THE WATER HEATER market has been whipsawed the last 12 to 18 months. Regulations mandating flammable vapor ignition resistant water heaters took effect last July, followed by new energy regulations as part of the National Appliance Energy Conservation Act in January.

Now the price of steel and other commodities used to make water heaters has skyrocketed. Next up are FVIR power-vented water heaters and, on the horizon, the possibility of low NOx regulations in California and Texas.

“For our customers, it’s kind of one layer after another,” said Jim Bienias, senior product manager/residential for Rheem Water Heaters. “We’re going to see that continue to happen as we roll out other products, and as we get ready for the next phase of flammable vapor ignition resistant water heaters, we’ll see those issues pop up.”

Manufacturers who sell in Canada are working on the first phase of the FVIR rollout up north, along with new energy efficiency requirements, Bienias said.

Water heater manufacturers collectively are working on an FVIR strategy for 30-, 40- and 50-gal. power-vented products, slated for release on Jan. 1, 2005. The final phase of FVIR is scheduled for July 2005 when manufacturers begin selling FVIR models of direct-vent water heaters for the manufactured housing market and for high-capacity 75- and 100-gal. units.

Manufacturers who are part of the water heater industry consortium that is developing FVIR standards are reluctant to talk about how they will handle power-vent FVIR products.

“Because of the consortium activities and because we’re still working on some issues, we would all be reticent to speak too much about those activities,” Bienias said.

While they won’t say for sure, the manufacturers are leaning toward using a gas sensor.

“I think the one we’re looking at and that most others are looking at is a hydrocarbon sensor,” said Mike Parker, vice president/marketing for A.O. Smith.

The pilot light would ignite flammable vapors inside an atmospheric water heater, he noted, but a power-vent model would suck in flammable vapors, then ignite them, potentially explosively, when the spark igniter fires. A hydrocarbon sensor would prevent the ignition device from firing. A power-vent water heater would still include a flame arrestor in case flammable vapors become present while the water heater is in operation.

Most of the manufacturers feel the rollout of the first FVIR water heaters a year ago was successful.

“The implementation of the FVIR rule pretty much industry-wide went very smoothly,” said Ted Sikorski, vice president/marketing for Bradford White Corp. “All of the manufacturers did an excellent job getting the information out to the field about what the product was about and how it was going to work, and it flowed into the system easily.”

Bob Trudeau, president of American Water Heater Co., however, said the only reason the transition went smoothly was that the water heater manufacturers had stocked up a large inventory of old-style water heaters before the deadline.

“They weren’t ready to launch the new style into manufacturing,” Trudeau said, “so that caused marketplace confusion for six to seven months while the old-style water heaters were sold off and the new style fed into the system.”

American Water Heater and Trudeau have bucked the industry for years. American dropped out of the consortium and brought its own FVIR unit to the market back in 1999. Trudeau also said that American would introduce its power-vent model before the January deadline, although he would not reveal a date or the technology American will use.

After meeting the FVIR requirements, complying with new energy regulations in January was less traumatic although just as expensive. Water heater makers typically began foaming spots in between the tank and jacket where they had previously stuffed fiberglass batt, or they thickened the foam overall or have used heat traps.

While those two changes increased the manufacturing cost of water heaters, the producers have been hit hard with commodity price increases.

“Steel surcharges have been added to our price book,” Bienias said. “We’ve reprinted our price book at least three times this year.”

A.O. Smith’s Parker said the company could not absorb any more costs, and it implemented $15 across-the-board increase at the wholesale level in May.

“The industry has just recently implemented a 6% price increase to cover the rapidly escalating cost and a 6% price increase was required to cover those costs,” Trudeau said.

American Water Heater has seen prices increase from its steel suppliers monthly since January. And it’s not just steel — Trudeau said prices are going up for copper, brass and cobalt to make glass linings. Trudeau added that he’s hearing from steel suppliers that prices will begin to climb again in the fall.

“The Chinese are consuming 60 million metric tons more than they can produce even though they are the world’s largest steel producer,” Trudeau said.

Parker noted that the price of transportation also is up significantly because of new regulations for truck drivers that went into effect earlier this year that mandate different rest periods, rest hours and waiting periods. For example, the time a driver waited for his truck to be unloaded did not count toward his working hours before, Parker said. Now it does and the driver is required to rest accordingly. And this doesn’t even get into the soaring price of gasoline and diesel.

Next on the horizon are pending low NOx regs for California and Texas. The changes proposed are huge, Trudeau said, from 40 nanograms per joule of nitrous oxides down to 10 nanograms per joule. He called that “a significant technical challenge.”