suggest the next three slides to wrap up the total installed costs -- MR. BROOKMAN: Yep. DR. LEKOV: -- components and after that. So the flow chart here, on the left part are shown the determination of the hours associated with installing the equipment. On the right part, we have the cost, the labor cost as well as the material cost. Both combined produce the installation costs. It’s done individually for every single household in the analysis. The next slide shows examples of how, in**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 67

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 general, the installation cost was determined. This is the case of gas-fired storage water heater basic installation replacement case. As you see, it’s a standard R.S. Means calculation. On the very left part are the charges, the description of the charges. After that are the costs itself and the bottom corner, right bottom corner, you get the total costs derived for this particular installation component. Appendix 8-A includes tables for all equipment and cases. Once we have the equipment costs as well as the installation, it’s possible to derive the total installed costs. Again, here is an illustration in the case of gas-fired storage water heaters and as the upper line shows the cost, essentially the installation cost -- the total installed cost versus the energy factor. In this particular case, you could see three groups of points. The left part, the three points illustrate the total installed costs of natural draft design. The next three points, there is a jump to show the power vent design costs and the point on the very right of the chart shows the cost for the condensing design. So I’m about at the half point of the LCC**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 68

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 presentation. MR. BROOKMAN: Let’s pause here and take questions and comments on the preceding one, two, three, four slides at least, perhaps five, and just summary comments or other issues that haven’t been covered already. Yes, Frank. MR. STANONIK: Frank Stanonik, AHRI. Alex, on this installation cost determination, have you yet in this analysis tried to, I’m going to say, reconcile the estimates that came out of this table here with the kind of information we saw in the SEGWHAI project which, by my rough guess, would indicate that the installation costs are at least $2-300 more than your estimate? DR. LEKOV: We looked at the SEGWHAI estimate. MR. STANONIK: Excuse me, excuse me. Let me clear. My understanding is that the SEGWHAI didn’t estimate. They did a survey in that study. DR. LEKOV: Let me use the word we looked at the SEGWHAI numbers. MR. STANONIK: Okay. DR. LEKOV: And my recollection is that in terms of total installed costs, DOE estimated higher than SEGWHAI. As everybody knows, as engineers know,**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 69

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 R.S. Means approach is considered pretty conservative. Generally, it provides costs at about 30 percent of what’s generally charged in the field, but DOE went directly with the R.S. Means numbers. MR. BROOKMAN: Additional questions, comments on these, on this set of slides? Robert. MR. GLASS: Yeah. Just one other comment on Slide 87 from the standpoint of when you’re getting over there with a unit at .77 and you end up having the same installation costs as units that are .64 through .66. The .77 being a condensing unit, you’ve got to have dealing with the condensate-managed neutralization that I don’t believe is taken into consideration because you’ve got a flat line from a .64 all the way over and including the .77 and so the installation costs cannot be the same because you don’t have that condensate management that you have to do at the .77. DR. LEKOV: We have -- I don’t know why it’s not visible here on the chart. The installation costs for the condensing design is the same as for the power vent with the additional cost of the condensate disposal. It’s included. MR. GLASS: Okay. Well, it’s not on that**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 70

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 chart that’s behind you. DR. LEKOV: Okay. I will check. MR. BROOKMAN: Okay. Thank you. So I think that we should pause for lunch, even if we’re not ready and I think we are. Let me offer this. We don’t want to short shrift any of these slides, these last few slides, even though our attention seems to be waning right now. So when we return for lunch, immediately when we return from lunch, if we want to double back and cover anything, any additional comments on the record, we’ll do it at that point. It’s now 1 o’clock by the clock up there. It typically takes about an hour to eat lunch here in the Forrestal Building. So let’s pause now. This room will be locked. You can leave your stuff here. We will return and start literally at 2 o’clock on the nose. We’re a little behind schedule but we will catch it up. Please wear your badges in the building. (Whereupon, at 1 o’clock p.m., the meeting was recessed for lunch, to reconvene this same day at 2 o’clock p.m.)

A F T E R N O O N S E S S I O N**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 71

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (2:00 p.m.) MR. BROOKMAN: Okay. Let’s start back here. Please take your seats. Let me, as a housekeeping matter, the department has made a Xerox copy of the attendees, all of the -- compiled all of the business cards and they’re available on the Registration Desk over there, if anybody wants to get that now or when we take our afternoon break. So we’re going to resume where we left off which is with Alex and I think we’re at Energy Use Characterization. DR. LEKOV: So just to summarize, we ended up with the derivation of the total install cost. Now, the remaining part of this presentation focuses on the derivation of the operating expenses. The first step to start the process which essentially involves, first, the determination of the energy use is to select the household example. We started with 2001. This particular slide here shows the sample for water heaters, shows the assumptions that followed through the database in order to arrive at the sample for the three fuel types. One thing to mention here is that the gas storage water heater and the gas instantaneous water**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 72

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 heaters use one and the same sample. DHE and pool heaters are also selected based on the criteria from direct database. Once we have the samples determined for the Monte Carlo simulations, the next step is to perform the load calculations and to assign the base case products. Basically for water heaters, we used the hot water draw model, and I’ll focus on the pool heater a little bit later, and pool heaters and DHE was calculated using RECS energy use. Base case assignments are based on the estimated market share distribution at each efficiency level. MR. BROOKMAN: If you have questions about these methodologies, you should speak up. Some of this is -- I think many of you are familiar with this, but those of you that are new. DR. LEKOV: On this, the previous slide, most of the things I’ll be going in detail, so you’ll have opportunity for questions. MR. BROOKMAN: Okay. Good. DR. LEKOV: Now, we’re talking -- MR. BROOKMAN: Right now, Robert, yes. MR. GLASS: Robert Glass with Raypak. Base case assignment based on estimated market share**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 73

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 distribution of each efficiency level. In other words, did you take the listing of the products in the AHRI Directory and then kind of weight how many there were in each classification and identify them in that because that’s not market share? It’s not even close to market share. DR. LEKOV: Here is the story. For all product, with the exception of pool heaters, we -- the department received information from AHRI. For pool heaters was not available this information. Therefore, we went through the number of models and developed this particular distribution which you called market share from this information. MR. BROOKMAN: So he’s not defining market share as you’re defining market share, it seems, Robert. DR. LEKOV: For this particular -- MR. GLASS: Yeah. Well, and as a result -- Robert Glass with Raypak. I mean, as a result of it, then don’t use the word “market share” because it’s a misnomer. What you’ve identified is you’ve taken it based on the number of models at a specific efficiency level and therefore the number of models that are listed in the directory under those is what identifies**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 74

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 how you’ve gone ahead and selected it, but that’s not a market share. DR. LEKOV: It’s a labeling issue, Robert, because we need some matter to derive the market share and that’s an approach which the department uses sometimes when there is no -- I agree it’s not market share. MR. BROOKMAN: It would be a segmentation or something like that. DR. LEKOV: Yeah. MR. BROOKMAN: Yeah. Okay. Okay. Keep going, Alex. DR. LEKOV: So hot water draw model. This is the matter used to calculate the hot water use at household level. Again, this tool was used during the 2001 rulemaking. Many folks here are familiar with it. It essentially has been developed in 1996 by EPRI, additionally improved by our lab in 1999 and 2006, and used for this particular rule. As you see here, it accounts for a number of parameters. Most of them are constructed either from RECS database or from weather data. Results. The results for hot water use are presented in this box chart and for the three fuel**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 75

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 types you see what are the ranges of use in the United States households. In order to understand the chart, the box in the middle represents the average values, the average value for this particular product class, and the thick line represents the median. The upper end and bottom end, the upper end is the distribution are also shown. The values for gas storage water heaters are assumed to be the same for gas instantaneous water heaters. MR. BROOKMAN: Steve Rosenstock. MR. ROSENSTOCK: Steve Rosenstock, Edison Electric Institute. On this slide, the values that are shown within the box, the 45.5 and the 43, are those the averages or the medians? DR. LEKOV: Those are the averages. The median is the thick line below it. MR. ROSENSTOCK: Okay. So those are the averages, okay, and my next question is for the DOE Test Procedure, again I didn’t read the revised one, but is the Test Procedure still assuming a total daily usage of 64.3 gallons? DR. LEKOV: Yes, it is. MR. ROSENSTOCK: Thank you. DR. LEKOV: As I mentioned, DOE assumed the**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 76

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 same values for hot water use for storage and instantaneous, and this slide is to invite comments on this assumption, whether it’s correct to assume that instantaneous gas-fired water heaters have the similar assumption for daily use as storage water heaters. MR. BROOKMAN: Similar with respect to? Similar in terms of number of gallons, actual consumption, the actual consumption. DR. LEKOV: Number of gallons. MR. BROOKMAN: Okay. Frank Stanonik. DR. SACHS: No, Harvey. MR. BROOKMAN: Harvey. Pardon me. Almost twins, I would say. DR. SACHS: You want to get him first. MR. STANONIK: I didn’t raise my hand. DR. SACHS: Harvey Sachs, ACEEE. I guess, Alex, I’m a little bit confused, both about Slide 90 and about what we’re going to do with the information. This is model-derived estimates of hot water use, but it’s not clear to me how the model is populated from household occupants to showers per day, from household occupants to loads of wash per week, and is that based on field data or is that ethereal guesses or -- it’s not -- is that detailed in the TSD how this model was populated?**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 77

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 DR. LEKOV: That is in an appendix called Hot Water Draw Model which I hope we will answer in detail, but it’s probably worth it to say that we’re talking this model is an equation, an equation which addresses here the five boxes you see, the five boxes show the groups of parameters. So it’s the coefficients and each of these ones could be five or six different information pieces. It includes like a number, like a number of persons in the household, number of school-aged children, adults below 64, above 64, and many other parameters. It includes also information about hot water-using appliances other than water heaters, like dishwashers and clothes washers. This is in fact DOE refined the model now to account for the 2007 clothes washer rule and for 2010 dishwasher rule. So there is a number of regression coefficients derived by EPRI and refined by DOE now to arrive at this result. Now, where this information comes, most of it is household-specific information as derived from RECS and some of it is weather data from the sources as described in the TSD. MR. BROOKMAN: Harvey Sachs. DR. SACHS: Harvey Sachs, ACEEE. Thank you**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 78

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 very much, Alex, but what you have told me suggests that it is very poorly constrained by anything resembling near-current field data on actual water uses. It’s not closely calibrated. DR. LEKOV: Okay. In fact, we did some assessment of available field data and you know very well how little is available and how inconclusive it is. Our not full-scale validation showed us those are pretty reasonable or probably the distribution which we could expect. DR. SACHS: Thank you. Harvey Sachs again. I would infer that you’ve done a very elegant job with the available information and presented us with relatively good precision, but we really don’t have an adequate basis of field data to understand anything about the accuracy of the average draws, average water use presented here. DR. LEKOV: With that, DOE will ask the stakeholders to provide as much possible information to refine the answer and basically come to the information Harvey’s asking for. MR. BROOKMAN: Robert. MR. GLASS: Robert Glass with Raypak. Just a point or a question of clarification. Alex, I thought**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 79

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 that you had said that you used the value, the 64.3 gallons, that the gentleman from Edison Electric was talking about, and yet in here, in the next -- the Slide 92, it says that you used 45.5. So you haven’t used or that number has changed because that’s the question that you just asked. DR. LEKOV: If the understanding was that we used the Test Procedure default value, that’s not correct. The only value used is the distributions which are derived through the use of the hot water number. So the answer is DOE never used the default test procedure 64.3 gallons per day use as listed in the Test Procedures. MR. BROOKMAN: Steve Rosenstock. MR. ROSENSTOCK: Just to follow on, the DOE Test Procedure is just used for the Engineering Analysis. These numbers that you’re seeing in the box are used for the Life-Cycle Cost Analysis. So they’re two separate numbers but it’s just they’re -- I was just asking about them just to find out about the significance and the difference, but they’re using them in different analytical portions of this rulemaking. MR. BROOKMAN: So this is such an important data point. Are there other sources of data that the**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 80

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 department can obtain that would help to understand these differing consumption patterns? Is there something out there that -- Lance. MR. DeLAURA: Harvey, I was in the room. Did you talk about Jim Lutz and the work that he’s done? You did. Okay. Never mind. MR. BROOKMAN: Okay. Don. MR. BRUNDAGE: The department would use the 64.3 for the rebuttable presumption three-year payback test, but for their economic analysis here, they’re using these 40 something gallon numbers. These numbers look in the range of what I would expect. I’ll try to find some numbers for you. In my company, finding numbers and being able to give you numbers to go in the public domain are two different questions. I’m sure that’s true with everyone. MR. BROOKMAN: I was wondering, Frank, if you all gather this kind of data and then you can aggregate it, just not to put you on the spot, mind you. MR. STANONIK: Frank Stanonik with AHRI. We’ve been trying for years. MR. BROOKMAN: That doesn’t sound especially hopeful. Okay. Well, I’m certain the department**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 81

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 appreciates any efforts that you can bring forward. Harvey. Go ahead, Francine, follow-up. MS. PINTO: Francine Pinto from GC. Frank, are you satisfied then, since you’ve been trying for years to get this data, are you satisfied with what DOE has done here? (Laughter.) MS. PINTO: Not to put you on the spot. MR. STANONIK: Frank Stanonik, AHRI. I will say -- well, basically, yes. I mean, I don’t -- haven’t seen any data to the contrary. The data I have seen and including some much older work does certainly point in the direction that the average hot water, daily hot water use in the American household is something less than the 64.3 that was assumed in the DOE Test Procedures. The last attempt that was tried to look at available data out there, and I only recall this because of how it came out, was that EEI did some looking at that. AGA did some looking at that and, amazingly, they both came out with an estimate of around 50 gallons of hot water a day from -- at least back when that was done, they were a little more openly competitive and so it was just surprising they kind of came to the same answer.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 82

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. BROOKMAN: Harvey Sachs. DR. SACHS: This is Harvey Sachs with ACEEE. Francine, I would respectfully suggest that since 1980, the department has been forced to be derelict in the basic gathering of field information that would allow estimates of energy savings to be made on a national basis. It’s not only about patterns of hot water use but we have no assurance at all that voluntary programs are actually saving what they think they save because we simply do not know enough of this fundamental common information because -- which cannot be -- whose value cannot be captured by individual firms and which would have enormous value to all of them as they design their products and to those of us in other sectors who are trying to look for ways to improve energy savings. We hope that this will change but -- and it’s certainly not General Counsel’s fault, but we cannot suggested that the department has fulfilled the obligations entrusted to it under its charter. MR. BROOKMAN: So let’s proceed with product assignment and base case. Mohammed. MR. KHAN: Yes, Mohammed Khan here, DOE. We had a lot of discussion a moment ago about the appropriateness of the range of average values for the**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 83

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 water heater types here on Slide 91, but I just want to remind folks that the particular question was regarding the assumption about instantaneous water heaters, the consumption associated with those. So I just want to ask one more time before we move on if we can get any comment on that. MR. BROOKMAN: Harvey Sachs. DR. SACHS: Harvey Sachs, ACEEE. The question I have is how you’re going to take these numbers of typically 45.5 gallons per day, do the LCC Analyses and then map this back into the EF values since there are questions about how EF relates to actual water uses, to actual water use patterns as well as water use volumes. MR. BROOKMAN: Maybe we could try to address Mohammed’s question and then return to yours, Harvey. Does anybody have anything, any -- would bewilling to offer a comparison on instantaneous gasfired -- the volumes -- yes, John. MR. CONFREY: I have a comment, I guess, to the negative. I don’t think there is any data available to suggest there is a difference and I think that’s why nobody’s offering the data. MR. BROOKMAN: No data to suggest any difference?**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 84

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. CONFREY: Right. MR. BROOKMAN: So it’s a reasonable assumption to presume that they’re pretty much the same? MR. CONFREY: I don’t know. MR. BROOKMAN: Okay. DR. SACHS: Harvey Sachs, ACEEE. We are aware of two utility studies today which have not yet been published. We will urge their authors to hurry up, but they are indicating -- the leaked information is that the decreases in energy use are not proportional to the differences in rated EF between the tankless and tank-type water heaters. MR. BROOKMAN: Okay. DR. LEKOV: With that, I will show the slides which explain the product assignments in the base case. Here, this chart shows -- table shows the values which were assumed for the analysis and the main thing to notice here is that the base case product efficiency assignments account for the fact that not all consumers purchase products at the current minimum level and also that LCC Analysis recognizes that consumers already are purchasing products at the efficiency greater than or equal to the considered efficiency values.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 85

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 So the data is provided by AHRI mostly for water heaters. One notable exception are the values for -- at Level 6 which is for gas storage water heater and electric storage water heaters which include values based on the Energy Star market penetration in 2015. In fact, this is the 50 percent of what Energy Star anticipates at this time. MR. BROOKMAN: Steve Rosenstock. MR. ROSENSTOCK: Steve Rosenstock, EEI. Looking at these numbers, I’ll just concentrate on the electric storage, assuming that heat pump water heaters at a 2.2 energy factor get a five percent share in five years where right now they’re about -- all heat pump water heaters are about .2 percent, that might be a little on the aggressive side and as I said before, because of the issues with Energy Star, I personally have a hard time believing that the market share is going to be that high. That’s my own personal belief, just my thoughts. Thank you. MR. BROOKMAN: Thank you. Don Brundage. MR. BRUNDAGE: First, let me make sure I understand what I’m looking at. Are we talking current market shares here? DR. LEKOV: That’s the base case market share**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 86

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 in 2015. MR. BRUNDAGE: Okay. All right. And this was based on residential market or total shipped or what? DR. LEKOV: This is based on the shipments by efficiency as provided by AHRI. MR. BRUNDAGE: Okay. Five percent looks a little high, especially for the residential market. There’s some commercial niche markets that even now heat pump water heaters do well in. I think five percent of the residential market is -- that’s a little high. Thank you. MR. BROOKMAN: Thanks for those comments. Yes, Frank Stanonik. MR. STANONIK: Frank Stanonik, AHRI. I guess I want to make sure that I heard what I heard. Okay. This information was information we provided to you, historical information on shipments by efficiency levels for the baseline product, and I thought I heard you say that this was the projected market shares in 2015 when the rule would go into effect. DR. LEKOV: Basically, we kept -- MR. STANONIK: Or earlier, if Andrew wants**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 87

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 it. DR. LEKOV: -- the AHRI 2007 data constant. MR. STANONIK: So you kept it constant. Okay. So this does not at the moment factor in the introduction of the Energy Star level at the beginning of this year? DR. LEKOV: No. MR. STANONIK: Okay. MR. BROOKMAN: These percentages are the same as 2007, correct? Okay. Karim. DR. AMRANE: Karim Amrane, AHRI. Maybe Frank will correct me if I’m wrong, but I don’t think we provided shipment data on heat pumps. MR. STANONIK: No, that’s why I say, that level we -- they made up the numbers. I’m sorry. Frank Stanonik, AHRI. At that level, they had to make some assumptions. We did not provide data. MR. BROOKMAN: Thanks for that clarification. DR. LEKOV: For Level 6, just for the record, Level 6, DOE took the numbers from the Energy Star Program projection. In fact, it used 50 percent of the energy. Those are not made -- nothing. MR. BROOKMAN: Is it Terry? I believe it’s Terry. MR. MULLEN: Yes, Terry Mullen with Bock**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 88

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Water Heaters. Just making an observation on the oil-fired storage. It seems like the market share numbers are somewhat, I think, slanted toward the lower efficiency units where I think the actual market share in Level 5 would be much -- and actually Level 6 -- much greater than the numbers shown. MR. BROOKMAN: Can you say what -- or you can provide it in your written comments. MR. MULLEN: Well, we did provide information that market share levels or units, volumes at those levels. MR. BROOKMAN: Okay. Great. MR. MULLEN: But it’s substantially more than that. MR. BROOKMAN: Okay. Thank you. DR. LEKOV: DOE reflected exactly the values that came from the data submittals. MR. BROOKMAN: You aggregated them and that’s what you came up with. Just guessing. Okay. AHRI data. Okay. So additional comments on the product assignment and base case, this chart on 93, before we move on? Okay. Yes, please. MR. BEYERLE: Mike Beyerle with GE. Of**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 89

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 course, five percent is, of course, an extrapolate, everybody’s best estimate, but as a point of comparison, if you look at a comparable fairlyexpensive, fairly complicated product, which is frontload laundry, front-load laundry went from a zero percent market share in the United States to a 30 percent market share in the United States within 12 years. So it’s not unreasonable to expect maybe five percent on something like this within a five-year time period. MR. BROOKMAN: Okay. Thanks for the analogy. DR. LEKOV: With that, let’s look at energy calculations. So for water heaters, DOE used the WHAM Model. It’s the same model which was used also throughout the 2001 water heaters rulemaking, and on the next slide, I’ll focus on some specifics related to the application of the model. The top three bullets, major bullets essentially are talking about which efficiency characteristics are used, about the temperature parameters and the sources and how those were developed. I’ll go directly to the explanation of how we adjusted the WHAM equation to account for the heat pump**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 90

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 water heaters. So what we did there was to account for the specific operation of this type of equipment and essentially the performance was adjusted to account for the different ambient temperatures as well as to account for the cooling and heating impacts on condition space. Because this is such an important adjustment, I’ll a little bit elaborate on this. So we used two models, John Maxwell as well as the model from the DOE Weatherization program, to derive the adjustment for the different ambient temperatures. In fact, the result is that the operation is assumed that switches 100 percent to resistant electric heating when the temperature is below freezing and there is significant fraction of time above 32 degrees Fahrenheit when the unit operates using the electric resistance elements because of insufficient water availability. Another major adjustment was made for the energy used of instantaneous gas water heaters. Basically, DOE adjusted the performance again to account for the field conditions and it’s based on 2006 CEC report. During the interpretative statement, Frank Stanonik basically expressed -- he essentially was surprised that this is done based on a single data**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 91

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 point, but in fact over the last three years, DOE representatives were at different forums where this was mentioned and there were very good explanations of the thermal conditions that result in this efficiency, the duration, and in fact DOE was not able to record any negative statements about the CEC results. As a result of this, DOE is applying this for the Preliminary Analysis and as you’ll see on the next slide, it requests comment on this assumption. MR. BROOKMAN: Steve Rosenstock. MR. ROSENSTOCK: Steve Rosenstock, EEI. On Slide 95, you say, “An 8.8 percent reduction.” Is that in the stated efficiency, the stated energy factor, that you’re knocking it down by 8.8 percent compared to the Test Procedure? DR. LEKOV: It’s done in an elaborate way within the formula, but effectively it results in an 8.8 percent additional energy factor of the reported energy. MR. BROOKMAN: John. MR. CONFREY: John Confrey, Noritz North America Corporation. Obviously, I have a problem with this. I mean, to Frank’s point, this is, you know, based on exactly one data point, one water heater in a house**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 92

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 that only had two people in it. So it’s not representative of even, you know, say the average family, the data point, the data that this is coming from. So to pick an extreme data point and then base a decision on that, I think, is, you know, again to Frank’s point, very dangerous. I think Harvey will probably raise his hand next and say, you know, what he mentioned before about utilities doing tests and I think if utilities are doing tests and shows that there’s a difference, then we can take that a little more seriously, but this 8.8 percent data point is kind of out of left field and, you know, we had meetings with AHRI where all the manufacturers, all the instantaneous manufacturers objected to this and AHRI represented us in objecting against this to the CEC when they proposed it for part of -- I think it was the Title 24 tabulation. There definitely is, you know, some objection from the industry on this. MR. BROOKMAN: Thank you. DR. LEKOV: DOE’s not defending other people’s results. It has been used in their analysis. As I mentioned, it’s more than just taking this point because also there are this explanation of the general partners which are big fraction of the general partners**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 93

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 are short draws that are not able essentially to store the energy used in the beginning and end of the draw. It goes directly to the pool. So it’s a weighted average of number of flows of draws. This is what I write in the report. Any data and input provided would be for the valuable refinement. MR. BROOKMAN: John. MR. CONFREY: John Confrey, Noritz North America Corporation. Because there is a possible explanation for why this is possible, it doesn’t mean that it’s true, in my opinion. MR. BROOKMAN: So DOE would really welcome any data, however it could be freed up, for this purpose. Don. MR. BRUNDAGE: Don Brundage, Southern Company. I’m trying to understand how this 8.8 percent adjustment is being used. It’s going to be used in the cost-benefit of choosing the efficiency levels of the -- this is my understanding. It’s going to be used in the cost-benefit of choosing efficiency levels and figuring out how much -- what would be the economic efficiency point, but it’s not going to change the measured efficiency level of the water heater and how**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 94

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the standard is set, is that correct? DR. LEKOV: Of course, this is correct. MR. BRUNDAGE: Okay. DR. LEKOV: Also, it’s applied throughout the base case and the efficiency standard levels. MR. BRUNDAGE: I would say that ideally what we need to have is a draw pattern with shorter draws. It was not -- with storage water heaters, it’s not a big issue. I think it’s more of an issue when you start talking instantaneous. A revised test procedure, I think, would be the best, cleanest solution, but I know ASHRAE’s working on one, but it’s probably not going to be ready in time for this rulemaking. Thank you. MR. BROOKMAN: Frank Stanonik. MR. STANONIK: Frank Stanonik, AHRI. First of all, Alex, just a quick point of clarification on Bullet Number 2. it says, “And rated capacity,” and at least my experience is that designation of “P” means input and if that’s true, I would suggest calling it something other than rated capacity because capacity, we tend to think of the volume. DR. LEKOV: You’re correct. Just a typo here. MR. STANONIK: All right. And to this other**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 95

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 issue of the tankless gas water heater factor to reduce the efficiency in this report and everything, okay, the fact -- if you have talked to other people, the point is that there is still this one study and it looked at one product in one home with two people. Alex, I don’t remember if that product was a variable input product or a constant input product, but there’s quite a few models out today that are variable input. The manufacturers, I think, have tried to evolve the product to have better performance at lower flow rates because they recognize that not every use is at three gallons a minute or whatever, and I just think that there is -- you know, Doug has asked, well, if we have more data. Well, we don’t have data and even if that’s -- that may be being developed, but that still gets back to the point of taking -- there’s no other way to say it -- one data point and applying that as a universal rule in an analysis as important as this. That’s just not a valid conclusion. MR. BROOKMAN: I really think we’re getting repetitive and it’s time to move on. MR. STANONIK: You’re right. MR. BROOKMAN: Harvey, go ahead briefly. DR. SACHS: Harvey Sachs, ACEEE. First of all, I would like to express agreement with Mr.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 96

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Brundage, which may shock him, that our comments in the Framework did ask that we look hard at the rating method. Secondly, it’s not a single study on the difference in rated and effective efficiency. There is a field study to which Mr. Stanonik has referred. There’s been extensive work with alternate draw patterns considered to be more reflective of daily use, both by Pacific Gas and Electric and by Consumers Union, the latter published in October. These indicate that the DOE test method gives approximately nine EF points higher value to a tankless water heater than its infield performance would suggest for the comparable tank type. Whether the nine points could be seven or six or 13 is a different issue, but the laboratory studies which go well beyond the CEC 2006 consistently indicate that the EF proceeding is not a good reflector of the infield performance. MR. BROOKMAN: Okay. Thank you, Harvey. Steve, briefly. We’re going to keep moving on. MR. ROSENSTOCK: Steve Rosenstock, EEI. I just wanted to go back to the bullet on Energy Use of Heat Pump Water Heaters. It says, “Performance Adjusted to Account for Different Ambient Temperatures.”**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 97

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 I guess it’s T -- then I see above “T Ambient Temperature of the Air Surrounding the Water Heater Based on Installation Location Assignment.” So am I to infer that for heat pump water heaters that T Ambient has been changed for heat pump water heaters compared to other storage water heaters? DR. LEKOV: No. Here is a description of the adjustment. As I mentioned, there in fact were done two adjustments. One is for below freezing temperatures and I think this is not what you refer to.You are referring to the cases when an electricresistant element operates when the surrounding temperature is above the freezing point. So this particular adjustment accounts for the cases when households that operates the water heater has a larger water use which cannot be compensated by the operation of the heat pump water heater. So the electric-resistant elements are kicking off independently of what the temperature is and there is data used in this study to allow for this adjustment. MR. BROOKMAN: Let’s move on to Energy Use Results and the next table, Based on Average Annual Energy Use Results. I guess not. Molly.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 98

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MS. TROMBLEY-McCANN: Molly Trombley-McCann, PG&E. I had a quick question about you say you account for the cooling effect of the heat pump. Do you include the possible cooling benefit in the summer months from the additional cooling that comes from the heat pump? DR. LEKOV: DOE’s analysis accounts for the costs that the household experienced during the heating season and for benefits during the cooling season. The results indicate that the heating costs are much, much higher than the benefits during the summer. MR. BROOKMAN: Go ahead, Steve. MR. ROSENSTOCK: Steve Rosenstock, EEI. Again going back to that Slide 95 again, when I saw different ambient temperatures, I thought you were changing the ambient temperature just for that water heater and kind of the bigger picture, the slide makes it appear that you’re treating some water heaters a little differently than the other water heaters when you’re going through the analysis. Now, obviously there are probably good reasons for that, but again it’s a matter of if you’re doing certain things for certain water heaters, like field conditions or we’ve got a large family here, so**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 1 99

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 it’s going to kick on certain things that aren’t in the Test Procedure, I have a little hesitation with that, you know. You’re treating different products a little differently but with significant impacts on some of the life-cycle cost results. DR. LEKOV: That’s correct. It has about 10 percent impact on the energy usage on water heaters. The model developed by John Maxwell has been extensively used over the last four years and the report on many occasions. MR. BROOKMAN: So now let’s press on. Energy Use Results. DR. LEKOV: So here is the average energy use results for the three products, all product classes. MR. BROOKMAN: Yes, please, George. MR. KUSTERER: George Kusterer, Bock Water Heaters. I noticed with the gas-fired storage, there is zero electric consumption and for instantaneous, there is zero electric consumption. Given the fact that we have electronic ignitions and we have electronic modules, I mean, what’s the reasoning for zero electric? DR. LEKOV: It’s a baseline efficiency level which is assumed has no electricity consumption.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 00

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. KUSTERER: Well, that’s an assumption that shouldn’t have been made because it does consume electricity. MR. BROOKMAN: The baseline models, a good portion of them use those electronic switching and ignition and the like? MR. KUSTERER: Millivolt is basically from the year one, so millivolt controls are no longer used but yes, they do use -- they do consume electricity. DR. LEKOV: That’s reflected here. It has a small use of electricity kilowatt hours to account exactly for the ignition issues. MR. KUSTERER: But not on the gas and instantaneous. DR. LEKOV: On the gas-fired storage water heater, it’s a natural draft unit and that’s it. The baseline unit, .59, has no electronic ignition. MR. KUSTERER: But it still has an electronic control or an aquistat or it still requires power. MR. BROOKMAN: Let’s go to Constantin. Go ahead. MR. von WENTZEL: I disagree with you earlier, George, but there are instantaneous gas water heaters on the market that do not require external power and that do operate on standing pilot systems**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 01

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 currently. MR. KUSTERER: I appreciate that, but there

are -- MR. von WENTZEL: And they have -- MR. KUSTERER: -- also units on the market that use electronic controls and that needs to be taken into -- MR. von WENTZEL: And they have electronic controls in them, even though they use standing pilot systems. MR. KUSTERER: Okay. But that still requires consumption. MR. von WENTZEL: But not of line power. They either run -- some of them run on little water generators, others run just off of the standing pilot. It doesn’t necessarily require line power which is what I believe the issue is here. MR. BROOKMAN: Okay. So irrespective, if anybody in the room wishes to comment and provide more data to the department on how these numbers would be adjusted, that would be helpful. Steve Rosenstock. MR. ROSENSTOCK: So again, just to -- again from the earlier slides, that 17.0 for the instantaneous gas water heater is after the 8.8 percent**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 02

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 adjustment? DR. LEKOV: Back to 95? MR. ROSENSTOCK: No, 97. Where it says 17.0 million BTUs per year for the instantaneous gas-fired water heater. DR. LEKOV: Oh, okay. MR. ROSENSTOCK: That’s after the adjustment? DR. LEKOV: Thank you. Yes, it accounts for 8.8. MR. ROSENSTOCK: Thank you. MR. BROOKMAN: Okay. So other comments on this table showing water heaters and direct heating equipment and pool heaters, efficiency levels, fuel and electricity? (No response.) MR. BROOKMAN: Okay. Historical Energy Prices. This ought to be non-controversial. DR. LEKOV: Okay. So with that, -- MR. BROOKMAN: Always is, always has been. DR. LEKOV: -- we figured out the consumption and now we need energy prices to get the cost advantage. So DOE developed historical and forecasted data. Here are the four fuel types and the sources are listed here. The data is developed for the 13 regions**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 03

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 as commonly used in the analysis. Next slide is the forecasted data and essentially not much to say. It is taken from the 2008 AO. The forecast is until 2030. After that, we apply an extension methodology that EIA developed for FEMP and that’s also been commonly used in other rulemakings. MR. BROOKMAN: Harvey Sachs. DR. SACHS: Harvey Sachs, ACEEE. As we move forward with this, of course, we’ll be interested in what you do on sensitivities to these price forecasts and as well as doing the updates as they become available for 2009-2010 and so on. DR. LEKOV: The 2009 just became available and will be reflected in the DOE’s NOPR Analysis. DR. SACHS: Thank you. Harvey Sachs again, ACEEE. It’s certainly not a critique of your work, but the surprising decoupling of the electricity and natural gas forecasts beyond the year 2020 is really quite surprising. MR. BROOKMAN: Additional comments? Yes, Tim. MR. BALLO: Tim Ballo, EarthJustice. DOE has done some analysis of what this standard will do to the**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 04

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 price of gas and it would be very helpful to have the projections of energy prices, of natural gas prices that are used to derive the life-cycle costs of these products to reflect the fact that standards will impact the price of natural gas. MR. BROOKMAN: They aren’t reflected here? DR. LEKOV: The gentleman from EarthJustice, essentially he refers to the DOE’s Preliminary Analysis impact of the standards on the natural gas prices which are done at the end of the National Impact Analysis, and basically are you suggesting to have to look to include the reduction in the cost in the forecast here. MR. BALLO: Tim Ballo, EarthJustice. Yeah. Well, essentially, you’re saying that the standard will impact the price of natural gas in one part of your analysis and then to have the rest of the analysis not reflect that impact. I think if the department does show the impact, the whole analysis should reflect it. DR. LEKOV: As we’ll mention probably in about an hour at the pace we are going, the natural gas impact price scenarios are for this group here to provide the input for the actual analyses that are going to happen during the NOPR phase. DOE proposes to do this in the NOPR phase. MR. BROOKMAN: Steve Rosenstock.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 0 5

DR. LEKOV: So there were no intention in the discussions to be reflected. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. BROOKMAN: Go ahead, Steve. MR. ROSENSTOCK: Steve Rosenstock, EEI, and as before you’re assuming that some of these will be placed in commercial facilities when you’re doing the analysis? DR. LEKOV: Excuse me? MR. ROSENSTOCK: For the price projections, that a certain percentage will be at commercial rates rather than residential rates? DR. LEKOV: For the current DOE analysis assumes that these three products will be entirely installed in the residential environment. MR. BROOKMAN: Okay. Final comments on these two charts, these two forecasts? Yes, Robert. MR. GLASS: Robert Glass with Raypak, and I’m sorry, I need to digress for just a second, just to the last thing that we talked about, the baseline energy costs. The pool heater was listed. It had 78 percent thermal efficiency for the baseline and then it had an assumed fuel consumption in million BTUs per year. The thing that we have is right now, the**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 06

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 minimum efficiency level is 78 percent but there are essentially -- there are exactly zero products commercially available today at 78 percent. The lowest efficiency product that is currently being sold is at 79 percent and so the analysis in Section 7 starts at the 78 and then shows savings that are going along but there’s no product being sold at 78 percent. So I’m just kind of wondering why. I know that 78 percent is the baseline, but showing that value and showing savings going along is -- doesn’t fit the current pattern of products in the North American market. MR. BROOKMAN: Okay. DR. LEKOV: I understand the confusion. Essentially, the baseline is needed because the analysis needs to refer to the minimum current standard. In the analysis, in the analysis, DOE uses base case. Base case represents the mixture of efficiency levels at the effective date of the standard and, essentially, it 100 percent addresses your concern and you’ll see the results for the base case which shows a much higher penetration of efficiency levels at 80 and plus. MR. BROOKMAN: This 78 percent reflects a distribution?**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 07

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 DR. LEKOV: No. MR. BROOKMAN: No? DR. LEKOV: That’s the -- exactly what’s listed here is a baseline average annual use. MR. BROOKMAN: Okay. Go ahead, Robert. MR. GLASS: Just one follow-up comment. The only issue is then when you’re projecting what the annual energy savings are as a result of whatever level is attained, it won’t be truly reflective because it’s the -- the line that you’re starting at is not what’s being used here. The minimum efficiency of any product currently available in the market is higher than the minimum. So your savings that you’re projecting will not be realized and cannot be realized. That’s the only comment. That’s the reason why I’m raising that. MR. BROOKMAN: Okay. Thank you for that. DR. LEKOV: That’s completely addressed through the so-called base case concept which essentially is very different from the baseline concept. I think two more sentences, you’ll see what has been. MR. BROOKMAN: Okay. So then let’s proceed then with repair and maintenance. DR. LEKOV: So annual operating expenses**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 08

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 require also to account what the household will use for -- will essentially use for repair and maintenance. The maintenance is the price of a regular scheduled product maintenance and the table here summarizes the actions done in terms of maintenance for the products under consideration in this rulemaking. DOE put a significant effort to document the repair and maintenance calculations and they are in Chapter 8 of the TSD as well as in Appendix 8-B. There are specific assumptions which I could start talking about those but are related to the heat pump water heaters. They’re associated to all storage water heaters, instantaneous and pool heaters, and DHE. This is in terms of maintenance. MR. BROOKMAN: Yes, sorry, Mike. MR. BEYERLE: Mike Beyerle, GE. I would just like to challenge on the preventive maintenance for heat pump water heaters. I don’t know what product you used to gather your assumptions on, but properly done, this product requires no more maintenance than does your household refrigerator which is essentially none. DR. LEKOV: That’s half true. In terms of the way the analysis was done, in fact, there is -- the analysis says preventive maintenance to check the evaporator and refrigeration system for units that are**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 09

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 installed outside of the indoor space. That’s the statement about the heaters and refrigerators is correct when it’s located where the refrigerators are located. But for conditions which we have essentially literature collected to reflect this issue from Australia’s experience describe equipment which they have installed outside. Anyway, this resulted in a certain fraction of households getting this result. MR. BROOKMAN: Mike, go ahead. MR. BEYERLE: Okay. I guess my only concern, okay, is that there are some units that will -- thatare high-maintenance design. I’m speaking of a lowmaintenance design, okay, and that you may improperly judge the product based upon the experiences currently in the market today. MR. BROOKMAN: And in our markets, will they be placed outside? MR. BEYERLE: I believe in the United States most of the units will be inside. DR. LEKOV: But there is a fraction that -- MR. BEYERLE: There will be a fraction. DR. LEKOV: -- will be in other locations. MR. BROOKMAN: Okay. Thank you for that clarification. So here you see two tables talking about**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 10

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 maintenance costs and repair costs. Yes, finish with that. DR. LEKOV: And with that, I could continue with the repair costs. Okay. Repair costs is the price for replacing or repairing components which have failed. The table here again summarizes the main components which we assume that may need repair and those are pilot ignition, electronic ignition, power vent or draft vent, circulating air blowers, and heat pump compressor and evaporator. On the right side are the products which this is related to. Again, the methodology for assessing the cost of this component is essentially identifying the component, finding the reference that shows the frequency of related maintenance and assign a cost to this. So for all those as listed here, as applicable for all products in this rulemaking, DOE developed the detailed methodologies which are documented in Appendix 8-B and Chapter 8. MR. BROOKMAN: Frank. MR. STANONIK: Frank Stanonik, AHRI. Alex, I can’t help but note the footnote that says, “No repair costs for electric storage water heaters.”**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 11

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 I -- well, I guess I believe on occasion, since it’s fairly easy to do, that the heating elements on electric storage water heaters get changed out when they fail. Why is the analysis not considering that? DR. LEKOV: If there is data to reflect this, DOE will do it. In our really extensive evaluation of the available experience, we were not able to find any references to element changes. MR. BROOKMAN: Harvey Sachs. DR. SACHS: Harvey Sachs, ACEEE. I’ve been pleasantly surprised, Alex, recently at the kinds of data that the distributors groups have been able to generate, and I suspect that a few calls to people will be able to get a good estimate of the number of replacement resistive elements per year. My comments would follow Frank’s and I was just curious if my mother-in-law was the only one in the country that had to replace the resistive elements. MR. BROOKMAN: John. DR. SACHS: And had her son-in-law do it. MR. CONFREY: John Confrey from Noritz. I noticed the repair costs here are applied only to a fraction of households. My question is in reference to the deliming costs for the instantaneous gas-fired water heaters.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 12

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Shouldn’t those be also only applied to a fraction of households? DR. LEKOV: It’s always done as to a fraction of households, depending on the sets of conditions and assumptions in the analysis. MR. CONFREY: The deliming costs was, also? DR. LEKOV: The deliming costs -- MR. CONFREY: Because that’s in -- DR. LEKOV: It’s a maintenance and it’s applied on an annual basis. MR. CONFREY: On a fraction of households or on -- so deliming every household every year? DR. LEKOV: Every year, deliming costs. MR. CONFREY: I guess my point is I think that’s excessive. I think it should be a fraction of households. DR. LEKOV: Give this direction in your comment, if there is any information about this, and it will be considered. MR. BROOKMAN: Don Brundage. MR. BRUNDAGE: Well, the problem I see with that is the operator’s manuals for Rinnai and the other instantaneous water heaters recommends doing it on an annual basis and I think that’s the reason the department’s doing it this way. They say to do it in**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 13

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the manual on an annual basis. MR. BROOKMAN: John. MR. CONFREY: John Confrey from Noritz again. I believe a tank water heater’s manual also says drain the tank every year, get rid of the lime that’s in the tank. There’s no maintenance costs put in here. MR. BROOKMAN: George, go ahead. MR. KUSTERER: George Kusterer, Bock Water Heaters. If you look at -- I don’t have -- oh, yeah. Excuse me just one second. I don’t mean to belabor this. But if you look in here, it’s well defined. MR. CONFREY: What is that? TSD? MR. KUSTERER: That’s the TSD and the pricing is all defined. Where it says like on the oil-fired storage heater included in annual contract, you’ll see that there’s an additional charge for that, but it’s all in the TSD. MR. CONFREY: John Confrey, Noritz again. But there’s no maintenance cost for gas-fired and electric storage water heaters, right, in this program? MR. KUSTERER: You’d have to ask him. MR. BROOKMAN: Alex. DR. LEKOV: The fact is in the TSD, DOE mentions that gas storage and electric storage**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 14

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 manufacturers recommend it be drained and flushed annually to minimize deposition of sediment, maintenance operating efficiency, so on. MR. KUSTERER: And replace anode rods. DR. LEKOV: And in the report we used, it says, “Indicates that this practice is seldomly done.” MR. CONFREY: John Confrey, Noritz. DR. LEKOV: So it relates to your question about deliming. If you have this type of experience -- MR. CONFREY: Right. I would argue that deliming is seldomly done or done on a fraction of households and if it is, we should apply a fraction of households and then also add maintenance costs to the tanks to a fraction of the households. MR. BROOKMAN: Okay. Thanks for that comment. Don. MR. BRUNDAGE: One final comment on this. The deliming process for a gas tankless is something that really seems to be beyond what the homeowner could do. The flushing of an electric or gas water heater is just sticking a bucket under the valve and running it for a minute every year or two. I don’t -- I’ve seen the -- I think that may be one of the differences, is it’s a homeowner thing and doesn’t require outside labor costs.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 15

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. BROOKMAN: Okay. Thank you. Yes, Robert. MR. GLASS: This question has absolutely nothing to do with deliming. So I’m questioning the pool heater reference to “and every five-year preventive maintenance schedule.” Recognizing that the vast majority of pool heaters are installed outdoors and they are a seasonal product which means they’re shut down during the winter time, Number 1, all manufacturers state that the product should be inspected annually, particularly from the standpoint of the fact that it’s been off for an extended period of time. Pool heaters are great places for mice and other small rodents to be able to develop homes and as a result of that failure to provide an annual maintenance when you’re starting the product back up again can lead to product problems as a result of things that may be in there, spiders growing in orifices, as I said, rats getting in there. Those are things that ought to be considered. So to indicate that it’s just a once every five-year preventive maintenance is not appropriate. MR. BROOKMAN: Thank you. MR. GLASS: One additional carry-on is also**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 16

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 in the TSD, it talks about the estimated cost to replace the electronic ignition. On the vast majority of product that are out there, they use integrated controls where the ignition control is a function on an integrated board and you cannot replace just that portion of it. So the cost that’s estimated in there is much lower than it should be because you’re having to replace the entire integrated board if you are replacing just the electronic ignition. MR. BROOKMAN: So if you’d send in that information to the department, that’d be very helpful. Okay. So let’s keep going, Alex. DR. LEKOV: On the first part of Robert’s statement, the department has consideration and report to the terms of it, but I think those are very valuable pieces of information that should be considered. With that, let’s talk about the process. Basically, the left part of the chart shows the determination of the labor hours and some material costs. The second part is associated labor and material costs to arrive at the total repair costs. That’s just general process. At the end of this section, this is just to emphasize the department’s desire to have -- to get**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 17

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 estimates and possible information about the analytical inputs for the heat pump water heaters in terms of installation, maintenance, and energy consumption. MR. BROOKMAN: So we’ve had some comment that’s close to this. Any more specific comments on estimated of installation, maintenance and repair costs for heat pump water heaters? Mike. MR. BEYERLE: Mike Beyerle, GE. We’d be glad to work with the department to publish some nice numbers. MR. BROOKMAN: Thank you. Let’s keep going. DR. LEKOV: Now, we had annual energy costs and we arrived at annual operating expenses. The next step is to arrive at the life-cycle cost operating expenses. So we’ll be looking at the set of economic parameters and energy price trends. This particular slide shows the department’s approach to develop the discount rates and to estimate the equipment lifetime. The main thing here to note is the discount rate, rated separately for new construction, replacement, also distributions based on the Federal Reserve Board’s Survey of Consumer Finances for six sequential time periods which account for hundreds of thousands of data points which result in the average**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 18

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 values as you see here on the screen. MR. BROOKMAN: Steve Rosenstock. MR. ROSENSTOCK: Steve Rosenstock, EEI. Please refresh my memory. I know that in past analyses, I’ve seen that discount rates of three percent and seven percent being used for much of the analysis and I think that’s kind of by -- it seems like it’s been by statute. DR. LEKOV: That’s National Impact Analysis. Those are the values mandated by R&D for the National Impact Analysis. For the Life-Cycle Cost Analysis, the department always does some approach arriving at distribution discount rate price. MR. ROSENSTOCK: Okay. MR. BROOKMAN: Additional comments on these discount rates? (No response.) MR. BROOKMAN: Then on to Equipment Lifetime. DR. LEKOV: Okay. The next important parameter is the derivation of equipment lifetime. The table shows the lifetimes used and derived for -- the distribution of lifetimes as derived for this analysis and that’s about it. I’m not going to read the values. Any comments? MR. BROOKMAN: Yes, let’s pause and let them**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 19

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 look. Frank Stanonik. MR. STANONIK: Frank Stanonik with AHRI. And this is probably -- well, I’ll see who answers the question, I guess. Certainly in reviewing this information and particularly when we get to this part of it, DOE in the analysis has provided life-cycle costs and payback periods. I just wonder at this point if DOE is willing to perhaps provide some indication of what it will consider a reasonable payback period as opposed to one that is -- would, let’s say, cause a possible level to be eliminated because it was too long a payback period. MR. BROOKMAN: Would you restate that question? MR. STANONIK: Yeah. Basically, what is -- in looking at the analysis you have payback periods that might range from anywhere from a year or so to 30- 40 years, and I was hoping that DOE might be willing to at least give some idea of what it considers to be a reasonable payback period in looking at potential efficiency requirements. MR. KHAN: Mohammed Khan, DOE. Frank, I think generally we would consider a payback period that is close to or exceeds the expected lifetime of an appliance an unreasonable one. So the ones that could**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 20

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 be considered reasonable I would imagine would be lower than that or something less than expected lifetime. MR. BROOKMAN: Frank, do you want to follow on there? MR. STANONIK: Nope. Thank you. MR. BROOKMAN: Harvey Sachs. DR. SACHS: Harvey Sachs, ACEEE. I’m a bit embarrassed as I look at Slide 103, the quoted average lifetime for instantaneous gas-fired water heaters, and the reason I’m a bit embarrassed is that that number, 20 years, used to be on our website and someone asked us where we got it from and we couldn’t figure out where we got it from. So I’m very curious if you’ve been able to get a source for that 20-year lifetime so I can put it back up on mine. DR. LEKOV: It’s probably your website. DR. SACHS: That was what I was afraid of. We have taken it down from our website. DR. LEKOV: In fact, we had a number which is in the documentation. MR. BROOKMAN: Okay. So other comments on these data points, these data generally, I should say? Yes, please, Terry. MR. MULLEN: Terry Mullen, Bock Water Heaters.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 21

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Again just an observation. I’m not sure why gas-fired storage water heaters would have a longer expected life than an oil-fired. They’re essentially identical tanks. MR. BROOKMAN: Okay. Thank you. Moving on to Preliminary Results. Yes, please, Robert. MR. GLASS: Robert Glass with Raypack. What is DOE using from the standpoint of estimated life for heat pump water heaters? There’s no line that’s in here. So what is being used from an analysis standpoint? DR. LEKOV: Heat pump water heaters are part of the electric storage water heaters. MR. BROOKMAN: So you’ve got to say more than that. You mean they’re combined -- MS. ARMSTRONG: So it’s the same as electric. DR. LEKOV: The next two slides, you could -- you probably saw this in the Executive Summary. So, basically, those are the LCC savings and payback results for gas-fired and electric storage water heaters. The main thing here for people who are relatively new to the process to pay attention to the Average Savings column. Also, there is assessment of the households that -- assessment of the fraction of**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 22

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 households, net cost, no impact, and net savings, and as well as the additional information provided in the documentation is about the median and the average payback. MR. BROOKMAN: Don Brundage. MR. BRUNDAGE: You don’t show a chart here for pool heaters, but I would make sure you use an appropriately low price per kilowatt hour there because pool heaters are kind of unique in that they are always an off-peak load and at least in my company, a high percentage of people on pool heaters are on time-of-use rates and pay a low price for the time the pool heater’s operating. Thank you. MR. BROOKMAN: Thank you. Steve Rosenstock. MR. ROSENSTOCK: Steve Rosenstock, EEI. Looking at again these LCC savings, during the last rulemaking for water heaters, as I recall, there was a -- DOE did this band where they said kind -- what they called a band of significance and what they said basically, I don’t know if DOE is going to stay with this methodology for water heaters or not, but they said basically plus or minus two percent of the base life-cycle cost was “within the” -- it was not significant and so the numbers kind of changed rather**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 23

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 -- it was interesting because with certain water heaters, instead of 90 percent, let’s say, or 80 percent net benefit, you took out that significance, you were down to like 20 percent at, you know, “significant” savings. So I didn’t know if DOE was going back to doing something similar to that for this water heater analysis. It was surprising when they did it last time, I have to say, and I’m just kind of curious if DOE has made a decision about whether they’re going to use that sort of band again for water heaters. DR. LEKOV: That’s the format which has been uniformly used over the last several years. Your recollection is from 2001. I don’t believe we did it after that at all. Having said this, if this is something of interest to the stakeholders, -- MR. ROSENSTOCK: Well, it was, as I recall -- again, I’d have to check my notes, but as I recall, it was done for residential water heaters, as well. DR. LEKOV: It’s possible. 2001. MR. ROSENSTOCK: Yeah. So again, I’ll say I’m neutral at this point but just -- I was just very -- I didn’t know if DOE was going to reintroduce that or not for this rulemaking.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 24

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Okay. Thank you. MR. BROOKMAN: Please. MR. DANA: Paul Dana, A.O. Smith Corporation. In 6, 8 and 12, it talks about a rebuttable payback period being three times the annual savings, first year annual savings. Are you considering using that? DR. LEKOV: Yes, the -- it include -- there is a section in the analysis which shows the table of the equipment that meets the three years equitable payback requirements. It’s available in Chapter 8. MR. BROOKMAN: Thank you. Yes, please, Joe. MR.BOROS: Joe Boros with Rheem Manufacturing. On the LCC savings, Slide 105, there is a -- for Efficiency Line 6, which is the heat pump, there seems to be a fairly large difference between the median and average payback. Could you please comment on that? Is that a data issue? DR. LEKOV: Yeah. What this means is that basically the payback is distribution that have very long tail. There is very small number of households that encounter very large costs. So if you -- when you do average, this will show up in the average value. When you do a median, which is exactly half of the**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 25

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 example, it will come with number -- you mentioned the distribution like this, no tail on this side and very large on the negative side. So that’s just analytically how it is. MR. BROOKMAN: Harvey Sachs. DR. SACHS: Harvey Sachs, ACEEE, and thank you for bringing up that point because it’s one I wanted to bring up from a slightly different direction. When we combine the relatively high capital costs of a heat pump water heater or, for that matter, a condensing gas water heater with a subset of households which have very small water use, you will get this long tail and for this reason, we believe that it’s an important working assumption for the department in the NOPR to consider the possibility of dividing water heaters into two classes by capacity, so that we have a class that we might provisionally call family service and a class we might provisionally call specialty or smaller uses, and I believe that that will greatly affect the LCC, and it’s within the statutory authority of the department. Thank you. MR. BROOKMAN: Tim. MR. BALLO: Tim Ballo, EarthJustice. We were just talking about the rebuttable presumption payback**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 26

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 period. I’d note that in the TSD, it appears that heat pump water heaters would have a simple payback of 2.7 years which is within the three-year rebuttable presumption period. So it’s then incumbent on the department to explain why it believes that the presumption is rebutted and that heat pump water heaters are not economically justified because standing on that simple payback period analysis, they would be under the statute. DR. LEKOV: It’s just a calculation math. As you correctly pointed, it’s a simple payback based on test procedure assumptions. This one is based on field conditions. So apparently under field conditions, the heat pump water heaters operate much more inefficient compared to the conditions described by the DOE Test Procedure. MR. BROOKMAN: Hold on. Tim. MR. BALLO: Tim Ballo. Just to follow on, it may be true that the field conditions represent a more realistic analysis in the last cost analysis. However, Congress has kind of made this choice for the department. If the simple payback period analysis shows a three-year or less payback, it’s presumptively justified and I think the department would have to come**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 27

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 up with some sort of reasoning, other than the fact they like their analysis better. Congress has made that choice. MS. PINTO: This is Francine Pinto from GC. As we’ve said, you’ve made this comment in several other proceedings, and as we’ve said before, it’s a rebuttable presumption and DOE always does a full analysis and takes into consideration all the criteria in EPCA. So I’ll leave it at that, but we’ve made that statement every proceeding and we understand your comment. MR. BROOKMAN: Thank you, Francine. George. MR. KUSTERER: George Kusterer, Bock Water Heaters. Alex, I’m kind of confused. I might have been napping there for a minute and I do apologize. But I Slide 104, we’re looking at, okay, say Item Number 3, Energy Factor .64, go all the way over, it tells me it’s going to take 41.5 years for a payback? Is that what it tells me? DR. LEKOV: That’s correct. The reason is you could go back and look at the average savings. In fact, you’re talking about an introduction of very expensive design options which essentially has no**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 28

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 payback beyond the lifetime that could -- MR. KUSTERER: So then it would behoove me as a property owner or homeowner to buy the most least efficient product and therefore get a payback. Isn’t that -- I mean, if I go Level 1, go all the way across which is not a .62, I’ll be paid back in a year and a half. So I should not spend the extra money to buy a more efficient product because I’m going to only have a 41-year payback period. That’s not a very good investment. DR. LEKOV: That’s not the criteria for a personal decision. This is an analytical approach that illustrates what is the implication of Life-Cycle Cost Analysis. MR. KUSTERER: I see. Thank you. MR. BROOKMAN: Okay. Steve Rosenstock. MR. ROSENSTOCK: Quick question. Steve Rosenstock, EEI. For that Line 3, where it says .64, the average operating cost, is that fuel plus maintenance or is that energy plus maintenance? Is that why it went up for that product? DR. LEKOV: That explains includes everything. It includes first the operating savings, plus the maintenance and repair costs.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 29

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. ROSENSTOCK: Thank you. MR. BROOKMAN: Okay. So additional comments? We’ve been, I think, dealing with both 104 and 105. Additional comments on these slides? (No response.) MR. BROOKMAN: I think at some point here before long we should take a break. DR. LEKOV: That’s exactly the time to take a break because we’re done with the LCC Analysis. MR. BROOKMAN: Yeah. So let’s take a break now. It’s almost 3:30. Let’s resume at 3:45. Please wear your badges inside the building. There are restrooms on both ends of the hall. So there’s a soda machine downstairs just around the corner to the left from the elevators. (Recess.) MR. BROOKMAN: Okay. We are proceeding, and I believe we’re on Slide 107 or something like that. For those of you that are new to these proceedings, once we get to the NOPR slides, they tend to go -- they’re a lot more prospective and so they go quicker. SPEAKER: Yeah. We’ll fix that. (Laughter.) MR. BROOKMAN: So far today, you’ve successfully fixed it all. Yes, that’s correct.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 30

1 2 MR. KUSTERER: The numbers have decreased. MR. BROOKMAN: Okay. Let’s proceed. Alex. Shipments Analysis and National Impact Analysis 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 DR. LEKOV: Okay. So now I’m presenting the details on the National Impact Analysis. The two blocks interact here. The purpose -- there are two of them, Shipments and National Impact Analysis. So the Shipments is to estimate the shipments over the analytical period for this rulemaking, and the National Impact Analysis essentially is to estimate the national energy savings and the economic impact in terms of NPV for the considered efficiency levels. Here is a flow chart of the process we will be following. It’s basically in order to do the NES and NPV Analysis, we need some inputs. Many of them are coming from the LCC Analysis results and the important part comes from the shipment model, and as you see on the chart, those, both NES and NPV, are calculated for the period 2013-2043. With that, I’ll start to explain the Shipment Analysis. You could look at this chart, the upper part, where it shows how the analyses were performed for new construction and the lower part for the replacements.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 31

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 In the case of new construction, the information we analyzed comes from the information about the new home construction as well as the information about the saturation of water heaters in new homes. Those are the results and after that adjusted for potential fuel switching between the fuel types and this way you can arrive with the adjusted new construction shipments. The replacement shipments, basically the new main input sections are the historical shipments and the water heater lifetime. Once this is done, both replacement and new construction shipments are combined to arrive at all shipment by fuel type. In addition, we separate the gas shipment to two parts, for storage and instantaneous. MR. BROOKMAN: George. MR. KUSTERER: Real quick question, Alex. George Kusterer, Bock Water Heaters. Due to the economic impact and the downturn in construction, will DOE reassess this calculation or analysis? DR. LEKOV: Couple of slides later, you’ll see the actual forecast and you’ll be able to comment in a more concrete way.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 32

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. KUSTERER: Thank you. DR. LEKOV: The shipment models -- MR. BROOKMAN: Let Harvey go here. Sorry, Alex. DR. LEKOV: No problem. DR. SACHS: Harvey Sachs, ACEEE. I would request that you turn your attention to Slide 110, the column under -- line under New Construction Shipments which parenthetically says, “For Heat Pump Water Heaters,” and as I look at that, it’s not at all clear to me that that shift would be a shift to gas water heaters if the gas water heater standard were condensing and the costs of the gas water heater for new construction are comparable then to the heat pump water heater. So that it’s not at all clear that this is a unidirectional error but in fact is dependent upon the technologies compared. I see already a shift to power vents in areas of the north to avoid the chimney entirely when coupled with condensing gas furnaces. DR. LEKOV: With that, this chart just shows the principle applied in an area where we’ll be discussing the -- MR. BROOKMAN: It’s not meant to be fully descriptive?**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 33

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 DR. LEKOV: Yeah. DR. SACHS: Thank you. I apologize for barking at you. DR. LEKOV: No problem. MR. BROOKMAN: That’s okay. A useful comment. DR. LEKOV: So shipment model inputs. Basically, on the left side are all the inputs for the three products. On the right side are the sources. So for all product, new construction and replacement, lifetime is needed, comes from lifetime -- from Life-Cycle Cost Analysis. New construction shipments. In the case of water heaters, what’s needed is the forecasted new housing as well as the water heater saturation in the new housing. For pool heaters and DHE-only, forecasted new constructions are needed. Historical shipments for the three products, the sources are listed on the right side, water heater, AHRI data submittals, and DHE, also. Pool heaters, DOE purchased commercially-available data which had some information about the pool heaters market, and more information about this will appear during the discussion of the pool heater shipment model. The last is the shipments distribution by**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 34

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 product class, again came from the AHRI data submittal. MR. BROOKMAN: All shipments model inputs. Robert. MR. GLASS: Robert Glass, Raypak. I’ve just got a question or a comment on the new construction from a shipments standpoint that you’re looking at. The thing that we’re seeing across the country is that the new construction are tending to be on smaller-sized lots from the standpoint of increasing the density of housing in particular areas and as a result of that, the smaller the lot size the less the likelihood of a pool actually being installed on those lots. So where you’re projecting out from the standpoint of addressing the new construction standpoint, the size of that market is actually declining because of the lot size issues and municipalities that have lot clearance issues from the standpoint of your neighbor not smelling your products of combustion from your gas pool heater. So there’s more and more restrictions that are making it -- the size of the new home construction that have pools is actually a declining market and I don’t know that DOE has that information. MR. BROOKMAN: Thank you.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 35

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 DR. LEKOV: There will be more discussion on this. This is a very valuable point, Robert. MR. BROOKMAN: Okay. DR. LEKOV: Here is one, I’ll characterize, interesting part of the analysis. DOE developed a separate approach for theassessment of market penetration of instantaneous gasfired water heaters. In fact, what DOE did is to model three scenarios of instantaneous gas-fired water heater market penetration based on experience with instantaneous water heaters in Australia. Why Australia? It happens that Australia has a similar mixture of products, storage and instantaneous. Also, they had -- they started with instantaneous water heaters much earlier on a larger scale than U.S. about 20 years ago. On the other hand, there are also differences. The Australian market, the consumer price of storage and instantaneous water heaters are very similar while in the United States, at that point there is somewhat of a significant differential. Therefore, DOE develops scenarios that are lower than the Australian market. In fact, the default scenario is 50 percent of what’s happening in Australia and the lower scenario is 75 percent lower, higher**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 36

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 scenario is 25 percent. At that point, DOE requests input from stakeholders about the model used to assess the market penetration of instantaneous gas-fired water heaters in the United States. MR. BROOKMAN: Frank. MR. STANONIK: Frank Stanonik with AHRI. Well, first of all, the comment and at the risk of belaboring the point, I mean, this is a pretty interesting graph, but if you tried to graph what we know so far in the instantaneous water heater market in the U.S., you certainly had a growth curve that’s probably a little different than this, but since certainly ’08 and who knows when it actually started, I’ll say in ’08, I suspect the growth didn’t continue to go up. So there may be, some of us hope, a very short blip there, but at least a period of time of a flattening, if not a slight droop, in this curve and the residual effect of that, I think, is going to change these curves and I’ll tell you, assuming our members are willing to share the information, I think they will be, we will try and give you the most recent year-end shipment data on all the water-heating products just so you can see what’s happened.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 37

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 But then my other question which I just don’t understand is, in all cases here, roughly around 2015, the assumption is the market flattens out and basically the product reaches, I guess, on constant level and that just somehow to me seems, I don’t know, a little, I guess, counterintuitive. I mean, if it’s growing, why wouldn’t -- and if there’s some -- well, why wouldn’t you at least show some further continued growth? DR. LEKOV: It’s direct outcome from the Australian market. They essentially anticipate that under their conditions, market participant water heaters will get to a 55 percent penetration and will stay there. There are reasons why people, not the entire market, will convert to instantaneous water heaters. So that’s the Australian market, 55 percent. DOE’s scenarios assume 50 percent of this 25/75, the three curves here. When we impose the trends essentially in the spreadsheets of the Australian model, it ends up in 2016. It just -- this is the year where the 27.5 percent, let’s say, in the 50 percent scenario in the United States will be accomplished. MR. STANONIK: Frank Stanonik with AHRI. One more question.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 38

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Alex, do you have some idea within this Australia experience what the average difference in efficiency was between the Australian instantaneous and the Australian storage product? DR. LEKOV: They are utilizing the same type of instantaneous water heater that is here in the United States. So if you convert energy factor, the same thing, 82 percent, let’s say. MR. STANONIK: Okay. What about the storage product? DR. LEKOV: The storage products, I don’t want to speculate right now, but -- MR. STANONIK: Okay. DR. LEKOV: -- I don’t see a reason how they could be different because they are exact -- the designs are as here in the United States. MR. STANONIK: I’m sorry. One more. I’m sorry, John. One more thing. I guess my point is, but we have some things in motion that may narrow the gap between a storage, gas storage water heater and the instantaneous, and if that gap is, say, I’ll say, appreciably different than what you see in Australia, that becomes a significant factor to discount this pattern. DR. LEKOV: That’s a good point.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 39

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. BROOKMAN: Let’s hear from John. John, go ahead. DR. LEKOV: When we did the model, we evaluated the technology, our understanding is most of what Australia has is natural draft water heaters. If you are indicating that the U.S. market is about to change above that, that could be a consideration. MR. BROOKMAN: John. MR. CONFREY: Real quickly. In the research -- John Confrey, Noritz. The research I’ve done, Australia was really the only analog that you could find anywhere for the U.S., and second, to Frank’s point, this -- the data that your curve is based on, it looks like, 2007. If you put 2008 there, I think it’s probably going to bump this a little, you know, a little beyond -- slow down a little bit and you might want to update the 2008. MR. BROOKMAN: So thank you for being responsive to the question because the department is wondering how you all would think about using this Australian data, whether you think it’s relevant, whether you think that experience will be reflected here in this forecast period. MR. CONFREY: There are differences, clear differences between the two markets, but it’s the**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 40

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 closest analog. MR. BROOKMAN: Harvey Sachs. DR. SACHS: Harvey Sachs, ACEEE. Data developed during the SEGWHAI project in California and from other sources strongly suggests that the incremental costs of tankless water heater installation over tank-type water heater installation in existing houses is extremely high. The water heater market now and for the foreseeable future will be roughly 80 percent replacements and 20 percent new construction. So although we’re seeing some activity in replacements with tankless water heaters today, this seems to be driven more by people looking for the unlimited hot water than for the energy efficiency and for this and reasons dealing with demographics would suggest that the penetration predicted here is probably high since it’s only the new construction market for whom a compelling case can be made of attractive economics relative to the value presented to the customer. I suspect John is not in full agreement with that perspective, but it may be helpful. MR. BROOKMAN: Okay. Thank you. It is helpful. DR. LEKOV: I would just show this on the**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 41

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 results slides, but basically in 2006, it was seven percent of the gas-fired market and -- MR. BROOKMAN: Is that new construction? DR. LEKOV: The DOE model predicts 27.5 in seven years and so that’s a trend. MR. BROOKMAN: Joe. MR.BOROS: Joe Boros with Rheem. I would like to point out that there are some product differences between the U.S. and Australia. First, the products are mostly installed outdoors in Australia, both the storage and the tankless-type products, and that does make a difference in terms of the venting and the total cost of providing the solution and installation. MR. BROOKMAN: Okay. DR. LEKOV: DOE’s work here in no way is taking any cost information in Australia or installation. It’s just product penetration. MR. BROOKMAN: Robert. MR. GLASS: In regards to in the Technical Support Document, Figure 9.39, which talks about the historic and model shipments for the gas pool heaters, it shows starting about 2008, it shows a shipments number that is -- the slope is twice what the historical data that we’ve had, and I’m just kind of**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 42

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 questioning or asking how DOE has come up with that, particularly from the standpoint that in 2007-2008, the market’s come down along with everybody else’s market, but the slope of the line that you’re showing on there is twice what the previous 27 years has been and we’d like to understand why. DR. LEKOV: Yeah. It’s a -- this is about three slides away from here. I want to go sequentially and I’ll get to pool heaters and at that point, we’ll explain the details. MR. GLASS: Okay. I looked at the slide, it’s not here. DR. LEKOV: So with that, this is theinstantaneous -- the storage and instantaneous gasfired water heater historical and model shipments. The slide on the left side are the gas storage water heaters. Essentially, you see three lines, historical data, model new construction, and model replacements. What’s important is to distinguish maybe the period before 2007 for which we had the historical data and the periods after 2007. In terms of modeling the new construction, DOE simply utilized -- those are determined by the historical new housing data, the Census provides housing completions for the previous**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 43

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 period, and the water saturation by fuel type. So you arrive by year annually at the new construction calculation. The replacements are determined by the historical shipments and the lifetime retirement function as applicable to a particular year. You just retire the equipment as you go year after year. So on the next part, after 2007, we essentially -- in fact earlier, it happened earlier, apply the trend for the instantaneous water heaters as model on the other side as applied and reflected in the shipments of storage water heaters. What I would say here is basically that’s about it. Everything here on the instantaneous is modeled based on the Australia trend, exactly tracking it, and it’s applied on the left part to the storage water heaters. MR. BROOKMAN: So let’s go to the pool heater. DR. LEKOV: The pool heater chart. The first thing to say is the data was done -- the analysis were done on data available in 2006. So some trends which few people, including Robert, pointed to that’s happened the last year or so are not reflected in this chart.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 44

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Before going into the details, let me first outline what we have here because we have one component that’s different. We have models replacement. We have new housing installations and, in addition to this, we have market segment identified as first-time owners. Those are the folks who already have house and at a certain time of owning the house, they decided to build a pool. So they are included on this chart. Now, let me start in somewhat of detail to determine -- to explain how essentially those trends came about. The basic information we had in terms of pool heaters data came from the commercial data we purchased from a company called P.K. Data. What you get from them are historical data about number of pools, the historical data fractions of pools with pool heaters, historical data about the fuel types of different pools, of different pool heaters. This information, we combined with data we had from 1993, Pool Heaters TSD, as well as information from databases, such as the RECS and AHS. In terms of replacement, what we essentially did is and how those are calculated is we got the number of pools percent fraction, fraction of pools with pool heaters from P.K. Data. From RECS, we got**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 45

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the number of pools at each year in the United States, and this resulted with the number of pools with the pool heaters. In fact, in terms of stock, we obtained that we have about 1.3 million households owning pool heaters and which divided by the average lifetime as assumed there, six years, we arrived at about 217,000 units per year are replaced and this is 2006. MR. BROOKMAN: Let’s have them comment on the chart. So -- DR. LEKOV: I’m not there yet. Just so far I explained the replacement piece. The replacement piece is how we arrived at the data in 2006 and Robert kind of requires those -- wants those details in order to understand how we extended the trends. So after that, we had the issue of new owners. We calculated the new owners together basically for both segments, the first-time owners and the new constructions, and those came again mostly from the P.K. Data which gave us about 94,000 pool heaters were installed in new pools in 2006. We did an additional, which I’m not going to discuss here, disaggregation and determined that about 28 percent of this is in new construction and 62 percent is in the so-called first-time owners. So what**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 46

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 you see here is 311,000. It’s the data and the last historical point we were able to model in 2006. From that point on, we simply extended the information for new construction of first-time owners and replacement, and the data for the replacement is essentially a function of the retirement of the -- it’s a result of the retirement function. They retire, you need to install new, and that’s just automatically the model produces this trend. MR. BROOKMAN: Okay. Robert, yes. MR. GLASS: Robert Glass, Raypak. The first comment that I have is unless my eyes are playing tricks on me, Figure 9.39 of the Technical Support Document is not the same as the one that you have here, and when I made reference to that it was a straight line through 2008 and then it doubled, on the chart you have behind you, it’s a straight line through about 1999 and then it doubles going up. So the information you’ve presented in this Technical Support Document does not match what’s up on the screen right there. So that’s Comment Number 1. Number 2. You’d indicated that you’ve estimated that there’s roughly 1.3 million pools in the United States right now. We actually just heard some information in the last couple of weeks that indicates**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 47

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 that number’s actually closer to 700,000. So I think you’re double the number of pools that you’re estimating currently in the United States right now and that provides -- that’s the double thing, the double slope that I’m talking about. The other thing is you’ve got 10 years of data of which the slope is very, very consistent and I put forth to DOE that that slope is still the same. That has not changed, other than the dip in the economic factors and things that we have now. The slope that you have as far as that 10 years of data up through ’90 continues to be the way that the market is moving and, if anything, it’s actually coming down for the reasons that I’ve mentioned earlier having to do with the smaller lot lines, not having as many pools, other issues and things that are moving on. So I would just ask DOE to go ahead and look at that because I think the shipments data that you’re projecting are way out of line. MR. BROOKMAN: Okay. DR. LEKOV: With that, P.K. Data, which is essentially the marketing data we purchased, is a base for this estimate. That’s the first thing. Second is the fact that we used RECS 2001 to determine the fraction of pool heaters in new**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 48

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 construction. 2005 RECS, which likely DOE will use for the NOPR phase, could be significantly different. So could be a base for reassessment. MR. BROOKMAN: Okay. DR. LEKOV: Together with any data the pool heater industry could provide. MR. BROOKMAN: Frank Stanonik. MR. STANONIK: Frank Stanonik, AHRI. Alex, we understand all that, but, first of all, Robert, how long has Raypak been making pool heaters? MR. GLASS: Close to 60 years. MR. STANONIK: Okay. So let’s just look at -- in this graph, let’s look at 1981 to, let’s say, 1999. I would think that we could all agree, in general, that was a fairly robust period of time. We had some lumps in it, but in terms of housing starts and things of that nature, and that’s real data in a fairly modest growth graph, and then we go from there to the projections for the next 30 years and I think what Robert is saying, you’re showing projected growth that is unprecedented and it just -- I mean, this -- I think somewhere in this graph there’s a very erroneous underlying assumption because this is not the pool heater market. MR. BROOKMAN: Francine Pinto.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 49

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MS. PINTO: Yes. Francine Pinto from GC. Robert, could you give us in writing that number and where it came from? MR. BROOKMAN: The difference between the 1.3 million and the 700,000, for example? MR. GLASS: Robert Glass with Raypak. I will find out whether or not or how from the source as far as where it has come from, whether or not I can provide that information, but I will definitely look into that. MR. BROOKMAN: Because that’s the key. Okay. Alex, let’s let him finish and then let’s move quickly to Shipments Analysis. Frank, are you finished with your comments? MR. STANONIK: Yeah. I am, yes. MR. BROOKMAN: Okay. DR. LEKOV: It’s a key to have data provided by the industry. The number Francine pointed is absolutely will change the trend. It’s also possible to take a look at the lifetime retirement function. Any inputs in this particular area will provide a significant way of improving the number. MR. BROOKMAN: So, Alex, move on to Shipments Analysis. DR. LEKOV: I am doing Shipments Analysis. So I explained water heaters. I explained pool**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 50

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 heaters, -- MR. BROOKMAN: Yes. DR. LEKOV: -- and I could go right now to DHE. MR. BROOKMAN: Right. DR. LEKOV: Which is the third product. As you see, there are four lines here. Let me -- all of them relate to the four products associated with the DHE. The upper line represents DOE’s analysis on the gas room DHE. As you see here, it’s probably -- I should talk a little bit more in details. There are two parts of this curve. In terms of historical data, you see the bottom before the year 2000, those are the declining shipments for room heaters. After that, you have four or five years which represents the sum of fireplaces characterized as room heaters and the room heaters shipments. After that, the flat part is the DOE’s forecast which is based essentially on the last four years of the forecast representing somewhat offsetting trends of fireplaces versus room heaters. Now, switching to the gas wall types which are gas wall gravity and gas wall fan, those are the two lines that cross in the forecasting area. Based on the historical data we have, the gas wall gravity have**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 51

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 a clearly declining trend and just the opposite trend on the gas wall fan. So what DOE did is, basically knowing the total shipments for these two product classes, simply expanded the two trends, showing declining trend for the gravity equipment and increasing trend for fan wall equipment. MR. BROOKMAN: So comments -- DR. LEKOV: And just to finish the last one so everybody to comment on the entire chart. And the last, the bottom one, is the gas floor DHE, a very low shipment, clearly downward trend. MR. BROOKMAN: You can note which lines are which, which data points correspond to which class. So comments on those? Robert. MR. GLASS: Robert Glass with Raypak. This analysis is based on what levels of efficiency? With the realization that, I mean, when you’re looking at the gravity wall, if the efficiency levels are going to be increased, the decline of that may be substantially faster or is this assuming, based on baseline units, this is what would happen DR. LEKOV: No, no. No, sir. Full-scale shipments. There’s no efficiency involved. MR. GLASS: Well, it has to be based on**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 52

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 efficiency because the issue is, if the efficiency requirements go up, the slope of all these lines is going to be significantly different. As an example, if you went to the level of induced draft on a gravity wall furnace, that immediately goes to zero because you no longer have a gravity wall furnace or gravity wall heater. So it is a direct relationship as far as what efficiency level DOE selects, is where the slopes are when you’re looking at the years from 2013 out, is a direct effect of where the efficiency levels are. DR. LEKOV: So right now, this is a base case distribution. It does not reflect any new efficiency trends. MS. ARMSTRONG: The total shipments that you’re projecting would stay the same. MR. BROOKMAN: Use the microphone. MS. ARMSTRONG: I think this is more of what he’s asking. So for your trend, this is a graph of total shipments for the market over the analysis period. DOE projects that the total shipments value as it will go will be different between the base case and the standards case. It’s the same, correct? DR. LEKOV: In terms of the chart you see**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 53

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 here and you’re talking about the gas wall gravity and gas wall fan, this is -- MS. ARMSTRONG: I’m talking generally. DR. LEKOV: Just these two trends -- MS. ARMSTRONG: I know what it is and I know what it isn’t. DR. LEKOV: Again, in terms of just the product class that includes gas wall gravity and gas wall fan, yes, the total shipments is constant because this is how it was derived. We have the total shipments and we have gas wall fan-only. So here it automatically comes as a fraction from total. MR. BROOKMAN: So then additional comments on these? Robert. MR. GLASS: Robert Glass, Raypak. Just the comment I have, again when you’re looking at the data for the gas wall fan from 1990 through 2002, it’s a very, very slow up curve that’s on there, although when you look at the trend as far as the gas -- the wall gravity units, it continues to be a downturn and it’s a faster downturn. So you don’t have an equal number of units that you’re looking there. So I think DOE going ahead and changing the slope on that gas wall fan, I don’t believe is**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 54

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 justified. DR. LEKOV: The historical data is extended to 2006. So if you look further, the points, you have many more points of fan wall which are clearly close to the trend and when you fit the curves, starting from the very beginning, with the entire existing historical data, the trend is exactly what you see. MS. PINTO: Excuse me. This is Francine Pinto. So is all this clear? Okay. Because I am a little confused. So, Ashley or Alex, could you clarify or somebody clarify so we can walk away? MS. MEYERS: Just one comment. This is Karen Meyers with Rheem. Not only is it clear but every time we raise a question, it is like it is just completely discounted and we are wrong. It is assumed from Alex that we actually don’t know what we’re talking about. So I’m just -- you know, it needs to be clear and, you know, if we don’t understand the analysis, we cannot provide meaningful comments. MR. BROOKMAN: Right. So, Robert, keep going. MR. GLASS: Robert Glass with Raypak. Again part of the reason why I’m asking these questions is**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 55

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 because when you were looking at the pool heater one, you had data marks that was through ’91 and then you had no data marks beyond that, although in the other, the direct heating one, you have the same marks all the way through the whole process. So from the standpoint of looking at this, I don’t know what is actually data or is interpreted data from DOE. So I don’t know that there’s actual shipment data that you have available up through 2005 and then you’re projecting it beyond it because you can’t differentiate that looking at the drawing because you haven’t identified current data versus extrapolated data on the drawings. DR. LEKOV: Okay. The only data that was available is from the ’93 TSD. So those are the points you see here. After that, the extension is based on this historical data DOE purchased from the marketing company with the combination of the knowledge of what’s happened until, I believe, 2002, and if it’s not clear, which you should find a way to explain it in more details, it’s really hard right now to show spreadsheets or discuss but maybe there are other ways DOE could provide, if it’s not clear from the TSD, to provide all the details. There is no problem at all to provide all the**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 56

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 intermediate spreadsheets we have, all the calculations with those, not an issue at all. MR. BROOKMAN: Let me just -- and I am clear, I don’t understand this at this point, but this -- 116, that includes the base case for shipments, and does it include anything else? MR. ROSENQUIST: Maybe I can explain. MR. BROOKMAN: Greg, please. MR. ROSENQUIST: Hi. This is Greg Rosenquist from Lawrence Berkeley National Laboratory. The shipments you see on 116 are for the base

case. MR. BROOKMAN: Right. MR. ROSENQUIST: That is without standards and so the assumption for the analysis is that standards will not impact the shipments forecasts. So, Robert, you were making the point that the entire efficiency standards, the shipments forecast will change. Well, that wasn’t done here, and also, just to be clear, the shipments, the historical shipments data goes out to 2007, right, and so the trend you see there is from that last -- those last few data points. MR. BROOKMAN: Let’s go to Frank first, and then I’ll come back to you, Molly.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 57

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. STANONIK: Frank Stanonik, AHRI. I think in the interest of helping to clear this up and that last comment, I think it clicked. Okay. For certain products, like water heaters, okay, the assumption that efficiency levels won’t really change shipments to some degree is -- well, let’s just say it’s more valid because water heater is not a discretionary item. Everybody wants a water heater. Okay. When you get into direct heating equipment, what I just said goes out the window because again a good percentage of these products are supplemental heaters and if it dies, the product needs to be replaced when it fails to operate. That consumer has the option of not replacing it, just letting it sit there, and so as Robert -- that’s really Robert’s point. As you increase the efficiency level and raise the efficiencies, raise the price of the product, okay, you may be changing that consumer’s decision to say, I’m not going to replace it, I’m just going to forget it and I’ll save my money and I’ll wait a few more years and buy my heat pump water heater and my SEER-20 air conditioner and build a pool, yeah. MR. BROOKMAN: Greg, go ahead.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 58

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. ROSENQUIST: I was going to say for direct heating equipment, since the shipments are so few, again the assumption was made that standards wouldn’t affect the shipments. So with that comment, with, Robert, your comment, with Robert’s comment, we’ll definitely take that into account for the NOPR. For water heaters, we did take into account the higher price of equipment, especially in the case of heat pump water heaters, and that’s why we’re showing this switch to gas water heaters under that scenario. MR. BROOKMAN: Okay. Yes, please, Tom. MR. STROUD: I just want to add to a comment that Frank made much earlier. Oh, Tom Stroud with HPBA. The companies that make our gas fireplaces right now are going out of business right and left because of the downturn in the economy. There are not houses being built. When there are not houses being built, there’s not fireplaces being put in and when houses are built, they aren’t put in because it’s an accessory. So I don’t see our part of that chart continuing as it is level. I see it bottoming out.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 59

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. BROOKMAN: Okay. Thank you. We need to keep pressing on in the interest of time and so let’s just do that. DR. LEKOV: So DOE requests comments for direct heating equipment shipments on all aspects of it. I would adhere to hearing quite significant input and questions about the pool heater analysis, also. MR. BROOKMAN: Thank you. DR. LEKOV: To emphasize the pool heater shipments models. MR. BROOKMAN: We’ve already got a good start on this one. Molly, please go ahead. MS. TROMBLEY-McCANN: Molly Trombley-McCann, PG&E. I just want to strongly recommend that in further analyses you clearly differentiate between what is historical data and what is projected data points. You do that for the Pool Heater Shipments Analysis but you don’t do it for the DHE Shipments Analysis and I think that was what was so confusing. MR. BROOKMAN: Thank you. That’s helpful. Different colors, different symbols, something. Okay. Great. So then final comments on Slide 117, requesting comment on direct heating and pool, both.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 60

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (No response.) MR. BROOKMAN: Okay. Fuel Switching Analysis. DR. LEKOV: Fuel Switching Analysis. So DOE looked at the potential for fuel switching, in particular the possibility this to happen from electric heat pump water heaters to gas-fired storage water heaters. The reason for this is being the potential based on the significant cost differential in terms of heat pump water heaters. So the analysis evaluated the maximum fuel switching potential based on the fraction of electric storage water heater households in which gas-fired storage water heaters is feasible and has a lower total installed cost. So those are the two main assumptions, feasible and has a lower total installed cost. So there is a whole analysis approach to evaluate these two criteria and I have a flow chart if anybody wants to see this in more details. The final result of this analysis shows that, depending on the technologies on the gas-fired water heater side, it’s possible to expect that between 3.3 and 8.2 percent of the households in the replacement case may switch to gas-fired storage water heaters.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 61

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. BROOKMAN: So comments on those results, that is, the preliminary assessment. Tim. MR. BALLO: Tim Ballo, EarthJustice. Just to reiterate a point I think Harvey was trying to make earlier, that I don’t think you can look at the electric heat pump water heater standards in isolation. I think you have to look at them in the context of what the standard is going to be for the gas-fired storage water heaters, that if only condensing units are available that’s going to change the amount to which the market is shifting to those products. MR. BROOKMAN: Don Brundage. Hey, Don, let Greg follow on. Greg Rosenquist. MR. ROSENQUIST: Yeah. Tim, just to answer your question, for the NOPR Analysis, you know, we do trial standard levels for repackaged certain level electric water heater levels with certain gas water heater levels and for that type -- so there, we’ll be considering the very point you’re raising, how the gas water heater efficiency will affect the fuel switching. MR. BROOKMAN: Don Brundage. MR. BRUNDAGE: Don Brundage, Southern Company. Just to follow up on that, considering that the Technical Support Document shows on paper very good**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 62

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 economics for switching to heat pump water heaters and very bad economics for going to gas condensing, that’s not a major concern to me right now. I would agree there’s some significant opportunity for fuel switching. I don’t agree with your assumption there’s no switching predicted in new construction installations because this is your classic agency problem where the person who’s doing the construction is not going to be the one paying the power bill. All they care about is installed costs. Installed costs will be much higher with an electric than it would be for a gas. So I think you need to include switching in new construction installations. MR. BROOKMAN: Thank you. Okay. We’re going to keep going. DR. LEKOV: So DOE would request input on this analysis. We heard some of that right now. MR. BROOKMAN: Let’s see if there are any others. (No response.) MR. BROOKMAN: I see no additional comments. DR. LEKOV: This slide shows the outline of the remaining National Impact Analysis inputs which are in addition to the outcome of the Shipments Analysis. The first group of inputs, total installed**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 63

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 costs, repair and maintenance costs, annual energy use, base case efficiencies, all those are coming from LCC Analysis. The standard case forecast efficiency which will be explained a little bit later are basically done utilizing the roll-up scenario that again I’ll explain in more details. In addition, there are another set of parameters which include the energy prices and here is the methodology explaining that we’re utilizing the average energy prices and the forecasted energy prices from the AEO 2008 forecast. Energy site to source conversion factors are included from the NEMS and corresponding to the ’07 AEO. Discount rates were using the three and seven percent as mandated by OMB. Present year for this Preliminary Analysis is 2007. In addition to this, DOE included a rebound effect for all three products. Just as a recollection here and for everybody, the rebound effect, also called take-back effect, refers to increased energy consumption that results from actions that increase energy efficiency and reduced consumer costs. So DOE applies a certain set of values for the three products here. They explain in more details in the TSD.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 64

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. BROOKMAN: So let’s just see if there are any comments. Let’s receive comments on the rebound effect and see what people have to say about that. You see the listed figures there in Slide 121. We’ve received comments in the past about rebound effect. (No response.) MR. BROOKMAN: No comments? Okay. Alex, keep going. DR. LEKOV: The next slide is to explain DOE’s approach in terms of forecasting the efficiencies. Basically, the slide you see shows the approach as applied to gas-fired storage water heaters. The base case efficiency distributions, as listed here, they are coming from the LCC Analysis. The standard case efficiency distributions are based essentially on the roll-up scenario. It’s typical for the DOE’s approach for the other rulemakings. I would like to illustrate this, for example, looking at Standard Level 1. So we have at the minimum baseline level, we have 82 percent market share of the minimum efficiency equipment and there is also a set of market share and other efficiency levels.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 65

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 When DOE considers Level 1, it rolls up the baseline value into the Level 1 which becomes 82.7, becomes 89 percent, and preserves all other efficiencies constant. So that’s the roll-up approach, how the shipments are forecasted, shipment efficiencies. MR. BROOKMAN: Questions about this table? Yes, Frank. MR. STANONIK: Frank Stanonik, AHRI. Well, more a comment than a question. MR. BROOKMAN: Please. MR. STANONIK: But again, the circumstances under which you did this forecast are different now. There is an Energy Star Program that started this year. Certainly by the end of 2009, we will have some idea of what that program has done to promote .62 water heaters and so it will possibly change your base case assumptions and on top of that, as you know, there is a second level Energy Star requirement that goes into effect in 2010, thank you, which again, assuming that the Energy Star Program for water heaters in any way tracks what it’s done for other products, we expect will have some impact on the distribution of efficiencies of products that are sold in the market. So my comment on this is, you know, this was**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 66

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 totally -- you know, this was certainly likely valid dealing with the information you had when you did it, but that information has now changed and I think it needs to be revisited based on Energy Star criteria. MR. BROOKMAN: Thank you. DR. LEKOV: In fact, Energy Star levels are included here. It’s -- as you see, it’s Level 6. It’s -- DOE assumed 50 percent of the forecast of Energy Star water heaters in 2015. So we already have it and we pro rated all the other -- MR. STANONIK: I’m sorry. Where is that? DR. LEKOV: If you’ll look at the line labeled Efficiency Level 6, -- MR. STANONIK: Yes. DR. LEKOV: -- and if you’ll look at the base case, it shows the number -- the two percent number. That’s the Energy Star market penetration in 2015 as assumed by DOE. MR. STANONIK: Okay. I’m sorry. I’m not tracking that at all because the Energy Star level I’m talking about is .62 -- MR. BROOKMAN: Which is 1 today. MR. STANONIK: -- which is Level 1, yeah. DR. LEKOV: Looking directly at 80 percent level for condensing water heaters which is the Tier 2**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 67

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 for -- MR. STANONIK: No, no. Tier 2 is .67. DR. LEKOV: So Tier 3. The one which will be affected by -- MR. STANONIK: I’m not talking about Tier 3. Okay. But again, you know, those are there. The products, I believe, will be there. The market will change. MR. BROOKMAN: Let’s hear from Greg. MR. ROSENQUIST: So like you’re saying, Frank, this is the information you gave us that’s reflected on 2006 or 7 and so, you know, we can change these base case distributions based upon any new information you give us about what you think the market share will be in 2015 or whenever the standard becomes effective. So we’ll be happy to take that information. DR. LEKOV: It’s important to emphasize that DOE already accounted for the energy trends. They are here, Energy Star trends. They’re included in this forecast. MR. BROOKMAN: Through 2015? DR. LEKOV: The year where we’re supposed to. MR. BROOKMAN: Yeah. Okay. Karen. MS. MEYERS: This is Karen with Rheem. So let me just see if I understand.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 68

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 So you took the data that Frank gave you and then you extrapolated those numbers to take into account what the Energy Star Program would do? DR. LEKOV: The only thing we did is at Level 6, we added two percent penetration of Energy Star level which is condensing water heaters at 80 percent efficiency. It’s 50 percent of what Energy Star Program indicates. So we put just this two percent and after that we just very slightly pro rated to have the total 100 percent. That’s what happened analytically. MS. MEYERS: I really do not understand that. I’m sorry. I’m really trying here. MR. ROSENQUIST: What we did is we forecasted how Energy Star at .8 would -- what share of the market it would be in 2015 and so what you see there again, that base case market share, is again for 2006 and so by 2015, again based upon information we got from Energy Star, we forecasted there would be two percent market share of .80 energy factor water heaters. DR. LEKOV: I would -- if you want to look here, that’s the base case information. The regional values that came from AHRI, this value here, the only value was zero percent, now condensing available in -- MR. STANONIK: Historical data. DR. LEKOV: No, not in here. So for the**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 6 9

forecast in 2015, since it was available data, I would call it trends for Energy Star, DOE assumed this two percent value. That’s it. Anything else here changed to make it 100 percent. That’s it. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MS. MEYERS: Okay. So you just pulled a two percent number out and took it from the 2006 actual and said -- DR. LEKOV: The two percent value came from the net Energy Star Program. They have in fact five percent, but we took -- DOE took half of it, assumed that five percent is very aggressive. So we did half of it and just used it. That’s a DOE value. MR. BROOKMAN: Frank, go ahead. MR. STANONIK: Frank Stanonik, AHRI. MS. MEYERS: I still don’t understand. MR. STANONIK: Alex, okay, then I guess what I want to be clear about is my concern is that your seven percent projection for .62 in the base case is too low. I don’t even care about the .77. My issue is that I think that projection -- I mean, this shows heavily that the industry is selling the baseline water heater, okay, and my point on this is I think with the Energy Star Program taking off and again if it catches on like other programs have been, I think your seven percent number at the .62 level is low.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 70

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 DR. LEKOV: So what you’re saying is the seven percent was the values AHRI provided for 2006. What are you saying is that in 2015, this value will likely to be higher because of some aspects of Energy Star Program. MR. STANONIK: Yes. MR. BROOKMAN: Okay. DR. LEKOV: Okay. MR. BROOKMAN: Okay. That’s it. DR. LEKOV: So that’s a comment that DOE will take into consideration. MR. BROOKMAN: Ashley. MS. ARMSTRONG: I just have a follow-up question, maybe for Frank or some of the manufacturers here. If you have any idea about how the percentages for those lower levels might change, you know, like the seven percent, if you think it might be 10, you think it might be 15, that would also be helpful in your comments, whatever you think it may be. MR. BROOKMAN: Frank. MR. STANONIK: Excuse me. Frank Stanonik, AHRI. Again, on this particular issue, I’m certainly hoping and intending that at this time, by**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 71

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 certainly this time next year, I can give you realworld data from 2008-9, 2009, that will show us how it’s changed. MR. BROOKMAN: Okay. Yes, Robert. MR. GLASS: Robert Glass with Raypak. I know we’re not addressing it here, but the similar item talking about pool heaters, -- MR. BROOKMAN: Yes. MR. GLASS: -- again which is in Table 10.2.5, again Number 1 with the baseline 78 percent, there’s one percent that’s there and there’s zero because there is no product at 78 percent. MR. BROOKMAN: Okay. MR. GLASS: And then beyond it, with the 95 percent, there is one model that is listed. It’s one manufacturer that makes one model that’s listed and they do not own one percent of the market. I think the misnomer here in the bottom, you’ve got shipments-weighted energy efficiencies and from my understanding with what you’ve generated with this, this is not based on shipments. This is based purely on the number of models that are reflected in the FTC Guidelines which is totally unrelated to a shipments relationship. So I think that the reference when you make**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 72

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 their shipments-weighted energy efficiencies, you need to change that because it has absolutely nothing to do with shipments. DR. LEKOV: We understand. MR. BROOKMAN: Okay. Thank you. DR. LEKOV: Thank you. MR. BROOKMAN: Thanks, Robert. Okay. So I think we finally got through understanding this table. For those that want to consult with the staff and the consultant staff further immediately following the meeting, we’ll have another discussion on it, I imagine. Let’s move on to Base Case and Standards Case Forecasted Efficiencies. There’s a question box there and then we’re moving on to the other National Impact Analysis slides. DR. LEKOV: So there is a request for comments on the base case and standard case forecasted efficiencies. MR. BROOKMAN: We’ve heard some about this already, perhaps enough. We’ll see. Robert, you have additional comment? MR. GLASS: No. MR. BROOKMAN: Okay. So let’s move on then to 124.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 73

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 DR. LEKOV: So the next two slides essentially are showing the example of the national energy savings results and on the next one will be the NPV. This particular one shows the national energy savings of gas water heaters at certain efficiency levels and this is how the chart looks. MR. BROOKMAN: Okay. DR. LEKOV: The next chart shows the same, the results for net present value, and we have on the left side non-discounted value, on the right side discounted values, and here again this is a specific example for gas-fired storage water heaters, the efficiency level one, and you have the bars, the longer bars. Those are the operating cost savings. The small bars that go negative at the bottom are the equipment costs and the center bar is the line which essentially shows the economic impacts. The values, the discounted values are on the right side. MR. BROOKMAN: Questions? Yes, Frank. MR. STANONIK: Frank Stanonik, AHRI. Alex, I’m not understanding why the equipment cost is shown as a negative for a higher-efficiency product. DR. LEKOV: That’s for any product. It’s essentially at this efficiency level. Essentially, while the operating savings are plus, essentially a**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 74

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 plus to the consumer or to the nation, the -- MR. STANONIK: Oh, okay. I got it, I got it. MR. BROOKMAN: It’s cost. MR. STANONIK: Okay. I got it, I got it. MR. BROOKMAN: It’s more expensive. It’s a replacement cost. Okay. And we see the discounted financial impacts, as well. So then let’s go on to 126, Alex. DR. LEKOV: So, in additional to the conservation analysis, DOE conducted analysis of the potential impacts of water heater energy conservation standards on natural gas prices on all sectors of the economy. Important to bring to this audience, this analysis is presented to provide a base for input from industry partners on an analysis that DOE plans to include in the NOPR stage of this rulemaking. So essentially, you’ll see examples of the methodology that will be done in the full-scale and during the NOPR phase of the rulemaking. So what’s the methodology? Some of the folks who were involved with the furnace rulemaking are probably familiar with it. Basically, DOE analysis used NEMS which utilizes energy price elasticity to estimate the change in prices in natural gas prices**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 75

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 that would result from a change in energy demand. To illustrate the problem, DOE did two scenarios. One of them was a set of cost-effective efficiency levels for the three products: gas storage, gas instantaneous and electric storage, and the scenario B is essentially the Max-Tech energy savings for the three products. The results are listed below, but in terms of scenario A and scenario B, in terms of cents per million BTU, also they are shown and appropriate conversion to potential results for A and B at seven percent discount rate, and DOE requests comments on the effect of natural gas and methodology for estimating those impacts. MR. BROOKMAN: So comments on this slide? George, please. MR. KUSTERER: George Kusterer, Bock Water Heaters. In reading this, basically it looks like an assumption is being made that the higher efficiency of the product there would be definitely a reduction as far as fuel usage, but are we also assuming because there is a reduction in fuel usage, that the price of the fuel will decline? DR. LEKOV: Yes.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 76

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. KUSTERER: Okay. With that in mind, we have seen historically over the last several months smaller co-ops, not large utilities, but smaller co-ops who have lost, say, consumers for fuel switching, manufacturing facilities, where there has been a reduction in the amount of fuel but in order for those companies to continue to survive, they have actually increased the rates of not only the gas but also the electric to stay profitable. So I don’t feel that DOE can make an assumption just because we’re going to use less energy that the cost of that energy is going to be reduced. MR. BROOKMAN: In some places the per unit costs will increase. MR. KUSTERER: Right. MR. BROOKMAN: Okay. Tim. MR. BALLO: Tim Ballo, EarthJustice. This is a nationwide analysis and so I think that the analysis has to reflect wellhead prices and not the price in some particular region and it kind of gets away from that. MR. KUSTERER: George Kusterer, Bock Water Heaters. I disagree because whether it’s a small little co-op or a major utility, it’s still part of the**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 77

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Continental United States and I think the impact should be considered by DOE. MR. BROOKMAN: Tim, go ahead. MR. BALLO: Just a follow-up. Tim Ballo. This is again a nationwide part of the analysis. So it’s going to include all those positive and negative impacts into one figure. MR. BROOKMAN: Okay. Thank you. So then additional comments on Slide 26? (No response.) MR. BROOKMAN: And 27 is once again a request for comment. Impact on Natural Gas Prices Resulting from Energy Conservation Standards for Three Heating Products, all three, the appropriateness of considering potential impact and the magnitude of such impacts and the extent to which these impacts should be considered, transfers from producers to consumers rather than net economic benefits. Okay. No additional -- yes, Frank. MR. STANONIK: Sorry, Doug. Frank Stanonik, AHRI. Is there a similar plan for electricity rates, that reduced electric consumption for more efficient electric waters is also going to reduce the price of electricity?**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 78

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. BROOKMAN: I see Greg Rosenquist. MR. ROSENQUIST: Yeah. Such an analysis -- well, not analysis but that issue was addressed in the LAMPS rulemaking and for gas, you know, it’s a single fuel, right. For electricity, it’s generated from multiple sources. It’s a much more complex problem and it’s much more diffuse in terms of exactly what effect it would have on electricity prices. So for that rulemaking, for that NOPR, they concluded that it wouldn’t have any effect on electricity prices, unless the magnitude of the savings was so astronomical. MR. BROOKMAN: What was that rulemaking again? MR. ROSENQUIST: That was the LAMPS rulemaking. MR. BROOKMAN: Okay. MR. ROSENQUIST: Yeah. For the Notice of Proposed Rulemaking. MR. BROOKMAN: So, Greg, are you saying or are you not saying that the same assumption might apply here? MR. ROSENQUIST: The same assumption would apply here. MR. BROOKMAN: Okay. Frank, okay?**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 79

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 MR. STANONIK: Yep. MR. BROOKMAN: Okay. Then the final slide in this segment, 128, invites other comments on other issues with respect to the National Impact Analysis, and let me say for those of you that want to do so, when we finish today, which ought to be not too awfully long from now, those of you that want to gather with me in the back and look at Slide 122 again and talk about the forecasted base case efficiency distribution and really understand it fully, I’m sure we can arrange to have our consultant team back there to really go through that one more time. MS. PINTO: Excuse me. This is Francine Pinto again. So again, any of the assumptions that you’ve heard today, if you have comments on them, please make sure you give them in the written comments. We’ve heard them here. We want to have them in writing, as well. MR. BROOKMAN: So the next item on the agenda is to move to the NOPR Analyses, I think. Yep. Okay. Make sure you describe the role of the NOPR Analyses.

NOPR Analyses 24 25 MS. ARMSTRONG: I’m going to describe -- Greg**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 80

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 briefly hit on this earlier and I’m just going to reiterate how we structured the NOPR Analyses. So for the Notice of Proposed Rulemaking, we group product efficiencies for each product class and we call this bundle Trial Standard Levels. We do this in order to develop a list of potential amended standard levels, especially in the industries for which there could be significant product or equipment switching. The method by which we group efficiency levels into trial standard levels varies but considers like the most energy efficiency levels, energy efficiency levels with the lowest life-cycle costs, efficiency levels with certain technologies, just to name a few. So I’m asking for your comment on how DOE should group these levels and this is really specific for water heaters as well as other industries but for water heaters where you have like gas-fired storage and electric storage and oil-fired storage and instantaneous, are there any certain levels that you shouldn’t pair together? For example, like a baseline gas storage and heat pump water heater which would cause significant distortions in the market. So that’s the type of feedback we’re looking for with this slide.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 81

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Does that make sense? MR. BROOKMAN: Yeah. That makes sense and so you can see there at the bottom of 130 some representative issues that might be covered, in addition to what Ashley said there. MS. ARMSTRONG: And this can be something you think about. MR. BROOKMAN: Ashley, you’re not suggesting they haven’t been thinking about this today, huh? MS. ARMSTRONG: No, no, I’m not, not exactly. MR. BROOKMAN: The combination of these things might be complex. Okay. MS. ARMSTRONG: Yes. So I’m going to pass it to Jeff who’s going to talk to you about the Manufacturer Impact Analysis. MR. KINGMAN: Hi. I’m Jeff Kingman. I’ll be working with the department over the next couple of months, during the NOPR stage, evaluating the impacts on manufacturers, and I’m going to talk about the steps that DOE takes to conduct this analysis. The main purpose of the MIA is to assess the impact of energy conservation standards on manufacturers of these covered equipment types and during the analysis, we’re going to evaluate the subgroups and also evaluate cumulative burdens on the**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 82

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 industry. We touched on that a little bit earlier today. Most importantly, one of the main outputs for the MIA is an industry net present value for direct heating equipment, water heaters and pool heaters, and for that we’re going to construct a separate Excel model and also in important part during the MIA is interviews with manufacturers. This slide just shows the three main phases of the MIA and I’m going to discuss each in the next few minutes. This slide just shows that throughout the NOPR phase that the MIA is also conducted in parallel with the other analyses. If I’m going too fast, I’m trying to make up a little time, but hopefully this is just for the future. MR. BROOKMAN: We’d emphasize that point, that this is looking ahead a good ways, right. Months. MR. KINGMAN: And the first phase is the industry profile and that’s just where we look at the analyses we already conducted that we talked about throughout the last eight hours or so and also we look at other public information sources and that’s used to just create from public sources an industry profile for**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 83

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 each of the three industries and just give us our best guess before we go and interview manufacturers of what the industry looks like and also during that, the information we bring is just basic idea of what we think the industry impacts would be at each TSL we consider. Also, an important part during Phase 2 is we actually develop the interview guides and we send those to manufacturers ahead of time to hopefully have them start thinking about some of the issues we’re going to talk about when we show up. Probably this is the most important part of the things we’re going to talk about for the MIA in the NOPR stage and basically we are hoping to conduct the interviews as soon as we can, due to the time crunch that we talked about earlier. We are hopefully going to conduct all our interviews from mid March until mid April. We’re hoping that, based on your feedback today and your written comments, that as soon as the comment period ends, we can change as much as we can before we go and show you some of the changes that we’re hoping to make so we have an updated version of the things we talked about today and so if you have any questions about the actual things we’re talking about or the different changes we’re going to make, I’m going to be**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 84

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 around after the presentation today, so we can talk then, too, and hopefully that way we can just address any questions or concerns about what’s going to happen during the NOPR phase then and we can kind of make up some of this time, too. MR. BROOKMAN: Jeff, have you begun trying to schedule these yet? MR. KINGMAN: No, we haven’t. We were hoping to just see when you’d be available as soon as possible, but we wanted to wait until after the comment period ends, so that we can get some kind of idea of how the other analyses are going to change since the GRIM is kind of a downstream one. MS. ARMSTRONG: Let me follow up. MR. BROOKMAN: Ashley, please. MS. ARMSTRONG: You guys can probably expect a phone call, I would say, beginning of March time frame and feel free to reach out. Most of you have my card. You may not have Jeff’s. Feel free to reach out to me if you haven’t heard from us by then and you would like to participate. MR. BROOKMAN: Thank you. MS. MEYERS: Just a procedure question. Like when you have Phase 1 done, will you share that with the industry or do we -- how much of this do we --**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 85

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 you’ve got this broken into phases. So will we be able to interact with you after Phase 1 is done? MR. KINGMAN: Yes, the main part of the stuff that we get out of Phase 1 is the financial parameters that we get from public sources and so when we come to the interviews, we’ll have that with us and we’ll also publish the interview guides that we bring to give kind of more transparency to what we’re actually talking about. We’re going to disclose the actual -- not the results, right. MS. ARMSTRONG: So what happens is when we develop -- this is Ashley, by the way. MR. BROOKMAN: Thank you. MS. ARMSTRONG: When we develop the interview guides, they’ll be generalizing what we’re going to ask people for comment on, but those will go to all manufacturers across the board. They will also go online similar to the interview guides that we have online now. We will conduct interviews on a confidential basis and all the feedback we get back will be aggregated until the final results and, yes, it’s an iterative ongoing process. So during -- you know, before we lock down our analysis, you’re more than welcome to go back and forth with us.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 86

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. BROOKMAN: So that question was from Karen and the answer was from Jeff and then Ashley. Okay. MR. KINGMAN: Did that answer your question? Do you have any other concerns about the other two phases before I continue? MS. MEYERS: This is Karen, and just the only comment I’ll make is I don’t want the Manufacturers Impact Analysis to be -- I want it to be very thorough. After going through a rulemaking that has such a huge financial impact on us, and I’m talking about the air conditioning rulemaking, we’ve got to make sure that the economic impact to manufacturers is clearly understood by DOE. MR. BROOKMAN: Thank you. Thanks for that. Okay. MS. ARMSTRONG: I’ll just follow up with I’ll stress Jeff’s point earlier. When we send out interview guides, like a couple weeks in advance, it’s worth your while to take your time to really go through them because they’re going to be very, very pretty elaborate and they’re going to ask you for some information that you might not have thought of in those types of ways previously. So it would be helpful for you and us to facilitate those discussions and we’d**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 87

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 appreciate that. MR. BROOKMAN: Okay. So then Cumulative Regulatory Burden or have you done -- Subgroup Analysis. Sorry. MR. KINGMAN: And I think that covers it for this slide. MR. BROOKMAN: Okay. MR. KINGMAN: The only additional point is during the MIA, we also try to identify subgroups that would have different impacts than just the industry net present value and so any help that you guys can give us on who may be more differentially impacted we would appreciate that, too. The more information we get the more complete of an analysis we can do. This just stresses that part of the NOPR phase of the -- for the MIA, we look at the cumulative burdens on the industry and these are just a brief list of some of the ones we’ve identified already and we request comment on other potential regulations that affect manufacturers in this industry. MR. BROOKMAN: We’ve begun to hear some of these as the day went on today already. Frank. MR. STANONIK: Frank Stanonik, AHRI. Just a quick comment because it is significant. This does recognize the regulatory burden of**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 88

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 what’s identified as an ultra-low NOX gas water heater, a super-low NOX water heater, but I just want to make sure that it’s also recognized that that product, first of all, is a very different design and the issues of what one can do to make an ultra-low NOX gas water heater more efficient has very different answers than if I remove the restriction that I have to keep my NOX emissions down below 10 nanograms per joule and so it’s not directly a regulatory burden as much as the fact that the manufacturers have to continue to be able to provide that product to what might eventually be the entire state of California. MR. KINGMAN: So you’re looking at it from a utility perspective, too? A consumer utility? MR. STANONIK: Yes, yes. It still has to heat water, lots of it. MR. BROOKMAN: Okay. Any other comments about cumulative regulatory burden? It’s a pretty good start on a list there. MR. KINGMAN: And these are also identified in Chapter 3 of the TSD or Chapter 2 of the TSD. So if you to take a look at that, too, we list them there. MR. BROOKMAN: Robert. MR. GLASS: Just a quick comment. I think in the TSD, it was talking about the South Coast had**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 89

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 exempted pool heaters from NOX requirements. That’s incorrect. What they’ve done is they just have not increased them. Pool heaters in the South Coast are still on the 55 ppm, so they’re not exempt from requirements. They just have not been updated or increased the levels and I think the TSD has that stated incorrectly. MR. BROOKMAN: Thank you. That’s a useful clarification. MR. KINGMAN: Thanks. MR. BROOKMAN: Small Business Impacts. MR. KINGMAN: And also by law, one of the subgroups that DOE is required to look at is small manufacturers. We’ve identified the number that we have found out about so far. So maybe we can work with industry groups or if we have left any off, we’d like to hear about them, too. MS. ARMSTRONG: Yeah. This is Ashley. Just a follow-up with that to clarify Jeff’s point. It’s 500 employees or fewer and that includes parent companies, subsidiaries, and anything like that. MR. BROOKMAN: And you can see in the Slide 143 they do identify several defined small businesses among these class of products.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 90

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. KINGMAN: I guess I got a little bit ahead of myself, but if you can identify any other ones, we’d appreciate it. MR. ROSENQUIST: Hello, everyone. I will continue for the last four analysis steps for the Notice of Proposed Rulemaking. I should say I’m Greg Rosenquist from the Lawrence Berkeley National Laboratory. First one I’m going to be talking about is the Utility Impact Analysis. The purpose of this analysis is to determine the impact of standards on U.S. energy suppliers due to reductions in energy and peak load demand. The method relied upon is using the National Energy Modeling System or NEMS. You’ve heard us speak about NEMS throughout this workshop. It forecasts energy prices as well as energy sales and as well as installed generation capacity. We take inputs from the National Impact Analysis in the form of cumulative national energy savings and then we run NEMS as a standards case scenario relative to the base case to see how each one of those outputs are affected. As listed here, I’m looking at how energy sales and prices are affected by region as well as how**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 91

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 installed generation capacity and the mix of generation is affected by the standards. Anyone have questions on the Utility Impact Analysis and how that’s conducted? (No response.) MR. ROSENQUIST: Next, I’ll move on to the Employment Impact Analysis. The purpose of this analysis is to determine the impact of standards on national employment. The method here is to use an input/output model called ImSET. It models how energy savings technologies or energy savings policies impact on various sectors in the economy, particularly how these sectors relate to buildings, industry and transportation. What we do here is we take inputs from again the National Impact Analysis and put them into this model. These inputs are in the form of reductions in national energy consumption and national energy expenditures and again we look at how these inputs, when input into the ImSET model, affect income effects and employment effects throughout the economy. I just want to make a reminder here that the Manufacturer Impact Analysis calculates the impacts to manufacturers directly. We do not do that here in this Employment Impact Analysis. The MIA determines the**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 92

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 impacts on employment, on manufacturers of these products, and again the output here is the change in employment by sector due to the appliance standards. So does anyone have any comments on how we do the Employment Impact Analysis? MR. BROOKMAN: The direct employments come from the MIA? MR. ROSENQUIST: Yeah. The direct -- that’s correct, Doug. MR. BROOKMAN: Robert. MR. GLASS: Robert Glass with Raypak. One of the concerns, and I’m not sure if it’s actually associated with this on the employment side, but as we’re looking at more efficient products, that means higher-technology product which means there’s training and a higher level of knowledge base of, say, service installers and things like that. Does this analysis that you’re doing takeinto effect anything that’s required on higherefficiency product? MR. ROSENQUIST: No, not to that level of detail. No, unfortunately, it doesn’t. It does things on a much more macro level. For example, reductions in energy expenditures by consumers will translate into more**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 93

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 money in their pockets that they spend on things like the retail sector. So that level of detail in terms of more training for installers is not reflected in this type of model. The next analysis step is what we call the Environmental Assessment, and the purpose of this analysis is to determine the impact of standards on airborne emissions, both from power plants and from the appliances in the household, at the site. Again, for power plant emissions, we use the same tool or DOE plans to use the same tool as used for the Utility Impact Analysis and that’s the National Energy Modeling System or NEMS. NEMS forecasts power plant emissions of CO2, SO2, NOX, and mercury. What’s done is take inputs from the National Impact Analysis in the form of national energy savings for the various standards, input them into the model and see how that impacts each one of those power plant emissions relative to a reference case. NEMS does not cover the in-building emissions that occur due to these fossil fuel appliances at the household. So there, DOE has to use emission factors from the literature to estimate how those emissions of CO2, NOX and SO2 are affected by standards from the site.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 94

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. BROOKMAN: Don Brundage. MR. BRUNDAGE: I’m sure it’s an oversight, but you’re showing in-building SO2 and NOX still emitted by fossil fuel appliances. They also emit CO2. MR. ROSENQUIST: Yeah. I’ll talk about that right now. Yes, we’re definitely including CO2 from those fossil fuel appliances. Well, let me get to that. Okay. MR. BRUNDAGE: I don’t need to know the details. We’re running late. I trust you got it included somewhere. MR. ROSENQUIST: Okay. I do want to note, also, that very recent rulemakings by DOE have monetized the benefits of reductions in CO2, NOX and mercury, and DOE plans to make that same sort of assessment for this standards rulemaking. Again, the output from the analysis is to show the reductions in CO2, SO2, NOX and mercury at both the power plant level and at the site, at the household where these appliances are being used, and I do want to mention in terms of SO2, there are the Clean Air Act Amendments which cap nationwide emissions of SO2. So standards won’t affect the emissions of SO2 from power plants and because the Clean Air Interstate rule was recently reinstated or revalidated by the**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 95

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 courts, that puts effectively a nationwide cap on NOX, as well. So standards again won’t at the power plant affect NOX emissions. There was something called the Clean Air Mercury rule which was invalidated last year, so that would have effectively capped emissions of mercury from power plants in the country, but since that’s now been invalidated, this analysis will show that standards will affect mercury emissions from power plants. And lastly, even though there’s a cap on SO2 and an effective cap on NOX, we still will have emissions reductions from fossil fuel appliances at the site that will show in the analysis. Does anyone have any questions? (No response.) MR. ROSENQUIST: If not, I will get to the last analysis that we’ll be going over today, the Regulatory Impact Analysis, and the purpose of this analysis is to show how non-regulatory alternatives to mandatory efficiency standards impact national energy savings as well as national economic benefits. DOE realizes that there have been a lot of efforts in the past to promote more efficient appliances in the marketplace and DOE will be looking at how those programs have worked in the past to effect**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 96

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 efficiency changes in the marketplace. They will also be looking for information on any data that might exist on how these programs might affect impacts in the future. For example, DOE is aware of recent legislation that has included tax credits for many appliances and again be looking at that information and taking any input as to how those programs might be affecting these non-regulatory programs that DOE will be looking at. The programs that DOE will be looking at will be no new regulatory action, that is, no new standards, early replacement programs for appliances, consumer and manufacturer tax credits, consumer rebates, voluntary efficiency targets like Energy Star, and bulk government purchases. The method that DOE will use is to take the NES spreadsheet model that’s developed in the National Impact Analysis, modify key inputs in that model to estimate the national energy savings and national economic impacts from these non-regulatory alternatives. And finally, yes, the output from this analysis will be looking at the national energy savings and the NPV from these alternatives and comparing them to the effects from mandatory efficiency standards.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 97

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. BROOKMAN: So then questions or comments on Regulatory Impact Analysis and perhaps final comments on any of these Utility Impact, Employment Impact and Environmental Assessment and Regulatory Impact? Frank Stanonik. MR. STANONIK: Frank Stanonik, AHRI. Greg, at this time is this Regulatory Impact Analysis, is it also including any factor regarding -- I’ve seen in a number of places now, particularly in new building standards, at least suggestions that in a new home the water heater would have a solar heating component. You still may have a water heater in there but it also be provided some solar heating, water heating panels. At the moment, is this analysis including the potential impact of that? MR. ROSENQUIST: That would be more reflected in the base case National Energy Consumption for Water Heating. So again, to the extent that it’s reflected there, it also would be reflected here, plus it isn’t part of the water heater itself, it’s not really considered as a measure to improve water heater efficiency. MR. BROOKMAN: So then additional comments on these NOPR Analyses? Robert. MR. GLASS: Still on Regulatory Impact**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 98

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Analysis, you talked about several non-regulatory alternatives that are considered. One of them that’s not on here is just flat out the marketplace. If the marketplace is driving efficiency levels that are higher than what are mandated national the minimums, is that not an acceptable way of recognizing and realizing that the marketplace has the opportunity to police itself? MR. ROSENQUIST: Well, again, the effect that the market has on equipment efficiency should be reflected in those base case efficiency distributions that we were all talking about on, I think, Slide 82. So if the marketplace is transforming the market already to adopt much more high-efficiency equipment, then the effect of standards will be small to very little. So to the extent again that more efficient appliances are already being adopted, again that will again reduce the effect of standards. MR. BROOKMAN: Additional comments on these last bits of analyses? Don Brundage. MR. BRUNDAGE: One last more general question. There’s a tremendous amount of proposed legislation, proposed changes going on right now. If something gets passed that would impact this**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 2 99

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 rulemaking, it would just automatically get incorporated into consideration once it’s finalized? MR. ROSENQUIST: That’s a tough one. I mean, you know, what we rely on so heavily to conduct these utility impact and environmental assessments is on the National Energy Modeling System which produces the National Energy Outlook, and, you know, it’s produced annually and, of course, when it’s just got released in January, includes any legislation currently on the books and so in that sense we can take into account again the most recent legislation that’s been passed. Now anything that gets passed subsequent to that, it’s going to be difficult to address, of course, with NEMS but there’s always the opportunity with other techniques to try to incorporate the effects from that legislation into the analysis. It just won’t be done with the NEMS model. MR. BRUNDAGE: Okay. MS. PINTO: This is Francine Pinto from GC. We’ve had this problem come up before where I think it was LAMPS where EISA 2007 dramatically changed what we were doing and we obviously have to address it. So we can’t speculate at this moment what’s going to happen because we don’t know, but if something is enacted into law, we have to look at when the effective date is**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 3 00

1 2 3 4 5 6 7 8 9 10 11 12 13 14 obviously, but we have to somehow address it. So we’re always watching what the changes are in the law. MR. BRUNDAGE: So, in other words, minor things we pick up in the next yearly cycle; if it’s really major, you’ll make adjustments as necessary? MS. PINTO: Yes. MR. BROOKMAN: Thank you, Don. Thank you, Francine. So then additional and perhaps final comments on these analyses? (No response.) MR. BROOKMAN: The department would like to provide one more time an opportunity for anybody that wishes to make closing remarks at this point. Karen. Discussion of Other Issues and Final Remarks from 15 Interested Parties 16 17 18 19 20 21 22 23 24 25 MS. MEYERS: This is Karen from Rheem, and we really appreciate the opportunity to participate in this public meeting. The only thing is that we would like to request is the -- we have about 60 days to provide our comments and the stuff was just put on the Web in January and there’s probably over a thousand pages of analysis that we have to go through. So between now -- actually, we have about 30 days to provide comments.**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 3 01

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 So we would request additional time, that the comment time be extended for about 30 days to give us adequate time to put together meaningful comments. MR. BROOKMAN: Okay. Thank you. Francine Pinto. Tim Ballo. MR. BALLO: Tim Ballo, EarthJustice. I just want to say the department has historically welcomed comments that come in after the deadline. I don’t think the deadline needs to be moved here. I think the department should just continue to review comments as they come in and urge stakeholders should get them in by the deadline that’s already been given rather than hold up the rulemaking. MR. BROOKMAN: I’d repeat what I’ve heard from the department previously. They’re not shy about it. They’d like you to submit comments as soon as possible so that they don’t all end up showing up at the very last minute, so they can review them predictably, sensibly, and incorporate them. MS. PINTO: Most of you know we’re under a Consent Decree and so we cannot miss those deadlines. So I’m not sure I personally would make the decision now because Ron Lewis, who’s the program lead, would have to make any decision, but I would say just off the cuff without a final decision being made since we have**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 3 02

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 to meet that deadline and there’s a lot of layers of review before we can actually issue a NOPR, it’s probably unlikely that we can extend, given the deadlines that we have by the court. But Ron Lewis will be the one to actually look at the whole. He has the whole plan. He knows what his staff can do and so he’ll have it. We’ll bring that to him and definitely will pass along the request. MR. BROOKMAN: Frank Stanonik. MR. STANONIK: Just a quick comment. I realize we’re running late here, and I would be remiss to, first of all, just explain. Obviously I’ve made a lot of critical comments, but I want certainly DOE and their staff to know that the industry does appreciate the effort they’ve put into this. We understand the time constraints they’re under and the pressures that are being put on them and I just want to make sure that it’s understood we appreciate that and there’s a lot right with the analysis, but, you know, the nature of what I have to do is point out where they haven’t quite got there yet. MR. BROOKMAN: Sure. Understood. Other comments here at the end? (No response.)**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 3 03

1 2 MR. BROOKMAN: Okay. Then back to Mohammed Khan. Next Steps and Closing Remarks 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. KHAN: Okay. Well, Mohammed Khan, DOE. Again, I just want to express my appreciation for your participation today and also apologize for going over our agenda time a little bit, but, you know, we already talked about the due date for the comments. As Francine has indicated, I will talk to Ron Lewis and whoever else I need to to see if we can extend that a bit. I just want to remind you, too, about how to send that to us. You can e-mail it and also provide hard copy and please address that to Brenda Edwards and for you folks who don’t know her, she’s in the back there. So that’s who you’ll need to get it to. And again, I appreciate all the comments here today. We will review the transcript and consider everything that’s been said and we also look forward to getting some of the data that some of you promised. So again, thank you, and have a nice evening. MR. BROOKMAN: Francine Pinto. MS. PINTO: I just want to add one thing, this is Francine again, on this request to extend. I think it would be wise to operate under the**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 3 04

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 assumption that the deadline is what it is and at the same time Mohammed will speak to Ron and I suppose we can send out an e-mail. We would have to publish something in the Federal Register if it was going to be extended because everyone has to be treated equally. So I would ask you to just continue on as if the deadline is just what it is. Thank you. MR. BROOKMAN: Off the record. (Whereupon, at 5:35 p.m., the meeting was concluded.)**EXECUTIVE COURT REPORTERS, INC. (301)**  **565-0064** 3 05 **REPORTER'S CERTIFICATE** 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 This is to certify that the attached proceedings before: **UNITED STATES DEPARTMENT OF ENERGY** In the Matter of: **PUBLIC MEETING ON THE PRELIMINARY ANALYSES FOR RESIDENTIAL WATER HEATERS, DIRECT HEATING EQUIPMENT,**  **AND POOL HEATERS** Were held as herein appears and that this is the original transcript thereof for the file of the Department, Commission, Board, Administrative Law Judge or the Agency. Further, I am neither counsel for or related to any party to the above proceedings.



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21 Official Reporter

Dated: February 17, 2009