Mr. John Cymbalsky 

U.S. Department of Energy 

PHILADELPHIA GAS WORKS 

Steven P. Hershey 

Vice President, Regulatory & External Affairs 

800 W . Montgomery Avenue, Philadelphia, PA 19122 

September 23, 2014 

Office of Energy Efficiency and Renewable Energy 

Building Technologies Office, EE-SB 

1000 Independence A venue SW 

Washington, DC 20585-0121 

Dear Mr. Cymbalsky: 

Philadelphia Gas Works (POW), the largest municipally-owned gas utility in the United States, is 

concerned about the impact that a new furnace efficiency rule could have on POW, its customers, the City of 

Philadelphia and the air quality of this region. The concern is that the new rule, if it adopts a condensing 

standard without recognition that non-condensing furnaces are a separate product class under the statute, 

instead of promoting greater efficiency, would make continued use of gas-fired heating so expensive because 

of purchase and installation costs that it would, for a significant number of consumers, cause fuel switching 

and hence the diminished use of natural gas for heating (and hot water). The same concern was expressed in a 

face-to-face meeting with DOE officials that was hosted by Senator Robert Casey's staff on April 11, 2012, 

as well as in PGW's comments on the DFR in 2011 and in a May 1, 2012 POW affidavit filed in the United 

States Court of Appeals for the District of Columbia Circuit, a copy of which is attached 

It is our understanding that DOE has cited PGW's demand side management program ("DSM") as 

somehow being supportive of DOE's past position that adopting a condensing standard would not cause fuel 

switching. To the contrary, PGW's program demonstrates that intervention to override the normal operation 

of the marketplace is required for high efficiency furnaces to achieve significant penetration in Philadelphia 

and elsewhere. Unfortunately, without the kind of substantial financial intervention provided by a DSM 

program like PGW's, such equipment will not be broadly installed in places like Philadelphia where the old 

housing stock and customer socio-economic status create barriers. While PGW's voluntary DSM does assist 

customers in selecting high-efficiency gas-fired furnaces, this program should not be viewed as a standard 

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Mr. John Cymbalsky September 23, 2014 

component of the marketplace as it is voluntary, approved only through August 31, 2015, and limited in 

nature, as further discussed below. 

PGW previously provided information supporting these statements during the meeting in Senator 

Casey's office and in the above-referenced comments and affidavit. DOE has apparently misunderstood the 

reason for providing this information as well as what it reveals. It was not provided to demonstrate that high 

efficiency furnaces will likely be installed should the condensing standard be adopted. The information 

provided by PGW demonstrates that that will not likely be true. PGW, a municipally-owned utility, 

described the DSM work that we do to demonstrate that PGW strongly supports energy efficiency and 

reduction of greenhouse gases. We did not want any misunderstanding that our opposition to the DFR was a 

reflection of a broader opposition to energy efficiency. We support energy efficiency and have invested 

considerable dollars to that end. 

PGW's DSM program is really seven different programs for different customer segments. The largest 

program is open only to low income customers who participate in PGW's low income payment program, the 

Customer Responsibility Program. Customers in the Customer Responsibility Program pay only a percentage 

of income each month regardless of actual gas consumption. These customers typically live in homes that are 

the worst housing stock in the City and are energy inefficient. All other residential customers bear the burden 

of the subsidy provided to these low income customers. This low income energy efficiency program was 

designed to reduce the burden of the subsidy by targeting opportunities for substantial energy savings through 

comprehensive residential weatherization measures. Customers in this low income program do not pay for 

any of the work performed, and PGW's program is not strictly limited by short-term project cost comparisons. 

For these reasons, the comprehensive projects can include measures, such as HV AC replacements, which are 

expensive and may not necessarily be cost-effective even over full lifetime payback periods on their own. 

Six market rate programs with drastically smaller budgets serve other customers, providing incentives 

covering a portion of incremental costs of high efficiency equipment purchase and installation. Even given the 

PGW rebates, customers are still responsible for a portion of the high-efficiency equipment's incremental 

costs. Program survey results indicate that the incremental costs are the greatest barrier to participation: many 

customers are still likely to elect not to purchase high-efficiency equipment despite access to PGW rebates. 

The fact that Philadelphia's climate is warmer than many areas in the southern region and not nearly 

as cold as those included in the northern region provides further disincentive to buy and install the high 

efficiency furnace. Cost recovery and payback take much longer in Philadelphia's climate. Thus, up-front 

costs are critical to the decisions made by homeowners that must replace an existing furnace. 

High-efficiency furnaces present barriers to installation, such as the high price of the equipment and 

the high cost of venting the condensing furnace, particularly in row homes and twins that have at least one 

common wall with another home. Eliminating the option for affordable natural gas equipment would force 

many residents, who either could not access PGW's incentives or would still be unable to afford the higher 

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Mr. John Cymbalsky September 23, 2014 

costs even given PGW rebates, towards making decisions contrary to DOE's (and PGW's) intended goal of 

fuel efficiency. The short-term concerns of affordability would likely outweigh other considerations, even 

given the potential long-term benefits. This situation is especially troubling in Philadelphia, given the City's 

demographics and housing stock: 

In Philadelphia, 26.3% of the population is at or below l 00% of the federal poverty level, 

38.6% are at or below l 50% of the poverty level and 49.3% are at or below 200% of the 

poverty level. All have very low income and struggle. They do not have the resources 

to pay the higher prices for purchase and installation of condensing equipment even 

though, over the lifetime of the equipment, the cost of heating will be substantially lower 

than other alternatives. 

As described in the attached affidavit, Philadelphia is a city of row homes and twin 

homes which share at least one common wall with neighbors. These common walls 

make side venting of a high efficiency furnace difficult and expensive. Venting through 

a chimney would require major modification of the flue in the chimney, particularly when 

the water heater currently shares a flue with the furnace. Such modifications make the 

venting costly. 

45% of Philadelphians rent their homes and pay the utility bills. The landlord would be 

indifferent to the cost of the monthly utility service, but would be sensitive to the price of 

purchase and installation, making purchase of high efficiency equipment much less 

likely. 

For those people, ifthe condensing standard were to become law, the only alternative available would 

be electric heating, easy and cheap to install, but inefficient and much more expensive to the customer in an 

area that relies heavily on coal-fired generation of electricity, 1 much more damaging to the environment than 

natural gas. If DOE proposes a new furnace efficiency rule that adopts a condensing standard, it must, in our 

view, also provide that non-condensing furnaces are a separate product class if it wishes to avoid wholesale 

fuel switching and to promote fuel efficiency. 

PG W's EnergySense Program changes the normal operation of the market through bulk installation of 

high efficiency equipment without charge (the low income program) and by offering direct incentives for 

installation of energy efficiency measures such as high efficiency furnaces, which skews installation decisions 

from what would otherwise naturally occur. Furthermore, these market interventions should not be relied 

1 Coal was used to generate 44.3% of electricity in PJM during 2013. 

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Mr. John Cymbalsky September 23, 2014 

upon for assisting all customers who would be impacted by a furnace rule that adopts the condensing 

standard. The voluntary PGW programs are only approved through August 31, 2015, and during this time 

period are limited in budget. 

We would appreciate an opportunity to meet with you to discuss these matters and to clear up any 

misunderstandings as to the PGW DSM program and its implications for the adoption of a new furnace rule. 

In the meantime, if you have any questions, please contact us. 

7fi_ ?. Steven P. Hershey 

Attachment 

cc: Senator Robert P. Casey, Jr. 

Bert Kalisch, President and CEO, American Public Gas Association 

Dave McCurdy, President and CEO, American Gas Association 

www.pgworks.com