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The federal government has agreed to drop its new rule that would have required high-efficiency furnaces in Northern states, a victory for critics who warned that the costly standard could backfire and drive urban homeowners to less-efficient heating methods.

The U.S. Department of Energy and the American Public Gas Association (APGA) on Monday asked the U.S. Appeals Court in the District of Columbia to vacate the rule and to restart the process of devising new furnace efficiency standards.

The settlement between the Energy Department and the APGA scuttles a rule that would have required any new furnaces or boilers installed after May 2013 in 30 Northern states to have an efficiency rating of 90 percent or more.

APGA and its largest member, Philadelphia Gas Works, had argued that low-income customers and row-house owners might switch to electrical or kerosene heaters instead of paying the greater cost of installing the high-efficiency units in urban dwellings, which require expensive modifications to chimneys.

“We argued that this rule might eventually hurt efficiency,” said Dave Schryver, the executive vice president of APGA, the trade group for public gas utilities.

The agreement is a setback for energy efficiency advocates such as the Natural Resources Defense Council (NRDC), which had pressed the government to devise the rules to comply with the Energy Policy and Conservation Act of 1975.

“It’s disappointing that DOE is trying to undo new efficiency standards that would make consumers’ furnaces more efficient and save us money,” said, Katherine Kennedy, an NRDC lawyer. The new standards could have saved $14 billion and 3.1 trillion cubic feet of gas over 30 years, she said.

PGW and other utilities want the Energy Department to exempt low-income customers or entire temperate regions, such as Southeastern Pennsylvania, where the cost of installing the high-efficiency units might exceed the benefit of the reduced fuel consumption.

APGA had argued that the government used a flawed, expedited rule-making procedure, called “direct final rule,” to arrive at the new standards. The Energy Department will now initiate a traditional “notice-and-comment” rule-making procedure that will add at least two years to the process of devising new standards.

Steven P. Hershey, PGW’s vice president of regulatory and external affairs, said he hopes the new procedure will analyze the consequences of customers who switch to less-efficient fuels rather than pay the high up-front costs of the new heaters.

“This is good for PGW, its customers and Philadelphia, and ultimately will be better for the environment,” Hershey said.

Newer furnaces achieve high efficiency by capturing heat from the unit’s exhaust. The cooled exhaust must be expelled outdoors through a side vent.

In cheek-by-jowl urban dwellings, where side-venting is not possible, the exhaust must be vented through a traditional chimney with the addition of liners and blowers.

The process also creates an acidic condensate that requires the installation of pipes to drain the liquid into a sewer.

UGI Utilities Inc., the Valley Forge company that is Pennsylvania’s largest distributor of natural gas, says that chimney modifications alone could add $1,200 to $2,500 to the installation cost, which some homeowners might never recover.

The utilities suggest that homeowners could install conventional heaters that achieve efficiency ratings of 80 percent to 85 percent.

A coalition of conservation groups and furnace manufacturers had teamed up to support the new rule, and it expressed disappointment Monday at the Energy Department’s move.

“It’s a huge delay to a process already delayed,” said Andrew deLaski, executive director of the Appliance Standards Awareness Project.

DeLaski said that even without mandates, high-efficiency units account for 45 percent of new installations nationwide and 90 percent of the market in the coldest states, such as Minnesota.

But he said the adoption of higher standards tends to further drive down the cost of the higher-efficiency units. He said the more-efficient units save consumers about 10 percent, on average.