PGW, others fight U.S. new-furnace rule

With little fanfare, the U.S. Department of Energy enacted a rule last year that will require all new furnaces installed in 30 Northern states including Pennsylvania and New Jersey to be high-efficiency models.

Who would object to such a noble effort to conserve energy?

Philadelphia Gas Works, for one.

The city-owned utility is among several parties that have challenged the Energy Department's rule, saying that some homeowners cannot afford to install costly high-efficiency heating systems and will opt for cheaper electric or kerosene heaters.

They say the new rule, which will go into effect nationwide in May 2013, will have the unintended consequence of inducing some homeowners to choose less-efficient heating methods to save up-front costs.

The government and supporters of the standards argue that homeowners will save money in the long run and that the high-efficiency furnaces collectively will achieve big environmental and economic benefits.

But Bert Kalisch, president and chief executive officer of the American Public Gas Association (APGA), says the long-term savings are irrelevant to millions of Americans who live paycheck to paycheck.

"One does not have to be a proponent of the Occupy Wall Street movement to understand that poverty (however defined) is a growing problem in this country and that the lower-income portion of our population is having trouble making ends meet," Kalisch wrote in a filing last year.

PGW and other utilities say furnaces that achieve at least a 90 percent efficiency rate not only cost more, but also require direct-venting systems that are not well-suited to city dwellings.

High-efficiency furnaces are vented directly through a wall. But in cities such as Philadelphia, where side-by-side rowhouses proliferate, owners cannot vent onto a public sidewalk or beneath a window. So they must vent through chimneys, requiring the installation of expensive liners and mechanical exhausts.

UGI Utilities Inc., the Valley Forge company that is Pennsylvania's largest distributor of natural gas, says that relining a chimney in an urban area could add $1,200 to $2,500 to the installation cost. It says the Energy Department underestimates the up-front costs, which some homeowners might never recover.

"Instead of attaining higher efficiency benefits as the department has originally hoped for, these changes may have an opposite and detrimental effect," wrote Rafi Sohail, the manager of technical sales for CenterPoint Energy Inc., a Houston company that operates utilities in six states.

APGA, whose largest member is Philadelphia Gas Works, sued the Energy Department in December, in the U.S. Court of Appeals for the District of Columbia, to block the new rule. It said the department acted arbitrarily and "abused its discretion" by using a rule-making procedure that avoided protracted public debate.

The Natural Resources Defense Council (NRDC), which supports the rule along with manufacturers and other environmental groups, said the new standards "will result in significant energy and consumer savings and resultant emissions reductions."

In court papers, NRDC played down the negatives.

"It is possible that a limited number of homeowners may encounter unusual up-front costs when installing the more efficient furnaces . . . due to the uncommon physical characteristics of their homes," the organization said in a footnote.

But it said the Energy Department was working on a "narrowly tailored waiver provision" to allow some homeowners to plead hardship and install less-costly, older models.

An Energy Department representative did not respond to questions Friday.

The furnace rule represents the first time the Energy Department has applied efficiency standards on a regional basis. The rules are part of a broader package that includes stricter standards for air conditioners and heat pumps installed in Southern states.

The government estimates the new standards will save 3.3 trillion cubic feet of natural gas over 30 years and yield a net present value of about $14 billion. That volume of gas amounts to about one-seventh of the nation's current annual consumption.

The department increased the national standard for residential oil and gas furnaces from 78 percent to 80 percent in 2007. But virtually all furnaces on the market complied with the rule, prompting states and environmentalists to sue under the Energy Independence and Security Act of 2007.

The department last year issued the new rule, which requires furnaces that use natural gas to achieve the higher 90 percent standard. Oil furnaces must meet an 83 percent efficiency standard nationwide. The new rules apply to new installations, not existing heaters.

Charles Harak, a senior attorney for the National Consumer Law Center in Boston, said the new rules would benefit low-income tenants by forcing landlords to install high-efficiency systems.

"Does it burden some folks?" he said. "Yeah. But what's the consequence of having an 80 percent efficient furnace for the next 25 years?"

To achieve higher efficiency, newer systems extract heat that would go up the chimney of a conventional furnace. The process of capturing the extra heat, however, cools the emissions. The cooled exhaust is no longer drawn naturally up a chimney, so it requires a blower.

The more efficient systems also create condensation, requiring a chimney liner and a drainage system, adding to the cost.

In frigid climates, homeowners achieve a quicker payback with the high-efficiency systems. "This is a slam-dunk benefit for anybody living in Minnesota," Harak said.

But Philadelphia is on the edge of the federal government's Northern zone, and the benefits here are not as dramatic. (The new standards do not apply to Delaware and Maryland residents.)

Steven P. Hershey, PGW's vice president of regulatory and external affairs, argued that the costs would outweigh the benefits for many Philadelphia homeowners.

In a filing with the Energy Department, Hershey said the effective ban on conventional furnaces would "drive many of our customers to electricity or kerosene," which are less efficient and pollute more than natural gas. Other customers will "patch their existing equipment for long after it should have been replaced," creating safety problems.

Hershey said the rule would also harm customers who stay on PGW's system, because a smaller customer base would remain to pick up the aging utility's fixed costs.