[Federal Register Volume 74, Number 237 (Friday, December 11, 2009)]
[Proposed Rules]
[Pages 65852-65997]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-28774]
[[Page 65851]]
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Part II
Department of Energy
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10 CFR Part 430
Energy Conservation Program: Energy Conservation Standards for
Residential Water Heaters, Direct Heating Equipment, and Pool Heaters;
Proposed Rule
Federal Register / Vol. 74, No. 237 / Friday, December 11, 2009 /
Proposed Rules
[[Page 65852]]
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DEPARTMENT OF ENERGY
10 CFR Part 430
[Docket Number EE-2006-BT-STD-0129]
RIN 1904-AA90
Energy Conservation Program: Energy Conservation Standards for
Residential Water Heaters, Direct Heating Equipment, and Pool Heaters
AGENCY: Office of Energy Efficiency and Renewable Energy, Department of
Energy.
ACTION: Notice of proposed rulemaking and public meeting.
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SUMMARY: The Energy Policy and Conservation Act (EPCA) prescribes
energy conservation standards for various consumer products and
commercial and industrial equipment, including residential water
heaters, direct heating equipment (DHE), and pool heaters. EPCA also
requires the U.S. Department of Energy (DOE) to determine whether more
stringent, amended standards for these products would be
technologically feasible and economically justified, and would save a
significant amount of energy. In this notice, DOE is proposing amended
energy conservation standards for residential water heaters (other than
tabletop and electric instantaneous models), gas-fired DHE, and gas-
fired pool heaters. DOE also is announcing a public meeting to receive
comment on these proposed standards and associated analyses and
results.
DATES: DOE will hold a public meeting on Thursday, January 7, 2010,
from 9 a.m. to 4 p.m., in Washington, DC. DOE must receive requests to
speak at the public meeting before 4 p.m., Wednesday, December 23,
2009. DOE must receive a signed original and an electronic copy of
statements to be given at the public meeting before 4 p.m., Wednesday,
December 30, 2009.
DOE will accept comments, data, and information regarding this
notice of proposed rulemaking (NOPR) before and after the public
meeting, but no later than February 9, 2010. See section VII, ``Public
Participation,'' of this NOPR for details.
ADDRESSES: The public meeting will be held at the U.S. Department of
Energy, Forrestal Building, Room 1E-245, 1000 Independence Avenue, SW.,
Washington, DC 20585-0121. To attend the public meeting, please notify
Ms. Brenda Edwards at (202) 586-2945. Please note that foreign
nationals visiting DOE Headquarters are subject to advance security
screening procedures. Any foreign national wishing to participate in
the meeting should advise DOE as soon as possible by contacting Ms.
Brenda Edwards to initiate the necessary procedures.
Any comments submitted must identify the NOPR for Energy
Conservation Standards for Heating Products, and provide the docket
number EE-2006-BT-STD-0129 and/or regulatory information number (RIN)
number 1904-AA90. Comments may be submitted using any of the following
methods:
1. Federal eRulemaking Portal: http://www.regulations.gov. Follow
the instructions for submitting comments.
2. E-mail: [email protected]. Include docket number
EE-2006-BT-STD-0129 and/or RIN 1904-AA90 in the subject line of the
message.
3. Mail: Ms. Brenda Edwards, U.S. Department of Energy, Building
Technologies Program, Mailstop EE-2J, 1000 Independence Avenue, SW.,
Washington, DC 20585-0121. Please submit one signed paper original.
4. Hand Delivery/Courier: Ms. Brenda Edwards, U.S. Department of
Energy, Building Technologies Program, 950 L'Enfant Plaza, SW., Suite
600, Washington, DC 20024. Telephone: (202) 586-2945. Please submit one
signed paper original.
For detailed instructions on submitting comments and additional
information on the rulemaking process, see section VII of this document
(Public Participation).
Docket: For access to the docket to read background documents or
comments received, visit the U.S. Department of Energy, Resource Room
of the Building Technologies Program, 950 L'Enfant Plaza, SW., Suite
600, Washington, DC, (202) 586-2945, between 9 a.m. and 4 p.m., Monday
through Friday, except Federal holidays. Please call Ms. Brenda Edwards
at the above telephone number for additional information regarding
visiting the Resource Room.
FOR FURTHER INFORMATION CONTACT: Mr. Mohammed Khan, U.S. Department of
Energy, Office of Energy Efficiency and Renewable Energy, Building
Technologies Program, EE-2J, 1000 Independence Avenue, SW., Washington,
DC 20585-0121. Telephone: (202) 586-7892. E-mail:
[email protected].
Mr. Eric Stas or Mr. Michael Kido, U.S. Department of Energy,
Office of the General Counsel, GC-72, 1000 Independence Avenue, SW.,
Washington, DC 20585-0121. Telephone: (202) 586-9507. E-mail:
[email protected] or [email protected].
For information on how to submit or review public comments and on
how to participate in the public meeting, contact Ms. Brenda Edwards,
U.S. Department of Energy, Office of Energy Efficiency and Renewable
Energy, Building Technologies Program, EE-2J, 1000 Independence Avenue,
SW., Washington, DC 20585-0121. Telephone: (202) 586-2945. E-mail:
[email protected].
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Summary of the Proposed Rule
II. Introduction
A. Consumer Overview
B. Authority
C. Background
1. Current Standards
a. Water Heaters
b. Direct Heating Equipment
c. Pool Heaters
2. History of Standards Rulemaking for Water Heaters, Direct
Heating Equipment, and Pool Heaters
III. General Discussion
A. Test Procedures
1. Water Heaters
2. Direct Heating Equipment
3. Standby Mode and Off Mode Energy Consumption
B. Technological Feasibility
1. General
2. Maximum Technologically Feasible Levels
C. Energy Savings
1. Determination of Savings
2. Significance of Savings
D. Economic Justification
1. Specific Criteria
a. Economic Impact on Manufacturers and Consumers
b. Life-Cycle Costs
c. Energy Savings
d. Lessening of Utility or Performance of Products
e. Impact of Any Lessening of Competition
f. Need of the Nation to Conserve Energy
g. Other Factors
2. Rebuttable Presumption
IV. Methodology and Discussion
A. Market and Technology Assessment
1. Consideration of Products for Inclusion in This Rulemaking
a. Determination of Coverage Under the Act
b. Covered Products Not Included in This Rulemaking
2. Definition of Gas Hearth Direct Heating Equipment
3. Product Classes
a. Water Heaters
b. Direct Heating Equipment
c. Pool Heaters
B. Screening Analysis
1. Comments on the Screening Analysis
a. General Comments
b. Water Heaters
2. Technologies Considered
3. Heat Pump Water Heaters Discussion
a. Consumer Utility
b. Production, Installation, and Servicing Issues
[[Page 65853]]
c. General Comments
C. Engineering Analysis
1. Representative Products for Analysis
a. Water Heaters
b. Direct Heating Equipment
c. Pool Heaters
2. Ultra-Low NOX Gas-Fired Storage Water Heaters
3. Efficiency Levels Analyzed
a. Water Heaters
b. Direct Heating Equipment
c. Pool Heaters
4. Cost Assessment Methodology
a. Teardown Analysis
b. Cost Model
c. Manufacturing Production Cost
d. Cost-Efficiency Curves
e. Manufacturer Markup
f. Shipping Costs
g. Manufacturer Interviews
5. Results
6. Scaling to Additional Rated Storage Capacities for Water
Heaters
7. Energy Efficiency Equations
D. Markups to Determine Product Price
E. Life-Cycle Cost and Payback Period Analyses
1. Product Cost
2. Installation Cost
a. Water Heaters
b. Direct Heating Equipment
c. Pool Heaters
3. Annual Energy Consumption
a. Water Heaters
b. Direct Heating Equipment
c. Pool Heaters
d. Rebound Effect
4. Energy Prices
5. Repair and Maintenance Costs
a. Water Heaters
b. Direct Heating Equipment
c. Pool Heaters
6. Product Lifetime
7. Discount Rates
8. Compliance Date of the Amended Standards
9. Product Energy Efficiency in the Base Case
a. Water Heaters
b. DHE
c. Pool Heaters
10. Inputs to Payback Period Analysis
11. Rebuttable-Presumption Payback Period
F. National Impact Analysis--National Energy Savings and Net
Present Value Analysis
1. Shipments
a. Water Heaters
b. Direct Heating Equipment
c. Pool Heaters
d. Impacts of Standards on Shipments
2. Other Inputs
a. Base-Case Forecasted Efficiencies
b. Standards-Case Forecasted Efficiencies
c. Annual Energy Consumption
d. Site-to-Source Energy Conversion
e. Total Installed Costs and Operating Costs
f. Discount Rates
3. Other Inputs
a. Effects of Standards on Energy Prices
G. Consumer Subgroup Analysis
H. Manufacturer Impact Analysis
1. Overview
a. Phase 1: Industry Profile
b. Phase 2: Industry Cash-Flow Analysis
c. Phase 3: Subgroup Impact Analysis
2. GRIM Analysis
a. GRIM Key Inputs
b. GRIM Scenarios
3. Discussion of Comments
a. Responses to General Comments
b. Water Heater Comments
4. Manufacturer Interviews
a. Storage Water Heater Key Issues
b. Gas-Fired Instantaneous Water Heater Key Issues
c. Direct Heating Equipment Key Issues (Gas Wall Fan, Gas Wall
Gravity, Gas Floor, and Gas Room Direct Heating Equipment)
d. Direct Heating Equipment Key Issues (Gas Hearth Direct
Heating Equipment)
e. Pool Heater Key Issues
I. Employment Impact Analysis
J. Utility Impact Analysis
K. Environmental Analysis
1. Impacts of Standards on Emissions
2. Valuation of CO2 Emissions Reductions
3. Valuation of Other Emissions Reductions
V. Analytical Results
A. Trial Standard Levels
1. Water Heaters
2. Direct Heating Equipment
3. Gas-Fired Pool Heaters
B. Economic Justification and Energy Savings
1. Economic Impacts on Consumers
a. Life-Cycle Cost and Payback Period
b. Analysis of Consumer Subgroups
c. Rebuttable Presumption Payback
2. Economic Impacts on Manufacturers
a. Water Heater Cash-Flow Analysis Results
b. Direct Heating Equipment Cash-Flow Analysis Results
c. Pool Heaters Cash-Flow Analysis Results
d. Impacts on Employment
e. Impacts on Manufacturing Capacity
f. Cumulative Regulatory Burden
g. Impacts on Small Businesses
3. National Impact Analysis
a. Significance of Energy Savings
b. Net Present Value of Consumer Costs and Benefits
c. Net Present Value of Benefits from Energy Price Impacts
d. Impacts on Employment
4. Impact on Utility or Performance of Products
5. Impact of Any Lessening of Competition
6. Need of the Nation to Conserve Energy
7. Other Factors
C. Proposed Standards
1. Water Heaters
2. Direct Heating Equipment
3. Pool Heaters
VI. Procedural Issues and Regulatory Review
A. Review Under Executive Order 12866
B. Review Under the Regulatory Flexibility Act
1. Water Heater Industry
2. Pool Heater Industry
3. Direct Heating Equipment Industry Characteristics
a. Description and Estimated Number of Small Entities Regulated
b. Reasons for the Proposed Rule
c. Objectives of, and Legal Basis for, the Proposed Rule
d. Description and Estimate of Compliance Requirements
e. Duplication, Overlap, and Conflict With Other Rules and
Regulations
f. Significant Alternatives to the Proposed Rule
C. Review Under the Paperwork Reduction Act of 1995
D. Review Under the National Environmental Policy Act of 1969
E. Review Under Executive Order 13132
F. Review Under Executive Order 12988
G. Review Under the Unfunded Mandates Reform Act of 1995
H. Review Under the Treasury and General Government
Appropriations Act, 1999
I. Review Under Executive Order 12630
J. Review Under the Treasury and General Government
Appropriations Act, 2001
K. Review Under Executive Order 13211
L. Review Under the Information Quality Bulletin for Peer Review
VII. Public Participation
A. Public Meeting
B. Procedure for Submitting Requests to Speak
C. Conduct of Public Meeting
D. Submission of Comments
E. Issues on Which DOE Seeks Comment
VIII. Approval of the Office of the Secretary
I. Summary of the Proposed Rule
The Energy Policy and Conservation Act (42 U.S.C. 6291 et seq.;
EPCA or the Act), as amended, provides that any new or amended energy
conservation standard DOE prescribes for certain consumer products,
including residential water heaters, direct heating equipment (DHE),
and pool heaters (collectively referred to in this document as the
``three heating products''), shall be designed to ``achieve the maximum
improvement in energy efficiency * * * which the Secretary determines
is technologically feasible and economically justified.'' (42 U.S.C.
6295(o)(2)(A)) Furthermore, the new or amended standard must ``result
in significant conservation of energy.'' (42 U.S.C. 6295(o)(3)(B)) In
accordance with these and other statutory provisions discussed in this
notice, DOE proposes amended energy conservation standards for the
three types of heating products listed above. Compliance with the
proposed standards would be required for all residential water heaters
listed in Table I.1 that are manufactured in or imported into the
United States on or after five years after the date of publication of
the final rule. The proposed standards would apply to all DHE and pool
heaters listed in Table I.1 that are manufactured in or imported into
the United States on or after three years after the date of publication
of the final rule. Table I.1 sets forth the proposed standards for the
products that are the subject of this rulemaking.
[[Page 65854]]
Table I.1--Proposed Amended Energy Conservation Standards for
Residential Water Heaters, Direct Heating Equipment, and Pool Heaters
------------------------------------------------------------------------
------------------------------------------------------------------------
Product class Proposed standard level
------------------------------------------------------------------------
Residential water heaters *
------------------------------------------------------------------------
Gas-fired Storage........... For tanks with a For tanks with a
Rated Storage Rated Storage
Volume at or below Volume above 60
60 gallons: EF = gallons: EF = 0.717
0.675 - (0.0012 x - (0.0019 x Rated
Rated Storage Storage Volume in
Volume in gallons). gallons).
Electric Storage............ For tanks with a For tanks with a
Rated Storage Rated Storage
Volume at or below Volume above 80
80 gallons: EF = gallons: EF = 1.088
0.96 - (0.0003 x - (0.0019 x Rated
Rated Storage Storage Volume in
Volume in gallons). gallons).
-------------------------------------------
Oil-fired Storage........... EF = 0.68 - (0.0019 x Rated Storage Volume
in gallons).
Gas-fired Instantaneous..... EF = 0.82 - (0.0019 x Rated Storage Volume
in gallons).
------------------------------------------------------------------------
Product class Proposed standard level
------------------------------------------------------------------------
Direct heating equipment **
------------------------------------------------------------------------
Gas wall fan type up to 42,000 AFUE = 76%
Btu/h.
Gas wall fan type over 42,000 Btu/ AFUE = 77%
h.
Gas wall gravity type up to AFUE = 70%
27,000 Btu/h.
Gas wall gravity type over 27,000 AFUE = 71%
Btu/h up to 46,000 Btu/h.
Gas wall gravity type over 46,000 AFUE = 72%
Btu/h.
Gas floor up to 37,000 Btu/h..... AFUE = 57%
Gas floor over 37,000 Btu/h...... AFUE = 58%
Gas room up to 20,000 Btu/h...... AFUE = 62%
Gas room over 20,000 Btu/h up to AFUE = 67%
27,000 Btu/h.
Gas room over 27,000 Btu/h up to AFUE = 68%
46,000 Btu/h.
Gas room over 46,000 Btu/h....... AFUE = 69%
Gas hearth up to 20,000 Btu/h.... AFUE = 61%
Gas hearth over 20,000 Btu/h and AFUE = 66%
up to 27,000 Btu/h.
Gas hearth over 27,000 Btu/h and AFUE = 67%
up to 46,000 Btu/h.
Gas hearth over 46,000 Btu/h..... AFUE = 68%
------------------------------------------------------------------------
Pool heaters
------------------------------------------------------------------------
Gas-fired........................ Thermal Efficiency = 84%
------------------------------------------------------------------------
* EF is the ``energy factor,'' and the ``Rated Storage Volume'' equals
the water storage capacity of a water heater (in gallons), as
specified by the manufacturer.
** Btu/h is ``British thermal units per hour'' and AFUE is ``Annual Fuel
Utilization Efficiency.''
DOE's analyses indicate that the proposed standards would save a
significant amount of energy--an estimated 2.85 quads of cumulative
energy over a 30-year period. This amount is equivalent to 61 days of
U.S. gasoline use. Breaking these figures down by product type, the
national energy savings of the proposed standards is estimated to be
2.60 quads for residential water heaters, 0.22 quads for DHE, and 0.03
quads for pool heaters.
The cumulative national net present value (NPV) of total consumer
costs and savings from the proposed standards (in 2008$) ranges from
$5.73 billion (at 7-percent discount rate) to $18.1 billion (at 3-
percent discount rate). This is the estimated total value of future
operating-cost savings minus the estimated increased product and
installation costs, discounted to 2010.
The NPV of the proposed standards for water heaters ranges from
$4.79 billion (7-percent discount rate) to $15.6 billion (3-percent
discount rate). DOE estimates the industry net present value (INPV) for
water heaters to be approximately $1,455 million in 2008$. If DOE
adopts the proposed standards, it estimates U.S. water heater
manufacturers will lose between 0.2 percent and 5.6 percent of the
INPV, which is approximately -$2.4 to -$81.0 million. However, the NPV
for consumers (at the 7-percent discount rate) is 59 to 1996 times
larger than the industry losses due to the proposed standards with the
7-percent discount rate, and 193 to 6500 times larger than the industry
losses due to the proposed standards with the 3-percent discount rate.
For DHE, the NPV of the proposed standards ranges from $0.91
billion (7-percent discount rate) to $2.22 billion (3-percent discount
rate). DOE estimates the INPV for DHE to be approximately $104 million
in 2008$. If DOE adopts the proposed standards, it estimates U.S. DHE
manufacturers will lose between 1.9 percent and 5.9 percent of the
INPV, which is approximately -$2.0 to -$6.2 million. However, the NPV
for consumers (at the 7-percent discount rate) is 147 to 455 times
larger than the industry losses due to the proposed standards with the
7-percent discount rate, and 358 to 1,110 times larger than the
industry losses due to the proposed standards with the 3-percent
discount rate.
For pool heaters, the NPV of the proposed standard ranges from
$0.03 billion (7-percent discount rate) to $0.25 billion (3-percent
discount rate). DOE estimates the INPV for pool heaters to be
approximately $61.4 million in 2008$. If DOE adopts the proposed
standards, it expects the impacts on U.S. pool heater manufacturers
will be between a gain of 0.9 percent and a loss of 12.1 percent of the
INPV, which is approximately -$0.5 million to -$7.5 million. However,
the NPV for consumers (at the seven-percent discount rate) is 4 to 60
times larger than the industry losses due to the proposed standards at
the 7-percent discount rate, and 33 to 498 times larger than the
industry losses due
[[Page 65855]]
to the proposed standards at the 3-percent discount rate.
The economic impacts of the proposed standards on individual
consumers (i.e., the average life-cycle cost (LCC) savings) are
predominately positive. For water heaters, DOE projects that the
average LCC impact is a gain of $68 for gas-fired storage water
heaters, $39 for electric storage water heaters, and $395 for oil-fired
storage water heaters, and no change for gas-fired instantaneous water
heaters. For DHE, DOE projects that the average LCC impact for
consumers is a gain of $104 for gas wall fan DHE, $192 for gas wall
gravity DHE, $13 for gas floor DHE, $143 for gas room DHE, and $96 for
gas hearth DHE. For pool heaters, DOE projects that the average LCC
impact for consumers is a loss of $13 (which represents only 0.2
percent of the average total LCC).
In addition, the proposed standards would be expected to provide
significant environmental benefits. The proposed standards would
potentially result in cumulative greenhouse gas emission reductions of
167 million tons (Mt) of carbon dioxide (CO2) from 2013 to
2045. Specifically, the proposed standards for water heaters would
reduce CO2 emissions by 154 Mt; the proposed standards for
DHE would reduce CO2 emissions by 8.5 Mt; and the proposed
standard for pool heaters would reduce CO2 emissions by 4.2
Mt. For the three types of heating products together, DOE estimates
that the range of the monetized value of CO2 emission
reductions based on global estimates of the value of avoided
CO2 is $0.399 billion to $4.386 billion at a 7-percent
discount rate and $0.902 billion to $9.925 billion at a 3-percent
discount rate.
The proposed standards would also be expected to result in
reduction in cumulative nitrogen oxides (NOX) emissions of
129 kilotons (kt). Specifically, the proposed water heater standards
would result in cumulative NOX emissions reductions of 118
kt; the proposed standards for DHE would result in 7.7 kt of
NOX emissions reductions; and the proposed standard for pool
heaters would result in 3.7 kt of NOX emissions reductions.
The proposed standards for heating products would also be expected
to result in power plant mercury (Hg) emissions reductions. For water
heaters, cumulative Hg emissions would be reduced by 0.20 tons (t). The
proposed standards for DHE and pool heaters would be expected to have a
negligible impact on mercury emissions.
The benefits and costs of today's proposed rule can also be
expressed in terms of annualized values. The annualized values refer to
consumer operating cost savings, consumer incremental product and
installation costs, the quantity of emissions reductions for
CO2, NOX, and Hg, and the monetary value of
emissions reductions. DOE calculated annualized values using discount
rates of three percent and seven percent. Although DOE calculated
annualized values, this does not imply that the time-series of cost and
benefits from which the annualized values were determined are a steady
stream of payments.
Table I.2, Table I.3, and Table I.4 present the annualized values
for the standards proposed for water heaters, DHE, and pool heaters,
respectively. The tables also present the annualized net benefit that
results from summing the two monetary benefits and subtracting the
consumer incremental product and installation costs. Although summing
the value of operating cost savings with the value of CO2
reductions (and other emissions reductions) provides a valuable
perspective, please note the following. The operating cost savings are
domestic U.S. consumer monetary savings found in market transactions,
but in contrast, the CO2 value is based on an estimate of
imputed marginal social cost of carbon (SCC), which is meant to reflect
the global benefits of CO2 reductions. In addition, the
assessments of operating cost savings and CO2 savings are
performed with different computer models, leading to different time
frames for analysis. The operating cost savings are measured for the
lifetime of appliances shipped in 2015-2045 or 2013-2043. The value of
CO2, on the other hand is meant to reflect the present value
of all future climate-related impacts, even those beyond 2065.
Table I.2--Annualized Benefits and Costs of Proposed Standards for Water Heaters (TSL 4)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Primary estimate (AEO Low estimate (AEO low- High estimate (AEO
reference case) growth case) high-growth case)
Category Unit -----------------------------------------------------------------------
7% 3% 7% 3% 7% 3%
--------------------------------------------------------------------------------------------------------------------------------------------------------
Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
Monetized Operating Cost Savings.............. Million 2008$................... 1487.1 1842.4 1383.7 1708.4 1590.5 1976.2
Quantified Emissions Reductions............... CO2 (Mt)........................ 4.58 4.92 5.34 5.28 0.61 1.04
NOX (kt)........................ 3.54 3.79 4.17 4.11 0.58 0.92
Hg (t).......................... 0.009 0.008 (0.003) (0.011) 0.010 0.013
Monetized Avoided Emissions Reductions * CO2 (at $20/t).................. 157.1 187.3 184.8 222.1 20.2 41.9
(Million 2008$).
NOX............................. 8.2 9.1 9.7 10.9 0.4 1.6
Hg.............................. 0.1 0.1 (0.1) (0.1) 0.1 0.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Monetized Incremental Product and Installation Million 2008$................... 945.5 917.3 894.4 861.7 997.0 973.4
Costs.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Net Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
Monetized Value **............................ Million 2008$................... 698.8 1112.4 674.1 1068.9 613.7 1044.7
--------------------------------------------------------------------------------------------------------------------------------------------------------
* For CO2, benefits reflect value of $20/t, which is in the middle of the values considered by DOE for valuing the potential global benefits resulting
from reduced CO2 emissions. For NOX and Hg, the benefits reflect values of $2,491/t and $17 million/t, respectively. These values are the midpoint of
the range considered by DOE.
** Monetized Value does not include monetized avoided emissions reductions for NOX and Hg.
[[Page 65856]]
Table I.3--Annualized Benefits and Costs of Proposed Standards for Direct Heating Equipment (TSL 3)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Primary estimate (AEO Low estimate (AEO low- High estimate (AEO
reference case) growth case) high-growth case)
Category Unit -----------------------------------------------------------------------
7% 3% 7% 3% 7% 3%
--------------------------------------------------------------------------------------------------------------------------------------------------------
Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
Monetized Operating Cost Savings.............. Million 2008$................... 132.2 164.4 126.4 156.9 136.2 169.6
Quantified Emissions Reductions............... CO2 (Mt)........................ 0.24 0.27 0.43 0.46 0.13 0.14
NOX (kt)........................ 0.22 0.24 0.36 0.38 0.14 0.15
Hg (t).......................... 0.000 (0.001) 0.000 (0.001) 0.000 0.000
Monetized Avoided CO2 Value (at $20/t) .* Million 2008$................... 8.2 9.8 2.5 2.9 21.0 42.6
--------------------------------------------------------------------------------------------------------------------------------------------------------
Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Monetized Incremental Product and Installation Million 2008$................... 41.8 40.6 41.8 40.6 41.8 40.6
Costs.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Net Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
Monetized Value............................... Million 2008$................... 98.5 133.5 87.1 119.2 115.4 171.6
--------------------------------------------------------------------------------------------------------------------------------------------------------
* For CO2, benefits reflect value of $20/t, which is in the middle of the values considered by DOE for valuing the potential global benefits resulting
from reduced CO2 emissions. For NOX and Hg, the annual benefits are very small and are thus not reported in the table.
Table I.4--Annualized Benefits and Costs of Proposed Standards for Pool Heaters (TSL 4)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Primary estimate (AEO Low estimate (AEO low- High estimate (AEO
reference case) growth case) high-growth case)
Category Unit -----------------------------------------------------------------------
7% 3% 7% 3% 7% 3%
--------------------------------------------------------------------------------------------------------------------------------------------------------
Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
Monetized Operating Cost Savings.............. Million 2008$................... 59.88 68.79 57.29 65.66 61.62 70.86
Quantified Emissions Reductions............... CO2 (Mt)........................ 0.13 0.13 0.16 0.17 0.09 0.10
NOX (kt)........................ 0.112 0.119 0.134 0.143 0.085 0.091
Hg (t).......................... 0.000 0.000 (0.000) (0.001) (0.000) 0.000
Monetized Avoided CO2 Value (at $20/t).* Million 2008$................... 4.20 4.84 5.24 6.08 3.01 3.47
--------------------------------------------------------------------------------------------------------------------------------------------------------
Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Monetized Incremental Product and Installation 2008$........................... 56.66 54.59 56.66 54.59 56.66 54.59
Costs.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Net Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
Monetized Value............................... Million 2008$................... 7.41 19.04 5.88 17.15 7.97 19.74
--------------------------------------------------------------------------------------------------------------------------------------------------------
* For CO2, benefits reflect value of $20/t, which is in the middle of the values considered by DOE for valuing the potential global benefits resulting
from reduced CO2 emissions. For NOX and Hg, the annual benefits are very small and are thus not reported in the table.
DOE has tentatively concluded that the proposed standards represent
the maximum improvement in energy efficiency that is technologically
feasible and economically justified, and would result in significant
conservation of energy. Products achieving these standard levels are
already commercially available. Based on the analyses culminating in
this proposal, DOE found the benefits to the Nation of the proposed
standards (energy savings, consumer LCC savings, national NPV increase,
and emission reductions) outweigh the burdens (loss of INPV and LCC
increases for some consumers). DOE considered higher efficiency levels
as trial standard levels, and is still considering them in this
rulemaking; however, DOE has tentatively concluded that the burdens of
the higher efficiency levels would outweigh the benefits. With that
said, based on consideration of public comments DOE receives in
response to this notice and related information, DOE may adopt
efficiency levels in the final rule that are either higher or lower
than the proposed standards, or some level(s) in between the proposed
standards and other efficiency levels presented.
DOE is proposing TSL 4 for residential water heaters as the level
which it has tentatively concluded meet the applicable statutory
criteria (i.e., the highest level that is technologically feasible,
economically justified, and would result in significant conservation of
energy). Based upon public comments and any accompanying data
submissions, DOE would strongly consider other TSLs (as presented in
this NOPR or at some level in between), some of which might provide an
even higher level of energy savings and promote a market for advanced
water heating technologies, including heat pump and condensing water
heaters. Accordingly, DOE is presenting a variety of issues throughout
today's notice upon which it is seeking
[[Page 65857]]
comment which will bear upon its consideration of TSL 5 or TSL 6 for
residential water heaters in the final rule.
II. Introduction
A. Consumer Overview
EPCA currently prescribes energy conservation standards for the
three heating products that are the subject of this rulemaking. DOE is
proposing to raise the standards for the products shown in Table I.1.
The proposed standards would apply to residential water heaters
manufactured or imported on or after five years after the final rule
publication date (i.e., approximately March 31, 2015). The proposed
standards would apply to DHE and pool heaters manufactured or imported
on or after three years after the final rule publication date (i.e.,
approximately March 31, 2013).
DOE's analyses suggest that consumers would realize benefits from
the proposed standards. Although DOE expects that the purchase price of
the more-efficient heating products would be higher than the average
prices of these products today, for most consumers, the energy
efficiency gains would result in lower energy costs that would more
than offset the higher purchase price. For water heaters, the median
payback period is 2.7 years for gas-fired storage water heaters, 5.8
years for electric storage water heaters, 0.5 years for oil-fired
storage water heaters, and 23.5 years for gas-fired instantaneous water
heaters. For DHE, the median payback period is 6.0 years for gas wall
fan DHE, 8.3 years for gas wall gravity DHE, 14.7 years for gas floor
DHE, 5.3 years for gas room DHE and 0.0 years for gas hearth DHE. (The
reason that the median payback period for gas hearth DHE is zero is
because for about two-thirds of the consumers, there is no incremental
cost to get to the proposed standard level). For pool heaters, the
median payback period is 13.0 years.
When the overall net savings are summed over the lifetime of these
products, water heater consumers will save, on average, $68 for gas-
fired storage water heaters, $30 for electric storage water heaters,
$305 for oil-fired storage water heaters, and $0 for gas-fired
instantaneous water heaters, compared to their life-cycle expenditures
on base-case water heaters (i.e., the equipment expected to be
purchased in the absence of revised energy conservation standards).
(For gas-fired instantaneous water heaters, the average LCC for the
proposed standard level is the same as the average LCC in the base
case, so the savings are zero.) The average LCC impact for DHE
consumers is a gain of $104 for gas wall fan DHE, $192 for gas wall
gravity DHE, $13 for gas floor DHE, $143 for gas room DHE, and $96 for
gas hearth DHE, compared to their life-cycle expenditures on base-case
products. Pool heater consumers will see, on average, a slight increase
in their life-cycle costs, compared to their expenditures on base-case
products.
B. Authority
Title III of EPCA sets forth a variety of provisions designed to
improve energy efficiency. Part A \1\ of Title III (42 U.S.C. 6291-
6309) establishes the Energy Conservation Program for Consumer Products
Other Than Automobiles. The program covers consumer products and
certain commercial equipment (referred to hereafter as ``covered
products''), including the three types of heating products that are
subject to this rulemaking. (42 U.S.C. 6292(a)(4), (9) and (11)) EPCA
prescribes energy conservation standards for the three heating
products. (42 U.S.C. 6295(e)(1)-(3)) The statute further directs DOE to
conduct two cycles of rulemakings to determine whether to amend these
standards. (42 U.S.C. 6295(e)(4)) As explained in further detail in
section II.C, ``Background,'' this rulemaking represents the second
round of amendments to the water heater standards, and the first round
of amendments to the DHE and pool heater standards.
---------------------------------------------------------------------------
\1\ This part was originally titled Part B. It was redesignated
Part A in the United States Code for editorial reasons.
---------------------------------------------------------------------------
Under the Act, DOE's energy conservation program for covered
products consists essentially of three parts: (1) Testing; (2)
labeling; and (3) Federal energy conservation standards. The Federal
Trade Commission (FTC) is responsible for the labeling provisions for
consumer products, and DOE implements the remainder of the program.
Section 323 of the Act authorizes DOE, subject to certain criteria and
conditions, to develop test procedures to measure the energy
efficiency, energy use, or estimated annual operating cost of each
covered product. Manufacturers of covered products must use the DOE
test procedure as the basis for certifying to DOE that their products
comply with applicable energy conservation standards adopted under EPCA
and for representing the efficiency of those products. Similarly, DOE
must use these test procedures to determine whether the products comply
with standards adopted under EPCA. (42 U.S.C. 6293) The test procedures
for water heaters, unvented DHE, vented DHE, and pool heaters appear at
Title 10 Code of Federal Regulations (CFR) part 430, subpart B,
appendices E, G, O, and P, respectively.
EPCA provides criteria for prescribing amended standards for
covered products. As indicated above, any amended standard for a
covered product must be designed to achieve the maximum improvement in
energy efficiency that is technologically feasible and economically
justified. (42 U.S.C. 6295(o)(2)(A)) Furthermore, EPCA precludes DOE
from adopting any standard that would not result in significant
conservation of energy. (42 U.S.C. 6295(o)(3)(B)) Moreover, DOE may not
prescribe a standard for certain products (including the three heating
products) if no test procedure has been established. (42 U.S.C.
6295(o)(3)(A)) The Act also provides that, in deciding whether a
standard is economically justified, DOE must determine whether the
benefits of the standard exceed its burdens. (42 U.S.C.
6295(o)(2)(B)(i)) DOE must do so after receiving comments on the
proposed standard and by considering, to the greatest extent
practicable, the following seven factors:
1. The economic impact of the standard on manufacturers and
consumers of the products subject to the standard;
2. The savings in operating costs throughout the estimated average
life of the covered products in the type (or class) compared to any
increase in the price, initial charges, or maintenance expenses for the
covered products that are likely to result from the imposition of the
standard;
3. The total projected amount of energy (or, as applicable, water)
savings likely to result directly from the imposition of the standard;
4. Any lessening of the utility or the performance of the covered
products likely to result from the imposition of the standard;
5. The impact of any lessening of competition, as determined in
writing by the Attorney General, that is likely to result from the
imposition of the standard;
6. The need for national energy and water conservation; and
7. Other factors the Secretary considers relevant.
(42 U.S.C. 6295(o)(2)(B)(i)(I)-(VII))
Furthermore, EPCA contains what is commonly known as an ``anti-
backsliding'' provision, which prohibits
[[Page 65858]]
the Secretary from prescribing any amended standard that either
increases the maximum allowable energy use or decreases the minimum
required energy efficiency of a covered product. (42 U.S.C. 6295(o)(1))
Also, the Secretary may not prescribe a new or amended standard if
interested persons have established by a preponderance of the evidence
that the standard is likely to result in the unavailability in the
United States of any covered product type (or class) with performance
characteristics (including reliability), features, sizes, capacities,
and volumes that are substantially the same as those generally
available in the United States. (42 U.S.C. 6295(o)(4))
Under 42 U.S.C. 6295(o)(2)(B)(iii), EPCA establishes a rebuttable
presumption that a standard is economically justified if the Secretary
finds that ``the additional cost to the consumer of purchasing a
product complying with an energy conservation standard level will be
less than three times the value of the energy * * * savings during the
first year that the consumer will receive as a result of the standard,
as calculated under the applicable test procedure. * * *''
Under 42 U.S.C. 6295(q)(1), EPCA specifies requirements for
promulgation of a standard for a type or class of covered product that
has two or more subcategories. DOE must specify a different standard
level than that which applies generally to such type or class of
products ``for any group of covered products which have the same
function or intended use, if * * * products within such group--(A)
consume a different kind of energy from that consumed by other covered
products within such type (or class); or (B) have a capacity or other
performance-related feature which other products within such type (or
class) do not have and such feature justifies a higher or lower
standard'' than applies or will apply to the other products. (42 U.S.C.
6295(q)(1)) In determining whether a performance-related feature
justifies a different standard for a group of products, DOE must
``consider such factors as the utility to the consumer of such a
feature'' and other factors DOE deems appropriate. Id. Any rule
prescribing such a standard must include an explanation of the basis on
which such higher or lower level was established. (42 U.S.C.
6295(q)(2))
Federal energy conservation requirements generally supersede State
laws or regulations concerning energy conservation testing, labeling,
and standards. (42 U.S.C. 6297(a)-(c)) However, DOE can grant waivers
of Federal preemption for particular State laws or regulations in
accordance with the procedures and other provisions of section 327(d)
of the Act. (42 U.S.C. 6297(d))
Finally, section 310(3) of the Energy Independence and Security Act
of 2007 (EISA 2007; Pub. L. 110-140) amended EPCA to prospectively
require that energy conservation standards address standby mode and off
mode energy use. Specifically, when DOE adopts new or amended standards
for a covered product after July 1, 2010, the final rule must, if
justified by the criteria for adoption of standards in section 325(o)
of EPCA, incorporate standby mode and off mode energy use into a single
standard if feasible, or otherwise adopt a separate standard for such
energy use for that product. (42 U.S.C. 6295(gg)(3)) Because the final
rule in this rulemaking is scheduled for adoption by March 2010, this
requirement does not apply in this rulemaking, and DOE has not
attempted to address the standby mode or off mode energy use here. DOE
is currently working on a test procedure rulemaking to address standby
mode and off mode energy consumption for the three types of heating
products that are the subject of this rulemaking.
C. Background
1. Current Standards
a. Water Heaters
On January 17, 2001, DOE prescribed the current energy conservation
standards for residential water heaters manufactured on or after
January 20, 2004. 66 FR 4474. This final rule completed the first
amended standards rulemaking for water heaters required under 42 U.S.C.
6295(e)(4)(A). The standards consist of minimum energy factors (EF)
that vary based on the storage volume of the water heater, the type of
energy it uses (i.e., gas, oil, or electricity), and whether it is a
storage, instantaneous, or tabletop model. 10 CFR 430.32(d). The water
heater energy conservation standards are set forth in Table II.1 below.
Table II.1--Current Federal Energy Conservation Standards for
Residential Water Heaters
------------------------------------------------------------------------
Energy factor as of January 20,
Product class 2004
------------------------------------------------------------------------
1. Gas-Fired Storage Water Heater...... EF = 0.67 - (0.0019 x Rated
Storage Volume in gallons).
2. Oil-Fired Storage Water Heater...... EF = 0.59 - (0.0019 x Rated
Storage Volume in gallons).
3. Electric Storage Water Heater....... EF = 0.97 - (0.00132 x Rated
Storage Volume in gallons).
4. Tabletop Water Heater............... EF = 0.93 - (0.00132 x Rated
Storage Volume in gallons).
5. Gas-Fired Instantaneous Water Heater EF = 0.62 - (0.0019 x Rated
Storage Volume in gallons).
6. Instantaneous Electric Water Heater. EF = 0.93 - (0.00132 x Rated
Storage Volume in gallons).
------------------------------------------------------------------------
b. Direct Heating Equipment
EPCA prescribes the energy conservation standards for DHE, which
apply to gas-fired products manufactured on or after January 1, 1990.
(42 U.S.C. 6295(e)(3)) These standards consist of several minimum
annual fuel utilization efficiency (AFUE) levels, each of which applies
to units of a particular type (i.e., wall fan, wall gravity, floor,
room) and heating capacity range. Id. These statutory standards have
been codified in DOE's regulations at 10 CFR 430.32(i). The DHE energy
conservation standards are set forth in Table II.2 below. DOE notes
that while electric DHE are available, standards for these products are
outside the scope of today's rulemaking. See IV.A.1.b for a more
detailed discussion of DHE coverage under EPCA.
[[Page 65859]]
Table II.2--Current Federal Energy Conservation Standards for Direct
Heating Equipment
------------------------------------------------------------------------
Annual fuel
utilization
Direct heating equipment Product class Btu/h efficiency, as
design type of Jan. 1, 1990
%
------------------------------------------------------------------------
Gas Wall Fan.................. Up to 42,000.......... 73
Over 42,000........... 74
Gas Wall Gravity.............. Up to 10,000.......... 59
Over 10,000 and up to 60
12,000.
Over 12,000 and up to 61
15,000.
Over 15,000 and up to 62
19,000.
Over 19,000 and up to 63
27,000.
Over 27,000 and up to 64
46,000.
Over 46,000........... 65
Gas Floor..................... Up to 37,000.......... 56
Over 37,000........... 57
Gas Room...................... Up to 18,000.......... 57
Over 18,000 and up to 58
20,000.
Over 20,000 and up to 63
27,000.
Over 27,000 and up to 64
46,000.
Over 46,000........... 65
------------------------------------------------------------------------
c. Pool Heaters
EPCA requires pool heaters manufactured on or after January 1, 1990
to have a thermal efficiency no less than 78 percent. The thermal
efficiency for this product is measured by testing in accordance with
the DOE test procedure for pool heaters codified in 10 CFR 430, subpart
B, Appendix P. The statutory standard for pool heaters has been
codified in DOE's regulations at 10 CFR 430.32(k).
2. History of Standards Rulemaking for Water Heaters, Direct Heating
Equipment, and Pool Heaters
Before being amended by the National Appliance Energy Conservation
Act of 1987 (NAECA; Pub. L. 100-12), Title III of EPCA included water
heaters and home heating equipment as covered products. NAECA's
amendments to EPCA included replacing the term ``home heating
equipment'' with ``direct heating equipment,'' adding pool heaters as a
covered product, establishing energy conservation standards for these
two products as well as residential water heaters, and requiring that
DOE determine whether these standards should be amended. (42 U.S.C.
6295(e)(1)-(4)) As indicated above, DOE amended the statutorily-
prescribed standards for water heaters in 2001 (66 FR 4474 (Jan. 17,
2001)), but has not amended the statutory standards for DHE or pool
heaters.
DOE initiated this rulemaking on September 27, 2006, by publishing
on its Web site its ``Rulemaking Framework for Residential Water
Heaters, Direct Heating Equipment, and Pool Heaters.'' (A PDF of the
framework document is available at http://www.eere.energy.gov/buildings/appliance_standards/residential/pdfs/heating_equipmentframework_092706.pdf.) DOE also published a notice announcing
the availability of the framework document and a public meeting and
requesting comments on the matters raised in the document. 71 FR 67825
(Nov. 24, 2006). The framework document described the procedural and
analytical approaches that DOE anticipated using to evaluate potential
energy conservation standards for the three heating products and
identified various issues to be resolved in conducting the rulemaking.
DOE held the public meeting on January 16, 2007, where it:
Presented the contents of the framework document; described the
analyses it planned to conduct during the rulemaking; sought comments
from interested parties on these subjects; and in general, sought to
inform interested parties about, and facilitate their involvement in,
the rulemaking. Interested parties that participated in the public
meeting discussed the following issues: the scope of coverage for the
rulemaking; product classes; efficiency levels analyzed in the
engineering analysis; installation, repair, and maintenance costs; and
product and fuel switching. At the meeting and during the public
comment period, DOE received many comments that helped DOE identify and
resolve the issues involved in this rulemaking to consider amended
energy conservation standards for the three types of heating products.
DOE then gathered additional information and performed preliminary
analyses to help develop the potential energy conservation standards
for the three heating products. This process culminated in DOE's
announcement of another public meeting to discuss and receive comments
on the following matters: The product classes DOE planned to analyze;
the analytical framework, models, and tools that DOE has been using to
evaluate standards; the results of the preliminary analyses DOE
performed; and potential standard levels that DOE could consider. 74 FR
1643 (Jan. 13, 2009) (the January 2009 notice). DOE also invited
written comments on these subjects and announced the availability of a
preliminary technical support document (preliminary TSD) to inform
interested parties and enable them to provide comments. Id. (The
preliminary TSD is available at: http://www1.eere.energy.gov/buildings/appliance_standards/residential/water_pool_heaters_prelim_tsd.html.) DOE stated its interest in receiving comments on other
relevant issues that participants believe DOE should address in this
NOPR, which would affect energy conservation standards for the three
heating products. Id. at 1646.
The preliminary TSD provided an overview of the activities DOE
undertook in developing potential standard levels for the three heating
products and discussed the comments DOE received in response to the
framework document. It also described the analytical framework that DOE
used (and continues to use in this rulemaking), including a description
of the methodology, the analytical tools, and the relationships among
the various analyses that are part of the rulemaking. The preliminary
TSD described in detail each analysis DOE performed up to that point,
including inputs, sources,
[[Page 65860]]
methodologies, and results. DOE examined each of the three heating
products in each of the following analyses:
A market and technology assessment addressed the scope of
this rulemaking (i.e., which types of heating products this rulemaking
covers), identified the potential classes for each product,
characterized the markets for these products, and reviewed techniques
and approaches for improving product efficiency.
A screening analysis reviewed technology options to
improve the efficiency of each of the three heating products and
weighed these options against DOE's four prescribed screening criteria
(i.e., technological feasibility; practicability to manufacture,
install, and service; adverse impacts on product utility or product
availability; and adverse impacts on health or safety).
An engineering analysis estimated the manufacturer selling
prices (MSPs) associated with more efficient water heaters, DHE, and
pool heaters.
An energy use analysis estimated the annual energy use in
the field of each of the three heating products.
A markups analysis developed factors to convert estimated
MSPs derived from the engineering analysis to consumer prices.
A life-cycle cost analysis calculated, at the consumer
level, the discounted savings in operating costs throughout the
estimated average life of the product compared to any increase in
installed costs likely to result directly from a given standard.
A payback period (PBP) analysis estimated the amount of
time it takes consumers to recover the higher purchase expense of more
energy efficient products through lower operating costs.
A shipments analysis estimated shipments of each of the
three heating products over the time period examined in the analysis
(i.e., 2015-2045 for water heaters and 2013-2043 for DHE and pool
heaters) under both a base-case scenario (i.e., assuming no new
standards) and a standards-case scenario (i.e., assuming new standards
at the various levels under consideration). The shipments analysis
provides key inputs to the national impact analysis (NIA).
A national impact analysis assessed the aggregate impacts
at the national level of potential energy conservation standards for
each of the three heating products, as measured by the net present
value of total consumer economic impacts and national energy savings.
A preliminary manufacturer impact analysis took the
initial steps in evaluating the effects on manufacturers of potential
new efficiency standards.
In the January 2009 notice, DOE summarized in detail the nature and
function of the following analyses: (1) Engineering, (2) energy use
characterization, (3) markups to determine installed prices, (4) LCC
and PBP analyses, and (5) national impact analysis. 74 FR 1643, 1645-46
(Jan. 13, 2009).
The public meeting announced in the January 2009 notice took place
on February 9, 2009. At this meeting, DOE presented the methodologies
and results of the analyses set forth in the preliminary TSD. The major
topics discussed at the February 2009 public meeting included the
product classes for the rulemaking, the treatment of ultra-low
NOX water heaters, heat pump water heaters screening
considerations, installation costs and concerns for heat pump water
heaters, the manufacturing costs for max-tech products, pool heater
shipments, the energy-use adjustment for gas-fired instantaneous water
heaters, and the compliance dates for amended standards. The comments
received since publication of the January 2009 notice, including those
received at the February 2009 public meeting, have contributed to DOE's
proposed resolution of the issues in this rulemaking. This NOPR quotes
and summarizes many of these comments, and responds to the issues they
raised. (A parenthetical reference at the end of a quotation or
paraphrase provides the location of the relevant source in the public
record.)
III. General Discussion
A. Test Procedures
As noted above, DOE's current test procedures for water heaters,
vented DHE, and pool heaters appear at Title 10 Code of Federal
Regulations (CFR) part 430, subpart B, appendices E, O, and P,
respectively. DOE uses these test procedures to determine whether the
products comply with standards adopted under EPCA. (42 U.S.C. 6293)
1. Water Heaters
During the preliminary analysis, DOE received a number of comments
on the test procedure for residential water heaters. Edison Electric
Institute (EEI) stated that DOE should modify the values for hot water
use and the number of daily draws in the water heater test procedure to
more closely resemble field conditions (i.e., include more shorter
draws, rather than fewer longer draws), and SEISCO INTERNATIONAL
(SEISCO) recommended the adoption of a testing protocol for water
heaters that can best simulate real world usage patterns. (EEI, No. 40
at p.5; SEISCO, No. 41 at p. 3) \2\ Southern Company (Southern), Bock
Water Heaters (Bock), and EEI all stated that DOE needs to revise the
test procedure to account for the actual performance of gas-fired
instantaneous water heaters. (Southern, No. 50 at p. 2; Bock, No. 53 at
p. 3; EEI, No. 40 at p. 5)
---------------------------------------------------------------------------
\2\ ``EEI, No. 40 at p. 5'' refers to: (1) To a statement that
was submitted by the Edison Electric Institute. It was recorded in
the Resource Room of the Building Technologies Program in the docket
under ``Energy Conservation Program: Energy Conservation Standards
for Residential Water Heaters, Direct Heating Equipment, and Pool
Heaters,'' Docket Number EERE-2006-BT-STD-0129, as comment number
40; and (2) a passage that appears on page 5 of that statement.
---------------------------------------------------------------------------
DOE acknowledges that the actual hot water use and the number of
daily draws seen in the field can vary greatly depending upon occupancy
and consumer usage patterns for each type of water heater. DOE's test
procedure attempts to normalize the usage across fuel types by
specifying a typical draw pattern and total hot water usage. DOE
accounts for the variability of these parameters on the energy
consumption of the water heater using: (1) A hot water draw model that
accounts for field conditions in a representative sample of U.S. homes;
and (2) data from field studies of gas-fired instantaneous water
heaters that incorporate a distribution of correction factors to
account for actual field operation. These adjustments are used to
estimate the impacts on consumers of amended standards in the LCC and
PBP analysis.
In the past, the issue of whether the efficiency levels examined by
DOE in this NOPR are achievable using the current DOE test procedures
for residential water heaters has received much attention from
commenters. In particular, several manufacturers either through
manufacturer interviews or docket submissions have expressed their
concern that as efficiencies increase and approach the theoretical
maximum efficiency for electric resistance water heating (i.e., 1.0
EF), the ability to consistently and repeatedly achieve those
efficiencies is significantly hindered by the variations and
inaccuracies that are inherent in the current DOE test procedure.
During engineering and manufacturer interviews, manufacturers have
indicated that this becomes an increasingly important issue at 0.95 EF.
Rheem Manufacturing Company (Rheem) commented that the nature of
the DOE test procedure, including test set-up variations,
instrumentation, and measurement inaccuracies, limits the attainable
energy factor values. Rheem
[[Page 65861]]
stated that DOE should reevaluate the current test procedure to
determine whether it can accurately measure the EF levels being
proposed for standards, especially if a standard is set at or near the
theoretically maximum-attainable EF. (Rheem, No. 49 at pp. 3-4)
DOE agrees with Rheem's assertion that as the theoretical limit is
reached for a covered product utilizing a given technology (e.g.,
electric resistance storage water heaters), the limitations imposed by
the instrumentation, test set-up, and measurement accuracies become
increasingly important. In response, DOE notes that there are currently
several models in AHRI's Directory of certified residential water
heaters that are listed with energy factors of 0.95 EF over a range of
storage volumes. DOE believes this fact demonstrates that it is
possible for manufacturers to make products that can repeatedly achieve
an energy factor of 0.95 and can be certified at this efficiency level.
In order to further verify the ability of manufacturers to achieve this
efficiency level, DOE performed its own research, which consisted of
independent third-party testing of several water heater models rated at
0.95 EF with rated storage volumes spanning 30 to 80 gallons. Of the
five models tested that were rated at 0.95 EF, four fell within the
acceptable range of values to be rated and certified at 0.95 EF, while
only one model failed to achieve an efficiency that would be acceptable
for a 0.95 EF rating. This further demonstrates the ability of
manufacturers to consistently achieve 0.95 EF, as the large majority of
the sample of models tested did reach an acceptable value for
certification at 0.95 EF.
DOE has tentatively concluded that the TSLs being considering in
the proposed rule provide ample room for manufacturers to innovatively
design products which meet the standards using the existing test
procedure. DOE's test results further provide evidence that electric
storage water heaters exist at TSL 4 (0.95 EF at the representative
rated storage capacity) across a range of storage volumes in the market
today. In addition, DOE notes that once the product surpasses the
theoretical maximum of a given technology by utilizing a different
design these problems are mitigated. Consequently, DOE does not believe
commenter's concerns regarding the repeatability and accuracy of the
test procedure apply to TSL 6 and 7, where DOE is considering advance
technology water heaters, including heat pump water heaters.
The Natural Resources Defense Council (NRDC) stated that the water
heater test procedure fails to capture all of the cost-effective
efficiency measures; the American Council for an Energy-Efficient
Economy (ACEEE) and NRDC both stated that due to test procedure flaws
(e.g., giving no efficiency advantage for an insulated tank bottom),
manufacturers are generally not willing to incorporate enhanced
efficiency features because product costs are likely to rise without
improving the rated energy efficiency. (NRDC, No. 48 at p. 3; ACEEE,
No. 35 at p. 4) DOE acknowledges that the current test procedure may
not reflect recent advances in technology. DOE believes, however, that
the test procedure provides satisfactory methods for measuring
performance of the efficiency levels considered in this rulemaking.
Furthermore, the design paths that can be used to achieve the
considered efficiency levels are given appropriate credit by the test
procedure. DOE believes that the appropriate time to address the
concerns raised is during the next revision of DOE's test procedure.
2. Direct Heating Equipment
The energy conservation standards set by EPCA for DHE are
consistent with the energy efficiency metric described in the vented
home heating equipment test procedure. On May 12, 1997, DOE published a
final test procedure rule (the May 1997 final rule) in the Federal
Register that amended the test procedures for DHE, particularly for
vented home heating equipment. 62 FR 26140. In this rulemaking, DOE
proposes that this test procedure be applied to establish the
efficiency of vented gas hearth DHE.
3. Standby Mode and Off Mode Energy Consumption
EPCA, as amended by EISA 2007 requires DOE to amend the test
procedures for the three types of heating products to include the
standby mode and off mode energy consumption measurements. (42 U.S.C.
6295(gg)(2)(B)(v)) Consistent with EISA 2007's statutory deadline for
these changes, DOE intends to amend its test procedures to incorporate
these measurements by March 31, 2010. DOE is handling standby mode and
off mode energy use for the three heating products in a separate
rulemaking.
B. Technological Feasibility
1. General
In each energy conservation standards rulemaking, DOE conducts a
screening analysis, which it bases on information it has gathered on
all current technology options and prototype designs that could improve
the efficiency of the products or equipment that are the subject of the
rulemaking. As the first step in such analysis, DOE develops a list of
design options for consideration in consultation with manufacturers,
design engineers, and other interested parties. DOE then determines
which of these means for improving efficiency are technologically
feasible. DOE considers a design option to be technologically feasible
if it is in use by the relevant industry or if research has progressed
to the development of a working prototype. ``Technologies incorporated
in commercial products or in working prototypes will be considered
technologically feasible.'' 10 CFR 430, subpart C, appendix A, section
4(a)(4)(i).
Once DOE has determined that particular design options are
technologically feasible, it evaluates each design option in light of
the following additional screening criteria: (1) Practicability to
manufacture, install, or service; (2) adverse impacts on product
utility or availability; and (3) adverse impacts on health or safety.
Section IV.B of this notice discusses the results of the screening
analysis for the three types of heating products, particularly the
designs DOE considered, those it screened out, and those that are the
basis for the efficiency levels in this rulemaking. For further details
on the screening analysis for this rulemaking, see chapter 4 of the
NOPR TSD.
2. Maximum Technologically Feasible Levels
When DOE proposes to adopt (or not adopt) an amended or new energy
conservation standard for a type or class of covered product, it must
``determine the maximum improvement in energy efficiency or maximum
reduction in energy use that is technologically feasible'' for such
product. (42 U.S.C. 6295(p)(1)) Accordingly, DOE determined the maximum
technologically feasible (``max-tech'') efficiency levels for the three
heating products in the engineering analysis using the most efficient
design parameters that lead to the creation of the highest product
efficiencies possible. (See chapter 5 of the NOPR TSD.)
The max-tech efficiency levels are set forth in TSL 7 for
residential water heaters, TSL 6 for DHE, and TSL 6 for pool heaters.
For the representative rated storage volumes and input capacity ratings
within a given product class, products with these efficiency levels
were or are now being offered for sale, or there is a prototype that
has
[[Page 65862]]
been tested and developed. No products at higher efficiency levels are
currently available. Table III.1 lists the max-tech efficiency levels
that DOE determined for this rulemaking.
Table III.1--Max-Tech Efficiency Levels for the Residential Heating Products Rulemaking
----------------------------------------------------------------------------------------------------------------
Product class Representative product Max-tech efficiency level
----------------------------------------------------------------------------------------------------------------
Residential water heaters
----------------------------------------------------------------------------------------------------------------
Gas-Fired Storage Water Heater......... Rated Storage Volume = 40 EF = 0.80
Gallons.
Electric Storage Water Heater.......... Rated Storage Volume = 50 EF = 2.2
Gallons.
Oil-Fired Storage Water Heater......... Rated Storage Volume = 32 EF = 0.68
Gallons.
Gas-Fired Instantaneous Water Heater... Rated Storage Volume = 0 EF = 0.95
Gallons, Rated Input
Capacity = 199,999 Btu/h.
----------------------------------------------------------------------------------------------------------------
Direct heating equipment
----------------------------------------------------------------------------------------------------------------
Gas Wall Fan Type...................... Rated Input Capacity = AFUE = 80%
Over 42,000 Btu/h.
Gas Wall Gravity Type.................. Rated Input Capacity = AFUE = 72%
Over 27,000 Btu/h and up
to 46,000 Btu/h.
Gas Floor Type......................... Rated Input Capacity = AFUE = 58%
Over 37,000 Btu/h.
Gas Room Type.......................... Rated Input Capacity = AFUE = 83%
Over 27,000 Btu/h and up
to 46,000 Btu/h.
Gas Hearth Type........................ Rated Input Capacity = AFUE = 93%
Over 27,000 Btu/h and up
to 46,000 Btu/h.
----------------------------------------------------------------------------------------------------------------
Pool heaters
----------------------------------------------------------------------------------------------------------------
Gas Fired.............................. Rated Input Capacity = Thermal Efficiency = 95%
250,000 Btu/h.
----------------------------------------------------------------------------------------------------------------
See section IV.C.3 for additional details of the max-tech
efficiency levels and discussion of related comments from interested
parties on the preliminary analysis. In this NOPR, DOE again seeks
public comment on the max-tech efficiency levels identified for its
analyses. Specifically, DOE requests information about whether the
efficiency levels identified by DOE would be achievable using the
technologies screened-in during the screening analysis (see section
IV.B), especially for gas-fired storage water heaters, and whether even
higher efficiencies would be achievable using screened-in technologies.
(See Issue 1 under ``Issues on Which DOE Seeks Comment'' in section
VII.E of this NOPR.)
C. Energy Savings
1. Determination of Savings
DOE used its NIA spreadsheet to estimate energy savings expected to
result from amended energy conservation standards for products that
would be covered under today's proposed rule. (Section IV.F of this
notice and chapter 10 of the NOPR TSD describe the NIA spreadsheet
model.) For each TSL, DOE forecasted energy savings over the period of
analysis (beginning in 2013 (DHE, pool heaters) or 2015 (water
heaters), the year that compliance with the amended standards would be
required, and ending 30 years later) relative to the base case. (The
base case represents the forecast of energy consumption in the absence
of amended energy conservation standards.) Stated another way, DOE
quantified the energy savings attributable to potential amended energy
conservation standards as the difference in energy consumption between
the standards case and the base case.
The NIA spreadsheet model calculates the energy savings in site
energy, which is the energy directly consumed on location by an
individual product. DOE reports national energy savings on an annual
basis in terms of the aggregated source (primary) energy savings, which
are the energy savings used to generate and transmit the energy
consumed at the site. To convert site energy to source energy, DOE
derived conversion factors, which change with time, from the Energy
Information Agency's (EIA) Annual Energy Outlook 2009 (AEO2009).
For results of DOE's National Energy Savings (NES) analysis, see
section V.B.3 of this notice or chapter 10 of the NOPR TSD.
2. Significance of Savings
As noted above, under 42 U.S.C. 6295(o)(3)(B), DOE is prohibited
from adopting a standard for a covered product if such standard would
not result in ``significant'' energy savings. While the term
``significant'' is not defined in the Act, the U.S. Court of Appeals
for the District of Columbia Circuit, in Natural Resources Defense
Council v. Herrington, 768 F.2d 1355, 1373 (D.C. Cir. 1985), indicated
that Congress intended ``significant'' energy savings in this context
to be savings that were not ``genuinely trivial.'' The energy savings
for all of the TSLs considered in this rulemaking are nontrivial, and,
therefore, DOE considers them ``significant'' within the meaning of
section 325 of the EPCA.
D. Economic Justification
1. Specific Criteria
As noted in section II.B., EPCA provides seven factors to be
evaluated in determining whether a potential energy conservation
standard is economically justified. (42 U.S.C. 6295(o)(2)(B)(i)) The
following sections discuss how DOE has addressed each of those seven
factors in this rulemaking.
a. Economic Impact on Manufacturers and Consumers
EPCA requires DOE to consider the economic impact on manufacturers
and consumers of products when determining the economic justification
of a standard. (42 U.S.C. 6295(o)(2)(B)(i)(I)) In determining the
impacts of an amended standard on manufacturers, DOE first determines
the quantitative impacts using an annual cash-flow approach. This
includes both a short-term assessment--based on the cost and capital
requirements during the period between the announcement of a regulation
and when the regulation comes into effect--and a long-term
[[Page 65863]]
assessment over the 30-year analysis period. The impacts analyzed
include INPV (which values the industry on the basis of expected future
cash flows), annual cash flows, changes in revenue and income, and
other measures of impact, as appropriate. DOE analyzes and reports the
impacts on different types of manufacturers, paying particular
attention to impacts on small manufacturers. DOE also considers the
impact of standards on domestic manufacturer employment and
manufacturing capacity, as well as the potential for plant closures and
loss of capital investment. Finally, DOE accounts for cumulative
impacts of different DOE regulations and other regulatory requirements
on manufacturers.
For consumers, measures of economic impact include the changes in
LCC and PBP for each TSL. The LCC, which is also separately specified
as one of the seven factors to be considered in determining the
economic justification for a new or amended standard (42 U.S.C.
6295(o)(2)(B)(i)(II)), is discussed in the following section.
For the results of DOE's analysis of the economic impacts of
potential standards on manufacturers and consumers, see section V.B of
this notice and chapters 8 and 12 of the NOPR TSD.
b. Life-Cycle Costs
The LCC is the sum of the purchase price of a product (including
associated installation costs) and the operating expense (including
energy, maintenance, and repair expenditures) discounted over the
lifetime of the product. In this rulemaking, DOE calculated both LCC
and LCC savings for various efficiency levels for each product. The LCC
analysis estimated the LCC for representative heating products in
housing units that represent the segment of the U.S. housing stock that
uses these appliances. Through the use of a housing stock sample, DOE
determined for each household in the sample the energy consumption of
the heating product and the appropriate energy prices. By using a
representative sample of households, the analysis captured the wide
variability in energy consumption and energy prices associated with
heating product use. For each household, DOE sampled the values of
several inputs to the LCC calculation from probability distributions.
For purposes of the analysis, DOE assumes that the consumer purchases
the product in the year the standard becomes effective.
DOE presents the LCC savings as a distribution, with a mean value
and a range across the sample for each product. This approach permits
DOE to identify the percentage of consumers achieving LCC savings or
attaining certain payback values due to an amended energy conservation
standard, in addition to the average LCC savings or average payback for
that standard.
For the results of DOE's LCC and PBP analyses, see section V.B.1.a
of this notice and chapter 8 of the NOPR TSD.
c. Energy Savings
While significant conservation of energy is a separate statutory
requirement for adopting an energy conservation standard, the Act
requires DOE, in determining the economic justification of a standard,
to consider the total projected energy savings that are expected to
result directly from the standard. (42 U.S.C. 6295(o)(2)(B)(i)(III))
DOE used the NES spreadsheet results in its consideration of total
projected savings.
For the results of DOE's energy savings analyses, see section
V.B.3.a of this notice and chapter 10 of the NOPR TSD.
d. Lessening of Utility or Performance of Products
In establishing product classes and evaluating their potential for
improved energy efficiency, DOE sought to develop potential standards
for the three types of heating products that would not lessen the
utility or performance of these products. During the screening
analysis, DOE tentatively concluded that the efficiency levels being
considered would not necessitate changes in product design that would
reduce utility or performance of the three types of heating products
that are the subject of this rulemaking. Therefore, none of the TSLs
presented in today's NOPR would reduce the utility or performance of
the products under consideration. (42 U.S.C. 6295(o)(2)(B)(i)(IV))
For the results of DOE's analyses related to the impact of
potential standards on product utility and performance, see section
IV.B of this notice and chapter 4 of the NOPR TSD, the screening
analysis.
e. Impact of Any Lessening of Competition
EPCA directs DOE to consider any lessening of competition likely to
result from standards. It directs the Attorney General to determine the
impact, if any, of any lessening of competition likely to result from a
proposed standard and to transmit such determination to the Secretary,
not later than 60 days after the publication of a proposed rule,
together with an analysis of the nature and extent of such impact. (42
U.S.C. 6295(o)(2)(B)(i)(V) and (B)(ii)) DOE has transmitted a copy of
today's proposed rule to the Attorney General and has requested that
the U.S. Department of Justice (DOJ) provide its determination on this
issue. DOE will publish and address the Attorney General's
determination in the final rule.
f. Need of the Nation To Conserve Energy
EPCA directs DOE to consider the need for national energy and water
conservation as part of its standard-setting process. (42 U.S.C.
6295(o)(2)(B)(i)(VI)) DOE has preliminarily determined that the non-
monetary benefits of the proposed standards would likely be reflected
in improvements to the security and reliability of the Nation's energy
system. Reductions in the demand for electricity may result in reduced
costs for maintaining reliability of the Nation's electricity system.
DOE conducts a utility impact analysis to estimate how standards may
affect the Nation's power generation capacity requirements.
Energy savings from the proposed standards would also be likely to
result in environmental benefits in the form of reduced emissions of
air pollutants and greenhouse gases associated with energy production,
and through reduced use of fossil fuels at the homes where heating
products are used. Although presented in summary form in section IV.K,
DOE reports the environmental effects from the proposed standards and
all of the considered TSLs in the environmental assessment contained in
chapter 15 of the NOPR TSD. DOE also reports estimates of the economic
value of emissions reductions resulting from the considered TSLs.
g. Other Factors
The Act allows the Secretary of Energy, in determining whether a
standard is economically justified, to consider any other factors that
the Secretary deems to be relevant. (42 U.S.C. 6295(o)(2)(B)(i)(VII))
Under this provision, DOE considered LCC impacts on identifiable groups
of consumers, such as seniors and residents of multi-family housing,
who may be disproportionately affected by any national energy
conservation standard level. In addition, DOE considered the
uncertainties associated with the heat pump water heater market related
to the ability of manufacturers to ramp up production of heat pump
water heaters to serve the U.S. market, the ability of heat pump
component manufacturers to increase production to serve the water
[[Page 65864]]
heater market, and the ability to retrain enough servicers and
installers of water heaters to serve the market. See section V.C.1 for
an additional discussion of the uncertainties in the heat pump water
heater market.
For the results of DOE's LCC subgroup analysis, see section IV.G of
this notice and chapter 11 of the NOPR TSD. For a full discussion of
the uncertainties related to heat pump water heaters, see sections
V.C.1 and IV.B.3 of this notice.
2. Rebuttable Presumption
As set forth in 42 U.S.C. 6295(o)(2)(B)(iii), EPCA provides for a
rebuttable presumption that an energy conservation standard is
economically justified if the additional cost to the consumer of a
product that meets the standard level is less than three times the
value of the first-year energy (and, as applicable, water) savings
resulting from the standard, as calculated under the applicable DOE
test procedure. The LCC and PBP analyses generate values that calculate
the payback period for consumers of potential amended energy
conservation standards. These analyses include, but are not limited to,
the 3-year payback period contemplated under the rebuttable presumption
test discussed above. However, DOE routinely conducts a full economic
analysis that considers the full range of impacts, including those to
the consumer, manufacturer, Nation, and environment, as required under
42 U.S.C. 6295(o)(2)(B)(i). The results of this analysis serve as the
basis for DOE to definitively evaluate the economic justification for a
potential standard level (thereby supporting or rebutting the results
of any preliminary determination of economic justification). The
rebuttable presumption payback calculation is discussed in section IV.D
of this NOPR and chapter 8 of the NOPR TSD.
IV. Methodology and Discussion
In November 2006, DOE published a notice of public meeting and
availability of the framework document. 71 FR 67825 (Nov. 24, 2006).
DOE initially presented its proposed methodology for the analyses
pertaining to the heating products rulemaking in the framework
document. After receiving comments from interested parties on the
approaches proposed in the framework document, DOE modified its
methodology and assumptions, and performed a preliminary analysis for
heating products. Subsequently, DOE published a notice of public
meeting on January 13, 2009. 74 FR 1643. In the Executive Summary of
that notice and preliminary TSD which accompanied it, DOE detailed its
preliminary analysis conducted for the heating products rulemaking,
including methodology, assumptions, and results. After receiving
further comment from interested parties on the analytical approach and
results of the preliminary analysis, DOE further refined its analyses
for today's NOPR.
DOE used two spreadsheet tools to estimate the impact of today's
proposed standards. The first spreadsheet calculates LCCs and PBPs of
potential new energy conservation standards. The second provides
shipments forecasts and then calculates national energy savings and net
present value impacts of potential new energy conservation standards.
DOE also assessed manufacturer impacts, largely through use of the
Government Regulatory Impact Model (GRIM). These spreadsheets are
available online at: http://www1.eere.energy.gov/buildings/appliance_standards/residential/waterheaters.html.
Additionally, DOE estimated the impacts on utilities and the
environment of potential energy efficiency standards for the three
heating products. DOE used a version of EIA's National Energy Modeling
System (NEMS) for the utility and environmental analyses. The NEMS
model simulates the energy sector of the U.S. economy. EIA uses NEMS to
prepare its AEO, a widely-known energy forecast for the United States.
The EIA approves the use of the name NEMS to describe only an AEO
version of the model without any modification to code or data. For more
information on NEMS, refer to The National Energy Modeling System: An
Overview 1998. DOE/EIA-0581 (98) (Feb. 1998) (available at: http://tonto.eia.doe.gov/FTPROOT/forecasting/058198.pdf).
The version of NEMS used for appliance standards analysis is called
NEMS-BT. Because the present analysis entails some minor code
modifications and runs the model under various policy scenarios that
deviate from AEO assumptions, the name ``NEMS-BT'' refers to the model
as used here. (``BT'' stands for DOE's Building Technologies Program.)
NEMS-BT offers a sophisticated picture of the effect of standards
because it accounts for the interactions between the various energy
supply and demand sectors and the economy as a whole.
A. Market and Technology Assessment
1. Consideration of Products for Inclusion in This Rulemaking
In this subsection, DOE is presenting its determination of scope
and coverage for the rulemaking. Specifically, this subsection
addresses whether EPCA covers certain products and provides DOE with
the authority to adopt standards for those products. Second, it
addresses certain types of heating products that are covered under
EPCA, but for which DOE is not proposing amended standards at this
time, due to other relevant statutory provisions, technological
limitations, or other considerations.
a. Determination of Coverage Under the Act
i. Solar-Powered Water Heaters and Pool Heaters
As indicated above, EPCA directs DOE to determine whether to amend
the energy conservation standards that the Act prescribes for
residential water heaters and pool heaters. (42 U.S.C. 6295(e)(4))
Under EPCA, any standard for residential water heaters and pool heaters
must establish either a maximum amount of energy use or a minimum level
of efficiency that is based on energy use (42 U.S.C. 6291(5)-(6)). EPCA
defines ``energy use,'' in part, as ``the quantity of energy'' that the
product consumes. (42 U.S.C. 6291(4)) Further, EPCA covers these two
products as consumer products. (42 U.S.C. 6291(2); 6292(a)(4), (9), and
(11)) EPCA defines ``consumer product,'' in part, as an article that
consumes or is designed to consume energy. (42 U.S.C. 6291(1)) EPCA
defines ``energy'' as meaning ``electricity, or fossil fuels,'' or
other fuels that DOE adds to the definition, by rule, upon determining
``that such inclusion is necessary or appropriate to carry out the
purposes'' of EPCA. (42 U.S.C. 6291(3)) DOE does not have statutory
authority to add solar energy (or any other type of fuel) to EPCA's
definition of ``energy.'' Thus, DOE presently lacks authority to
prescribe standards for these products when they use the sun's energy
instead of fossil fuels or electricity because EPCA currently covers
only water heaters and pool heaters that use electricity or fossil
fuels, and because any ``energy conservation standard'' currently
adopted under EPCA for these two products must address or be based on
the quantity of these fuels, but not solar power, that the product
consumes. As to water heaters, DOE lacks authority to adopt standards
for solar-powered products for an additional reason. ``Water heater''
under EPCA currently means ``a product which utilizes oil, gas, or
electricity to heat potable water,'' thereby excluding solar water
heaters from coverage. (42 U.S.C. 6291(27); 10 CFR 430.2)
[[Page 65865]]
ii. Add-On Heat Pump Water Heaters
EPCA defines a residential ``water heater,'' in part, as a product
that ``heat[s] potable water for use outside the heater upon demand,
including * * * heat pump type units * * * which are products designed
to transfer thermal energy from one temperature level to a higher
temperature level for the purpose of heating water, including all
ancillary equipment such as fans, storage tanks, pumps, or controls
necessary for the device to perform its function.'' (42 U.S.C.
6291(27); 10 CFR 430.2) Integral heat pump water heaters are fully
functioning water heaters when shipped by the manufacturer. They heat
water for use outside the appliance upon demand and include in a single
packaged product all of the components required for operation as a
water heater. Therefore, integral units meet EPCA's definition of a
``water heater.''
Another product sold for residential use is commonly known as an
add-on heat pump water heater. This product typically is marketed and
used as an add-on component to a separately manufactured, fully
functioning storage water heater (usually a conventional electric
storage-type unit). The add-on unit consists of a small pump and a heat
pump system. The pump circulates the refrigerant from the water heater
storage tank through the heat pump system and back into the tank. The
add-on heat pump extracts heat from the surrounding air and transfers
it to the water in a process that is much more efficient than
traditional electric resistance designs. The unit can be mounted on top
of the storage tank, or can be separately placed on the floor or
mounted on a wall. Add-on units cannot by themselves provide hot water
on demand, but rather heat water only after being added to a storage-
type water heater. Manufacturers do not ship the product as a fully-
functioning water heating unit or paired with a storage tank. The add-
on device, by itself, is not capable of heating water and lacks much of
the equipment necessary to operate as a water heater. As such, it does
not meet EPCA's definition of a ``water heater'' and currently is not a
covered product. Consequently, DOE is not proposing in this rulemaking
to adopt energy conservation standards for such add-on heat pump units.
iii. Gas-Fired Instantaneous Water Heaters With Inputs Above and Below
the Levels Specified in Existing Definitions
Another element of EPCA's definition of a residential ``water
heater'' is that it includes ``instantaneous type units which heat
water but contain no more than one gallon of water per 4,000 Btu
[British thermal units (Btu)] per hour of input, including gas
instantaneous water heaters with an input of 200,000 Btu per hour or
less * * *.'' (42 U.S.C. 6291(27)(B); 10 CFR 430.2) DOE's test
procedure for residential water heaters implements and elaborates on
this definition: ``Gas Instantaneous Water Heater means a water heater
that * * * has an input greater than 50,000 Btu/hr (53 MJ/h) but less
than 200,000 Btu/h (210 MJ/h) * * *.'' 10 CFR part 430, subpart B,
appendix E, section 1.7.2. During the preliminary analysis and as
today's NOPR was developed, DOE considered whether to evaluate for
standards gas-fired instantaneous water heaters with inputs greater
than 200,000 Btu/h and less than 50,000 Btu/h.
DOE's review of product literature from manufacturers of gas-fired
instantaneous water heaters indicates that the majority of such
products rated for residential, whole-house use has an input capacity
of 199,000 Btu/h, and, thus, are covered by this rulemaking. Given the
limitations set by Congress, residential gas-fired instantaneous water
heaters with inputs greater than 200,000 Btu/h do not meet EPCA's
definition of a ``water heater.'' Consequently, DOE is not proposing in
this rulemaking to adopt energy conservation standards for such
products.
Regarding the lower end of the range, DOE reviewed Air-
Conditioning, Heating, and Refrigeration Institute's (AHRI) \3\
Consumers' Directory of Certified Efficiency Ratings for Heating and
Water Heating Equipment and manufacturer literature to determine the
input capacities of products currently being offered for sale on the
U.S. market. DOE found that the Directory contains only one gas-fired
instantaneous water heater with an input capacity less than 50,000 Btu/
h. Moreover, DOE determined that this product has been discontinued and
is being replaced by a comparable product that has an input capacity
greater than 50,000 Btu/h. Therefore, DOE is not proposing standards
for products with an input capacity below 50,000 Btu/h.
---------------------------------------------------------------------------
\3\ The Air-Conditioning, Heating, and Refrigeration Institute
(AHRI) is the trade association that represents manufacturers of
heating products. It was formed on January 1, 2008, by the merger of
the Gas Appliance Manufacturers Association (GAMA), which formerly
represented these manufacturers, and the Air-Conditioning and
Refrigeration Institute. AHRI maintains a Consumers' Directory of
Certified Product Performance for water heaters, direct heating
equipment, and pool heaters which can be found on AHRI's Web site at
http://www.ahridirectory.org/ahridirectory/pages/home.aspx.
---------------------------------------------------------------------------
iv. Input Capacity for Residential Pool Heaters and Coverage of Spa
Heaters
Under EPCA, ``pool heater'' is defined as ``an appliance designed
for heating nonpotable water contained at atmospheric pressure,
including heating water in swimming pools, spas, hot tubs and similar
applications.'' (42 U.S.C. 6291(25); 10 CFR 430.2) During a preliminary
phase of this rulemaking, DOE considered excluding from consideration
pool heaters with an input capacity greater than 1 million Btu/h, based
on its understanding that manufacturers market such pool heaters as
light industrial or commercial products. Subsequently, two
manufacturers advised DOE that the industry defines residential pool
heaters as having an input capacity of less than or equal to 400,000
Btu/h. These comments suggested that DOE should use this capacity limit
in its definition of residential pool heaters and for determining the
scope of coverage of this product under EPCA.
As indicated by its definition of ``pool heater,'' quoted above,
EPCA places no capacity limit on the pool heaters it covers. (42 U.S.C.
6291(25)) Furthermore, EPCA covers pool heaters as a ``consumer
product,'' (42 U.S.C. 6291(2), 6292(a)(11)) and defines ``consumer
product,'' in part, as an article that ``to any significant extent, is
distributed in commerce for personal use or consumption by
individuals.'' (42 U.S.C. 6291(1)) These provisions establish that
EPCA, and standards adopted under it, apply to any pool heater
distributed to any significant extent as a consumer product for
residential use, regardless of input capacity; pool heaters marketed as
commercial equipment, which contain additional design modifications
related to safety requirements for installation in commercial
buildings, are not covered by this standard. Therefore, DOE has
tentatively concluded that an input capacity limit is neither necessary
nor appropriate to determine the scope of coverage of this product
under EPCA.
Regarding whether spa heaters, which heat the water in spas, are
covered products, DOE notes that EPCA defines a ``pool heater'' to
include appliances ``designed for * * * heating water in * * * spas.''
(42 U.S.C. 6291(25); 10 CFR 430.2) As the definition encompasses spa
heaters, they are covered by EPCA as well as by the current standards
for pool heaters, and DOE has included them in this rulemaking. Because
spa heaters and pool heaters perform similar functions, include similar
features, and lack performance or operating features that
[[Page 65866]]
would cause them to have inherently different energy efficiencies, DOE
has not created a separate product class for such units.
v. Vented Hearth Products
As discussed in section II.C.2 above, before the enactment of
NAECA, EPCA included ``home heating equipment'' in DOE's appliance
standards program. EPCA did not define ``home heating equipment.''
NAECA's amendments to EPCA included replacing the term ``home heating
equipment'' with ``direct heating equipment,'' and specified energy
conservation standards for ``direct heating equipment.'' However, EPCA
did not define this term, and subsequent legislation has not amended
EPCA to provide a definition of ``direct heating equipment.''
DOE defined ``home heating equipment'' and related terms in its
regulations. These definitions inform the meaning of ``direct heating
equipment.'' 10 CFR 430.2. Specifically, DOE defines ``home heating
equipment'' as meaning ``vented home heating equipment and unvented
home heating equipment,'' and defines each of these two terms. Id. The
definition of ``vented home heating equipment,'' relevant here, is as
follows:
* * * a class of home heating equipment, not including furnaces,
designed to furnish warmed air to the living space of a residence,
directly from the device, without duct connections (except that
boots not to exceed 10 inches beyond the casing may be permitted)
and includes: vented wall furnace, vented floor furnace, and vented
room heater.'' Id.
DOE also defines the last three terms in this definition. Id. In order
to provide additional clarity for interested parties, DOE is proposing
to define the term ``direct heating equipment'' in today's rulemaking.
Specifically, DOE is proposing to add the following definition in 10
CFR 430.2:
Direct heating equipment means vented home heating equipment and
unvented home heating equipment.
Given that background, the following addresses the issue of vented
hearth products.
Vented hearth products include gas-fired products such as
fireplaces, fireplace inserts, stoves, and log sets that typically
include aesthetic features such as a yellow flame. Consumers typically
purchase these products to add aesthetic qualities and ambiance to a
room, and the products also provide space heating. They provide such
heating by furnishing warmed air to the living space of a residence
directly from the device without duct connections. There are two types
of vented hearth product designs: (1) Recessed and (2) non-recessed.
Recessed products are typically incorporated into or attached to a
wall, whereas non-recessed products are typically free-standing and not
attached to a wall. Both may include fireplace or hearth aesthetics,
and the recessed product may include a surrounding mantle.
Vented hearth products meet DOE's definition of ``vented home
heating equipment,'' because they are designed to furnish warmed air to
the living space of a residence without duct connections. Furthermore,
recessed and non-recessed vented hearth products are similar in design
to some of the direct heating products for which EPCA prescribes
standards, namely gas wall fan and gravity-type furnaces in the case of
recessed products, and room heaters in the case of non-recessed
products.
In sum, DOE has tentatively concluded that vented hearth products
are covered products under EPCA, because they meet DOE's definition for
``vented home heating equipment'' and, therefore, are classified as
DHE. Thus, DOE proposes to establish standards for these products in
this rulemaking and subject these products to the existing testing and
certification provisions for DHE. See section IV.2 and IV.3, below, for
additional discussion on DOE's proposal for establishing coverage of
hearth products and the product classes for the rulemaking analyses. If
DOE finalizes this rulemaking as proposed for hearth type DHE,
manufacturers of these products would be subject to the provisions in
10 CFR parts 430.23, 430.24, 430.27, 430.32, 430.33, 430.40 through
430.49, 430.50 through 430.57, 430.60 through 430.65, and 430.70
through 430.75, which currently apply to DHE. DOE seeks comment on the
potential burdens to manufacturers of hearth-type DHE as a result of
the testing, certification, reporting, and enforcement provisions in
these sections. (See Issue 2 under ``Issues on Which DOE Seeks
Comment'' in section VII.E of this NOPR.)
b. Covered Products Not Included in This Rulemaking
i. Unvented Direct Heating Equipment (Including Electric Equivalents to
Gas-Fired Products)
When EPCA included ``home heating equipment'' as a covered product,
DOE construed this term as including unvented as well as vented
products, and prescribed a separate test procedure for each one. 43 FR
20128 (May 10, 1978); 43 FR 20147 (May 10, 1978). Each of these test
procedures has since been amended, and they are codified in 10 CFR part
430, subpart B, appendices G and O, respectively. The new energy
conservation standards for this equipment in NAECA's amendments to EPCA
in 1987 were only for gas products, however, and used the AFUE
descriptor, which applies to vented but not unvented equipment. (42
U.S.C. 6295(e)(3)) The AFUE descriptor is generally a measure of the
amount of heat provided by the product compared to the amount of fuel
supplied. Subsequent DOE actions concerning DHE--first in a NOPR
proposing standards for eight separate products, 59 FR 10464 (March 4,
1994), and then in a final rule adopting test procedure amendments for
DHE, 62 FR 26140 (May 12, 1997)--have focused solely on vented
products. This approach reflects DOE's understanding that because
unvented heating products dissipate any heat losses directly into the
conditioned space rather than elsewhere through a vent, the amount of
energy losses from these products is minimal.
The current test procedure for unvented equipment includes neither
a method for measuring energy efficiency nor a descriptor for
representing the efficiency of unvented home heating equipment.
Instead, the current test procedure focuses on a method to measure and
calculate the annual energy consumption of unvented equipment.10 CFR
part 430, subpart B, appendix G. Nevertheless, it remains the case that
the unvented products in question would dissipate any heat losses
directly into the conditioned space, thereby resulting in minimal
overall energy losses. Thus, DOE sees little benefit from setting a
minimum efficiency level for these products and believes that it would
be unnecessary to do so, given the extremely limited energy savings
that could be achieved by such a standard. For these reasons, and
consistent with previous rulemakings in which it has addressed DHE, DOE
has not evaluated unvented products in this rulemaking and is not
proposing standards for them at this time.
ii. Electric Pool Heaters
EPCA's definition of ``pool heater,'' quoted above, is not limited
to appliances that use a particular type or types of fuel. (42 U.S.C.
6291(25); 10 CFR 430.2) Thus, EPCA covers both gas-fired pool heaters
and electric pool heaters, including heat pump pool heaters. EPCA also
specifies that the energy efficiency descriptor for residential pool
heaters is thermal efficiency. (42 U.S.C. 6291(22)(E)). Lastly, EPCA
defines the term ``thermal
[[Page 65867]]
efficiency of pool heaters'' as ``a measure of the heat in the water
delivered at the heater outlet divided by the heat input of the pool
heater as measured under test conditions specified in section 2.8.1 of
the American National Standard for Gas Fired Pool Heaters, Z21.56-1986,
or as may be prescribed by the Secretary.'' (42 U.S.C. 6291(26))
Currently, DOE's test procedures specify only a method for testing
gas-fired pool heaters (10 CFR part 430, subpart B, appendix P), and
the current energy conservation standard for pool heaters is a minimum
level of thermal efficiency that applies only to gas-fired products. In
order for DOE to consider an energy conservation standard for electric
pool heaters, DOE would first need to establish a test procedure for
electric pool heaters using the thermal efficiency metric required by
EPCA. DOE seeks comments from interested parties on how DOE could
address EPCA's efficiency descriptor requirements in a future potential
test procedure revision for electric pool heaters. For this reason, DOE
is proposing amended standards for gas-fired pool heaters only and is
not considering standards for electric pool heaters. This is identified
as Issue 3 in Section VII.E, ``Issues on Which DOE Seeks Comment.''
iii. Tabletop and Electric Instantaneous Water Heaters
Standards are currently applicable to tabletop and electric
instantaneous water heaters. (10 CFR 430.32(d)) These products meet
EPCA's definition of ``water heater'' (42 U.S.C. 6291(27); 10 CFR
430.2) and are covered by the Act because they utilize electricity to
heat potable water for use outside the heater upon demand. However, for
the reasons explained below, DOE has not analyzed tabletop water
heaters and electric instantaneous water heaters in this rulemaking,
and is not proposing amended standards for them, because of the limited
potential for energy savings from higher standards for these products.
Tabletop products are primarily electric and are relatively small
units because they are designed to be located underneath tabletops in
highly specialized applications. The only means of which DOE is aware
for manufacturers to increase the energy efficiency of tabletop units
is to increase the thickness of their insulation, which would make them
larger. Manufacturers already maximize the size of these water heaters
in order to meet the currently required minimum energy factors, and
size restrictions do not allow the units to be any larger. Thus, DOE is
unaware of any means to make tabletop water heaters more energy
efficient. Put another way, if DOE were to adopt a higher efficiency
standard for this product, it would force this class of covered product
off the market, in violation of 42 U.S.C. 6295(o)(4). For these
reasons, DOE has not evaluated tabletop products in this rulemaking and
is not proposing standards for them.
Regarding electric instantaneous water heaters, DOE notes that the
energy efficiency metric for electric instantaneous water heaters (and
all other water heaters) is a combination of recovery efficiency and
standby losses. All electric water heaters, including instantaneous
products, have minor losses in recovery efficiency. Moreover, electric
instantaneous water heaters have negligible standby losses because they
store no more than two gallons of hot water. In addition, many of the
electric instantaneous products currently on the market perform well
above the existing applicable energy conservation standard and use
available technologies to produce negligible standby losses. Therefore,
DOE has not evaluated electric instantaneous water heaters in this
rulemaking and is not proposing standards for them.
iv. Combination Water Heating/Space Heating Products
EPCA authorizes DOE to set more than one standard for any product
that performs more than one major function by setting one energy
conservation standard for each major function. (42 U.S.C. 6295(o)(5))
Some products on the market provide both water heating and space
heating. To the extent such combination products meet EPCA's criteria
for coverage, DOE could set standards for them, including a separate
standard for each of those functions. Id. However, because DOE's
current test procedure cannot handle combination appliances and DOE has
not yet adopted a test procedure to determine the energy efficiency of
these combination appliances, DOE has not evaluated them in this
rulemaking and is not proposing standards for them.
2. Definition of Gas Hearth Direct Heating Equipment
In the preliminary analysis, DOE stated that vented hearth products
can be used to provide residential space heating. When used to furnish
heat to a living space, DOE reasoned that these products provide the
same function and utility as vented heaters. DOE stated in the
preliminary analysis that hearth heaters also provide the same utility
and function as gas wall furnaces or gas room heaters, and do not use
any unique technologies. See chapter 2 of the preliminary TSD.
Additionally, AHRI's Consumers' Directory categorizes fireplace heaters
as either room heaters or wall furnaces. DOE treated gas hearth DHE as
either a room heater or a wall furnace for the purposes of the
preliminary analysis and requested comment in the Executive Summary to
the preliminary TSD on the need for a separate product definition and
class for gas hearth DHE.
AHRI stated that gas-fired hearth heaters need a unique definition
but that they can be included within the room heater DHE product class.
AHRI further stated that DOE should use the safety standard in the
American National Standards Institute (ANSI) Standard Z.21-88, Vented
Fireplace Heaters as a reference for developing a fireplace heater
definition. (AHRI, Public Meeting Transcript, No. 34.4 at p. 36)
DOE agrees with AHRI and has decided to establish a separate
definition for ``hearth direct heating equipment'' to allow
manufacturers to easily determine coverage under DOE's regulations. DOE
has determined that hearth DHE should not be included with room heater
DHE (the alternative suggested by AHRI) due to the unique constraints
on hearth products that are not applicable to room heaters because of
the former's aesthetic appeal to consumers (e.g., glass viewing panes,
yellow flames, and ceramic log sets). DOE reviewed the ``vented gas
fireplace heater'' definition in ANSI Standard Z.21-88, as suggested by
AHRI. The ``vented gas fireplace heater'' definition in ANSI Standard
Z.21-88 reads as follows:
Vented gas fireplace heater is a vented appliance which
simulates a solid fuel fireplace and furnishes warm air, with our
without duct connections, to the space in which it is installed. A
vented gas fireplace heater is such that it may be controlled by an
automatic thermostat. The circulation of heating room air may be by
gravity or mechanical means. A vented gas fireplace heater may be
freestanding, recessed, zero clearance, or a gas fireplace insert.
Part of the ``vented gas fireplace heater'' definition specified by
ANSI Standard Z.21-88 would conflict with DOE's definition of ``home
heating equipment.'' 10 CFR 430.2. Specifically, all types of home
heating equipment under DOE's regulations must function without duct
connections (although boots not to exceed 10 inches beyond the casing
may be permitted). Therefore, DOE is modifying the definition of
[[Page 65868]]
``vented gas fireplace heater'' in ANSI Standard Z.21-88 to be
consistent with the types of equipment covered under DOE's authority
for home heating equipment. Consequently, in order to account for
hearth DHE, DOE is proposing a definition of ``vented hearth heater''
in section 430.2 to read as follows:
Vented hearth heater means a vented, freestanding, recessed,
zero clearance fireplace heater, a gas fireplace insert or a gas-
stove, which simulates a solid fuel fireplace and is designed to
furnish warm air, without ducts to the space in which it is
installed.
DOE seeks comment on its definition for ``vented hearth heater.'' (See
Issue 4 under ``Issues on Which DOE Seeks Comment'' in section VII.E of
this NOPR.)
3. Product Classes
In evaluating and establishing energy conservation standards, DOE
generally divides covered products into classes by the type of energy
used or by capacity or other performance-related feature that justifies
a different standard for products having such feature. (See 42 U.S.C.
6295(q)) In deciding whether a feature justifies a different standard,
DOE must consider factors such as the utility of the feature to users.
Id. DOE normally establishes different energy conservation standards
for different product classes based on these criteria.
Table IV.1 presents the product classes for the three types of
heating products under consideration in this rulemaking. The
subsections below provide additional details, discussion of comments
relating to the product classes for the three heating products, as well
as identified issues on which DOE is seeking comments.
Table IV.1--Proposed Product Classes for the Three Heating Products
------------------------------------------------------------------------
Residential water heater type Characteristics
------------------------------------------------------------------------
Gas-Fired Storage Type................. Nominal input of 75,000 Btu/h
or less; rated storage volume
from 20 to 100 gallons.
Oil-Fired Storage Type................. Nominal input of 105,000 Btu/h
or less; rated storage volume
of 50 gallons or less.
Electric Storage Type.................. Nominal input of 12 kW (40,956
Btu/h) or less; rated storage
volume from 20 to 120 gallons.
Gas-Fired Instantaneous................ Nominal input of over 50,000
Btu/h up to 200,000 Btu/h;
rated storage volume of 2
gallons or less.
------------------------------------------------------------------------
Direct heating equipment type Heating capacity (Btu/h)
------------------------------------------------------------------------
Gas Wall Fan Type...................... Up to 42,000.
Over 42,000.
Gas Wall Gravity Type.................. Up to 27,000.
Over 27,000 and up to 46,000.
Over 46,000.
Gas Floor.............................. Up to 37,000
Over 37,000.
Gas Room............................... Up to 20,000.
Over 20,000 and up to 27,000.
Over 27,000 and up to 46,000.
Over 46,000.
Gas Hearth............................. Up to 20,000.
Over 20,000 and up to 27,000.
Over 27,000 and up to 46,000.
Over 46,000.
------------------------------------------------------------------------
Pool heater type Characteristics
------------------------------------------------------------------------
Residential Pool Heaters............... Gas-fired.
------------------------------------------------------------------------
a. Water Heaters
Residential water heaters can be divided into various product
classes categorized by physical characteristics that affect product
efficiency. Key characteristics affecting the energy efficiency of the
residential water heater are the type of energy used and the volume of
the storage tank.
The existing Federal energy conservation standards for residential
water heaters correspond to the efficiency levels promulgated by the
January 2001 final rule, as shown in 10 CFR 430.32(d). These product
classes are differentiated by the type of energy used (i.e., electric,
gas, or oil) and the type of storage for the water heater (i.e.,
storage, tabletop, or instantaneous). In this rulemaking, DOE has
excluded tabletop water heaters and electric instantaneous water
heaters from consideration for the reasons discussed above. Table IV.2
shows the four product classes presented in the preliminary analysis
for consideration in today's rulemaking.
Table IV.2--Product Classes for Residential Water Heaters Described in
the Preliminary Analysis *
------------------------------------------------------------------------
Residential water heater type Characteristics
------------------------------------------------------------------------
Gas-Fired Storage Type................. Nominal input of 75,000 Btu/h
or less; rated storage volume
from 20 to 100 gallons.
Oil-Fired Storage Type................. Nominal input of 105,000 Btu/h
or less; rated storage volume
of 50 gallons or less.
[[Page 65869]]
Electric Storage Type.................. Nominal input of 12 kW (40,956
Btu/h) or less; rated storage
volume from 20 to 120 gallons.
Gas-Fired Instantaneous................ Nominal input of over 50,000
Btu/h up to 200,000 Btu/h;
rated storage volume of 2
gallons or less.
------------------------------------------------------------------------
* Only the product classes covered by this rulemaking are shown. The
table does not include tabletop and instantaneous electric water
heaters.
In response to the preliminary analysis, DOE received several
comments from interested parties about DOE's potential product classes
and their organization. These comments are summarized and addressed
immediately below.
i. Gas-Fired and Electric Instantaneous Water Heaters
EEI suggested that DOE should revisit the parameters for the input
capacity range for gas-fired and electric instantaneous water heaters.
Specifically, EEI stated that some gas-fired instantaneous water
heaters on the market have an input capacity higher than 200,000 Btu/h,
and some electric instantaneous water heaters have an input capacity
much higher than 12 kW. (EEI, No. 40 at p. 2) Northwest Energy
Efficiency Alliance (NEEA) and Northwest Power and Conservation Council
(NPCC) recommended combining gas-fired storage and gas-fired
instantaneous water heaters into one product class, because this would
simplify the rulemaking, and the commenters do not believe
manufacturers will reduce the efficiency of the products they offer now
(most of which have EF ratings above 0.80) in response. (NEEA and NPCC,
No. 42 at p. 4) SEISCO commented that DOE should establish a separate
product class and definition for ``electric instantaneous water
heaters''. SEISCO recommended creating a definition for ``whole house
electric instantaneous water heaters'' and amending the current 12
kilowatt (kW) maximum to a more reasonable 18 to 36 kW maximum to more
accurately reflect the marketplace. (SEISCO, No. 41 at p. 1)
In response, DOE notes that EPCA's definition of ``water heater,''
establishes the input capacity limits for residential instantaneous
water heaters. Specifically, the term ``water heater'' means ``a
product which utilizes oil, gas, or electricity to heat potable water
for use outside the heater upon demand, including * * * (B)
instantaneous type units which heat water but contain no more than one
gallon of water per 4,000 Btu per hour of input, including gas
instantaneous water heaters with an input of 200,000 Btu per hour or
less, oil instantaneous water heaters with an input of 210,000 Btu per
hour or less, and electric instantaneous water heaters with an input of
12 kilowatts or less * * *'' (42 U.S.C. 6291(27)) As noted above, this
statutory definition demonstrates that residential, gas-fired
instantaneous water heaters with inputs greater than 200,000 Btu/h and
residential, electric instantaneous water heaters with inputs greater
than 12 kW do not meet the definitions of a ``water heater'' under
EPCA. Accordingly, instantaneous water heaters outside the specified
capacity range are not covered products under EPCA and are outside
DOE's authority for standard setting pursuant to 42 U.S.C. 6295(e)(4).
The input capacity ranges for gas-fired instantaneous water heaters and
electric instantaneous water heaters are discussed further in sections
IV.A.1.a and IV.A.1.b, respectively, of today's NOPR.
Additionally, DOE disagrees with the suggestion from NEEA and NPCC
that DOE should combine the gas-fired storage and gas-fired
instantaneous water heater product classes for this rulemaking. As
noted earlier in this section, storage capacity is a key characteristic
affecting the energy efficiency of water heaters, and it is within
DOE's authority to divide products into classes based on capacity. (42
U.S.C. 6295(q)) Thus, DOE is maintaining separate product classes for
gas-fired storage and gas-fired instantaneous water heaters for today's
NOPR.
ii. Low-Boy Water Heaters
AHRI recommended establishing a separate product class for low-boy
heaters since they must fit under a 36-inch counter, be less than 34
inches high, and have a jacket diameter of less than 26 inches. AHRI
stated that low-boy heaters provide a specific utility to space-
constrained residences and that these products cannot be made any
larger. Low-boy heaters account for approximately 18 percent of the
residential market. (AHRI, No. 43 at p. 3)
DOE does not agree that a separate product class needs to be
established for low-boy water heaters. In evaluating and establishing
energy conservation standards, DOE generally divides covered products
into classes by the type of energy used, or by capacity or another
performance-related feature that justifies a different standard. (See
42 U.S.C. 6295(q)) DOE notes that low-boy water heaters use the same
type of energy (i.e., gas or electricity) and are offered in a range of
storage volumes. Thus, the type of energy used and the functionality of
low-boy units are similar to other types of water heaters, and the size
constraints of these units do not appear to impact energy efficiency,
since many ``low-boy'' models have efficiencies that are comparable to
standard-size water heaters currently available on the market.
DOE seeks comment on its product classes for water heaters. In
particular, DOE is seeking further comment about the need for a
separate product class for low-boy water heaters. (See Issue 5 under
``Issues on Which DOE Seeks Comment'' in section VII.E of this NOPR.)
iii. Ultra-Low NOX Water Heaters
In the preliminary analysis, DOE did not distinguish ultra-low
NOX gas-fired storage water heaters from traditional gas-
fired storage water heaters with standard burners. AHRI recommended
establishing a separate product class. AHRI argued that these water
heaters employ unique burners, designed to meet the ultra-low
NOX requirements (imposed by local air quality management
districts to limit NOX emissions of certain products), but
which limit the manufacturer's options to increase efficiency. (AHRI,
No. 43 at p. 2)
Rheem commented that instantaneous gas-fired water heater ultra-low
NOX requirements from local air quality management districts
will commence in 2012 and that this product design
[[Page 65870]]
should be included in the analysis. (Rheem, No. 49 at p. 7)
DOE does not agree that a separate product class needs to be
established for ultra-low NOX gas-fired storage water
heaters. As noted above, in evaluating and establishing energy
conservation standards, DOE generally divides covered products into
classes by the type of energy used, or by capacity or other
performance-related feature that justifies a different standard for
products having such feature. (See 42 U.S.C. 6295(q)) Ultra-low
NOX gas-fired storage water heaters use the same type of
energy (i.e., gas) and are offered in comparable storage volumes to
traditional gas-fired storage water heaters using standard burners. In
deciding whether the product incorporates a performance feature that
justifies a different standard, DOE must consider factors such as the
utility of the feature to users. Id. In terms of water heating, DOE
believes ultra-low NOX water heaters provide the same
utility to the consumer. However, DOE also notes that ultra-low
NOX water heaters do incorporate a specific burner
technology, allowing these units to meet the strict emissions
requirements of local air quality management districts. Consequently,
DOE developed an analysis on ultra-low NOX gas-fired storage
water heaters. See section IV.C.2 for additional details. DOE requests
comment from interested parties regarding the approach to the analysis
for ultra-low NOX gas-fired storage water heaters. As
indicated in section VII.E under Issue 6, DOE also seeks further
comment about the need for a separate product class for ultra-low
NOX water heaters.
iv. Gas-Fired and Electric Storage Water Heaters Product Class
Divisions
DOE received two comments about the product class divisions for
gas-fired and electric storage water heaters. ACEEE stated that DOE
should consider capacity-based product classes for gas-fired and
electric storage water heaters. ACEEE stated that EPCA directs DOE to
divide covered products into product classes by the type of energy used
or by capacity or other performance-related features that affect
efficiency. (42 U.S.C. 6295(q)) ACEEE also stated that DOE's energy
efficiency equations demonstrate that capacity (i.e., rated storage
volume) is one determinant of efficiency. Accordingly, ACEEE
recommended separating gas-fired and electric storage water heaters
into two product classes, including ``very large'' and ``other.''
(ACEEE, No. 35 at p. 2) ACEEE expressed its belief that DOE will not
adequately reflect the potential of the product classes without
considering larger and smaller products as separate product classes.
(ACEEE, Public Meeting Transcript, No. 34.4 at pp. 66-67)
ACEEE suggested that gas-fired storage water heaters with an input
capacity greater than 65,000 Btu/h and electric storage water heaters
with a rated storage volume greater than 75 gallons could be in the
very large category. (ACEEE, No. 35 at p. 2) ACEEE commented that for
heat pump water heaters, impacts such as air flow in small residences
are much different for a 50-gallon model than a 30-gallon model.
(ACEEE, Public Meeting Transcript, No. 34.4 at pp. 66-67)
In light of the above, ACEEE recommended that DOE should propose
energy conservation standards for electric storage water heater
products in the very large category requiring a minimum EF of 1.7,
which would move the largest electric water heaters to utilize heat
pump water heater technologies. ACEEE recommended that DOE should
propose standards for the very large product class of gas-fired storage
water heaters requiring a minimum EF of 0.77, which corresponds to the
least-efficient condensing product. (ACEEE, No. 35 at p. 1)
Pacific Gas and Electric Company (PG&E), San Diego Gas and Electric
(SDGE), and Southern California Gas Company (SoCal Gas) filed a joint
comment and urged DOE to subdivide gas-fired storage water heaters and
electric storage water heaters into subclasses based on rated storage
volume. (PG&E, SDGE, and SoCal Gas, No. 38 at p. 3)
DOE believes considering separate efficiency levels for different
rated storage volumes could offer a way for DOE to capture additional
potential energy savings. Instead of dividing gas-fired and electric
storage water heaters into separate product classes by rated storage
volume or input capacity as ACEEE suggested, however, DOE is using
energy efficiency equations that vary with rated storage volume to
describe the relationship between rated storage volume and energy
factor. Historically, DOE has used the energy efficiency equations to
account for the variability in performance resulting from tank size;
these equations consider the increases in standby losses as tank volume
increases. DOE is using the energy efficiency equations along with TSL
pairings to consider different amended standards in the proposed rule.
DOE further discusses the energy efficiency equations and the proposed
modifications in section IV.C.7. DOE is requesting comment from
interested parties on the energy efficiency equations developed for
gas-fired and electric storage water heaters (See section IV.C.7 and
Issue 7 under ``Issues on Which DOE Seeks Comment'' in section VII.E of
this NOPR for more information.) In addition, DOE further discusses the
trial standard levels, which are comprised of various efficiency level
pairings across the full range of rated storage volumes, in section
V.A.
v. Heat Pump Water Heaters
In response to DOE's treatment of heat pump water heaters as a
design option for electric storage water heaters in the preliminary
analysis, DOE received several comments from interested parties. All of
the commenters urged DOE to establish separate product classes for
traditional electric resistance storage water heaters and heat pump
water heaters. Their specific comments and DOE's response are presented
below.
A.O. Smith stated DOE should separate the electric storage water
heater product class into two products classes--one for electric
resistance heaters and one for heat pump water heaters. A.O. Smith
noted that DOE separated the two classes in the ENERGY STAR criteria.
A.O. Smith further stated that since heat pump water heaters may not
even fit in 30 percent of the installations that currently have
resistance electric heaters, they cannot be considered to be a truly
interchangeable technology. (A.O. Smith, No. 37 at p. 9)
AHRI agreed with some of the concerns DOE noted in the preliminary
screening analysis for heat pump water heaters. Specifically, AHRI
pointed to previous DOE studies, which found size-related installation
issues with replacing an electric storage water heater with a heat pump
water heater. To AHRI's knowledge, the heat pump water heater market
has not changed significantly since DOE's 2001 water heater rulemaking,
even with the recent initiation of the ENERGY STAR program and the
enactment of legislation that provides a significant tax credit for the
installation of these systems. With this in mind, AHRI recommended that
DOE establish a separate product class for heat pump water heaters
because its energy source is different than that of an electric water
heater. While a heat pump water heater does use electricity to operate
certain components, the actual energy source that heats the water is
air. AHRI noted that an analogous situation exists for electric
furnaces, which are
[[Page 65871]]
not subject to the same standards as heat pump systems. (AHRI, No. 43
at p. 4)
Rheem also maintains that heat pump water heaters require a
separate product class. (Rheem, No. 49 at p. 5) Rheem commented that
heat pump water heater designs require unique installations, air flow,
space, condensate drain, service, and operational provisions that are
considerably different from conventional electric storage water
heaters. Rheem also stated that installation and air flow conditions
will affect energy efficiency, and that heat pump water heaters cannot
replace all electric storage type water heaters, as space and air flow
constraints are quite common. Furthermore, Rheem commented that heat
pump water heater technology depends largely on the operating
environment; this represents a special performance-related
consideration that warrants defining a separate product class for heat
pump water heaters. (Rheem, No. 49 at p. 6) Rheem commented that the
utility heat pump water heaters provide is not equivalent to other
electric storage water heaters across the entire range of rated storage
volumes. Rheem stated that the reduced delivery performance was
recognized by ENERGY STAR, which requires a minimum first-hour rating
of 50 gallons, instead of 67 gallons for common conventional
technologies. The difference in utility will result in differing sizing
guidelines to meet equivalent capacities. Rheem commented that while
the primary fuel source for heat pump water heaters is assumed to be
electricity, the technology attains an economic benefit by moving
energy from one location to another. According to Rheem, it is
conceivable that a heat pump water heater may operate and be designed
with gas as a primary back-up fuel. Rheem noted that with energy
factors exceeding 2.0, it can be argued that electricity is no longer
the dominant fuel source. Rheem commented that these differences
support the argument that heat pump water heaters are not simply an
extension of conventional resistance-type electric storage water
heaters. (Rheem, No. 49 at pp. 5-6)
While DOE acknowledges some of the challenges associated with heat
pump water heaters, DOE does not agree that they require a separate
product class. Specifically, DOE does not believe heat pump water
heaters provide a different utility from traditional electric
resistance water heaters. Heat pump water heaters provide hot water to
a residence just as a traditional electric storage water heater. In
addition, both heat pump water heaters and traditional electric
resistance storage water heaters use electricity as the primary fuel
source. DOE believes heat pump water heaters can replace traditional
electric resistance storage water heaters in most residences, although
the installation requirements may be quite costly. DOE further
addresses heat pump water heaters in the screening analysis at section
IV.B.3 and the installation requirements in section IV.E.2.a.
DOE seeks further comment on the need for a separate product class
for heat pump water heaters. In particular, DOE is interested in
receiving comments and data on whether a heat pump water heater can be
used as a direct replacement for an electric resistance water heater,
and the types and frequency of installations where a heat pump water
heater cannot be used as a direct replacement for an electric
resistance water heater. (See Issue 8 under ``Issues on Which DOE Seeks
Comment'' in section VII.E of this NOPR.)
b. Direct Heating Equipment
DHE can be divided into various product classes categorized by
physical characteristics and rated input capacity, both of which affect
product efficiency and function. Key characteristics affecting the
energy efficiency of DHE are the physical construction (i.e., fan wall
units contain circulation blowers), intended installation (i.e., floor
furnaces are installed with the majority of the unit outside of the
conditioned space), and input capacity.
In the preliminary analysis, DOE examined the possibility of
consolidating product classes for DHE. (See chapter 3 of the
preliminary TSD.) NAECA originally established the Federal energy
conservation standards, which are differentiated by input capacity
range. Thus, to determine whether consolidation of existing product
classes is appropriate, DOE examined the relationship between AFUE and
input rating for DHE. The results of this inquiry are presented below.
i. Gas Wall Fan-Type Direct Heating Equipment
For fan-type wall furnaces, DOE surveyed AHRI's Consumers'
Directory and available product literature. DOE identified available
products ranging from 8,000 to 65,000 Btu/h. The market data
demonstrate two separate trends for fan-type wall furnaces based on the
efficiency range of the products. For higher-efficiency products (i.e.,
78 percent AFUE and higher), DOE noticed that efficiency decreases as
capacity increases. For lower-efficiency products (i.e., 73 to 77
percent AFUE), DOE noticed that efficiency increases as capacity
increases. Therefore, because of the differing trends between capacity
and efficiency, DOE proposes that the two product classes for gas wall
fan-type DHE should remain.
ii. Gas Wall Gravity-Type Direct Heating Equipment
DOE examined the relationship between AFUE and input rating for
gravity-type wall furnaces by reviewing AHRI's Consumers' Directory and
available product literature. DOE identified products with input
capacities ranging from 5,000 to 50,000 Btu/h. The Federal energy
conservation standards for gas wall gravity-type furnaces divide these
products into seven product classes based on input capacity ranges. The
seven product classes are differentiated by one AFUE percentage point
increase for each increase in input capacity range (i.e., the larger
the input capacity, the higher the AFUE requirements). The market data
for gas wall gravity-type furnaces indicate that manufacturers are not
offering products over the entire input capacity range. Therefore, some
product classes may be unnecessary. DOE proposes that five product
classes (up to 10,000 Btu/h, over 10,000 and up to 12,000 Btu/h, over
12,000 and up to 15,000 Btu/h, over 15,000 and up to 19,000 Btu/h, and
over 19,000 and up to 27,000 Btu/h) be consolidated into a single
product class labeled up to 27,000 Btu/h, leaving three product classes
for gas wall gravity-type furnaces.
iii. Gas Floor-Type Direct Heating Equipment
DOE surveyed the current market for gas floor furnaces by reviewing
AHRI's Consumers' Directory and available product literature. The AHRI
directory lists 23 products. The Federal energy conservation standard
includes two product classes divided by input ratings, one above and
one at or below 37,000 Btu/h. According to the AHRI directory, more
than 75 percent of products are rated above 37,000 Btu/h. When
comparing the models with the highest AFUE rating between the two
product classes in the preliminary analysis, however, DOE found that
the energy savings potential increases as the input capacity range
increases. This fact suggests that input capacity affects the AFUE of
gas floor-type furnaces. Therefore, DOE proposes that the two product
classes for gas floor-type DHE should remain.
[[Page 65872]]
iv. Gas Room-Type Direct Heating Equipment
DOE examined currently available room heaters by reviewing AHRI's
Consumers' Directory and product literature. DOE found that room
heaters have inputs ranging from 20,000 to 70,000 Btu/h. DOE also
determined that the relationship between AFUE and input rating
established by the Federal energy conservation standards is generally
similar to the trend found among products listed in the AHRI directory.
The market data show a general trend of increasing AFUE with input
capacity range. DOE is proposing to consolidate the two lower input
capacity ranges into a single product class (i.e., input ratings up to
20,000 Btu/h), because there are no products in the AHRI directory
under 20,000 Btu/h and all products at this input rating have the same
efficiency. As a result, DOE is proposing only four product classes for
gas room heaters.
Overall, DOE only received one comment in response to its product
class consolidation for the existing DHE product types in the
preliminary analysis. AHRI agreed that the number of product classes
(i.e., divisions by input capacity) for DHE product classes can be
reduced. (AHRI, Public Meeting Transcript, No. 34.4 at p. 43)
Therefore, for the NOPR, DOE is proposing to reduce the number of
product classes as suggested in the preliminary analysis and described
above. DOE is seeking comments on the proposed product classes. (See
Issue 9 under ``Issues on Which DOE Seeks Comment'' in section VII.E of
this NOPR.)
v. Gas Hearth Direct Heating Equipment
DOE is proposing to add new product classes for gas hearth DHE,
which are distinguished by input heating capacity. DOE modeled the
product class divisions for gas hearth DHE after the proposed product
class divisions for room heaters. DOE is seeking comments on the
proposed product class divisions for gas hearth DHE. (See Issue 10
under ``Issues on Which DOE Seeks Comment'' in section VII.E of this
NOPR.)
Table IV.3 presents the proposed product classes for DHE being
considered for this rulemaking.
Table IV.3--Proposed Product Classes for Direct Heating Equipment
----------------------------------------------------------------------------------------------------------------
Direct heating equipment type Input heating capacity Btu/h
----------------------------------------------------------------------------------------------------------------
Gas Wall Fan Type............................... Up to 42,000.
Over 42,000.
Gas Wall Gravity Type........................... Up to 27,000.
Over 27,000 and up to 46,000.
Over 46,000.
Gas Floor....................................... Up to 37,000.
Over 37,000.
Gas Room........................................ Up to 20,000.
Over 20,000 and up to 27,000.
Over 27,000 and up to 46,000.
Over 46,000.
Gas Hearth...................................... Up to 20,000.
Over 20,000 and up to 27,000.
Over 27,000 and up to 46,000.
Over 46,000.
----------------------------------------------------------------------------------------------------------------
c. Pool Heaters
As discussed above, the existing Federal energy conservation
standards for pool heaters correspond to the efficiency levels
specified by EPCA, as amended (42 U.S.C. 6295(e)(2)), and codified in
10 CFR 430.32(k), classifying residential pool heaters with one product
class. This product class is distinguished by fuel input type (i.e.,
gas-fired). DOE notes there are currently electric heat pump pool
heaters on the market, which are not being considering in today's
rulemaking, as discussed in section IV.A.1.b.
B. Screening Analysis
DOE uses the following four screening criteria to determine which
technology options are suitable for further consideration in an energy
conservation standards rulemaking:
1. Technological feasibility. DOE will consider technologies
incorporated in commercial products or in working prototypes to be
technologically feasible.
2. Practicability to manufacture, install, and service. If mass
production and reliable installation and servicing of a technology in
commercial products could be achieved on the scale necessary to serve
the relevant market at the time the standard comes into effect, then
DOE will consider that technology practicable to manufacture, install,
and service.
3. Adverse impacts on product utility or product availability. If
DOE determines a technology would have a significant adverse impact on
the utility of the product to significant subgroups of consumers, or
would result in the unavailability of any covered product type with
performance characteristics (including reliability), features, sizes,
capacities, and volumes that are substantially the same as products
generally available in the United States at the time, it will not
consider this technology further.
4. Adverse impacts on health or safety. If DOE determines that a
technology will have significant adverse impacts on health or safety,
it will not consider this technology further.
10 CFR part 430, subpart C, appendix A, 4(a)(4) and 5(b).
In the preliminary analysis, DOE initially identified the
technology options that could improve the efficiency of the three types
of heating products that are the subject of this rulemaking. These
technologies are listed in Table IV.4. See chapter 3 of the NOPR TSD
for a detailed description of each technology option.
[[Page 65873]]
Table IV.4--Technologies DOE Considered for Heating Products
----------------------------------------------------------------------------------------------------------------
Water heaters Direct heating equipment Pool heaters
----------------------------------------------------------------------------------------------------------------
Heat Traps Heat Exchanger Improvements Electronic Ignition
Insulation Improvements Electronic Ignition Improved Heat Exchanger Design
Power Vent (Gas-Fired and Oil-Fired Thermal Vent Damper More Effective Insulation
Only) (Combustion Chamber)
Heat Exchanger Improvements Electrical Vent Damper Power Venting
Flue Damper (Electromechanical) Power Burner Sealed Combustion
Side-Arm Heater Induced Draft Condensing Pulse Combustion
Electronic (or Interrupted) Ignition Two Stage and Modulating Operation Condensing
Heat Pump Water Heater (Electric Improved Fan or Blower Motor
Only) Efficiency
CO2 Heat Pump Water Heater Increased Insulation (Floor Furnaces
Only)
Flue Damper (Buoyancy Operated) Condensing
Directly-Fired Condensing Pulse Combustion
Condensing Air Circulation Fan
Condensing Pulse Combustion Sealed Combustion
Thermophotovoltaic and
Thermoelectric Generators
Reduced Burner Size (Slow Recovery)
Timer Control
Two-Phase Thermosiphon (tpts)
Modulating Controls
Intelligent Controls
Self-Cleaning
----------------------------------------------------------------------------------------------------------------
In response to DOE's request for comments at the preliminary
analysis stage of the rulemaking, DOE did not receive any comments
suggesting additional technologies beyond those technology options
presented in the preliminary analysis. Therefore, DOE considered the
same technology options for the NOPR screening analysis.
1. Comments on the Screening Analysis
In the preliminary analysis, DOE excluded several of the
technologies listed in Table IV.4 from consideration in this rulemaking
based on one or more of the screening criteria described above. The
technology options that were screened out, along with the reasons for
their exclusion, are shown below in Table IV.5. For greater detail
regarding each technology option, please see Chapters 3 and 4 of the
TSD accompanying today's notice.
Table IV.5--Summary of Screened-Out Technology Options
--------------------------------------------------------------------------------------------------------------------------------------------------------
Reasons for exclusion
---------------------------------------------------------------------------
Practicability to
Applicable product types Excluded technology option Technological manufacture, Adverse impacts Adverse impacts
feasibility install, and on product on health of
service utility safety
--------------------------------------------------------------------------------------------------------------------------------------------------------
Water Heaters............................... Side-Arm Heater............... X X ................. .................
Advanced Insulation........... X X ................. .................
Thermophotovoltaic and X X ................. .................
Thermoelectric Generators.
U-Tube Flue Design............ ................. X ................. .................
CO2 Heat Pump Water Heaters... ................. X ................. .................
Two-Phase Thermosiphons....... ................. X ................. .................
Reduced Burner Size (Slow ................. ................. X .................
Recovery).
Directly Fired Water Heater... ................. ................. ................. X
Flue Damper (Buoyancy ................. ................. ................. X
Operated).
Condensing Pulse Combustion... X X ................. .................
Direct Heating Equipment.................... Increased Heat Transfer ................. X ................. .................
Coefficient.
Power Burner.................. ................. X ................. .................
Improved Fan Blower Motors.... ................. X ................. .................
Condensing Pulse Combustion... X X ................. .................
Pool Heaters................................ Condensing Pulse Combustion... X X ................. .................
--------------------------------------------------------------------------------------------------------------------------------------------------------
In response to the screening analysis performed for the preliminary
analysis, DOE received feedback from several interested parties.
a. General Comments
NRDC commented generally that screening technologies because they
have not penetrated the market for the covered product is a flawed
approach. NDRC stated that determining if a product is practical to
manufacture does not require someone to already be manufacturing it.
Instead, NRDC stated that when determining whether a product is
practical to manufacture, DOE should consider identified technology
options even if they are not
[[Page 65874]]
currently used in covered products. NRDC stated that DOE should gather
data to determine whether technologies used in other products would be
useful in the products in question. (NRDC, No. 48 at p. 3)
In response, as part of every rulemaking, DOE reviews the markets
and technologies of the appliances under consideration using primary
and secondary research. DOE considers prototype designs in the analysis
that have not yet fully penetrated the market. In the case of a
prototype design (or any design that has not penetrated the market at
the time of the analysis) that is not being manufactured on a large
scale, DOE examines the practicality of manufacturing, installing, and
servicing the design, if it were required to be implemented on a larger
scale by the anticipated compliance date of a standard, and accepts the
product or screens it out of the analysis on that basis. DOE requires
demonstration of a technology in at least a working prototype, because
even though technologies may be proven for other applications, it may
not translate to a different product type for a variety of reasons.
NRDC did not point to specific examples of technologies DOE should
consider, and hence, it is more difficult for DOE to specifically
address the comment.
AHRI commented that DOE should recognize that many DHE products do
not require electricity. AHRI stated that such designs allow consumers
to use these products for emergency heat during power outages, which
provides a real utility that needs to be factored into DOE's analysis.
(AHRI, Public Meeting Transcript, No. 34.4 at p. 21)
DOE considers the impact of any lessening of utility from standards
during the screening analysis. If DOE determines a technology would
have significant adverse impact on the utility of the product to
significant subgroups of consumers, or would result in the
unavailability of any covered product type with performance
characteristics (including reliability), features, sizes, capacities,
and volumes that are substantially the same as products generally
available in the United States at the time, it will not consider this
technology further. DOE considered several technology options for DHE
that require electricity for the NOPR analyses, including electronic
ignition systems and blowers or fans. Blowers and fans are generally
not necessary for the products to operate and, because the equipment
can be operated without them, do not impact the utility of being able
to use the equipment for emergency heat during a power outage. For
models with electronic ignition systems, electricity is required to
light the burner, and, thus, required for product operation. In the
case of a power failure, however, many products employ battery backup
systems that can provide the electrical power needed to light the
burner (or the pilot in the case of intermittent pilot ignitions)
during the power outage. Because of this, an electronic ignition system
with battery backup would not cause any lessening of utility as
compared to a traditional standing pilot system for DHE. Therefore, DOE
did not screen out these technologies.
b. Water Heaters
NEEA and NPCC stated that tank bottom insulation is an effective
means of improving product efficiency. Accordingly, NEEA and NPCC urged
DOE to consider this as a technology option for electric storage water
heaters because field data from the Pacific Northwest suggest that tank
bottom insulation decreases standby energy loss, especially when the
tank is located on a concrete slab. (NEEA and NPCC, No. 42 at p. 4)
DOE considered various improvements in insulation for storage water
heaters during the screening analysis, including tank bottom
insulation. (See chapter 3 of the NOPR TSD for a full description of
the insulation improvements DOE considered.) DOE notes that tank bottom
insulation was not screened out during the screening analysis, which is
in contrast to advanced forms of insulation which were screened out as
unproven (e.g., vacuum panels, aerogels). When listing the potential
technology options at each efficiency level (see section IV.C.3), DOE
shows only those technologies most commonly used in manufacturing,
although specific implementation details vary by manufacturer.
Manufacturers currently do not use increased tank bottom insulation as
a primary means of increasing efficiency; therefore, it was not listed
as one of the technologies used in achieving these efficiency levels
for storage water heaters. Hence, DOE agrees with NEEA and NPCC that
tank bottom insulation is an effective means of improving the energy
factor of storage water heaters.
NEEA and NPCC also urged DOE to include as technology options heat
pump water heaters that use CO2 as the refrigerant. NEEA and
NPCC commented that CO2 heat pump water heaters have been
sold and serviced by hundreds of thousands of manufacturers in
Southeast Asia and elsewhere over the last 5 to 10 years. (NEEA and
NPCC, No. 42 at pp. 4-5)
DOE is not considering CO2-based heat pump water heaters
because DOE research suggests U.S. manufacturers do not have the
necessary infrastructure to support manufacturing, installation, and
service of CO2 heat pump water heaters on the scale
necessary to serve the relevant market by the compliance date of an
amended energy conservation standard. DOE also does not believe
manufacturers would be able to develop the necessary infrastructure
before the compliance date of an amended energy conservation standard
because these products have not penetrated the U.S. market.
ACEEE commented that DOE should revisit the preliminary conclusions
presented in the screening analysis, including the tentative decision
to not further consider thermophotovoltaic and thermoelectric
generators. (ACEEE, No. 35 at pp. 3-4) The commenter stated that the
inclusion of thermophotovoltaic and thermoelectric generators would
make other technologies such as side-arm themosiphons more feasible.
ACEEE asserted that in the case of thermophotovoltaic and
thermoelectric generators, DOE assumes that line voltage or 24-volt
power cannot be required for gas-fired storage water heaters. DOE
research suggests that the amount of power that can be generated by
thermophotovoltaic and thermoelectric generators in a residential
storage water application is quite limited. Commercially-available
thermoelectric elements for water heaters typically produce less than
0.05 Watts of power, and so-called thermopiles can reach as high as
0.75 Watts. While it is theoretically possible to power devices other
than the customary gas valves with thermoelectric power sources, DOE is
unaware of an external device that has an impact on energy efficiency
whose power demands are low enough to allow it to be powered by such
generators. DOE is also unaware of any thermophotovoltaic power
generators that have been developed to the point where they could be
incorporated by the compliance date of the rulemaking, nor of any role
that such generators would play in increasing the energy efficiency of
gas-fired storage water heaters.
Rheem commented that DOE should recognize the special utility of
self-powered water heaters. (Rheem, No. 49 at p. 4) DOE acknowledges
that most gas-fired storage-water heaters on the market today do not
require an electrical connection to operate (i.e., they are self-
powered). Typically, the gas valves on these units incorporate a
thermoelectric
[[Page 65875]]
element that is impinged on by a standing pilot flame. The minute power
generated by the thermoelectric element opens the gas supply in the
valve assembly via a low-power solenoid. Thus, thermoelectric elements
typically act as a safety device. They do not provide sufficient power
to run fan blower motors and other high-powered devices. Therefore, DOE
has tentatively decided to continue to exclude thermophotovoltaic and
thermoelectric generators from its analysis, because they are not an
effective means of improving the efficiency of water heaters.
ACEEE also stated that DOE should revisit the preliminary
conclusions presented in the screening analysis regarding flue dampers
since electromechanical dampers were common on furnaces and boilers and
appear to be available for residential boilers today. (ACEEE, No. 35 at
pp. 3-4) DOE research suggests that there are no residential storage
water heaters on the market today that incorporate such dampers.
Although electromechanical dampers may be found on some furnaces,
boilers, and commercial water heaters, their benefit in a residential
water heater application is unknown because no manufacturer
incorporates them in their products. All products that incorporate
electromechanical dampers of which DOE is aware require line power to
operate them. Thus, such dampers may not be practicable for all
consumers. Additionally, DOE researched damper systems that do not
require electrical power to operate. Typically, such systems are based
on a bi-metal damper installed on top of the flue pipe outlet that
opens when heated and closes as it cools. DOE research suggests that
such non-electrically-actuated dampers pose potential health and safety
problems. For example, such dampers can fail in the closed position,
which could cause the exhaust gases to be stuck in the flue.
Furthermore, they rely on hot air impingement to open. However, when
the water heater begins its combustion cycle, the flue and its baffles
are relatively cold, and flue gas temperatures may require some time
until they reach the point where they will open a bi-metal damper
quickly and completely. This is especially true for flammable vapor
ignition resistant (FVIR) water heaters (which all residential water
heaters are) whose natural draft is already restricted by FVIR
components. With the flue shut or mostly shut on start-up, water heater
combustion can be impacted in a number of ways, including nuisance
lockouts, increased carbon monoxide production, and flue gases spilling
into living spaces. For these reasons, non-electromechanical dampers
were screened out.
ACEEE commented that DOE should revisit the preliminary conclusions
presented in the screening analysis regarding advanced forms of
insulation, which resulted in DOE's tentative decision to screen out
those technologies. (ACEEE, No. 35 at pp. 3-4) In response, DOE
research suggests that emerging technologies such as vacuum-insulated-
panels (VIPs) may allow manufacturers to reduce heat loss, but such
technologies have yet to find application in storage water heaters. DOE
notes that ACEEE did not provide any new rationale or data to support
why DOE should reconsider its original conclusion presented in the
preliminary screening analysis that advanced forms of insulation have
not been demonstrated as practical to manufacture and install. Hence,
DOE screened out advanced forms of insulation from the NOPR analyses.
ACEEE also stated that DOE should revisit its preliminary
conclusions regarding sidearm heaters and two-phase thermosiphons
(TPTS) which resulted in DOE's tentative decision to screen out those
technologies. (ACEEE, No. 35 at pp. 3-4) Regarding two-phase
thermosiphons, ACEEE did not provide any explanation in its comment as
to why DOE should reconsider its initial conclusion that it is not
practicable to manufacture, install, and service this technology on the
scale necessary to serve the relevant market at the time compliance
with the standard is required. TPTSs require a drastic redesign of the
water heater and are typically not practical for indoor installation.
Therefore, DOE has continued to screen out this technology.
Regarding side-arm heaters, ACEEE commented that sidearm heaters
are more feasible with access to 24-volt power, which would allow them
to be located above or below the unit. This assertion does not address
DOE's concerns about sidearm heaters presented in the preliminary
analysis. DOE research did not reveal any working prototypes for gas-
fired or oil-fired storage water heaters, and manufacturers seem to no
longer use this technology. Therefore, this technology is not feasible
and not practical to manufacture, install, and service side-arm storage
water heaters on the scale necessary to serve the relevant market at
the time of the compliance date of the standard, and was not considered
further in the analysis. See chapter 4 of the NOPR TSD, Screening
Analysis, for more details about DOE's assessment of two-phase
thermosiphons and sidearm heaters.
For the reasons listed above, DOE still believes that
thermophotovoltaic and thermoelectric generators, side-arm heaters, and
advanced forms of insulation are not technologically feasible and are
impractical to manufacture, repair, and install; that two-phase
thermosiphons are impractical to manufacture, repair, and install; and
that buoyancy operated flue dampers have an adverse impact on the
safety of these products.
Bradford White Corporation (BWC) stated that using multiple flues
for gas-fired storage water heaters is difficult, costly, and
impractical to produce on residential water heater tank production
lines. (BWC, No. 46 at p. 2)
In response, DOE research suggests that multi-flue storage water
heaters can be produced at a higher production scale than is commonly
done now. The current low shipment-volume techniques are commonly used
in commercial gas-fired and oil-fired water heater designs. Solutions
for higher-volume production of such heaters would require significant
investments but are not technically infeasible. Thus, DOE believes
multiple flue designs could be implemented on residential storage water
heaters and are a viable technology for improving the efficiency of
oil-fired storage water heaters.
In summary, none of the comments DOE received on the screening
analysis led DOE to reconsider its determination for any of the
technologies that were excluded from the preliminary analysis.
Therefore, DOE excluded the same technologies in the NOPR analysis.
Chapter 4 of the NOPR TSD provides more details about the technologies
that DOE screened out.
2. Technologies Considered
Based upon the totality of the available information, DOE has
tentatively concluded that: (1) All of the efficiency levels discussed
in today's notice are technologically feasible; (2) products at these
efficiency levels could be manufactured, installed, and serviced on a
scale needed to serve the relevant markets; (3) these efficiency levels
would not force manufacturers to use technologies that would adversely
affect product utility or availability; and (4) these efficiency levels
would not adversely affect consumer health or safety. Thus, the
efficiency levels that DOE analyzed and is discussing in this notice
are all achievable through technology options ``screened in'' during
the screening analysis. The
[[Page 65876]]
technologies DOE considered are shown in Table IV.6 through Table IV.8.
Table IV.6--Technologies DOE Considered for the Water Heater Engineering Analysis
----------------------------------------------------------------------------------------------------------------
Water heater type by Fuel Source
---------------------------------------------------------------------------
Technology Storage Instantaneous
---------------------------------------------------------------------------
Gas-fired Electric Oil-fired Gas-fired
----------------------------------------------------------------------------------------------------------------
Increased Jacket Insulation......... X X X .................
Foam Insulation..................... ................. ................. X .................
Improve/Increased Heat Exchanger X X X X
Surface Area.......................
Enhanced Flue Baffle................ X ................. X .................
Direct-Vent (Concentric Venting).... ................. ................. ................. X
Power Vent.......................... X ................. X X
Electronic (or Interrupted) Ignition X ................. X X
Heat Pump Water Heater.............. ................. X ................. .................
Condensing.......................... X ................. X X
----------------------------------------------------------------------------------------------------------------
Table IV.7--Technologies DOE Considered for the Direct Heating Equipment
Engineering Analysis
------------------------------------------------------------------------
Technology
-------------------------------------------------------------------------
Increased Heat Exchanger Surface Area.
Direct-Vent (Concentric Venting).
Electronic Ignition.
Induced Draft.
Two Stage and Modulating Operation.
Condensing.
------------------------------------------------------------------------
Table IV.8--Technologies DOE Considered for the Pool Heater Engineering
Analysis
------------------------------------------------------------------------
Technology
-------------------------------------------------------------------------
Increased Heat Exchanger Surface Area.
More Effective Insulation (Combustion Chamber).
Power Venting.
Sealed Combustion.
Condensing.
------------------------------------------------------------------------
3. Heat Pump Water Heaters Discussion
For the preliminary analysis, DOE considered heat pump water
heaters as a viable technology option for improving the efficiency of
electric storage water heaters. DOE posted the preliminary TSD for
residential heating products on its Web site on January 5, 2009 (for
more information see http://www1.eere.energy.gov/buildings/appliance_standards/residential/water_pool_heaters_prelim_tsd.html). Pages 2-
21 to 2-29 of chapter 2 of the preliminary TSD contain an extensive
discussion of heat pump water heaters and the significant issues
pertaining to the consideration of heat pump water heaters in this
rulemaking. In the executive summary to the preliminary TSD, DOE sought
comments on the viability of heat pump water heaters as a technology
for electric storage water heaters and whether these water heaters
would be practicable to manufacture, service, and install on a scale
necessary to serve the relevant market by the compliance date of any
amended standard, which would be five years after publication of the
final rule.
In addition, DOE sought comment on several other issues regarding
integral heat pump water heaters: (1) Whether manufacturers would be
able to finance the investment costs necessary to convert their
existing product lines to heat pump water heaters by the compliance
date of an amended standard; (2) what percentage of manufacturers'
product lines would be converted to heat pump water heaters by the
compliance date of an amended standard (e.g., if standards did not
reach the levels provided by heat pump water heaters); (3) how the
market for heat pump water heaters has changed since the January 2001
final rule, and the number of installations that would incur a
significant increase in cost due to extensive modifications that will
have to be made to a residence to accommodate a heat pump water heater;
and (4) heat pump water heater programs that have been conducted since
the January 2001 final rule.
In response to the preliminary analysis, DOE received a multitude
of comments from interested parties, both at the public meeting and in
written responses during the preliminary analysis comment period. A
summary of the comments received and DOE's responses are presented
below.
a. Consumer Utility
Southern stated that DOE needs to address issues regarding cold air
produced by heat pump water heaters. According to Southern, simply
increasing a residence's heat output is not an appropriate way to
compensate for the cold air a heat pump water heater generates.
Southern also asserted that constantly blowing cold air will create
uneven temperatures within the dwelling space, leading to utility and
comfort issues. (Southern, Public Meeting Transcript, No. 34.4 at p.
22) Southern noted that a heat pump water heater could provide
supplemental cooling during a home's cooling hours; however,
concentrated cooling at a particular location would result in uneven
temperatures in a home, thereby being incompatible with the home's
temperature needs. Southern stated that this would reduce the utility
and performance of a home's HVAC system, and that there is no practical
solution. (Southern, No. 50 at p. 2) The commenter stated that an HVAC
supply vent near the unit would not help mitigating cold air issues.
Southern commented that although a vent may cancel the effect of the
cool air supplied in the winter (by supplying heat), during the cooling
season, the supply vent (now supplying cool air) would exacerbate the
temperature imbalance in the area of the heat pump water heater.
(Southern, No. 50 at p. 2)
DOE agrees with Southern that cold air production of heat pump
water heaters should be considered in the analysis. While DOE believes
most consumers would choose to increase the use of their space heating
system to deal with the increased heating load, DOE did account for the
possibility that some consumers would choose to install ductwork to
vent cold air away from the space surrounding the water heater to the
outdoors to overcome uneven temperature problems. The increased
installation costs of venting cold air away from a conditioned space,
along with the increased cost of space heating for consumers who choose
not to vent cold air away from the conditioned space, are accounted for
in DOE's
[[Page 65877]]
analysis for certain percentages of consumers (see section IV.E.2).
Southern also commented on noise issues. Southern stated that is
difficult to comment on a hypothetical product where no specifications
exist, but that existing electric storage water heaters are often
located in utility closets close to bedrooms and living areas. The
commenter asserted that even if the product generates decibel levels
similar to a refrigerator, such noise is a matter of greater concern
because a heat pump water heater would tend to be in closer proximity
to a bedroom or other quiet living area, as compared to a refrigerator
located in a kitchen. Noise dampening would not be practical because
louvered doors would be required to allow adequate air flow for the
heat pump water heater. Southern cited the EPCA criteria, stating that
there would be a significant impact on the utility or performance of
the appliance if excessive noise disturbs the consumer. (Southern, No.
50 at p. 2)
DOE does not agree that the additional noise from a compressor used
for a heat pump water heater would affect consumer utility for two
reasons. First, as Southern points out, noise from a heat pump water
heater compressor may be comparable in decibel level to the noise
created by a refrigerator compressor, which has not been found to
adversely affect consumer utility. Second, while the actual impact of
excess noise created by a compressor may vary greatly based on the
location of the appliance installation, DOE does not have any reason to
believe that water heaters are any more likely to be installed near a
bedroom than a refrigerator. Water heaters are typically not installed
in consumers' bedrooms or living spaces, but instead are usually
installed in garages, closets, basements, attics, or other locations
away from the living space. Thus, DOE believes that noise created by a
compressor would not significantly impact consumer utility.
b. Production, Installation, and Servicing Issues
DOE received numerous comments in response to the preliminary
analysis on the practicality of manufacturing, installing, and
servicing heat pump water heaters.
Southern stated that it is difficult to determine whether heat pump
water heaters would be practical to install and service and if they are
reliable, because at the time Southern submitted this comment, there
were no products on the market to compare against. (DOE notes several
heat pump water heaters have recently become available on the market).
Also, no product exists yet that could be mass produced and available
in 2015 in response to a heat pump water heater energy efficiency
standard. (Southern, Public Meeting Transcript, No. 34.4 at pp. 58-59)
Further, Southern commented that installation of heat pump water
heaters in new construction is still problematic for multifamily
housing, although the issues are less severe than in replacement
installations. In multifamily housing, interior locations are preferred
for mechanical systems, and perimeter locations (e.g., windows and
balconies) are preferred for exterior exposures. Southern stated that a
heat pump water heater could be installed in an interior, but the
addition of supply and return vents to the outdoors would be expensive.
Southern also stated that placing the heat pump water heater at a
perimeter location is possible, but would reduce the architectural
options available for builders. (Southern, No. 50 at pp. 2-3) Finally,
Southern commented that it is very concerned about the possible
selection of an amended conservation standard at an efficiency level
that would require heat pump water heaters. Southern strongly
encourages the use of heat pump water heaters, but it argued that given
operational differences, they are not suitable for some consumers due
to the need for very expensive building modifications. (Southern, No.
50 at p. 1)
BWC noted that the owner or installer can return a water heater to
the manufacturer if a defect is claimed. BWC stated that in these
cases, units are tested and typically there is no actual defect.
According to BWC, if heat pump water heaters are introduced on a larger
scale, it is likely that more water heaters will be returned to the
manufacturer without servicing because many traditional plumbers (who
would install the heat pump water heaters) have no HVAC training and no
refrigerant licenses. (BWC, No. 46 at p. 2) BWC stated that training
and education costs associated with heat pump water heaters were
overlooked in the previous rulemaking and have been overlooked in the
current rulemaking as well. (BWC, No. 46 at p. 2)
GE stated that it will be producing a heat pump water heater
sometime in the near future, and asserted that it is practical to
manufacturer, install, and service heat pump water heaters. Further, GE
added that it has the facilities to both manufacture and service these
products. It is GE's opinion that there will be a great deal of
consumer interest in such products, and that this market will increase
and be much larger than the current market. (GE, Public Meeting
Transcript, No. 34.4 at p. 63)
In its written submission, GE also commented on the practicality of
installation and service. GE stated that its heat pump water heater
occupies the exact footprint of a standard water heater and requires
the same electrical and plumbing connections. (GE, No. 51 at p. 2)
According to GE, the vast majority of installations would be simple and
straightforward, and consumers would achieve significant energy savings
and often may obtain collateral installation benefits such as
dehumidified basements or cooler attics. (GE, No. 51 at p. 2) GE argued
that heat pump water heaters installed in humid locations could
eliminate the need for a separate dehumidifier, which could save
consumers both capital and energy. (GE, No. 51 at p. 2) GE acknowledged
that a heat pump water heater produces a small amount of condensate.
However, GE commented that this would not require any building
modifications, as condensate is easily drained to a floor drain that
should accompany each water heater for leakage or overflow. (GE, No. 51
at p. 2) Alternatively, GE commented that for heat pump water heaters
that are not installed near a floor drain, a small condensate pump
(similar to those used for HVAC installations) can be installed to pump
condensate to a suitable drain. (GE, No. 51 at p. 2) GE did state that
heat pump water heater installation in confined spaces with very small
areas and no ventilation may present challenges. (GE, No. 51 at p. 2)
Regarding the reliability issues surrounding heat pump water
heaters, ACEEE stated that the historical record of failures for heat
pump water heaters arises from the fact that initial models were
brought to market by laboratory-based applied research and development
companies and commercial niche companies, rather than the major
consumer appliance companies that are currently announcing heat pump
water heater products. ACEE stated that an analysis which ignores the
nature of the manufacturer is bound to misrepresent the potential of
the heat pump water heater. (ACEEE, Public Meeting Transcript, No. 34.4
at pp. 65-66) NEEA and NPCC acknowledged the failure issues discussed
in the preliminary analyses, but they argued that the failures have
been attributable to the control boards, which other markets have
experienced. NEEA and NPCC stated that the control board failures are
not characteristic of the heat pump water heaters, but of the
electronics industry itself, and replacement is a
[[Page 65878]]
simple and inexpensive remedy. (NEEA and NPCC, No. 42 at p. 5)
In response to the comments provided by Southern, BWC, GE, ACEEE,
NEEA, and NPCC, DOE believes that heat pump water heaters could
potentially be installed and serviced on the scale necessary for the
residential market before the potential compliance date of an amended
energy conservation standard for water heaters. Although servicing heat
pump water heaters will require significantly more training than
servicing traditional electric storage water heater technologies, DOE
notes that many domestic appliances are being installed and repaired
today which feature compressors (i.e., refrigerators, room air
conditioners, and similar appliances). DOE believes that, given the 5-
year delay between the issuance of the final rule and the compliance
date and the fact that many manufacturers already have these products
under development, it is unclear whether manufacturers would be able to
retrain installers and service technicians to install and service heat
pump water heater technology. DOE estimated the additional costs that
would be incurred as a result of increased certification requirements
to install and service heat pump water heaters in its analyses. See
section IV.E.2 for details.
A.O. Smith asserted that heat pump water heaters are a viable
technology to serve a portion of the water heater market, but that they
are only practical for a small, niche part of the market and should
never be considered when setting the ``efficiency floor'' of the
electric water heater market. A.O. Smith argued that manufacturers
could make the investment needed for the small volumes of heat pump
water heaters that manufacturers believe are practical, but the cost of
changing every line completely over to heat pump water heaters would be
prohibitive. In addition, A.O. Smith stated that the percentage of heat
pump water heaters to penetrate the market will be small and will be
driven by market incentives such as tax credits and rebates. (A.O.
Smith, No. 37 at p. 8) BWC stated that it could likely convert some of
its product lines to heat pump water heaters by the compliance date of
the standard. BWC also commented that without knowing the cost to
retrofit current production lines and the cost of heat pump water
heaters, it cannot comment on what percentage could be converted by the
compliance date. (BWC, No. 46 at p. 1) Edison Electric Institute stated
that heat pump water heaters are different from standard electric
storage water heaters and cannot be considered for direct replacements
due to technology, size, and other issues. EEI also stated its concern
that industry would not be able to increase production from under
10,000 units per year to 4.5 million units per year by the compliance
date of the standard. According to EEI, if DOE does not create a
separate product class for heat pump water heaters, DOE should screen
out this technology from this rulemaking. (EEI, No. 40 at p. 3)
DOE acknowledges there could be issues with converting entire
production lines to manufacture heat pump water heaters before the
compliance date of this standard. However, DOE also notes that
significant portions of heat pump water heaters are expected to remain
very similar in design to current standard electric storage water
heaters. Manufacturers could choose to produce the heat pump portion of
the water heater in-house or purchase it from a supplier. GE has
already announced that a heat pump water heater will be available
sometime this year, and other major manufacturers are also developing
heat pump water heaters. Given the 5-year delay in compliance date from
the issuance of the final rule, and the fact that many manufacturers
are already developing heat pump water heaters, DOE believes
manufacturers may be able to convert their entire product lines before
the compliance date of an amended energy conservation standard.
However, DOE also recognizes there would likely be significant impacts
on manufacturers. DOE considers those impacts in the MIA section of
this NOPR (section IV.H).
DOE is seeking comment on the manufacturability of heat pump water
heaters and the capability of manufacturers to ramp up production. DOE
is specifically seeking comment on how long it would take, and how much
it would cost, for manufacturers to convert all product lines to heat
pump water heaters if it were required by an amended energy
conservation standard. Additionally, DOE is seeking comment about the
capability of water heater installers and servicers to meet the unique
demands created by heat pump water heaters. DOE is requesting comment
about how long it would take to train installers and servicers to be
able to serve the market created if heat pump water heaters were
required by an amended energy conservation standard. DOE will consider
all of these factors as it weighs the benefits and burdens of each TSL.
(See Issue 11 under ``Issues on Which DOE Seeks Comment'' in section
VII.E of this NOPR.)
c. General Comments
DOE received several general comments about the current condition
of heat pump water heater technology and the market for this product.
These comments are discussed immediately below.
Southern commented that, although not desirable, it would be less
objectionable to require heat pump water heaters if the electric
storage water heater class could be split at 40 gallons, with products
larger than 40 gallons having a heat pump water heater efficiency level
requirement, and products smaller than 40 gallons having a higher
electric resistance efficiency level. (Southern, No. 50 at p. 4)
EEI stated that there is a Federal tax credit for heat pump water
heaters. (EEI, Public Meeting Transcript, No. 34.4 at p. 60) AHRI
stated that the ENERGY STAR program has been established since the
previous rulemaking, creating greater recognition by all interested
parties about the need to save energy. AHRI commented that every
manufacturer is probably investigating whether it can maintain a
feasible business providing heat pump water heaters. However, AHRI also
commented that DOE should not consider heat pump water heaters as an
energy conservation standard for 2015. According to the commenter, the
water heater industry and American consumers are experiencing difficult
economic conditions, and consumers are not likely to purchase heat pump
water heaters that are expensive. AHRI also stated that resistance-type
electric storage water heaters are near their maximum efficiencies and
need to evolve. AHRI commented that current conditions prohibit setting
an efficiency minimum that would require a heat pump water heater.
(AHRI, Public Meeting Transcript, No. 34.4 at pp. 60-62)
AHRI stated that current market conditions and the introduction of
heat pump water heater models by water heater manufacturers are
allowing heat pump water heaters to take root in the market. Further,
AHRI asserted that the heat pump water heater market needs to mature
and that DOE should allow the market and consumers to respond to the
availability of higher-technology electric storage water heaters that
are reliable and meet consumer utility needs. (AHRI, Public Meeting
Transcript, No. 34.4 at pp. 64-65)
ACEEE stated that ENERGY STAR's water heater program demonstrates
that heat pump water heaters are viable. The commenter stated that
three major manufacturers have announced or told ACEEE about a
qualifying heat pump
[[Page 65879]]
water heater to be marketed to consumers in 2009, which is more than 5
years before energy conservation standard would take effect. (ACEEE,
No. 35 at pp. 4-5) ACEEE asserted that cost-effectiveness should be
examined because profits are likely to be greater for more expensive
heat pump water heaters, even in a very competitive market, and that
these higher cost products may benefit the industry in the current
economic conditions. According to ACEEE, consumer preference can be
very strong, and market studies show that consumers have a very
sophisticated understanding of the benefits of very expensive heat pump
water heaters. ACEEE noted that consumer preference has been seen for
gas-condensing furnaces and other high-priced products in other markets
that are considered commodity markets. (ACEEE, Public Meeting
Transcript, No. 34.4 at p. 66)
PG&E, SDGE, and SoCal Gas supported DOE's decision to include
integral heat pump water heaters as a max-tech efficiency level for
electric storage water heaters. PG&E, SDGE, and SoCal Gas believe the
heat pump water heater technology has made important advances in recent
years and pointed to the actions of General Electric as a major
manufacturer speaking to the viability of this technology. (PG&E, No.
38 at p. 2) NEEA and NPCC also agreed with the inclusion of heat pump
water heaters in the rulemaking analyses, while acknowledging the
failures issues discussed in the preliminary analyses. (NEEA and NPCC,
No. 42 at p. 5) The American Gas Association (AGA) commented that there
appear to be no significant barriers to including heat pump water
heaters in the design options under consideration for electric storage
water heaters. (AGA, No. 44 at p. 2)
GE commented that heat pump water heaters have significant
potential for increasing the energy efficiency of electric storage
water heaters, but that shipments are currently very low (0.1 percent
of all water heaters shipped). According to GE, heat pump water heaters
should be encouraged through ENERGY STAR and other consumer incentives
to allow time for heat pump water heaters to penetrate the market and
prove themselves in terms of energy cost savings and reliability. GE
stated that the heat pump water heater market is too new to consider
establishing a minimum standard at a level that would require heat pump
water heater technology at this time. (GE, No. 51 at pp. 1-2) Southern
also commented that levels requiring heat pump water heater technology
are not appropriate as an amended energy conservation standard level at
this time. (Southern, No. 50 at p. 4)
DOE believes that the ENERGY STAR program and Federal tax credit
program, along with recent developments in heat pump water heater
technology due to manufacturers' efforts, have made heat pump water
heaters a much more viable technology for improving energy efficiency.
As such, DOE is tentatively proposing to consider heat pump water
heaters in this analysis as a design option for improving the
efficiency of conventional electric storage water heaters. DOE
considers the possibility of fuel switching resulting from heat pump
water heater standards for electric storage water heaters in its
shipments analysis (see section IV.F.1).
The technologies evaluated in the screening analysis all have been
used or are in use in commercially-available products, or exist in
working prototypes. These technologies all incorporate materials and
components that are commercially available in today's supply markets
for the products covered by this NOPR. Therefore, DOE believes all of
the efficiency levels evaluated in this notice are technologically
feasible.
C. Engineering Analysis
The engineering analysis develops cost-efficiency relationships to
show the manufacturing costs of achieving increased efficiency. DOE has
identified the following three methodologies to generate the
manufacturing costs needed for the engineering analysis: (1) The
design-option approach, which provides the incremental costs of adding
to a baseline model design options that will improve its efficiency;
(2) the efficiency-level approach, which provides the relative costs of
achieving increases in energy efficiency levels, without regard to the
particular design options used to achieve such increases; and (3) the
cost-assessment (or reverse-engineering) approach, which provides
``bottom-up'' manufacturing cost assessments for achieving various
levels of increased efficiency, based on detailed data as to costs for
parts and material, labor, shipping/packaging, and investment for
models that operate at particular efficiency levels.
For the preliminary analysis, DOE conducted the engineering
analysis using both the efficiency level approach to identify
incremental improvements in efficiency for each product and the cost-
assessment approach to develop a cost for each efficiency level. DOE
identified the most common residential heating products on the market
and determined their corresponding efficiency levels, the component
specifications, and the distinguishing technology features associated
with those levels. After identifying the most common products that
represent a cross section of the market, DOE gathered additional
information using reverse-engineering methodologies; product
information from manufacturer catalogs; and discussions with
manufacturers and other experts of water heaters, DHE, and pool
heaters. This approach provided useful information, including
identification of potential technology paths manufacturers use to
increase energy efficiency.
DOE generated a bill of materials (BOM) by disassembling multiple
manufacturers' products that span a range of efficiency levels for each
of the three product categories. The BOMs describe the product in
detail, including all manufacturing steps required to make and/or
assemble each part. Subsequently, DOE developed a cost model that
converted the BOMs and efficiency levels into manufacturer production
costs (MPCs). By applying derived manufacturer markups to the MPCs, DOE
calculated the manufacturer selling prices and constructed industry
cost-efficiency curves.
DOE received several comments from interested parties on the
approach to the engineering analysis. Rheem stated its support for
DOE's product teardown plan and evaluation of insulations levels.
(Rheem, No. 49 at p. 4) Southern agreed overall with the technical and
engineering assumptions in the TSD. (Southern, No. 50 at p.1)
Because DOE did not receive any comments from interested parties
opposing its general approach to the engineering analysis, DOE
continued to use the same approach for the NOPR phase of this
rulemaking. However, DOE did receive specific comments from interested
parties on certain aspects of the engineering analysis. A brief
overview of the methodology, a discussion of the comments DOE received,
DOE's response to those comments, and any adjustments DOE made to the
engineering analysis methodology or assumptions as a result of those
comments is presented in the sections below. See chapter 5 of the NOPR
TSD for additional details about the engineering analysis.
1. Representative Products for Analysis
For the engineering analysis, DOE reviewed all of the product
classes of residential water heaters (storage-type and instantaneous),
DHE, and pool heaters. Since the storage volume and input capacity
affect the energy efficiency of residential heating
[[Page 65880]]
products, DOE examined each product type separately. Within each
product type, DOE chose units for analysis that represent a cross
section of the residential heating products market. The analysis of
these representative products and product classes allowed DOE to
identify specific characteristics that could be applied to all of the
products across a range of storage and input capacities, as
appropriate.
a. Water Heaters
For residential, storage-type water heaters, the volume of the tank
significantly affects the amount of energy consumed, because it takes
more energy to heat a larger volume of water from a given temperature
to a higher temperature than it does to do the same for a smaller
volume of water. Also, an increase in the tank volume can create an
increase in the tank surface area, leading to higher standby losses of
two otherwise identical tanks (i.e., same insulation thickness, same
materials). For the preliminary analysis, DOE examined specific storage
volumes for gas-fired, oil-fired, and electric storage water heaters
(referred to as representative storage volumes and shown in Table IV.9)
because the energy efficiency equations for residential water heaters
established by EPCA are a function of each product's storage volume.
DOE reviewed the shipments data AHRI provided to determine the storage
volume corresponding to the highest number of shipments for gas-fired
water heaters, oil-fired water heaters, and electric water heaters. DOE
conducted a similar review of shipment data for instantaneous gas-fired
water heaters and determined the input rating corresponding to the
highest number of shipments (i.e., 199,000 Btu/h, as shown in Table
IV.9) since storage volume does not vary for this product class.
DOE did not receive any comments in response to the preliminary
analysis on the representative units for residential water heaters, and
as such, used the same approach to determining representative units for
the NOPR analysis. However, on review of the shipments for oil-fired
storage water heaters for the NOPR analysis, DOE determined that oil-
fired storage water heaters with 32 gallons of storage volume have a
higher number of shipments than those with 30 gallons, and adjusted the
representative unit accordingly.
Table IV.9--Representative Residential Water Heaters Analyzed
------------------------------------------------------------------------
Representative storage volume
Residential water heater class (gallons)
------------------------------------------------------------------------
Gas-Fired Storage Type................... 40
Electric Storage Type.................... 50
Oil-fired Storage Type................... 32
Instantaneous Gas Fired.................. 0
(199,000 Btu/h input
capacity)
------------------------------------------------------------------------
Once DOE conducted the primary analysis on the representative rated
storage volumes for each of the product classes, DOE extended the
analysis to other rated storage volumes using the cost model and the
energy efficiency equations. See section IV.C.7 for additional details.
For gas-fired instantaneous water heaters, DOE used the analysis for
the 199 kBtu/h input capacity and applied it to all products within the
product class.
b. Direct Heating Equipment
Current energy conservation standards for DHE are not determined by
an equation, but by input capacity ranges. DOE examined one specific
input capacity range for gas wall fan, gas wall gravity, gas floor, and
gas room DHE in the preliminary analysis. In addition, DOE examined one
specific input capacity range for gas hearth DHE in the NOPR analysis.
The specific input ranges DOE analyzed are referred to as
representative input rating ranges. DOE reviewed the DHE (including
vented hearth products) shipment data AHRI and HPBA provided for this
rulemaking and found the input rating range corresponding to the
highest number of shipments for gas wall fan, gas wall gravity, gas
floor, and gas room DHE. DOE did not receive any comments from
interested parties in response to the preliminary analysis on the
representative ranges for traditional DHE, and used the same approach
to determine the ranges for the NOPR analysis. DOE did not receive
shipments data categorized by capacity ranges for gas hearth DHE, and,
therefore, determined the representative capacity range based on the
number of models available on the market in each capacity range. DOE
added a representative range for gas hearth DHE for the NOPR analysis.
In addition, after reorganizing the DHE product classes, DOE reviewed
gas room DHE shipments for the NOPR, and changed the representative
input range for gas room DHE from over 46,000 Btu/h to between 27,000
and 46,000 Btu/h. DOE found the input range between 27,000 and 46,000
Btu/h contained the highest number of models for gas room DHE when the
gas hearth DHE were removed from consideration. Table IV.10 presents
the representative rated input rating ranges for residential DHE. For
the remaining DHE product classes (i.e., wall fan, wall gravity, and
floor), DOE did not receive any comments in response to the preliminary
analysis on the representative units, and, therefore, used the same
units for the NOPR analysis.
Table IV.10--Representative Residential Direct Heating Equipment
Products as Described by Input Capacity and Defined by Btu/h
------------------------------------------------------------------------
Representative input rating
Direct heating equipment design type range (Btu/h)
------------------------------------------------------------------------
Gas Wall Fan........................... Over 42,000.
Gas Wall Gravity....................... Over 27,000 and up to 46,000.
Gas Floor.............................. Over 37,000.
Gas Room............................... Over 27,000 and up to 46,000.
Gas Hearth............................. Over 27,000 and up to 46,000.
------------------------------------------------------------------------
[[Page 65881]]
After analyzing the representative product class (i.e., input
rating range), DOE applied the analysis to the remaining product
classes for each residential DHE type. Unlike storage water heaters, an
equation is not applied to relate the range of input ratings. Instead,
DOE proposes to maintain the AFUE difference between each input rating
range as established by EPCA. That is, if the amended energy
conservation standard is increased by two AFUE percentage points for
the representative product class, for example, the amended energy
conservation standards for the other product classes within this
product type would all rise by two AFUE percentage points. The
stringency resulting from an amended standard is constant across the
range of inputs for a given product type. This approach appears to be
consistent with the relationship between input capacity and efficiency
exhibited by models currently available on the market based on DOE's
review of the AHRI directory for DHE. In addition, DOE notes that the
larger DHE units usually contain larger heat exchangers to get higher
efficiencies. These larger heat exchangers have increased surface area,
which also increases the convected losses to the surroundings. The
increased losses result in lower AFUEs. Based on the market assessment
and engineering principles, DOE believes the approach for maintaining
the AFUE difference between each input rating range is reasonable.
c. Pool Heaters
There is only one product class for residential gas-fired pool
heaters, but this product class covers a wide range of input ratings.
Although within the same product class, the variation in input rating
is large enough to create variations in pool heater design (e.g., large
variations in input will vary material usage and MPC). Therefore, for
the preliminary analysis, DOE reviewed the shipment data from AHRI and
found the input rating corresponding to the highest number of
shipments, which was 250,000 Btu/h input rating. Because DOE did not
receive any comments on the representative input rating in the
preliminary analysis, DOE used the same approach for the NOPR analysis.
Consequently, DOE used 250,000 Btu/h as the representative input rating
for residential pool heaters in the NOPR analysis.
The engineering analysis results for the representative product
classes are used in the remaining DOE analyses, including the life-
cycle cost analysis and the national impact analysis.
2. Ultra-Low NOX Gas-Fired Storage Water Heaters
In the preliminary analysis, DOE did not address ultra-low
NOX gas-fired storage water heaters separately from gas-
fired storage water heaters with standard burners (i.e., non-ultra-low
NOX burner). DOE developed a single cost-efficiency curve
for all gas-fired storage water heaters. However, DOE received several
comments in response to the preliminary analysis on the cost of ultra-
low NOX gas-fired storage water heaters. As discussed in
section IV.A.3.a above, several local air quality management districts
(mostly in California) limit the allowable NOX emissions
from residential water heaters.
BWC commented that there is a substantial cost increase to comply
with the ultra-low NOX requirements. (BWC, No. 46 at p.1)
Rheem commented that the MPC and MSP did not capture higher costs and
prices associated with models that comply with ultra-low NOX
requirements. (Rheem, No. 49 at pp. 4, 7) Rheem stated that although
DOE included the costs associated with Flammable Vapor Ignition
Resistant (FVIR) technology, DOE did not, but should have, included the
costs associated with ultra-low NOX emissions requirements
in its analysis. Further, Rheem stated that given the continued
adoption of ultra-low NOX requirements in highly-populated
regions such as California and Texas, DOE should revise its baseline
cost estimates and include weighting for the population subject to
ultra-low NOX regulations. (Rheem, No. 49 at p. 7)
A.O. Smith stated that the types of burners currently used to
comply with the ultra-low NOX requirements in an atmospheric
water heater are much more restrictive (i.e., produce higher pressure
drops) than conventional burners. According to the commenter, since
gas-fired storage water heaters complying with the ultra-low
NOX requirements also must comply with FVIR requirements,
the units must also have flame arrestors on the air inlet, which
further restricts the system. To boost the efficiency of ultra-low
NOX gas-fired storage water heaters, manufacturers typically
make the flue baffle more effective. In certain instances, given these
additional restrictions, the only way for some of these units to
continue to meet the energy conservation standards is to add a blower
and/or power burner to the heater, which would greatly increase the
manufacturing and installation costs. (A.O. Smith, No. 37 at p. 9)
SoCal Gas agreed with the storage manufacturers, stating that ultra-low
NOX requirements similar to those in the Southern California
Air Quality Management District are being implemented in other regions.
SoCal Gas stated that ultra-low NOX requirements necessitate
a different type of product, which creates a cost issue because product
costs and cost increases are dramatically higher. (SoCal Gas, Public
Meeting Transcript, No. 34.4 at pp. 41-42)
In response to the comments on the preliminary analysis, DOE
developed a separate analysis for ultra-low NOX gas-fired
storage water heaters. DOE developed cost-efficiency curves for ultra-
low NOX gas-fired storage water heaters by performing a
teardown analysis (section IV.C.4.a) of several ultra-low
NOX products from a variety of manufacturers at several
efficiency levels. More specifically, DOE analyzed ultra-low
NOX gas-fired storage water heaters at a 40-gallon
representative storage volume, as was done for gas-fired storage water
heaters with a standard burner. DOE then compared the ultra-low
NOX gas-fired storage water heaters to the comparable gas-
fired storage water heaters that use standard burner technology (i.e.,
not ultra-low NOX compliant). DOE also considered the impact
of ultra-low NOX regulations for the cumulative regulatory
burden (see section V.B.2.f).
DOE used the cost-efficiency curves for ultra-low NOX
gas-fired storage water heaters in the downstream analysis, including
the LCC. DOE distributed the costs based on those geographical areas
with ultra-low NOX regulations. See chapter 5 of the NOPR
TSD for the cost-efficiency curves for ultra-low NOX gas-
fired storage water heaters.
3. Efficiency Levels Analyzed
For each of the representative products, DOE analyzed multiple
efficiency levels and estimated manufacturer production costs at each
efficiency level. The following subsections provide a description of
the full efficiency level range DOE analyzed from the baseline
efficiency level to the maximum technologically feasible (max-tech)
efficiency level for each product class. In some cases, the highest
efficiency level was identified through review of available product
literature or prototypes for products not commercially available.
For each product class, DOE selected baseline units as reference
points, against which DOE measured changes resulting from potential
amended energy conservation standards. Generally, the baseline unit in
each product class: (1) Represents the basic
[[Page 65882]]
characteristics of equipment in that class; (2) just meets current
Federal energy conservation standards; and (3) provides basic consumer
utility.
DOE conducted a survey of the residential heating products market
to determine what types of products are available to consumers and to
identify the efficiency levels corresponding to the highest number of
models. Then, DOE established intermediate energy efficiency levels for
each of the product classes that are representative of efficiencies
that are typically available on the market or correspond to voluntary
program targets such as ENERGY STAR. DOE reviewed AHRI's product
certification directory, manufacturer catalogs, and other publicly-
available literature to determine which efficiency levels are the most
prevalent for each representative product class.
DOE determined the maximum improvement in energy efficiency that is
technologically feasible (max-tech) for water heaters, DHE, and pool
heaters, as required by section 325(o) of EPCA. (42 U.S.C. 6295(o)).
For the representative product within a given product class, DOE could
not identify any working products or prototypes at higher efficiency
levels that were currently available beyond the identified max-tech
level at the time the analysis was performed. DOE seeks comment on its
max-tech efficiency levels.
Rheem commented generally in response to the preliminary analysis
about the water heater max-tech levels DOE identified. Rheem asserted
that there is little to no presence of max-tech water heating products
in the United States. Further, Rheem commented that it supports the
growth of max-tech products through ENERGY STAR, which helps to
distinguish top-performing products and to stimulate market
transformation, but the commenter stated that max-tech should not be
considered for a Federal minimum standard. (Rheem, No. 49 at p. 2)
NRDC commented that max-tech levels face issues that are similar
for all emerging technologies. It noted that: (1) Max-tech products are
only produced and deployed on small scales, thereby limiting available
data; (2) reliability is a concern, possibly due to small scale
production; (3) costs are high but projected to decrease as production
increases, although timing is unknown; (4) consumer reaction to new
technologies and their amenities is unknown; and (5) units are more
useful only in certain applications due to size, venting, or other
inherent attributes. NRDC notes that DOE must consider all of these
concerns when making a decision. (NRDC, No. 48 at pp. 1-2)
As stated above, EPCA requires DOE to determine the maximum
improvement in energy efficiency or maximum reduction in energy use
that is technologically feasible for each class of covered products.
(42 U.S.C. 6295(o)). Therefore, DOE must consider and include an
analysis of max-tech levels for residential heating products in this
rulemaking. However, DOE notes that consideration of the max-tech level
does not necessarily mean that it will be adopted as the level in the
energy conservation standard for that product, because DOE must
consider, in turn, all of the other statutory factors under 42 U.S.C.
6295(o).
In addition to identifying efficiency levels for each product
class, DOE identified a particular technology or combination of
technologies associated with each efficiency level in order to make the
engineering analysis more transparent to interested parties. For each
efficiency level, DOE lists technology and design changes manufacturers
could use to improve product energy efficiency to achieve the given
efficiency level. These technologies provide methods to increase
product energy and are representative of technologies found in a
typical model at a given efficiency level. While DOE recognizes that
manufacturers use many different technologies and approaches to
increase the energy efficiency of residential heating products, the
presented technologies and combinations of technologies and their
ordering are simply possible paths manufacturers could use to reach
higher efficiency levels.
a. Water Heaters
The current Federal minimum energy conservation standards define
the baseline efficiencies for residential water heaters as measured by
the energy factor. These standards became effective on January 20,
2004. (10 CFR Part 430.32(d)) For water heaters, DOE applied the
representative storage capacity to the energy efficiency equations in
10 CFR Part 430.32(d) to calculate the EFs of the baseline units.
i. Gas-Fired Storage Water Heaters
As described in section IV.C.2, DOE performed a separate analysis
for gas-fired water heaters with a standard burner and gas-fired water
heaters with an ultra-low NOX burner for this NOPR. Table
IV.11 and Table IV.12 show the efficiency levels DOE considered for
gas-fired storage water heaters, along with the technologies that
manufacturers could use to achieve the listed efficiencies. The
technologies for standard burner gas-fired water heaters and ultra-low
NOX gas-fired water heaters vary due to differences in the
operating characteristics of the burners. Ultra-low NOX
burners typically reduce the pressure in the flue, which can create
problems if the pressures required to properly vent combustion products
are not maintained. To mitigate these problems, manufacturers may
reduce the amount of baffling or other airflow restrictions to ensure
proper venting, which in turn may result in decreased efficiency. To
overcome these issues, manufacturers must use power venting technology
to achieve energy factors that are comparable to what they would
achieve with a standard burner gas-fired storage water heater that can
contain more baffling. Therefore, the technologies associated with
ultra-low NOX gas-fired water heaters are implemented at
lower efficiency levels and yield a lower energy factor than the same
technologies associated with gas-fired storage water heaters that use a
standard burner.
Table IV.11--Forty-Gallon Gas-Fired Storage Water Heater, Standard
Burner
------------------------------------------------------------------------
Efficiency level (EF) Technology
------------------------------------------------------------------------
Baseline (EF = 0.59)................... Standing Pilot and 1''
Insulation.
Efficiency Level 1 (EF = 0.62)......... Standing Pilot and 1.5''
Insulation.
Efficiency Level 2 (EF = 0.63)......... Standing Pilot and 2.0''
Insulation.
Efficiency Level 3 (EF = 0.64)......... Electronic Ignition, Power Vent
and 1'' Insulation.
Efficiency Level 4 (EF = 0.65)......... Electronic Ignition, Power Vent
and 1.5'' Insulation.
Efficiency Level 5 (EF = 0.67)......... Electronic Ignition, Power Vent
and 2'' Insulation.
Efficiency Level 6-Max-Tech (EF = 0.80) Condensing, Power Vent, 2''
Insulation.
------------------------------------------------------------------------
[[Page 65883]]
Table IV.12--Forty-Gallon Gas-Fired Storage Water Heater, Ultra-low NOX
Burner
------------------------------------------------------------------------
Efficiency level (EF) Technology
------------------------------------------------------------------------
Baseline (EF = 0.59)................... Standing Pilot and 1''
Insulation.
Efficiency Level 1 (EF = 0.62)......... Standing Pilot and 2''
Insulation.
Efficiency Level 2 (EF = 0.63)......... Electronic Ignition, Power
Vent, and 1'' Insulation.
Efficiency Level 3 (EF = 0.64)......... Electronic Ignition, Power Vent
and 1.5'' Insulation.
Efficiency Level 4 (EF = 0.65)......... Electronic Ignition, Power Vent
and 2'' Insulation.
Efficiency Level 5 (EF = 0.67)......... Not Attainable (would go to
condensing).
Efficiency Level 6-Max-Tech (EF = 0.80) Condensing, Power Vent, 2''
Insulation.
------------------------------------------------------------------------
DOE found gas-fired storage water heaters capable of condensing
operations at the highest efficiency level (i.e., max-tech). More
energy can be extracted by condensing the combustion products in the
flue gas, which extracts more heat in the form of latent energy,
leading to an increase in the thermal efficiency of the gas-fired
storage water heater. In the preliminary analysis, DOE identified the
max-tech EF for condensing gas-fired storage water heaters as 0.77. DOE
received several comments from interested parties (discussed below)
which have caused DOE to revise its estimate upwards to 0.80 EF for
condensing units.
NRDC stated that condensing gas-fired water heaters are the future
of gas-fired storage water heaters. (NRDC, No. 48 at p. 1) ACEEE
commented that the max-tech efficiency level DOE considered for gas-
fired storage water heaters is lower than the ENERGY STAR level for the
condensing storage water heater category, which is set at 0.80 EF.
ACEEE stated that selecting 0.77 EF from a range of identified energy
factors for condensing gas-fired storage water heaters ranging from
0.77 to 0.82 EF will bias the results of the analysis and that the five
percentage points of the energy factor correspond to less gas usage.
ACEEE expressed concern with such a divergence between ENERGY STAR and
the energy conservation standards rulemaking. (ACEEE, Public Meeting
Transcript, No. 34.4 at p. 75-76) Further, ACEEE recommended that DOE
analyze efficiency levels at 0.77 EF, 0.80 EF, and 0.82 EF for gas-
fired storage water heaters (ACEEE, No. 35 at p. 3) ASAP stated that
DOE's analysis may be missing some efficiency levels. For gas-fired
storage water heaters in particular, ASAP commented that condensing
units may span a range of efficiencies, and a 0.77 EF may be an
intermediate level that is not max-tech. (ASAP, Public Meeting
Transcript, No. 34.4 at p. 92)
A.O. Smith stated its support for the max-tech efficiency levels
for water heaters as shown in the preliminary engineering analysis.
Specifically, A.O. Smith supports a 0.77 EF for gas-fired condensing
water heaters, which meets DOE's criteria of being technically
feasible. (A.O. Smith, No. 37 at p. 3)
In selecting the efficiency level for the max-tech condensing gas-
fired water heater for the NOPR analysis, DOE carefully considered all
comments from interested parties regarding this issue. There are no
products currently available on the residential gas-fired storage water
heater market that can achieve the efficiencies that will be made
possible by condensing technology, and, therefore, it is difficult to
determine the highest possible EF that can be achieved using this
technology. Although condensing gas-fired storage water heaters are not
currently available on the market in residential sizes, they are
available in commercial sizes that could be scaled down for residential
use. Commercial condensing gas-fired storage water heaters have
efficiencies of up to 96 percent thermal efficiency. There is no direct
mathematical conversion that can be used to derive energy factor (the
efficiency metric for residential water heaters) from thermal
efficiency (the efficiency metric used for commercial water heaters).
Therefore, in making the determination of a max-tech level for gas-
fired storage water heaters, DOE considered feedback from interested
parties, information gathered during manufacturer interviews, available
reports and literature, and its own technical expertise. As a result,
DOE has revised the max-tech water heater efficiency to 0.80 EF for the
NOPR analysis. This level is cited as the max-tech for condensing water
heaters in several reports reviewed by DOE (described in more detail
below), and DOE believes it is the maximum possible energy factor that
can possibly be achieved by a gas-fired storage water heater at this
time. DOE notes that A.O. Smith presentation given at the 2009 ACEEE
Hot Water Forum identifies 0.80 EF as the maximum possible EF for
residential condensing gas-fired water heaters. For more information
visit http://www.aceee.org; the presentation is available at: http://www.aceee.org/conf/09whforum/PlenarySession1-AdamsPresentation.pdf.
In addition, the Super Efficient Gas Water Heating Appliance
Initiative (SEGWHAI) Final Project Report (April 2007) identified
efficiency factors at 0.80 and above as achievable condensing
efficiency levels for gas-fired storage water heaters, although these
levels were based on theoretical modeling of gas-fired water heaters
and have never been demonstrated in working prototypes. For more
information, visit http://www.segwhai.org. A 0.80 EF level is also
consistent with the max-tech level identified by ENERGY STAR in its
determination of an appropriate efficiency level for gas-fired storage
water heaters utilizing condensing technology. For more information,
visit http://www.energystar.gov. As explained above, DOE seeks comment
on the max-tech efficiency levels identified for the analyses,
especially those for gas-fired water heaters. (See Issue 1 under
``Issues on Which DOE Seeks Comment'' in section VII.E of this NOPR.)
DOE received several comments about the other efficiency levels and
technologies identified for the preliminary analysis.
Southern commented on the technologies for efficiency level 3 for
gas-fired storage water heaters, stating its belief that adding
electronic ignition would not require manufacturers to use power vent
systems. (Southern, Public Meeting Transcript, No. 34.4 at p. 87)
DOE agrees with Southern's comment, because an assessment of the
current market demonstrates that gas-fired storage water heaters using
electronic ignition systems do not always include power vent
technologies. However, DOE believes many manufacturers that use power
vent technologies to reach efficiency level 3, 4, and 5 also use
electronic ignition systems since the fan already requires electricity.
Therefore, DOE paired electronic ignition and power venting
technologies with one inch of insulation as a potential approach to
achieving efficiency level 3. DOE believes that manufacturers implement
designs that have both electronic ignition and power vent
[[Page 65884]]
technology at this efficiency level. At efficiency levels 1 and 2, DOE
used standing pilot systems for gas-fired storage water heaters, which
do not require line electricity. Even though efficiency level 3 and
above for gas-fired storage water heaters would require consumers to
have an external electrical connection, DOE has determined that
consumers would continue to have other non-electrical alternatives such
as other types of gas-fired water heaters (e.g., gas-fired
instantaneous water heaters).
ACEEE stated that DOE should include an efficiency level that
considers flue and vent damper technologies instead of power vent
technology. The commenter stated that this may not significantly affect
the energy factor because the test procedure does not account for the
value of entrained bypass air. ACEEE asserted that flue and vent
dampers may have much lower costs than power vents and may have less
entrained air. Further, ACEEE stated that flue and vent dampers do not
require exhaust temperatures to be reduced to a level that can be
handled by PVC plastics. (ACEEE, Public Meeting Transcript, No. 34.4 at
p. 88)
DOE focused its analysis on technologies that would impact
efficiency, as measured by the DOE test procedure. DOE discussed its
consideration of damper technologies as part of the screening analysis
in section IV.B.1.a. For the engineering analysis, DOE examined the
most common methods used by manufacturers to improve energy factor, as
determined using DOE's test procedures specified in 10 CFR part 430,
subpart B, appendix E. Through its reverse-engineering analysis, and
review of manufacturer literature, DOE found that manufacturers most
often use power vent technology to achieve higher efficiency for gas-
fired storage water heaters. Thus, DOE considered efficiency levels
that are typically achieved using a power vent design in the NOPR
analysis.
Rheem commented that at the preliminary analysis efficiency level 5
(i.e., 0.66 EF), gas-fired storage water heaters may require operation
at and near condensing efficiency levels, which can be undesirable.
(Rheem, No. 49 at p. 4)
DOE notes that several manufacturers already manufacture water
heaters at 0.66 EF, making gas-fired storage water heaters at 0.66 EF
practical to manufacture, install, and service, and technologically
feasible. DOE is unaware of any adverse impacts to either product
utility or health and safety that would result from a water heater at
0.66 EF. DOE reviewed the market for gas-fired water heaters at 0.66 EF
and 0.67 EF. DOE did not find any products currently on the market,
which incorporate features to accommodate condensing operation.
Therefore, DOE sees no reason to eliminate that efficiency level from
consideration. However, DOE did revise efficiency level 5 from 0.66 EF
for the preliminary analysis to 0.67 EF for the NOPR analysis to
maintain consistency with the ENERGY STAR Program. DOE notes there are
also products currently offered with a 0.67 EF at the representative
volume size.
Rheem also stated that the technologies identified to increase
energy efficiency for gas-fired storage water heaters are appropriate.
However, Rheem asserted that the insulation thicknesses that would be
required to achieve efficiency levels 1, 2, and 3 are understated.
Rheem commented that efficiency level 1 requires 2 to 2.5 inches of
insulation, for example. (Rheem, No. 49 at p. 4)
DOE research suggests that the tank thicknesses listed at various
efficiency levels are consistent with products available on the market.
DOE reviewed manufacturer literature, which typically includes
information on energy factor and insulation thicknesses. For the
preliminary analysis, DOE reverse-engineered several gas-fired water
heaters to verify the technologies used to improve energy efficiency,
including insulation thicknesses. Since the preliminary analysis, DOE
also hired an independent testing facility to determine the EF of a
representative sample of water heaters across multiple efficiency
levels for the NOPR. These water heaters were subsequently disassembled
to verify the technologies used to increase energy efficiency. In the
end, DOE came to the same conclusions as in the preliminary analysis
regarding insulation thicknesses. Therefore, DOE believes the results
of its assessment of insulation thicknesses at various efficiency
levels are accurate.
Rheem also commented that baseline technologies for 40-gallon gas-
fired storage water heaters do not apply uniformly for the entire range
of rated storage volumes, and as such, DOE should account for the
additional manufacturing, installation, and shipping costs for larger
size water heaters. (Rheem, No. 49 at p. 4)
For the NOPR engineering analysis, DOE performed teardowns of
models at multiple nominal capacities and noted any differences
(including minor differences) that occurred. DOE used the knowledge
gained from these teardowns when it extended the cost analysis to the
other capacity (gallon) sizes. As part of its analysis, DOE accounted
for additional installation costs and shipping costs of larger units
(see sections IV.E.2.a and IV.C.4.f, respectively).
ii. Electric Storage Water Heaters
Table IV.13 shows the efficiency levels considered for electric
storage water heaters, along with their corresponding potential
technologies that could be used to achieve those levels.
Table IV.13--Fifty-Gallon Electric Storage Water Heater
------------------------------------------------------------------------
Efficiency level (EF) Technology
------------------------------------------------------------------------
Baseline (EF = 0.90)................... 1.5'' Foam Insulation.
Efficiency Level 1 (EF = 0.91)......... 2'' Foam Insulation.
Efficiency Level 2 (EF = 0.92)......... 2.25'' Foam Insulation.
Efficiency Level 3 (EF = 0.93)......... 2.5'' Foam Insulation.
Efficiency Level 4 (EF = 0.94)......... 3'' Foam Insulation.
Efficiency Level 5 (EF = 0.95)......... 4'' Foam Insulation.
Efficiency Level 6 (EF = 2.0).......... Heat Pump Water Heater.
Efficiency Level 7-Max-Tech (EF = 2.2). Heat Pump Water Heater, More
Efficient Compressor.
------------------------------------------------------------------------
For electric storage water heaters, although no integrated heat
pump water heaters were available on the market at the time the
analysis was developed, such products had been developed and
manufactured in the past, three models
[[Page 65885]]
have been certified under the ENERGY STAR program, and others are
currently under development by other water heater manufacturers. DOE
found electric heat pump water heaters capable of obtaining EFs of 2.2
in the preliminary analysis and retained this level as the max-tech
level in the NOPR analysis. DOE received several comments on the
efficiency levels and technologies presented in the preliminary
analysis.
NRDC commented that heat pump water heaters are the future of
electric storage water heater technology. (NRDC, No. 48 at p. 1) ASAP
stated that DOE may be missing some efficiency levels in its analysis.
ASAP commented that an efficiency level between efficiency level 5 and
the max-tech for electric storage water heaters may merit analysis,
particularly if ENERGY STAR has a heat pump water heater at 2.0 EF.
(ASAP, Public Meeting Transcript, No. 34.4 at p. 92) Similarly, ACEEE
recommended DOE analyze levels at 1.7 EF, 2.0 EF, and 2.2 EF. (ACEEE,
No. 35 at p. 3) Additionally, ACEEE stated that prior analyses have
been conducted for heat pump water heaters at 2.5 EF, although further
specifics were not provided. (ACEEE, Public Meeting Transcript, No.
34.4 at p. 94) BWC referred DOE to comments made during the previous
residential water heater rulemaking on July 18, 1994. (BWC, No. 46 at
p. 2) BWC asserted that the previous rulemaking stated a reasonable
energy factor of 1.50, but that the current rulemaking does not. BWC
stated its belief that 1.5 EF is still a reasonable EF for heat pump
water heaters. (BWC, No. 46 at p. 2)
In response to these comments, DOE revised the efficiency levels
considered for electric storage water heaters to include an
intermediate heat pump water heater efficiency level at 2.0 EF for the
NOPR analysis. This is not the max-tech level, but it does represent a
significant change in technology and increase in efficiency over the
traditional electric storage heater technology. This technology would
also be easier for manufacturers to achieve than the max-tech 2.2 EF.
DOE notes this efficiency level also corresponds to the level set forth
by the ENERGY STAR program. DOE did not find any heat pump water
heaters currently available or in the research stage with a 1.7 EF. In
addition, DOE believes it is unlikely that manufacturers will offer
products below the ENERGY STAR level, which is at 2.0 EF. Currently,
there are also Federal tax credits for heat pump water heaters with an
energy factor greater than or equal to 2.0 EF. Additionally, DOE
maintained 2.2 EF as the max-tech efficiency level. Although ACEEE
commented that analysis has been performed on heat pump water heaters
with EFs of up to 2.5, ACEEE did not indicate the source of this
analysis, and DOE could not identify any heat pump water heaters at 2.5
EF through its research efforts. The highest EF obtained in prototype
designs currently being developed is 2.2 EF.
In response to the technology options presented in the preliminary
analysis, AHRI stated that increasing the insulation on an electric
storage water heater from 3 to 4 inches would not increase the energy
factor of such magnitude by 0.01 EF point. AHRI does not believe that
an increase in the energy factor would be seen using DOE's test
procedure when only the insulation thickness is increased and no other
design changes are made to eliminate many of the thermal short circuits
present in a water heater. (AHRI, Public Meeting Transcript, No. 34.4
at pp. 90-91) Rheem also commented that DOE should recognize that there
are diminishing returns for added foam insulation, adding that it is
unclear how the efficiency levels for electric storage water heaters
with 3 and 4 inches of insulation were evaluated to yield the proposed
efficiency levels. (Rheem, No. 49 at p. 3)
DOE research determined the technology options manufacturers
typically use to improve product efficiency, and was based on multiple
data sources including manufacturer literature, which usually includes
information on energy factor and insulation thicknesses. DOE also
conducted a teardown analysis of electric storage water heaters for the
preliminary analysis. For the NOPR analysis, DOE tested the EF of water
heaters and then performed a teardown analysis on those water heaters
across various EF ratings to confirm the technologies used for
increasing efficiency. Although insulation thickness is not the only
design change, DOE believes it is the driving factor in increasing the
EF for electric storage water heaters, and, therefore, is listed as a
commonly used technology option. For these reasons, DOE did not revise
the technology options for EL4 and EL 5 for electric storage water
heaters for the NOPR analysis.
iii. Oil-Fired Storage Water Heaters
Table IV.14 presents the efficiency levels DOE considered for oil-
fired storage water heaters, along with the technology options that
manufacturers could use to achieve the listed efficiency.
Table IV.14--Thirty-Two-Gallon Oil-Fired Storage Water Heater With
Burner Assembly
------------------------------------------------------------------------
Efficiency level (EF) Technology
------------------------------------------------------------------------
Baseline (EF = 0.53)................... 1'' Fiberglass Insulation.
Efficiency Level 1 (EF = 0.54)......... 1.5'' Fiberglass Insulation.
Efficiency Level 2 (EF = 0.56)......... 2'' Fiberglass Insulation.
Efficiency Level 3 (EF = 0.58)......... 2.5'' Fiberglass Insulation.
Efficiency Level 4 (EF = 0.60)......... 2'' Foam Insulation.
Efficiency Level 5 (EF = 0.62)......... 2.5'' Foam Insulation.
Efficiency Level 6 (EF = 0.66)......... 1'' Fiberglass Insulation, and
Multi Flue Design.
Efficiency Level 7-Max-Tech (EF = 0.68) 1'' Foam Insulation, and Multi
Flue Design.
------------------------------------------------------------------------
The most efficient residential oil-fired storage water heater on
the market has an EF of 0.68 and includes electronic ignition, foam
insulation, and enhanced flue baffles. DOE considered this efficiency
level in the preliminary analysis and did not revise it for the NOPR
analysis. However, DOE has determined that all oil-fired water heaters
currently manufactured at the max-tech efficiency level incorporate a
proprietary design. While DOE typically does not consider proprietary
designs in its analysis due to impacts on competition likely to result
from setting a minimum standard an efficiency level that is only
achievable using a proprietary design, the agency has determined
through discussions with manufacturers and its own technical expertise
that the max-tech level for oil-fired storage water heaters is
achievable using alternative approaches that are not proprietary.
Therefore, DOE included
[[Page 65886]]
this efficiency level in the NOPR analysis. DOE believes manufacturers
of oil-fired storage water heaters could achieve an EF of 0.68 by using
a multiple flue design consisting of several flues to increase the heat
transfer area, instead of a single, central flue that is standard on
nearly all residential gas-fired and oil-fired storage water heaters.
DOE revised its cost analysis for a 0.66 EF and 0.68 EF to represent a
non-proprietary, multiple flue design.
DOE did not receive any comments in response to the preliminary
analysis on the max-tech efficiency level or the other efficiency
levels DOE considered for oil-fired storage water heaters. See chapter
5 of the NOPR TSD for more information about the efficiency levels DOE
analyzed for oil-fired storage water heaters.
iv. Gas-Fired Instantaneous Water Heaters
Table IV.15 presents the efficiency levels DOE considered for gas-
fired instantaneous water heaters, along with their corresponding
potential technologies.
Table IV.15--Zero-Gallon Gas-Fired Instantaneous Water Heater, 199,000
Btu/h Input Capacity
------------------------------------------------------------------------
Efficiency level (EF) Technology
------------------------------------------------------------------------
Baseline (EF = 0.62)................... Standing Pilot.
Efficiency Level 1 (EF = 0.69)......... Standing Pilot and Improved
Heat Exchanger Area.
Efficiency Level 2 (EF = 0.78)......... Electronic Ignition and
Improved Heat Exchanger.
Efficiency Level 3 (EF = 0.80)......... Electronic Ignition and Power
Vent.
Efficiency Level 4 (EF = 0.82)......... Electronic Ignition, Power
Vent, Improved Heat Exchanger
Area.
Efficiency Level 5 (EF = 0.84)......... Electronic Ignition, Power
Vent, and Improved Heat
Exchanger Area.
Efficiency Level 6 (EF = 0.85)......... Electronic Ignition, Power
Vent, Direct Vent, and
Improved Heat Exchanger Area.
Efficiency Level 7 (EF = 0.92)......... Electronic Ignition, Power
Vent, Direct Vent, Condensing.
Efficiency Level 8 - Max Tech (EF = Electronic Ignition, Power
0.95). Vent, Direct Vent, Condensing
(Max-Tech).
------------------------------------------------------------------------
For the preliminary analysis, DOE identified a gas-fired
instantaneous water heater capable of condensing with an EF of 0.92 as
the max-tech level. DOE did not receive any comments on the max-tech
gas-fired instantaneous water heaters. However, on reviewing the gas-
fired instantaneous water heater market, DOE identified a new max-tech
level at 0.95 EF for instantaneous gas-fired water heaters that use
condensing technology.
DOE received several comments on the potential technologies
incorporated at each efficiency level for gas-fired instantaneous water
heaters that were presented in its preliminary engineering analysis.
For the preliminary analysis, DOE considered the baseline to be the
current Federal minimum standard (i.e., 0.62 EF). Also, DOE did not
incorporate the need to handle condensate into the installed cost
estimates until products reached the 0.92 efficiency level for the
preliminary analysis.
A.O. Smith suggested using a higher EF as the baseline efficiency
level for gas-fired instantaneous water heaters. A.O. Smith noted that
the vast majority of models available (per the AHRI Directory) are
already well above the Federal minimum energy conservation standards of
0.62 EF. Since the majority of shipments in the current market for
tank-type water heaters are at the Federal minimum energy conservation
standards, DOE should use the same logic in choosing the baseline
efficiency levels. (A.O. Smith, No. 37 at p. 3)
In response, DOE defines the baseline efficiency level as
representative of the basic characteristics of equipment in that class.
The characteristics of a gas-fired instantaneous water heater that just
meets the 0.62 EF requirement would be representative of the most basic
design that could be used for a gas-fired instantaneous water heater.
Therefore, DOE did not change the baseline efficiency level for gas-
fired instantaneous water heaters in the NOPR analysis.
At the public meeting for the preliminary analysis, DOE sought
comment on safety concerns for gas-fired instantaneous water heaters at
near-condensing efficiency levels. Operating at near-condensing levels
may result in corrosive condensation formation, which may occur when
the combustion products (which include water vapor) cool and condense.
Manufacturers stated during engineering interviews that there is a
safety margin needed to account for variations due to manufacturing
tolerances, gas quality, differences in venting configurations,
altitude, ambient conditions, and installer experience. DOE
specifically requested information about how manufacturers would change
current designs to mitigate corrosive condensate formation at near-
condensing EF levels that may be present in some installations. DOE
also requested comment about how manufacturers would alter current
designs of gas-fired instantaneous water heaters to achieve safe
operation if a potential amended standard required all installations to
operate at near-condensing EF levels.
In response, Noritz stated that 0.83 EF is generally the borderline
between condensing and non-condensing, the point at which units begin
operating in condensing mode in at least some applications. (Noritz,
Public Meeting Transcript, No. 34.4 at p. 113) Noritz also stated that
condensation may occur in the near condensing range, which includes
0.83, 0.84, and 0.85 EF, and that it would change the copper heat
exchanger in its standard product to stainless steel or better to
manage the acidic condensate. (Noritz, Public Meeting Transcript, No.
34.4 at pp. 108-109) Noritz recommends that contractors install a
condensate collector for instantaneous gas-fired water heaters with
energy factors at 0.82 and 0.83, but acknowledged that the condensate
collector is not included in a large percentage of installations.
Therefore, Noritz stated that it would include a stainless steel heat
exchanger with the condensate collector on higher efficiency products
because of the increased safety issues associated with condensate
management. (Noritz, Public Meeting Transcript, No. 34.4 at pp. 111-
112) Further, Noritz said it would use this stainless steel heat
exchanger nationwide for cost considerations and to keep the product
standard. (Noritz, Public Meeting Transcript, No. 34.4 at pp. 109-110)
Noritz commented that it handles acidic condensation with a stainless
steel heat exchanger for the condensing instantaneous gas-fired water
heater that has an energy factor of 0.92 EF, and that the product uses
a primary copper heat exchanger and a secondary stainless steel heat
exchanger. Noritz commented that some companies may use titanium, but
this may not be realistic for Noritz because of the cost. (Noritz,
Public Meeting
[[Page 65887]]
Transcript, No. 34.4 at pp. 109-110) In written comments, Noritz
suggested that DOE's cost-efficiency curve should be continuous from
0.62 to 0.82, at which point there should be a kink in the curve, and
the cost of producing a product with an EF of 0.83 or higher would see
a steep increase. According to the commenter, the delineation between
condensing and non-condensing product gas-fired instantaneous water
heaters is at an EF of 0.83, which is borderline. Noritz asserted that
manufacturers making products with an EF of 0.83 or above would need to
design these products to deal with condensate, thereby requiring more
expensive heat exchanger materials, condensate drains, and some method
of treating (i.e., neutralizing) the condensate for safe disposal.
(Noritz, No. 36 at pp. 1-2)
Similar to Noritz's comments, AHRI noted that the costs of gas-
fired instantaneous water heaters at near-condensing efficiency levels
(i.e., an EF of 0.84 and 0.85) need to include the measures
manufacturers would use to minimize problems associated with excessive
condensate in the appliance or its venting system. Specifically, AHRI
noted that manufacturers must build safety factors into their designs
to address the wide scope of installation conditions, such as colder
incoming water temperatures or various venting systems. AHRI
recommended that DOE model the heat exchanger using more corrosive-
resistant materials, specifying a venting system using stainless steel,
and adding a means to collect and dispose of condensate. (AHRI, No. 43
at p. 2) Regarding manufacturing products that operate near their
condensing levels, AHRI stated that manufacturers want to build
products that can be sold anywhere in the United States. However, there
are parts of the United States where the incoming water is colder than
the water specified by the test procedure, and this may cause pre-
condensing. AHRI asserted that efficiency levels at these levels create
safety issues, and that manufacturers would have to rely on
manufacturing and installation skills due to the small margin between
condensing and non-condensing operation. (AHRI, Public Meeting
Transcript, No. 34.4 at pp. 110-111)
DOE acknowledges that for efficiency levels associated with near-
condensing operation, a portion of the flue products may condense, and
this percentage may vary as a function of field conditions.
Additionally, operation where a portion of the flue gases condense
(i.e., near-condensing operation) creates the same safety issues
associated with fully condensing operation because corrosive condensate
is introduced into the heat exchanger and venting system during both
types of operation. Therefore, DOE determined that for instantaneous
gas-fired water heater efficiency levels 5 and 6 (energy factors 0.84
and 0.85, respectively), the costs associated with condensing operation
should be accounted for in the MPCs. DOE revised its costs for the NOPR
phase of this analysis for gas-fired instantaneous water heaters to
account for design changes necessary to handle condensate at these
efficiency levels.
b. Direct Heating Equipment
The baseline efficiencies for DHE are defined by the current
Federal minimum energy conservation standards and the representative
characteristics for products on the market that just meet Federal
minimum energy conservation standards, as measured by the AFUE, and
effective on January 1, 1990. (10 CFR part 430.32(i)) For DHE, the
AFUEs corresponding to the representative input ratings in 10 CFR
430.32(i) were assigned as the baseline unit AFUEs.
Table IV.16 through Table IV.20 show the efficiency levels DOE
analyzed for each product class of DHE, along with technologies that
manufacturers could use to reach that efficiency level.
In the preliminary analysis, DOE identified various efficiency
levels for gas wall fan DHE, including max-tech levels that used
electronic ignition and induced draft combustion systems. DOE did not
receive any comments pertaining to its efficiency levels or
technologies for the preliminary analysis. After reviewing the
efficiency levels and technologies for the NOPR analysis, DOE
determined that the same efficiency levels and technologies are still
appropriate.
Table IV.16--Gas Wall Fan-Type DHE, Over 42,000 Btu/h
------------------------------------------------------------------------
Efficiency level (AFUE) Technology
------------------------------------------------------------------------
Baseline (AFUE = 74)................... Standing Pilot.
Efficiency Level 1 (AFUE = 75)......... Intermittent Ignition and Two-
Speed Blower.
Efficiency Level 2 (AFUE = 76)......... Intermittent Ignition and
Improved Heat Exchanger.
Efficiency Level 3 (AFUE = 77)......... Intermittent Ignition, Two-
Speed Blower, and Improved
Heat Exchanger.
Efficiency Level 4-Max-Tech (AFUE = 80) Induced Draft and Electronic
Ignition.
------------------------------------------------------------------------
In the preliminary analysis, DOE identified gas wall gravity
efficiency levels and technology options, which included a 75-percent
AFUE level as the max-tech that could be achieved using induced draft.
DOE received several comments in response.
AHRI cautioned that adding too many electrical devices to gas wall
gravity-type DHE will at some point remove those products from that
product class, because they will get converted into gas wall fan-type
DHE. (AHRI, Public Meeting Transcript, No. 34.4 at pp. 69-70) AHRI also
stated that an external electrical supply is required at some of the
higher efficiency levels. AHRI asserted that when this occurs, that
product can no longer be classified as a gravity-type product, but
instead would be a fan-type product. Therefore, AHRI stated that the
efficiency levels presented in the preliminary analysis are unrealistic
for gas wall gravity-type DHE. (AHRI, Public Meeting Transcript, No.
34.4 at pp. 114-115) Additionally, Bock commented that adding induced
draft technology to a gas wall gravity-type unit would exclude it from
this equipment class. (Bock, Public Meeting Transcript No. 34.4 at p.
119)
In response to these comments, DOE further reviewed the gravity-
type wall DHE market and the available products and technologies for
the NOPR analyses. A ``vented wall furnace'' (i.e., gas wall fan-type
or gravity-type DHE) is defined as a vented heater that furnishes heat
air circulated either by gravity or by a fan. 10 CFR 430.2. Gravity-
type and fan-type wall DHE are differentiated only by the inclusion
(fan-type) or exclusion (gravity-type) of a fan from the design. DOE
agrees with Bock that the addition of an induced draft fan (which
forces the combustion products through the heat exchanger to increase
turbulence and, thus, heat transfer) would cause those products to be
excluded from the wall gravity product class. Thus, for the NOPR
analysis, DOE removed the
[[Page 65888]]
efficiency level at 75 AFUE that corresponded to induced draft
technology. Instead, DOE identified 72 AFUE as the max-tech efficiency
level, which can be attained using electronic ignition technology.
Table IV.17--Gas Wall Gravity-Type DHE, Over 27,000 Btu/h and Up to
46,000 Btu/h
------------------------------------------------------------------------
Efficiency level (AFUE) Technology
------------------------------------------------------------------------
Baseline (AFUE = 64)................... Standing Pilot.
Efficiency Level 1 (AFUE = 66)......... Standing Pilot and Improved
Heat Exchanger.
Efficiency Level 2 (AFUE = 68)......... Standing Pilot and Improved
Heat Exchanger.
Efficiency Level 3 (AFUE = 71)......... Standing Pilot and Improved
Heat Exchanger.
Efficiency Level 4-Max Tech (AFUE = 72) Electronic Ignition.
------------------------------------------------------------------------
In the preliminary analysis, DOE analyzed several efficiency levels
for gas floor DHE, ranging from 57 AFUE up to 75 AFUE. DOE chose these
levels based on the product availability listings contained in
manufacturer specification sheets and DOE's previous analysis for
direct heating equipment. However, for the NOPR, DOE conducted another
review of the current market and determined that the market no longer
offers models above 58 percent AFUE. This assessment was based on a
review of updated information from AHRI Directory of Certified Products
and manufacturer specification sheets. In its review, DOE identified
heat exchanger improvements as a potential design approach to achieve
the max-tech level 58 AFUE. DOE could not find any prototypes being
developed above 58 percent AFUE. Accordingly, DOE based the efficiency
levels for the NOPR analyses on those levels known to be
technologically feasible for this product class and DOE only analyzed
the baseline and max-tech efficiency levels, because no products are
available at any other efficiency levels (See Table IV.18.).
Table IV.18--Gas Floor-Type DHE, Over 37,000 Btu/h
------------------------------------------------------------------------
Efficiency level (AFUE) Technology
------------------------------------------------------------------------
Baseline (AFUE = 57)................... Standing Pilot.
Efficiency Level 1-Max Tech (AFUE = 58) Standing Pilot and Improved
Heat Exchanger.
------------------------------------------------------------------------
In the preliminary analysis, DOE included gas hearth DHE in the
analysis for gas room DHE. For the NOPR analysis, DOE is establishing a
separate product class for gas hearth DHE. Consequently, DOE revised
the efficiency levels analyzed for gas room DHE to represent the market
and technologies available for products, excluding those that are now
gas hearth DHE, based upon the characteristics of the fireplace and
DOE's proposed definition for ``gas hearth DHE.'' This resulted in the
elimination of several efficiency levels that were considered in the
preliminary analysis for gas room DHE. Also, the max-tech efficiency
level has changed for the NOPR because of this restructuring of the DHE
product classes. For room heaters, the use of electronic ignition and
multiple heat exchangers has been identified as a possible approach to
reach the max-tech efficiency level (AFUE = 83). These technologies are
being used in room heaters that are currently on the market.
Table IV.19--Gas Room-Type DHE, Over 27,000 Btu/h and Up to 46,000 Btu/h
------------------------------------------------------------------------
Efficiency level (AFUE) Technology
------------------------------------------------------------------------
Baseline (AFUE = 64)................... Standing Pilot.
Efficiency Level 1 (AFUE = 65)......... Standing Pilot and Improved
Heat Exchanger.
Efficiency Level 2 (AFUE = 66)......... Standing Pilot and Improved
Heat Exchanger.
Efficiency Level 3 (AFUE = 67)......... Standing Pilot and Improved
Heat Exchanger.
Efficiency Level 4 (AFUE = 68)......... Standing Pilot and Improved
Heat Exchanger.
Efficiency Level 5-Max Tech (AFUE = 83) Electronic Ignition and
Multiple Heat Exchanger
Design.
------------------------------------------------------------------------
DOE did not analyze a gas hearth DHE product class separately in
the preliminary analysis. Based upon public comment, for the NOPR
analysis, DOE surveyed the residential gas hearth DHE market to
identify technologies and efficiency levels common to gas hearth DHE.
For gas hearth DHE, DOE identified products capable of condensing
operations and rated at 93 AFUE as the max-tech level.
Table IV.20--Gas Hearth DHE, Over 27,000 Btu/h and Up to 46,000 Btu/h
------------------------------------------------------------------------
Efficiency level (AFUE) Technology
------------------------------------------------------------------------
Baseline (AFUE = 64)................... Standing Pilot.
Efficiency Level 1 (AFUE = 67)......... Electronic Ignition.
Efficiency Level 2 (AFUE = 72)......... Fan Assisted.
Efficiency Level 3-Max Tech (AFUE = Condensing.
93)..
------------------------------------------------------------------------
[[Page 65889]]
c. Pool Heaters
The baseline efficiencies for pool heaters were defined by the
current Federal minimum energy conservation standards and the
representative characteristics for products on the market that just
meet Federal minimum energy conservation standards, as measured by
thermal efficiency and effective on January 1, 1990. (10 CFR 430.32(k))
For pool heaters, the thermal efficiency corresponding to the baseline
unit is 78 percent. Id.
DOE analyzed efficiency levels for pool heaters with standing pilot
ignitions and pool heaters with electronic ignitions for the
preliminary analysis. DOE distinguished between the two ignition
systems because of the energy use difference between electronic
ignition and standing pilot systems. The DOE test procedure does not
fully include the energy use by a standing pilot systems in the thermal
efficiency metric, but DOE accounted for the energy use difference
between electronic ignition and standing pilot systems in its consumer
LCC analysis. DOE did not receive any comments in response to the
preliminary analysis that opposed this approach, and, therefore, DOE
continues to use it for the NOPR analysis. After surveying the pool
heater market, DOE determined that electronic ignition is offered in
products covering the whole range of efficiencies, while standing pilot
ignition systems are only offered in products corresponding to the
first three intermediate efficiency levels. Consequently, DOE developed
two baseline products and two efficiency pathways for efficiency levels
1 through 3.
For the NOPR analysis, DOE examined the same efficiency levels as
it did in the preliminary analysis (see Table IV.21).
Table IV.21--Gas-Fired Pool Heater, 250,000 Btu/h
------------------------------------------------------------------------
Efficiency level (thermal efficiency) Technology
------------------------------------------------------------------------
Baseline (Thermal Efficiency = 78) *... ...............................
Efficiency Level 1 (Thermal Efficiency Improved Heat Exchanger Design.
= 79) *.
Efficiency Level 2 (Thermal Efficiency Improved Heat Exchanger Design.
= 81) *.
Efficiency Level 3 (Thermal Efficiency Improved Heat Exchanger Design,
= 82) *. More Effective Insulation
(Combustion Chamber).
Efficiency Level 4 (Thermal Efficiency Power Venting.
= 83).
Efficiency Level 5 (Thermal Efficiency Power Venting, Improved Heat
= 84). Exchanger Design.
Efficiency Level 6 (Thermal Efficiency Sealed Combustion, Improved
= 86). Heat Exchanger Design.
Efficiency Level 7 (Thermal Efficiency Sealed Combustion, Condensing.
= 90).
Efficiency Level 8-Max Tech (Thermal Sealed Combustion, Condensing,
Efficiency = 95). Improved Heat Exchanger
Design.
------------------------------------------------------------------------
* Technologies incorporating either a standing pilot or electronic
ignition. Efficiency Levels above 3 include electronic ignition.
In the executive summary to the preliminary TSD, DOE sought
comments on design changes manufacturers might use to mitigate the
formation of corrosive condensation at 86 percent thermal efficiency
for gas-fired pool heaters. DOE also sought comments on the changes
manufacturers would make to the product design and the effects on MPC
that would result if the amended energy conservation standards were at
86 percent thermal efficiency.
Raypak commented that Efficiency Level 6 (i.e., 86 percent)
requires sealed combustion, which will be a condensing system. (Raypak,
Public Meeting Transcript, No. 34.4 at pp. 120-121) AHRI urged DOE to
exclude near-condensing thermal efficiency levels from its analysis.
AHRI pointed out that manufacturers would need to address a range of
field installations and operating conditions if a minimum energy
conservation standard level is set in the near-condensing range. (AHRI
No. 43 at p. 5)
In response, DOE is aware of a pool heater model on the market at
Efficiency Level 6. According to product literature, these models do
not appear to incorporate condensate management. Therefore, DOE did not
change the technology options at Efficiency Level 6 to represent a
condensing pool heater. However, DOE's technology option for Efficiency
Level 6 does include sealed combustion, as Raypak suggested.
4. Cost Assessment Methodology
At the start of the preliminary engineering analysis, DOE
identified the energy efficiency levels associated with residential
heating products on the market, as determined in the market assessment.
DOE also identified the technologies and features that are typically
incorporated into products at the baseline level and at the various
energy efficiency levels above the baseline. Next, DOE selected
products for the physical teardown analysis that corresponded to the
representative rated storage volumes and input capacities. DOE gathered
the information from the physical teardown analysis to create bills of
materials using a reverse engineering methodology. After that, DOE used
the physical teardown analysis to identify the design pathways
manufacturers typically use to increase the EF of residential water
heaters, the AFUE of residential DHE, or the thermal efficiency of
residential pool heaters. DOE calculated the MPC for products spanning
the full range of efficiencies from the baseline to the maximum
technology available at various levels, and it also identified each
technology or combination of technologies in each product that was
responsible for improving the energy efficiency. DOE determined the
cost-effectiveness of each technology by comparing the increase in MPC
to the increase in energy efficiency. For the NOPR, DOE reexamined and
revised several of the steps in its cost assessment methodology based
on additional teardown analysis and in response to comments received on
the preliminary analysis.
During the preparation and refining of the cost-efficiency
comparison and MPCs for the NOPR, DOE also held interviews with
manufacturers to gain insight into each of the water heating, direct
heating, and pool heating industries and requested comments on the
engineering approach DOE used. DOE used the information gathered from
these interviews, along with the information gathered through
additional teardown analysis and public comments, to refine efficiency
levels and assumptions in the cost model. Next, DOE converted the MPCs
into MSPs using publicly-available water heating, direct heating, and
pool heating industry financial data, in addition to manufacturers'
feedback. Further information on comments received and the revisions to
the analysis methodology is presented in subsections a through g of
this section. For
[[Page 65890]]
additional detail, see chapter 5 of the NOPR TSD.
a. Teardown Analysis
To assemble bill of materials (BOMs) and to calculate the
manufacturing costs of the different components in residential heating
products, DOE disassembled multiple residential heating products into
their base components and estimated the materials, processes, and labor
required for the manufacture of each individual component, a process
referred to as a ``physical teardown.'' Using the data gathered from
the physical teardowns, DOE characterized each component according to
its weight, dimensions, material, quantity, and the manufacturing
processes used to fabricate and assemble it. DOE also used a
supplementary method, called a ``virtual teardown,'' which uses
published manufacturer catalogs and supplementary component data to
estimate the major physical differences between a product that was
physically disassembled and a similar product that was not. For
supplementary virtual teardowns, DOE gathered product data such as
dimensions, weight, and design features from publicly-available
information, such as manufacturer catalogs. DOE obtained information
and data not typically found in catalogs and brochures, such as fan
motor details, gas manifold specifications, or assembly details, from
the physical teardowns of a similar product or through estimates based
on industry knowledge. The teardown analysis for this engineering
analysis included over 40 physical and virtual teardowns of water
heaters, DHE, and pool heaters during the preliminary analysis and over
20 additional teardowns performed for the NOPR analysis. The additional
teardowns performed for the NOPR analysis allowed DOE to further refine
the product components and assumptions used to develop the MPCs.
The teardown analysis allowed DOE to identify the technologies that
manufacturers typically incorporate into residential heating products,
along with the efficiency levels associated with each technology or
combination of technologies. DOE used the teardown analysis to create
detailed BOMs for each product class. The BOMs from the teardown
analysis were then placed into the cost model to calculate the MPC for
the representative product in each product class. See chapter 5 of the
NOPR TSD for more details on the teardown analysis.
b. Cost Model
The end result of each teardown is a structured BOMs. DOE developed
structured BOMs for each of the physical and virtual teardowns. The
BOMs incorporate all materials, components, and fasteners classified as
either raw materials or purchased parts and assemblies, and
characterize the materials and components by weight, manufacturing
processes used, dimensions, material, and quantity. The cost model is a
Microsoft Excel spreadsheet that converts the materials and components
in the BOMs into dollar values based on the price of materials, labor
rates associated with manufacturing and assembling, and the cost of
overhead and depreciation. To convert the information in the BOMs to
dollar values for the preliminary analysis, DOE collected information
on labor rates, tooling costs, raw material prices, and other factors.
For purchased parts, the cost model estimates the purchase price based
on volume-variable price quotations and detailed discussions with
manufacturers and component suppliers. For fabricated parts, the prices
of raw metal materials (e.g., tube, sheet metal) are estimated on the
basis of 5-year averages. The cost of transforming the intermediate
materials into finished parts is estimated based on current industry
pricing. For the NOPR analysis, DOE updated all of the labor rates,
tooling costs, raw material prices, the costs of resins, and the
purchased parts costs. Chapter 5 of the NOPR TSD describes DOE's cost
model and definitions, assumptions, and estimates.
DOE received several comments on the material prices collected for
use in the cost model, as discussed below.
Bock commented that manufacturer production costs were calculated
approximately 2 years before the public meeting for the preliminary
analysis. Bock noted that the price of steel has increased tremendously
and that DOE should recalculate these costs. (Bock, Public Meeting
Transcript, No. 34.4 at p. 27) In written comments, Bock reiterated
that because material prices, particularly for steel, have increased
significantly since DOE completed its analysis, DOE's estimated
manufacturer production costs and selling prices should be adjusted to
reflect this trend. (Bock, No. 53 at p. 1)
In contrast, ACEEE commented that DOE significantly overestimated
the cost of compliance with amended standards to the consumer. ACEEE
stated that this was due to the effects of changing material prices on
products and suggested that it would be appropriate for DOE to review
past rulemakings to determine the accuracy of DOE's analytical
approaches. (ACEEE, Public Meeting Transcript, No. 34.4 at pp. 81-82)
Southern Company disagreed with ACEEE regarding the cost to the
consumer and referenced the most recent residential air conditioner
rulemaking which was done when commodity prices were depressed.
Southern stated that because of the depressed commodity prices, the
actual costs were higher than DOE's projections. (Southern, Public
Meeting Transcript, No. 34.4 at p. 82) Further, Southern commented that
a 5-year rolling average of commodity prices would be appropriate for
this rulemaking. (Southern, Public Meeting Transcript, No. 34.4 at p.
83) Rheem agreed with Southern regarding commodity prices. Regarding
the residential central air conditioner rulemaking, Rheem stated that
the results were devastating to the industry and domestic
manufacturers, and the company urged DOE to be very careful in
estimating the cost to consumers because of the potential for a
significantly adverse impact on domestic manufacturing jobs. (Rheem,
Public Meeting Transcript, No. 34.4 at pp. 83-84) In its written
comments, Rheem noted that manufacturer production costs were derived
from material prices that were based on 5-year averages from 2003 to
2007. Rheem urged DOE to revise material prices due to their drastic
increases and volatility driven by global demand. (Rheem, No. 49 at pp.
2-3) A.O. Smith agreed that using material prices from 2003 through
2007 to determine a normalized average may be understating actual
prices, which continued to fluctuate but generally increased in 2008.
(A.O. Smith, No. 37 at p. 4)
Because all interested parties agreed with DOE's approach to use 5-
year rolling average material prices in the engineering analysis, DOE
used the same approach in the NOPR analysis. DOE acknowledges Bock's,
Rheem's, and A.O. Smith's concerns about the timing of the production
cost calculations because the majority of manufacturer production cost
can typically be attributed to materials, which can fluctuate greatly
from year to year. DOE uses a 5-year span to normalize the fluctuating
prices experienced in the metal commodities markets to screen out
temporary dips or spikes. DOE believes a 5-year span is the longest
span that would still provide appropriate weighting to current prices
experienced in the market. DOE updates the 5-year span for metal prices
based on a review of updated commodity
[[Page 65891]]
pricing data, which point to continued increases. Considering the
significant amount of steel and copper in the different heating
products at issue in this rulemaking, incorporating commodity prices
that reflect 5-year average prices as close to current conditions would
best reflect overall market conditions. Consequently, DOE calculated a
new 5-year average materials price using the U.S. Department of Labor's
Bureau of Labor Statistics (BLS) Producer Price Indices (PPIs) for
various raw metal materials from 2005 to 2009 to calculate new
averages, which incorporate the changes within each material industry
and inflation. DOE also used BLS PPI data to update current market
pricing for other input materials such as plastic resins and purchased
parts. Finally, DOE adjusted all averages to 2008$ using the gross
domestic product implicit price deflator.
c. Manufacturing Production Cost
Once the cost estimate for each teardown unit was finalized, DOE
totaled the cost of materials, labor, and direct overhead used to
manufacture a product in order to calculate the manufacturer production
cost for the preliminary analysis. The total cost of the product was
broken down into two main costs: (1) The full manufacturer production
cost or MPC; and (2) the non-production cost, which includes selling,
general, and administration (SG&A) costs, the cost of research and
development, and interest. DOE estimates the MPC at each efficiency
level considered for each product class, from the baseline through the
max-tech. After DOE incorporates all of the assumptions into the cost
model, DOE calculates the different percentages of each aspect of
production cost (i.e. materials, labor, depreciation, and overhead)
that make up the total production cost. The product cost percentages
are used to validate the assumptions by comparing them to
manufacturers' actual financial data published in annual reports, along
with feedback from manufacturers during interviews. DOE uses these
production cost percentages in the MIA (see section IV.H).
For the NOPR analysis, DOE revised the assumptions in the cost
model based on additional teardown analysis, updated pricing, and
additional manufacturer feedback, which resulted in revised MPCs and
production cost percentages. DOE calculated the average product cost
percentages by product type (i.e., water heater, DHE, pool heater) as
well as by product class (e.g., gas-fired storage water heater,
electric storage water heater) due to the large variations in
production volumes, fabrication and assembly costs, and other
assumptions that affect the calculation of the unit's total MPC.
Chapter 5 of the NOPR TSD shows DOE's estimate of the MPCs for the NOPR
phase of this rulemaking, along with the different percentages for each
aspect of the production costs that make up the total product MPC.
DOE received various comments in response to the MPCs presented in
its preliminary analysis, as discussed below.
For pool heaters, Raypak stated that the cost difference between
the ignition systems of gas-fired pool heaters should be more than $3,
because the electronic ignition controls cost more than $3. Raypak also
commented that the materials used for Efficiency Level 6 must be
suitable for condensing applications, which means that DOE's estimate
for MPC for Efficiency Level 6 is understated. (Raypak, Public Meeting
Transcript, No. 34.4 at pp. 120-121)
In response, DOE revised all of the MPCs for residential heating
products for the NOPR analyses. In the case of pool heaters, DOE
reexamined the component cost assumptions for electronic ignitions and
revised the estimate of the cost to implement an electronic ignition
design. The revised cost assumptions for an electronic ignition are
documented in chapter 5 of the NOPR TSD. DOE also revised the costs for
Efficiency Level 6, but did not consider the costs associated with
condensate management at that efficiency level. Some residential pool
heater designs currently on the market do not appear to accommodate
condensing operations at 86 percent thermal efficiency, thereby
suggesting that such costs need not be incurred to reach that
efficiency level. Therefore, DOE did not account for condensate
management in the cost of products at Efficiency Level 6.
Regarding gas-fired storage water heaters, Rheem stated that the
MPC and MSP for Efficiency Level 6 should be higher. (Rheem, No. 49 at
p. 4) A.O. Smith asserted that the estimated manufacturer production
costs in DOE's preliminary analysis are too low for max-tech water
heaters (i.e., heat pump water heaters and condensing gas-fired water
heaters). (A.O. Smith, No. 37 at p. 4) Additionally, A.O. Smith stated
that the baseline MPCs are approximately 11 percent low for gas-fired
storage water heaters and 13 percent low for electric storage water
heaters. (A.O. Smith, No. 37 at p. 6)
On this point, DOE has revised its cost estimates for storage water
heaters at all levels, including the baseline and the max-tech
efficiency levels based on manufacturer feedback obtained during
interviews performed for the MIA (see section IV.H.4). The resulting
cost estimates for the NOPR analysis are higher than in the preliminary
analysis. Chapter 5 of the NOPR TSD discusses DOE's cost estimates for
max-tech storage water heaters.
BWC commented that the energy factor for condensing gas-fired
storage water heaters (the max-tech level) was based on models on the
market that are not classified as residential water heaters. BWC stated
that it is unfair to use non-residential models to determine the cost
of condensing water heaters, because non-residential models do not
include components and the associated costs to make them compliant with
other regulations, such as FVIR and ultra-low NOX
requirements. (BWC, No. 46 at p. 2).
For DOE's estimate of the manufacturing cost of condensing gas-
fired storage water heaters, DOE did include the additional cost of
FVIR in both the preliminary and NOPR analyses, which is not found in
commercial water heaters currently on the market. DOE also based its
condensing water heater design on one that would be more typical of
residential applications (i.e., 40-gallon storage volume and 40,000
Btu/h input capacity). In addition, DOE developed separate manufacturer
production costs for gas-fired storage water heaters with standard
burners and for gas-fired storage water heaters with ultra-low
NOX burners (section IV.C.2), including those gas-fired
water heaters that would have been at the max-tech efficiency level.
d. Cost-Efficiency Curves
The result of the engineering analysis is a set of cost-efficiency
curves. DOE created 11 curves representing each product class examined
for this NOPR. For storage water heaters, the cost-efficiency curves
show the representative rated storage volumes in addition to the other
storage volumes analyzed.
Chapter 5 of the NOPR TSD contains the 11 cost-efficiency curves in
the form of energy efficiency (i.e., EF, AFUE, or thermal efficiency)
versus MPC. The results show that the cost-efficiency curves are
nonlinear. As efficiency increases, manufacturing becomes more
difficult and more costly. Large jumps are evident when efficiencies
approach levels where electronic ignition, blower motors, power vent,
and condensing operation are included in designs. Additionally, MPC
increases greatly
[[Page 65892]]
when heat pump technology is used as an alternative to resistive
heating for electric storage water heaters.
The non-linear relationship is common across all product types. In
addition, DHE and high-efficiency pool heaters see larger increases in
MPC due to lower production volumes than water heaters.
In response to the cost-efficiency curves developed for the
preliminary analysis, ACEEE asserted that DOE's cost-efficiency
relationship ignores the potential ``learning-by-doing'' effects that
have driven down the costs of technologies for almost all regulated
goods. The commenter argued that more stringent standards lead to
product redesigns that almost inevitably result in lower consumer
prices for more-efficient goods after the amended standards have become
effective. ACEEE recommended that DOE balance the current cost-
efficiency development approach with the historical results of
rulemakings on manufacturer production costs. (ACEEE, No. 35 at p. 5)
Similarly, NRDC questioned DOE predictions that more-efficient
products result in escalating costs and stated that DOE should re-
analyze these projections. NRDC also commented that this rulemaking
addresses products previously covered and analyzed in other
rulemakings, and asserted that DOE should evaluate previous analyses by
reviewing its predictions versus the realized effects of standards so
that costs are not overestimated for this rulemaking. NRDC stated that
an overestimation of the cost to improve efficiency could cause DOE to
set standards below the levels that would be justified if DOE were to
determine costs by more accurate methods, a result which would fail to
meet the requirements of the statute. (NRDC, No. 48 at p. 4)
DOE does not agree with ACEEE or NRDC for the following reasons.
DOE recognizes that every change in minimum energy conservation
standards is an opportunity for manufacturers to make investments
beyond what would be required to meet the new standards in order to
minimize costs or to respond to other factors. However, DOE's
manufacturing cost estimates seek to gauge the most likely industry
response to meet the requirements of proposed energy conservation
standards. DOE's analysis of manufacturing cost must be based on
currently-available technology that would provide a nonproprietary
pathway for compliance with a standard once it becomes effective, and,
thus, DOE cannot speculate on future product and market innovation. In
response to a change in energy conservation standards, manufacturers
have made a number of changes to reduce costs in the past. For example,
DOE understands manufacturers have re-engineered products to reduce
cost, made changes to manufacturing process to reduce labor costs, and
moved production to lower-cost areas to reduce labor costs. However,
these are individual company decisions, and it is impossible for DOE to
forecast such decisions. DOE does not know of any data that would allow
it to determine the precise course a manufacturer may take.
Furthermore, while manufacturers have been able to reduce the cost of
products that meet previous energy conservation standards, there are no
data to suggest that any further reductions in cost are possible.
Therefore, it would not be appropriate to speculate about cost
reduction based upon prior actions of manufacturers of either the same
or other products. Setting energy conservation standards upon relevant
data is particularly important given EPCA's anti-backsliding provision
at 42 U.S.C. 6295(o)(1).
e. Manufacturer Markup
DOE applies a non-production cost multiplier (the manufacturer
markup) to the full MPC to account for corporate non-production costs
and profit. The resulting manufacturer selling price is the price at
which the manufacturer can recover all production and non-production
costs and earn a profit. To meet new or amended energy conservation
standards, manufacturers often introduce design changes to their
product lines that result in increased manufacturer production costs.
Depending on the competitive environment for these particular products,
some or all of the increased production costs may be passed from
manufacturers to retailers and eventually to customers in the form of
higher purchase prices. As production costs increase, manufacturers
typically incur additional overhead. The MSP should be high enough to
recover the full cost of the product (i.e., full production and non-
production costs), and yield a profit. The manufacturer markup has an
important bearing on profitability. A high markup under a standards
scenario suggests manufacturers can pass through the increased variable
costs and some of the capital and product conversion costs (the one-
time expenditures). A low markup suggests that manufacturers will not
be able to recover as much of the necessary investment in plant and
equipment.
To calculate the manufacturer markups for the preliminary analysis,
DOE used 10-K reports from publicly-owned residential heating products
companies. (SEC 10-K reports can be found using the search database at:
http://www.sec.gov/edgar/searchedgar/webusers.htm.) The financial
figures necessary for calculating the manufacturer markup are net
sales, costs of sales, and gross profit. For the preliminary analysis,
DOE averaged the financial figures spanning 2000 to 2006 and then
calculated the markups. For the NOPR analysis, DOE updated the
financial figures using 10-K reports spanning 2003 to 2008. To
calculate the time-average gross profit margin for each firm, DOE
summed the gross profit for all the years and then divided the result
by the sum of the net sales for those years. DOE presented the
calculated markups to manufacturers during the interviews for the NOPR
(see section IV.H.4). DOE considered the feedback from manufacturers in
order to supplement the calculated markup, and refined the markup to
better reflect the residential heating products market. DOE developed
the manufacturer markup by weighting the feedback from manufacturers on
a market share basis, since manufacturers with larger market shares
more accurately represent a greater portion of the market. DOE used a
constant markup to reflect the MSPs of the baseline products as well as
more-efficient products. DOE took this approach because amended
standards may make high-efficiency products, which currently are
considered premium products, and make them the baselines. See chapter 5
of the NOPR TSD for more details about the markup calculation.
In response to the preliminary analysis, Bock commented on the MPC
and MSP for oil-fired storage water heaters at Efficiency Level 6. Bock
stated that the MPC is reasonable in terms of considering increased
material costs, but that the MSP is much too low (implying that DOE's
markup for oil-fired storage water heaters is too low). The commenter
stated that the distribution chain is flawed for some manufacturers and
that, unlike gas-fired and electric storage water heaters, oil-fired
storage water heaters require an oil burner that adds approximately
$400 to the MSP. Based upon the above reasoning, Bock stated that the
MSP for Efficiency Level 6 is approximately $1,400. (Bock, No. 53 at p.
1)
The MSP, as defined by DOE, is the selling price from the
manufacturer to the first step in its distribution chain (e.g., a
wholesaler, a distributor, or a national retailer). The MSP does not
[[Page 65893]]
include any further markups for the rest of the distribution chain, but
the MPC for oil-fired storage water heaters includes the price of the
burner. Therefore, the MSP as defined by DOE can be significantly lower
than the purchase price for an end-consumer, which is what DOE believes
Bock is referring to. The purchase price would depend on the typical
markups in each step of the distribution chain as well as the number of
layers of distribution the product has to clear before reaching the
end-consumer. Section IV.D of this notice describes the distribution
chain markups in further detail.
f. Shipping Costs
For the preliminary analysis, DOE accounted for the shipping costs
for residential heating products as part of the non-production costs
that comprise the manufacturer markup. This approach is typical of
energy conservation standards rulemakings for residential products.
Following the preliminary analysis, DOE received several comments
about the impact of an amended energy conservation standard on shipping
(i.e., freight) costs for storage water heaters. A.O. Smith commented
that freight is not a manufacturing cost, but it is a substantial cost
incurred for water heaters, especially tank-type models. Water heater
manufacturers generally pay for shipping to most customers; therefore,
this cost is added in the manufacturer's gross margin calculation. A.O.
Smith noted that an increase in water heater size will add cost to the
overall manufacture/purchase transition. (A.O. Smith, No. 37 at p. 4)
Similarly, BWC commented that DOE underestimated the increase in
freight costs as overall dimensions increase when larger cavity sizes
are used. (BWC, No. 46 at p. 2).
Although the non-production costs typically account for freight in
the manufacturer markup, DOE responded to these comments by separating
the shipping costs from the markup multiplier for storage water heaters
for the NOPR analysis in order to make the MSP calculation more
transparent. DOE calculated the MSP for storage water heaters by
multiplying the MPC determined from the cost model by the manufacturer
markup and adding shipping costs. More specifically, DOE calculated
shipping costs based on a typical 53-foot straight frame trailer with a
storage volume of 4,240 cubic feet. DOE examined the average sizes of
representative water heaters and determined the number of units that
would fit in each trailer, based on assumptions about the arrangement
of water heaters in the trailer. Finally, DOE calculated the average
cost for each unit shipped based on an average cost of $4,000 per
trailer load. See chapter 5 of the NOPR TSD for more details about
DOE's shipping cost assumptions and the shipping costs per unit for
each storage water heater product class.
g. Manufacturer Interviews
Throughout the rulemaking process, DOE seeks feedback and insight
from interested parties to improve the information used in its
analyses. DOE interviewed manufacturers as a part of the NOPR
manufacturer impact analysis (see section IV.H.4). During the
interviews, DOE sought feedback on all aspects of its analyses for
residential heating products. For the engineering analysis, DOE
discussed the analytical assumptions and estimates, cost model, and
cost-efficiency curves with manufacturers of water heaters, DHE, and
pool heaters. DOE considered all the information manufacturers provided
when refining the cost model and assumptions. DOE incorporated
equipment and manufacturing process figures into the analysis as
averages to avoid disclosing sensitive information about individual
manufacturers' products or manufacturing processes. More details about
the manufacturer interviews are contained in chapter 12 of the NOPR
TSD. The interview guides DOE distributed to manufacturers are
contained in appendix 12-A of the NOPR TSD.
5. Results
The results from the engineering analysis were used in the LCC
analysis to determine consumer prices for residential heating products
at the various potential standard levels. Using the manufacturer
markup, DOE calculated the MSPs of the representative water heaters,
DHE, and pool heater from the MPCs developed using the cost model.
Chapter 5 of the NOPR TSD provides the full list of MPCs and MSPs at
each efficiency level for each analyzed representative product.
6. Scaling to Additional Rated Storage Capacities for Water Heaters
To account for the large variation in the rated storage volumes of
residential storage water heaters and differences in both usage
patterns and first cost to consumers of water heaters larger or smaller
than the representative capacity, DOE scaled its MPCs and efficiency
levels at the representative capacities to several discrete rated
storage volumes at capacities higher and lower than the representative
storage volume for each storage water heater product class. DOE
developed the MPCs for water heaters at each of the rated storage
volumes shown in Table IV.22. These storage volumes were determined to
be the most prevalent storage volumes available on the market during
the market analysis (see Chapter 3 of the TSD). The MPCs developed for
this analysis were used in the downstream LCC analysis, where a
distribution of MPCs was used based on the estimated market share of
each rated storage volume (see Section IV.E).
Table IV.22--Additional Water Heater Storage Volumes Analyzed
------------------------------------------------------------------------
Storage volumes analyzed (gallons,
Water heater product class U.S.)
------------------------------------------------------------------------
Gas-fired Storage.................. 30, 50, 65, 75.
Electric Storage................... 30, 40, 66, 80, 119.
Oil-fired Storage.................. 50.
------------------------------------------------------------------------
To develop the MPCs for the analysis of additional storage volumes,
DOE developed a cost model based on teardowns of representative units
from a range of nominal capacities and multiple manufacturers. Whenever
possible, DOE maintained the same product line that was used for the
teardown at the representative storage volume to allow for a direct
comparison between models at the representative storage volume and
models at higher and lower storage volumes. The cost model accounts for
changes in the size of water heater components that would scale with
tank volume (e.g., tank dimensions, wrapper dimensions, wall
thicknesses, insulation thickness, anode
[[Page 65894]]
rod(s), flue pipe(s)). Components that typically do not change based on
tank volume (e.g., gas valves, thermostats, controls) were assumed to
remain largely the same across the different storage volume sizes,
while accounting for price differences due to changes in insulation
thickness. DOE estimated the changes in material and labor costs that
occur at volume sizes higher and lower than the representative capacity
based on observations made during teardowns and professional
experience. Performing teardowns of models outside of the
representative capacity allowed DOE to accurately model certain
characteristics (such as tank wall thickness and wrapper thickness)
that are not identifiable in manufacturer literature.
While DOE was able to receive feedback from manufacturers regarding
the manufacturing costs of storage water heaters at representative
storage capacities, DOE was unable to solicit manufacturing cost
feedback from manufacturers regarding the additional water heaters
shown above. However, DOE was able to finely tune the performance of
the cost model to accurately predict the weights of non-representative
units via the additional teardowns. For example, DOE observed that the
tank wall thickness increases as a function of tank diameter. Based on
the feedback received from manufacturers for representative units and
the accuracy of the material predictions for non-representative units,
DOE believes that its scaling is accurate. In addition to comparing
model output to actual teardowns, model outputs were also compared to
published catalog data.
The results of DOE's analysis for the additional storage volumes
are presented in chapter 5 of the NOPR TSD (engineering analysis).
Chapter 5 of the NOPR TSD also contains additional details about the
calculation of MPCs for storage volumes outside of the representative
capacity. DOE is seeking comment its MPC estimates at the additional
storage volumes outside of the representative storage volumes, as well
as on its approach to developing these MPCs. (See issue number 12 under
Section VII.E ``Issues on Which DOE Seeks Comment'').
7. Energy Efficiency Equations
As part of the engineering analysis for residential water heaters,
DOE reviewed the energy efficiency equations that define the existing
Federal energy conservation standards for gas-fired and electric
storage water heaters. The energy efficiency equations allow DOE to
expand the analysis on the representative rated storage volume to the
full range of storage volumes covered under the existing Federal energy
conservation standards.
DOE uses energy efficiency equations to characterize the
relationship between rated storage volume and energy factor. The energy
efficiency equations allow DOE to account for the increases in standby
losses as tank volume increases. As the tank storage volume increases,
the tank surface area increases. The larger surface area results in
higher heat transfer rates that result in higher jacket losses. Other
losses to consider are the feed-through losses and flue losses (for
gas-fired water heaters). The current energy efficiency equations show
that for each water heater class, the minimum energy factor decreases
as the rated storage volume increases.
After reviewing market data and product literature for gas-fired
and electric storage water heaters, DOE presented two approaches for
amending the existing energy efficiency equations for storage water
heaters. One approach was to maintain the same slope used in the
existing equations, but to incrementally increase the intercepts. This
created energy efficiency equations with the same slope to define EF
across the entire range of storage volumes for each efficiency level.
The advantage of this approach would be to maintain the same slopes
established in NAECA and used in the 2001 rulemaking, which have
historically characterized the water heater market.
A second approach was to adjust the slope of the energy efficiency
equations based on the review of the storage water heater models
currently on the market. The advantage of this approach is the
acknowledge the changes in the product efficiencies offered over time
and account for these changes. DOE examined the efficiencies of models
with varying storage volumes, but with the same or similar design
features. DOE varied the slope of the line to maximize the number of
models in the series that meet the efficiency levels DOE is considering
in the full range of rated storage volumes. DOE sought comments on
approaches to develop the energy efficiency equations for all storage
volumes and all efficiency levels of gas-fired and electric storage
water heaters. Specifically, DOE sought comment on an alternative
approach based on model series that incorporate current market data
from AHRI's Consumers' Directory to generate revised equation slopes
that minimize the number of models that would become obsolete. DOE
received feedback from several interested parties, as discussed
immediately below.
ACEEE commented that the alternative energy efficiency equations
appear to relax the energy factor requirements for smaller capacity
water heaters while making the energy factor requirements more
stringent for larger capacity water heaters. (ACEEE, Public Meeting
Transcript, No. 34.4 at p. 100) AHRI stated that there are more options
for saving energy at higher capacities. AHRI further stated that
additional energy may be saved by using an alternative energy
efficiency equation and that there may be two equations that define the
energy conservation standard across the range of rated volumes. (AHRI,
Public Meeting Transcript, No. 34.4 at pp. 101-102) Rheem argued that
size constraints must be considered when determining alternative energy
efficiency equations and efficiency levels for replacement water
heaters. Rheem stated that there are certain doorways and attics where
installations will not be possible due to size constraints. (Rheem,
Public Meeting Transcript, No. 34.4 at p. 104)
Rheem expressed concern that changes to the energy efficiency
equations may result in the elimination of certain capacities. However,
Rheem stated that the current slope is inappropriate as it would set
unattainable levels for small and large capacity water heaters. Rheem
commented that the proposed alternative equations disproportionately
affect gas-fired storage water heaters, especially large-storage-volume
products. In sum, Rheem recommended that DOE should revisit the current
equations to determine whether energy factors across the full range of
rated storage volumes are still appropriate. (Rheem, No. 49 at p. 6)
EEI expressed support for DOE's decision to update the energy
efficiency equations for storage-type water heaters. However, EEI
cautioned DOE to avoid eliminating certain storage volumes from the
market. Therefore, EEI suggested that DOE develop a two-slope approach
for smaller and larger water heaters to ensure competition in the
marketplace. (EEI, No. 40 at p. 4)
In response, DOE agrees that the alternative slopes examined at
each efficiency level for the preliminary analysis were not as
stringent for the lower storage volume models and were more stringent
for higher storage volume models when compared to the slope defining
existing standards. DOE presented such slopes because many models at
lower storage volumes have already reached close to the maximum
possible efficiency with conventional technologies, while there is more
potential for increased energy efficiency for models with larger
storage volumes. However, DOE also notes that this
[[Page 65895]]
increased stringency may discourage manufacturers from continuing to
develop larger storage volume models. To attempt to mitigate these
issues, DOE is proposing ``two-slope'' energy efficiency equations to
better define the relationship between storage volume and energy factor
across the range of covered storage volumes.
ACEEE stated its support for modifying the energy efficiency
equations for electric and gas-fired storage water heaters if the
effect would be to increase the EF for larger units (i.e., those units
with a higher rated storage volume). For electric storage water
heaters, ACEEE supported capping the EF requirement at 0.95, even for
the smaller rated storage types. (ACEEE, No. 35 at p. 6) NEEA and NPCC
agreed with DOE's intention to adjust the slopes of the energy
efficiency equations for gas-fired and electric storage water heaters.
Specifically, NEEA and NPCC stated their support for the recommended
approach by fitting the energy efficiency equations to actual product
lines on the market. NEEA and NPCC recommended a further lessening of
the slope than the examples shown in the preliminary analysis to
preserve at least one model offered on the current market over the
range of storage volumes. (NEEA and NPCC, No. 42 at p. 6) BWC commented
that the energy efficiency equations for water heaters should be
changed, arguing that as amended standards increase energy efficiency,
it becomes increasingly difficult for units with larger gallon
capacities to comply. (BWC, No. 46 at p. 1)
In contrast, A.O. Smith stated that the existing energy efficiency
equations should not be changed. While A.O. Smith acknowledged some of
the points DOE made in the preliminary analyses regarding the existing
energy efficiency equations, A.O. Smith stated it would take a much
more detailed investigation than DOE has used to validate the points
raised. (A.O. Smith, No. 37 at p. 8)
While DOE acknowledges that A.O. Smith does not support changing
the energy-efficiency equations for gas-fired and electric storage
water heaters, DOE believes that the slopes of the energy efficiency
equations can be revised to more accurately characterize the
relationship between storage volume and energy factor for the current
storage water heater market.
For this NOPR, DOE reviewed AHRI's March 2009 Consumers' Directory
and developed a database of products that includes all gas-fired and
electric storage water heater models subject to this rulemaking. DOE
also reviewed manufacturers' catalogs to gather information on the
design characteristics of each water heater model. The manufacturers'
catalogs include information on efficiency ratings, product series
descriptions, jacket insulation thicknesses, ignition types, and
drafting methods (i.e., natural or power vented drafting). To further
investigate the relationship between EF and rated storage volume, DOE
conducted testing according to the water heater test procedure
specified in 10 CFR 430, subpart B, appendix E (the same test procedure
manufacturers use to certify products in AHRI's Consumers' Directory)
to verify the EF values. DOE tested model series with similar design
characteristics and volumetric designs to isolate how EF changes with
rated storage volume. DOE performed this testing for a number of model
series at various efficiencies and for a variety of manufacturers. DOE
chose models to test by selecting product series from multiple major
manufacturers that span the range of rated volumes within each product
class and that span the range of efficiency levels. After completion of
testing, DOE conducted a teardown analysis of the tested models and
confirmed the specific technologies that affect energy efficiency and
the volumetric characteristics of the tank. DOE used the results of
this analysis to adjust the energy efficiency equations.
Using the information gathered from product catalogs, independent
testing results, and product teardowns, DOE developed an alternative
approach for revising the energy efficiency equations based on three
constraints. DOE applied the following constraining criteria to the
development process:
For gas-fired water heaters, each energy efficiency
equation must include units with the specified efficiency level at 40-
gallon rated storage volume.
For electric storage water heaters, each energy efficiency
equation must include units with the specified efficiency level at 50-
gallon rated storage volume.
The energy efficiency equations cannot result in a
standard that falls below current standards over the entire rated
volume range.
DOE chose this approach because it takes into account the models
currently on the market, considers the technologies incorporated into
those models, and attempts to optimize the number of models across the
entire rated volume range that would meet the efficiency levels DOE is
considering. The approach also attempts to minimize the number of
models that would be eliminated from the market by the efficiency
levels DOE is considering across the entire range of storage volumes.
In examining the market data to develop the energy efficiency
equations, DOE noted a trend of greater decline in energy efficiency at
higher rated storage volumes than at lower storage volumes. As a
result, DOE developed energy efficiency equations with varying slopes
at several of the efficiency levels analyzed for the NOPR analysis.
These equations maintain one slope from the minimum covered rated
storage volume up to a certain rated storage volume (i.e., 60 gallons
for gas-fired storage water heaters and 80 gallons for electric storage
water heaters), and then maintain a different slope over the remaining
range of covered storage volumes. DOE selected 60-gallon and 80-gallon
storage volumes as the point where the change in slope of the energy
efficiency equations for gas-fired and electric storage water heaters,
respectively, should occur, because the market data suggested a natural
break in the available products at those points. Models with gallon
sizes above 60 gallons for gas-fired units and 80 gallons for electric
units typically experienced reduced efficiencies more rapidly as a
function of increasing storage volume, as compared to units with lower
volume sizes. The higher ends of the residential storage capacities
also have a lower volume of shipments.
Based upon the above approach, for gas-fired storage water heaters,
DOE did not change the slope of the energy efficiency equation for
storage volumes above 60 gallons across efficiency levels (i.e., DOE
kept the same slope above 60 gallons at each efficiency level). Few
gas-fired storage water heaters exist with storage volumes greater than
60 gallons, and, therefore, the market data were very limited. Due to
the lack of data for the efficiency at larger gas-fired water heater
storage volumes, DOE used the slope defining the current standard for
residential gas-fired storage water heaters, as listed in DOE's
regulations at 10 CFR 430.32(d). In other words, DOE maintained the
same slope for Efficiency Level 1 through Efficiency Level 5 for gas-
fired storage water heaters above 60 gallons.
For the max-tech efficiency levels considered for gas-fired storage
water heaters and electric storage water heaters, DOE also did not
change the slope of the energy efficiency equations. Because there are
no products currently available on the market meeting the max-tech
efficiency levels, DOE could not perform an analysis or come to any
definitive conclusion about the effect of storage volume on energy
factor at these
[[Page 65896]]
efficiency levels. However, DOE does recognize that with any storage
water heater, the standby losses will increase with storage volume due
to increased tank surface area. Because there is no data that DOE can
use to make a determination of an appropriate slope at these levels,
DOE maintained the relationship between storage volume and energy
factor developed previously for water heaters. Therefore, the energy
efficiency equations for the max-tech levels exhibit the same slopes
used for the gas-fired storage water heater and electric storage water
heaters in the current energy conservation standards at 10 CFR
430.32(d). Table IV.23 and Table IV.24 show the energy efficiency
equations developed for the NOPR for gas-fired and electric storage
water heaters, respectively.
Table IV.23--NOPR Energy Efficiency Equations for Gas Storage Water Heaters
--------------------------------------------------------------------------------------------------------------------------------------------------------
Efficiency level 20 to 60 gallons Over 60 and up to 100 gallons
--------------------------------------------------------------------------------------------------------------------------------------------------------
Baseline Energy Efficiency Equation..... EF = -0.00190(VR) + 0.670............................. EF = -0.00190(VR) + 0.670.
EL 1 Energy Efficiency Equation......... EF = -0.00150(VR) + 0.675............................. EF = -0.00190(VR) + 0.699.
EL 2 Energy Efficiency Equation......... EF = -0.00120(VR) + 0.675............................. EF = -0.00190(VR) + 0.717.
EL 3 Energy Efficiency Equation......... EF = -0.00100(VR) + 0.680............................. EF = -0.00190(VR) + 0.734.
EL 4 Energy Efficiency Equation......... EF = -0.00090(VR) + 0.690............................. EF = -0.00190(VR) + 0.750.
EL 5 Energy Efficiency Equation......... EF = -0.00078(VR) + 0.700............................. EF = -0.00190(VR) + 0.767.
EL 6 Energy Efficiency Equation......... EF = -0.00078(VR) + 0.8312............................ EF = -0.00078(VR) + 0.8312.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table IV.24--NOPR Energy Efficiency Equations for Electric Storage Water Heaters
--------------------------------------------------------------------------------------------------------------------------------------------------------
Efficiency level 20 to 80 gallons Over 80 and up to 120 gallons
--------------------------------------------------------------------------------------------------------------------------------------------------------
Baseline Energy Efficiency Equation..... EF = -0.00132(VR) + 0.97.............................. EF = -0.00132(VR) + 0.97.
EL 1 Energy Efficiency Equation......... EF = -0.00113(VR) + 0.97.............................. EF = -0.00149(VR) + 0.999.
EL 2 Energy Efficiency Equation......... EF = -0.00095(VR) + 0.967............................. EF = -0.00153(VR) + 1.013.
EL 3 Energy Efficiency Equation......... EF = -0.00080(VR) + 0.966............................. EF = -0.00155(VR) + 1.026.
EL 4 Energy Efficiency Equation......... EF = -0.00060(VR) + 0.965............................. EF = -0.00168(VR) + 1.051.
EL 5 Energy Efficiency Equation......... EF = -0.00030(VR) + 0.960............................. EF = -0.00190(VR) + 1.088.
EL 6 Energy Efficiency Equation......... EF = -0.00113(VR) + 2.057............................. EF = -0.00113(VR) + 2.057.
EL 7 Energy Efficiency Equation......... EF = -0.00113(VR) + 2.257............................. EF = -0.00113(VR) + 2.257.
--------------------------------------------------------------------------------------------------------------------------------------------------------
DOE seeks comment on the energy efficiency equations for gas-fired
and electric storage water heaters developed for the NOPR. In
particular, DOE seeks comment on its approach to developing the energy
efficiency equations, the appropriate slope of energy efficiency
equations at each efficiency level analyzed, and the appropriate
storage volumes for changing the slope of the line. DOE is also
interested in alternatives to the energy efficiency equations that DOE
should consider for the final rule. (See Issue 7 under ``Issues on
Which DOE Seeks Comment'' in section VII.E of this NOPR.)
There are very few models of oil-fired storage water heaters on the
market. The lack of data to correlate storage volume and energy factor
for oil-fired water heaters makes it difficult for DOE to conclude that
an alternative approach is needed for the energy efficiency equations.
In the preliminary analysis, DOE presented energy efficiency equations
for oil-fired storage water heaters that were developed by maintaining
the same slope used in the existing Federal requirements found in 10
CFR 430.32(d). DOE did not present any alternative method to
establishing energy efficiency equations for oil-fired storage water
heaters.
In response, AHRI stated its support for using the current energy
efficiency equations for oil-fired storage water heaters. (AHRI, No. 43
at p. 5)
Because DOE did not receive any comments in opposition to using the
same slopes for oil-fired storage water heaters that currently define
the existing Federal standards, DOE is continuing to use the same
methodology for the NOPR.
AHRI also recommended that DOE remove the volume adjustment term
from the energy efficiency equations for gas-fired instantaneous water
heaters and specify a minimum EF applicable to all sizes of residential
instantaneous water heaters. (AHRI, No. 43 at p. 5) Additionally, A.O.
Smith stated that because gas-fired instantaneous water heaters have no
volume correction, an EF level for all sizes would be appropriate.
(A.O. Smith, No. 37 at p. 7)
DOE acknowledges that nearly all are rated at 0 gallons of storage
volume. Because the volume adjustment term is multiplied by storage
volume, this will by default eliminate the volume adjustment term from
the energy efficiency equation used for gas-fired instantaneous water
heaters with a rated storage volume of 0 gallons. However, by
definition, gas-fired instantaneous water heaters may have a rated
storage volume of up to 2 gallons. Therefore, DOE is proposing to
maintain the volume adjustment factor for consistency with the other
energy-efficiency equations.
See chapter 5 of the NOPR TSD for additional information about the
energy efficiency equations for residential water heaters.
D. Markups To Determine Product Price
By applying markups to the manufacturer selling prices estimated in
the engineering analysis, DOE estimated the amounts consumers would pay
for baseline and more-efficient products. At each step in the
distribution channel, companies mark up the price of the product to
cover business costs and profit margin. The appropriate markups for
determining the consumer product price depend, therefore, on the type
of distribution channels through which products move from manufacturer
to consumer.
Bock stated that DOE needs to consider that manufacturers sell to
their representatives, who sell water heaters to distributors. (Bock,
No. 53 at p. 2) DOE's information indicates that manufacturer
representatives work on commission to facilitate sales from
manufacturers to both distributors and retailers, but they do not mark
up the products. The commission is part of the manufacturers' costs.
The distribution channel for water heaters differs for replacement
versus new applications, resulting in different
[[Page 65897]]
markups. For replacement applications, manufacturers sell to either
plumbing distributors or large retail outlets (typically large home-
supply stores). Products destined for replacement applications follow
one of two paths: (1) A retail outlet sells a unit to the consumer, who
either installs it or hires someone to install it; or (2) a plumbing
distributor sells a unit to a contractor, who then sells it to a
consumer and installs it. Bock suggested modifying the first
distribution channel to include a contractor-installer. (Bock, Public
Meeting Transcript, No. 34.4 at pp. 140-141) DOE agrees that a
contractor-installer may be involved in the first path, but because the
consumer purchases the product directly, the contractor does not mark
up the cost of the unit. Thus, DOE did not include a contractor-
installer in the first distribution path.
AHRI disagreed with the analytical results that indicate higher
markups for new construction than for replacement applications. (AHRI,
No. 33 at p. 1) DOE's markup for new construction is higher because it
includes a markup for builders. Because builders incur the cost of a
water heater or direct heating equipment installed in a new home, DOE
finds it appropriate to include a markup for this cost. To estimate a
builder markup, DOE calculated an average markup that applies to all
costs builders incur (based on Census data).
NEEA and NPCC stated that DOE should repeat the process used to
determine markups for the 2001 water heater rulemaking so that costs
including markups align with the marketplace. They also stated that
DOE's method for validating calculated markups is insufficient,
although further explanation was not provided. (NEEA and NPCC, No. 42
at pp. 6-7)
The 2001 water heater rulemaking used data on retail prices to
estimate markups. DOE did not use the same markup process as in the
current rulemaking, however, because commenters on the previous
rulemaking stated that DOE provided no consistency checks to determine
the method's validity, and it did not account for the differences in
price associated with different technologies. In addition, DOE has
adopted a different approach to estimate markups in all of its
rulemakings conducted in recent years that DOE believes is appropriate
because it provides consistent estimates based on publicly-available
statistics. DOE collected retail price data for water heaters to
provide a check on its estimated markups. DOE's average calculated
retail price for water heaters is close to the average Internet retail
price for typical electric and oil-fired storage water heaters, 7
percent lower for gas-fired instantaneous water heaters, and 11 percent
lower for gas-fired storage water heaters. Given the uncertainty
regarding the representativeness of the retail price data that DOE
collected, DOE considers that its markup method provides reasonably
good agreement with prices in the market.
E. Life-Cycle Cost and Payback Period Analyses
DOE conducted LCC and PBP analyses to evaluate the economic impacts
on individual conducted LCC and PBP analyses to evaluate the economic
impacts on individual consumers of potential amended energy
conservation standards for the three types of residential heating
products. The LCC represents total consumer expenses during the life of
an appliance, including purchase and installation costs plus operating
costs (expenses for energy use, maintenance, and repair). To compute
LCCs for the three heating products, DOE discounted future operating
costs to the time of purchase, then summed those costs over the life of
the appliances. The PBP is calculated using the change in purchase cost
(normally higher) that results from an amended efficiency standard,
divided by the change in annual operating cost (normally lower) that
results from the standard.
DOE measures the changes in LCC and PBP associated with a given
efficiency level relative to an estimate of base-case appliance
efficiencies. The base-case estimate reflects the market in the absence
of amended mandatory energy conservation standards, including the
market for products that exceed the current standards.
For each set of heating products, DOE calculated the LCC and PBP
for a nationally representative set of housing units, which were
selected from EIA's Residential Energy Consumption Survey (RECS). The
preliminary analysis used the 2001 RECS. The analysis for today's
proposed rule uses the 2005 RECS. (See http://www.eia.doe.gov/emeu/recs/.) For each sampled household, DOE determined the energy
consumption and energy price for the heating product. By developing a
representative sample of households, the analysis captured the
variability in energy consumption and energy prices associated with the
use of residential heating products. DOE determined the LCCs and PBPs
for each sampled household using a heating product's unique energy
consumption and the household's energy price, as well as other
variables. DOE calculated the LCC associated with the baseline heating
product in each household. To calculate the LCC savings and PBP
associated with equipment that meets higher efficiency standards, DOE's
analysis replaced the baseline unit with a range of more-efficient
designs.
EEI stated that not all residential water heaters are installed in
homes, and thus DOE should modify its analysis to account for product
usage and energy pricing in commercial establishments. (EEI, No. 40 at
p. 5) DOE is unaware of data that show the percentage of residential
water heater shipments that go to the commercial sector or how those
products are used in the commercial sector, and the commenter did not
provide such data. Therefore, DOE did not undertake a separate analysis
for such installations.
Inputs to the calculation of total installed cost include the cost
of the product--which includes manufacturer costs, manufacturer
markups, retailer or distributor markups, and sales taxes--and
installation costs. Inputs to the calculation of operating expenses
include annual energy consumption, energy prices and price projections,
repair and maintenance costs, product lifetimes, discount rates, and
the year that proposed standards take effect. DOE created distributions
of values for some inputs to account for their uncertainty and
variability. Probabilities are attached to each value. As described
above, DOE used samples of households to characterize the variability
in energy consumption and energy prices for heating products. For the
inputs to installed cost, DOE used probability distributions to
characterize sales taxes. DOE also used distributions to characterize
the discount rate and product lifetime that are inputs to operating
cost.
The computer model DOE uses to calculate LCC and PBP, which
incorporates Crystal Ball (a commercially available software program),
relies on a Monte Carlo simulation to incorporate uncertainty and
variability into the analysis. The Monte Carlo simulations randomly
sampled input values from the probability distributions and household
samples. The model calculated the LCC and PBP for products at each
efficiency level for 10,000 housing units per simulation run.
Table IV.25 summarizes the approach and data DOE used to derive
inputs to the LCC and PBP calculations. The table provides the data and
approach DOE used for the preliminary TSD, as well as the changes made
for today's NOPR. The following subsections discuss the
[[Page 65898]]
initial inputs and the changes DOE made to them.
Table IV.25--Summary of Inputs and Key Assumptions in the LCC and PBP
Analyses*
------------------------------------------------------------------------
Changes for the
Inputs Preliminary TSD proposed rule
------------------------------------------------------------------------
Installed Costs
------------------------------------------------------------------------
Product Cost................ Derived by No change.
multiplying
manufacturer cost
by manufacturer,
retailer and
distributor markups
and sales tax, as
appropriate.
Installation Cost........... Water Heaters: Based Applied additional
on data from RS cost for space
Means and other constraints and
sources. other installation
situations.
DHE: Based on data No change.
from RS Means and
DOE's furnace
installation model.
Pool Heaters: Based No change.
on data from RS
Means.
------------------------------------------------------------------------
Operating Costs
------------------------------------------------------------------------
Annual Energy Use........... Water Heaters: Used No change in
hot water draw approach; sample
model to calculate and data updated
hot water use for using RECS 2005.
each household in
the sample from
RECS 2001.
Calculated energy
use using the water
heater analysis
model (WHAM).
DHE: Based on sample No change in
and data from RECS approach; sample
2001. and data updated
using RECS 2005.
Pool Heaters: Based No change in
on sample and data approach; sample
from RECS 2001. and data updated
using RECS 2005.
Energy Prices............... Electricity: Based Electricity: Updated
on EIA's 2006 Form using data from
861 data. EIA's 2007 Form 861
data and EIA's Form
826.
Natural Gas: Based Natural Gas: Updated
on EIA's 2006 using EIA's 2007
Natural Gas Natural Gas
Navigator. Navigator.
Variability: ....................
Regional energy Variability: No
prices determined change.
for 13 regions.
Energy Price Trends......... Forecasted using Forecasts updated
EIA's AEO2008. using EIA's
AEO2009.
Repair and Maintenance Costs Water Heaters: Based Updated various
on RS Means and repair costs.
other sources.
DHE: Based on RS Updated various
Means and other repair costs.
sources.
Pool Heaters: Based Updated various
on RS Means and repair costs.
other sources.
------------------------------------------------------------------------
Present Value of Operating Cost Savings
------------------------------------------------------------------------
Product Lifetime............ Water Heaters: Based Revised average
on range of lifetimes for gas-
lifetimes from fired and electric
various sources. storage water
Variability and heaters.
uncertainty: Set lifetime of oil-
characterized using fired storage water
Weibull probability heater equal to
distributions. that of gas-fired
storage water
heater.
DHE: same as for No change.
water heaters.
Pool Heaters: same Average lifetime
as for water increased from 6
heaters. years to 8 years
Discount Rates.............. Approach based on No change in
the cost to finance approach; added
an appliance data from 2007
purchase. Primary SCF.**
data source was the
Federal Reserve
Board's SCF** for
1989, 1992, 1995,
1998, 2001, and
2004.
Compliance Date of New Water heaters: 2015. No change.
Standard. DHE and Pool
Heaters: 2013.
------------------------------------------------------------------------
* References for the data sources mentioned in this table are provided
in the sections following the table or in chapter 8 of the NOPR TSD.
** Survey of Consumer Finances.
1. Product Cost
To calculate consumer product costs, DOE multiplied the
manufacturer selling prices developed in the engineering analysis by
the supply-chain markups described above (along with sales taxes). DOE
used different markups for baseline products and higher-efficiency
products, because the markups estimated for incremental costs differ
from those estimated for baseline models.
2. Installation Cost
The installation cost is the total cost to the consumer to install
the equipment, excluding the marked-up consumer product price.
Installation costs include labor, overhead, and any miscellaneous
materials and parts.
a. Water Heaters
In its preliminary analysis, DOE included several installation
costs that reflect the space constraints on water heaters having
thicker insulation. DOE assumed that major modifications for
replacement installations would occur 40 percent of the time for water
heaters with 3 inches or greater insulation. The analysis included
costs for modifications such as removing door jams or incorporated
strategies such as installing a smaller tank plus a tempering valve. To
estimate the fraction of households that would require various
modifications, DOE used the water heater location determined for
[[Page 65899]]
each sample household. DOE determined the location using information
from the 2005 RECS, which reports whether the house has a basement,
whether the basement is heated or unheated, and the presence or absence
of a garage, crawlspace, or attic.
DOE received several comments on the space constraints for water
heaters with increased insulation thicknesses. AHRI stated that the
analysis does not fully recognize the size constraints on water heaters
that have increased insulation. (AHRI, No. 33 at p. 2) For example,
AHRI questioned DOE's assumption that space constraints do not apply if
the floor area of a house is more than 1,000 square feet. (AHRI, No. 43
at p. 4) Rheem and AHRI stated that DOE should consider the space
constraints of water heaters installed in attics. (Rheem, No. 49 at p.
2; AHRI, No. 43 at p. 4) Rheem stated that space constraints render
larger products economically and technically infeasible. (Rheem, No. 49
at p. 1) EEI stated that DOE should consider the effect of adding
insulation to electric storage water heaters and the issue of space
constraints in replacement situations. (EEI, No. 40 at p. 4) PG&E, San
Diego Gas and Electric (SDG&E), and SoCal Gas stated that if the
diameter of a water heater is increased by 2 inches, installation
becomes unworkable in highly constrained spaces. (PG&E, SDG&E, and
SoCal Gas, No. 38 at p. 3)
A.O. Smith stated that many closets and cabinets do not have
adequate clearance to accommodate larger-diameter water heaters. It
stated that many electric storage water heaters cannot accept larger-
diameter tanks without modifying the installation. A.O. Smith added
that in the South, many water heater installations are in attics, and
larger water heaters may not fit between the two ceiling joists in the
pull-down staircase to the attic. A.O. Smith suggested that DOE's
analysis should increase the number of installations that would require
modification or the use of a small water heater with a tempering valve.
(A.O. Smith, No. 37 at pp. 1-2)
In response to the above comments, for the NOPR analysis, DOE
further investigated the issue of space constraints for water heaters
with insulation thickness of 2 inches and above. Based upon the results
of this inquiry, DOE expanded the percentage of installations that may
have space constraints, including houses having a floor area of more
than 1,000 square feet. For approximately 20 percent of replacement
installations, DOE applied major modifications (removal of door jamb at
an average cost of $191) for water heater designs with 2-inch
insulation. For another 20 percent of replacement installations, DOE
assumed that the household would install a smaller water heater and use
tempering and check valves (at an average cost of $142). DOE also added
a cost for extra labor needed to install water heaters in attics, and
for installing larger water heaters (66 gallon and larger).
AHRI stated that the additional cost of $22 for tempering and check
valves associated with installing an electric water heater is
significantly understated. (AHRI, No. 43 at p. 4) In clarification, DOE
incorporated an average cost of $142 for tempering and check valves for
homes where they would be needed. The value of $22 is an average over
all homes, including those where tempering and check valves are not
necessary.
AHRI stated that a survey conducted by the SEGWHAI project in
California determined that the average installation cost for a standard
gas-fired storage water heater approached $1,000, which is higher than
DOE's estimated average. (AHRI, Public Meeting Transcript, No. 34.4 at
pp. 84-85) DOE used RS Means and installation cost data to derive a
nationally-representative range of installation costs, whereas the
SEGWHAI data pertain only to California. Because of the need to set a
national standard, DOE has continued to rely on RS Means as a
recognized and commonly used source for estimating such costs.
AHRI also stated that DOE underestimated the cost of condensing
gas-fired storage water heaters. AHRI said that SEGWHAI estimated an
installed cost of $4,000, compared to DOE's estimate of $1,782. The
SEGWHAI estimate refers to a large-capacity commercial condensing unit
having an EF of 0.84. For a condensing gas-fired storage water heater
having an EF of 0.82 (a more appropriate comparison for the residential
units at issue here), SEGWHAI proposes a $1,700 Tier 2 cost, which is
comparable to the estimated installed cost of the 0.77 EF unit
considered in DOE's analysis.
NEEA and NPCC questioned why DOE included the cost of installing an
electrical outlet in the cost of gas-fired storage water heaters. (NEEA
and NPCC, No. 42 at p. 8) In response, DOE understands that the
baseline gas-fired water heater requires no electricity. If such a
model is replaced with a higher-efficiency unit, however, an electrical
outlet installation may be required.
The American Gas Association (AGA) stated that the installation
costs for gas-fired storage water heaters having an EF greater than
0.62 need to include the cost of stainless steel vent connectors. (AGA,
No. 44 at p. 3) DOE agrees that some models having an EF greater than
0.62 will require stainless steel vent connectors, but only if the
recovery efficiency (RE) is 78 percent or higher. For the NOPR
analysis, DOE added the cost of stainless steel vent connectors for all
natural draft gas-fired water heaters that have an RE of 78 percent or
higher.
A.O. Smith stated that the installation costs for electric storage
water heaters at all efficiency levels are overstated by a factor of
two. (A.O. Smith, No. 37 at p. 6) In response, DOE acknowledges that
the average installation costs for electric storage water heaters
presented in the preliminary TSD were too high. Consequently, for the
NOPR analysis, DOE updated the labor cost. Instead of using national-
average costs, DOE used region-specific costs, which yield a lower
national-average cost for electric water heaters. DOE also reduced the
labor time by one half hour. The result is that the average
installation cost for electric storage water heaters is approximately
half as much as the cost estimated in the preliminary analysis.
AGA stated that DOE's cost estimate for providing electrical supply
to water heaters that incorporate electronic ignition is too low. AGA
stated that DOE should use the cost estimates in other rulemakings for
installations where electrical service is needed. (AGA, No. 44 at pp.
3-4) DOE's estimated cost for adding electrical supply for water
heaters requiring electronic ignition, which is based on RS Means, is
similar to the costs DOE used in the rulemaking for cooking products
(74 FR 16040 (April 8, 2009)) and other rulemakings for installations
that require electrical service.
Rheem stated that the cost of installing gas-fired, electric
storage, and low-boy electric water heaters in manufactured housing
units, where water heaters are typically installed under a counter,
would be affected at higher efficiency levels. (Rheem, No. 49 at p. 2)
As discussed previously, DOE considered and accounted for the cost of
accommodating space constraints that may arise in some replacement
applications when higher-efficiency units with thicker insulation are
installed. In the specific case of manufactured homes, for the NOPR DOE
increased the fraction of installations assumed to have space
constraints by two-fold.
Table IV.26 shows the average installation costs used in the NOPR
analysis for selected efficiency levels considered for gas-fired and
electric
[[Page 65900]]
storage water heaters. (Installation costs for electric storage water
heaters with heat pump design are further discussed below.) The costs
vary with the location of the water heater. For electric resistance
water heaters, the average installation costs at different efficiency
levels are similar for basement and garage locations, but they are
higher for water heaters of 0.95 EF for indoor and attic locations. For
gas-fired water heaters, the average installation cost is much higher
for 0.67 EF and 0.80 EF units because thereis a change from metal
Category I vents to plastic Category IV vents.
Table IV.26--Average and Incremental Installation Costs for Electric and Gas-Fired Storage Water Heaters
--------------------------------------------------------------------------------------------------------------------------------------------------------
Electric Gas-fired
--------------------------------------------------------------------------------------------------------------------------------------------------------
Average Incremental Average Incremental
EF Description installation installation EF Description installation installation
cost (2008$) * cost (2008$) cost (2008$)* cost (2008$)
--------------------------------------------------------------------------------------------------------------------------------------------------------
0.90................... 1.5 in (Baseline). $222 ............... 0.59................... Pilot, 1 in...... $576 ..............
0.91 and 0.92.......... 2 and 2.25 in..... 241 $19 0.62................... Pilot, 1.5 in.... 595 $19
0.93 and 0.94.......... 2.5 and 3 in...... 259 36 0.63................... Pilot, 2 in...... 621 46
0.95................... 4 in.............. 282 60 0.67................... Power vent, 2 in. 808 233
0.80................... Condensing, 2 in. 828 252
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Average installation cost represents the weighted average cost for replacement and new construction applications.
DOE received several comments on installation costs for heat pump
water heaters. In its preliminary analysis, DOE applied a distribution
of costs for heat pump water heater installations in enclosed spaces,
including situations where modifications would be required. In its
comments on the preliminary analysis, GE stated that in general, heat
pump water heaters should be no more difficult or expensive to install
than standard electric storage water heaters, because they will require
the same electrical and plumbing connections. GE noted that its heat
pump water heater occupies a footprint similar to that of a standard
unit. GE stated, however, that it may be difficult to install a heat
pump water heater in a confined space that lacks ventilation. (GE, No.
51 at p. 2) A.O. Smith commented that the requirements for providing
adequate air flow for a heat pump water heater may be higher than DOE
estimated. (A.O. Smith, No. 37 at p. 1) NEEA and NPCC stated that DOE
should use a distribution of costs to encompass heat pump water heater
installations that require building modifications. (NEEA and NPCC, No.
42 at p. 8)
DOE agrees that installation of heat pump water heaters in enclosed
spaces may require modifications to allow for adequate ventilation.
Accordingly, for half of indoor replacement installations, DOE added a
cost for installing a fully-louvered closet door to permit adequate air
flow for the operation of the unit. It used a distribution of costs
that averages $344. In addition, DOE assumed that the household facing
space constraints would install a smaller water heater and use
tempering and check valves in 20 percent of replacement installations.
DOE's preliminary analysis considered the fact that heat pump water
heaters draw heat from the space in which they are located and release
cooled air. Thus, when such a water heater is located in a conditioned
space, its use affects the load that the home's space heating and air
conditioning equipment must meet. DOE accounted for the additional
energy costs that affected households would incur.
Southern commented that DOE had not adequately considered the
issues Southern previously raised regarding installing heat pump water
heaters to replace existing electric water heaters, which included the
need to provide venting of cooled air released by such units. The
commenter also stated that for new construction installations in
multifamily housing units, interior locations are preferred for
installing mechanical systems. Southern commented that a heat pump
water heater could be installed indoors, but it would be costly to
provide supply and return vents to the exterior. (Southern, No. 50 at
pp. 2-3)
In the NOPR analysis, DOE continued to assume that many households
that would be affected by indoor operation of a heat pump water heater
would not want to incur the cost of a venting system, and would instead
operate their heating and cooling systems to compensate for the effects
of the heat pump water heater. However, DOE agrees that some households
would prefer to install a venting system. DOE estimated that those
households that would experience significant indoor cooling due to
operation of the heat pump water heater in the heating months (i.e.,
the heat pump cooling load is greater than 10 percent of the space
heating load) would have a venting system installed to exhaust and
supply air. Using calculations specific to each household in the
subsample for electric water heaters, DOE estimated that 40 percent of
replacement installations would incur this cost, which averages $460.
Table IV.27 shows the average additional installation costs that
DOE applied for heat pump water heaters (relative to the baseline
electric storage water heater), along with the fraction of
installations receiving each specific cost.
Table IV.27--Additional Installation Costs for Heat Pump Water Heaters
----------------------------------------------------------------------------------------------------------------
Share of
installations
Installation cost description Assignment to installations impacted Average cost *
(percent)
----------------------------------------------------------------------------------------------------------------
Additional Labor........................... All installations.................. 100 $69
Closet Door Redesign due to Space 50 of indoor and heated basement 16 344
Constraints. replacement installations.
Tempering Valve Addition due to Space 20 of all replacement installations 16 142
Constraints.
[[Page 65901]]
Condensate Pump............................ 25 of all replacement installations 20 154
Venting Adder **........................... 40 of replacement installations 10 460
with significant cooling load
effects.
Larger Drain Pan........................... All installations.................. 100 2
----------------------------------------------------------------------------------------------------------------
* Labor cost hours from 2008 RS Means; material cost from 2008 RS Means; condensate pump from retailer web
sites; drain pan from 2001 TSD.
** All households experiencing significant cooling load effects in the heating season are either assigned the
venting adder or the extra cost for space heating is included in the energy use calculations.
In summary, for the NOPR analysis, DOE used a distribution of
installation costs for heat pump water heaters ranging from $213 to
$1,918. The estimated average installation cost for a heat pump water
heater (at 2.00 EF), weighted over replacement and new construction
applications, is $446. This compares to average costs of $222 for a
baseline (0.9 EF) electric storage water heater and $282 for a 0.95 EF
electric storage water heater. For further details on DOE's derivation
of installation costs for electric storage water heaters, please see
chapter 8 of the NOPR TSD. DOE requests comments on its analysis of
installation costs for water heaters; it is particularly interested in
comments on its analysis of installation costs for heat pump water
heaters. This is identified as issue 13 under ``Issues on Which DOE
Seeks Comment'' in section VII.E of this NOPR.
Regarding installation of gas-fired instantaneous water heaters,
A.O. Smith questioned whether DOE considered the need for the pressure
relief valve and drain pans that manufacturers and codes require. (A.O.
Smith, No. 37 at p. 6) Noritz stated that gas-fired instantaneous water
heaters that achieve an EF of 0.83 or higher require condensate drains
and some method of treating the condensate so that it can be disposed
of, further adding to the installation cost. (Noritz, No. 36 at pp. 1-
2) For the NOPR analysis, DOE included the cost and installation of a
drain pan and pressure relief valve, as well as a filter for treating
the condensate for units with an EF of 0.83 or higher.
A.O. Smith questioned whether DOE included the cost to replace a
gas line with a larger line when installing gas-fired instantaneous
water heaters in replacement applications. (In some cases the existing
gas line is not adequate to accommodate the higher gas input required
by the instantaneous water heaters.) A.O. Smith also stated that the
analysis should include the costs related to extreme installation
situations for gas-fired instantaneous water heaters, as DOE did for
the costs of adding tempering valves or modifying door jams for
electric storage water heaters. (A.O. Smith, No. 37 at p. 6) In
response, DOE did not include the costs of such measures for gas-fired
instantaneous water heaters, because in those cases where these
measures would be required, the extremely high cost would likely lead
households to purchase a storage water heater instead.
AHRI stated that DOE should reconcile its cost estimates for
installing instantaneous water heaters with the SEGWHAI estimate, which
is at least $200 to $300 more than DOE's estimate. (AHRI, Public
Meeting Transcript, No. 34.4 at p. 168) As noted above, the SEGWHAI
data pertain only to California, where labor costs are higher than the
national average. For the NOPR, DOE used RS Means and installation cost
data to derive region-specific installation costs.
b. Direct Heating Equipment
DOE used the approach in the 1993 TSD to calculate installation
costs for baseline direct heating equipment for its preliminary
analysis, as it believes that the factors affecting DHE installation
are largely unchanged, and more recent data are not available. For gas
wall gravity, floor, and room direct heating equipment, DOE increased
installation costs for designs that require electricity. DOE made this
adjustment for the replacement market only, because wiring is
considered part of the general electrical work in new construction. DOE
did not receive comments on the installation costs for direct heating
equipment, so it maintained the same approach for the NOPR analysis.
For further details on DOE's derivation of installation costs for
direct heating equipment, please see chapter 8 of the NOPR TSD.
c. Pool Heaters
DOE developed installation cost data for the baseline pool heater
in its preliminary analysis using RS Means and information in a
consultant's report. DOE incorporated additional installation costs for
designs involving electronic ignition and/or condensing. DOE did not
receive comments on the installation costs for pool heaters, so it
maintained this earlier approach for the NOPR analysis. For further
details on DOE's derivation of installation costs for pool heaters,
please see chapter 8 of the NOPR TSD.
3. Annual Energy Consumption
DOE determined the annual energy use in the field for the three
types of heating products based on data obtained from RECS. DOE
supplemented this data as required for each heating product, as
discussed below.
a. Water Heaters
DOE calculated the annual energy consumption of water heaters in
the sample households by considering the primary factors that determine
energy use: (1) Hot water use per household; (2) energy efficiency of
the water heater; and (3) operating conditions other than hot water
draws. DOE used a hot water draw model to calculate hot water use for
each household in the sample. The characteristics of each water
heater's energy efficiency were obtained from the engineering analysis.
DOE developed water heater operating conditions (other than hot water
draws) from weather data and other relevant sources. DOE used a
simplified energy equation, the water heater analysis model (WHAM), to
calculate the energy use of water heaters. WHAM accounts for a range of
operating conditions and energy efficiency characteristics. DOE's
approach is explained in further detail in chapter 7 of the NOPR TSD.
To estimate hot water use by each sample household, DOE used a hot
water draw model that accounts for the key factors that determine such
use, such as the number and ages of the people who live in the
household, the way they consume hot water, the
[[Page 65902]]
presence of hot-water-using appliances, the tank size and thermostat
set point of the water heater, and the climate in which the residence
is situated. In general, households with higher hot water use have
water heaters with larger storage volume.
DOE received several comments on hot water use. ACEEE stated that
the hot water draw model is insufficiently supported by field data.
(ACEEE, Public Meeting Transcript, No. 34.4 at p. 178) NEEA and NPCC
stated that DOE should provide more detail on the draw model and
explain how it has been validated and calibrated. (NEEA and NPCC, No.
42 at p. 7) DOE acknowledges that insufficient field data are currently
available to fully validate the draw model. However, Electric Power
Research Institute (EPRI) developed the draw model based on a
nationally representative sample of households. It is DOE's
understanding that this widely-used model, which has been updated
several times to account for changes in household hot water use, is the
most credible tool available for modeling daily hot water use. The draw
model is described in detail in appendix 7-B of this NOPR's TSD, as
well as in the reports referenced in chapter 7 of the TSD.
NEEA and NPCC stated that current estimates of hot water use in the
Pacific Northwest are about 20 percent higher than DOE's estimate of
national-average daily use. (NEEA and NPCC, No. 42 at p. 7) Household
hot water use differs among geographic regions for various reasons.
DOE's analysis for Census Division 9 (which includes the Pacific
Northwest) shows average hot water use by electric water heaters (47.9
gal/day) as being higher than the average national value (41.9 gal/
day). Therefore, DOE believes that the estimates used in its analysis
are reasonable.
EEI stated that DOE should consider the effects on hot water use of
smaller households and the lower hot water use of new dishwashers and
clothes washers, which are installed in both new and existing homes.
(EEI, No. 40 at p. 6) For the NOPR, DOE used the most recent data
available regarding household characteristics (from the 2005 RECS). In
addition, DOE modified the hot water draw model to account for the
impact of the efficiency standards that recently became effective for
dishwashers and clothes washers.
BWC commented that hot water usage for gas-fired instantaneous
water heaters may be different than for storage water heaters, although
it has no evidence to support this idea. (BWC, No. 46 at p. 1) GE and
Noritz stated that they are unaware of any data that support the
assumption that consumers use more hot water with a gas-fired water
heater. (GE, No. 51 at p. 3; Noritz, No. 36 at p. 2) Because DOE found
no usable data showing greater or lesser hot water use for
instantaneous water heaters than for storage water heaters, it
estimated that households use the same volume of hot water with both
types of water heaters.
Commenting on the calculation of energy use, Bock stated that WHAM
does not accurately estimate energy consumption. (Bock, No. 53 at p. 2)
In response, DOE notes that the WHAM equation has been validated
against field data and that the comparison shows that WHAM results
correlate well.
NEEA and NPCC stated that the estimated energy use results could be
verified with sub-metered (i.e., measured) field data. (NEEA and NPCC,
No. 42 at p. 7) DOE found that the sub-metered field data for water
heaters are insufficient to represent the range of national water
heater energy use patterns. Therefore, DOE did not undertake such
verification of its energy use estimates.
AHRI and Bock stated that the estimates of annual energy
consumption for gas- and oil-fired water heaters are about 65 percent
of test procedure usage specifications, whereas for electric water
heaters it is 55 percent. AHRI questioned why the analysis appears to
be using different field use assumptions for electric water heaters.
(AHRI, No. 33 at p. 2; Bock, No. 53 at p. 2) In response, DOE's
analysis used 2005 RECS data to estimate the energy consumption of
water heaters in use by U.S. households. DOE's analysis thereby
incorporates assumptions about operating conditions that are
appropriate for each water heater type. For example, DOE determined
that the average annual ambient temperature is higher for the stock of
electric water heaters than for the stock of gas-fired water heaters.
This difference contributes to the lower average energy use for
electric water heaters.
A.O. Smith stated that the analysis of ambient air temperature
effects does not include water heaters installed in attics in the
South, and that the temperature derivation formulas are not applicable
to attic installations, where solar gain can bring temperatures to
ambient plus 40 [deg]F in summer. (A.O. Smith, No. 37 at pp. 5-6) DOE's
analysis included water heaters installed in attics and accounted for
the range of temperatures found in such locations.
The energy efficiency and consumption of heat pump water heaters
depend on ambient temperature. The equation DOE used to determine the
energy consumption of heat pump water heaters is similar to the WHAM
equation, but it modulates the recovery efficiency by applying a
performance adjustment factor that is a function of the average ambient
temperature. GE stated that because lower ambient temperatures will
affect the performance of both heat pump and storage water heaters, DOE
should use universally applied conditions to compare products. (GE, No.
51 at p. 2) DOE's energy calculations for heat pump and storage water
heaters accounted for the effects of lower ambient temperatures. Heat
pump water heaters are more affected by air temperature because the air
provides the heat to warm the water.
As stated previously, DOE assumed that many households that would
be affected by indoor operation of a heat pump water heater would not
want to incur the cost of a venting system, and would instead operate
their space heating or cooling system to compensate for the effects of
the heat pump water heater. For each such home, DOE estimated the
impact on space heating only during heating months (i.e., when indoor
temperature is at least 10 degrees greater than the average outdoor
temperature), and the impact on air conditioning only during cooling
months (i.e., when indoor temperature is at least 5 degrees less than
the average outdoor temperature). For each affected household in the
electric water heater sub-sample, DOE included such indirect energy use
in its calculation of the energy consumption of a heat pump water
heater.
BWC stated that the assumed rated capacity (Pon) of 500 watts and
cooling capacity of 3,500 Btu/h are not correct for all heat pump water
heaters. (BWC, No. 46 at p. 2) For the preliminary analysis, DOE based
those values on information available in AHRI's 2007 Consumers'
Directory. For the NOPR, DOE created a distribution of values for Pon
and cooling capacity that represent a range of heat pump water heater
designs.
To calculate the energy use of gas-fired instantaneous water
heaters, DOE used the same approach as for storage water heaters,
modified to account for the absence of a tank. For the preliminary
analysis, DOE applied a performance adjustment factor to account for
evidence that the rated energy efficiency of instantaneous water
heaters overstates actual performance, as reported in a study of
instantaneous water heater installations conducted for the California
Energy Commission (CEC). See Davis Energy Group. Measure Information
Template: Tankless Gas Water Heaters (May 18, 2006); http://
[[Page 65903]]
www.energy.ca.gov/title24/2008standards/prerulemaking/documents/2006-
05-18_workshop/2006-05-11_GAS_WATER.PDF. The adjustment factor
effectively increases the calculated energy use of a gas-fired
instantaneous water heater by 8.8 percent.
A.O. Smith noted its strong support for incorporating results from
the CEC study to account for performance drop-off at small draw
volumes. Because it requires 5 to 20 seconds for a gas-fired
instantaneous water heater to heat up, 1 gallon of cold water can be
wasted at the beginning of every water draw. (A.O. Smith, No. 37 at pp.
1, 5) ACEEE, PG&E, SDG&E, SoCal Gas, and AGA also support applying a
performance adjustment. (ACEEE, No. 35 at p. 7; PG&E, SDG&E, and SoCal
Gas, No. 38 at p. 4; AGA, No. 44 at p. 3) BWC expressed support for
applying the 8.8-percent adjustment factor to gas-fired instantaneous
water heaters, noting that its testing indicates that this number may
be a little low. (BWC, No. 46 at p. 1) AHRI disagreed with applying an
8.8-percent factor. AHRI stated that the CEC study obtained its field
data from one two-person household, which does not support a
technically sound analysis. (AHRI, No. 33 at p. 2) Bock, GE, Noritz,
and Rheem agreed. (Bock, No. 53 at p. 2; GE, No. 51 at p. 3; Noritz,
No. 36 at p. 2; Rheem, No. 49 at pp. 6-7)
For the NOPR analysis, the performance adjustment factor DOE
developed to capture the field energy use of gas-fired instantaneous
water heaters is a probability distribution. The factor changes based
on household hot water consumption, rather than on a fixed value that
may represent only a fraction of households. The 8.8-percent adjustment
factor DOE used for the preliminary analysis became the upper value in
the distribution DOE used for the NOPR. The rest of the range was
derived from a Gas Technology Institute (GTI) study that calculated an
energy use reduction (adjustment) factor as a function of the volume of
water gas-fired instantaneous water heaters use daily.
Southern stated that the draws in the hot water draw model should
ideally be shorter for instantaneous water heaters. (Southern, Public
Meeting Transcript, No. 34.4 at p. 194) ACEEE stated that PG&E and
Consumers Union have performed studies on alternative draw patterns for
gas-fired instantaneous water heaters that are more reflective of daily
use. (ACEEE, Public Meeting Transcript, No. 34.4 at pp. 195-196) In
response, DOE's performance adjustment factor accounts for a range of
draw patterns associated with gas-fired instantaneous water heaters.
Accordingly, DOE maintains its existing approach.
b. Direct Heating Equipment
For the preliminary analysis of LCC and PBP, DOE estimated energy
consumption of direct heating equipment in functioning housing units.
To represent actual households likely to purchase and use direct
heating equipment, DOE developed a household sample from the 2001 RECS.
DOE did not receive any comments on its approach for estimating energy
consumption of direct heating equipment. Therefore, for the NOPR, DOE
used the same approach, but it used a household sample drawn from the
2005 RECS.
c. Pool Heaters
For the preliminary analysis of LCC and PBP, DOE estimated energy
consumption of pool heaters at functioning housing units. To represent
actual households likely to purchase and use pool heaters, DOE used a
household sample from the 2001 RECS. For the NOPR, DOE used a household
sample drawn from the 2005 RECS.
AHRI stated that DOE's estimate of the annual energy use of a
typical residential pool heater is overestimated by a factor of two. It
said that DOE's estimated annual energy use of 53.6 MBtu [one thousand
British thermal units] based on an energy use of 250 kBtu/h at 78
percent thermal efficiency (a baseline unit) represents 214 hours of
operation annually. AHRI mentioned a CEC study that determined that gas
pool heaters were used on average 104 hours per year, and it commented
that the LCC should be recalculated based on that value. (AHRI, No. 43
at p. 5)
In response, DOE notes that the CEC study mentioned is based on a
single study conducted in the early 1990s. For the NOPR, DOE did revise
the range of operating hours used its analysis, although it relied on
more recent data than the referenced CEC study. Instead, DOE calculated
the pool heater operating hours using the estimated pool heater heating
load for each sample household from the 2005 RECS. The average hours of
operation in the NOPR analysis is 149 per year, which results in an
annual energy use of 38 MBtu for a 250 kBtu/hr baseline unit operating
at 78 percent thermal efficiency.
d. Rebound Effect
A rebound effect refers to increased energy consumption resulting
from actions that increase energy efficiency and reduce consumer costs.
For its preliminary analysis, DOE searched the literature on the
rebound effect related to the three types of heating products, and also
considered how EIA's NEMS incorporates a rebound effect.
For water heaters, DOE reviewed a summary of studies on the rebound
effect, which concluded that ``technical improvements for residential
hot water heating will be between 60 and 90 percent effective in
reducing energy consumption for this service'' (implying a rebound
effect of 10 to 40 percent). See L.A. Greening, D.L. Greene, C.
Difiglio, Energy Efficiency and Consumption: The Rebound Effect, Energy
Policy, 28(6-7): pp. 389-401. DOE found that NEMS does not incorporate
a rebound factor, however. Balancing these findings from the literature
with the zero rebound effect used in NEMS, DOE decided that a rebound
effect of 10 percent was reasonable for water heaters.
A.O. Smith supported the use of a 10-percent rebound effect for
water heaters. (A.O. Smith, No. 37 at p. 2) It added that there is an
additional rebound effect for gas-fired instantaneous water heaters
because of the promotion of ``unlimited'' or ``endless'' hot water.
(A.O. Smith, No. 37 at p. 7) NEEA and NPCC suggested that DOE ignore
the rebound effect except in the case of the highest candidate standard
levels, as adoption of the lower efficiency levels would not provide
consumers with noticeable savings in energy bills. (NEEA and NPCC, No.
42 at p. 8) ACEEE stated that it does not believe that the peer-
reviewed literature supports assertions of large rebound effects, and
the more conservative approach is to ignore them for these products.
(ACEEE, No. 35 at p. 7)
As stated above, the literature does indicate the presence of a
rebound effect of 10 to 40 percent for water heaters. Given that NEMS
does not incorporate a rebound effect for water heating, and that the
comments received on the preliminary analysis support a rebound effect
of 10 percent or lower, DOE believes that using a value at the lower
end of the range found in the literature (i.e., 10 percent) is
reasonable and has incorporated such an effect in its analyses for this
NOPR.
4. Energy Prices
For the LCC and PBP, DOE derived average energy prices for 13
geographic areas consisting of the nine U.S. Census divisions, with
four large States (New York, Florida, Texas, and California) treated
separately. For Census divisions containing one of these large States,
DOE calculated the regional average excluding the data for the large
State.
[[Page 65904]]
DOE estimated residential electricity prices for each of the 13
geographic areas based on data from EIA Form 861, ``Annual Electric
Power Industry Database,'' and EIA Form 826, ``Monthly Electric Utility
Sales and Revenue Data.'' DOE calculated an average annual regional
residential electricity price by: (1) Estimating an average residential
price for each utility (by dividing the residential revenues by
residential sales); and (2) weighting each utility by the number of
residential consumers served in that region (based on EIA Form 861).
DOE calculated an average monthly regional electricity price by first
calculating monthly prices for each State, and then calculating a
regional price by weighting each State in a region by the number of
consumers in that State using EIA Form 826. For the preliminary TSD,
DOE used EIA data from 2006. The NOPR analysis used the data from 2007.
DOE estimated average residential natural gas prices in each of the
13 geographic areas based on data from EIA's Natural Gas Navigator. See
Energy Information Administration, Natural Gas Navigator, 2009; http://tonto.eia.doe.gov/dnav/ng/ng_pri_sum_dcu_nus_m.htm. DOE calculated
an average natural gas price by first calculating the price for each
State, and then calculating a regional price by weighting each State in
a region by the number of consumers in that State. This method differs
from the method DOE used to calculate electricity prices, because EIA
does not provide utility-level data on gas consumption and prices. For
the preliminary TSD, DOE used EIA data from 2006. For today's proposed
rule, DOE used the data from 2007.
DOE estimated average residential prices for liquefied petroleum
gas (LPG) in each of the 13 geographic areas based on data from EIA's
State Energy Consumption, Price, and Expenditures Estimates. See Energy
Information Administration, 2007 State Energy Consumption, Price, and
Expenditure Estimates (SEDS); http://www.eia.doe.gov/emeu/states/_seds.html. For the preliminary TSD, DOE used data from 2005. For
today's proposed rule, DOE used the data from 2006.
DOE estimated average residential prices for oil in each of the 13
geographic areas based on data from EIA's Petroleum Navigator. See
Energy Information Administration, Petroleum Navigator, December, 2009;
http://tonto.eia.doe.gov/dnav/pet/pet_cons_821dsta_a_EPD0_VAR_Mgal_a.htm. For the preliminary TSD, DOE used data from 2006. For
today's proposed rule, DOE used the data from 2007.
To estimate the trends in energy prices for the preliminary TSD,
DOE used the price forecasts in AEO2008. To arrive at prices in future
years, DOE multiplied current average regional prices by the forecast
of annual average price changes in AEO2008. Because AEO2008 forecasts
prices to 2030, DOE followed past guidelines that EIA provided to the
Federal Emergency Management Program. DOE used the average rate of
change from 2020 to 2030 to estimate the price trend for electricity
after 2030, and the average rate of change from 2015 to 2030 to
estimate the price trend after 2030 for natural gas, LPG, and oil. For
today's proposed rule, DOE used the same approach, but updated its
energy price forecasts using AEO2009. DOE intends to update its energy
price forecasts for the final rule based on the latest available AEO.
In addition, the spreadsheet tools that DOE used to conduct the LCC and
PBP analyses allow users to select price forecasts from either AEO's
high-growth scenario or low-growth scenario to estimate the sensitivity
of the LCC and PBP to different energy price forecasts.
Earthjustice stated that DOE must quantify the effect of a
CO2 emissions cap on energy prices in the LCC analysis.
(Earthjustice, No. 47 at p. 4) DOE believes that it would be
inappropriate to speculate on the form of any Federal carbon control
legislation, and the ensuing impacts on residential energy prices.
Therefore, DOE does not incorporate such impacts into the energy price
forecasts that DOE used for the NOPR analysis.
5. Repair and Maintenance Costs
Repair costs are associated with repairing or replacing components
that have failed in the appliance, whereas maintenance costs are
associated with maintaining the operation of the equipment. Determining
the repair cost involves determining the cost and the service life of
the components that are likely to fail. Discussion of repair and
maintenance costs for the three types of heating products is provided
below, along with a summary of public comments on this topic. For more
information on DOE's development of repair and maintenance cost
estimates, see chapter 8 of the NOPR TSD.
a. Water Heaters
The repair cost for a water heater reflects the cost for a service
call when the product fails. There are four design options considered
for the gas-fired water heater analysis that may encounter repair cost
during the lifetime of the water heater: (1) Pilot ignition; (2)
electronic ignition; (3) power vent; and (4) condensing design. The
energy efficiency levels that include power vent or condensing design
encounter both power vent as well as electronic ignition repair costs.
For each of the above four design options, DOE estimated both an
average cost and the year in which the repair would, on average, be
most likely to occur.
AHRI stated that DOE's analysis of gas-fired water heaters ignored
the introduction of FVIR designs that require maintenance. (AHRI, No.
43 at pp. 1-2) For the NOPR, DOE added a cost for maintaining the FVIR
for all gas-fired storage water heaters.
For the preliminary analysis, DOE determined that there is
virtually no maintenance or repair associated with conventional
electric resistance water heaters. For a heat pump water heater,
maintenance includes annual cleaning of the air filter and a preventive
maintenance cost to check the evaporator and refrigeration system.
Although the literature suggests that no professional help is necessary
for this maintenance, DOE believes there are instances in which such
help is needed. For some locations where the heat pump water heater
might be more exposed to the outdoor environment, such as garages and
crawlspaces, DOE applied a 5-year preventative maintenance cost based
on experience with heat pump water heater outdoor installations in
Australia, which has roughly comparable conditions as much of the
United States. See Rheem Manufacturing Company (Australia), Owners
Guide and Installation Instruction: Air Sourced Heat Pump Water Heater,
2006; http://www.rheem.com.au/images/pdf/owners_heatpump_126524B_0610.pdf. DOE estimated that 27 percent of these exposed installations
would require this maintenance, based on a survey conducted for central
air conditioners, which include heat exchangers that operate similarly
as the evaporator heat exchanger in a heat pump water heater.
ACEEE recommended that DOE use refrigerator maintenance costs for
heat pump water heaters because of similarities in the components and
operation. (ACEEE, No. 35 at p. 6) A.O. Smith stated that the cost for
regular and routine maintenance on heat pump water heaters must be
considered. It added that it is inaccurate to compare a heat pump water
heater to a refrigerator due to the much longer duty cycle on a heat
pump water heater, the slow recovery time, the need for frequent
cleaning, and the scale build-up on the
[[Page 65905]]
water side, which is not an issue with refrigerators. (A.O. Smith, No.
37 at p. 8) GE stated that DOE ascribed inappropriate maintenance costs
to heat pump water heaters, which require no more attention than a
standard room air conditioner. (GE, No. 51 at p. 2)
In response, DOE notes that it based its maintenance costs for heat
pump water heaters on experience in Australia, so it is not necessary
to use another appliance as a proxy. DOE acknowledges that many heat
pump water heaters may require little or no maintenance. However, DOE
believes that because the field experience with heat pump water heaters
is limited, it is reasonable to apply a maintenance cost for some
installations. As described above, DOE applied a 5-year preventative
maintenance cost for 27 percent of the installations in garages and
crawlspaces.
Regarding repair of conventional electric resistance water heaters,
ACEEE stated that data may be available on the number of resistive
elements that need to be replaced. (ACEEE, Public Meeting Transcript,
No. 34.4 at p. 211) Based on this comment, for the NOPR, DOE added a
cost for replacing resistive elements at least once during the lifetime
for one-fourth of installations.
For heat pump water heaters, DOE considered the cost of replacing
the compressor and the evaporator fan and the year in which, on
average, they would be expected to fail. DOE used a lifetime
distribution for the compressor and evaporator fan with an average
lifetime of 19 years. For the majority of households, the compressor
and evaporator fan would likely not fail during the water heater's
lifetime. However, because there is some overlap between the lifetime
distribution used for the compressor and evaporator fan and the
lifetime distribution used for electric water heaters (see below), DOE
included a compressor and evaporator fan repair cost in the appropriate
year for some households. DOE requests comments on its analysis of
repair and maintenance costs for heat pump water heaters. This is
identified as issue 14 under ``Issues on Which DOE Seeks Comment'' in
section VII.E of this NOPR.
Regarding repair costs of gas-fired instantaneous water heaters,
AGA stated that DOE needs to account for incremental design options,
particularly electronic ignition maintenance and replacement. (AGA, No.
44 at p. 4) In its preliminary analysis, DOE already applied a
distribution of costs for electronic ignition repair based on RS Means.
It maintained the same approach for the NOPR analysis.
For the preliminary analysis, DOE applied a maintenance cost for
some gas-fired instantaneous water heaters to address the fouling of
the heat exchanger from hard water, periodic sensor inspections, and
filter changes. A.O. Smith stated that $85 per year is too low for
annual maintenance (de-liming) for gas-fired instantaneous water
heaters. (A.O. Smith, No. 37 at p. 7) In response, for the NOPR, DOE
used a distribution of costs for maintenance of gas-fired instantaneous
water heaters, not a single cost of $85, and also applied no cost for
some installations.
Noritz stated that the basis for including de-liming costs for gas-
fired instantaneous water heaters is clauses in the warranty, which is
standard for all water heaters, so de-liming costs should not be
included only for gas-fired instantaneous water heaters. (Noritz, No.
36 at p. 2) Noritz stated that the necessity for de-liming varies, so
it would be best not to include the cost for any class of water heater,
but if it is included for gas-fired instantaneous water heaters, DOE
should account for the fact that it is not necessary for every
installation. (Noritz, No. 36 at pp. 2-3) DOE agrees that de-liming is
not necessary for every installation, so in the NOPR analysis, it
assigned zero cost to a fraction of households.
For the preliminary analysis, DOE determined that maintenance for
oil-fired water heaters is most frequently performed under annual
maintenance contracts, which typically include repair of failed
components. DOE estimated the average cost of separate maintenance/
repair contracts only for water heaters as $153 per year. This mean
value comes from a collection of annual maintenance contract prices,
which were gathered from web sites that represent oil-fired product
suppliers in the eastern U.S. The same maintenance cost applies to all
energy efficiency levels. DOE did not receive any comments on this
topic, so it maintained the same approach for the NOPR analysis.
Bock stated that DOE did not include the cost of annually flushing
oil-fired storage water heaters. (Bock, No. 53 at p. 2) For the NOPR,
DOE included a cost for flushing the tanks of all storage water
heaters, including oil-fired storage water heaters.
b. Direct Heating Equipment
For the preliminary analysis, DOE determined that maintenance cost
data for gas-fired furnaces provide a reasonable approximation of
maintenance costs for DHE because of the similarity in design and
operation. DOE derived the costs from a field survey sponsored by
several gas utilities that estimated the average total service charge
(parts, labor, and other charges). See Jakob, F. E., et al., Assessment
of Technology for Improving the Efficiency of Residential Gas Furnaces
and Boilers, 1994. Gas Research Institute. Chicago, IL. Report No. GRI-
94/0175. DOE used a maintenance frequency of once every 5 years for all
direct heating equipment.
DOE determined the repair costs for DHE using an approach that
reflects the cost and the service life of the components that are
likely to fail. The non-condensing designs DOE considered that may
encounter repair costs during the lifetime of the product include pilot
ignition, electronic ignition, circulating blower, and induced draft.
The repair cost of the condensing design includes electronic ignition,
circulation blower, and induced draft components. DOE did not receive
comments on maintenance and repair costs for DHE, so it continued to
use the existing approach for its NOPR analysis.
c. Pool Heaters
For the preliminary analysis, DOE determined that most pool owners
do not perform any pool heater maintenance except when the heater does
not come on. In such situations, the maintenance work includes checking
controls, cleaning burners, cleaning the heat exchanger, starting the
heater, and measuring water temperature rise. DOE used an average cost
of $351. For units employing power vent and condensing design options,
maintenance also includes measuring combustion differential pressure.
For these units, DOE used an average cost of $491 and estimated that
the maintenance occurs on average in the fifth year of the pool heater
lifetime. Raypak stated that pool heaters need maintenance more than
every 5 years due to outdoor installation. (Raypak, Public Meeting
Transcript, No. 34.4 at p. 215) DOE applied a distribution ranging from
3 to 6 years for pool heater maintenance. Thus, some applications would
receive maintenance more than once every 5 years.
Pool heater design options that may encounter repair cost during
the lifetime of the pool heater include pilot ignition, electronic
ignition, and power vents. For each of these, DOE estimated the average
repair cost and when in the product lifetime such repair would be
likely to occur. DOE continued to use the above approach for the NOPR
analysis.
[[Page 65906]]
6. Product Lifetime
For the preliminary analysis, DOE used a variety of sources to
establish minimum, average, and maximum values for the lifetime of each
of the three types of heating products. For each product class, DOE
characterized the product lifetime using a Weibull probability
distribution that ranged from minimum to maximum lifetime estimates.
See chapter 8 of the NOPR TSD for further details on the sources DOE
used to develop product lifetimes.
For the preliminary TSD, DOE chose average lifetimes for gas-fired
and electric storage water heaters based on the values in the middle of
each range: 12 years for gas units and 14 years for electric units. In
the NOPR analysis, DOE found that applying the above values to historic
shipments resulted in estimates of the stock of gas-fired and electric
storage water heaters that did not match the data on the stock reported
in the Census Bureau's 2007 American Housing Survey (AHS), which covers
all housing units in the United States. The estimated stock is too
small for gas-fired water heaters and too large for electric water
heaters. Using an average lifetime of 13 years for both gas-fired and
electric storage water heaters produces stock estimates for 2007 that
are close to the stock numbers from the AHS. Furthermore, several
sources report a lifetime of 13 years. (See chapter 8 of the NOPR TSD.)
Therefore, DOE used an average lifetime of 13 years for both gas-fired
and electric storage water heaters in its NOPR analysis.
DOE evaluated whether electric heat pump water heaters have a
different lifetime from the baseline products. An accelerated
durability test of heat pump water heaters conducted by Oak Ridge
National Laboratory suggests that these units have similar lifetime as
standard electric resistance storage water heaters. Therefore, DOE used
the same lifetime for all efficiency levels considered for this product
class.
For gas-fired instantaneous water heaters, DOE used a distribution
with 20 years as the average lifetime for these units in its
preliminary analysis. A.O. Smith stated that a 20-year lifetime for
gas-fired instantaneous water heaters is too long, and there is not
adequate data to backup this claim. (A.O. Smith, No. 37 at p. 2) BWC
stated that DOE's average lifetime for gas-fired instantaneous water
heaters is derived from manufacturer literature and it suggested that
DOE instead use an independent source for this information. (BWC, No.
46 at p. 2) DOE is not aware of and the commenters did not provide any
other source of data on the lifetime of gas-fired instantaneous water
heaters, so it used the same distribution as in the preliminary
analysis.
For oil-fired storage water heaters, DOE used 9 years as the
average lifetime. Bock stated that oil-fired storage water heaters
should have the same lifetime as gas-fired storage water heaters
because they are identical in material, construction, volume, and
storage temperature. (Bock, No. 53 at p. 2) For the NOPR analysis, DOE
used the same lifetime for oil-fired storage water heaters as for gas-
fired storage water heaters (i.e., 13 years).
For direct heating equipment, DOE used the average, minimum, and
maximum lifetime values from its 1993 TSD for direct heating equipment
because it did not find more recent representative data. The average
lifetime DOE used for each of the product classes was 15 years. DOE did
not receive any comments on DHE lifetime, so it continued to use the
above values for the NOPR.
For pool heaters, DOE used 8 years as an average lifetime based on
the available data. DOE did not receive any comments on pool heater
lifetime, so it continued to use the above value for the NOPR.
7. Discount Rates
To establish discount rates for the heating products in the
preliminary analysis, DOE derived estimates of the finance cost of
purchasing these appliances. Because the purchase of equipment for new
homes entails different costs for consumers than the purchase of
replacement equipment, DOE used different discount rates for new
construction and replacement. See chapter 8 of this NOPR's TSD for
further details on the development of discount rates for heating
products.
DOE estimated discount rates for appliance purchases in new housing
using the effective real mortgage rate for homebuyers, which accounts
for deducting mortgage interest for income tax purposes, and an
adjustment for inflation. DOE developed a distribution of mortgage
interest rates using data from the Federal Reserve Board's ``Survey of
Consumer Finances'' (SCF) for 1989, 1992, 1995, 1998, 2001, and 2004.
For today's NOPR, DOE added data from the 2007 SCF. Because the
mortgage rates carried by households in these years were established
over a range of time, DOE believes they are representative of rates
that may apply when amended standards take effect. The effective real
interest rates on mortgages across the six surveys averaged 3.0
percent.
DOE's approach for deriving discount rates for replacement
purchases involved identifying all possible debt or asset classes that
might be used to purchase replacement products, including household
assets that might be affected indirectly. DOE used data from the
surveys mentioned above to estimate the average percentages of the
various debt and equity classes in the average U.S. household
portfolios. DOE used SCF data and other sources to develop
distributions of interest or return rates associated with each type of
equity and debt. For today's NOPR, DOE added data from the 2007 SCF.
The average rate across all types of household debt and equity,
weighted by the shares of each class, is 4.8 percent.
8. Compliance Date of the Amended Standards
In the context of EPCA, the compliance date is the future date when
parties subject to the requirements of a new standard must begin to
comply. As described in DOE's semi-annual implementation report for
energy conservation standards activities submitted to Congress pursuant
to section 141 of EPACT 2005, a final rule for the three types of
heating products that are the subject of this rulemaking is scheduled
to be completed by March 2010. Compliance with amended energy
efficiency standards for direct heating equipment and pool heaters is
required three years after the final rule is published in the Federal
Register (in 2013); compliance with amended standards for water heaters
is required five years after the final rule is published (in 2015). DOE
calculated the LCC for the three types of heating products as if
consumers would purchase new products in the year compliance with the
standard is required.
Earthjustice stated that DOE assumes a 5-year lead time to be
consistent with the requirements in 42 U.S.C. 6295(e)(4)(B), which
requires that DOE ``publish a final rule no later than January 1, 2000
to determine whether standards in effect * * * should be amended,'' and
that ``any such amendment shall apply to products manufactured on or
after January 1, 2005.'' The commenter stated that this assumption is
contrary to the structure and purpose of the statute. It also declared
that there is no statutory language to deal with the current situation,
which involves determining a compliance date for a standard that DOE
was required to adopt nearly 10 years ago. Earthjustice stated that the
required publication date and compliance dates have passed, and that it
is unreasonable
[[Page 65907]]
to apply the 5-year lead time specified in 42 U.S.C. 6295(e)(4)(B).
(Earthjustice, No. 47 at p. 5) ASAP stated that DOE's compliance date
of 2015 is arbitrary because the law states that compliance with the
standard is required by 2005. ASAP stated that DOE is obligated to use
time as a variable and look at a range of implementation dates for all
of the standard levels to determine the standard that would best meet
the statutory criteria. ASAP suggested that DOE analyze a range of
compliance dates from 18 months to 8 years after publication of the
final rule. (ASAP, Public Meeting Transcript, No. 34.4 at pp. 57-58)
AHRI stated that DOE is obligated to allow five years between the final
rule and the compliance date for the requirements for water heater
products. (AHRI, Public Meeting Transcript, No. 34.4 at pp. 60-61)
In response, DOE notes that the language in 42 U.S.C. 6295(e)(4)
specifically states that amended standards, if any, shall apply to
products manufactured on or after the 36-month period beginning on the
date such a final rule is published for the first iteration of
rulemaking and on or after the 60-month period beginning on the date
such a final rule is published for the second iteration of rulemaking.
(42 U.S.C. 6295(e)(4)(A)-(B)) The language of 42 U.S.C. 6295(e)(4)(B)
anticipates that a standard will be in place for covered water heaters
that are manufactured precisely five years after publication of the
final rule and prospectively thereafter. DOE believes that the time
differential, as specified in EPCA, between the publication of the
final rule and the compliance deadline reflects Congress's judgment as
to what constitutes adequate lead time.
9. Product Energy Efficiency in the Base Case
To accurately estimate the percentage of consumers who would be
affected by a particular standard level, DOE's analysis considered the
projected distribution of product efficiencies that consumers purchase
under the base case (i.e., the case without new energy efficiency
standards). DOE refers to this distribution as a base-case efficiency
distribution. Using the projected distribution of product efficiencies
for each heating product, DOE randomly assigned a specific product
efficiency to each sample household. If a household was assigned a
product efficiency greater than or equal to the efficiency of the
standard level under consideration, the LCC calculation shows that this
household is not affected by that standard level. Each of the three
types of heating products is addressed below, including relevant public
comments and DOE's response. For further information on DOE's
estimation of base-case market shares, see chapter 8 of the NOPR TSD.
a. Water Heaters
In its preliminary analysis, DOE estimated the base-case market
shares of various energy efficiency levels for water heaters in the
effective year. DOE began with data on shipments for 2002-2006 from
AHRI, supplemented with data on the number of water heater models at
different energy efficiency levels reported in AHRI directories and the
Federal Trade Commission directory. (See chapter 8 of the NOPR TSD for
citations for these data sources.) For gas-fired and electric storage
water heaters, DOE then estimated the future market impact of the
ENERGY STAR program. Effective in 2010, the minimum efficiency for the
ENERGY STAR designation will be 0.67 EF for non-condensing gas-fired
storage water heaters, 0.80 EF for condensing gas-fired storage water
heaters, and 2.0 EF for heat pump water heaters. To estimate the base-
case market shares of these products, DOE considered the market
penetration goals set by the ENERGY STAR program.
For gas-fired instantaneous water heaters, DOE estimated that the
base-case market shares in 2015 would be equivalent to current shares.
In the case of this product, the majority of the market (approximately
85 percent of shipments) is already at the ENERGY STAR level, so there
is limited room for the shares of ENERGY STAR products to increase in
the near future. For oil-fired storage water heaters, DOE also
estimated that the market shares in 2015 would be equivalent to current
shares, as there has been little change in the past decade.
Southern and EEI stated that the 5-percent market share DOE
projected for heat pump water heaters under the base case seems too
high. (Southern, Public Meeting Transcript, No. 34.4 at p. 186; EEI,
No. 40 at p. 5) GE stated that based on the expansion of the market for
front-loading clothes washers, which was a new higher-efficiency
product in the U.S. market with higher first cost but much lower
operating costs, the predicted 5-percent market share for heat pump
water heaters is not unreasonable. (GE, Public Meeting Transcript, No.
34.4 at pp. 188-189) In response, DOE notes that, consistent with
manufacturer predictions, heat pump water heaters entered the mass
market in 2009. Given the high level of interest in promoting ENERGY
STAR-qualified appliances, DOE believes that its projection was
reasonable, and it used the same market share for the NOPR analysis.
For oil-fired storage water heaters, Bock stated that the market
shares for Efficiency Level 5 and 6 are much higher than indicated in
the preliminary TSD. (Bock, No. 34.4 at pp. 187-188) For the NOPR, DOE
updated its base-case efficiency distribution to reflect data from the
March 2009 AHRI directory of certified products, which resulted in a
higher market share at levels 5 and 6.
DOE's projected base-case energy efficiency market shares are shown
in Table IV.28. These market shares represent the products that
households would purchase in 2015 in the absence of revised energy
conservation standards.
Table IV.28--Water Heaters: Base-Case Energy Efficiency Market Shares
--------------------------------------------------------------------------------------------------------------------------------------------------------
Gas storage Electric storage Oil storage Gas-fired instantaneous
--------------------------------------------------------------------------------------------------------------------------------------------------------
Market Market Market Market
EF share (%) EF share (%) EF share (%) EF share (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
0.59.............................. 87.2 0.90................ 36.2 0.53................ 22.2 0.62................ 0.3
0.62.............................. 3.0 0.91................ 25.6 0.54................ 0.0 0.69................ 1.8
0.63.............................. 0.9 0.92................ 8.7 0.56................ 0.0 0.78................ 1.0
0.64.............................. 1.2 0.93................ 19.5 0.58................ 0.0 0.80................ 12.2
0.65.............................. 1.4 0.94................ 2.5 0.60................ 11.1 0.82................ 62.9
0.67.............................. 5.3 0.95................ 2.5 0.62................ 16.7 0.84................ 2.8
0.80.............................. 1.0 2.0................. 4.0 0.66................ 40.0 0.85................ 3.8
2.2................. 1.0 0.68................ 10.0 0.92................ 9.5
[[Page 65908]]
0.95................ 5.7
------------- ------------- ------------- ------------
100 100 100 100
--------------------------------------------------------------------------------------------------------------------------------------------------------
b. DHE
Little is known about the efficiency distribution of direct heating
equipment that consumers in the United States currently purchase. For
the preliminary analysis, DOE estimated the market shares of different
energy efficiency levels within each product class in the base case
using data in the March 2007 GAMA directory. DOE did not receive any
comments on its estimation of base-case market shares for DHE. It
employed the same approach for its NOPR analysis, but used more recent
GAMA data on the number of models at different energy efficiency
levels. See Gas Appliance Manufacturers Association, Consumer's
Directory of Certified Efficiency Ratings for Heating and Water Heating
Equipment (March 2008); http://www.gamanet.org/gama/inforesources.nsf/vAllDocs/Product+Directories?OpenDocument.
c. Pool Heaters
No shipments data are available on the distribution of gas-fired
pool heaters by energy efficiency level. For the preliminary TSD, DOE
estimated the market shares of different energy efficiency levels in
the base-case by using data from the FTC on the number of gas-fired
pool heater models at different energy efficiency levels as a proxy for
shipments. DOE did not receive any comments on its estimation of base-
case market shares for pool heaters. It employed the same approach for
the NOPR analysis, but used more recent FTC data on the numbers of
models at various energy efficiency levels.
10. Inputs to Payback Period Analysis
The payback period is the amount of time it takes the consumer to
recover the additional installed cost of more-efficient products,
compared to baseline products, through energy cost savings. The simple
payback period does not account for changes in operating expense over
time or the time value of money. Payback periods are expressed in
years. Payback periods that exceed the life of the product mean that
the increased total installed cost is not recovered in reduced
operating expenses.
The inputs to the PBP calculation are the total installed cost of
the equipment to the customer for each efficiency level and the annual
(first-year) operating expenditures for each efficiency level. The PBP
calculation uses the same inputs as the LCC analysis, except that
energy price trends and discount rates are not needed.
NEEA and NPCC stated that that they are concerned about how the
payback period was calculated for efficiency level 3 for gas-fired
instantaneous water heaters (0.80 EF) because of the lengthy payback
period. (NEEA & NPCC, No. 42 at p. 2) In response, DOE notes that
almost the entire market is at CSL 3 or higher. Therefore, the PBP that
DOE calculated applies only to the very few households that would be
affected by a standard at this level. There is a significant cost
differential in going from CSL 1 and 2 to CSL 3, which leads to very
high PBPs for the affected households.
11. Rebuttable-Presumption Payback Period
The PBP analysis helps to determine whether the 3-year rebuttable
presumption of economic justification applies--that is, whether the
purchaser will recover the higher installed cost of more-efficient
equipment through lowered operating costs within 3 years. (42 U.S.C.
6295(o)(2)(B)(iii)) For each efficiency level it considered, DOE
determined the value of the first year's energy savings by calculating
the quantity of those savings in accordance with DOE's test procedure,
and multiplying that amount by the average energy price forecast for
the year in which a new standard is expected to take effect. Section
V.B.1.c of this notice and chapter 8 of the NOPR TSD present the
rebuttable presumption PBP results.
Earthjustice stated the DOE must justify any refusal to adopt
standard levels at least as strong as those that satisfy the rebuttable
presumption payback period. (Earthjustice, No. 47 at p. 3) The LCC and
PBP analyses generate values that calculate the payback period for
consumers of potential energy conservation standards; these include,
but are not limited to, the 3-year payback period contemplated under
the rebuttable presumption test discussed above. However, DOE routinely
conducts an economic analysis that considers the full range of impacts,
including those to the consumer, manufacturer, Nation, and environment,
as required under 42 U.S.C. 6295(o)(2)(B)(i) and 42 U.S.C. 6316(e)(1)).
The results of this analysis serve as the basis for DOE to definitively
evaluate the economic justification for a potential standard level,
thereby supporting or rebutting the results of any preliminary
determination of economic justification.
F. National Impact Analysis--National Energy Savings and Net Present
Value Analysis
The national impact analysis assesses the national energy savings
and the net present national impact analysis assesses the national
energy savings and the net present value of total product costs and
savings expected to result from standards at specific efficiency
levels. DOE used the NIA spreadsheet to calculate energy savings and
NPV, using the annual energy consumption and total installed cost data
from the LCC analysis. DOE forecasted the energy savings, energy cost
savings, product costs, and NPV for each product class from 2013 (or
2015) through 2043 (or 2045). The forecasts provided annual and
cumulative values for the above output parameters. In addition, DOE
used its NIA spreadsheet to analyze scenarios that used inputs from the
AEO2009 Low Economic Growth and High Economic Growth cases. These cases
have higher and lower energy price trends compared to the Reference
case, as well as higher and lower housing starts, which result in
higher and lower appliance shipments to new homes.
Earthjustice stated that DOE needs to consider the impact of
increased employment and reduced emissions in its national impact
analysis. (Earthjustice, No. 47 at p. 1) NRDC stated that DOE failed to
include the benefits of avoided carbon emissions in
[[Page 65909]]
the NIA. (NRDC, No. 48 at p. 5) In response, DOE accounts for the
impacts on employment in the employment impact analysis (section IV.I),
and it quantifies avoided carbon emissions in the environmental
assessment (section IV.K).The NIA primarily considers the national
energy savings and the NPV from a national perspective of total
appliance consumer costs and savings expected to result from standards,
and it also evaluates the benefits to the economy of reduced energy
prices due to standards. Even though employment and reduced emissions
are separately addressed outside the NIA, DOE thoroughly considers
these issues when conducting its analyses in the context of standard
setting.
Table IV.29 summarizes the approach and data DOE used to derive the
inputs to the NES and NPV analyses for the preliminary analysis and the
changes to the analyses for the proposed rule. A discussion of these
inputs and changes follows. See chapter 10 of the NOPR TSD for further
details.
Table IV.29--Approach and Data Used for National Energy Savings and
Consumer Net Present Value Analyses
------------------------------------------------------------------------
Changes for the
Inputs Preliminary TSD proposed rule
------------------------------------------------------------------------
Shipments................... Annual shipments See IV.F.1.a through
from shipments IV.F.1.d.
model.
Compliance Date of Standard. Water Heaters: 2015. No change.
DHE and Pool
Heaters: 2013.
Base-Case Forecasted Efficiency market No change in
Efficiencies. shares estimated approach; updated
for compliance efficiency market
year. SWEF * shares estimated
remains constant for compliance
except for gas and year.
electric water
heaters, for which
SWEF increases
slightly over
forecast period.
Standards-Case Forecasted ``Roll-up'' No change in
Efficiencies. scenario used for approach; updated
determining SWEF in efficiency market
2013 (or 2015) for shares estimated
each standards for compliance
case. SWEF remains year.
constant except for
gas and electric
water heaters, for
which SWEF
increases slightly
over forecast
period.
Annual Energy Consumption Annual weighted- No change.
per Unit. average values as a
function of SWEF.
Rebound Effect.............. Water heaters: 10%. No change.
DHE: 15%. Pool
Heaters: 10%.
Total Installed Cost per Annual weighted- No change.
Unit. average values as a
function of SWEF.
Energy Cost per Unit........ Annual weighted- No change.
average values as a
function of the
annual energy
consumption per
unit and energy
(and water) prices.
Repair Cost and Maintenance Annual values are a No change.
Cost per Unit. function of
efficiency level.
Escalation of Energy Prices. AEO2008 forecasts Updated using
(to 2030) and AEO2009 forecasts.
extrapolation to
2043 (and 2045).
Energy Site-to-Source Varies yearly and is No change.
Conversion Factor. generated by DOE/
EIA's NEMS.
Discount Rate............... Three and seven No change.
percent real.
Present Year................ Future expenses are Future expenses are
discounted to 2007. discounted to 2010,
when the final rule
will be published.
------------------------------------------------------------------------
* Shipments-Weighted Energy Factor.
1. Shipments
The shipments portion of the NIA spreadsheet is a model that uses
historical data as a basis for projecting future shipments of the
appliance products that are the subject of this rulemaking. In
projecting shipments for water heaters and pool heaters, DOE accounted
for two market segments: (1) New construction and (2) replacement of
failed equipment. Data were unavailable to develop separate forecasts
of direct heating equipment shipments for replacement and new home
installations, so the forecast was based on the time series of
historical total shipments developed for each product class.
Table IV.30 summarizes the approach and data DOE used to derive the
inputs to the shipments analysis for the preliminary analysis, and the
changes DOE made for today's proposed rule. A discussion of these
inputs and changes follows. For details on the shipments analysis, see
chapter 9 of the NOPR TSD.
Table IV.30--Approach and Data Used for the Shipments Analysis
------------------------------------------------------------------------
Changes for the
Inputs Preliminary analysis proposed rule
------------------------------------------------------------------------
Historical Shipments........ Water Heaters: Data Water Heaters: Used
provided by AHRI. updated data from
AHRI.
DHE: Data provided DHE: Used data from
by AHRI and DOE manufacturers and
estimates. HPBA * for hearth
products.
Pool Heaters: Data Pool Heaters: Used
from 1993 TSD and inputs from
DOE estimates. manufacturers.
New Construction Shipments.. For water heaters No change in
and pool heaters, approach. New
determined by housing forecast
multiplying housing updated with
forecasts by AEO2009
forecasted projections.
saturation of
products in new
housing.
[[Page 65910]]
Housing forecasts ....................
based on AEO2008
projections.
New housing product ....................
saturations based
on AHS for water
heaters, consultant
data for pool
heaters.
Replacements................ For water heaters No change for water
and pool heaters, heaters. For pool
determined by heaters, included
tracking total estimated non-
product stock by replacement of some
vintage and pool heaters.
establishing the
failure of the
stock using
retirement
functions from the
LCC and PBP
analysis.
First-Time Owners........... Included for pool No change.
heaters.
------------------------------------------------------------------------
* Hearth, Patio & Barbecue Association.
To determine new construction shipments, DOE used forecasts of
housing starts coupled with estimates of product market saturation in
new housing. For the preliminary analysis, DOE used actual data for
2007 for new housing completions and mobile home placements and adopted
the projections from AEO2008 for 2008 to 2030. DOE updated its new
housing projections for today's proposed rule using AEO2009. DOE
estimated replacements using historical shipments data and product
retirement functions that it developed from product lifetimes.
AHRI stated that shipments for all of the products dropped
considerably in 2008, and this drop will change the forecast since
today's new house installation is tomorrow's replacement installation.
(AHRI, No. 33 at p. 2) In response, DOE's NOPR analysis used actual
shipments data for 2008, so any such changes are captured in DOE's
analysis.
a. Water Heaters
For the preliminary analysis, DOE used information on choice of
water heater products in recently-built housing to estimate shipments
to the new construction market. DOE assumed the market shares of water
heaters using a particular fuel follow the average pattern in new homes
for 2000 to 2006 throughout the forecast period. The shipments model
assumes that when a unit using a particular fuel is retired, it
generally is replaced with a unit that uses the same fuel. Section
IV.F.1.d discusses the potential effects of energy conservation
standards on choice of water heater product in the new construction and
replacement markets.
For its shipments forecast for gas-fired storage water heaters and
electric storage water heaters, DOE assumed that the current market
shares of small-volume and large-volume products would remain the same
throughout the forecast period.
Within the category of gas-fired water heaters, DOE disaggregated
the shares of gas storage water heaters and gas-fired instantaneous
water heaters based on projections of total shipments of gas-fired
instantaneous water heaters. Because there is much uncertainty about
the future growth of gas-fired instantaneous water heaters, DOE modeled
three scenarios for their market penetration. The scenarios are based
on experience with gas-fired instantaneous water heaters in Australia,
where the proportion of instantaneous water heaters in total gas-fired
storage water heater shipments has grown considerably in the past
decade. (See Syneca Consulting, Cost-Benefit Analysis: Proposal to
Introduce a Minimum Energy Performance Standard for Gas Water Heaters,
2007, Australian Greenhouse Office: Equipment Energy Efficiency Gas
Committee.) Residential water heating services and technology in
Australia are roughly comparable to those in the United States. Storage
water heaters have somewhat lower volume capacities in Australia, but
end-use hot water demand also may be lower. Prices of gas-fired
instantaneous water heaters in Australia are roughly comparable to
prices of gas-fired storage water heaters (excluding installation
costs). In the United States, gas-fired instantaneous water heaters
currently cost about twice as much as typical 40-gallon gas storage
water heaters. Although the price differential in the United States
likely will decrease, the specifics of the United States market
probably will not duplicate the market in Australia. Nonetheless, DOE
believes that the market evolution in Australia provides the most
similar model for scenarios for the United States.
AHRI stated that the Australian water heater market has significant
differences from the U.S. market because in Australia: (1) Gas water
heaters are not the prevalent residential option; (2) many gas water
heaters are installed outside; and (3) prices of gas storage water
heaters and gas-fired instantaneous water heaters are practically
equal. (AHRI, No. 43 at p. 2) Rheem stated that in Australia, most
water heaters are installed outdoors, which makes a difference in terms
of the venting and total installation cost. (Rheem, Public Meeting
Transcript, No. 34.4 at p. 241) A.O. Smith commented that the scenario
for low market penetration of gas-fired instantaneous water heaters may
be reasonable, but the other two scenarios over-predict the market
penetration. (A.O. Smith, No. 37 at p. 7) Noritz stated that Australia
is the only market it has identified that could provide any insight
into the adoption of gas-fired instantaneous water heaters in the
United States. (Noritz, No. 36 at p. 3)
In response, DOE acknowledges the uncertainty associated with
basing forecasted market penetration of gas-fired instantaneous water
heaters on the Australian experience, but it agrees with Noritz (the
largest manufacturer of these products) that there is no other market
that could provide a model for forecasting U.S. market penetration. In
making use of the Australian experience, DOE took into account some of
the differences between the two markets that would tend to cause
shipments growth to be lower in the U.S. For further details on the
shipments forecast for gas-fired instantaneous water heaters, see
chapter 9 of the NOPR TSD.
b. Direct Heating Equipment
To estimate historical shipments of direct heating equipment for
the preliminary analysis, DOE used two sets of data from AHRI and
information from the 1993 TSD. Data were unavailable to develop
separate forecasts of direct heating equipment shipments for
replacement and new home installations, so DOE based the forecast on
the time series of historical total shipments developed for each
product class. To forecast shipments of gas room DHE, shipments of room
heaters were held constant at the average level from
[[Page 65911]]
2002 to 2005, and gas fireplace shipments (referred to as hearth
products DHE in this NOPR) assigned to gas room DHE were held constant
at the average from 2002 to 2004. Forecasted floor furnaces shipments
follow the downward trend from 2000 to 2007. Total combined shipments
of gas wall gravity and gas wall fan DHE were held constant at the
average volume from 2002 to 2006. The upward trend seen from 2002 to
2006 was extrapolated into the future for gas wall fan DHE. DOE derived
future shipments of gas wall gravity DHE based on the combined
shipments of gas wall gravity and gas wall fan DHE and the forecast
shipments for the latter. Shipments of gas fireplaces assigned to gas
wall fan DHE were kept constant at the average from 2002 to 2004.
Commenting on DOE's forecast, HPBA stated that gas fireplace
shipments will likely decrease as opposed to staying level. (HPBA,
Public Meeting Transcript, No. 34.4 at p. 258) Apart from a decrease
due to the 2008-2009 economic recession, DOE is not aware of reasons
why gas fireplace (hearth products) shipments would be expected to
decrease, given that the number of U.S. households will continue to
increase. However, based on its review of market information, DOE
modified its forecast of gas hearth products shipments. The forecast
used for the NOPR accounts for the sharp decline in shipments in 2007-
2008, but assumes that shipments in the future will approximately
follow the trend seen in 1998-2007.
In addition, DOE modified its forecast of gas wall gravity and gas
wall fan DHE to better reflect current information. Instead of having
different trends for each of these product classes, as in the
preliminary analysis, DOE assumed that shipments of each class would
stay constant at the 2008 level during the forecast period.
c. Pool Heaters
To forecast pool heater shipments for new construction for the
preliminary analysis, DOE multiplied the annual housing starts
forecasted for single-family and multi-family housing by the estimated
saturation of gas-fired pool heaters in recently built new housing. For
replacement pool heaters, DOE used a survival function based on its
distribution of product lifetimes to determine when a unit fails. DOE
also introduced a market segment representing purchases by existing
households that had not owned a pool heater. These first-time owners
include existing households that have a pool and those that install
one.
In the preliminary analysis, DOE's projected that pool heater
shipments would grow significantly from 0.28 million in 2006 to over
0.7 million by 2040. Raypak stated that the slope of the shipments
forecast for pool heaters should be consistent with the past 10 years
of data, which show that the slope is either constant or decreasing due
to economic reasons. It also stated that pool heater new construction
shipments are declining because of lot size issues and other
restrictions. (Raypak, No. 34.4 at p. 247) EEI stated that projected
pool heater shipments are overstated and that DOE should obtain more
recent numbers to develop more realistic projections for shipments.
(EEI, No. 40 at pp. 5-6) In response, DOE revised the NOPR analysis to
account for those households that are not likely to replace their pool
heater when it fails due to cost. As a result, the shipments projection
shows only modest growth over the analysis period.
d. Impacts of Standards on Shipments
In some of its energy conservation standard rulemakings, DOE has
used elasticities to estimate the response of appliance demand
(shipments) to changes in the installed cost and operating costs
associated with more-efficient appliances. Typically, higher installed
costs of more-efficient appliances are projected to cause some
consumers to forego purchase of a new product.
In the case of water heaters, however, DOE believes that this
approach would not be appropriate because the consumer (or home
builder) decision is usually not whether to purchase the product or
not, but rather what type of water heater to buy. A water heater is
generally not a discretionary purchase. However, to the extent that
energy conservation standards result in an increase in the price of a
specific type of water heater compared to a competing product, some
consumers (or home builders in the case of shipments for new
construction) may purchase the competing product. The consumer or
builder decision is not solely based on economic factors, as the
availability of natural gas plays a key role. Evaluation of this
decision requires an assessment of the specific factors that influence
it in the context of the two main markets for water heaters,
replacements and new homes.
In the preliminary analysis, DOE determined that the greatest
potential for product switching would exist in the case of a standard
that effectively required an electric heat pump water heater. This type
of product often has a substantially higher installed cost than a
typical electric resistance storage water heater and is relatively new
to consumers and builders. Because the product choice decision
partially depends on the relative costs of competing products, DOE
considered the following potential combinations of electric and gas-
fired storage water heaters that could result from standards: (1)
Electric heat pump water heater and a gas-fired storage water heater
using natural draft; (2) electric heat pump water heater and a gas-
fired storage water heater using a power vent; and (3) electric heat
pump water heater and a gas-fired storage water heater using condensing
technology. DOE used data from the 2001 RECS to estimate the percentage
of households expected to purchase an electric water heater in the base
case that could switch to a gas-fired water heater because they had the
necessary infrastructure. To estimate how many households that could
switch to gas-fired water heaters would do so, DOE considered the
difference in installed cost between the gas-fired storage water heater
and an electric heat pump water heater in each of the combinations
listed above.
DOE did not quantify the potential for switching to gas water
heating in the case of a standard that requires 0.95 EF for electric
water heaters, as the installed cost is only moderately higher than the
baseline electric water heater (0.90 EF), and DOE judged that this
would not be sufficient to prompt consumers to consider switching to
gas water heating.
ACEEE stated that because builders make the choices that lock in
subsequent energy source decisions at the time of construction,
converting to a different energy source for water heating is too
costly. However, it added that a few consumers in existing houses would
choose gas conversion over installing a heat pump water heater. (ACEEE,
No. 35 at pp. 6-7) NEEA and NPCC commented that most water heater
replacements are on an emergency basis and that there is no convincing
argument to include fuel switching in the analysis. (NEEA and NPCC, No.
42 at p. 9)
DOE agrees with the comment from ACEEE but it also notes that not
all water heater replacements are on an emergency basis. DOE believes
that the cost differential estimated in its analysis suggests that a
small fraction of consumers would be likely to switch. For the NOPR,
DOE used a similar approach as for the preliminary analysis using data
from the 2005 RECS.
Southern stated that many consumers would switch to a gas-fired
storage water heater instead of installing a heat
[[Page 65912]]
pump water heater even if the installed cost is more, especially if the
heat pump water heater would need to be installed in an enclosed
interior location. (Southern, No. 50 at p. 4) DOE's approach took
detailed account of those situations in which consumers with a failed
electric storage water heater would find it less expensive to switch to
a gas-fired storage water heater instead of installing a heat pump
water heater. In determining which households would switch to a gas-
fired storage water heater, the analysis considered the installed costs
that consumers might incur if they replaced an electric storage water
heater located indoors with a heat pump water heater. (Refer to the
discussion of installation costs for heat pump water heaters in section
IV.E.2.a.) Given that an interior location may not easily allow the
venting required with installing a gas-fired storage water heater, DOE
does not believe consumers would switch to a gas-fired storage water
heater instead of installing a heat pump water heater if the installed
cost of the gas-fired product is higher.
In the NOPR analysis, the fraction of households using an electric
storage water heater estimated to switch to a gas-fired storage water
heater instead of installing a heat pump water heater ranges from zero
with a standard level for gas-fired storage water heaters that requires
condensing technology, to 9 percent with a standard level for gas-fired
storage water heaters that requires power vent technology.
In the preliminary analysis, DOE concluded that builders who
planned to install an electric storage water heater would not switch to
gas-fired storage water heaters in the event of a standard that
effectively requires heat pump technology. A.O. Smith stated that
builders would be unlikely to switch from a heat pump water heater to a
gas-fired storage water heater due to the cost of adding gas to the
house, and if gas were already supplied to the house, a heat pump water
heater would not have been installed. (A.O. Smith, No. 37 at p. 8) DOE
agrees that availability of natural gas is the key determining factor
for builders. Accordingly, DOE's analysis for the NOPR shows negligible
switching in new homes.
EEI stated that there may be a switch from electric storage to
electric instantaneous water heaters if DOE adopts a standard level
that would require use of heat pump technology for electric storage
water heaters. (EEI, No. 40 at p. 5) DOE acknowledges that some
households facing extreme structural modifications to accommodate a
heat pump water heater may purchase an electric instantaneous water
heater instead. However, because such switching requires expensive
electrical modification to the home's electrical circuits to
accommodate the higher electrical demand of instantaneous water
heaters, DOE believes it is an unlikely choice for most households with
electric water heating.
With respect to the new construction market, in the preliminary
analysis, DOE concluded that builders who planned to install an
electric storage water heater would not switch to gas-fired storage
water heaters in the event of a standard that effectively requires heat
pump technology. A.O. Smith commented that builders would be unlikely
to switch from a heat pump water heater to a gas-fired storage water
heater due to the cost of adding gas to the house, and if gas had been
already supplied to the house, a heat pump water heater would not have
been installed. (A.O. Smith, No. 37 at p. 8) DOE agrees that
availability of natural gas is the key factor determining water heater
choice for home builders. Accordingly, DOE's analysis for the NOPR
shows negligible switching in new homes.
Regarding potential switching from gas-fired water heaters to
electric water heaters, DOE determined that the cost of replacing an
existing gas-fired storage water heater with an electric one is
substantial due to the complexity of the installation. Because it takes
longer for an electric storage water heater to recover heated capacity,
a larger electric tank may be necessary to replace a gas unit. In new
construction, if natural gas is available, builders generally will
install a gas-fired water heater. Given the above considerations, in
both new construction and the replacement market, a large increase in
the price of a gas storage water heater compared to an electric storage
water heater likely would be necessary to motivate consumers to replace
a gas water heater with an electric unit, or to motivate builders to
install an electric water heater instead of a gas unit. Because DOE
does not envision such a price differential resulting from this
rulemaking, it concluded that amended standards would not induce
switching from a gas storage water heater to an electric storage water
heater.
In its preliminary analysis, DOE did not quantify the potential for
switching away from oil-fired water heaters. Bock and EEI stated that
DOE should consider fuel and equipment switching impacts of standards
on oil-fired equipment. (Bock, No. 53 at p. 1; EEI, No. 40 at pp. 4-5)
In response, DOE believes that the price of the oil-fired storage water
heater is a minor factor in the fuel choice decision for households
with such a water heater. In most cases, a household with an oil-fired
storage water heater needing replacement would switch to a gas-fired
water heater if gas is available because of the greater convenience and
lower cost of gas water heating. Therefore, DOE believes that the
moderately higher equipment price that might result from the proposed
standard level (5 percent) would have a negligible impact on fuel
switching for oil-fired storage water heaters, and DOE did not include
such switching in its NOPR analysis.
In its preliminary analysis, DOE did not quantify the potential for
switching away from gas-fired instantaneous water heaters due to lack
of quantitative information about the factors that shape the purchase
decision for this product. However, given that the vast majority of the
market (85 percent) is already at the proposed standard level (0.82
EF), there is little reason to expect any switching to storage water
heaters as a result of the proposed standard.
For DHE and pool heaters, DOE did not find any data it could use to
estimate the extent of switching away from the gas-fired products
subject to this rulemaking if energy conservation standards were to
result in a significant increase in installed costs. DOE did not
receive any comments on its approach for these products, and it
maintained the same approach for the NOPR analysis.
In summary, DOE projects that no fuel switching would occur for
gas-fired storage, oil-fired storage, and gas-fired instantaneous water
heaters. For electric storage water heaters, DOE estimated that a
standard that effectively requires heat pump water heaters would result
in a decline in shipments ranging from zero to 9 percent, depending on
the standard level for gas-fired storage water heaters.
DOE requests comments on its analysis of fuel switching that may
result from the proposed standards on water heaters and the other
heating products. In particular, DOE requests comments on (1) its
general approach, which does not involve price elasticities; (2) its
analysis of switching to gas-fired storage water heaters in the case of
a standard that effectively requires an electric heat pump water
heater; (3) its conclusion that the proposed standards would not induce
switching from a gas storage water heater to an electric storage water
heater; and (4) its conclusion that the proposed standards would not
induce switching for gas-fired instantaneous water heaters, DHE, and
pool heaters.
[[Page 65913]]
This is identified as issue 15 under ``Issues on Which DOE Seeks
Comment'' in section VII.E of this NOPR.
2. Other Inputs
The following is a discussion of the other inputs to the NIA and
any revisions DOE made to those inputs for today's proposed rule.
a. Base-Case Forecasted Efficiencies
A key input to DOE's estimates of NES and NPV is the energy
efficiencies that DOE forecasts over time for the base case (without
new standards) and each of the standards cases. The forecasted
efficiencies represent the annual shipment-weighted energy efficiency
of the products under consideration over the forecast period.
For the preliminary analysis, DOE used the SWEFs for 2013 or 2015
as a starting point to forecast the base-case energy efficiency
distribution for each product class. To represent the distribution of
product energy efficiencies in those years, DOE used the same market
shares as in the base case for the LCC analysis. For gas storage water
heaters and electric storage water heaters, DOE estimated the
distribution of product energy efficiencies in 2015 by accounting for
the estimated market impact of the newly established ENERGY STAR
efficiency levels for water heaters (see section IV.9.a). The projected
trend to 2015 represents an average annual increase in energy
efficiency of 0.27 percent for gas-fired storage water heaters and 0.55
percent for electric storage water heaters. DOE applied the above
values to estimate the increase in average energy efficiency until the
end of the forecast period.
DOE found no quantifiable indications of change in energy
efficiencies over time for oil-fired and gas-fired instantaneous water
heaters, direct heating equipment, or pool heaters, and it did not
receive any comments on this topic. Therefore, for these products, DOE
estimated that energy efficiencies remain constant at the 2015 or 2013
level until the end of the forecast period.
For today's proposed rule, DOE maintained the approach described
above.
b. Standards-Case Forecasted Efficiencies
For its determination of standards-case forecasted efficiencies,
DOE used a ``roll-up'' scenario in the preliminary analysis and the
NOPR to establish the SWEF for the year that standards would become
effective and subsequent years. In this approach, product energy
efficiencies in the base case that do not meet the standards level
under consideration would roll up to meet the new standard level. The
market share of energy efficiencies that exceed the standard level
under consideration would be the same in the standards case as in the
base case. Changes over the forecast period match those in the base
case. For today's proposed rule, DOE maintained this approach.
c. Annual Energy Consumption
The inputs for determining NES are annual energy consumption per
unit, shipments, equipment stock, national annual energy consumption,
and site-to-source conversion factors. Because the annual energy
consumption per unit depends directly on efficiency, DOE used the SWEFs
associated with the base case and each standards case, in combination
with the annual energy use data, to estimate the shipment-weighted
average annual per-unit energy consumption under the base case and
standards cases. The national energy consumption is the product of the
annual energy consumption per unit and the number of units of each
vintage. This calculation accounts for differences in unit energy
consumption from year to year. For today's proposed rule, DOE
maintained this approach.
d. Site-to-Source Energy Conversion
To estimate the national energy savings expected from appliance
standards, DOE uses a multiplicative factor to convert site energy
consumption (at the home or commercial building) into primary or source
energy consumption (the energy required to deliver the site energy).
These conversion factors account for the energy used at power plants to
generate electricity and losses in transmission and distribution, as
well as for natural gas losses from pipeline leakage and energy used
for pumping. For electricity, the conversion factors vary over time due
to projected changes in generation sources (i.e., the power plant types
projected to provide electricity to the country). The factors that DOE
developed are marginal values, which represent the response of the
system to an incremental decrease in consumption associated with
appliance standards.
In the preliminary analysis, DOE used annual site-to-source
conversion factors based on the version of NEMS that corresponds to
AEO2008. For today's NOPR, DOE updated its conversion factors based on
AEO2009. The AEO does not provide energy forecasts beyond 2030; DOE
used conversion factors that remain constant at the 2030 values
throughout the remainder of the forecast period.
In response to a request from the DOE's Office of Energy Efficiency
and Renewable Energy (EERE), the National Research Council (NRC)
appointed a committee on ``Point-of-Use and Full-Fuel-Cycle Measurement
Approaches to Energy Efficiency Standards'' to conduct a study called
for in section 1802 of EPACT 2005. The fundamental task before the
committee was to evaluate the methodology used for setting energy
efficiency standards and to comment on whether site (point-of-use) or
source (full-fuel-cycle) measures of energy efficiency better support
rulemaking to achieve energy conservation goals. The NRC committee
defined site (point-of-use) energy consumption as reflecting the use of
electricity, natural gas, propane, and/or fuel oil by an appliance at
the site where the appliance is operated. Full-fuel-cycle energy
consumption was defined as including, in addition to site energy use,
the following: Energy consumed in the extraction, processing, and
transport of primary fuels such as coal, oil, and natural gas; energy
losses in thermal combustion in power generation plants; and energy
losses in transmission and distribution to homes and commercial
buildings. (See The National Academies, Board on Energy and
Environmental Systems, Letter to Dr. John Mizroch, Acting Assistant
Secretary, U.S. DOE, Office of EERE from James W. Dally, Chair,
Committee on Point-of-Use and Full-Fuel-Cycle Measurement Approaches to
Energy Efficiency Standards, May 15, 2009.)
In evaluating the merits of using point-of-use and full-fuel-cycle
measures, the NRC committee noted that DOE uses what the committee
referred to as ``extended site'' energy consumption to assess the
impact of energy use on the economy, energy security, and environmental
quality. The extended site measure of energy consumption includes the
generation, transmission, and distribution but, unlike the full-fuel-
cycle measure, does not include the energy consumed in extracting,
processing, and transporting primary fuels. A majority of members on
the NRC committee concluded that extended site energy consumption
understates the total energy consumed to make an appliance operational
at the site. As a result, the NRC committee's primary general
recommendation is for DOE to consider moving over time to use of a
full-fuel-cycle measure of energy consumption for assessment of
national and environmental impacts, especially levels of greenhouse gas
emissions, and to providing more comprehensive information to the
[[Page 65914]]
public through labels and other means, such as an enhanced Web site.
For those appliances that use multiple fuels (e.g., water heaters), the
NRC committee believes that measuring full-fuel-cycle energy
consumption would provide a more complete picture of energy used,
thereby allowing comparison across many different appliances as well as
an improved assessment of impacts. The NRC committee also acknowledged
the complexities inherent in developing a full-fuel-cycle measure of
energy use and stated that a majority of the committee recommended a
gradual transition to that expanded measure and eventual replacement of
the currently used extended site measure.
DOE acknowledges that its site-to-source conversion factors do not
capture all of the energy consumed in extracting, processing, and
transporting primary fuels. DOE also agrees with the NRC committee's
conclusion that developing site-to-source conversion factors that
capture the energy associated with the extraction, processing, and
transportation of primary fuels is inherently complex and difficult.
However, DOE has performed some preliminary evaluation of a full-fuel-
cycle measure of energy use.
Based on two studies completed by the National Renewable Energy
Laboratory (NREL) in 1999 and 2000, DOE estimated the ratio of the
energy used upstream to the energy content of the coal or natural gas
delivered to power plants. For coal, the NREL analysis considered
typical mining practices and mine-to-plant transportation distances,
and used data for the State of Illinois. Based on data in this report,
the estimated multiplicative factor for coal is 1.08 (i.e., it takes
approximately 1.08 units of coal energy equivalent to provide 1 unit of
coal to a power plant). A similar analysis of the energy consumed in
upstream processes needed to produce and deliver natural gas to a power
plant yielded a multiplicative factor of 1.19. (For further information
on the NREL studies, please see: Spath, Pamela L., Margaret K. Mann,
and Dawn Kerr, Life Cycle Assessment of Coal-fired Power Production,
NREL/TP-570-25119, June 1999; and Spath, Pamela L. and Margaret K.
Mann, Life Cycle Assessment of a Natural Gas Combined-Cycle Power
Generation System, NREL/TP-570-27715, September 2000.)
While the above factors are indicative of the magnitude of the
impacts of using full-fuel-cycle measures of energy use, there are two
aspects of the problem that warrant further study. The first is the
refinement of the estimates of the multiplicative factors, particularly
to incorporate regional variation. The second is development of
forecasts of the multiplicative factors over the time frames used in
the rulemaking analyses, typically ten to fifty years. The second
issue, of forecasting how the efficiency factors for various fuels may
change over time, has the potential to be quite significant. The
existing NEMS forecast of power plant electricity generation by fuel
type can be used to estimate the impact of a changing mix of fuels.
However, currently NEMS provides no information on potential changes to
the relative ease with which the different fuels can be extracted and
processed. DOE intends to further evaluate the viability of using full-
fuel-cycle measures of energy consumption for assessment of national
and environmental impacts of appliance standards.
e. Total Installed Costs and Operating Costs
The total annual installed cost increase is equal to the annual
difference in the per-unit total installed cost between the base case
and standards cases multiplied by the shipments forecasted in the
standards case.
The annual operating cost savings per unit reflect differences in
energy, repair, and maintenance costs between the base case and the
various standard levels DOE considered. DOE forecasted energy prices
for the preliminary analysis are based on AEO2008. DOE updated the
energy prices for today's proposed rule using forecasts from AEO2009.
f. Discount Rates
DOE multiplies monetary values in future years by the discount
factor to determine the present value. For the preliminary analysis and
today's NOPR, DOE estimated the NPV of appliance consumer benefits
using both a 3-percent and a 7-percent real discount rate. DOE uses
these discount rates in accordance with guidance provided by the Office
of Management and Budget (OMB) to Federal agencies on the development
of regulatory analysis (OMB Circular A-4 (Sept. 17, 2003), section E,
``Identifying and Measuring Benefits and Costs''). NRDC stated that a
discount rate below 3 percent is warranted for societal benefits.
(NRDC, No. 48 at p. 5) OMB Circular A-4 states that when regulation
primarily and directly affects private consumption, a lower discount
rate is appropriate. ``The alternative most often used is sometimes
called the social rate of time preference * * * the rate at which
`society' discounts future consumption flows to their present value.''
(p. 33) It suggests that the real rate of return on long-term
government debt may provide a fair approximation of the social rate of
time preference, and states that over the last 30 years, this rate has
averaged around 3 percent in real terms on a pre-tax basis. It
concludes that ``for regulatory analysis, [agencies] should provide
estimates of net benefits using both 3 percent and 7 percent.'' (p. 34)
DOE finds that the guidance from OMB is reasonable, so it is continuing
to use a 3-percent and a 7-percent discount rate for estimating net
benefits.
3. Other Inputs
a. Effects of Standards on Energy Prices
In the preliminary analysis, DOE analyzed the potential impact on
natural gas prices resulting from amended standards on water heaters
and the associated benefits for all natural gas consumers in all
sectors of the economy. (DOE did not include natural gas savings from
amended standards on DHE and pool heaters in this analysis because they
are not large enough to have a noticeable impact.) DOE used NEMS-BT to
account for the natural gas savings associated with two scenarios of
possible standards, including max-tech efficiency levels. Like other
widely used energy-economic models, NEMS incorporates parameters to
estimate the changes in energy prices that would result from an
increase or decrease in energy demand. The response of price to a
decrease in demand is termed the ``inverse price elasticity.'' The
overall inverse price elasticity observed in NEMS changes over the
forecast period based on the model's dynamics of natural gas supply and
demand. DOE calculated the nominal savings in total natural gas
expenditures in each year by multiplying the estimated annual change in
the average end-user natural gas price by the annual total U.S. natural
gas consumption associated with each scenario. DOE then calculated the
NPV of the savings in natural gas expenditures for 2015 to 2045 using
3- and 7-percent discount rates for each scenario.
For the NOPR, DOE used the same approach to estimate the benefits
of reduced natural gas prices as in the preliminary TSD. However, it
analyzed the potential impact on natural gas prices, and the associated
benefits for natural gas consumers, resulting from the proposed water
heater standards (TSL 4), as well as the other TSLs considered.
NRDC stated that DOE must consider the benefit of reduced natural
gas and electricity prices and include it in the NIA. (NRDC, No. 48 at
p. 5) ACEEE
[[Page 65915]]
stated that DOE must incorporate the impacts of gas and electricity
consumption reductions resulting from the standards on energy prices in
the primary economic analysis, rather than simply note side studies
that DOE did not incorporate into the decision-making process. (ACEEE,
No. 35 at p. 8)
DOE reports the results of its analysis of the benefits of reduced
natural gas prices associated with standards in chapter 10 of the NOPR
TSD, National Impacts Analysis. As discussed therein, when gas prices
drop in response to a lower output of existing natural gas production
capacity, consumers benefit but producers suffer. In economic terms,
the situation represents a benefits transfer to consumers (whose
expenditures fall) from producers (whose revenue falls equally). When
prices decrease because extraction costs decline, however, consumers
and producers both benefit, and the change in natural gas prices
represents a net gain to society. Consumers benefit from the lower
prices, and producers, whose revenues and costs both fall, are no worse
off. Because there is uncertainty about the extent to which the
calculated impacts from reduced natural gas prices are a benefits
transfer, DOE tentatively concluded that it should not give a heavy
weight to this factor in its consideration of the economic
justification of standards on heating products.
DOE investigated the possibility of estimating the impact of
specific standard levels on electricity prices in its rulemaking for
general service fluorescent lamps and incandescent reflector lamps.
(See U.S. Department of Energy--Office of Energy Efficiency and
Renewable Energy: Energy Conservation Standards for General Service
Fluorescent Lamps and Incandescent Reflector Lamps; Proposed Rule, 74
FR 16920, 16978-979 (April 13, 2009).) It found that whereas natural
gas markets exhibit a fairly simple chain of agents from producers to
consumers, the electric power industry is a complex mix of fuel
suppliers, producers, and distributors. While the distribution of
electricity is regulated everywhere, its institutional structure
varies, and upstream components are more complicated, because the cost
of generation differs across the country. For these and other reasons,
accurate modeling of the response of electricity prices to a decrease
in residential-sector demand due to standards is problematic. Thus, DOE
does not plan to estimate the value of potentially reduced electricity
costs for all consumers associated with revised standards for heating
products.
G. Consumer Subgroup Analysis
In analyzing the potential impact of new or amended standards on
individual and commercial consumers, DOE evaluates the impact on
identifiable subgroups of consumers that may be disproportionately
affected by a national standard level. DOE used RECS data to analyze
the potential effect of energy conservation standards on the considered
consumer subgroups for selected heating products, as explained below.
For gas-fired and electric storage water heaters, and gas wall fan and
gas wall gravity DHE, DOE estimated consumer subgroup impacts for low-
income households and senior-only households. In addition, for gas-
fired and electric storage water heaters, DOE estimated consumer
subgroup impacts for households in multi-family housing and households
in manufactured homes as well.
DOE did not evaluate consumer subgroup impacts for gas-fired
instantaneous water heaters and oil-fired storage water heaters. Gas-
fired instantaneous water heaters were excluded from the consumer
subgroup analysis due to insufficient data, and oil-fired storage water
heaters were excluded due to low product shipments. For direct heating
equipment, gas floor DHE and gas room DHE were excluded due to the low
and decreasing levels of product shipments. For gas hearth DHE, DOE
examined the senior-only subgroup, but did not evaluate the low-income
subgroup because the saturation of this product is very small among
low-income households due to the high product cost. DOE did not
evaluate consumer subgroup impacts for pool heaters because the sample
size of the subgroups is too small for meaningful analysis. More
details on the consumer subgroup analysis and results can be found in
chapter 11 of the NOPR TSD.
H. Manufacturer Impact Analysis
1. Overview
In determining whether an amended energy conservation standard for
the three types of heating products subject to this rulemaking is
economically justified, the Secretary is required to consider ``the
economic impact of the standard on the manufacturers and on the
consumers of the products subject to such standard.'' (42 U.S.C.
6295(o)(2)(B)(i)(I)) The statute also calls for an assessment of the
impact of any lessening of competition as determined by the Attorney
General that is likely to result from the adoption of a standard. (42
U.S.C. 6295(o)(2)(B)(i)(V)) DOE conducted the MIA to estimate the
financial impact of amended energy conservation standards on
manufacturers of residential water heaters, DHE, and pool heaters, and
to assess the impacts of such standards on employment and manufacturing
capacity.
The MIA has both quantitative and qualitative aspects. The
quantitative part of the MIA relies on the Government Regulatory Impact
Model (GRIM), an industry cash-flow model customized for the three
heating products covered in this rulemaking. The GRIM inputs
characterize each industry's cost structure, shipments, and revenues.
This includes information from many of the analyses described above,
such as MPCs and MSPs from the engineering analysis and shipment
forecasts from the NIA. The key GRIM output is the Industry Net Present
Value (INPV), which estimates the value of each industry on the basis
of cash flows, expenditures, and investment requirements as a function
of TSLs. Different sets of assumptions (scenarios) will produce
different results. The qualitative part of the MIA addresses factors
such as product characteristics, characteristics of particular firms,
and market trends. The qualitative discussion also includes an
assessment of the impacts of standards on manufacturer subgroups. The
complete MIA is discussed in chapter 12 of the NOPR TSD.
DOE conducted the MIA for the three types of heating products in
three phases. Phase 1 (Industry Profile) characterized each industry
using data on market shares, sales volumes and trends, pricing,
employment, and financial structure. Phase 2 (Industry Cash Flow)
focused on each industry as a whole. In this phase, DOE used each GRIM
to prepare an industry cash-flow analysis. Using publicly-available
information developed in Phase 1, DOE adapted each GRIM's generic
structure to perform an analysis of the impacts on residential water
heater, directing heating equipment, and pool heater manufacturers due
to amended energy conservation standards. In Phase 3 (Subgroup Impact
Analysis), DOE conducted interviews with a representative cross-section
of manufacturers that produce the majority of residential water heater,
DHE, and pool heater sales. During these interviews, DOE discussed
engineering, manufacturing, procurement, and financial topics specific
to each company, and obtained each manufacturer's view of the industry
as a whole. The interviews also provided valuable information that DOE
used to evaluate the impacts of amended energy conservation standard on
manufacturer
[[Page 65916]]
cash flows, manufacturing capacity, and employment levels. Each of
these phases is discussed in further detail below.
a. Phase 1: Industry Profile
In Phase 1 of the MIA, DOE prepared a profile of each of the three
heating product industries based on the market and technology
assessment prepared for this rulemaking. Before initiating the detailed
impact studies, DOE collected information on the present and past
structure and market characteristics of each industry. This information
included market share data, product shipments, manufacturer markups,
and the cost structure for various manufacturers. The industry profile
includes: (1) Further detail on the overall market and product
characteristics; (2) estimated manufacturer market shares; (3)
financial parameters such as net plant, property, and equipment, SG&A
expenses, cost of goods sold, etc.; and (4) trends in the number of
firms, market, and product characteristics for the three heating
product industries.
The industry profile included a top-down cost analysis of
residential water heater, DHE, and pool heater manufacturers that DOE
used to derive preliminary financial inputs for the GRIMs (e.g.,
revenues, depreciation, SG&A, and research and development (R&D)
expenses). DOE also used public sources of information to further
calibrate its initial characterization of each industry, including
Security and Exchange Commission 10-K filings (available at http://www.sec.gov), Standard & Poor's stock reports (available at http://www2.standardandpoors.com), and corporate annual reports. DOE
supplemented this public information with data released by privately
held companies.
b. Phase 2: Industry Cash-Flow Analysis
Phase 2 focused on the financial impacts of potential amended
energy conservation standards on industries as a whole. More-stringent
energy conservation standards can affect manufacturer cash flow in
three distinct ways: (1) Create a need for increased investment, (2)
raise production costs per unit, and (3) alter revenue due to higher
per-unit prices and possible changes in sales volumes. To quantify
these impacts in Phase 2 of the MIA, DOE used the GRIMs to perform
three cash-flow analyses: one for the residential water heater industry
(separated into the impacts on gas-fired and electric storage, oil-
fired storage, and gas-fired instantaneous water heaters), one for DHE
(separated into the impacts on traditional DHE and gas hearth DHE), and
one for gas-fired pool heaters. In performing these analyses, DOE used
the financial values derived during Phase 1 and the shipment scenarios
used in the NIA.
c. Phase 3: Subgroup Impact Analysis
Using average cost assumptions to develop an industry-cash-flow
estimate does not adequately assess differential impacts of amended
energy conservation standards among manufacturer subgroups. For
example, small manufacturers, niche players, or manufacturers
exhibiting a cost structure that largely differs from the industry
average could be more negatively affected. DOE used the results of the
industry characterization analysis in Phase 1 to group manufacturers
that exhibit similar characteristics. The interviews provided valuable
information on manufacturer subgroups. During the manufacturer
interviews, DOE discussed financial topics specific to each
manufacturer and obtained each manufacturer's view of the industry as a
whole.
As stated above, DOE reports the MIA impacts by grouping the
impacts of certain product classes together. DOE presents the industry
impacts by the major product types (gas-fired and electric storage
water heaters, oil-fired storage water heaters, gas-fired instantaneous
water heaters, traditional DHE, gas hearth DHE, and gas-fired pool
heaters). These product groupings represent separate markets that are
served by the same manufacturers and are typically produced in the same
factories. Once segmented into major product types by industry, DOE was
only able to identify one subgroup--small manufacturers.
For its small business manufacturer subgroup analysis, DOE uses the
small business size standards published by the Small Business
Administration (SBA) to determine whether a company is a ``small
business.'' 65 FR 30836, 30848 (May 15, 2000), as amended at 65 FR
53533, 53544 (Sept. 5, 2000) and codified at 13 CFR Part 121). To be
categorized as a ``small business,'' a residential water heater, DHE,
or pool heater manufacturer and its affiliates may employ a maximum of
500 employees. The 500-employee threshold includes all employees in a
business's parent company and any other subsidiaries. Based upon this
classification, DOE identified five residential water heater
manufacturers, 12 DHE manufacturers, and one small gas-fired pool
heater manufacturer that qualify as small businesses per the applicable
SBA definition. The small business subgroup is discussed in chapter 12
of the TSD and in section VI.B of today's notice.
2. GRIM Analysis
DOE uses the GRIM to quantify the changes in cash flow that result
in a higher or lower industry value. The GRIM analysis uses a standard,
annual-cash-flow analysis that incorporates MPCs, MSPs, shipments, and
industry financial information as inputs, and models changes in costs,
distribution of shipments, product and capital conversion costs, and
manufacturer markups that would result from amended energy conservation
standards. The GRIM spreadsheet uses the inputs to arrive at a series
of annual cash flows, beginning with the base year of the analysis,
2010, and continuing over the analysis period. DOE used the same base
year (2010) as the NIA, which is the same year as the announcement of
the final rule. DOE used the same analysis period in the MIA as in the
NIA. For all rulemakings, DOE considers a 30-year analysis period after
the anticipated compliance date of the final rule, which under EPCA
means the date after which regulated parties must comply with the
requirements of the amended standard. The compliance date of the
rulemaking is estimated to be March of 2013 for DHE and pool heaters
and March of 2015 for residential water heaters. The analysis period
runs from the beginning of 2013 to 2043 for DHE and pool heaters and
from the beginning of 2015 to 2045 for residential water heaters.
DOE uses the GRIM to calculate cash flows using standard accounting
principles and to compare changes in INPV between the base case and
various TSLs (the standards cases). The difference in INPV between the
base case and the standards case represents the financial impact of the
potential amended energy conservation standard on manufacturers. DOE
collected this information from a number of sources, including
publicly-available data and manufacturer interviews.
DOE created a separate GRIM for each of the three types of heating
products. For today's notice, DOE is structuring separate TSLs for the
three heating products. DOE also treats certain product classes within
the three heating products separately. For example, DOE created
specialized interview guides for different groups of product classes.
These interview guides included one for storage water heaters (gas-
fired storage, electric storage, and oil-fired storage water heaters),
one for gas-fired instantaneous water heaters, one for
[[Page 65917]]
traditional DHE (gas wall fan, gas wall gravity, gas floor, and gas
room DHE), one for gas hearth DHE, and one for gas-fired pool heaters.
DOE grouped product classes made by the same manufacturers and in the
same production facilities together. This allowed DOE to better
understand the impacts on manufacturers of these product classes.
For example, the TSLs DOE considered for residential water heater
packages selected efficiency levels of gas-fired storage, electric
storage, oil-fired storage, and gas-fired instantaneous water heaters.
The TSLs DOE considered for DHE packages selected efficiency levels for
gas wall fan, gas wall gravity, gas floor, gas room, and gas hearth
units. Each of the TSLs DOE considered for pool heaters consist of a
single efficiency level for gas-fired pool heaters. DOE describes the
TSLs in section V.A of today's notice. Because the combinations of TSLs
can make it more difficult to discuss the required efficiencies for
each product class, DOE presents the MIA results in section V.B.2 of
today's notice and chapter 12 of the NOPR TSD by groups of
manufacturers that make the covered products. DOE presents the MIA
results for gas-fired storage and electric storage water heaters
together because manufacturers typically produce both types of water
heaters in the same facilities. The MIA results for oil-fired storage
and gas-fired instantaneous water heaters are presented separately. The
MIA results for DHE are separated into traditional DHE (gas wall fan,
gas wall gravity, gas floor, and gas room DHE) and gas hearth DHE. The
MIA results for gas-fired pool heaters are also presented separately.
a. GRIM Key Inputs
i. Manufacturer Product Costs
In the MIA, DOE used the MPCs for the three types of heating
products at each efficiency level calculated in the engineering
analysis, as described in section IV.C and further detailed in chapter
5 of the NOPR TSD. Changes in MPCs can affect revenues and gross
margins. For instance, manufacturing a higher-efficiency product is
typically more expensive due to the use of more complex components and
higher-cost raw materials. For gas-fired storage water heaters, DOE
used a weighted average MPC using both standard burner and ultra-low-
NOX burner cost-efficiency curves from the engineering
analysis to account for shipments of ultra-low-NOX water
heaters.
ii. Base-Case Shipments Forecast
The GRIM estimates manufacturer revenues based on total unit
shipment forecasts and the distribution of these values by efficiency
level. Changes in the efficiency mix at each standard level affect
manufacturer finances. For this analysis, the GRIM uses the NIA
shipments forecasts from 2008 and continuing until the end of the
analysis period for each heating product (2045 for residential water
heaters and 2043 for DHE and pool heaters). In the shipments analysis,
DOE also estimated the distribution of efficiencies in the base case
for all product classes. See section IV.F.1 for additional details.
iii. Product and Capital Conversion Costs
Amended energy conservation standards will cause manufacturers to
incur one-time conversion costs to bring their production facilities
and product designs into compliance. For the MIA, DOE classified these
one-time conversion costs into two major groups: (1) Product conversion
costs and (2) capital conversion costs. Product conversion costs are
one-time investments in research, development, testing, marketing, and
other costs focused on making product designs comply with the amended
energy conservation standard. Capital conversion costs are one-time
investments in property, plant, and equipment to adapt or change
existing production facilities so that new product designs can be
fabricated and assembled.
DOE assessed the product conversion costs manufacturers would be
required to make at each TSL. For residential gas-fired storage water
heaters, electric storage water heaters, and gas-fired pool heaters,
DOE based most of its estimates of the product conversion costs on
information obtained from manufacturer interviews. DOE estimated
average industry product conversion costs by weighting the estimates
from manufacturers by market share, then extrapolating the interviewed
manufacturers' product conversion costs for each product class to
account for the market share of companies that were not interviewed.
DOE verified the accuracy of these product conversion costs by
comparing them to its own estimate of the product development, testing,
certification, and retraining effort required by each manufacturer at
each TSL. DOE also compared the product conversion costs to the total
cost of other recent product development efforts manufacturers have
incurred (such as the cost to redesign burners to comply with ultra-
low-NOX requirements). For gas-fired and electric storage
water heaters at TSL 5, DOE used the industry-wide product conversion
costs for the standard-size volumes at TSL 4. DOE assumed the
additional product conversion costs for the large gallon sizes at TSL 5
scaled with the total industry-wide product conversion costs. At TSL 5
for gas-fired and electric storage water heaters, DOE multiplied its
estimate for the entire industry to exclusively offer heat pump
products at TSL 6 and condensing products at TSL 7 by the percentage of
total electric storage and gas-fired storage water heater models that
exceed a 55 gallon rated volume (27 percent and 11 percent,
respectively).
For oil-fired storage water heaters, gas-fired instantaneous water
heaters, and all DHE product classes, DOE did not receive sufficient
manufacturer data to serve as the basis for its industry-wide product
conversion estimates. For these products, DOE calculated its estimates
by reviewing product literature and publically-available information
about the efficiency of the existing product lines. DOE used this
information to estimate the number of product lines that manufacturers
would need to modify or develop at each TSL. DOE also estimated a per-
product-line development cost at each efficiency level and assumed
these costs represented the product conversion costs for a manufacturer
that has to upgrade product lines to meet that TSL. DOE also assumed
that that the product development costs increase as the design changes
become more complex and if manufacturers do not currently offer
products that meet or exceed the required efficiency. DOE calculated
the product conversion costs by multiplying its per-line product
conversion cost estimate by the number of product lines that
manufacturers would need to modify or develop at each TSL. For
traditional DHE and gas-fired water heaters, DOE assumed that
manufacturers would convert all existing product lines that did not
meet the efficiencies required at that TSL. However, for gas hearth DHE
DOE assumed that manufacturers would only convert up to 50-percent of
their existing product lines that did not meet the required
efficiencies. DOE's estimates of the product conversion costs for all
of the heating products addressed in this rulemaking can be found in
section V.B.2 of today's notice and in chapter 12 of the NOPR TSD.
DOE also evaluated the level of capital conversion costs
manufacturers would incur to comply with potential amended energy
conservation
[[Page 65918]]
standards. During interviews, DOE asked manufacturers to estimate the
required capital conversion costs to expand the production of higher-
efficiency products or quantify the required tooling and plant changes
if product lines meeting the required efficiency level do not exist.
For residential gas-fired storage water heaters, electric storage water
heaters, and gas-fired pool heaters, DOE based its capital conversion
costs for most TSLs on these interviews. DOE verified the accuracy of
these capital conversion costs by comparing them to a separate bottoms-
up estimate of the number of sub-assembly and assembly lines for each
manufacturer and the required tooling changes to each line at each TSL,
considering the costs of recent line upgrades. As a final verification,
DOE examined what level of capital investments would be required to
maintain the historical value for net plant, property, and equipment as
a ratio of total revenue. For gas-fired and electric storage water
heaters at TSL 5, DOE used the industry-wide capital conversion costs
for the standard-size volumes at TSL 4. At TSL 5 DOE also used a
separate estimate to calculate the additional capital conversion costs
that would be required to manufacture gas-fired condensing water
heaters and electric heat pump water heaters for rated storage volumes
above 55 gallons. For oil-fired storage water heaters, gas-fired
instantaneous water heaters, and DHE, DOE used a bottoms-up approach to
estimate the cost of additional production equipment and changes to
existing production lines that the industry would require at each TSL.
DOE used feedback from manufacturer interviews about the tooling
requirements at each efficiency level and product catalogs to estimate
the total capital conversion costs for each product category at each
TSL.
DOE did not consider the provisions in the American Recovery and
Reinvestment Act of 2009, Public Law 111-5, in its estimates of the
capital conversion costs for all products. The industrial development
bonds and advanced energy project tax credit programs in that Act have
not been fully distributed, and there is insufficient information
available to do a thorough analysis of their potential impacts. It is
also unclear if manufacturers of residential water heaters, DHE, or
pool heaters would qualify for these provisions. DOE is not aware of
any manufacturers of products covered by this rulemaking being awarded
funds from these programs (see http://www.energy.gov/recovery/ for a
list of awardees). Therefore, DOE did not include the bonds or tax
credit in its analysis for this NOPR of potential impacts on the three
heating product industries. DOE's estimates of the capital conversion
costs for all three types of heating products can be found in section
V.B.2 of today's notice and in chapter 12 of the NOPR TSD.
b. GRIM Scenarios
i. Residential Water Heater Standards-Case Shipments Forecasts
The GRIM used several residential water heater shipments developed
in the NIA. The NIA incorporated different scenarios that account for
fuel switching, penetration rates of gas-fired instantaneous water
heaters, growth rates of ENERGY STAR products, and economic growth
rates. To account for the likely impacts on the water heater industry
of amended energy conservation standards, DOE used the main NIA
shipment scenario. The main NIA water heater scenario accounted for
fuel switching. In this scenario, DOE considered the potential for
current users of electric storage water heaters to instead purchase a
gas-fired storage water heater replacement if amended energy
conservation standard for electric storage water heaters were set at
levels that would effectively require the use of heat pumps. The main
NIA scenario used the Reference case gas-fired instantaneous water
heater market share scenario. Finally, the main NIA scenario used the
Reference case economic growth scenario and the moderate rate of
efficiency growth scenarios. In all standards-case shipment scenarios,
DOE considered that shipments at efficiencies below the projected
minimum standard levels would roll up to those efficiency levels in
response to amended energy conservation standards. See section IV.F.1
of this NOPR and chapter 10 for more information on the residential
water heater standards-case shipment scenarios.
ii. Direct Heating Equipment and Pool Heater Shipment Scenarios
For the DHE and pool heater shipments, DOE used the NIA shipments
in the base case and the standards case. DOE also considered that
shipments at efficiencies below the projected minimum standard levels
in the base case would roll up to those efficiency levels in response
to amended energy conservation standards. See section IV.F.1 of this
NOPR and chapter 10 of the NOPR TSD for additional details about the
shipment scenarios.
iii. Markup Scenarios
In the GRIM, DOE used the MSPs estimated in the engineering
analysis for each product class and efficiency level. The MSPs include
direct manufacturing production costs (i.e., labor, material, and
overhead estimated in DOE's MPCs), all non-production costs (i.e.,
SG&A, R&D, shipping, and interest), along with profit.
DOE used several standards-case markup scenarios to represent the
uncertainty about the potential impacts on prices and profitability
following the implementation of amended energy conservation standards.
For the three types of heating products, DOE analyzed two markup
scenarios: (1) a preservation of return on invested capital scenario,
and (2) a preservation of operating profit scenario.
Return on invested capital is defined as net operating profit after
taxes divided by the total invested capital (fixed assets and working
capital, or net plant, property, and equipment plus working capital).
In the preservation of return on invested capital scenario, the
manufacturer markups are set so that the return on invested capital the
year after the compliance date of the amended energy conservation
standards is the same as in the base case. This scenario models the
situation in which manufacturers maintain a similar level of
profitability from the investments required by amended energy
conservation standards as they do from their current business
operations. After standards, manufacturers have higher net operating
profits but also greater working capital and investment requirements.
Because manufacturers earn additional operating profit from the
investments required by the amended energy conservation standards, this
scenario represents the high bound to profitability following
standards.
During interviews, multiple manufacturers stated that the higher
production costs could severely harm profitability. Because of the
highly competitive market, several manufacturers suggested that the
additional costs required at higher efficiencies could not be fully
passed through to customers. In the preservation of operating profit
markup scenario, manufacturer markups are lowered so that only the
total operating profit in absolute dollars is maintained as before the
amended energy conservation standard. DOE implemented this scenario in
GRIM by lowering the manufacturer markups at each TSL to yield
approximately the same earnings before interest and taxes in the
standards case in the year after
[[Page 65919]]
the compliance date of the amended standards, as in the base case. This
scenario represents the lower bound of industry profitability following
amended energy conservation standards because higher production costs
and the investments required to comply with the amended energy
conservation standard do not yield additional operating profit.
3. Discussion of Comments
During the February 2009 public meeting, interested parties
commented on the assumptions and results of the preliminary analysis.
In oral and written comments, interested parties discussed the effects
of the current economic downturn on manufacturers, the high costs
required to educate installers and service contractors, and potential
employment impacts due to amended energy conservation standards. DOE
addresses these comments below. DOE also received comments on the
cumulative burden of ultra-low-NOX requirements, which are
addressed in sections IV.C and V.B.2.f.
a. Responses to General Comments
AHRI stated that DOE must take into account the impacts of the
current economic conditions on the manufacturing industry in the
manufacturer impact analysis. (AHRI, Public Meeting Transcript, No.
34.4 at p. 19)
In the MIA, DOE models the impacts of amended energy conservation
standards on manufacturers of residential water heaters, DHE, and pool
heaters from the base year to the end of the analysis period (i.e.,
2010-2045 for residential water heaters and 2010-2043 for DHE and pool
heaters). DOE notes the compliance dates for all three heating products
(i.e., 2015 for residential water heaters and 2013 for DHE and pool
heaters). Using information that only reflects these three industries
during the current economic downturn would not be representative of the
three heating products over the entire analysis period. DOE used the
most current information that is publicly available in many of its
estimates and analyses, inputs that take the current economic downturn
into consideration. For example, as described in section IV.C.4.b, DOE
uses 5-year averages for metal material prices and up-to-date prices
for other raw materials and purchased components in its engineering
analysis cost models. For today's notice, DOE also updated many of its
LCC and NIA assumptions to better reflect the most recent information
(e.g., AEO2009) and in response to comments from interested parties
(sections IV.E and IV.F). For the MIA, DOE uses financial parameters
like standard R&D to model the cash-flow impacts on the water heater,
DHE, and pool heater industries. To calculate the estimates of the
financial parameters used in the GRIMs, DOE examined 6 years of SEC 10-
K data. While DOE updated some of these GRIM estimates based on
interviews with manufacturers, these changes were made to better
reflect the parameters that are representative of each industry over
the long-term and are not specifically attributable to current economic
conditions.
b. Water Heater Comments
BWC and AHRI stated that the economic downturn has limited the
funding available for R&D and the tooling necessary to develop and
manufacture more-efficient products. (BWC, No. 46 at p. 3; AHRI, No. 33
at p. 1) Noritz America Corporation also stated that the economy has
greatly affected manufacturers' bottom line and ability to support R&D.
(Noritz, No. 36 at p. 3)
For today's notice, DOE includes the capital and product conversion
costs that would be required to meet the entire industry demand at each
TSL. While DOE agrees that the current economic downturn may affect the
funding for R&D and capital expenditures in the near term, DOE notes
that the compliance date for the residential water heater standard is
2015. In the GRIM, DOE allocates its estimates of the product
conversion and capital conversion costs in between the announcement of
the final rule adopting energy conservation standard (estimated to be
March 2010) and the compliance date requiring compliance with the
energy conservation standards for water heaters. DOE also assumes that
more of the capital conversion and product conversion costs will occur
closer to the compliance date than the announcement date. Because most
of the product conversion and capital conversion costs are allocated
several years in the future, it is expected that the economic
conditions at that time will be different than they are currently.
BWC argued that as new technologies are developed, manufacturers
must incur additional costs to educate installers and service
contractors. (BWC, No. 46 at p. 3)
DOE agrees with BWC that a higher energy conservation standard
could require manufacturers to incur costs to educate installers and
service contractors, especially if the products have to change
dramatically to accommodate amended energy conservation standards.
During interviews, manufacturers indicated that significant resources
are required to educate installers and service contractors when a new
product is introduced. The resources required are even greater when the
new product involves a new technology or a new mode of operation. For
example, an energy conservation standard that eliminates atmospheric
gas-fired storage water heaters would have such an impact on
manufacturers. Product conversion costs are one-time investments which
encompass research, development, testing, and marketing, focused on
making product designs comply with the amended energy conservation
standard. Hence, DOE includes an estimate of the cost to manufacturers
to educate installers and service contractors in the product conversion
costs at each TSL.
Bock asserted that the ENERGY STAR program will affect consumer
purchasing patterns. Bock commented that ENERGY STAR, which ignored
oil-fired storage water heaters, caused a loss of market share, a
reduction in shipments, and a decrease in employment for oil-fired
storage water heater manufacturers. (Bock, No. 53 at p. 3)
DOE agrees that a reduction in oil-fired storage water heater
shipments could affect employment at oil-fired manufacturers' plants.
However, DOE does not believe that the proposed energy conservation
standard will cause a reduction in oil-fired storage water heater
shipments. For example, today's proposed energy conservation standards
increase the installed price of electric storage water heaters, gas
storage water heaters, and instantaneous gas-fired water heaters by
roughly $132, $101, and $588, respectively over the current baseline
products. The installed cost of an oil-fired storage water heater
increases by only $61. DOE does not believe that these minimum price
increases for consumers would distort the market such that consumers
would elect to replace oil-fired storage water heaters with another
type of water heater. DOE addresses the direct employment impacts due
to standards in section V.B.2.d.
4. Manufacturer Interviews
DOE interviewed manufacturers representing over 95 percent of
residential storage water heater sales, about 50 percent of gas-fired
instantaneous water heater sales, approximately 99 percent of
traditional DHE sales (gas wall fan, gas wall gravity, gas floor, and
gas room DHE), over 50 percent of gas hearth DHE sales, and
[[Page 65920]]
about 75 percent of pool heater sales. These interviews were beyond
those DOE conducted as part of the engineering analysis. DOE used these
interviews to tailor each GRIM to incorporate unique financial
characteristics for each industry. DOE contacted companies from its
database of manufacturers, which provided a representative sample of
each industry. All interviews provided information that DOE used to
evaluate the impacts of potential amended energy conservation standards
on manufacturer cash flows, manufacturing capacities, and employment
levels.
Before each telephone interview or site visit, DOE provided company
representatives with an interview guide that included the topics for
which DOE sought input. The MIA interview topics included: (1) Key
issues to this rulemaking; (2) a company overview and organizational
characteristics; (3) manufacturer production costs and selling prices;
(4) manufacturer markups and profitability; (5) shipment projections
and market shares; (6) product mix; (7) financial parameters; (8)
conversion costs; (9) cumulative regulatory burden; (10) direct
employment impact assessment; (11) exports, foreign competition, and
outsourcing; (12) consolidation; and (13) impacts on small business.
The MIA interview guide for storage water heaters contained three
additional sections: (1) Ultra-low-NOX water heaters; (2)
unit shipping methods and associated costs; and (3) alternative energy
efficiency equations. Appendix 12A of the NOPR TSD contains the five
interview guides DOE used to conduct the MIA interviews.
In the manufacturer interviews, DOE asked manufacturers to describe
their major concerns about this rulemaking. The following sections
describe the most significant key issues identified by manufacturers.
DOE also includes additional concerns in chapter 12 of the TSD. DOE's
responses are provided where relevant in today's notice.
a. Storage Water Heater Key Issues
i. Fuel Switching
Gas-fired storage, electric storage, and oil-fired storage water
heater manufacturers are concerned that this energy conservation
standard rulemaking could cause fuel switching. While most storage
water heater manufacturers also sell gas-fired instantaneous water
heaters, storage manufacturers are concerned that a more aggressive
standard on gas-fired and electric storage units could lower the first
cost differential of gas-fired instantaneous water heaters and increase
their market penetration. Increased penetration of gas-fired
instantaneous water heaters would lower the shipments of storage water
heaters, resulting in lower profitability and fewer shipments for
manufacturers that focus on storage water heaters, especially if they
lose market share to companies that exclusively manufacture
instantaneous water heaters.
ii. Ultra-Low-NOX Requirements
Manufacturers that make gas-fired storage water heaters are
concerned about the large product development costs to meet the ultra-
low-NOX requirements in some regions of the Southwest. In
particular, manufacturers are concerned that higher energy factors,
lower NOX emissions, and compliance with existing safety
regulations are often at odds. Manufacturers also stated that the
higher cost of the ultra-low-NOX gas storage water heaters
would hurt consumers in those regions and could cause them to switch to
less expensive electric storage units.
iii. Profitability
Manufacturers stated that amended energy conservations standards
could affect profitability. At any TSL, manufacturers will be forced to
discontinue a certain percentage of their existing products and make
potentially significant product and plant modifications. If
manufacturers earn a lower markup for more-efficient products after the
amended energy conservation standard, their profit margin would
decrease. Energy conservation standards could also harm profitability
by eliminating up-sell opportunities to more-efficient units that earn
a greater absolute profit. Finally, while manufacturers generally agree
with DOE's estimate of manufacturer production costs, many noted that
their actual product offerings are more segmented into multiple models
made at various production locations. Multiple product offerings could
make it more difficult to reach the price points DOE calculates. If
production costs were higher, markups would be lower than the
manufacturer markup DOE assumes and profitability would decrease.
iv. Appropriateness of Heat Pump Water Heaters
Heat pump water heaters are effectively required for all rated
storage volumes at TSL 6 and TSL 7 and for a portion of the market at
TSL 5 for electric storage water heaters to meet the specified
efficiency level. Most electric storage water heater manufacturers
disagreed with DOE's decision to include heat pump water heaters in the
electric storage water heater product class. In addition, all electric
storage water heater manufacturers agreed that this technology is only
appropriate for the ENERGY STAR level, not a minimum required
efficiency. While many manufacturers intend to or currently are
designing heat pump water heaters in response to the ENERGY STAR
requirements, manufacturers believe that setting a minimum standard
during the design phase is not appropriate and could cause many serious
and negative consequences.
Manufacturers listed many reasons why this technology is not ready
to be applied across the millions of electric storage water heaters
needed to satisfy demand. A significant problem is that heat pump water
heaters could not be installed in a large portion of existing homes
(e.g., 30 to 40 percent of homes), without incurring tremendous costs
for affected consumers to modify their existing structures. The
technology also has not been fully developed and has not yet been
proven reliable for large-scale manufacturing. Some manufacturers are
concerned that any problems that arise with applying the technology
across millions of electric storage water heaters that could not be
proven by the compliance date of the rule would cause significant harm
to their industry due to the anti-backsliding provision in EPCA.
Manufacturers stated that other problems could arise with the
production of heat pump water heaters if the standard were set at TSL 6
or TSL 7. For example, there is almost no existing capacity to
manufacture these water heaters, especially on the scale that an energy
conservation standard would require. Requiring over 4 million annual
shipments in 2015 could lead to acquisition problems because component
suppliers are not prepared for such a jump in demand. In particular,
acquiring sufficient compressors, thermal expansion valves, and other
purchased parts to meet market demand could be a challenge.
Manufacturers also added that setting the energy conservation
standard at a level effectively requiring the use of heat pump
technology would cause many negative impacts in the industry, even if
the technology were proven by the compliance date specified in the
final rule. Because of the increased labor required, manufacturers
would have to consider shifting a considerable portion of production
overseas to obtain viable production costs, as was true for the
residential air-conditioning industry. Domestic employment in the
industry
[[Page 65921]]
would be affected because only part of the production would likely
remain in the United States after the compliance date of the amended
energy conservation standard.
Manufacturers also stated that they would incur significant
conversion costs if the standard level effectively mandates heat pump
water heaters, for the reasons explained below. Every main assembly
line and feeder line would need modifications to integrate the new
assembly into existing production facilities. Finally, manufacturers
would face a significant challenge to retrain their service technicians
and installers for a completely new technology. Because the technology
has not been fully developed, the skills needed to service and install
heat pump water heaters are unknown. However, manufacturers indicated
that a combination of plumbing and HVAC skills would be required that
do not exist today.
v. Capital Conversion Costs for Oil-Fired Storage Water Heaters
Oil-fired storage water heater manufacturers indicated that capital
conversion costs for oil-fired storage water heaters at higher
efficiency levels, while perhaps not appearing prohibitively large on a
nominal basis, are extremely significant relative to the volume of oil-
fired water heater shipments. At any level above TSL 1, at least one
manufacturer with substantial market share indicated that there is a
real risk that these capital and product conversion costs could cause
it to exit the market.
b. Gas-Fired Instantaneous Water Heater Key Issues
i. Potential Market Distortion
Manufacturers stated that amended energy conservation standard
could greatly affect the market penetration of gas-fired instantaneous
water heaters. If the prices were greatly increased relative to storage
water heaters, market penetration could be slowed. In addition, a
drastic increase in the required efficiency (at TSL 7) could disrupt
current arrangements with overseas suppliers or parent companies and
limit product availability in the United States.
ii. Ultra-Low-NOX Requirements
Manufacturers of gas-fired instantaneous water heaters expressed
great concern about the conflicting requirements of higher energy
factor requirements and pending ultra-low-NOX requirements.
At most efficiency levels, manufacturers commented that there is a
tradeoff in burner design between higher efficiency and lower
NOX emissions. Manufacturers indicated that they have not
found a solution and are very concerned about concurrently meeting the
ultra-low-NOX requirements and amended energy conservation
standards.
c. Direct Heating Equipment Key Issues (Gas Wall Fan, Gas Wall Gravity,
Gas Floor, and Gas Room Direct Heating Equipment)
i. Consumer Impacts
Manufacturers remarked that energy conservation standards could
hurt consumers, arguing that many of existing installations cannot be
replaced with more-efficient units because of space considerations.
Customers that choose these units would either have to pay for
structural modifications or switch to a different heat source. Some
manufacturers also noted that improvements in efficiency for the most
common type of traditional DHE (gas wall gravity DHE) have long
paybacks at any TSL.
All manufacturers stated that gas wall gravity and gas room DHE
provide a unique utility by operating in the event of a power failure.
Manufacturers stated that consumers would be hurt if these products
required line power, because it would leave many without a backup
source of heat.
ii. Significant Capital and Product Development Costs
Manufacturers stated that any product conversion or capital
conversion cost would be difficult to justify because of the very low
shipment volumes of each product line. Manufacturers remarked that any
required investments could force them to reduce their product offerings
at best and permanently exit the market at worst. Due to the large
number of product offerings that would need to be recertified and/or
redesigned, some manufacturers argued that 3 years would not be enough
lead time. Finally, because shipment volumes are so low, any investment
would significantly add to the final cost of the product, assuming that
manufacturers could pass part of the increased cost on to consumers.
Manufacturers are also concerned that higher production costs could
drive more consumers to purchase a central system rather than replace
their failed direct heating system. If shipments declined at all,
manufacturers stated they would be less able to justify the required
investment to upgrade products and product lines, which would hurt
their industry further. All manufacturers said that potential energy
conservation standards are a real threat to their business and could
cause them to exit the market completely.
d. Direct Heating Equipment Key Issues (Gas Hearth Direct Heating
Equipment)
i. Loss of Aesthetic Appeal for Decorative Products
According to manufacturers, all gas hearth products have an
aesthetic function in addition to a heating function. In fact,
manufacturers stated that the primary function of most gas hearth
products covered by this rulemaking is the ambiance and aesthetic
appeal provided by the flame. Gas hearth DHE are used mostly to zone
heat when occupants are in close proximity or to supplement a central
heating system, but are used as a primary heating source only in very
rare cases.
Because gas hearth DHE are mostly decorative items in residences,
manufacturers believe that energy conservation standards could have a
different impact on their industry than the water heater industry, for
example. Gas hearth manufacturers stated that the utility of the other
strictly heating products covered by today's rule has little to do with
the appearance of the products and would not be impacted at any
standard level. For example, the consumer utility from water heaters
would not be impacted by amended energy conservation standards as long
as hot water is still delivered. However, the relevant manufacturers
were greatly concerned that potential energy conversation standards for
gas hearth DHE could harm their industry and consumers in qualitative
ways, in addition to the direct impacts on industry value. Their
customers' needs are related to the size, shape, and appearance of the
flame, and for these customers, efficiency is not usually a concern,
given such products' low usage patterns. Manufacturers stated that they
earn premiums for aesthetic features such as better-looking flames and
more attractive masonry, rather than higher efficiency. Multiple
manufacturers stated that the yellow flames that consumers look for in
a log set depend on a rich gas-to-air mixture, which inherently limits
the achievable energy efficiency. Hence, at higher efficiency levels,
it becomes more difficult to improve efficiency and maintain a
desirable flame color, an impact that is hard to measure and which
could have a significant detrimental effect on the industry.
[[Page 65922]]
ii. Product Switching and Profitability
Because the aesthetic appeal of the unit and the flame are critical
features, manufacturers believed that overly-stringent energy
conservation standards could cause customers to switch to non-covered
hearth products, such as wood-burning stoves or strictly decorative
units, if the energy conservation standards greatly raised prices.
Finally, manufacturers stated that a significant portion of gas hearth
products are purchased by builders. Because the appearance of the units
and the flame are more critical features than efficiency, manufacturers
believed that higher costs could cause more builders to purchase
strictly decorative products that are not covered by this rulemaking.
Besides higher prices potentially causing a switching to non-
covered products, manufacturers were also concerned that higher
standards had the potential to lower overall demand for gas hearth
products. At higher costs, manufacturers believe that customers would
no longer purchase inserts for existing homes or that builders would
make gas hearth products in new homes an option rather than a standard
feature. Manufacturers also believe that a shrinking market would
reduce profits.
e. Pool Heater Key Issues
i. Impacts on Consumers
Manufacturers stated that an amended energy conservation standards
set above an efficiency level achievable using atmospheric technology
(TSL 3 through TSL 6) could hurt consumers. According to manufacturers,
customers would not recoup the initial higher costs with lower utility
bills at these TSLs. Because most residential pool heaters are a luxury
item with low usage patterns, most customers do not purchase units at
TSL 4 and above. Thus, manufacturers stated that more-efficient
residential pool heaters are only appropriate in commercial settings
(e.g., hotels, gyms) because the higher usage allows such customers to
recoup the higher initial costs.
ii. Future Shipment Trends
Manufacturers commented that pool heater shipments follow new
housing starts. Because the new housing market is down, manufacturers
have lowered their projections for future pool heater sales as well.
Manufacturers also do not expect future shipments to return to
historical levels, as recent new housing starts have increasingly been
on smaller lots that do not have the room to accommodate swimming
pools.
Manufacturers are concerned that amended energy conservation
standards could further decrease future sales. Because pool heaters are
not a necessity, the higher initial cost could dissuade some consumers
from replacing a failed unit or adding a heater to a new pool or spa.
Manufacturers are also concerned that a higher price point for gas-
fired pool heaters could hurt future shipments by making alternatives
like solar or heat pump pool heaters comparatively cheaper.
Manufacturers stated that this trend is already a concern because a few
States and utilities have offered subsidies for solar water heaters.
iii. Future NOX Emission Requirements
According to manufacturers, residential gas-fired pool heaters are
currently exempt from ultra-low NOX requirements in the
Southwest air quality management districts. However, most manufacturers
voiced a concern over potential future requirements. If air quality
management districts set more restrictive NOX requirements
in the future, some manufacturers may be required to incur a costly
redesign of their burner systems.
I. Employment Impact Analysis
Employment impacts consist of direct and indirect impacts. Direct
employment impacts are any changes in the number of employees of
manufacturers of the appliance products that are the subject of this
rulemaking, their suppliers, and related service firms. Indirect
employment impacts are changes in employment in the larger economy that
occur due to the shift in expenditures and capital investment caused by
the purchase and operation of more-efficient appliances. The MIA
addresses the direct employment impacts that concern manufacturers of
the three heating products.
Indirect employment impacts from standards consist of the net jobs
created or eliminated in the national economy, other than in the
manufacturing sector being regulated, due to: (1) Reduced spending by
end users on energy (electricity, gas--including liquefied petroleum
gas--and oil); (2) reduced spending on new energy supply by the utility
industry; (3) increased spending on new products to which the new
standards apply; and (4) the effects of those three factors throughout
the economy. DOE expects the net monetary savings from standards to be
redirected to other forms of economic activity. DOE also expects these
shifts in spending and economic activity to affect the demand for labor
in the short term, as explained below.
One method for assessing the possible effects on the demand for
labor of such shifts in economic activity is to compare sectoral
employment statistics developed by the Labor Department's Bureau of
Labor Statistics (BLS). (Data on industry employment, hours, labor
compensation, value of production, and the implicit price deflator for
output for these industries are available upon request by calling the
Division of Industry Productivity Studies (202-691-5618) or by sending
a request by e-mail to [email protected]. See http://www.bls.gov/news.release/prin1.nr0.htm.) The BLS regularly publishes its estimates
of the number of jobs per million dollars of economic activity in
different sectors of the economy, as well as the jobs created elsewhere
in the economy by this same economic activity. Data from BLS indicate
that expenditures in the utility sector generally create fewer jobs
(both directly and indirectly) than expenditures in other sectors of
the economy. There are many reasons for these differences, including
wage differences and the fact that the utility sector is more capital
intensive and less labor intensive than other sectors. See Bureau of
Economic Analysis, Regional Multipliers: A User Handbook for the
Regional Input-Output Modeling System (RIMS II), U.S. Department of
Commerce, 1992.
Energy conservation standards have the effect of reducing consumer
utility bills. Because reduced consumer expenditures for energy likely
lead to increased expenditures in other sectors of the economy, the
general effect of efficiency standards is to shift economic activity
from a less labor-intensive sector (i.e., the utility sector) to more
labor-intensive sectors (e.g., the retail and manufacturing sectors).
In developing the preliminary analysis and today's NOPR, DOE
estimated indirect national employment impacts using an input/output
model of the U.S. economy called Impact of Sector Energy Technologies
(ImSET). ImSET is a spreadsheet model of the U.S. economy that focuses
on 188 sectors most relevant to industrial, commercial, and residential
building energy use. (See J. M. Roop, M. J. Scott, and R. W. Schultz,
ImSET: Impact of Sector Energy Technologies, PNNL-15273, Pacific
Northwest National Laboratory, 2005). ImSET is a special-purpose
version of the ``U.S. Benchmark National Input-Output'' (I-O) model
designed to estimate the national employment and income effects of
energy-saving technologies. The ImSET software includes a computer-
based I-O model with structural coefficients to characterize economic
flows among the 188 sectors. ImSET's national economic
[[Page 65923]]
I-O structure is based on a 1997 U.S. benchmark table (See Lawson, Ann
M., et al., ``Benchmark Input-Output Accounts of the U.S. Economy,
1997,'' Survey of Current Business, Dec. 2002, pp. 19-117.) Chapter 13
of the NOPR TSD presents further details on the employment impact
analysis.
J. Utility Impact Analysis
The utility impact analysis included an analysis of the potential
effects of amended energy conservation standards for the three types of
heating products on the electric and gas utility industries. For this
analysis, DOE used NEMS-BT to generate forecasts of electricity and
natural gas consumption, electricity generation by plant type, and
electric generating capacity by plant type. DOE conducts the utility
impact analysis as a scenario that departs from the latest AEO
Reference case. In other words, the energy savings impacts from amended
energy conservation standards are modeled using NEMS-BT to generate
forecasts that deviate from the AEO Reference case. Chapter 13 of the
NOPR TSD presents details on the utility impact analysis.
NEEA and NPCC urged DOE to consider the impact of gas-fired
instantaneous water heaters on local gas distribution companies'
ability to meet hot water demand during peak periods, and the
possibility that they may have to invest in shoring up system peak
capacity, adding significant upward pressure on rates. (NEEA and NPCC,
No. 42 at p. 9) DOE acknowledges that growing use of gas-fired
instantaneous water heaters could contribute to peak demand problems,
and that higher-efficiency gas-fired instantaneous water heaters could
ameliorate the problem. However, DOE currently does not have adequate
data to reliably quantify the potential impacts.
K. Environmental Analysis
DOE has prepared a draft environmental assessment (EA) pursuant to
the National Environmental Policy Act and the requirements of 42 U.S.C.
6295(o)(2)(B)(i)(VI) and 6316(a) to determine the environmental impacts
of the proposed standards. DOE estimated the impacts on power sector
emissions of CO2, NOX, and Hg using the NEMS-BT
model. Because the on-site operation of non-electric heating products
requires use of fossil fuels and results in emissions of
CO2, NOX and sulfur dioxide (SO2), DOE
also accounted for the reduction in these emissions due to standards at
the sites where these appliances are used.
1. Impacts of Standards on Emissions
In the EA, NEMS-BT is run similarly to the AEO NEMS, except that
heating product energy use is reduced by the amount of energy saved (by
fuel type) due to each TSL. The inputs of national energy savings come
from the NIA spreadsheet model; the output is the forecasted physical
emissions at each TSL. The net benefit of the standard is the
difference between emissions estimated by NEMS-BT at each TSL and the
AEO Reference Case.
NEMS-BT tracks CO2 emissions using a detailed module
that provides results with broad coverage of all sectors and inclusion
of interactive effects. For the preliminary TSD, DOE used AEO2008. For
today's NOPR, DOE used the AEO2009 NEMS (stimulus version). For the
final rule, DOE intends to revise the emissions analysis using the most
current AEO.
DOE has preliminarily determined that SO2 emissions from
affected Electric Generating Units (EGUs) are subject to nationwide and
regional emissions cap and trading programs that create uncertainty
about the standards' impact on SO2 emissions. Title IV of
the Clean Air Act sets an annual emissions cap on SO2 for
all affected EGUs. SO2 emissions from 28 eastern States and
the District of Columbia (D.C.) are also limited under the Clean Air
Interstate Rule (CAIR, published in the Federal Register on May 12,
2005. 70 FR 25162 (May 12, 2005), which creates an allowance-based
trading program that will gradually replace the Title IV program in
those States and DC. (The recent legal history surrounding CAIR is
discussed below.) The attainment of the emissions caps is flexible
among EGUs and is enforced through the use of emissions allowances and
tradable permits. Energy conservation standards could lead EGUs to
trade allowances and increase SO2 emissions that offset some
or all SO2 emissions reductions attributable to the
standard. DOE is not certain that there will be reduced overall
SO2 emissions from the standards. The NEMS-BT modeling
system that DOE used to forecast emissions reductions currently
indicates that no physical reductions in power sector emissions would
occur for SO2. The above considerations prevent DOE from
estimating SO2 reductions from standards at this time.
Even though DOE is not certain that there will be reduced overall
emissions from the standard, there may be an economic benefit from
reduced demand for SO2 emission allowances. Electricity
savings decrease the generation of SO2 emissions from power
production, which can lessen the need to purchase SO2
emissions allowance credits, and thereby decrease the costs of
complying with regulatory caps on emissions.
Much like SO2, NOX emissions from 28 eastern
States and the District of Columbia (DC) are limited under the CAIR.
Although CAIR has been remanded to EPA by the D.C. Circuit, it will
remain in effect until it is replaced by a rule consistent with the
Court's July 11, 2008, opinion in North Carolina v. EPA. 531 F.3d 896
(D.C. Cir. 2008); see also North Carolina v. EPA, 550 F.3d 1176 (D.C.
Cir. 2008). Because all States covered by CAIR opted to reduce
NOX emissions through participation in cap-and-trade
programs for electric generating units, emissions from these sources
are capped across the CAIR region.
In the 28 eastern States and DC where CAIR is in effect, DOE's
forecasts indicate that no NOX emissions reductions will
occur because of the permanent cap. Energy conservation standards have
the potential to produce environmentally-related economic impact in the
form of lower prices for emissions allowance credits, if they were
large enough. However, DOE has preliminarily concluded that the
proposed standard would not have such an effect because the estimated
reduction in NOX emissions or the corresponding allowance
credits in States covered by the CAIR cap would be too small to affect
allowance prices for NOX under the CAIR.
The proposed standard would reduce NOX emissions in
those 22 States not affected by the CAIR. As a result, DOE used the
NEMS-BT to forecast emission reductions from the standards that are
considered in today's NOPR.
Similar to emissions of SO2 and NOX, future
emissions of Hg would have been subject to emissions caps. The Clean
Air Mercury Rule (CAMR) would have permanently capped emissions of
mercury for new and existing coal-fired plants in all States beginning
in 2010 (70 FR 28606). However, the CAMR was vacated by the D.C.
Circuit in its decision in New Jersey v. Environmental Protection
Agency. 517 F 3d 574 (D.C. Cir. 2008) Thus, DOE was able to use the
NEMS-BT model to estimate the changes in Hg emissions resulting from
the proposed rule.
EEI stated that DOE's analysis of emissions from electric power
generation should account for the rise in renewable portfolio standards
and the possibility of an upcoming CO2 cap and trade
program, both of which would reduce the amount of emissions produced
per kWh electricity generated. (EEI, No. 40 at p. 6) DOE's projections
[[Page 65924]]
of CO2 emissions from electric power generation are based on
the AEO2009 version of NEMS. The emissions projections reflect market
factors and policies that affect utility choice of power plants for
electricity generation, including existing renewable portfolio
standards. Because of the speculative nature of forecasting future
regulations, DOE does not include the impact of possible future
regulations in its forecasts.
EEI stated that if DOE examines changes in power plant emissions,
then it should also examine changes in the emissions associated with
oil extraction (domestic and overseas), crude oil transportation (sea
and land-based), natural gas flaring, oil refining, refined oil
delivery, natural gas production, natural gas delivery, natural gas
delivery system methane leaks, propane production and delivery, and
emissions associated with the extraction and importation of liquefied
natural gas. (EEI, No. 40 at p. 6)
Emissions occur at each stage of the extraction, conversion, and
delivery of the energy supply chain. Nonetheless, emissions are
dominated by power plant emissions in the case of electric appliances
and in-house emissions in the case of natural gas and oil-fired
appliances, so DOE focuses on those points.
The operation of non-electric heating products requires use of
fossil fuels and results in emissions of CO2, NOX
and SO2 at the sites where these appliances are used. NEMS-
BT provides no means for estimating such emissions. DOE calculated the
effect of the proposed standards on the above site emissions based on
emissions factors derived from the literature.
2. Valuation of CO2 Emissions Reductions
DOE received comments on the desirability of valuing the
CO2 emissions reductions that result from standards. NRDC
stated that DOE must account for the value of avoided carbon emissions.
(NRDC, No. 48 at p. 4) NEEA and NPCC stated that it would be
inappropriate to assign a value of zero to avoided carbon emissions.
(NEEA and NPCC, No. 42 at p. 10) Earthjustice stated that DOE must
consider well-established literature on the value of CO2
emissions to consider reduced emissions in States that will remain
outside CO2 reduction regimes. (Earthjustice, No. 47 at p.
4)
For today's NOPR, DOE is relying on a new set of values recently
developed by an interagency process that conducted a thorough review of
existing estimates of the social cost of carbon (SCC). The SCC is
intended to be a monetary measure of the incremental damage resulting
from greenhouse gas (GHG) emissions, including, but not limited to, net
agricultural productivity loss, human health effects, property damages
from sea level rise, and changes in ecosystem services. Any effort to
quantify and to monetize the harms associated with climate change will
raise serious questions of science, economics, and ethics. But with
full regard for the limits of both quantification and monetization, the
SCC can be used to provide estimates of the social benefits of
reductions in GHG emissions.
For at least three reasons, any single estimate of the SCC will be
contestable. First, scientific and economic knowledge about the impacts
of climate change continues to grow. With new and better information
about relevant questions, including the cost, burdens, and possibility
of adaptation, current estimates will inevitably change over time.
Second, some of the likely and potential damages from climate change--
for example, the value society places on adverse impacts on endangered
species--are not included in all of the existing economic analyses.
These omissions may turn out to be significant in the sense that they
may mean that the best current estimates are too low. Third,
controversial ethical judgments, including those involving the
treatment of future generations, play a role in judgments about the SCC
(see in particular the discussion of the discount rate, below).
To date, regulations have used a range of values for the SCC. For
example, a regulation proposed by the U.S. Department of Transportation
(DOT) in 2008 assumed a value of $7 per ton CO2 (2006$) for
2011 emission reductions (with a range of $0-14 for sensitivity
analysis). Regulation finalized by DOE used a range of $0-$20 (2007$).
Both of these ranges were designed to reflect the value of damages to
the United States resulting from carbon emissions, or the ``domestic''
SCC. In the final Model Year 2011 Corporate Average Fuel Economy rule,
DOT used both a domestic SCC value of $2/t CO2 and a global
SCC value of $33/t CO2 (with sensitivity analysis at $80/
tCO2), increasing at 2.4 percent per year thereafter.
In recent months, a variety of agencies have worked to develop an
objective methodology for selecting a range of interim SCC estimates to
use in regulatory analyses until improved SCC estimates are developed.
The following summary reflects the initial results of these efforts and
proposes ranges and values for interim social costs of carbon used in
this rule. It should be emphasized that the analysis described below is
preliminary. These complex issues are of course undergoing a process of
continuing review. Relevant agencies will be evaluating and seeking
comment on all of the scientific, economic, and ethical issues before
establishing final estimates for use in future rulemakings.
The interim judgments resulting from the recent interagency review
process can be summarized as follows: (a) DOE and other Federal
agencies should consider the global benefits associated with the
reductions of CO2 emissions resulting from efficiency
standards and other similar rulemakings, rather continuing the previous
focus on domestic benefits; (b) these global benefits should be based
on SCC estimates (in 2007$) of $55, $33, $19, $10, and $5 per ton of
CO2 equivalent emitted (or avoided) in 2007 (in calculating
the benefits reported in this NOPR, DOE has escalated the 2007$ values
to 2008$ for consistency with other dollar values presented in this
notice, resulting in SCC estimates (in 2008$) of approximately $5, $10,
$20, $34, and $56); (c) the SCC value of emissions that occur (or are
avoided) in future years should be escalated using an annual growth
rate of 3 percent from the current values); and (d) domestic benefits
are estimated to be approximately 6 percent of the global values. These
interim judgments are based on the following considerations.
1. Global and domestic estimates of SCC. Because of the distinctive
nature of the climate change problem, estimates of both global and
domestic SCC values should be considered, but the global measure should
be ``primary.'' This approach represents a departure from past
practices, which relied, for the most part, on measures of only
domestic impacts. As a matter of law, both global and domestic values
are permissible; the relevant statutory provisions are ambiguous and
allow the agency to choose either measure. (It is true that Federal
statutes are presumed not to have extraterritorial effect, in part to
ensure that the laws of the United States respect the interests of
foreign sovereigns. But use of a global measure for the SCC does not
give extraterritorial effect to Federal law and hence does not intrude
on such interests.)
It is true that under OMB guidance, analysis from the domestic
perspective is required, while analysis from the international
perspective is optional. The domestic decisions of one nation are not
typically based on a judgment about the effects of those decisions on
[[Page 65925]]
other nations. But the climate change problem is highly unusual in the
sense that it involves (a) a global public good in which (b) the
emissions of one nation may inflict significant damages on other
nations and (c) the United States is actively engaged in promoting an
international agreement to reduce worldwide emissions.
In these circumstances, the global measure is preferred. Use of a
global measure reflects the reality of the problem and is expected to
contribute to the continuing efforts of the United States to ensure
that emission reductions occur in many nations.
Domestic SCC values are also presented. The development of a
domestic SCC is greatly complicated by the relatively few region- or
country-specific estimates of the SCC in the literature. One potential
estimate comes from the DICE (Dynamic Integrated Climate Economy,
William Nordhaus) model. In an unpublished paper, Nordhaus (2007)
produced disaggregated SCC estimates using a regional version of the
DICE model. He reported a U.S. estimate of $1/tCO2 (2007
value, 2007$), which is roughly 11 percent of the global value.
An alternative source of estimates comes from a recent EPA modeling
effort using the FUND (Climate Framework for Uncertainty, Negotiation
and Distribution, Center for Integrated Study of the Human Dimensions
of Global Change) model. The resulting estimates suggest that the ratio
of domestic to global benefits varies with key parameter assumptions.
With a 3 percent discount rate, for example, the US benefit is about 6
percent of the global benefit for the ``central'' (mean) FUND results,
while, for the corresponding ``high'' estimates associated with a
higher climate sensitivity and lower global economic growth, the US
benefit is less than 4 percent of the global benefit. With a 2 percent
discount rate, the U.S. share is about 2 to 5 percent of the global
estimate.
Based on this available evidence, a domestic SCC value equal to 6
percent of the global damages is used in this rulemaking. This figure
is in the middle of the range of available estimates from the
literature. It is recognized that the 6 percent figure is approximate
and highly speculative and alternative approaches will be explored
before establishing final values for future rulemakings.
2. Filtering existing analyses. There are numerous SCC estimates in
the existing literature, and it is legitimate to make use of those
estimates to produce a figure for current use. A reasonable starting
point is provided by the meta-analysis in Richard Tol, ``The Social
Cost of Carbon: Trends, Outliers, and Catastrophes, Economics: The
Open-Access, Open-Assessment E-Journal,'' Vol. 2, 2008-25. http://www.economics-ejournal.org/economics/journalarticles/2008-25 (2008).
With that starting point, it is proposed to ``filter'' existing SCC
estimates by using those that (1) are derived from peer-reviewed
studies; (2) do not weight the monetized damages to one country more
than those in other countries; (3) use a ``business as usual'' climate
scenario; and (4) are based on the most recent published version of
each of the three major integrated assessment models (IAMs): FUND, DICE
and PAGE (Policy Analysis of the Greenhouse Effect).
Proposal (1) is based on the view that those studies that have been
subject to peer review are more likely to be reliable than those that
have not been. Proposal (2) is based on a principle of neutrality and
simplicity; it does not treat the citizens of one nation differently on
the basis of speculative or controversial considerations. Proposal (3)
stems from the judgment that as a general rule, the proper way to
assess a policy decision is by comparing the implementation of the
policy against a counterfactual state where the policy is not
implemented. A departure from this approach would be to consider a more
dynamic setting in which other countries might implement policies to
reduce GHG emissions at an unknown future date, and the United States
could choose to implement such a policy now or in the future.
Proposal (4) is based on three complementary judgments. First, the
FUND, PAGE, and DICE models now stand as the most comprehensive and
reliable efforts to measure the damages from climate change. Second,
the latest versions of the three IAMs are likely to reflect the most
recent evidence and learning, and hence they are presumed to be
superior to those that preceded them. It is acknowledged that earlier
versions may contain information that is missing from the latest
versions. Third, any effort to choose among them, or to reject one in
favor of the others, would be difficult to defend at this time. In the
absence of a clear reason to choose among them, it is reasonable to
base the SCC on all of them.
The agency is keenly aware that the current IAMs fail to include
all relevant information about the likely impacts from greenhouse gas
emissions. For example, ecosystem impacts, including species loss, do
not appear to be included in at least two of the models. Some human
health impacts, including increases in food-borne illnesses and in the
quantity and toxicity of airborne allergens, also appear to be
excluded. In addition, there has been considerable recent discussion of
the risk of catastrophe and of how best to account for worst-case
scenarios. It is not clear whether the three IAMs take adequate account
of these potential effects.
3. Use a model-weighted average of the estimates at each discount
rate. At this time, there appears to be no scientifically valid reason
to prefer any of the three major IAMs (FUND, PAGE, and DICE).
Consequently, the estimates are based on an equal weighting of
estimates from each of the models. Among estimates that remain after
applying the filter, the average of all estimates within a model is
derived. The estimated SCC is then calculated as the average of the
three model-specific averages. This approach ensures that the interim
estimate is not biased towards specific models or more prolific
authors.
4. Apply a 3 percent annual growth rate to the chosen SCC values.
SCC is assumed to increase over time, because future emissions are
expected to produce larger incremental damages as physical and economic
systems become more stressed as the magnitude of climate change
increases. Indeed, an implied growth rate in the SCC is produced by
most studies that estimate economic damages caused by increased GHG
emissions in future years. But neither the rate itself nor the
information necessary to derive its implied value is commonly reported.
In light of the limited amount of debate thus far about the appropriate
growth rate of the SCC, applying a rate of 3 percent per year seems
appropriate at this stage. This value is consistent with the range
recommended by IPCC (2007) and close to the latest published estimate
(Hope, 2008).
For climate change, one of the most complex issues involves the
appropriate discount rate. OMB's current guidance offers a detailed
discussion of the relevant issues and calls for discount rates of 3
percent and 7 percent. It also permits a sensitivity analysis with low
rates for intergenerational problems. (``If your rule will have
important intergenerational benefits or costs you might consider a
further sensitivity analysis using a lower but positive discount rate
in addition to calculating net benefits using discount rates of 3 and 7
percent.'') The SCC is being developed within the general context of
the current guidance.
The choice of a discount rate, especially over long periods of
time, raises highly contested and exceedingly difficult questions of
science,
[[Page 65926]]
economics, philosophy, and law. See, e.g., William Nordhaus, ``The
Challenge of Global Warming (2008); Nicholas Stern, The Economics of
Climate Change'' (2007); ``Discounting and Intergenerational Equity''
(Paul Portney and John Weyant, eds., 1999). Under imaginable
assumptions, decisions based on cost-benefit analysis with high
discount rates might harm future generations--at least if investments
are not made for the benefit of those generations. See Robert Lind,
``Analysis for Intergenerational Discounting,'' id. at 173, 176-177. At
the same time, use of low discount rates for particular projects might
itself harm future generations, by ensuring that resources are not used
in a way that would greatly benefit them. In the context of climate
change, questions of intergenerational equity are especially important.
Reasonable arguments support the use of a 3 percent discount rate.
First, that rate is among the two figures suggested by OMB guidance,
and hence it fits with existing National policy. Second, it is standard
to base the discount rate on the compensation that people receive for
delaying consumption, and the 3 percent rate is close to the risk-free
rate of return, proxied by the return on long term inflation-adjusted
U.S. Treasury Bonds. (In the context of climate change, it is possible
to object to this standard method for deriving the discount rate.)
Although these rates are currently closer to 2.5 percent, the use of 3
percent provides an adjustment for the liquidity premium that is
reflected in these bonds' returns.
At the same time, other arguments support use of a 5 percent
discount rate. First, that rate can also be justified by reference to
the level of compensation for delaying consumption, because it fits
with market behavior with respect to individuals' willingness to trade
off consumption across periods as measured by the estimated post-tax
average real returns to private investment (e.g., the S&P 500). In the
climate setting, the 5 percent discount rate may be preferable to the
riskless rate because it is based on risky investments and the return
to projects to mitigate climate change is also risky. In contrast, the
3 percent riskless rate may be a more appropriate discount rate for
projects where the return is known with a high degree of confidence
(e.g., highway guardrails).
Second, 5 percent, and not 3 percent, is roughly consistent with
estimates implied by reasonable inputs to the theoretically derived
Ramsey equation, which specifies the optimal time path for consumption.
That equation specifies the optimal discount rate as the sum of two
components. The first reflects the fact that consumption in the future
is likely to be higher than consumption today (even accounting for
climate impacts), so diminishing marginal utility implies that the same
monetary damage will cause a smaller reduction of utility in the
future. Standard estimates of this term from the economics literature
are in the range of 3 to 5 percent. The second component reflects the
possibility that a lower weight should be placed on utility in the
future, to account for social impatience or extinction risk, which is
specified by a pure rate of time preference (PRTP). A conventional
estimate of the PRTP is 2 percent. (Some observers believe that a
principle of intergenerational equity suggests that the PRTP should be
close to zero.) It follows that discount rate of 5 percent is within
the range of values which are able to be derived from the Ramsey
equation, albeit at the low end of the range of estimates usually
associated with Ramsey discounting.
It is recognized that the arguments above--for use of market
behavior and the Ramsey equation--face objections in the context of
climate change, and of course there are alternative approaches. In
light of climate change, it is possible that consumption in the future
will not be higher than consumption today, and if so, the Ramsey
equation will suggest a lower figure. Some people have suggested that a
very low discount rate, below 3 percent, is justified in light of the
ethical considerations calling for a principle of intergenerational
neutrality. See Nicholas Stern, ``The Economics of Climate Change''
(2007); for contrary views, see William Nordhaus, A Question of Balance
(2008); Martin Weitzman, ``Review of the Stern Review on the Economics
of Climate Change.'' Journal of Economic Literature, 45(3): 703-724
(2007). Additionally, some analyses attempt to deal with uncertainty
with respect to interest rates over time; a possible approach enabling
the consideration of such uncertainties is discussed below. Richard
Newell and William Pizer, ``Discounting the Distant Future: How Much Do
Uncertain Rates Increase Valuations?'' J. Environ. Econ. Manage. 46
(2003) 52-71.
The application of the methodology outlined above yields estimates
of the SCC that are reported in Table IV.31. These estimates are
reported separately using 3 percent and 5 percent discount rates. The
cells are empty in rows 10 and 11 because these studies did not report
estimates of the SCC at a 3 percent discount rate. The model-weighted
means are reported in the final or summary row; they are $33 per
tCO2 at a 3% discount rate and $5 per tCO2 with a
5% discount rate.
Table IV.31--Global Social Cost of Carbon Estimates ($/tCO2 in 2007 in 2007$), Based on 3% and 5% Discount Rates
*
----------------------------------------------------------------------------------------------------------------
Model Study Climate scenario 3% 5%
----------------------------------------------------------------------------------------------------------------
1............ FUND.................. Anthoff et al. 2009... FUND default.......... 6 -1
2............ FUND.................. Anthoff et al. 2009... SRES A1b.............. 1 -1
3............ FUND.................. Anthoff et al. 2009... SRES A2............... 9 -1
4............ FUND.................. Link and Tol 2004..... No THC................ 12 3
5............ FUND.................. Link and Tol 2004..... THC continues......... 12 2
6............ FUND.................. Guo et al. 2006....... Constant PRTP......... 5 -1
7............ FUND.................. Guo et al. 2006....... Gollier discount 1.... 14 0
8............ FUND.................. Guo et al. 2006....... Gollier discount 2.... 7 -1
FUND Mean............. 8.25 0
9............ PAGE.................. Wahba & Hope 2006..... A2-scen............... 57 7
10........... PAGE.................. Hope 2006............. ...................... ............ 7
11........... DICE.................. Nordhaus 2008......... ...................... ............ 8
----------------------------------------------------------------------------------------------------------------
[[Page 65927]]
Summary...................................................... Model-weighted Mean... 33 5
----------------------------------------------------------------------------------------------------------------
* The sample includes all peer reviewed, non-equity-weighted estimates included in Tol (2008), Nordhaus (2008),
Hope (2008), and Anthoff et al. (2009), that are based on the most recent published version of FUND, PAGE, or
DICE and use business-as-usual climate scenarios. All values are based on the best available information from
the underlying studies about the base year and year dollars, rather than the Tol (2008) assumption that all
estimates included in his review are 1995 values in 1995$. All values were updated to 2007 using a 3 percent
annual growth rate in the SCC, and adjusted for inflation using GDP deflator.
DOE used the model-weighted mean values of $33 and $5 per ton
(2007$), as these represent the estimates associated with the 3 percent
and 5 percent discount rates, respectively. The 3 percent and 5 percent
estimates have independent appeal and at this time a clear preference
for one over the other is not warranted. These values were then
escalated to 2008$ and rounded to $34 and $5. Thus, DOE has also
included--and centered its current attention on--the average of the
estimates associated with these discount rates, which is approximately
$20 (in 2008$). (Based on the $20 global value, the domestic value
would be approximately $1 per ton of CO2 equivalent.)
It is true that there is uncertainty about interest rates over long
time horizons. Recognizing that point, Newell and Pizer have made a
careful effort to adjust for that uncertainty. See Newell and Pizer,
supra. This is a relatively recent contribution to the literature.
There are several concerns with using this approach in this
context. First, it would be a departure from current OMB guidance.
Second, an approach that would average what emerges from discount rates
of 3 percent and 5 percent reflects uncertainty about the discount
rate, but based on a different model of uncertainty. The Newell-Pizer
approach models discount rate uncertainty as something that evolves
over time; in contrast, one alternative approach would assume that
there is a single discount rate with equal probability of 3 percent and
5 percent.
Table IV.32 reports on the application of the Newell-Pizer
adjustments. The precise numbers depend on the assumptions about the
data generating process that governs interest rates. Columns (1a) and
(1b) assume that ``random walk'' model best describes the data and uses
3 percent and 5 percent discount rates, respectively. Columns (2a) and
(2b) repeat this, except that it assumes a ``mean-reverting'' process.
As Newell and Pizer report, there is stronger empirical support for the
random walk model.
Table IV.32--Global Social Cost of Carbon Estimates ($/tCO2 in 2007 in 2007$),* Using Newell & Pizer Adjustment
for Future Discount Rate Uncertainty**
----------------------------------------------------------------------------------------------------------------
Random-walk model Mean-reverting model
---------------------------------------------------
Model Study Climate scenario 3% 5% 3% 5%
---------------------------------------------------
(1a) (1b) (2a) (2b)
----------------------------------------------------------------------------------------------------------------
1...... FUND........... Anthoff et al. FUND default.... 10 0 7 -1
2009.
2...... FUND........... Anthoff et al. SRES A1b........ 2 0 1 -1
2009.
3...... FUND........... Anthoff et al. SRES A2......... 15 0 10 -1
2009.
4...... FUND........... Link and Tol No THC.......... 20 6 13 4
2004.
5...... FUND........... Link and Tol THC continues... 20 4 13 2
2004.
6...... FUND........... Guo et al. 2006. Constant PRTP... 9 0 6 -1
7...... FUND........... Guo et al. 2006. Gollier discount 14 0 14 0
1.
8...... FUND........... Guo et al. 2006. Gollier discount 7 -1 7 -1
2.
FUND Mean....... 12 1 9 0
9...... PAGE........... Wahba & Hope A2-scen......... 97 13 63 8
2006.
10..... PAGE........... Hope 2006....... ................ ........... 13 ........... 8
11..... DICE........... Nordhaus 2008... ................ ........... 15 ........... 9
----------------------------------------------------------------------------------------------------------------
Summary................................... Model-weighted 55 10 36 6
Mean.
----------------------------------------------------------------------------------------------------------------
* The sample includes all peer reviewed, non-equity-weighted estimates included in Tol (2008), Nordhaus (2008),
Hope (2008), and Anthoff et al. (2009), that are based on the most recent published version of FUND, PAGE, or
DICE and use business-as-usual climate scenarios. All values are based on the best available information from
the underlying studies about the base year and year dollars, rather than the Tol (2008) assumption that all
estimates included in his review are 1995 values in 1995$. All values were updated to 2007 using a 3 percent
annual growth rate in the SCC, and adjusted for inflation using GDP deflator.
** Assumes a starting discount rate of 3 percent. Newell and Pizer (2003) based adjustment factors are not
applied to estimates from Guo et al. (2006) that use a different approach to account for discount rate
uncertainty (rows 7-8).
The resulting estimates of the social cost of carbon are
necessarily greater. When the adjustments from the random walk model
are applied, the estimates of the social cost of carbon are $10 and $55
(2007$), with the 5 percent and 3 percent discount rates, respectively.
The application of the mean-reverting adjustment yields estimates of $6
and $36 (2007$). Since the random walk model has greater support from
the data, DOE also used the SCC values of $10 and $55 (2007$). When
escalated to 2008$, these values were approximately $10 and $56.
In summary, in considering the potential global benefits resulting
from reduced CO2 emissions, DOE used values based on a
social cost of carbon of approximately $5, $10, $20, $34 and
[[Page 65928]]
$56 per metric ton avoided in 2007 (values expressed in 2008$). DOE
also calculated the domestic benefits based on a value of approximately
$1 per metric ton avoided in 2007. To monetize the CO2
emissions reductions expected to result from amended standards for
heating products in 2013-2045, DOE escalated the above values for 2007
using a three-percent escalation rate. As indicated in the discussion
above, estimates of SCC are assumed to increase over time since future
emissions are expected to produce larger incremental damages as
physical and economic systems become more stressed as the magnitude of
climate change increases. Although most studies that estimate economic
damages caused by increased GHG emissions in future years produce an
implied growth rate in the SCC, neither the rate itself nor the
information necessary to derive its implied value is commonly reported.
However, applying a rate of 3 percent per year is consistent with the
range recommended by IPCC (2007).
DOE recognizes that scientific and economic knowledge about the
contribution of CO2 and other GHG to changes in the future
global climate and the potential resulting damages to the world economy
continues to evolve rapidly. Thus, any value placed in this rulemaking
on CO2 emissions reduction is subject to change. DOE,
together with other Federal agencies, will continue to review various
methodologies for estimating the monetary value of reductions in
CO2 and other greenhouse gas emissions. This ongoing review
will consider the comments on this subject that are part of the public
record for this and other rulemakings, as well as other methodological
assumptions and issues. However, consistent with DOE's legal
obligations, and taking into account the uncertainty involved with this
particular issue, DOE has included in this proposed rule the most
recent values and analyses resulting from the ongoing interagency
review process.
3. Valuation of Other Emissions Reductions
DOE also investigated the potential monetary benefit of reduced
NOX and Hg emissions from the TSLs it considered. As
previously stated, DOE's analysis assumed the presence of nationwide
emission caps on SO2 and caps on NOX emissions in
the 28 States covered by the CAIR. In the presence of these caps, the
NEMS-BT modeling system that DOE used to forecast emissions reduction
indicated that no physical reductions in power sector emissions would
occur for SO2, but that the standards could put slight
downward pressure on the prices of emissions allowances in cap-and-
trade markets. Estimating this effect is very difficult because such
factors as credit banking can change the trajectory of prices. From its
modeling to date, DOE is unable to estimate a benefit from
SO2 emissions reductions at this time. See the environmental
assessment in the NOPR TSD for further details.
As noted above, new or amended energy conservation standards would
reduce NOX emissions in those 22 States that are not
affected by the CAIR, in addition to the reduction in site
NOX emissions nationwide. DOE estimated the monetized value
of NOX emissions reductions resulting from each of the TSLs
considered for today's NOPR based on environmental damage estimates
from the literature. Available estimates suggest a very wide range of
monetary values, ranging from $370 per ton to $3,800 per ton of
NOX from stationary sources, measured in 2001$ (equivalent
to a range of $442 to $4,540 per ton in 2008$). Refer to the OMB,
Office of Information and Regulatory Affairs, ``2006 Report to Congress
on the Costs and Benefits of Federal Regulations and Unfunded Mandates
on State, Local, and Tribal Entities,'' Washington, DC, for additional
information.
For Hg emissions reductions, DOE estimated the monetized values
resulting from the TSLs considered for today's NOPR based on
environmental damage estimates from the literature. The impact of
mercury emissions from power plants on humans is considered highly
uncertain. However, DOE identified two estimates of the environmental
damage of mercury based on estimates of the adverse impact of childhood
exposure to methyl mercury on intelligence quotient (IQ) for American
children, and subsequent loss of lifetime economic productivity
resulting from these IQ losses. The high-end estimate is based on an
estimate of the current aggregate cost of the loss of IQ in American
children that results from exposure to mercury of U.S. power plant
origin ($1.3 billion per year in 2000$), which works out to $33.3
million per ton emitted per year (2008$). Refer to L. Trasande et al.,
``Applying Cost Analyses to Drive Policy that Protects Children,'' 1076
Ann. N.Y. Acad. Sci. 911 (2006) for additional information. DOE's low-
end estimate is $0.66 million per ton emitted (in 2004$) or $0.745
million per ton in 2008$. DOE derived this estimate from an evaluation
of mercury control that used different methods and assumptions from the
first study but was also based on the present value of the lifetime
earnings of children exposed. See Ted Gayer and Robert Hahn,
``Designing Environmental Policy: Lessons from the Regulation of
Mercury Emissions,'' Regulatory Analysis 05-01, AEI-Brookings Joint
Center for Regulatory Studies, Washington, DC (2004). A version of this
paper was published in the Journal of Regulatory Economics in 2006.
EEI stated that the costs of remediating emissions of
CO2, SO2, NOX, and Hg are included in
the rates customers pay, so monetizing their values would be double
counting. (EEI, No. 40 at p. 6) DOE understands the comment as
referring to actions power plant operators take to meet environmental
regulations, the costs of which are reflected in electricity rates.
With regulations currently in place, revised standards for heating
products would result in a reduction in CO2, NOX,
and Hg emissions by avoiding electricity generation. Because these
emissions impose societal costs, their reduction has an economic value
that can be estimated.
Earthjustice stated that DOE must calculate and monetize the value
of the reductions in emissions of particulate matter (PM) that will
result from standards; even if DOE cannot consider secondary PM
emissions, it must consider primary emissions. (Earthjustice, No. 47 at
p. 5) DOE agrees that PM impacts are of concern due to human exposures
that can impact health. But impacts of PM emissions reduction are much
more difficult to estimate than other emissions reductions due to the
complex interactions between PM, other power plant emissions,
meteorology and atmospheric chemistry that impact human exposure to
particulates. Human exposure to PM usually occurs at a significant
distance from the power plants that are emitting particulates and
particulate precursors. When power plant emissions travel this distance
they undergo highly complex atmospheric chemical reactions. While the
Environmental Protection Agency (EPA) does keep inventories of direct
PM emissions of power plants, in its source attribution reviews the EPA
does not separate direct PM emissions from power plants from the
particulates indirectly produced through complex atmospheric chemical
reactions. This is in part because SO2 emissions react with
direct PM emissions particles to produce combined sulfate particulates.
Thus it is not useful to examine how the standard impacts direct PM
emissions independent of indirect PM production and atmospheric
dynamics. DOE is not currently able to run a model that can
[[Page 65929]]
make these estimates reliably at the national level.
Earthjustice stated that DOE must consider coming climate change
legislation and a national cap on carbon emissions and must account for
the effect of the standards in reducing allowance prices.
(Earthjustice, No. 47 at p. 4) Because no climate change legislation
has been enacted to date, the timing and shape of any national cap on
carbon emissions is uncertain at this point. Therefore, DOE did not
account for such a cap in its NOPR analysis.
V. Analytical Results
A. Trial Standard Levels
DOE analyzed the benefits and burdens of a number of TSLs for each
of the three types of heating products separately. For a given product
consisting of several product classes, DOE developed some of the TSLs
so that each TSL is comprised of energy efficiency levels from each
product class that exhibit similar characteristics. For example, in the
case of water heaters, one of the TSLs consists of the max-tech
efficiency levels from each product class being considered for this
rulemaking. DOE attempted to limit the number of TSLs considered for
the NOPR by eliminating efficiency levels that do not exhibit
significantly different economic and/or engineering characteristics
from the efficiency levels already selected as a TSL. A description of
each TSL DOE analyzed for each of the three types of heating products
is provided below. While DOE only presents the results for those
efficiency levels in TSL combinations in today's NOPR, DOE presents the
results for all efficiency levels analyzed in the NOPR TSD. DOE
requests comments on the results for all of the efficiency levels since
DOE could consider any combination of efficiency levels for the final
rule as a result of comments from interested parties.
1. Water Heaters
Table V.1 shows the seven TSLs DOE analyzed for water heaters.
Since amended water heater standards would apply to the full range of
storage volumes, DOE is presenting the TSLs for water heaters in terms
of the energy efficiency equations, rather than only showing the
required efficiency level at the representative capacities. As
discussed in section IV.C.7, DOE is using the alternative energy-
efficiency equations developed in the engineering analysis for the
NOPR. DOE is grouping the energy efficiency equations for each of the
four water heater product classes to show the benefits and burdens of
amended energy conservation standards.
For TSL 1, 2, 3, and 4, DOE is using the rated storage volume
divisions and the energy efficiency equations as shown in section
IV.C.7, which specify a two-slope approach. TSL 1 consists of the
efficiency levels for each product class that are approximately equal
to the current shipment-weighted average efficiency. TSL 2 and TSL 3
consist of efficiency levels with slightly higher efficiencies compared
to TSL 1 for most of the product classes. TSL 4 represents the maximum
electric resistance water heater efficiency across the entire range of
storage volumes that DOE analyzed for electric storage water heaters,
and the maximum atmospherically vented efficiency across the entire
range of storage volumes that DOE analyzed for gas-fired storage water
heaters.
For TSL 5, DOE further modified the two-slope approach developed in
the engineering analysis. For this TSL, DOE considers a pairing of
efficiency levels that would promote the penetration of advanced
technologies into the electric and gas-fired storage water heater
markets and potentially save additional energy by using a two-slope
approach with different requirements for each subsection. Consequently,
DOE pairs an efficiency level requiring heat pump technology for large-
volume electric storage water heaters with an efficiency level
achievable using electric resistance technology for small-volume
electric storage water heaters. In addition, DOE pairs an efficiency
level requiring condensing technology for large-volume gas storage
water heaters with an efficiency level that can be achieved in
atmospherically vented gas-fired storage water heaters with increased
insulation thickness for small storage volumes.
In addition to pairing different technologies for small and large
volume products for TSL 5, DOE also modified the division point between
small-volume and large-volume gas-fired and electric storage water
heaters. DOE used an analysis of market data to determine the initial
division points (see section IV.C.7 for details), which were 60 gallons
for gas-fired storage water heaters and 80 gallons for electric storage
water heaters. These division points are used to modify the two-slope
equations for TSLs 1, 2, 3, and 4 (as well as TSLs 6 and 7, described
below). Because DOE pairs two different technologies for consideration
as an amended standard in TSL 5, DOE is concerned that manufacturers
may attempt to circumvent the increased standards for large-volume
water heaters by producing water heaters at volumes just below the
division points. As a result, DOE has chosen to modify the division
points for TSL 5 to 55 gallons for gas-fired and electric storage water
heaters to attempt to mitigate the potential loophole. TSL 5 includes
efficiency levels that effectively require heat pump technology for
electric storage water heater with rated storage volumes above 55
gallons, and efficiency levels that effectively require condensing
technology for gas-fired storage water heaters with rated storage
volumes above 55 gallons. Using DOE's shipments model and market
assessment, DOE estimated approximately 4 percent of gas-fired storage
water heater shipments and 11 percent of models would be subject to the
large-volume water heater requirements using the TSL 5 division.
Similarly, DOE estimated approximately 9 percent of electric storage
water heater shipments and 27 percent of models would be subject to the
large volume water heater requirements using the TSL 5 division.
DOE specifically seeks comment on the different approach taken in
TSL 5, including the rated storage volume division of 55 gallons
between small and large storage volumes for gas-fired and electric
storage water heaters at TSL 5. In particular, DOE is interested in
comments from interested parties regarding whether DOE should consider
an alternative division in the final rule, including (but not limited
to), 66 gallons or 75 gallons. In addition, DOE seeks comments
regarding whether different divisions should be specified for gas-fired
and electric storage water heaters such that a similar percentage of
the market is impacted in terms of shipments and/or models.
TSL 6 uses the same divisions as TSL 1, 2, 3, and 4 for gas-fired
water heaters. TSL 6 is identical to TSL 4 except DOE is considering a
heat pump water heater level for electric storage water heaters across
the entire range of storage volumes, which is compatible with ENERGY
STAR criteria for electric storage water heaters at the representative
rated storage volume. DOE did use a division point for the max-tech
energy efficiency equations as described in the engineering analysis.
TSL 7 consists of the max-tech efficiency levels for each of the water
heater product classes at the time the analysis was developed. TSL 6
and 7 both require efficiency levels that can be met using heat pump
technology for electric storage water heaters. TSL 7, however, requires
a higher efficiency level than TSL 6, which corresponds to the max-tech
efficiency level for the representative rated storage capacity (i.e.,
2.2 EF at 50 gallons). TSL 7 also
[[Page 65930]]
requires efficiency levels that can be met using condensing technology
for gas-fired storage and instantaneous water heaters.
Table V.1 demonstrates the energy efficiency equations and
associated two slope divisions for TSLs 1 through 7.
Table V.1--Trial Standard Levels for Residential Water Heaters (Energy
Factor)
------------------------------------------------------------------------
emsp; emsp; emsp;
------------------------------------------------------------------------
Trial standard level Energy efficiency equation
------------------------------------------------------------------------
TSL 1....................... For GSWHs with a For GSWHs with a
Rated Storage Rated Storage
Volume at or below Volume above 60
60 gallons: gallons:
EF = 0.675-(0.0015 x EF = 0.699-(0.0019 x
Rated Storage Rated Storage
Volume in gallons). Volume in gallons).
-------------------------------------------
For ESWHs with a For ESWHs with a
Rated Storage Rated Storage
Volume at or below Volume above 80
80 gallons: gallons:
EF = 0.967-(0.00095 EF = 1.013-(0.00153
x Rated Storage x Rated Storage
Volume in gallons). Volume in gallons).
-------------------------------------------
For OSWHs (over the Entire Rated Storage
Volume range):
EF = 0.64-(0.0019 x Rated Storage Volume
in gallons).
-------------------------------------------
For GIWHs (over the Entire Rated Storage
Volume range):
EF = 0.82-(0.0019 x Rated Storage Volume
in gallons).
------------------------------------------------------------------------
TSL 2....................... For GSWHs with a For GSWHs with a
Rated Storage Rated Storage
Volume at or below Volume above 60
60 gallons: gallons:
EF = 0.675-(0.0012 x EF = 0.717-(0.0019 x
Rated Storage Rated Storage
Volume in gallons). Volume in gallons).
-------------------------------------------
For ESWHs with a For ESWHs with a
Rated Storage Rated Storage
Volume at or below Volume above 80
80 gallons: gallons:
EF = 0.966-(0.0008 x EF = 1.026-(0.00155
Rated Storage x Rated Storage
Volume in gallons). Volume in gallons).
-------------------------------------------
For OSWHs (over the Entire Rated Storage
Volume range):
EF = 0.66-(0.0019 x Rated Storage Volume
in gallons).
-------------------------------------------
For GIWHs (over the Entire Rated Storage
Volume range):
EF = 0.82-(0.0019 x Rated Storage Volume
in gallons).
------------------------------------------------------------------------
TSL 3....................... For GSWHs with a For GSWHs with a
Rated Storage Rated Storage
Volume at or below Volume above 60
60 gallons: gallons:
EF = 0.675-(0.0012 x EF = 0.717-(0.0019 x
Rated Storage Rated Storage
Volume in gallons). Volume in gallons).
-------------------------------------------
For ESWHs with a For ESWHs with a
Rated Storage Rated Storage
Volume at or below Volume above 80
80 gallons: gallons:
EF = 0.965-(0.0006 x EF = 1.051-(0.00168
Rated Storage x Rated Storage
Volume in gallons). Volume in gallons).
-------------------------------------------
For OSWHs (over the Entire Rated Storage
Volume range):
EF = 0.66-(0.0019 x Rated Storage Volume
in gallons).
-------------------------------------------
For GIWHs (over the Entire Rated Storage
Volume range):
EF = 0.82-(0.0019 x Rated Storage Volume
in gallons).
------------------------------------------------------------------------
TSL 4....................... For GSWHs with a For GSWHs with a
Rated Storage Rated Storage
Volume at or below Volume above 60
60 gallons: gallons:
EF = 0.675-(0.0012 x EF = 0.717-(0.0019 x
Rated Storage Rated Storage
Volume in gallons). Volume in gallons).
-------------------------------------------
For ESWHs with a For ESWHs with a
Rated Storage Rated Storage
Volume at or below Volume above 60
60 gallons: gallons:
EF = 0.960-(0.0003 x EF = 1.088-(0.0019 x
Rated Storage Rated Storage
Volume in gallons). Volume in gallons).
-------------------------------------------
For OSWHs (over the Entire Rated Storage
Volume range):
EF = 0.68-(0.0019 x Rated Storage Volume
in gallons).
-------------------------------------------
For GIWHs (over the Entire Rated Storage
Volume range):
EF = 0.82-(0.0019 x Rated Storage Volume
in gallons).
------------------------------------------------------------------------
[[Page 65931]]
TSL 5....................... For GSWHs with a For GSWHs with a
Rated Storage Rated Storage
Volume at or below Volume above 55
55 gallons: gallons:
EF = 0.675-(0.0012 x EF = 0.831-(0.00078
Rated Storage x Rated Storage
Volume in gallons). Volume in gallons).
-------------------------------------------
For ESWHs with a For ESWHs with a
Rated Storage Rated Storage
Volume at or below Volume above 55
55 gallons: gallons:
EF = 0.960-(0.0003 x EF = 2.057-(0.00113
Rated Storage x Rated Storage
Volume in gallons). Volume in gallons).
-------------------------------------------
For OSWHs (over the Entire Rated Storage
Volume range):
EF = 0.68-(0.0019 x Rated Storage Volume
in gallons).
-------------------------------------------
For GIWHs (over the Entire Rated Storage
Volume range):
EF = 0.82-(0.0019 x Rated Storage Volume
in gallons).
------------------------------------------------------------------------
TSL 6....................... For GSWHs with a For GSWHs with a
Rated Storage Rated Storage
Volume at or below Volume above 60
60 gallons: gallons:
EF = 0.675-(0.0012 x EF = 0.717-(0.0019 x
Rated Storage Rated Storage
Volume in gallons). Volume in gallons).
-------------------------------------------
For ESWHs (over the Entire Rated Storage
Volume range):
EF = 2.057-(0.00113 x Rated Storage Volume
in gallons).
-------------------------------------------
For OSWHs (over the Entire Rated Storage
Volume range):
EF = 0.68-(0.0019 x Rated Storage Volume
in gallons).
-------------------------------------------
For GIWHs (over the Entire Rated Storage
Volume range):
EF = 0.82-(0.0019 x Rated Storage Volume
in gallons).
------------------------------------------------------------------------
TSL 7....................... For GSWHs (over the Entire Rated Storage
Volume range):
EF = 0.831-(0.00078 x Rated Storage Volume
in gallons).
-------------------------------------------
For ESWHs (over the Entire Rated Storage
Volume range):
EF = 2.057-(0.00113 x Rated Storage Volume
in gallons).
-------------------------------------------
For OSWHs (over the Entire Rated Storage
Volume range):
EF = 0.74-(0.0019 x Rated Storage Volume
in gallons).
-------------------------------------------
For GIWHs (over the Entire Rated Storage
Volume range):
EF = 0.95-(0.0019 x Rated Storage Volume
in gallons).
------------------------------------------------------------------------
2. Direct Heating Equipment
Table V.2 demonstrates the six TSLs DOE analyzed for DHE. TSL 1
consists of the efficiency levels that are close to the current
shipment-weighted average efficiency. TSL 2, TSL 3 and TSL 4 consist of
efficiency levels that have gradually higher efficiency than TSL 1. TSL
5 consists of the efficiency levels that include electronic ignition
and fan assist (where applicable), and TSL 6 consists of the max-tech
efficiency levels.
Table V.2--Trial Standard Levels for Direct Heating Equipment (AFUE)
----------------------------------------------------------------------------------------------------------------
TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6
Product class (percent) (percent) (percent) (percent) (percent) (percent)
----------------------------------------------------------------------------------------------------------------
Gas Wall Fan (over 42,000 Btu/h)........ 75 76 77 80 75 80
Gas Wall Gravity (over 27,000 and up to 66 68 71 71 72 72
46,000 Btu/h)..........................
Gas Floor (over 37,000 Btu/h)........... 58 58 58 58 58 58
Gas Room (over 27,000 and up to 46,000 66 67 68 68 83 83
Btu/h).................................
Gas Hearth (over 27,000 and up to 46,000 67 67 67 72 72 93
Btu/h).................................
----------------------------------------------------------------------------------------------------------------
3. Gas-Fired Pool Heaters
Table V.3 shows the six TSLs DOE analyzed for pool heaters. TSL 1
consists of the efficiency level that is close to the current shipment-
weighted average efficiency. TSL2 and TSL 3 consist of the efficiency
levels that have gradually higher efficiency than TSL 1. TSL 4 is the
highest efficiency level with positive NPV. TSL 5 is the highest
analyzed non-condensing efficiency level, and TSL 6 consists of the
max-tech efficiency level.
[[Page 65932]]
Table V.3--Trial Standard Levels for Pool Heaters
[Thermal efficiency]
----------------------------------------------------------------------------------------------------------------
TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6
Product class (percent) (percent) (percent) (percent) (percent) (percent)
----------------------------------------------------------------------------------------------------------------
Gas..................................... 81 82 83 84 86 95
----------------------------------------------------------------------------------------------------------------
B. Economic Justification and Energy Savings
1. Economic Impacts on Consumers
a. Life-Cycle Cost and Payback Period
Consumers affected by new or amended standards usually experience
higher purchase prices and lower operating costs. Generally, these
impacts are best captured by changes in life-cycle costs and payback
period. Therefore, DOE calculated the LCC and PBP for the potential
standard levels considered in this rulemaking. DOE's LCC and PBP
analyses provided key outputs for each TSL, which are reported by
product in Table V.4 through Table V.13, below. In each table, the
first two outputs are the average total LCC and the average LCC
savings. The next three outputs show the percentage of households where
the purchase of a product complying with each TSL would create a net
life-cycle cost, no impact, or a net life-cycle savings for the
purchaser. The last outputs are the median PBP and the average PBP for
the consumer purchasing a design that complies with the TSL. The
results for each TSL are relative to the efficiency distribution in the
base case (no amended standards).
DOE based its LCC and PBP analyses for heating products on energy
consumption under conditions of actual use, whereas it based the
rebuttable presumption PBP test on consumption under conditions
prescribed by the DOE test procedure, as required by EPCA. (42 U.S.C.
6295(o)(2)(B)(iii))
Table V.4--Gas-Fired Storage Water Heaters: LCC and PBP Results
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC Payback period
------------------------------------------------------------------------------------------
Energy Households with
TSL factor Average LCC Average LCC --------------------------------------- Median Average
2008$ savings Net benefit years years
2008$ Net cost % No impact % %
--------------------------------------------------------------------------------------------------------------------------------------------------------
1............................................... 0.62 3,369 69 9 22 69 1.4 4.6
2, 3, 4......................................... 0.63 3,369 68 15 17 68 2.7 11.6
5............................................... * 0.63 3,355 78 16 16 68 3.0 12.1
6............................................... 0.67 3,618 -150 67 6 27 20.9 24.6
7............................................... 0.80 3,522 -55 62 1 36 14.1 14.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
* For TSL 5, the EF and the results represent shipments-weighted averages f the EFs and results that apply to small- and large-volume water heaters,
respectively. For the other TSLs the EF and the results refer to the representative rated volume (40 gal).
Table V.5--Electric Storage Water Heaters: LCC and PBP Results
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC Payback period
------------------------------------------------------------------------------------------
Energy Households with
TSL factor Average LCC Average LCC --------------------------------------- Median Average
2008$ savings Net benefit years years
2008$ Net cost % No impact % %
--------------------------------------------------------------------------------------------------------------------------------------------------------
1............................................... 0.92 3,372 16 10 32 59 2.8 7.8
2............................................... 0.93 3,361 23 11 29 60 3.0 8.0
3............................................... 0.94 3,351 32 20 14 66 4.5 8.6
4............................................... 0.95 3,342 39 25 10 65 5.8 8.8
5............................................... * 1.04 3,306 96 25 10 65 5.9 9.1
6............................................... 2.00 3,145 224 45 5 50 8.3 25.9
7............................................... 2.20 3,095 273 45 1 54 8.2 21.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
* For TSL 5, the EF and the results represent shipments-weighted averages of the EFs and results that apply to small- and large-volume water heaters,
respectively. For the other TSLs the EF and the results refer to the representative rated volume (50 gal).
Table V.6 Oil-Fired Storage Water Heaters: LCC and PBP Results
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC Payback period
------------------------------------------------------------------------------------------
Energy Households with
TSL factor Average LCC Average LCC --------------------------------------- Median Average
2008$ savings Net benefit years years
2008$ Net cost % No impact % %
--------------------------------------------------------------------------------------------------------------------------------------------------------
1............................................... 0.58 8,616 171 0 69 31 0.7 0.8
2............................................... 0.60 8,377 288 0 52 48 0.4 0.3
3, 4, 5, 6...................................... 0.62 8,190 395 0 45 55 0.5 0.7
7............................................... 0.68 7,863 655 0 7 93 1.4 1.7
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 65933]]
Table V.7--Gas-Fired Instantaneous Water Heaters: LCC and PBP Results
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC Payback period
------------------------------------------------------------------------------------------
Energy Households with
TSL factor Average LCC Average LCC --------------------------------------- Median Average
2008$ savings Net benefit years years
2008$ Net cost % No impact % %
--------------------------------------------------------------------------------------------------------------------------------------------------------
1, 2, 3, 4, 5................................... 0.82 5,409 0 11 85 4 23.5 30.4
6............................................... 0.92 5,665 -181 70 15 15 34.1 50.2
7............................................... 0.95 5,798 -307 83 6 12 39.5 58.7
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table V.8--Gas Wall Fan DHE: LCC and PBP Results
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC Payback period
------------------------------------------------------------------------------------------
Households with
TSL AFUE % Average LCC Average LCC --------------------------------------- Median Average
2008$ savings Net benefit years years
2008$ Net cost % No impact % %
--------------------------------------------------------------------------------------------------------------------------------------------------------
1, 5............................................ 75 6,879 73 3 59 38 3.1 3.1
2............................................... 76 6,842 90 5 55 41 3.9 6.7
3............................................... 77 6,825 104 30 14 56 6.0 15.0
4, 6............................................ 80 6,793 135 44 5 52 9.8 22.6
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table V.9--Gas Wall Gravity DHE: LCC and PBP Results
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC Payback period
------------------------------------------------------------------------------------------
Households with
TSL AFUE % Average LCC Average LCC --------------------------------------- Median Average
2008$ savings Net benefit years years
2008$ Net cost % No impact % %
--------------------------------------------------------------------------------------------------------------------------------------------------------
1............................................... 66 6,533 25 12 70 18 8.1 14.8
2............................................... 68 6,458 83 19 40 41 6.5 10.9
3, 4............................................ 71 6,349 192 39 0 61 8.3 14.1
5, 6............................................ 72 6,473 68 59 0 41 13.0 26.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table V.10--Gas Floor DHE: LCC and PBP Results
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC Payback period
------------------------------------------------------------------------------------------
Households with
TSL AFUE % Average LCC Average LCC --------------------------------------- Median Average
2008$ savings Net benefit years years
2008$ Net cost % No impact % %
--------------------------------------------------------------------------------------------------------------------------------------------------------
1, 2, 3, 4, 5, 6................................ 58 7,404 13 25 57 18 14.7 20.4
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table V.11--Gas Room DHE: LCC and PBP Results
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC Payback period
------------------------------------------------------------------------------------------
Households with
TSL AFUE % Average LCC Average LCC --------------------------------------- Median Average
2008$ savings Net benefit years years
2008$ Net cost % No impact % %
--------------------------------------------------------------------------------------------------------------------------------------------------------
1............................................... 66 7,702 42 19 50 31 8.1 13.4
2............................................... 67 7,630 96 19 25 56 4.9 9.4
3, 4............................................ 68 7,567 143 20 25 55 5.3 10.2
5, 6............................................ 83 6,892 646 26 25 49 7.0 15.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 65934]]
Table V.12--Gas Hearth DHE: LCC and PBP Results
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC Payback period
------------------------------------------------------------------------------------------
Households with
TSL AFUE % Average LCC Average LCC --------------------------------------- Median Average
2008$ savings Net benefit years years
2008$ Net cost % No impact % %
--------------------------------------------------------------------------------------------------------------------------------------------------------
1, 2, 3......................................... 67 5,195 96 9 51 40 0.0 7.9
4, 5............................................ 72 5,388 -70 69 13 17 25.9 77.6
6............................................... 93 5,571 -253 81 0 19 37.5 78.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table V.13--Gas-Fired Pool Heaters: LCC and PBP Results
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC Payback period
------------------------------------------------------------------------------------------
Thermal Households with
TSL efficiency Average LCC Average LCC --------------------------------------- Median Average
% 2008$ savings Net benefit years years
2008$ Net cost % No impact % %
--------------------------------------------------------------------------------------------------------------------------------------------------------
1............................................... 81 6,383 24 6 64 30 2.5 3.5
2............................................... 82 6,395 18 31 46 22 7.4 10.1
3............................................... 83 6,395 39 52 24 24 10.6 18.7
4............................................... 84 6,461 -13 * 59 22 20 13.0 19.5
5............................................... 86 7,034 -555 90 6 5 28.6 42.4
6............................................... 95 7,809 -1,323 96 1 3 28.1 37.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
* For TSL 4, DOE determined that 14 percent of the consumers will experience a net cost smaller than 2 percent of their total LCC (see chapter 8 of the
TSD).
b. Analysis of Consumer Subgroups
For gas-fired and electric storage water heaters, and gas wall fan
and gas wall gravity DHE, DOE estimated consumer subgroup impacts for
low-income households and senior-only households. In addition, for gas-
fired and electric storage water heaters, DOE estimated consumer
subgroup impacts for households in multi-family housing and households
in manufactured homes as well. (As a reminder and as explained in
section IV.6, not all products in this rulemaking were included in
DOE's consumer subgroup analysis.)
For gas-fired storage water heaters, the impacts of the proposed
standard (0.63 EF) are roughly the same for the senior-only sample and
the low-income sample as they are for the full household sample for
this product class. For the multi-family sample and the manufactured
home sample, the average LCC savings are somewhat lower than they are
for the full household sample, and the fraction of households
experiencing a cost (negative savings) is higher. In both cases,
however, the average LCC savings is positive, and more than half of the
households in the identified subgroups would experience an LCC benefit.
For electric storage water heaters, the impacts of the proposed TSL
4 standard (0.95 EF) are roughly the same for the senior-only sample as
they are for the full household sample for this product class. The
impacts are slightly more negative for the low-income sample, and they
are moderately more negative for the multi-family sample and the
manufactured home sample. The average LCC savings are -$2 for the
latter two subgroups, but in both cases, more than half of the
households in the identified subgroups would experience an LCC benefit.
In the case of a standard for electric storage water heaters at TSL
5, which would require 2.0 EF only for large-volume water heaters, the
negative subgroup impacts seen in the case of TSL 6 are substantially
less because only a small fraction of the households in the subgroups
has large-volume water heaters for which the standard would effectively
require a heat pump water heater.
In the case of a standard for electric storage water heaters at TSL
6, the average LCC savings are lower for all of the subgroups than for
the full household sample for this product class. The multi-family
subgroup would experience an average negative LCC savings of $359
(i.e., the average LCC would increase), and three-fourths of the
households in the subgroup would experience a net cost. For the other
subgroups, the fraction of households that would experience a net cost
is close to or just above 50 percent, which is slightly higher than for
the full household sample. The impact on the multi-family subgroup is
primarily due to the lower hot water use among these households.
For gas wall fan and gas wall gravity DHE, DOE estimated that the
impacts of the proposed standards are roughly the same for the senior-
only sample and the low-income sample as they are for the full
household sample for these product classes.
Chapter 11 of the NOPR TSD presents the detailed results of the
consumer subgroup analysis.
Table V.14--Comparison of Subgroup Impacts for Electric Storage Water Heaters
----------------------------------------------------------------------------------------------------------------
Average LCC Households
Subgroup savings with net cost Median payback
(2008$) (%) period (years)
----------------------------------------------------------------------------------------------------------------
0.95 EF
----------------------------------------------------------------------------------------------------------------
Senior-only..................................................... 38 24 5.3
Low-income...................................................... 17 29 6.3
[[Page 65935]]
Multi-family.................................................... -2 35 6.8
Mobile Home..................................................... -2 34 7.0
All Households.................................................. 39 25 5.8
----------------------------------------------------------------------------------------------------------------
2.0 EF
----------------------------------------------------------------------------------------------------------------
Senior-only..................................................... 30 52 9.8
Low-income...................................................... 143 49 9.3
Multi-family.................................................... -359 76 23.8
Mobile Home..................................................... 81 51 9.6
All Households.................................................. 224 45 8.3
----------------------------------------------------------------------------------------------------------------
c. Rebuttable Presumption Payback
As discussed above, EPCA provides a rebuttable presumption that an
energy conservation standard is economically justified if the increased
purchase cost for a product that meets the standard is less than three
times the value of the first-year energy savings resulting from the
standard (42 U.S.C. 6295(o)(2)(B)(iii)) DOE's LCC and PBP analyses
generate values that calculate the payback period for consumers of
potential energy conservation standards, which includes, but is not
limited to, the three-year payback period contemplated under the
rebuttable presumption test discussed above. However, DOE routinely
conducts a full economic analysis that considers the full range of
impacts, including those to the consumer, manufacturer, Nation, and
environment, as required under 42 U.S.C. 6295(o)(2)(B)(i).
In the present case, DOE calculated a rebuttable presumption
payback period for each TSL. Rather than using distributions for input
values, DOE used discrete values and, as required by EPCA, based the
calculation on the assumptions in the DOE test procedures for the three
types of heating products. As a result, DOE calculated a single
rebuttable presumption payback value, and not a distribution of payback
periods, for each standard level. Table V.15 through Table V.17 show
the rebuttable presumption payback periods that are less than 3 years.
For gas-fired and electric storage water heaters and gas wall gravity
DHE and gas room DHE, there were no payback periods under 3 years.
While DOE examined the rebuttable-presumption criterion, it
considered whether the standard levels considered for today's rule are
economically justified through a more detailed analysis of the economic
impacts of these levels pursuant to 42 U.S.C. 6295(o)(2)(B)(i). The
results of this analysis serve as the basis for DOE to definitively
evaluate the economic justification for a potential standard level
(thereby supporting or rebutting the results of any preliminary
determination of economic justification).
Table V.15--Water Heaters: Rebuttable Payback Periods
------------------------------------------------------------------------
Energy PBP
Product class factor (years)
------------------------------------------------------------------------
Oil-Fired Storage................................. 0.54 1.0
0.56 0.7
0.58 0.9
0.60 0.5
0.62 0.7
0.66 1.4
0.68 1.3
Gas-Fired Instantaneous........................... 0.69 0.9
------------------------------------------------------------------------
Table V.16--Direct Heating Equipment: Rebuttable Payback Periods
------------------------------------------------------------------------
PBP
Product class AFUE % (years)
------------------------------------------------------------------------
Gas Wall Fan DHE.................................. 75 2.9
76 2.9
Gas Hearth DHE.................................... 67 2.0
------------------------------------------------------------------------
Table V.17--Pool Heaters: Rebuttable Payback Periods
------------------------------------------------------------------------
Thermal efficiency % PBP years
------------------------------------------------------------------------
79.................................................... 1.1
81.................................................... 1.9
------------------------------------------------------------------------
2. Economic Impacts on Manufacturers
DOE performed an MIA to estimate the impact of amended energy
conservation standards on manufacturers of residential water heaters,
DHE, and pool heaters. Chapter 12 of the NOPR TSD explains this
analysis in further detail. The tables below depict the financial
impacts on manufacturers (represented by changes in INPV) and the
conversion costs DOE estimates manufacturers would incur at each TSL.
DOE shows the results by grouping product classes made by the same
manufacturer and uses the scenarios that show the likely changes in
industry value following amended energy conservation standards. In the
following discussion, the INPV results refer the difference in industry
value between the base case and the standards case that result from the
sum of discounted cash flows from the base year (2010) through the end
of the analysis period. The results also discuss the difference in cash
flow between the base case and the standards case in the year before
the compliance date of amended energy conservation standards. This
figure gives a representation of how large the required conversion
costs are relative to the cash flow generated by the industry in the
absence of amended energy conservation standards. In the engineering
analysis, DOE presents its findings of the common technology options
that achieve the efficiencies for each of the representative product
classes. To refer to the description of technology options and the
required efficiencies at each TSL, see section IV.C of today's notice.
a. Water Heater Cash-Flow Analysis Results
DOE modeled two different markup scenarios to estimate the
potential impacts of amended energy conservation standards on
residential water heater manufacturers. To assess the lower end of the
range of potential impacts on water heater manufacturers, DOE modeled
the preservation of return on invested capital scenario. Besides the
impact of the main NIA shipment scenario and the required capital and
product conversion costs on INPV, this case models that manufacturers
would
[[Page 65936]]
maintain the base-case return on invested capital in the standards
case. This scenario represents the lower end of the range of potential
impacts on manufacturers because manufacturers generate a historical
rate of additional operating profit on the physical and financial
investments required by energy conservation standards.
To assess the higher end of the range of potential impacts on the
residential water heater industry, DOE modeled the preservation of
operating profit markup scenario in which higher energy conservation
standards result in lower manufacturer markups. This scenario models
manufacturers' concerns about the higher costs of more efficient
technology harming profitability. The scenario represents the upper end
of the range of potential impacts on manufacturers only because no
additional operating profit is earned on the investments required the
meet the amended energy conservation standards. The results of these
scenarios for the residential water heater industry are presented in
Table V.18 through Table V.23.
i. Cash-Flow Analysis Results for Gas-Fired and Electric Storage Water
Heaters
Table V.18--Manufacturer Impact Analysis for Gas-Fired and Electric Storage Water Heaters--Preservation of Return on Invested Capital Markup Scenario
--------------------------------------------------------------------------------------------------------------------------------------------------------
Trial standard level
Units Base case ----------------------------------------------------------------------------
1 2 3 4 5 6 7
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV.................................. (2008$ millions)........ 842.7 838.9 837.7 837.8 839.2 821.8 840.7 905.7
Change in INPV........................ (2008$ millions)........ ......... (3.8) (5.1) (4.9) (3.5) (20.9) (2.0) 62.9
(%)..................... ......... -0.45% -0.60% -0.59% -0.41% -2.48% -0.24% 7.47%
Product Conversion Costs.............. (2008$ millions)........ ......... 11.0 13.2 13.2 13.2 28.9 55.7 72.6
Capital Conversion Costs.............. (2008$ millions)........ ......... 0.0 3.9 3.9 37.1 58.0 69.3 189.2
Total Investment Required............. (2008$ millions)........ ......... 11.0 17.0 17.0 50.3 86.9 125.0 261.8
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table V.19--Manufacturer Impact Analysis for Gas-Fired and Electric Storage Water Heaters--Preservation of Operating Profit Markup Scenario
--------------------------------------------------------------------------------------------------------------------------------------------------------
Trial standard level
Units Base case ----------------------------------------------------------------------------
1 2 3 4 5 6 7
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV.................................. (2008$ millions)........ 842.7 830.4 812.0 807.4 $763.9 712.8 $536.9 $305.1
Change in INPV........................ (2008$ millions)........ ......... (12.3) (30.7) (35.3) (78.8) (129.9) (305.8) (537.6)
(%)..................... ......... -1.46% -3.64% -4.19% -9.35% -15.41% -36.29% -63.79%
Product Conversion Costs.............. (2008$ millions)........ ......... 11.0 13.2 13.2 13.2 28.9 55.7 72.6
Capital Conversion Costs.............. (2008$ millions)........ ......... 0.0 3.9 3.9 37.1 58.0 69.3 189.2
Total Investment Required............. (2008$ millions)........ ......... 11.0 17.0 17.0 50.3 86.9 125.0 261.8
--------------------------------------------------------------------------------------------------------------------------------------------------------
TSL 1 represents an improvement in efficiency from the baseline
level of 0.59 EF to 0.62 EF for gas-fired storage water heaters for the
representative rated storage volume of 40 gallons. For electric storage
water heaters TSL 1 represents an improvement in efficiency from the
baseline level of 0.90 EF to 0.92 EF for the representative rated
storage volume of 50 gallons. At TSL 1, DOE estimates the impacts on
INPV to range from -$3.8 million to -$12.3 million, or a change in INPV
of -0.45 percent to -1.46 percent. At this level, the industry cash
flow is estimated to decrease by approximately 4.8 percent, to $58.1
million, compared to the base-case value of $61.0 million in the year
leading up to the standards. Currently, over 75 percent of the gas-
fired storage water heaters are sold at the baseline level. However,
all manufacturers also offer a full line of gas-fired storage water
heaters that meet the gas-fired efficiencies at TSL 1. Although the
majority of the electric storage water heater shipments do not meet TSL
1, every manufacturer also offers a full line of electric storage water
heaters at or above this level. Because manufacturers have existing
products and manufacturers could reach the required efficiencies with
relatively minor changes to the foam insulation thickness at TSL 1,
manufacturers of gas-fired and electric storage water heaters would
have minimal conversion costs at TSL 1. Because the technology required
at TSL 1 is similar to the baseline, the INPV impacts are similar for
both markup scenarios. It is hence unlikely that TSL 1 would greatly
reduce manufacturers' profitability.
TSL 2 represents an improvement in efficiency from the baseline
level of 0.59 EF to 0.63 EF for gas-fired storage water heaters for the
representative rated storage volume of 40 gallons. For electric storage
water heaters, TSL 2 represents an improvement in efficiency from the
baseline level of 0.90 EF to 0.93 EF for the representative rated
storage volume of 50 gallons. At TSL 2, DOE estimates the impacts on
INPV to range from -$5.1 million to -$30.7 million, or a change in INPV
of -0.60 percent to -3.64 percent. At this level, the industry cash
flow is estimated to decrease by approximately 8.7 percent, to $55.7
million, compared to the base-case value of $61.0 million in the year
leading up to the standards. Currently, over 80 percent of the gas-
fired storage water heaters sold do not meet TSL 2. At TSL 2,
manufacturers are expected to meet the gas-fired efficiency
requirements by adding additional insulation to their existing
products. The conversion costs at TSL 2 are
[[Page 65937]]
relatively minor for gas-fired storage water heaters because most
manufacturers have a full line of products at the required efficiency
for TSL 2 and only minor changes in the manufacturing process would be
required. Although the majority of the electric storage water heater
market is below the efficiency specified for electric storage water
heaters at TSL 2, more than 28 percent of the market is at or above
this level. Manufacturers would have increasing conversion costs for
both capital and product conversion for electric storage water heaters
to modify production facilities to accommodate the extra insulation
required at TSL 2. Because the technology required at TSL 2 is similar
to the baseline for gas-fired and electric storage water heaters,
however, it is unlikely that TSL 2 would greatly impact manufacturers'
profitability.
Similar to TSL 2, TSL 3 represents an improvement in efficiency
from the baseline level of 0.59 EF to 0.63 EF for gas-fired storage
water heaters for the representative rated storage volume of 40
gallons. Because the efficiency requirements for gas-fired storage
water heaters are the same at TSL 3 as at TSL 2, the impacts on
manufacturers are the same as at TSL 2 for the gas-fired storage
efficiency requirements. There are small impacts on manufacturers to
improve the efficiency of the majority of the gas-fired storage
shipments from the baseline. However, because these changes are
expected to be relatively minor increases to the insulation thickness,
the impacts on the industry are not substantial because these changes
do not greatly alter the current manufacturing process. TSL 3
represents a further improvement in efficiency for electric storage
water heaters from the baseline level of 0.90 EF to 0.94 EF for the
representative rated storage volume of 50 gallons. To achieve the
efficiency levels for TSL 3, electric storage manufacturers would be
expected to further increase tank insulation thickness, with still
relatively small conversion costs because many manufacturers already
manufacture storage water heaters at TSL 3. DOE estimates the INPV
impacts to range from -$4.9 million to -$35.3 million, or a change in
INPV of -0.59 percent to -4.19 percent. At this level, the industry
cash flow is estimated to decrease by approximately 8.7 percent to
$55.7 million, compared to the base-case value of $61.0 million in the
year leading up to the standards.
Similar to TSL 2 and TSL 3, TSL 4 represents an improvement in
efficiency from the baseline level of 0.59 EF to 0.63 EF for gas-fired
storage water heaters for the representative rated storage volume of 40
gallons. Because the efficiency requirements for gas-fired storage
water heaters are the same at TSL 4 as at TSL 2 and TSL 3, the impacts
on gas-fired manufacturers are the same. There are small impacts on
manufacturers to improve the efficiency of the majority of the gas-
fired storage shipments from the baseline. However, because these
changes are expected to be relatively minor increases to the insulation
thickness, the impacts on the industry are not substantial because
these changes do not greatly alter the current manufacturing process.
TSL 4 represents a further improvement in efficiency from the baseline
level of 0.90 EF to 0.95 EF for electric storage water heaters at the
representative rated storage volume of 50 gallons. Based on a review of
units on the market at these efficiency levels, DOE expects that
manufacturers would likely further increase insulation levels. Because
not all manufacturers have models at this efficiency currently
available on the market, however, DOE expects that electric storage
water heater manufacturers would incur higher conversion costs at TSL 4
than at TSL 3. At TSL 4, DOE estimates the INPV impacts to range from -
$3.5 million to -$78.8 million, or a change in INPV of -0.41 percent to
-9.35 percent. At this level, the industry cash flow is estimated to
decrease by approximately 33.2 percent to $40.8 million, compared to
the base-case value of $61.0 million in the year leading up to the
standards. Only a small number of electric storage water heaters on the
market meet the efficiency level for electric storage water heaters
required by TSL 4. Electric storage manufacturers would have increasing
conversion costs for both capital and product conversion to greatly
increase the production of low volume products. The capital conversion
costs for electric storage water heaters are more substantial than for
gas-fired storage water heaters because each production line would
require additional foaming stations to accommodate the greatly
increased insulation thicknesses and, due to slower production speeds,
adding additional production lines in existing facilities to maintain
current shipment volumes. Manufacturers also noted that they were
concerned about TSL 4 for electric storage water heaters because of
problems with the test procedure that could make it difficult replicate
the efficiencies required at this TSL.
TSL 5 has the same efficiency requirements as TSL 4 for gas-fired
and electric storage water heaters with rated storage volumes less than
55 gallons. Because the efficiency requirements for gas-fired and
electric storage water heaters with rated storage volumes less than 55
gallons are equal to TSL 4, at TSL 5 manufacturers share the same
concerns for these rated storage volumes as at TSL 4. However, the
efficiency requirements for gas-fired storage water heaters with rated
storage volumes greater than 55 gallons effectively require condensing
technology, and the efficiency requirements for electric storage water
heaters with rated storage volumes greater than 55 gallons effectively
require heat pump technology. At TSL 5, DOE estimates the INPV impacts
to range from -$20.9 million to -$129.9 million, or a change in INPV of
-2.48 percent to -15.41 percent. At this level, the industry cash flow
is estimated to decrease by approximately 55.6 percent to $27.1
million, compared to the base-case value of $61.0 million in the year
leading up to the standards. The higher, negative impacts on INPV are
largely caused by the additional conversion costs required to
substantially change the technology commonly used in large size gas-
fired and electric storage water heaters today. DOE estimates the
approximately 4 percent of gas-fired storage water heater shipments
with rated volumes greater than 55 gallons would require an additional
$13 million in conversion costs to use condensing technology. DOE
estimates the approximately 9 percent of gas-fired storage water heater
shipments with rated volumes greater than 55 gallons would require an
additional $24 million in conversion costs to use heat pump technology.
Much of the additional capital conversion costs calculated for
large volume sizes at TSL 5 involve creating an additional gas-fired
and electric assembly line in a facility adjacent to a current
production facility. Because high-volume manufacturing facilities are
typically arranged for units with similar assembly processes, the more
complex technology used for larger rated volumes at TSL 5 could not be
accommodated on existing production lines. The estimated product
conversion costs at TSL 5 would involve retraining existing service and
installation personnel, who have little experience installing and
servicing storage water heaters that use these advanced technologies.
To minimize unit damage and warranty claims and improve market
acceptance, manufacturers would likely have to expend significant
additional resources to hire training staff to provide more technical
support.
[[Page 65938]]
The other portion of the product conversion costs for large rated
volumes are the product development effort to redesign existing
products. Manufacturers could face constraints regarding the abilities
of their engineering teams to develop multiple water heater families at
TSL 5, as most engineering departments have limited experience with
either technology. At a minimum, the efficiency requirements at TSL 5
would require manufacturers to convert existing commercial condensing
gas products for residential use. However, multiple manufacturers would
also have to develop completely new platforms in order to remain cost-
competitive. Even if a manufacturer were to offer incur these high
conversion costs, the high product development and capital conversion
costs for a small segment of the overall market make it likely that
consumers will have fewer product families to choose from after the
compliance date of the final rule.
Even if manufacturers offer gas condensing and electric heat pump
water heaters for the large gallon sizes at TSL 5, there could be
additional, negative impacts on consumers that could lead to a smaller
market for these products. Consumers might no longer purchase water
heaters with rated storage volumes above 55 gallons because of
substantially higher increased first costs than most products currently
on the market, the unfamiliar technologies, and size limitations.
Because of these changes in the market, at TSL 5, manufacturers could
decide that the demand for residential heat pump and condensing gas
water heaters would drop to a point where the high product conversion
and capital costs required for a small portion of total shipments are
not justified. As a result, manufacturers would no longer manufacture
residential storage water heaters at rated storage volumes above 55
gallons. In addition, consumers could be impacted if fewer contractors
were willing to install these more complex products, especially if
field technicians did not obtain any additional licenses and test
equipment that could be required to service heat pump water heaters.
These additional requirements would also likely increase installation
and service costs beyond current levels since consumers would have
fewer servicers/installers to choose from.
Similar to TSL 2 through TSL 4, TSL 6 represents an improvement in
efficiency from the baseline level of 0.59 EF to 0.63 EF for gas-fired
storage water heaters for the representative rated storage volume of 40
gallons. Similarly, the impacts on manufacturers due to the gas-fired
storage efficiencies are relatively minor because the required
efficiencies for all volume sizes can likely be met with relatively
minor changes to the insulation thickness. For electric storage water
heaters, TSL 6 represents an improvement in efficiency from the
baseline level of 0.90 EF to 2.0 EF for electric storage water heaters
at the representative rated storage volume of 50 gallons. At TSL 6, DOE
estimates the impacts on INPV to range from -$2.0 million to -$305.8
million, or a change in INPV of -0.24 percent to -36.29 percent. At TSL
6, the industry cash flow is estimated to decrease by approximately
75.7 percent, to $14.8 million, compared to the base-case value of
$61.0 million in the year leading up to the standards. To achieve
efficiencies at or above TSL 6 would require the use of heat pumps for
electric storage water heaters for all rated volumes, a technology
option that has yet to see wide adoption in the U.S. market. The higher
expected purchased part content and market pressures would be expected
to reduce manufacturer profits margins substantially. Although most
electric storage water heater manufacturers indicated that they are in
the process of developing heat pump water heaters, all manufacturers
believe that an efficiency level that requires heat pump water heater
technology is not appropriate as an amended energy conservation
standard. Manufacturers stated that they would face substantial costs
to switch their entire electric storage water heater production over to
heat pump electric storage water heaters. Several manufacturers expect
that they will have to buy the heat pump modules from outside vendors
since most water heater manufacturers have no experience manufacturing
heat pumps and have limited space in their facilities to produce heat
pump systems. Multiple manufacturers stated that even if they were to
simply buy and integrate heat pump modules, there would be substantial
product development and capital conversion costs because present
facilities are not adequate to handle the heat pump modules. DOE
estimates that manufacturers would incur almost $70 million in capital
conversion costs to modify production facilities to exclusively
manufacture heat pump electric storage water heaters. These capital
conversion cost estimates do not include the cost of building
manufacturing capacity to produce the heat pump modules because DOE
believes manufacturers will likely purchase these as subassemblies.
Furthermore, manufacturers stated that they would consider moving
all or part of their existing production capacity abroad if the energy
conservation standard is set at TSL 6 because many manufacturers expect
that they would have to redesign their facilities completely to
accommodate a minimum energy conservation standard at this TSL.
According to these manufacturers, building a new facility entails less
business disruption risk than attempting to completely redesign and
upgrade existing facilities, and lower labor rates in Mexico and other
countries abroad may entice manufacturers to move their production
facilities outside of the U.S. In addition, manufacturers are very
concerned about the significant number of customers who would face
extremely costly installations for electric storage water heater
replacements if a standard effectively requiring heat pump technology
is mandated. According to manufacturers, a significant percentage of
electric storage water heaters are installed in space-constrained
environments which cannot accommodate the additional space required for
the heat pump module. This is especially true for mobile homes and
other consumer sub-groups that use smaller capacity tanks.
Another concern of manufacturers at TSL 6 is the amount of
additional training that would be necessary to upgrade the
installation, distribution, and maintenance networks on the scale
necessary to support an electric storage water heater market that used
heat pump technology exclusively. Stated more simply, manufacturers are
concerned that the typical installer or repair person would not have
the requisite knowledge to troubleshoot or repair heat pump water
heaters. Manufacturers also expressed concern about profitability if
amendments to the minimum energy conservation standard for electric
storage water heaters were to require the use of heat pump technology.
An amended energy conservation standard that effectively mandated heat
pump technology would completely change the nature of their business.
The production costs for an integrated heat pump water heater at the
50-gallon representative rated storage volume are approximately four
times the baseline production costs. Specifically, manufacturers
believe that because this technology results in much more expensive
units than the majority of products on the market today, not all of the
increased costs could be passed on to the customer. In addition, the
significantly higher production costs
[[Page 65939]]
would require an additional $256 million in working capital to purchase
significantly more expensive components, carry more costly inventory,
and handle higher accounts receivable. DOE estimates that the working
capital requirement and conversion costs would cause electric storage
water heater manufacturers to incur a total one-time investment of at
least $375 million in an electric storage market valued at
approximately $311 million. Finally, manufacturers believe it is
unlikely that they could earn the same return on these extremely large
investments, so profitability would be expected to decrease after the
compliance date of the amended energy conservation standards.
TSL 7 represents an improvement in efficiency from the baseline
level of 0.59 EF to 0.80 EF for gas-fired storage water heaters for the
representative rated storage volume of 40 gallons. TSL 7 represents an
improvement in efficiency from the baseline level of 0.90 EF to 2.2 EF
for electric storage water heaters at the representative rated storage
volume of 50 gallons. At TSL 7, DOE estimates the impacts on INPV to
range from $62.9 million to -$537.6 million, or a change in INPV of
7.47 percent to -63.79 percent. At TSL 7, the industry cash flow is
estimated to decrease by approximately 171.6 percent, to -$43.7
million, compared to the base-case value of $61.0 million in the year
leading up to the standards. Because TSL 7 also requires improved heat
pump technology (with additional efficiency-related improvements to
both the heat pump module and the water heater tank), electric storage
water heater manufacturers shared the same concerns at TSL 7 as they
had at TSL 6. Because additional, more-costly improvements to heat pump
technology are required, however, electric storage water heater
manufacturers were more concerned about the potential for energy
conservation standards to greatly disrupt the industry if the amended
energy conservation standard were set at TSL 7.
For gas-fired storage water heaters, TSL 7 requires manufacturers
to produce fully-condensing gas-fired storage water heaters, which is
significantly more complex than the insulation changes required at most
lower TSLs. Currently, no manufacturer offers residential gas-fired
storage water heaters with condensing technology. Manufacturers would
need to redesign their products at the condensing level, which would
force manufacturers to incur significant product and capital conversion
costs. Some loss in product utility may also occur for units that are
presently installed in space-constrained applications because
condensing water heaters require greater installation space to
accommodate bigger heat exchangers, fully-installed blowers, and other
components that non-condensing models do not feature. At the condensing
level, manufacturers would be required to purchase substantial tooling
to fabricate new coil and tank designs and make changes to all
subassembly and main assembly lines. DOE estimates that manufacturers
would incur approximately $111 million in capital conversion costs to
modify their production facilities. Some gas-fired storage water heater
manufacturers stated during interviews that they would consider moving
facilities offshore at TSL 7 to take advantage of lower labor costs. In
addition, due to the complexity and large size of storage water heaters
at this efficiency, manufacturers are concerned that installations will
be far more difficult and could force many consumers to pay
substantially higher installed costs if their replacement water heater
does not fit into their existing space. Manufacturers are also
concerned about profitability if standards were set at a level that
would effectively require condensing technology. An amended energy
conservation standard that effectively mandated condensing gas-fired
storage water heaters would completely change the existing structure of
the industry. Because this technology results in much more expensive
units than the majority of products on the market today, manufacturers
argued that not all of the increased costs could be passed on to the
customer. In addition, the significantly higher production costs would
require at least an additional $145 million in working capital to
purchase significantly more expensive components, carry more costly
inventory, and handle higher accounts receivable. DOE estimates that
the working capital requirement and conversion costs would cause gas-
fired storage water heater manufacturers to incur a total one-time
investment of at least $276 million in a gas-fired storage market
valued at approximately $532 million. While there is a slightly
positive impact if manufacturers get the same return on these
investments as in the base case, manufacturers believe that they will
not earn the same return from the substantially higher capital
requirements at TSL 7.
ii. Cash-Flow Analysis Results for Oil-Fired Storage Water Heaters
Table V.20--Manufacturer Impact Analysis for Oil-Fired Storage Water Heaters--Preservation of Return on Invested Capital Markup Scenario
--------------------------------------------------------------------------------------------------------------------------------------------------------
Trial standard level
Units Base case ----------------------------------------------------------------------------
1 2 3 4 5 6 7
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV.................................. (2008$ millions)........ 8.7 8.5 8.5 8.5 8.5 8.5 8.5 7.4
Change in INPV........................ (2008$ millions)........ ......... (0.2) (0.2) (0.2) (0.2) (0.2) (0.2) (1.3)
(%)..................... ......... -1.93% -1.78% -1.96% -1.96% -1.96% -1.96% -14.84%
Product Conversion Costs.............. (2008$ millions)........ ......... 0.3 0.3 0.3 0.3 0.3 0.3 1.0
Capital Conversion Costs.............. (2008$ millions)........ ......... 0.2 0.2 0.2 0.2 0.2 0.2 3.6
Total Investment Required............. (2008$ millions)........ ......... 0.5 0.5 0.5 0.5 0.5 0.5 4.6
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 65940]]
Table V.21--Manufacturer Impact Analysis for Oil-Fired Storage Water Heaters--Preservation of Operating Profit Markup Scenario
--------------------------------------------------------------------------------------------------------------------------------------------------------
Trial standard level
Units Base case ----------------------------------------------------------------------------
1 2 3 4 5 6 7
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV.................................. (2008$ millions)........ 8.7 8.3 8.4 8.3 8.3 8.3 8.3 5.2
Change in INPV........................ (2008$ millions)........ ......... (0.3) (0.3) (0.4) (0.4) (0.4) (0.4) (3.5)
(%)..................... ......... -3.89% -3.58% -4.31% -4.31% -4.31% -4.31% -39.86%
Product Conversion Costs.............. (2008$ millions)........ ......... 0.3 0.3 0.3 0.3 0.3 0.3 1.0
Capital Conversion Costs.............. (2008$ millions)........ ......... 0.2 0.2 0.2 0.2 0.2 0.2 3.6
Total Investment Required............. (2008$ millions)........ ......... 0.5 0.5 0.5 0.5 0.5 0.5 4.6
--------------------------------------------------------------------------------------------------------------------------------------------------------
TSL 1 represents an improvement in efficiency for oil-fired storage
water heaters from the baseline level of 0.53 EF to 0.58 EF for the
representative rated storage volume of 32 gallons. At TSL 1, DOE
estimates the impacts on INPV to range from -$0.2 to -$0.3 million, or
a change in INPV of -1.93 percent to -3.89 percent. At this level, the
industry cash flow would be expected to decrease by approximately 28.5
percent, to $0.4 million, compared to the base-case value of $0.6
million in the year leading up to the standards. At TSL 1, one of the
two major manufacturers would have to incur relatively small product
and capital conversion costs to slightly modify their existing product
line. DOE research suggests that this TSL can be met with changes to
the insulation thickness of baseline products. However, if more costly
design changes were required it could have more of an impact on the
industry.
TSL 2 represents an improvement in efficiency from the baseline
level of 0.53 EF to 0.60 EF for the representative rated storage volume
of 32 gallons. At TSL 2, DOE estimates the impacts on INPV to range
from -$0.2 million to -$0.3 million, or a change in INPV of -1.78
percent to -3.58 percent. At this level, the industry cash flow is
estimated to decrease by approximately 28.5 percent, to $0.4 million,
compared to the base-case value of $0.6 million in the year leading up
to the standards. Similar to TSL 1, at TSL 2 DOE has tentatively
concluded, based on a review of existing products on the market, that
TSL 2 could be met with changes to the type and thickness of the
insulation. The impacts at TSL 1 are slightly worse than at TSL 2
because the technology option for existing oil-fired storage water
heaters on the market results in lower product costs at TSL 2. However,
if TSL 2 is met with similar insulation changes, only one of two major
manufacturers would still be required to slightly modify their current
residential oil-fired storage product lines at TSL 2.
TSLs 3 through TSL 6 represent an improvement in efficiency from
the baseline level of 0.53 EF to 0.62 EF for the representative rated
storage volume of 32 gallons. At these levels, DOE estimates the
impacts on INPV to range from -$0.2 million to -$0.4 million, or a
change in INPV of -1.96 percent to -4.31 percent. At this level, the
industry cash flow decreases by approximately 28.5 percent, to $0.4
million, compared to the base-case value of $0.6 million in the year
leading up to the standards. At these TSLs, one major manufacturer
would have to incur relatively minor product and capital conversion
costs to modify their existing oil-fired residential storage water
heater product line. DOE has tentatively concluded based on a review of
existing products on the market that the efficiency requirements at TSL
3 through TSL 6 could be met with changes to the type and thickness of
the insulation. Due to the low volume of oil-fired storage water
heaters, if any manufacturer had to make substantial product or capital
conversion costs to reach the amended energy conservation standard
using a more complex technology, these substantial costs could force
them to consider exiting the residential oil-fired storage water heater
market.
TSL 7 (the max-tech level) represents an improvement in efficiency
from the baseline level of 0.53 EF to 0.68 EF for the representative
rated storage volume of 32 gallons. At TSL 7, DOE estimates the impacts
on INPV to range from -$1.3 million to -$3.5 million, or a change in
INPV of -14.84 percent to -39.86 percent. At this level, the industry
cash flow is estimated to decrease by approximately 342.5 percent, to -
$1.3 million, compared to the base-case value of $0.6 million in the
year leading up to the standards. At TSL 7, at least one major
manufacturer would have to incur very substantial product and capital
conversion to redesign the combustion and baffling system to include a
multi flue design. Given the small size of the residential oil-fired
storage water heater market, this manufacturer stated that these
extremely large substantial product and capital conversion costs would
be difficult to justify. At TSL 7, it is possible that this
manufacturer would exit the residential oil-fired storage water heater
market. Because there are only two main manufacturers that supply the
vast majority of U.S. shipments of oil-fired storage water heaters, any
manufacturer exiting the market could lead to a market disruption.
iii. Cash-Flow Analysis Results for Gas-Fired Instantaneous Water
Heaters
Table V.22--Manufacturer Impact Analysis for Gas-Fired Instantaneous Water Heaters--Preservation of Return on Invested Capital Markup Scenario
--------------------------------------------------------------------------------------------------------------------------------------------------------
Trial standard level
Units Base case -----------------------------------------------------------------------------------
1 2 3 4 5 6 7
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV.............................. (2008$ millions).... 603.5 604.7 604.7 604.7 604.7 604.7 604.7 683.8
Change in INPV.................... (2008$ millions).... .......... 1.2 1.2 1.2 1.2 1.2 1.2 80.3
[[Page 65941]]
(%)................. .......... 0.20% 0.20% 0.20% 0.20% 0.20% 0.20% 13.31%
Product Conversion Costs.......... (2008$ millions).... .......... 0.0 0.0 0.0 0.0 0.0 0.0 8.0
Capital Conversion Costs.......... (2008$ millions).... .......... 0.0 0.00 0.00 0.0 0.0 0.0 9.6
Total Investment Required......... (2008$ millions).... .......... 0.0 0.0 0.0 0.0 0.0 0.0 17.6
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table V.23--Manufacturer Impact Analysis for Gas-Fired Instantaneous Storage Water Heaters--Preservation of Operating Profit Markup Scenario
--------------------------------------------------------------------------------------------------------------------------------------------------------
Trial standard level
Units Base case -----------------------------------------------------------------------------------
1 2 3 4 5 6 7
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV.............................. (2008$ millions).... 603.5 601.7 601.7 601.7 601.7 601.7 601.7 537.6
Change in INPV.................... (2008$ millions).... .......... (1.8) (1.8) (1.8) (1.8) (1.8) (1.8) (65.9)
(%)................. .......... -0.30% -0.30% -0.30% -0.30% -0.30% -0.30% -10.91%
Product Conversion Costs.......... (2008$ millions).... .......... 0.0 0.0 0.0 0.0 0.0 0.0 8.0
Capital Conversion Costs.......... (2008$ millions).... .......... 0.0 0.0 0.0 0.0 0.0 0.0 9.6
Total Investment Required......... (2008$ millions).... .......... 0.0 0.0 0.0 0.0 0.0 0.0 17.6
--------------------------------------------------------------------------------------------------------------------------------------------------------
TSL 1 through TSL 6 represent an improvement in efficiency from the
baseline gas-fired instantaneous water heater efficiency level of 0.62
EF to 0.82 EF for the representative input capacity of 199 kBtu/h. At
TSL 1 through TSL 6, DOE estimates the INPV impacts to range from $1.2
million to -$1.8 million, or a change in INPV of 0.20 percent to -0.30
percent. At this level, the industry cash flow is estimated to remain
at the base-case value of $75.0 million in the year leading up to the
standards. DOE research suggests that over 80 percent of gas-fired
instantaneous products sold today meet or exceed this efficiency, and
nearly all manufacturers of gas-fired instantaneous water heaters
currently make products that meet or exceed the efficiency required by
TSL 1 through TSL 6. Hence, there appears to be little risk that TSL 1
through TSL 6 would greatly harm manufacturers or reduce the number of
manufacturers that sell these products.
TSL 7 (the max-tech level) represents an improvement in efficiency
from the baseline level of 0.62 EF to 0.95 EF for the representative
input capacity of 199 kBtu/h. At TSL 7, DOE estimates the INPV impacts
to range from $80.3 million to -$65.9 million, or a change in INPV of
13.31 percent to -10.91 percent. At this level, the industry cash flows
are estimated to decrease by approximately 5.9 percent to $70.5
million, compared to the base-case value of $75.0 million in the year
leading up to the standards. Only one manufacturer currently offers a
gas-fired instantaneous water heater that meets the max-tech efficiency
on the U.S. market. Most manufacturers would incur substantial product
conversion and capital conversion costs to upgrade their existing
products at TSL 7. To reach 0.95 EF, a more complex condensing model
would need to be developed. Because only one manufacturer offers
products that meet this efficiency, TSL 7 could greatly reduce the
number of gas-fired instantaneous water heaters offered for sale in the
United States.
b. Direct Heating Equipment Cash-Flow Analysis Results
Traditional DHE manufacturers are extremely concerned about the
potential for amended energy conservation standards to harm their
business. The vast majority of the traditional DHE market is controlled
by three manufacturers. The small shipment volume of products in the
traditional market has greatly reduced the number of competitors in the
past decade. The traditional DHE market is mostly a replacement market
met by these three companies that have acquired product lines as
competitors were bought and absorbed or exited the market. Most DHE
manufacturers offer a wide scope of products manufactured at low
production rates to ensure that they can maintain a viable portion of
the replacement market in order to remain in business. Because the
traditional DHE market consists of a large number of relatively low-
volume, mostly replacement models, manufacturers stated that they
cannot justify large investments needed to redesign their existing
product lines. Manufacturers are concerned that amended energy
conservation standards could greatly impact the availability of
replacement products for the majority of their customers due to the
limited resources that would be available to update existing products
and make changes to their existing facilities. In addition,
manufacturers were concerned that energy conservation standards could
lower profitability at higher TSLs because demand is expected to
decline in response to increases in first cost that could cause
consumers to switch to other types of heating appliances.
Gas hearth manufacturers were also concerned about potentially
detrimental impacts from amended energy conservation standards. While
there are three major gas hearth DHE manufacturers, DOE identified an
additional 12 manufacturers in the market and technology assessment
(see chapter 3 of the TSD). Because consumers generally are more
interested in the appearance of these products than
[[Page 65942]]
efficiency, every manufacturer typically offers a wide range of product
lines and an even greater number of individual products. Manufacturers
are concerned that higher energy conservation standards could harm
their business because they do not have the resources to upgrade all
these existing product lines and could be forced to offer fewer
products after the compliance date for the amended energy conservation
standards. Manufacturers were also concerned that higher price points
could lead to lower profitability. Because of the large number of
manufacturers and the recent decline in shipments, manufacturers were
concerned that additional production costs could not be passed on to
consumers or that markups would be lowered to avoid higher price points
leading to lower sales.
To assess the lower end of the range of potential impacts of
amended standards on DHE manufacturers, DOE modeled the industry
assuming the preservation of return on invested capital scenario.
Besides the impact of shipments and the required capital and product
conversion costs on INPV, this scenario assumes that manufacturers are
able to maintain their base-case return, even on additional invested
capital. In this scenario, operating profit increases after the
compliance date of the amended energy conservation standards because
manufacturers continue to earn a historical rate of return on the
investments required by the amended energy conservation standards.
To assess the higher end of the range of potential impacts of
amended standards on the DHE industry, DOE modeled the preservation of
operating profit markup scenario. In this scenario, higher energy
conservation standards result in lower manufacturer percentage markups.
The preservation of operating profit markup scenario models
manufacturers' concerns about the low volume of shipments and declining
profitability if higher energy conservation standards were implemented.
The preservation of operating profit scenario also models gas hearth
manufacturer concerns that amended energy conservation standards would
impact profitability due to the need to lower their markups to keep
customers from switching to non-covered hearth products if the energy
conservation standards significantly raised the installed prices of
covered products. In the preservation of operating profit scenario,
manufacturer markups decline and operating profit remains the same
after the compliance date of the amended energy conservation standards
as in the base case. Industry value is harmed because manufacturers do
not earn additional return on the investments required by the amended
standards.
i. Cash-Flow Analysis Results for Traditional Direct Heating Equipment
(Gas Wall Fan, Gas Wall Gravity, Gas Floor, and Gas Room Direct Heating
Equipment)
Table V.24--Manufacturer Impact Analysis for Traditional Direct Heating Equipment--Preservation of Return on Invested Capital Markup Scenario
--------------------------------------------------------------------------------------------------------------------------------------------------------
Trial standard level
Units Base case -----------------------------------------------------------------------
1 2 3 4 5 6
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV.................................... (2008$ millions).......... 17.9 17.5 17.3 16.9 16.7 16.2 15.7
Change in INPV.......................... (2008$ millions).......... .......... (0.4) (0.6) (1.1) (1.3) (1.8) (2.2)
(%)....................... .......... -2.27% -3.42% -5.91% -7.16% -9.99% -12.28%
Product Conversion Costs................ (2008$ millions).......... .......... 0.6 1.0 1.9 2.4 3.5 4.3
Capital Conversion Costs................ (2008$ millions).......... .......... 1.2 2.4 4.5 5.6 4.7 6.8
Total Investment Required............... (2008$ millions).......... .......... 1.84 3.40 6.39 7.98 8.14 11.03
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table V.25--Manufacturer Impact Analysis for Traditional Direct Heating Equipment--Preservation of Operating Profit Markup Scenario
--------------------------------------------------------------------------------------------------------------------------------------------------------
Trial standard level
Units Base case -----------------------------------------------------------------------
1 2 3 4 5 6
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV.................................... (2008$ millions).......... 17.9 16.3 14.9 11.9 10.4 9.9 7.2
Change in INPV.......................... (2008$ millions).......... .......... (1.6) (3.1) (6.0) (7.6) (8.0) (10.8)
(%)....................... .......... -9.11% -17.20% -33.54% -42.14% -44.84% -59.98%
Product Conversion Costs................ (2008$ millions).......... .......... 0.6 1.0 1.9 2.4 3.5 4.3
Capital Conversion Costs................ (2008$ millions).......... .......... 1.2 2.4 4.5 5.6 4.7 6.8
Total Investment Required............... (2008$ millions).......... .......... 1.84 3.40 6.39 7.98 8.14 11.03
--------------------------------------------------------------------------------------------------------------------------------------------------------
For traditional DHE, TSL 1 represents an improvement in efficiency
from the baseline level of 74-percent AFUE to 75-percent AFUE for gas
wall fan DHE, an improvement in efficiency from the baseline level of
64-percent AFUE to 66-percent for gas wall gravity DHE, an improvement
in efficiency from the baseline level of 57-percent AFUE to 58-percent
AFUE for gas floor DHE (the max-tech level), and an improvement in
efficiency from the baseline level of 64-percent AFUE to 66-percent
AFUE for gas room DHE at their respective representative input rating
ranges. DOE research suggests that manufacturers would use an
intermittent ignition and a two-speed blower for gas wall fan DHE and
an improved heat exchanger design for gas wall gravity, gas floor
units, and gas room DHE to achieve the efficiencies required by TSL 1.
At TSL 1, DOE estimates the impacts on INPV to range from $0.4 to -$1.6
million, or a change
[[Page 65943]]
in INPV of -2.27 percent to -9.11 percent. At this level, the industry
cash flow is estimated to decrease by approximately 45.7 percent, to
$0.8 million, compared to the base-case value of $1.4 million in the
year leading up to the standards. While some manufacturers may need to
make redesigns to some of their products even at TSL 1, manufacturers
generally have a significant number of products that meet the required
efficiencies for most traditional DHE product types, and for this
reason, a complete exit from the market by any manufacturer is
unlikely.
TSL 2 represents an improvement in efficiency from the baseline
level of 74-percent AFUE to 76-percent for gas wall fan DHE, an
improvement in efficiency from the baseline level of 64-percent AFUE to
68-percent AFUE for gas wall gravity DHE, an improvement in efficiency
from the baseline level of 57-percent AFUE to 58-percent AFUE for gas
floor DHE (the max-tech level), and an improvement in efficiency from
the baseline level of 64-percent AFUE to 67-percent for gas room DHE at
the representative input rating ranges for each product type. DOE
research suggests that at TSL 2, manufacturers would opt to use an
improved heat exchanger and intermittent ignition for gas wall fan DHE,
and make further improvements to the heat exchanger for gas wall
gravity and gas room DHE, and use the same improved heat exchanger for
gas floor DHE as at TSL 1 to reach the efficiency levels required by
TSL 2. At TSL 2, DOE estimates the impacts in INPV to range from -$0.6
million to -$3.1 million, or a change in INPV of -3.42 percent to -
17.20 percent. At this level, the industry cash flow is estimated to
decrease by approximately 86.1 percent, to $0.2 million, compared to
the base-case value of $1.4 million in the year leading up to the
standards. At TSL 2, every manufacturer would face higher product
development costs in order to offer a similar range of product
offerings. However, at TSL 2, it is likely that more products would be
discontinued because more of the current products on the market fall
below the required efficiencies. As a result, manufacturers must either
expend resources to cover the necessary product conversion and capital
conversion costs, or they will be forced to discontinue some of their
existing product lines. While TSL 2 would have a significant impact on
manufacturers, most manufacturers would not be expected to face a
complete redesign for most traditional DHE product types. Even if
manufacturers lowered the number of product lines offered in certain
product classes, manufacturers would have enough existing products that
meet or exceed the required efficiencies to upgrade most of their
existing product lines and maintain viable production volumes after the
compliance date of the amended energy conservation standards.
TSL 3 represents an improvement in efficiency from the baseline
level of 74-percent AFUE to 77-percent for gas wall fan DHE, an
improvement in efficiency from the baseline level of 64-percent AFUE to
71-percent AFUE for gas wall gravity units, an improvement in
efficiency from the baseline level of 57-percent AFUE to 58-percent
AFUE for gas floor DHE (the max-tech level), and an improvement in
efficiency from the baseline level of 64-percent AFUE to 68-percent for
gas room DHE at the representative input rating ranges. DOE research
suggests that manufacturers would improve baseline units by adding an
intermittent ignition, a two-speed blower, and an improved heat
exchanger for gas wall fan units, make further improvements to the heat
exchanger used to reach TSL 2 for gas wall gravity and gas room units,
and use the same improved heat exchanger for gas floor DHE as at TSL 1
and TSL 2 to reach the efficiency levels of TSL 3. At TSL 3, DOE
estimates the INPV impacts to range from -$1.1 million to -$6.0
million, or a change in INPV of -5.91 percent to -33.54 percent. At
this level, the industry cash flow is estimated to decrease by
approximately 161.8 percent to -$0.9 million, compared to the base-case
value of 1.4 million in the year leading up to the standards. The large
estimated impact on INPV suggests that manufacturers would be
substantially harmed if profitability were impacted.
At TSL 3, products increasingly rely on purchased parts, making it
more likely that manufacturers' profitability would decline. At TSL 3,
it is likely that some manufacturers would reduce the number of product
lines offered in order to lower the product conversion and capital
conversion costs required at TSL 3. Discontinuing product lines would
still have a negative impact on the manufacturers that selectively
upgrade existing product lines since many manufacturers rely on
aggregated production scale from all products they sell to secure
favorable purchased part and raw material prices. The fixed portion of
product conversion costs, such as certification and the total capital
conversion costs, typically require a minimum shipment volume in order
to be economically justifiable to the manufacturer. However, at TSL 3,
most manufacturers have existing products that meet the required
efficiencies in three out of the four product types of traditional DHE.
Because manufacturers have a substantial number of product lines that
meet the required efficiencies at TSL3, even if manufacturers
selectively upgrade their existing product lines, they would be
expected to maintain a viable production volume after the compliance
date of the amended energy conservation and not exit the market
completely.
TSL 4 is the max-tech level for gas wall fan DHE. TSL 4 represents
an improvement in efficiency from the baseline level of 74-percent AFUE
to 80-percent for gas wall fan DHE at the representative input rating
range. The efficiency requirements for gas wall gravity, gas floor, and
gas room DHE are the same at TSL 4 as at TSL 3. To achieve the max-tech
level for gas wall fan DHE, DOE research suggests that manufacturers
would need to use an electronic ignition and induced draft. DOE
anticipates that manufacturers would make the same improvements to the
heat exchangers as necessary to achieve TSL 3 for gas wall gravity, gas
floor, and gas-room DHE. At TSL 4, DOE estimates the INPV impacts to
range from -$1.3 million to -$7.6 million, or a change in INPV of -7.16
percent to -42.14 percent. At this level, the industry cash flow is
estimated to decrease by approximately 202.3 percent to -$1.4 million,
compared to the base-case value of $1.4 million in the year leading up
to the standards.
Most manufacturers' products are below the max-tech level for gas
wall fan DHE, which further increases the total capital and product
conversion costs over TSL 3. At TSL 4, most manufacturers would have to
completely redesign their gas wall fan products and purchase new
tooling. The discrepancy between the number of unit shipments and the
number of product lines requiring significant product development to
meet the potential energy conservation standards is a large driver of
the negative impacts at TSL 4. When faced with these substantial costs,
most manufacturers would likely discontinue products in this product
class or possibly exit the market altogether. In addition, at TSL 4
every manufacturer would face significant conversion costs in every
product type, making it much more likely that the industry would offer
far fewer products and that the industry would have fewer competitors
after the compliance date of amended standards. Besides the likelihood
of multiple manufacturers discontinuing product lines or exiting the
market, the large impact on INPV shows that manufacturers would also be
[[Page 65944]]
substantially harmed if profitability were impacted for existing or
redesigned products.
TSL 5 represents an improvement in efficiency from the baseline
level of 74-percent AFUE to 75-percent AFUE for gas wall fan DHE, an
improvement in efficiency from the baseline level of 64-percent AFUE to
72-percent AFUE for gas wall gravity units (the max-tech level), an
improvement in efficiency from the baseline level of 57-percent AFUE to
58-percent AFUE for gas floor DHE (the max-tech level), and an
improvement in efficiency from the baseline level of 64-percent AFUE to
83-percent AFUE (the max-tech level) for gas room DHE at the
representative input rating ranges for each product type. To achieve
the efficiencies required by TSL 5, DOE research suggests that
manufacturers would need to use an intermittent ignition and a two-
speed blower for gas wall fan DHE, use an electronic ignition for gas
wall gravity DHE, use an improved heat exchanger for gas floor DHE, and
use electronic ignition and a multiple heat exchanger design for gas
room DHE. At TSL 5, DOE estimates the impacts on INPV to range from -
$1.8 million to -$8.0 million, or a change in INPV of -9.99 percent to
-44.84 percent. At this level, the industry cash flow is estimated to
decrease by approximately 195.5 percent, to -$1.3 million, compared to
the base-case value of $1.4 million in the year leading up to the
standards.
Most traditional DHE models available on the market today are below
the max-tech level for gas wall gravity and gas room DHE, which leads
to higher total capital and product conversion costs and more negative
impacts on INPV at TSL 5 than TSL 4. DOE research suggests that at TSL
5, most manufacturers would have to completely redesign and buy new
tooling in order to offer gas wall gravity and gas room products at
these efficiency levels. The small number of unit shipments and the
large number of product lines that would require significant product
development to meet the energy conservation standards is a large driver
of the negative impacts at TSL 5. Hence, the potential number of
product lines being discontinued and the number of manufacturers
exiting the market at TSL 5 would be expected to be greater than at TSL
4, with even greater repercussions on consumer choice, employment, and
competition.
TSL 6 is set at the max-tech level for all traditional DHE product
classes. The efficiency requirements for gas wall gravity, gas floor,
and gas room DHE are the same at TSL 6 as at TSL 5. However, TSL 6 also
represents an improvement from 75-percent to 80-percent AFUE for gas
wall fan DHE (the max-tech level). To achieve the max-tech level for
gas wall fan DHE, DOE research suggests that manufacturers would need
to use an electronic ignition and induced draft. As to the other
products, DOE anticipates that manufacturers would need to use an
electronic ignition for gas wall gravity DHE, use an improved heat
exchanger for gas floor DHE, and use electronic ignition and a multiple
heat exchanger design for gas room DHE. At the max-tech TSL (TSL 6),
DOE estimates the INPV impacts to range from -$2.2 million to -$10.8
million, or a change in INPV of -12.28 percent to -59.98. At this
level, the industry cash flow is estimated to decrease by approximately
269.5 percent to -$2.4 million, compared to the base-case value of $1.4
million in the year leading up to the standards. Most products
currently available are below the max-tech level for all product
classes. At the max-tech level, most manufacturers would be faced with
complete product redesigns for almost all product lines and significant
plant changes to remain in the market. Most manufacturers would be
expected to discontinue products or exit the market altogether. Due to
the low volume of shipments in the industry, it unlikely that any
manufacturer could offer close to the range of products currently
offered today. Hence, some product classes may cease to be commercially
available. It is very likely that multiple manufacturers would exit the
market at the max-tech level for every product class.
ii. Cash-Flow Analysis Results for Gas Hearth Direct Heating Equipment
Table V.26--Manufacturer Impact Analysis for Gas Hearth Direct Heating Equipment--Preservation of Return on Invested Capital Markup Scenario
--------------------------------------------------------------------------------------------------------------------------------------------------------
Trial standard level
Units Base case -----------------------------------------------------------------------
1 2 3 4 5 6
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV.................................... (2008$ millions).......... 86.4 85.5 85.5 85.5 88.8 88.8 96.6
Change in INPV.......................... (2008$ millions).......... .......... (0.9) (0.9) (0.9) 2.4 2.4 10.2
(%)....................... .......... -1.07% -1.07% -1.07% 2.80% 2.80% 11.82%
Product Conversion Costs................ (2008$ millions).......... .......... 0.53 0.53 0.53 1.40 1.40 8.07
Capital Conversion Costs................ (2008$ millions).......... .......... 0.20 0.20 0.20 0.53 0.53 4.03
Total Investment Required............... (2008$ millions).......... .......... 0.73 0.73 0.73 1.93 1.93 12.09
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table V.27--Manufacturer Impact Analysis for Gas Hearth Direct Heating Equipment--Preservation of Operating Profit Markup Scenario
--------------------------------------------------------------------------------------------------------------------------------------------------------
Trial standard level
Units Base case -----------------------------------------------------------------------
1 2 3 4 5 6
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV.................................... (2008$ millions).......... 86.4 86.2 86.2 86.2 71.6 71.6 31.2
Change in INPV.......................... (2008$ millions).......... .......... (0.2) (0.2) (0.2) (14.8) (14.8) (55.1)
(%)....................... .......... -0.22% -0.22% -0.22% -17.13% -17.13% -63.83%
Product Conversion Costs................ (2008$ millions).......... .......... 0.53 0.53 0.53 1.40 1.40 8.07
Capital Conversion Costs................ (2008$ millions).......... .......... 0.20 0.20 0.20 0.53 0.53 4.03
[[Page 65945]]
Total Investment Required............... (2008$ millions).......... .......... 0.73 0.73 0.73 1.93 1.93 12.09
--------------------------------------------------------------------------------------------------------------------------------------------------------
TSL 1 through TSL 3 represents an improvement in efficiency from
the baseline level of 64-percent AFUE to 67-percent AFUE for gas hearth
DHE at the 27,000 Btu/h to 46,000 Btu/h representative input rating
range. To reach 67-percent AFUE from baseline efficiency, manufacturers
would likely use an electronic ignition. At TSL 1 through TSL 3, DOE
estimates the impacts on INPV to range from -$0.2 million to -$0.9
million, or a change in INPV of -0.22 percent to -1.07 percent. At this
level, the industry cash flow is estimated to decrease by approximately
7.6 percent, to $2.6 million, compared to the base-case value of $2.8
million in the year leading up to the standards. Most manufacturers
offer multiple products that meet this efficiency level. Because there
are so many product lines at the baseline efficiency, however, there
could be fairly substantial product conversion costs at this TSL
because manufacturers would have to slightly redesign all of the
baseline products. In addition, some manufacturers could be required to
make other minor changes to their production lines to accommodate other
improvements such as additional baffling. DOE research suggests that
such changes may be inexpensive since they would not require the
industry to replace major hard tooling at TSL 1 through TSL 3. Because
of the small change in product costs at TSL 1 through TSL 3, it is
unlikely that manufacturer profitability would decrease appreciably to
maintain the existing shipments.
TSL 4 and TSL 5 represent an improvement in efficiency from the
baseline level of 64-percent AFUE to 72-percent AFUE for gas hearth DHE
at the 27,000 Btu/h to 46,000 Btu/h representative input rating range.
DOE research suggests that fan-assisted gas hearth DHE products could
reach 72-percent AFUE from baseline efficiency. At TSL 4 and TSL 5, DOE
estimates the impacts on INPV to range from $2.4 million to -$14.8
million, or a change in INPV of 2.80 percent to -17.13 percent. At this
level, the industry cash flow is estimated to decrease by approximately
19.9 percent, to $2.3 million, compared to the base-case value of $2.8
million in the year leading up to the standards. At TSL 4 and TSL 5,
gas hearth manufacturers would likely reduce the scope of their product
offerings to lower the required conversion costs to comply with the
energy conservation standard. Many of the smaller manufacturers could
consider existing the market when faced with fairly substantial product
and capital conversion costs that are not justified by their shipment
volumes. Much of the capital conversion costs are expected to involve
changes to handle new materials like additional insulation and
baffling, changes to the heat shields, and new stamping dies for many
manufacturers that need to greatly alter their existing designs.
Manufacturers will also incur additional product conversion costs for
product development and certification because most products currently
sold would not meet the efficiency requirements of TSL 4 and TSL 5.
While most of the changes above the baseline require manufacturers to
purchase or manufacture more costly components that increase MPC, the
resulting higher MSPs also concerned manufacturers. Manufacturers
stated that the market is very price sensitive, so any increase in unit
price could invariably lead to fewer sales. Hence, manufacturers expect
that the industry would have to lower its profit margins in order to
reduce shipments impacts that could result from cost increases related
to potential energy efficiency improvements.
TSL 6 represents an improvement in efficiency from the baseline
level of 64-percent AFUE to 93-percent AFUE for gas hearth DHE at the
27,000 Btu/h to 46,000 Btu/h representative input rating range. To
reach 93-percent AFUE from the baseline efficiency, manufacturers would
need to use a condensing design. At the max-tech TSL (TSL 6), DOE
estimates the impacts on INPV to range from $10.2 million to -$55.1
million, or a change in INPV of 11.82 percent to -63.83 percent. At
this level, the industry cash flow is estimated to decrease by
approximately 128.8 percent, to -$0.8 million, compared to the base-
case value of $2.8 million in the year leading up to the standards.
At TSL 6, manufacturers indicated they would greatly reduce the
scope of their product offerings to lower the required costs to comply
with an amended energy conservation standard at this level. Because
there are very few products on the market today that use this
technology, the product development costs greatly increase at this TSL.
DOE research suggests that manufacturers would likely need a secondary
heat exchanger at the max-tech level, which could alter the size and
structure of most existing product lines. Manufacturers expressed
concern regarding their ability to use existing tooling and equipment,
much of which may become obsolete when hearths have to be redesigned
from the ground up to accommodate the efficiency requirements at this
level. It is also very likely that many of the 10 small business
manufacturers could be forced to exit the market when faced with these
substantial conversion costs since they do not have the access to
capital, the product development resources, or the shipment volumes to
justify these conversion costs.
Manufacturers also stated that they were concerned about consumer
utility issues at TSL 6. Smaller units would likely be significantly
impacted at this TSL because the low inherent interior volume makes it
much more difficult to accommodate a secondary heat exchanger without
narrowing the area available for the logs and flame. Manufacturers also
indicated that it gets progressively more difficult to imitate a
natural, wood-burning flame appearance at this efficiency level, which
could hurt sales and reduce consumer utility. Finally, manufacturers
were concerned that the MPCs at the max-tech level are estimated to be
more than double the baseline costs for the representative input rating
range. In order to maintain shipments of gas hearth DHE with
substantially higher costs and potential consumer utility impacts,
manufacturers believe that profitability would be greatly impacted.
c. Pool Heaters Cash-Flow Analysis Results
Pool heater manufacturers expressed concern that amended energy
[[Page 65946]]
conservation standards could cause significant harm to their industry,
because pool heaters are a luxury item and have low annual usage that
would prevent the majority of consumers from recouping the greater
initial price at higher efficiencies. Since pool heaters are considered
a luxury product, manufacturers expect sales to decline as unit costs
increase. As the required efficiencies approach a condensing
technology, manufacturers would have to make more substantial changes
to their existing products that add significant costs that would
encourage repair instead of replacement of failed units, cause fuel
switching (e.g., to heat pumps or solar systems), or make customers
abandon heating their pool altogether.
To assess the lower end of the range of potential impacts on pool
heater manufacturers, DOE modeled the preservation of return on
invested capital markup scenario. Besides the impact of changes in
shipments on INPV and the required capital and product conversion
costs, this case represents the lower end of the potential impacts on
manufacturers because it assumes that manufacturers would earn a
similar return on the investments required by amended energy
conservation standards. To assess the higher end of the range of
potential impacts on pool heater manufacturers, DOE modeled the
preservation of operating profit markup scenario (i.e., constant
absolute profit, regardless of cost increases, which leads to declining
profit margins at higher costs). This scenario models manufacturers
concerns that margins would be harmed at higher price points because
they expect to lower their profit margins to minimize impacts due to
lower sales.
Table V.28--Manufacturer Impact Analysis for Gas-Fired Pool Heaters--Preservation of Return on Invested Capital Markup Scenario
--------------------------------------------------------------------------------------------------------------------------------------------------------
Trial standard level
Units Base case -----------------------------------------------------------------------
1 2 3 4 5 6
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV.................................... (2008$ millions).......... 61.4 61.4 61.8 61.1 61.9 64.5 74.2
Change in INPV.......................... (2008$ millions).......... .......... 0.1 0.4 (0.2) 0.5 3.1 12.9
(%)....................... .......... 0.13% 0.66% -0.39% 0.88% 5.03% 20.96%
Product Conversion Costs................ (2008$ millions).......... .......... 0.0 0.0 2.6 2.6 4.6 5.5
Capital Conversion Costs................ (2008$ millions).......... .......... 0.0 0.3 1.2 1.4 4.4 7.1
Total Investment Required............... (2008$ millions).......... .......... 0.0 0.3 3.8 4.0 9.0 12.6
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table V.29--Manufacturer Impact Analysis for Gas-Fired Pool Heaters--Preservation of Operating Profit Markup Scenario
--------------------------------------------------------------------------------------------------------------------------------------------------------
Trial standard level
Units Base case -----------------------------------------------------------------------
1 2 3 4 5 6
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV.................................... (2008$ millions).......... 61.4 61.2 60.3 55.8 53.9 41.8 16.8
Change in INPV.......................... (2008$ millions).......... .......... (0.2) (1.0) (5.6) (7.5) (19.5) (44.5)
(%)....................... .......... -0.29% -1.66% -9.06% -12.15% -31.82% -72.59%
Product Conversion Costs................ (2008$ millions).......... .......... 0.0 0.0 2.6 2.6 4.6 5.5
Capital Conversion Costs................ (2008$ millions).......... .......... 0.0 0.3 1.2 1.4 4.4 7.1
Total Investment Required............... (2008$ millions).......... .......... 0.0 0.3 3.8 4.0 9.0 12.6
--------------------------------------------------------------------------------------------------------------------------------------------------------
TSL 1 represents an improvement in efficiency from the baseline
level of 78-percent thermal efficiency to 81-percent thermal efficiency
for the representative input rating of 250,000 Btu/h. At TSL 1, DOE
estimates the INPV impacts to range from $0.1 million to -$0.2 million,
or a change in INPV of 0.13 percent to -0.29 percent. At this level,
the industry cash flow would not be expected to change from the base-
case value of $2.7 million in the year leading up to the standards.
Over 60 percent of current gas-fired pool heaters meet or exceed the
efficiency requirements at TSL 1. DOE research suggests that changes to
the heat exchanger would allow baseline products to meet TSL 1. These
changes would not require major modifications to existing units,
resulting in minimal impacts to manufacturers at TSL 1.
TSL 2 represents an improvement in efficiency from the baseline
level of 78-percent thermal efficiency to 82-percent thermal efficiency
for the representative input rating of 250,000 Btu/h. At TSL 2, DOE
estimates the INPV impacts to range from $0.4 to -$1.0 million, or a
change in INPV of 0.66 percent to -1.66 percent. At this level, the
industry cash flow is expected to decrease by approximately 3.9 percent
to $2.6 million, compared to the base-case value of $2.7 million in the
year leading up to the standards. Almost half of the pool heaters
currently are sold at or above this efficiency level, and nearly all
manufacturers make products that can achieve the efficiency required at
TSL 2. DOE research suggests that minor improvements to heat exchangers
and insulation surrounding the combustion chamber would need to be made
to convert lower-efficiency units to this efficiency, causing
manufacturers to incur small capital conversion costs. However, because
the basic designs of atmospheric pool heaters that comprise the
majority of current shipments remain relatively unchanged at TSL 2,
there are minimal impacts on manufacturers.
[[Page 65947]]
TSL 3 represents an improvement in efficiency from the baseline
level of 78-percent thermal efficiency to 83-percent thermal efficiency
for the representative input rating of 250,000 Btu/h. At TSL 3, DOE
estimates the INPV impacts to range from -$0.2 to -$5.6 million, or a
change in INPV of -0.39 percent to -9.06 percent. At this level, the
industry cash flow is estimated to decrease by approximately 43.0
percent to $1.6 million, compared to the base-case value of $2.7
million in the year leading up to the standards. DOE research suggests
that most manufacturers would have to improve some of their product
lines to reach an 83-percent thermal efficiency by using power venting
technology. DOE research also suggests that while the manufacturing
production costs are not expected to increase significantly, most
manufacturers would incur some product and capital conversion costs to
increase their production of existing lower volume products at TSL 3.
TSL 3 would eliminate most common atmospheric models on the market
today, which could hurt profitability if consumer demand for gas-fired
pool heaters holds at its current level despite the higher production
costs at this TSL.
TSL 4 represents an improvement in efficiency from the baseline
level of 78-percent thermal efficiency to 84-percent thermal efficiency
for the representative input rating of 250,000 Btu/h. At TSL 4, DOE
estimates the INPV impacts to range from $0.5 million to -$7.5 million,
or a change in INPV of 0.88 percent to -12.15 percent. At this level,
the industry cash flow is estimated to decrease by approximately 45.9
percent to $1.5 million, compared to the base-case value of $2.7
million in the year leading up to the standards. Similar to TSL 3, TSL
4 would require fairly substantial capital and product conversion
costs. Because this efficiency level eliminates all atmospheric models
that are currently on the market and requires additional improvements
over TSL 3, the capital conversion costs are even higher at TSL 4. DOE
research suggests that manufacturers would have to design products that
use power venting and an improved heat exchanger, which could be costly
to develop. Manufacturers stated that the high component costs at TSL 4
would result in substantially higher costs for consumers. The higher
production costs and conversion costs make it more likely that
manufacturers' concerns about reduced profitability would be realized
at TSL 4.
TSL 5 represents an improvement in efficiency from the baseline
level of 78-percent thermal efficiency to 86-percent thermal efficiency
for the representative input rating of 250,000 Btu/h. At TSL 5, DOE
estimates the INPV impacts to range from $3.1 million to -$19.5
million, or a change in INPV of 5.03 percent to -31.82 percent. At this
level, the industry cash flow is estimated to decrease by approximately
108.9 percent to -$0.2 million, compared to the base-case value of $2.7
million in the year leading up to the standards. Over 90 percent of
current shipments are below this efficiency level. Manufacturers would
incur significant conversion costs at TSL 5 and would likely
significantly reduce the scope of their product offerings. DOE research
suggests that manufacturers would switch remaining units to sealed
combustion systems and improved heat exchanger designs, adding
substantial production cost and eliminating unpowered units from the
market. Manufacturers believe that consumers would look for
alternatives to gas-fired pool heaters or not replace failed units due
to the higher product costs that would result from an amended energy
conservation standard at TSL 5. Manufacturers also indicated that
problems at efficiencies they consider near-condensing could force some
companies to only offer fully condensing units with even greater
negative paybacks for consumers. A further concern of manufacturers
relates to the current installer and maintenance base for pool heaters,
which would require significant additional training to be able to
properly install, troubleshoot, and service increasingly complex pool
heaters.
TSL 6 (max-tech level) represents an improvement in efficiency from
the baseline level of 78-percent thermal efficiency to 95-percent
thermal efficiency for the representative input rating of 250,000 Btu/
h. At TSL 6, DOE estimates the INPV impacts to range from $12.9 million
to -$44.5 million, or a change in INPV of 20.96 percent to -72.59
percent. At this level, the industry cash flow is estimated to decrease
by approximately 157.2 percent to -$1.6 million, compared to the base-
case value of $2.7 million in the year leading up to the standards.
Almost all gas-fired pool heaters currently on the market are well
below this efficiency level. Manufacturers would face significant
conversion costs at TSL 6 in order to develop condensing systems or
refine existing designs to achieve lower cost condensing pool heaters.
DOE research suggests that heat exchanger materials would need to
withstand acidic condensate created by condensing pool heaters. In
light of strong concerns about consumer reaction to a substantially-
increased first cost at TSL 6, manufacturers do not believe this
efficiency level could be justified for residential pool heater
consumers due to low usage and significantly higher costs.
Manufacturers believe that consumers would not be willing to purchase
such an expensive product and would either find an alternative to gas-
fired pool heaters or no longer purchase a gas-fired pool heater. In
addition, at TSL 6 manufacturers are also concerned about the
industry's ability to educate and retrain installers and servicers of
pool heaters in time for the compliance date of the standard.
Condensing units with sealed combustion are more complex than the vast
majority of atmospheric units on the market today and would require
significant additional training for safe installation and maintenance.
Manufacturers also expect product support costs to increase
significantly as complexity increases the likelihood and frequency of
events such as component failures and unit lockouts that would require
manufacturer support and servicing, as well as increased warranty
costs. Besides increasing warranty costs for manufacturers, the issues
and costs associated with proper unit maintenance post-warranty could
potentially cause them to switch fuel sources (e.g., switching to heat
pump or solar water heaters) or abandon pool heating altogether.
d. Impacts on Employment
DOE quantitatively assessed the impacts of potential amended energy
conservation standards on employment for each of the three types of
heating products that are the subject of this rulemaking. DOE used the
GRIM to estimate the domestic labor expenditures and number of domestic
production workers in the base case and at each TSL from 2008 to 2045
for the residential water heater industry and from 2008 to 2043 for the
DHE and pool heater industries. DOE used statistical data from the U.S.
Census Bureau, the results of the engineering analysis, and interviews
with manufacturers to determine the inputs necessary to calculate
industry-wide labor expenditures and domestic employment levels. Labor
expenditures are a function of the labor intensity of the equipment,
the sales volume, and an assumption that wages remain fixed in real
terms over time.
In each GRIM, DOE used the labor content of each product and the
manufacturing production costs from the engineering analysis to
estimate the annual labor expenditures in the
[[Page 65948]]
residential water heater, DHE, and pool heater industries. DOE used
Census data and interviews with manufacturers to estimate the portion
of the total labor expenditures that is for U.S. (i.e., domestic)
labor.
The estimates of production workers in this section only cover
workers up to the line-supervisor level that are directly involved in
fabricating and assembling a product within the Original Equipment
Manufacturer (OEM) facility. Workers that perform services that are
closely associated with production operations, such as material handing
with a forklift, are also included as production labor. DOE's estimates
only account for production workers that manufacture the specific
products covered by this rulemaking. For example, a worker on a
commercial water heater line would not be included with the estimate of
the number of residential water heater production workers.
The employment impacts shown in Table V.30 through Table V.34
represent the potential production employment that could result
following amended energy conservation standards. The upper end of the
results in these tables estimates the maximum potential increase in
production workers after amended energy conservation standards. The
upper end of the results assumes manufacturers would continue to
produce the same scope of covered products in the same production
facilities. The upper end of the range also assumes that domestic
production is not shifted to lower-labor-cost countries. Because there
is a real risk of manufacturers exiting the market or no longer
offering the same scope of covered products in response to amended
energy conservation standards, the lower end of the range of employment
results in Table V.30 through Table V.34 include the estimate of the
total number of U.S. production workers in the industry that could lose
their job if all existing production were to no longer be made
domestically. While the results present a range of employment impacts
following the compliance date of amended energy conservation standards,
the discussion below also includes a qualitative discussion of the
likelihood of negative employment impacts at the various TSLs. Finally,
the employment impacts shown are independent of the employment impacts
from the broader U.S. economy, which are documented in chapter 15,
Employment Impact Analysis, of the NOPR TSD.
i. Gas-Fired and Electric Storage Water Heater Employment Impacts
Using the GRIM, DOE estimates that would be 3,690 domestic gas-
fired and electric storage water heater production workers in 2015
without amended energy conservation standards. Using Census Bureau data
and interviews with manufacturers, DOE estimates that approximately
two-thirds of gas-fired and electric storage water heaters sold in the
United States are manufactured domestically. Table V.30 shows the range
of the impacts of potential amended energy conservation standards on
U.S. production workers in the gas-fired and electric storage water
heater market.
Table V.30.--Potential Changes in the Total Number of Domestic Gas-Fired and Electric Storage Water Heater Production Workers in 2015
--------------------------------------------------------------------------------------------------------------------------------------------------------
Baseline 1 2 3 4 5 6 7
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total Number of Domestic Production 3,690 3,758 3,842 3,881 3,977 4,396 7.768 9,823
Workers in 2015 (without changes in
production locations)..............
Potential Changes in Domestic ............ (3,690)-68 (3,690)-152 (3,690)-191 (3,690)-287 (3,690)-706 (3,690)-4,078 (3,690)-6,133
Production Workers in 2015 *.......
--------------------------------------------------------------------------------------------------------------------------------------------------------
* DOE presents a range of potential employment impacts. Numbers in parentheses indicate negative numbers.
During manufacturer interviews, gas-fired and electric storage
water heater manufacturers stated that they expect employment levels to
remain relatively constant at TSL 1 through TSL 4. At these TSLs,
baseline gas-fired and electric storage water heaters would be improved
by increasing the insulation thickness around the tank. These
improvements would not greatly alter the manufacturing process and are
not likely to significantly change employment levels.
At TSL 5, domestic employment would be likely to increase if
manufacturers built their dedicate heat pump line for large rated
storage volumes in the United States. However, because the labor
content to assemble fully integrated heat pump water heaters is much
higher than most models currently on the market, manufacturers could
also decide to build these lines in existing overseas production
facilities. At TSL 5, the sourcing decisions would also impact the
likely employment impacts. If manufacturers built a dedicated
condensing line for large rated storage volumes in the United States,
domestic employment could increase.
TSL 6 and TSL 7 could also impact domestic gas-fired and electric
storage water heater employment. These TSLs effectively would require
the use of integrated heat pump water heater technology for electric
storage water heaters for all rate volumes. Manufacturers stated that
at these levels, they initially would expect to purchase fully-
assembled heat pump modules from off-shore suppliers because they do
not have the manufacturing experience or the space in their existing
facilities to accommodate assembling the heat hump modules. Once
purchased, manufacturers would attach the modules to water heaters on
lines modified to accommodate the very different assembly and testing
[[Page 65949]]
requirements of heat pump water heaters. While the industry typically
has manufacturing facilities with a mix of dedicated and non-dedicated
assembly lines by fuel type, flexible assembly lines may have to be
discontinued at TSL 6, because heat pump water heaters are top-heavy,
take longer to test, and take significantly longer to assemble than
electric storage water heaters that use resistance-heater elements.
Present facilities would likely need line extensions to accommodate the
additional labor required for assembling heat pump water heaters.
Therefore, if manufacturers source the heat pump modules and continue
to assemble electric storage water heaters in their existing
facilities, it is likely that employment would increase. However, the
expected increase in the labor required to manufacture heat pump water
heaters may also accelerate the trend of water heater manufacturers
locating new production facilities outside the United States,
especially if a manufacturer decides to assemble heat pump modules in-
house. Because TSL 7 requires additional improvements over TSL 6, the
potential positive impacts on employment at TSL 7 are greater if
manufacturers do not relocate because the additional improvements also
require more labor.
At TSL 7 (the max-tech level) gas-fired storage water heaters would
have to operate in a fully-condensing mode. DOE research suggests that
condensing gas-fired water heaters would be more complex than standard
power-vent products and less efficient products and therefore would
require additional labor to assemble. If manufacturers did not change
their sourcing decisions at TSL 7, it is likely there would be positive
employment impacts for gas-fired storage water heaters.
ii. Oil-Fired Storage Water Heater Employment Impacts
Using the GRIM, DOE estimates there would be 38 oil-fired storage
water heater production workers in the U.S. in 2015 in the absence of
amended energy conservation standards. Using the Census data and
interviews with manufacturers, DOE estimates that approximately 95
percent of oil-fired water heaters sold in the United States are
manufactured domestically. Table V.31 shows the impacts of amended
energy conservation standards on U.S. production workers in the oil-
fired water heater market.
Table V.31--Potential Changes in the Total Number of Domestic Oil-Fired Storage Water Heater Production Workers in 2015
--------------------------------------------------------------------------------------------------------------------------------------------------------
Trial standard level
-----------------------------------------------------------------------------------------------
Baseline 1 2 3 4 5 6 7
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total Number of Domestic Production Workers in 2015 38 37 40 37 37 37 37 47
(without changes in production locations)..............
Potential Changes in Domestic Production Workers in 2015 .......... (38)-(1) (38)-2 (38)-(1) (38)-(1) (38)-(1) (38)-(1) (38)-9
*......................................................
--------------------------------------------------------------------------------------------------------------------------------------------------------
*DOE presents a range of potential employment impacts. Numbers in parentheses indicate negative numbers.
At TSL 1 through TSL 6, DOE does not expect substantial changes to
domestic employment in the oil-fired storage water heater market if
manufacturers are able to use the insulation type and thickness
technology options in the engineering analysis to reach the efficiency
requirements at these TSLs. At TSL 7, DOE research suggests that if all
current suppliers continue to compete, domestic employment would likely
increase slightly, because the non-proprietary, higher-efficiency heat
exchangers required to reach this TSL would also require more labor to
assemble. However, given the size of the oil-fired storage water heater
market and the expected product conversion costs, companies that do not
currently make oil-fired storage water heaters at these efficiency
levels could exit the market. If the remaining manufacturers do not
need to increase employment levels to meet the total market demand,
employment in the residential oil-fired market could decline.
iii. Gas-Fired Instantaneous Water Heater Employment Impacts
DOE's research suggests that currently no gas-fired instantaneous
water heaters are made domestically. All manufacturers or their
domestic distributors do maintain offices in the United States to
handle technical support, training, certification, and other
requirements. However, as amended energy conservation standards for
instantaneous water heaters are raised, the additional complexity of
standards-compliant water heaters may require additional training and
field support, thereby resulting in higher employment levels. Thus
domestic employment may increase marginally due to amended energy
conservation standards.
iv. Traditional Direct Heating Equipment Employment Impacts
Using the GRIM, DOE estimates there would be 300 traditional DHE
production workers in the U.S. in 2013 in the absence of amended energy
conservation standards. Using the Census Bureau data and interviews
with manufacturers, DOE estimates that approximately 100 percent of the
traditional DHE sold in the United States is manufactured domestically.
Table V.32 shows the impacts of amended energy conservation standards
on U.S. production workers in the traditional DHE market.
Table V.32--Potential Changes in the Total Number of Domestic Traditional Direct Heating Production Workers in
2013
----------------------------------------------------------------------------------------------------------------
Trial standard level
-----------------------------------------------------------------------------------
Baseline 1 2 3 4 5 6
----------------------------------------------------------------------------------------------------------------
Total Number of Domestic 300 305 330 344 350 348 361
Production Workers in 2013
(without changes in
production locations)......
[[Page 65950]]
Potential Changes in .......... (300)-5 (300)-30 (300)-44 (300)-50 (300)-48 (300)-61
Domestic Production Workers
in 2013 *..................
----------------------------------------------------------------------------------------------------------------
*DOE presents a range of potential employment impacts. Numbers in parentheses indicate negative numbers.
There could be negative employment impacts for DHE at any of the
considered TSLs if manufacturers' expectations are realized regarding
higher prices yielding reduced demand. Besides increasing component
costs, more stringent TSLs put additional pressure on manufacturers
that could require them to invest in low-volume products, discontinue
product lines that do not meet the required efficiency level, or exit
the market altogether.
While multiple manufacturers could be adversely affected by amended
energy conservation standards, at TSL 1 and TSL2, most businesses have
existing products in at least three of the four traditional DHE product
types. If manufacturers chose to expand production of those products
that meet the required efficiencies, employment could increase.
However, multiple small businesses would be adversely affected at any
TSL and could decide to discontinue some product lines rather than
invest in product lines with very low volumes. Any manufacturer that
decided to discontinue product lines could reduce total employment
within the industry if it impacted the availability of substitute
replacement products. Net employment impacts if manufacturers
discontinued product lines at TSL 1 and TSL 2 would depend on total
product demand and the source of replacement production labor. At TSL 3
and above, products become increasingly more complex, require higher
capital and product conversion costs, and, hence, are likely to lead to
the discontinuation of more product lines. Additionally, every
manufacturer would face product conversion costs that required a
complete redesign for at least one product class at TSL 3 and above. An
amended energy conservation standard at TSL 3 and above could cause
small businesses to exit the market completely or stop producing
certain product classes. If small and large manufacturers discontinued
product lines or exited the market, domestic employment would be
impacted if replacements were not available or a manufacturer exited
the market and its market share was not captured by another
manufacturer.
v. Gas Hearth Direct Heating Equipment Employment Impacts
Using the GRIM, DOE estimates there would be 1,243 gas hearth DHE
production workers in the U.S. in 2013 in the absence of amended energy
conservation standards. Based upon interviews with manufacturers, DOE
estimates that approximately 80 percent of gas hearth DHE sold in the
United States is manufactured domestically. Table V.33 shows the
impacts of potential amended energy conservation standards on U.S.
production workers in the gas hearth DHE market.
Table V.33--Potential Changes in the Total Number of Domestic Gas Hearth Direct Heating Equipment Production Workers in 2013
--------------------------------------------------------------------------------------------------------------------------------------------------------
Trial standard level
-----------------------------------------------------------------------------------------------
Baseline 1 2 3 4 5 6
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total Number of Domestic Production Workers in 2013 1,243 1,250 1,250 1,250 1,759 1,759 2,089
(without changes in production locations)..............
Potential Changes in Domestic Production Workers in 2013 .......... (1,243)-7 (1,243)-7 (1,243)-7 (1,243)-516 (1,243)-516 (1,243)-846
*......................................................
--------------------------------------------------------------------------------------------------------------------------------------------------------
* DOE presents a range of potential employment impacts. Numbers in parentheses indicate negative numbers.
DOE does not expect significant employment impacts at TSL 1 through
TSL 3. A substantial portion of the industry already has products that
meet the requisite efficiencies required by these TSLs and DOE research
suggests manufacturers can make products at these TSLs by replacing
standing pilot ignition systems with electronic ignition systems. For
TSL 4 through TSL 6, manufacturers would be increasingly likely to exit
the market or reduce their product offerings. At TSL 4 and TSL 5, air
circulating blowers are required and, at TSL 6, condensing operation is
required, making these products increasingly complex. At these levels,
manufacturers suggested the size of the gas hearth DHE market covered
by today's rulemaking could be impacted due possible consumer
reactions, which could also put additional pressure on domestic firms
to consolidate or exit the market. A smaller market could reduce
employment if the higher labor content required to manufacturer
standards-compliant products is more than offset by a decline industry
sales.
vi. Gas-Fired Pool Heater Employment Impacts
Using the GRIM, DOE estimates there would be 644 gas-fired pool
heater production workers in the U.S. in 2013 in the absence of amended
energy conservation standards. Using the Census Bureau data and
interviews with manufacturers, DOE estimates that approximately 100
percent of gas-fired pool heaters sold in the United States are
manufactured domestically. Table V.34 shows the impacts of potential
amended energy conservations standards on U.S. production workers in
the gas-fired pool heater industry.
[[Page 65951]]
Table V.34--Potential Changes in the Total Number of Domestic Pool Heater Production Workers in 2013
----------------------------------------------------------------------------------------------------------------
Trial standard level
-----------------------------------------------------------------------------------
Baseline 1 2 3 4 5 6
----------------------------------------------------------------------------------------------------------------
Total Number of Domestic 644 657 678 710 737 807 975
Production Workers in 2013
(without changes in
production locations)......
Potential Changes in .......... (644)-13 (644)-34 (644)-66 (644)-93 (644)-163 (644)-331
Domestic Production Workers
in 2013 *..................
----------------------------------------------------------------------------------------------------------------
* DOE presents a range of potential employment impacts. Numbers in parentheses indicate negative numbers.
DOE expects no significant direct employment impacts on gas-fired
pool heater manufacturers for TSL 1 through TSL 4 because the
technology options at these TSLs involve mostly component changes that
do not greatly alter the labor content. For example, the technology
changes for existing products that meet TSL 3 and TSL 4 involve power
venting. While this technology would alter the installation of much of
the installed base and cause manufacturers to increase the production
of low-volume products, the basic assembly of the pool heaters at the
point of manufacture is not substantially changed. Therefore, it is
unlikely that employment levels would be substantially impacted.
However, the existing products in the market at TSL 5 are near-
condensing products and products at TSL 6 use fully condensing
technology. The higher-efficiency products are typically more complex
and take longer to assemble, resulting in an increase in employment if
shipments levels are maintained. However, manufacturers have stated
that the higher prices of higher-efficiency products could result in a
smaller number of annual shipments, which could cause a corresponding
reduction in industry employment as well. At TSL 5 and TSL 6,
manufacturers are particularly concerned that the closer their products
become to condensing technology, the higher the product costs would be
and the more likely it is that amended energy conservation standards
would cause a drop in industry-wide shipments. If manufacturers
experienced a drop in total shipments, the domestic employment in the
gas-fired pool heater industry could be negatively affected.
e. Impacts on Manufacturing Capacity
i. Residential Gas-Fired and Electric Storage Water Heaters
Amended energy conservation standards could cause short-term
capacity constraints for gas-fired storage water heaters at TSL 7 and
cause short-term capacity constraints for electric storage water
heaters at TSL 6 and TSL 7. However, for the remaining TSLs,
manufacturers could maintain capacity levels and continue to meet
market demand under amended energy conservation standards.
DOE research suggests for the efficiency requirements for gas-fired
storage water heaters could be met by adding more foam insulation to
all volume sizes at TSL 1 through TSL 4 and TSL 6. These changes would
not require gas-fired storage water heater manufacturers to greatly
alter their existing production facilities or equipment and would not
cause capacity constraints. DOE also acknowledges that TSL 5 could also
result in a constrained market for large volume sizes if manufacturers
do not make the required investments to offer gas-fired condensing
water heaters at relatively low shipment volumes. DOE also recognizes
there will likely be significant impacts on manufacturers at any TSL
that effectively requires gas-fired condensing.
The dramatically different technology required at the max-tech
level for gas-fired storage water heaters introduces problems that
could cause short-term capacity constraints in the market. At TSL 7
(the max-tech level), all manufacturers would need to redesign all of
their existing products because none currently offers residential water
heaters that use condensing technology. Manufacturers would also have
to retrain their installers and servicers to handle technology that
varies tremendously from the majority of exiting products on the
market. The fundamental fabrication and production equipment of gas-
fired storage water heaters are substantially different for water
heaters that use condensing technology. Equipment to manufacturer
required heat exchangers and new tank designs would be required, as
well as substantial changes to all subassembly and main assembly lines
to handle the new technology. DOE estimates that manufacturers would
incur over $110 million in capital conversion costs to make these plant
modifications if all residential gas-fired storage water heaters
required condensing technology. For comparison, the base-case estimate
for the net PPE for gas-fired storage water heaters is approximately
$166 million. This comparison of the estimate of current net PPE to the
required capital conversion costs indicates the plant and equipment
changes require manufacturers to almost completely modify or replace a
substantial portion of their existing production assets for gas-fired
storage water heaters. DOE also estimates that these changes would
strand approximately $26 million of existing assists, mainly the book
value of tank and coil equipment that can no longer be used with
condensing technology. In addition, manufacturers believe that there
could be problems with quality control to manufacture substantially
more complex products on high-speed production lines. These problems
could further increase the capital costs required if the line rates
required manufacturers to install additional production lines.
Manufacturers indicated that these potential problems and the extremely
substantial changes that are required to their facilities could cause a
constrained market until the production equipment is installed and the
high-speed manufacturing of what are currently low-volume commercial
products can be expanded to meet the demand of the gas-fired
residential water heater market. Although these changes are
substantial, DOE believes that the 5-year period before compliance with
the standard is required would allow manufacturers sufficient time to
make the necessary changes to meet demand for those products. The full
range of products may not be available initially, however, since
manufacturers would likely prioritize high-volume product lines ahead
of lower-volume product lines.
For electric storage water heaters, TSL 1 through TSL 3 would
require only minor changes to existing products to increase the tank
insulation thickness. At TSL 4, more substantial plant modifications
would be required because changes to the insulation thickness would
require more foaming stations and additional production lines due to a
lower throughput. However,
[[Page 65952]]
electric storage water heater manufacturers would be able to maintain
manufacturing capacity levels and continue to meet market demand under
amended energy conservation standards for these TSLs. These TSLs do not
require prohibitively costly or complex changes to existing facilities
or most products on the market today.
DOE also acknowledges that TSL 5 could also result in a constrained
market for large volume sizes if manufacturers do not make the required
investments to offer electric heat pump water heaters at relatively low
shipment volumes. DOE also recognizes there will likely be significant
impacts on manufacturers at any TSL that effectively requires electric
heat pump water heaters.
Electric storage water heater manufacturers indicated that there
could be potential capacity impacts at TSL 6 or TSL 7, which would
effectively require heat pump technology. However, manufacturers of
electric storage water heaters indicated that significant changes to
production facilities would be required if amended energy conservation
standards effectively mandated heat pump water heaters for all rated
volume sizes (TSL 6 and TSL 7). Several manufacturers stated that they
could move all or part of their production to Mexico to take advantage
of lower labor costs if more complex heat pump water heaters were
required. DOE believes manufacturers would likely source the heat pump
module initially if they were required to exclusively manufacture heat
pump water heaters. However, such a dramatic increase in the demand for
heat pump modules could strain suppliers, especially in the short-term.
Finally, manufacturers also stated that they have very little
experience with manufacturing heat pump water heaters. Manufacturers
indicated that the changes to their facilities (including potential
plant sourcing decisions) could cause a constrained market until the
production equipment is installed and any problems with high-speed
manufacturing are resolved. As discussed in section IV.B.3.b, DOE
acknowledges there could be issues with converting entire production
lines to manufacture heat pump water heaters before the compliance date
of this standard. Given the five-year delay in the compliance date with
the amended standard from the issuance from the final rule, and the
fact that many manufacturers are already developing heat pump water
heaters, DOE believes manufacturers may be able to convert all their
product lines before the compliance date of an amended energy
conservation standard.
ii. Residential Oil-Fired Storage Water Heaters
While amended energy conservation standards could impact current
market shares in the oil-fired storage water heater market, it is
unlikely that standards would result in a constrained market. For oil-
fired storage water heaters, the fundamental fabrication and assembly
equipment would not be expected to change significantly in order to
comply with TSL 1 through TSL 6. While DOE research suggests that
products that meet TSL 1 through TSL 6 require relatively minor changes
to the insulation material or thickness, the product conversion costs
necessary at these TSLs could cause at least one manufacturer with
significant market share to exit the residential oil-fired storage
water heater market due to the low total shipment volumes. At any
efficiency level that would likely require a multi-flue heat exchanger
(i.e., TSL 7), all but one manufacturer would need to make a
significant and costly redesign of existing residential oil-fired
product lines and related manufacturing facilities. These substantial
changes could cause manufacturers to exit the residential oil-fired
storage water heater market. However, even TSL 7 is unlikely to result
in a constrained market even if any manufacturer exited the oil-fired
residential water heater market. One residential oil-fired storage
water heater manufacturer with significant market share has products
that meet the max-tech level. Due to the low shipment volumes of oil-
fired storage water heaters, this manufacturer could meet the total
industry demand and industry-wide capacity would not be impacted.
iii. Gas-Fired Instantaneous Water Heaters
There may be short-term capacity constraints for gas-fired
instantaneous water heaters at TSL 7. DOE research suggests that all
gas-fired instantaneous water heaters are currently imported. If the
amended energy conservation standards required more-efficient products
than those currently offered, foreign manufacturers and parent
companies would have to decide whether the relatively small market for
gas-fired instantaneous water heaters in the United States could
justify the required investments. DOE expects that TSL 1 through TSL 6
would be unlikely to disrupt supply to the United States because of the
number of existing product lines that manufacturers could offer without
substantial product develop would not greatly change at the required
efficiencies. The number of existing product lines on the market drops
substantially at TSL 7. There could be capacity constraints in response
to amended energy conservation standards at TSL 7 if manufacturers that
do not have compliant products chose not to develop them for the United
States market due to the current size of the market.
iv. Traditional Direct Heating Equipment
Amended energy conservation standards could lead to a constrained
traditional DHE market. DOE does not expect that traditional DHE
manufacturers would need to substantially modify existing facilities in
response to amended energy conservation standards at TSL 1 or TSL 2.
However, at TSL 3 though TSL 6, some manufacturers would face complete
product redesigns for either gas wall fan or gas room DHE. A complete
redesign would entail significant product development, tooling,
certification, and testing costs. Some manufacturers indicated that low
shipment volumes would make these costs unjustifiable for many product
lines, thereby leading to the discontinuation of those lines. Small
businesses with less access to capital would be even more likely to
face this problem than higher-volume, more diversified competitors,
possibly resulting in further industry consolidation. Pressure that
forced manufacturers to consolidate or exit the market could also
strain the remaining manufacturers' capacity to increase production to
meet industry demand. However at TSL 3, DOE believes that manufacturers
have enough existing products in multiple product classes that they
could selectively upgrade enough product lines to meet industry demand
and remain in business. However, DOE believes setting an amended energy
conservation standard above TSL 3 could lead to manufacturing capacity
problems for certain product classes if manufacturers cannot make the
tooling changes in time to meet the standard, if manufacturers do not
have the resources to develop products that meet the required
efficiencies, or if manufacturers discontinue product lines rather than
invest an amount equal to the required conversion costs.
v. Gas Hearth Direct Heating Equipment
Gas hearth DHE manufacturers did not indicate that amended energy
conservation standards would lead to a
[[Page 65953]]
constrained market. Rather, such manufacturers are concerned that more
stringent energy conservation standards could exert additional
pressures on companies to consolidate or exit the market. Manufacturers
predict that unit shipments would decline increasingly as the amended
energy conservation standard is set closer to max-tech (i.e., TSL 6).
Manufacturers also indicated that the high capital conversion costs
would lead all manufacturers to drop product lines or not convert all
existing product lines at TSL 4 through TSL 6 because of the smaller
market for covered gas hearth products that is anticipated in the event
of a more stringent amended energy conservation standard. The reduction
in market demand and the lower number of product lines available would
likely lead to an overcapacity of covered products within the industry,
even if multiple lower-volume competitors exit the market.
vi. Gas-Fired Pool Heaters
Manufacturers indicated that, while other potentially negative
impacts were possible at lower TSLs, industry capacity could be
impacted at more stringent TSLs. At TSL 1 through TSL 4, DOE research
suggests that manufacturers could retool without causing capacity
constraints in the market. If DOE were to set amended energy
conservation standards at near-condensing or condensing level, most
gas-fired pool heater manufacturers stated that short-term production
capacity could be affected. While only TSL 6 requires fully-condensing
products, manufacturers indicated that adoption of amended standards at
TSL 5 and above could cause them to manufacture only fully-condensing
products in order to minimize longevity and warranty issues. Thus, TSL
5 and TSL 6 would require manufacturers to incur significant product
and capital conversion costs. Consequently, DOE believes setting an
amended energy conservation standard at or above TSL 5 could lead to
short-term capacity problems if manufacturers cannot make the necessary
tooling, equipment, and assembly changes in time to meet the standard.
f. Cumulative Regulatory Burden
While any one regulation may not impose a significant burden on
manufacturers, the combined effects of several impending regulations
may have serious consequences for some manufacturers, groups of
manufacturers, or an entire industry. Assessing the impact of a single
regulation may overlook this cumulative regulatory burden. In addition
to energy conservation standards, other regulations can significantly
affect manufacturers' financial operations. Multiple regulations
affecting the same manufacturer can strain company-wide resources and
can lead companies to abandon product lines or markets with lower
expected future returns than competing products. For these reasons, DOE
conducts an analysis of cumulative regulatory burden as part of its
rulemakings pertaining to appliance efficiency. During previous stages
of this rulemaking, DOE identified several requirements, in addition to
amended energy conservation standards for the three types of heating
products that manufacturers will face for products manufactured three
years before and three years after the anticipated compliance date of
the amended energy conservation standards.
During interviews and in their written comments, manufacturers
stated that the most significant of these additional regulations are
regional ultra-low-NOX requirements and environmental and
safety regulations. In response to the preliminary analysis, BWC
commented that there is a substantial cost increase to comply with
ultra-low-NOX requirements. (BWC, No. 46 at p. 1) Noritz
also stated that ultra-low-NOX requirements are the most
significant regulation that will affect the gas-fired instantaneous
water heating industry (Noritz, No. 36 at p. 3). AHRI and Rheem stated
that gas-fired instantaneous water heater manufacturers will have to
comply with ultra-low-NOX emissions requirements in 2012.
(AHRI, Public Meeting Transcript, No. 34.4 at p. 134; Rheem, No. 48 at
p. 7)
Low and ultra-low-NOX regulations for gas-fired water
heaters are being implemented regionally by air quality management
districts, including the South Coast Air Quality Management District
(SCAQMD), the Bay Area Air Quality Management District (BAAQMD), the
San Joaquin Valley Unified Air Pollution Control District (the Valley
Air District), and the Texas Commission on Environmental Equality
(TCEQ). The ultra-low-NOX regional standards currently in
place only cover gas-fired storage water heaters, but manufacturers are
concerned that these standards could eventually affect additional types
of gas-fired equipment. While the SCAQMD, the BAAQMD, and the Valley
Air District all mandate ultra-low-NOX requirements, the
TCEQ only has low-NOX requirements.
DOE accounted for the added cost for manufacturers of gas-fired
storage water heaters to comply with regional ultra-low NOX
requirements (see section IV.C.2). DOE agrees with Noritz, AHRI, and
Rheem that ultra-low-NOX requirements may affect
instantaneous gas water heaters beginning in 2012. While the SCAQMD
does not distinguish between gas-fired storage and gas-fired
instantaneous water heaters, the BAAQMD and the Valley Air District
have separate ultra-low-NOX regulations for natural gas-
fired instantaneous water heaters. Although the compliance dates of
these regulations are pending, DOE is not aware of any ultra-low-
NOX instantaneous gas-fired water heaters currently on the
market. Consequently, DOE could not create a separate cost curve to
account for the additional cost of instantaneous water heaters that
will meet the upcoming ultra-low-NOX emissions requirements.
There are also existing FVIR and low and ultra-low-NOX
requirements for gas-fired storage water heaters, ignition source
requirements, amended energy conservation standards for other products
made by heating products manufacturers, State energy conservation
standards for other products, and international energy conservation
standards. The cumulative burden focuses on other product-specific
Federal requirements with a compliance date three years prior to and
three years after the anticipated compliance dates of the amended
energy conservation standards of this rulemaking. However, DOE
discusses these and other regulations and includes the full details of
the cumulative regulatory burden in chapter 12 of the NOPR TSD.
g. Impacts on Small Businesses
As discussed in section IV.H.1.c, using average cost assumptions to
develop an industry cash-flow estimate is not adequate for assessing
differential impacts among manufacturer subgroups. Small manufacturers,
niche equipment manufacturers, and manufacturers exhibiting a cost
structure substantially different from the industry average could be
affected disproportionately. DOE used the results of the industry
characterization to group manufacturers exhibiting similar
characteristics. Consequently, the only subgroup DOE identified was
small manufacturers.
DOE evaluated the impact of amended energy conservation standards
on small manufacturers, as defined by SBA. As a result, DOE identified
five residential water heater manufacturers, 12 DHE manufacturers, and
one small gas-fired pool heater manufacturer that are classified as
small businesses per the SBA definition. DOE describes the
[[Page 65954]]
differential impacts on these small businesses in section VI.B of
today's notice. For a complete discussion of the impacts on small
businesses, see chapter 12 of the NOPR TSD.
3. National Impact Analysis
a. Significance of Energy Savings
To estimate the energy savings attributable to potential standards,
DOE compared the energy consumption of the heating products under the
base case (no standards) to anticipated energy consumption of these
products under each TSL. Table V.35 through Table V.37 present DOE's
NES estimates by product type and class for each TSL. Chapter 10 of the
NOPR TSD describes these estimates in more detail.
Table V.35--Water Heaters: Cumulative National Energy Savings in Quads
--------------------------------------------------------------------------------------------------------------------------------------------------------
Product class TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7
--------------------------------------------------------------------------------------------------------------------------------------------------------
Gas-Fired Storage............................................ 0.83 1.29 1.29 1.29 1.46 1.29 5.33
Electric Storage............................................. 0.35 0.49 0.90 1.21 2.18 9.05 10.62
Oil-Fired Storage............................................ 0.01 0.01 0.01 0.01 0.01 0.01 0.03
Gas-Fired Instantaneous...................................... 0.08 0.08 0.08 0.08 0.08 0.08 0.87
------------------------------------------------------------------------------------------
Total.................................................... 1.26 1.88 2.28 2.60 3.74 10.44 16.85
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table V.36--Direct Heating Equipment: Cumulative National Energy Savings in Quads
----------------------------------------------------------------------------------------------------------------
Product class TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6
----------------------------------------------------------------------------------------------------------------
Gas Wall Fan................ 0.007 0.01 0.01 0.02 0.01 0.02
Gas Wall Gravity............ 0.008 0.02 0.06 0.06 0.10 0.10
Gas Floor................... 0.0001 0.0001 0.0001 0.0001 0.0001 0.0001
Gas Room.................... 0.002 0.00 0.01 0.01 0.03 0.03
Gas Hearth.................. 0.136 0.14 0.14 0.30 0.30 0.93
-----------------------------------------------------------------------------------
Total................... 0.15 0.17 0.22 0.39 0.44 1.08
----------------------------------------------------------------------------------------------------------------
Table V.37--Pool Heaters: Cumulative National Energy Savings in Quads
----------------------------------------------------------------------------------------------------------------
TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6
----------------------------------------------------------------------------------------------------------------
Gas-Fired................... 0.02 0.03 0.08 0.10 0.13 0.28
----------------------------------------------------------------------------------------------------------------
b. Net Present Value of Consumer Costs and Benefits
DOE estimated the cumulative NPV to the Nation of total heating
product consumer costs and savings that would result from particular
standard levels. In accordance with the OMB Circular A-4, DOE
calculated the NPV using both a 7-percent and a 3-percent real discount
rate. The 7-percent rate is an estimate of the average before-tax rate
of return to private capital in the U.S. economy, and reflects the
returns to real estate and small business capital as well as corporate
capital. DOE used this discount rate to approximate the opportunity
cost of capital in the private sector, as OMB analysis has found the
average rate of return to capital to be near this rate. In addition,
DOE used the 3-percent rate to capture the potential effects of amended
standards on private consumption (e.g., through higher prices for
products and reduced purchases of energy). This rate represents the
rate at which society discounts future consumption flows to their
present value. This rate can be approximated by the real rate of return
on long-term government debt (i.e., yield on Treasury notes minus
annual rate of change in the Consumer Price Index), which has averaged
about 3 percent on a pre-tax basis for the last 30 years.
Table V.38 through Table V.40 show the consumer NPV results for
each TSL DOE considered for the three types of heating products, using
both a 7-percent and a 3-percent discount rate. See chapter 10 of the
NOPR TSD for more detailed NPV results.
Table V.38--Cumulative Net Present Value of Consumer Benefits for Water Heaters
[Impacts for units sold from 2015 to 2045]
--------------------------------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------------------------------
Product class TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7
--------------------------------------------------------------------------------------------------------------------------------------------------------
billion 2008 dollars
--------------------------------------------------------------------------------------------------------------------------------------------------------
Discounted at 3%.................... Gas-Fired Storage...... 7.58 9.04 9.04 9.04 9.63 9.04 11.27
Electric Storage....... 2.19 3.16 4.73 6.02 11.67 31.90 41.94
Oil-Fired Storage...... 0.12 0.20 0.28 0.28 0.28 0.28 0.47
Gas-Fired Instantaneous 0.30 0.30 0.30 0.30 0.30 0.30 -5.68
------------------------------------------------------------------------------------------
Total............... 10.20 12.71 14.36 15.64 21.89 41.52 47.99
--------------------------------------------------------------------------------------------------------------------------------------------------------
Discounted at 7%.................... Gas-Fired Storage...... 2.94 3.09 3.09 3.09 3.17 3.09 -1.10
Electric Storage....... 0.69 1.03 1.32 1.59 3.35 5.22 8.50
Oil-Fired Storage...... 0.05 0.09 0.12 0.12 0.12 0.12 0.19
[[Page 65955]]
Gas-Fired Instantaneous 0.01 0.01 0.01 0.01 0.01 0.01 -4.84
------------------------------------------------------------------------------------------
Total............... 3.69 4.20 4.53 4.79 6.64 8.43 2.75
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table V.39--Cumulative Net Present Value of Consumer Benefits for Direct Heating Equipment
[Impacts for units sold from 2013 to 2043]
--------------------------------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------------------------------
Product class TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6
--------------------------------------------------------------------------------------------------------------------------------------------------------
billion 2008 dollars
--------------------------------------------------------------------------------------------------------------------------------------------------------
Discounted at 3%........................ Gas Wall Fan.............. 0.07 0.09 0.11 0.14 0.07 0.14
Gas Wall Gravity.......... 0.07 0.22 0.52 0.52 0.37 0.37
Gas Floor................. 0.0003 0.0003 0.0003 0.0003 0.0003 0.0003
Gas Room.................. 0.02 0.05 0.08 0.08 0.35 0.35
Gas Hearth................ 1.52 1.52 1.52 -1.06 -1.06 -3.49
-----------------------------------------------------------------------------------
Total.................. 1.68 1.87 2.22 -0.33 -0.26 -2.63
--------------------------------------------------------------------------------------------------------------------------------------------------------
Discounted at 7%........................ Gas Wall Fan.............. 0.03 0.04 0.04 0.04 0.03 0.04
Gas Wall Gravity.......... 0.03 0.09 0.20 0.20 0.06 0.06
Gas Floor................. 0.0001 0.0001 0.0001 0.0001 0.0001 0.0001
Gas Room.................. 0.01 0.02 0.03 0.03 0.14 0.14
Gas Hearth................ 0.64 0.64 0.64 -1.16 -1.16 -3.78
-----------------------------------------------------------------------------------
Total.................. 0.71 0.79 0.91 -0.89 -0.93 -3.54
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table V.40--Cumulative Net Present Value of Consumer Benefits for Pool Heaters
[Impacts for units sold from 2013 to 2043]
----------------------------------------------------------------------------------------------------------------
TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6
----------------------------------------------------------------------------------------------------------------
billion 2008 dollars
----------------------------------------------------------------------------------------------------------------
Discounted at 3%.................. 0.16 0.18 0.40 0.25 -1.97 -4.51
Discounted at 7%.................. 0.08 0.07 0.14 0.03 -1.27 -2.94
----------------------------------------------------------------------------------------------------------------
c. Net Present Value of Benefits From Energy Price Impacts
DOE estimated the cumulative NPV of the economy-wide savings in
natural gas expenditures during the forecast period due to the
projected decline in natural gas prices resulting from amended
standards on water heaters. DOE calculated the cumulative NPV for the
efficiency levels in each product class corresponding to each TSL using
both a 7-percent and a 3-percent discount rate (Table V.41). (The
impact of amended standards for direct heating equipment and pool
heaters was not estimated for the reasons explained in section IV.F.)
See chapter 10 of the NOPR TSD for further details. As discussed in
section IV.F.2.g, DOE was not able to estimate the impact of the
considered TSLs on electricity prices.
Table V.41--Cumulative NPV of the Economy-Wide Savings in Natural Gas Expenditures Due to the Projected Decline in Natural Gas Prices Resulting From
Amended Standards for Water Heaters*
--------------------------------------------------------------------------------------------------------------------------------------------------------
Discount Rate TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7
--------------------------------------------------------------------------------------------------------------------------------------------------------
billion $2008
--------------------------------------------------------------------------------------------------------------------------------------------------------
3 percent.................................................... 3.0 4.5 5.1 5.6 7.1 23.6 47.7
7 percent.................................................... 1.4 2.2 2.5 2.7 3.4 12.0 24.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Impacts for units sold from 2015 to 2045.
d. Impacts on Employment
Employment impacts consist of direct and indirect impacts. Direct
employment impacts are any changes in the number of employees of
manufacturers of the appliance products that are the subject of this
rulemaking, their suppliers, and related service firms. Indirect
employment impacts are changes in employment in the larger economy that
occur due to the shift in expenditures and capital investment caused by
the purchase and operation of more-efficient appliances. The MIA
addresses the direct employment impacts that concern manufacturers of
the three heating products (see section V.B.2 above).
To estimate the indirect employment impacts of potential amended
energy conservation standards, DOE used an input/output model of the
U.S. economy
[[Page 65956]]
(see section IV.I)). The input/output model results suggest that
amended standards would be likely to increase the net demand for labor
in the economy slightly. Table V.42 presents the estimated net indirect
employment impacts from the TSLs that DOE considered for water heaters.
The estimated impacts from the potential amended standards for DHE and
pool heaters would be much smaller. (Note that the input/output model
DOE uses does not report the quality or wage level of the jobs.) See
chapter 14 of the NOPR TSD for more detailed results.
Table V.42--Net Increase in National Indirect Employment Under Water Heater TSLs
----------------------------------------------------------------------------------------------------------------
Trial standard level 2015 thousands 2020 thousands 2030 thousands 2044 thousands
----------------------------------------------------------------------------------------------------------------
1................................... -0.17 1.02 2.58 3.32
2................................... -0.46q 1.20 3.36 4.38
3................................... -0.55 1.97 5.27 6.70
4................................... -0.62 2.58 6.75 8.49
5................................... -0.77 5.63 13.95 17.82
6................................... -2.47 18.48 45.72 55.67
7................................... -6.98 19.37 54.03 68.11
----------------------------------------------------------------------------------------------------------------
While DOE's analysis suggests that amended standards could increase
the net demand for labor in the economy, the estimated gains would be
very small relative to total national employment. Therefore, DOE has
tentatively concluded that the considered standard levels would be
likely to produce employment benefits sufficient to fully offset any
adverse impacts on employment in the manufacturing industries related
to the three types of heating products that are the subject of this
rulemaking.
4. Impact on Utility or Performance of Products
As discussed in section III.D.1.d, DOE has tentatively concluded
that none of the efficiency levels considered in this notice would
reduce the utility or performance of the three types of heating
products. Furthermore, manufacturers of these products currently offer
heating products that meet or exceed the proposed standards. (42 U.S.C.
6295(o)(2)(B)(i)(IV))
5. Impact of Any Lessening of Competition
DOE has also considered any lessening of competition likely to
result from amended standards. The Attorney General determines the
impact, if any, of any lessening of competition likely to result from a
proposed standard, and transmits its determination to the Secretary,
together with an analysis of the nature and extent of the impact. (42
U.S.C. 6295(o)(2)(B)(i)(V) and (ii))
To assist the Attorney General in making such a determination, DOE
has provided DOJ with copies of this notice and the TSD for review. DOE
will consider DOJ's comments on the proposed rule in preparing the
final rule, and DOE will publish and respond to DOJ's comments in that
document.
6. Need of the Nation To Conserve Energy
Improving the energy efficiency of heating products when
economically justified would likely improve the security of the
Nation's energy system by reducing overall demand for energy. (42
U.S.C. 6295(o)(2)(B)(i)(VI)) Reduced electricity demand may also
improve the reliability of the electricity system.
Energy savings from amended standards for heating products could
also produce environmental benefits in the form of reduced emissions of
air pollutants and greenhouse gases associated with energy production
and the use of fossil fuels at the sites where heating products are
used. Table V.43 and Table V.44 provide DOE's estimate of cumulative
CO2, NOX, and Hg emissions reductions that would
be expected to result from the TSLs considered in this rulemaking. In
the environmental assessment (chapter 16 of the NOPR TSD), DOE reports
the estimated annual change in CO2, NOX, and Hg
emissions attributable to each TSL.
For DHE, DOE estimates a very slight increase in Hg emissions under
the proposed standard. The reason for this result is that the more-
efficient products save natural gas, but they also use more electricity
due to electronic ignition and, for some DHE TSLs, use of a fan. This
results in higher electricity generation than in the reference case,
which leads to higher emissions. However, because the increase in
electricity that these more efficient products are projected to use is
comparatively small when compared to the reduction in natural gas
usage, there will be an overall efficiency gain from the proposed
standard. For CO2 and NOX, the higher emissions
from the power sector would also be canceled out by lower household
emissions from gas combustion, resulting in a total emissions decrease
under the considered TSLs. This is not the case for Hg because there
are no household Hg emissions to offset.
As discussed in section IV.K, DOE does not report SO2
emissions reductions from power plants because there is uncertainty
about the effect of energy conservation standards on the overall level
of SO2 emissions in the United States due to SO2
emissions caps. DOE also did not include NOX emissions
reduction from power plants in States subject to CAIR because an energy
conservation standard would not affect the overall level of
NOX emissions in those States due to the emissions caps
mandated by CAIR.
Table V.43--Summary of Emissions Reductions Under Water Heater TSLs
[Cumulative throughout forecast period]
--------------------------------------------------------------------------------------------------------------------------------------------------------
TSL
Emission Type -------------------------------------------------------------------------------------------------
1 2 3 4 5 6 7
--------------------------------------------------------------------------------------------------------------------------------------------------------
CO2 (Mt).............................................. 88.7 136.8 146.6 153.8 217.0 346.0 965.5
NOX (kt).............................................. 68.5 106 113 118 165 254 730
[[Page 65957]]
Hg (t)................................................ 0.11 0.16 0.19 0.20 0.60 2.18 4.43
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table V.44--Summary of Emissions Reductions Under Direct Heating Equipment and Pool Heater TSLs
[Cumulative throughout forecast period]
----------------------------------------------------------------------------------------------------------------
TSL
Emission Type -----------------------------------------------------------------------------
1 2 3 4 5 6
----------------------------------------------------------------------------------------------------------------
Direct Heating Equipment
----------------------------------------------------------------------------------------------------------------
CO2 (Mt).......................... 6.32 7.02 8.52 16.69 18.46 42.97
NOX (kt).......................... 5.79 6.42 7.74 15.2 16.9 39.6
Hg (t)............................ (0.02) (0.02) (0.02) (0.00) (0.01) (0.01)
----------------------------------------------------------------------------------------------------------------
Pool Heaters
----------------------------------------------------------------------------------------------------------------
CO2 (Mt).......................... 0.610 1.05 3.31 4.21 5.74 12.12
NOX (kt).......................... 0.55 0.94 2.98 3.74 5.10 10.77
Hg (t)............................ 0.00 0.00 0.01 0.00 0.00 0.00
----------------------------------------------------------------------------------------------------------------
DOE estimated the cumulative monetary value of the economic
benefits associated with CO2 emissions reductions expected
to result from amended standards for the three types of heating
products. As discussed in section IV.K, in considering the potential
global benefits resulting from reduced CO2 emissions, DOE
used values based on a social cost of carbon of approximately $5, $10,
$20, $34 and $56 per metric ton avoided in 2007 (values expressed in
2008$). DOE also calculated the domestic benefits based on a value of
approximately $1 per metric ton avoided in 2007. To monetize the
CO2 emissions reductions expected to result from amended
standards for heating products in 2013-2045, DOE escalated the above
values for 2007 using a three-percent escalation rate. For each of the
three types of heating products, DOE calculated the cumulative monetary
value for each TSL using both a 7-percent and 3-percent discount rate
(see Table V.45 through Table V.50).
Table V.45--Estimates of the Value of CO2 Emissions Reductions for Water Heaters Under Trial Standard Levels Using 7% Discount Rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
Value of estimated CO2 emission reductions (million 2008$)*
------------------------------------------------------------------------------------------------
Domestic Global
TSL ------------------------------------------------------------------------------------------------
CO2 value of CO2 value of CO2 value of CO2 value of CO2 value of
CO2 value of $1/ $5/metric ton $10/metric ton $20/metric ton $34/metric ton $56/metric ton
metric ton CO2 CO2 CO2 CO2 CO2 CO2
--------------------------------------------------------------------------------------------------------------------------------------------------------
1...................................................... 48.0 211 421 800 1,390 2,317
2...................................................... 74.1 325 650 1,235 2,145 3,575
3...................................................... 79.4 348 697 1,324 2,299 3,832
4...................................................... 83.4 366 732 1,390 2,414 4,024
5...................................................... 112 492 983 1,869 3,246 5,409
6...................................................... 171 749 1,497 2,845 4,941 8,235
7...................................................... 487 2,134 4,268 8,110 14,085 23,476
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Unit values are approximate and are based on escalating 2007$ to 2008$ for consistency with other values presented in this notice.
Table V.46--Estimates of the Value of CO2 Emissions Reductions for Water Heaters Under Trial Standard Levels Using 3% Discount Rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
Value of estimated CO2 emission reductions (million 2008$)*
-----------------------------------------------------------------------------------------------
Domestic Global
TSL -----------------------------------------------------------------------------------------------
CO2 value of CO2 value of CO2 value of CO2 value of CO2 value of CO2 value of
$1/metric ton $5/metric ton $10/metric ton $20/metric ton $34/metric ton $56/metric ton
CO2 CO2 CO2 CO2 CO2 CO2
--------------------------------------------------------------------------------------------------------------------------------------------------------
1....................................................... 110 480 961 1,826 3,171 5,285
2....................................................... 169 741 1,482 2,816 4,890 8,151
3....................................................... 181 794 1,588 3,017 5,239 8,732
[[Page 65958]]
4....................................................... 190 833 1,666 3,166 5,499 9,166
5....................................................... 265 1,162 2,325 4,417 7,672 12,787
6....................................................... 416 1,824 3,648 6,932 12,040 20,066
7....................................................... 1,170 5,132 10,263 19,500 33,868 56,447
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Unit values are approximate and are based on escalating 2007$ to 2008$ for consistency with other values presented in this notice.
Table V.47--Estimates of the Value of CO2 Emissions Reductions for Direct Heating Equipment Under Trial Standard Levels Using 7% Discount Rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
Value of estimated CO2 emission reductions (million 2008$)*
-------------------------------------------------------------------------------------------------
Domestic Global
TSL -------------------------------------------------------------------------------------------------
CO2 value of CO2 value of CO2 value of CO2 value of CO2 value of
$1/metric ton CO2 value of $5/ $10/metric ton $20/metric ton $34/metric ton $56/metric ton
CO2 metric ton CO2 CO2 CO2 CO2 CO2
--------------------------------------------------------------------------------------------------------------------------------------------------------
1..................................................... 3.69 16.2 32.4 61.5 107 178
2..................................................... 4.09 18.0 35.9 68.2 119 198
3..................................................... 4.96 21.8 43.6 82.8 144 240
4..................................................... 9.78 42.9 85.8 163 283 472
5..................................................... 10.8 47.4 94.8 180 313 521
6..................................................... 25.2 111 221 420 730 1,216
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Unit values are approximate and are based on escalating 2007$ to 2008$ for consistency with other values presented in this notice.
Table V.48--Estimates of the Value of CO2 Emissions Reductions for Direct Heating Equipment Under Trial Standard Levels Using 3% Discount Rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
Value of estimated CO2 emission reductions (million 2008$)*
-------------------------------------------------------------------------------------------------
Domestic Global
TSL -------------------------------------------------------------------------------------------------
CO2 value of CO2 value of CO2 value of CO2 value of CO2 value of
$1/metric ton CO2 value of $5/ $10/metric ton $20/metric ton $34/metric ton $56/metric ton
CO2 metric ton CO2 CO2 CO2 CO2 CO2
--------------------------------------------------------------------------------------------------------------------------------------------------------
1..................................................... 7.81 34.3 68.5 130 226 377
2..................................................... 8.68 38.1 76.1 145 251 419
3..................................................... 10.5 46.2 92.4 176 305 508
4..................................................... 20.6 90.5 181 344 598 996
5..................................................... 22.8 100 200 380 661 1,101
6..................................................... 53.1 233 466 886 1,538 2,564
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Unit values are approximate and are based on escalating 2007$ to 2008$ for consistency with other values presented in this notice.
Table V.49--Estimates of the Value of CO2 Emissions Reductions for Pool Heaters Under Trial Standard Levels Using 7% Discount Rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
Value of estimated CO2 emission reductions (million 2008$)*
---------------------------------------------------------------------------------------------------
Domestic Global
TSL ---------------------------------------------------------------------------------------------------
CO2 value of CO2 value of CO2 value of CO2 value of
$1/metric ton CO2 value of $5/ CO2 value of $10/ $20/metric ton $34/metric ton $56/metric ton
CO2 metric ton CO2 metric ton CO2 CO2 CO2 CO2
--------------------------------------------------------------------------------------------------------------------------------------------------------
1................................................... 0.37 1.63 3.27 6.21 10.8 18.0
2................................................... 0.64 2.81 5.61 10.7 18.5 30.9
3................................................... 2.02 8.86 17.7 33.7 58.5 97.4
4................................................... 2.55 11.2 22.4 42.5 73. 123
5................................................... 3.47 15.2 30.5 57.9 101 168
6................................................... 7.33 32.8 64.3 122 212 354
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Unit values are approximate and are based on escalating 2007$ to 2008$ for consistency with other values presented in this notice.
[[Page 65959]]
Table V.50--Estimates of the Value of CO2 Emissions Reductions for Pool Heaters Under Trial Standard Levels Using 3% Discount Rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
Value of estimated CO2 emission reductions (million 2008$)*
---------------------------------------------------------------------------------------------------
Domestic Global
TSL ---------------------------------------------------------------------------------------------------
CO2 value of CO2 value of CO2 value of CO2 value of
$1/metric ton CO2 value of $5/ CO2 value of $10/ $20/metric ton $34/metric ton $56/metric ton
CO2 metric ton CO2 metric ton CO2 CO2 CO2 CO2
--------------------------------------------------------------------------------------------------------------------------------------------------------
1................................................... 0.75 3.31 6.62 12.6 21.8 36.4
2................................................... 1.30 5.69 11.4 21.6 37.5 62.5
3................................................... 4.09 18.0 35.9 68.2 118 197
4................................................... 5.21 22.8 45.7 86.8 151 251
5................................................... 7.10 31.1 62.2 118 205 342
6................................................... 15.0 65.7 131 250 434 723
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Unit values are approximate and are based on escalating 2007$ to 2008$ for consistency with other values presented in this notice.
DOE also estimated a range for the cumulative monetary value of the
economic benefits associated with NOX and Hg emissions
reductions anticipated to result from amended standards for the three
types of heating products under consideration in this rulemaking. Table
V.51 through Table V.54 present the results for NOX
emissions reductions. Table V.53 presents the results for Hg emissions
reductions for water heaters. The values for Hg emissions reductions
for direct heating equipment and pool heater TSLs are negligible.
Table V.51--Estimates of the Value of NOX Emissions Reductions for Water
Heaters Under Trial Standard Levels
------------------------------------------------------------------------
Value at 7% Value at 3%
TSL discount rate discount rate
million 2008$ million 2008$
------------------------------------------------------------------------
1................................. 7.44-76.4 15.9-163
2................................. 11.5-118 24.5-252
3................................. 12.3-126 26.2-269
4................................. 12.9-132 27.4-282
5................................. 16.4-168 36.6-377
6................................. 23.0-236 54.1-556
7................................. 69.1-710 159-1,632
------------------------------------------------------------------------
Table V.52--Estimates of the Value of NOX Emissions Reductions for
Direct Heating Equipment Under Trial Standard Levels
------------------------------------------------------------------------
Value at 7% Value at 3%
TSL discount rate discount rate
million 2008$ million 2008$
------------------------------------------------------------------------
1................................. 0.71-7.26 1.41-14.51
2................................. 0.78-8.04 1.56-16.07
3................................. 0.94-9.68 1.89-19.39
4................................. 1.87-19.2 3.73-38.32
5................................. 2.07-21.3 4.13-42.50
6................................. 4.86-50.0 9.67-99.45
------------------------------------------------------------------------
Table V.53--Estimates of the Value of NOX Emissions Reductions for Pool
Heaters Under Trial Standard Levels
------------------------------------------------------------------------
Value at 7% Value at 3%
TSL discount rate discount rate
million 2008$ million 2008$
------------------------------------------------------------------------
1................................. 0.07-0.75 0.14-1.43
2................................. 0.12-1.28 0.24-2.45
3................................. 0.39-4.05 0.75-7.73
4................................. 0.49-5.03 0.94-9.66
5................................. 0.67-6.86 1.28-13.16
6................................. 1.41-14.49 2.70-27.80
------------------------------------------------------------------------
[[Page 65960]]
Table V.54--Estimates of the Value of Mercury Emissions Reductions for
Water Heaters Under Trial Standard Levels
------------------------------------------------------------------------
Value at 7% Value at 3%
TSL discount rate discount rate
million 2008$ million 2008$
------------------------------------------------------------------------
1................................. 0.03-1.20 0.05-2.17
2................................. 0.04-1.82 0.07-3.30
3................................. 0.05-2.07 0.08-3.74
4................................. 0.05-2.25 0.09-4.09
5................................. 0.16-6.94 0.28-12.53
6................................. 0.49-21.7 0.93-41.7
7................................. 0.99-44.1 1.90-84.8
------------------------------------------------------------------------
The NPV of the monetized benefits associated with emissions
reductions can be viewed as a complement to the NPV of the consumer
savings calculated for each TSL considered in this rulemaking. Table
V.55 presents the NPV values for water heaters that would result if DOE
were to add the low- and high-end estimates of the potential benefits
resulting from reduced CO2, NOX and Hg emissions
to the NPV of consumer savings calculated for each TSL considered in
this rulemaking, at both a 7- and 3-percent discount rate. Table V.56
presents the NPV values for DHE that would result if DOE were to add
the low- and high-end estimates of the potential global benefits
resulting from reduced CO2 emissions to the NPV of consumer
savings calculated for each TSL considered in this rulemaking, at both
a 7- and 3-percent discount rate. Table V.57 presents the same NPV
values for pool heaters. For CO2, only the low and high
global benefit values are used for these tables ($5 and $56 in 2008$).
Although adding the value of consumer savings to the values of
emission reductions provides a valuable perspective, please note the
following: 1) the national consumer savings are domestic U.S. consumer
monetary savings found in market transactions, while the values of
emission reductions are based on ranges of estimates of imputed
marginal social costs, which, in the case of CO2, are meant
to reflect global benefits; and 2) the assessments of consumer savings
and emission-related benefits are performed with different computer
models, leading to different time frames for the analyses. For water
heaters, for example, the present value of national consumer savings is
measured for the period 2015-2065 (30 years from 2015 to 2045, plus the
longest lifetime of the equipment shipped in the 30th year). However,
the time frames of the benefits associated with the emission reductions
differ. For example, the value of CO2 emission reductions is
meant to reflect the present value of all future climate-related
impacts, even those beyond 2065.
DOE seeks comment on its presentation of NPV values and on the
consideration of GHG emissions in future energy conservation standards
rulemakings, including alternative methodological approaches to
including GHG emissions in its analysis. More specifically, DOE seeks
comment on both how it integrates monetized GHG emissions or Social
Cost of Carbon values, as well as other monetized benefits or costs,
into its analysis and models, and also on suggested alternatives to the
current approach.
Table V.55--Estimates of Adding NPV of Consumer Savings to NPV of Low- and High-End Global Monetized Benefits
From CO2, NOX, and Hg Emissions Reductions at All TSLs for Water Heaters at 3- and 7-Percent Discount Rates
----------------------------------------------------------------------------------------------------------------
CO2 value of $5/metric ton CO2 value of $56/metric ton
CO2* and low values for NOX CO2* and high values for NOX
and Hg** billion 2008$ and Hg*** billion 2008$
TSL ---------------------------------------------------------------
7-percent 3-percent 7-percent 3-percent
discount rate discount rate discount rate discount rate
----------------------------------------------------------------------------------------------------------------
1............................................... 3.90 10.7 6.08 15.6
2............................................... 4.54 13.5 7.90 21.1
3............................................... 4.89 15.2 8.49 23.4
4............................................... 5.17 16.5 8.95 25.1
5............................................... 7.14 23.1 12.2 35.1
6............................................... 9.20 43.4 16.9 62.2
7............................................... 4.95 53.3 27.0 106
----------------------------------------------------------------------------------------------------------------
* These values per ton represent the global negative externalities of CO2.
** Low Value corresponds to a value of $442 per ton of NOX emissions and $0.745 million per ton of Hg emissions.
*** High Value corresponds to a value of $4,540 per ton of NOX emissions and $33.3 million per ton of Hg
emissions.
[[Page 65961]]
Table V.56--Estimates of Adding NPV of Consumer Savings to NPV of Low- and High-End Global Monetized Benefits
from CO2, NOX, and Hg Emissions Reductions at All TSLs for DHE at 3- and 7-Percent Discount Rates
----------------------------------------------------------------------------------------------------------------
CO2 value of $5/metric ton CO2* CO2 value of $56/metric ton CO2*
and low values for NOX and Hg** and high values for NOX and
billion 2008$ Hg*** billion 2008$
TSL -------------------------------------------------------------------
7-percent 3-percent 7-percent 3-percent
discount rate discount rate discount rate discount rate
----------------------------------------------------------------------------------------------------------------
1........................................... 0.722 1.72 0.890 2.07
2........................................... 0.804 1.91 0.991 2.31
3........................................... 0.938 2.27 1.16 2.75
4........................................... (0.840) (0.233) (0.394) 0.707
5........................................... (0.855) (0.156) (0.392) 0.884
6........................................... (3.42) (2.38) (2.27) 0.038
----------------------------------------------------------------------------------------------------------------
* These values per ton represent the global negative externalities of CO2.
** Low Value corresponds to a value of $442 per ton of NOX emissions and $0.745 million per ton of Hg emissions.
*** High Value corresponds to a value of $4,540 per ton of NOX emissions and $33.3 million per ton of Hg
emissions.
Table V.57--Estimates of Adding NPV of Consumer Savings to NPV of Low- and High-End Monetized Benefits from CO2,
NOX, and Hg Emissions Reductions at All TSLs for Pool Heaters at 3- and 7-Percent Discount Rates
----------------------------------------------------------------------------------------------------------------
CO2 value of $5/metric ton CO2 value of $56/metric ton
CO2* and low values for NOX CO2* and high values for NOX
and Hg** billion 2008$ and Hg*** billion 2008$
TSL ---------------------------------------------------------------
7-percent 3-percent 7-percent 3-percent
discount rate discount rate discount rate discount rate
----------------------------------------------------------------------------------------------------------------
1............................................... 0.077 0.019 0.094 0.053
2............................................... 0.078 0.033 0.107 0.092
3............................................... 0.147 0.100 0.239 0.287
4............................................... 0.044 0.121 0.161 0.358
5............................................... (1.25) 0.166 (1.09) 0.489
6............................................... (2.90) 0.353 (2.57) 1.03
----------------------------------------------------------------------------------------------------------------
* These values per ton represent the global negative externalities of CO2.
** Low Value corresponds to a value of $442 per ton of NOX emissions and $0.745 million per ton of Hg emissions.
*** High Value corresponds to a value of $4,540 per ton of NOX emissions and $33.3 million per ton of Hg
emissions.
Table V.58--Estimates of Adding NPV of Consumer Savings to NPV of Low- and High-End Monetized Benefits from CO2
Emissions Reductions at All TSLs for Water Heaters, DHE and Pool Heaters at 3- and 7-Percent Discount Rate
----------------------------------------------------------------------------------------------------------------
CO2 value of $5/metric ton CO2 value of $56/metric ton
CO2* and low values for NOX CO2* and high values for NOX
and Hg** billion 2008$ and Hg*** billion 2008$
TSL ---------------------------------------------------------------
7-percent 3-percent 7-percent 3-percent
discount rate discount rate discount rate discount rate
----------------------------------------------------------------------------------------------------------------
1............................................... 4.69 12.4 2,517 5,710
2............................................... 5.41 15.4 3,808 8,647
3............................................... 5.96 17.5 4,174 9,455
4............................................... 4.36 16.4 4,622 10,428
5............................................... 4.99 23.1 6,102 14,252
6............................................... 2.85 41.3 9,807 23,392
7............................................... 1.45 51.1 25,042 59,779
----------------------------------------------------------------------------------------------------------------
* These values per ton represent the global negative externalities of CO2.
** Low Value corresponds to a value of $442 per ton of NOX emissions and $0.745 million per ton of Hg emissions.
*** High Value corresponds to a value of $4,540 per ton of NOX emissions and $33.3 million per ton of Hg
emissions.
7. Other Factors
In determining whether a standard is economically justified, the
Secretary of Energy may consider any other factors that the Secretary
deems to be relevant. (42 U.S.C. 6295(o)(2)(B)(i)(VII)) The Secretary
has decided that the LCC impacts on identifiable groups of consumers,
such as senior citizens and residents of multi-family housing who may
be disproportionately affected by any national energy conservation
standard level, is a relevant factor. The impacts on the identified
consumer
[[Page 65962]]
subgroups are described in section V.B.1 above.
DOE also believes that uncertainties associated with the heat pump
water heater market (e.g., product availability) are relevant to
consider. These uncertainties are discussed in section V.C below.
C. Proposed Standards
When considering proposed standards, DOE recognizes that EPCA
specifies that any new or amended energy conservation standard for any
type (or class) of covered product shall be designed to achieve the
maximum improvement in energy efficiency that the Secretary determines
is technologically feasible and economically justified. (42 U.S.C.
6295(o)(2)(A)) In determining whether a standard is economically
justified, the Secretary must determine whether the benefits of the
standard exceed its burdens to the greatest extent practicable, in
light of the seven statutory factors discussed previously. (42 U.S.C.
6295(o)(2)(B)(i)) The new or amended standard must also ``result in
significant conservation of energy.'' (42 U.S.C. 6295(o)(3)(B))
DOE considered the impacts of standards at each trial standard
level, beginning with the maximum technologically feasible level, to
determine whether each level was economically justified. If the max-
tech level is not justified, DOE then considers the next most efficient
level and undertakes the same evaluation until it reached the highest
level that is both technologically feasible and economically justified,
and saves a significant amount of energy.
To aid the reader as DOE discusses the benefits and/or burdens of
each trial standard level, the tables in the following sections present
summaries of the results of DOE's quantitative analysis at each TSL for
each of the three heating products based on the methodology discussed
above. Additional quantitative results (e.g., the cumulative NPV to
natural gas consumers of the economy-wide savings in natural gas
expenditures during the forecast period due to the projected decline in
natural gas prices resulting from amended standards on the three types
of heating products) are provided in section V.B.3.
In addition to the quantitative results, DOE also considers other
burdens and benefits that affect economic justification. These include
the LCC impacts on identifiable subgroups of consumers, such as seniors
and residents of multi-family housing, who may be disproportionately
affected by any national energy conservation standard level, and the
uncertainties associated with the heat pump water heater market.
DOE also notes that the economics literature provides a wide-
ranging discussion of how consumers trade-off upfront costs and energy
savings in the absence of government intervention. Much of this
literature attempts to explain why consumers appear to undervalue
energy efficiency improvements. This undervaluation suggests that
regulation that promotes energy efficiency can produce significant net
private gains (as well as producing social gains by, for example,
reducing pollution). There is evidence that consumers undervalue future
energy savings as a result of (1) A lack of information, (2) a lack of
sufficient savings to warrant delaying or altering purchases (e.g. an
inefficient ventilation fan in a new building or the delayed
replacement of a water pump), (3) inconsistent (e.g. excessive short-
term) weighting of future energy cost savings relative to available
returns on other investments, (4) computational or other difficulties
associated with the evaluation of relevant tradeoffs, and (5) a
divergence in incentives (e.g. renter versus owner; builder v.
purchaser). Other literature indicates that with less than perfect
foresight and a high degree of uncertainty about the future, consumers
may tradeoff these types of investments at a higher than expected rate
between current consumption and uncertain future energy cost savings.
While DOE is not prepared at present to provide a fuller quantifiable
framework for this discussion, DOE seeks comments on how to assess
these possibilities.
1. Water Heaters
Table V.59 presents a summary of the impacts for each water heater
TSL.
Table V.59--Summary of Results for Water Heaters
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Category TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
National Energy Savings (quads).. 1.26................. 1.88................. 2.28................. 2.60................. 3.74................. 10.44............... 16.85
3% discount rate............. 0.67................. 0.99................. 1.21................. 1.38................. 1.99................. 5.57................ 8.98
7% discount rate............. 0.32................. 0.47................. 0.58................. 0.66................. 0.96................. 2.71................ 0.32
NPV of Consumer Benefits (2008$
billion).
3% discount rate............. 10.20................ 12.71................ 14.36................ 15.64................ 21.89................ 41.52............... 47.99
7% discount rate............. 3.69................. 4.20................. 4.53................. 4.79................. 6.64................. 8.43................ 2.75
Industry Impacts
Gas-Fired and Electric
Storage.
Industry NPV (2008$ (4)-(12)............. (5)-(31)............. (5)-(35)............. (3)-(79)............. (21)-(130)........... (2)-(306)........... 63-(538)
million).
Industry NPV (% change).. (0.5)-(1.5).......... (0.6)-(3.6).......... (0.6)-(4.2).......... (0.4)-(9.4).......... (2.5)-(15.4)......... (0.2)-(36.3)........ 7.5-(63.8)
Oil-Fired Storage............
Industry NPV (2008$ (0.2)-(0.3).......... (0.2)-(0.3).......... (0.2)-(0.4).......... (0.2)-(0.4).......... (0.2)-(0.4).......... (0.2)-(0.4)......... (1.3)-(3.5)
million).
Industry NPV (% change).. (1.9)-(3.9).......... (1.8)-(3.6).......... (2.0)-(4.3).......... (2.0)-(4.3).......... (2.0)-(4.3).......... (2.0)-(4.3)......... (14.8)-(39.9)
Gas-Fired Instantaneous......
Industry NPV (2008$ 1.2-(1.8)............ 1.2-(1.8)............ 1.2-(1.8)............ 1.2-(1.8)............ 1.2-(1.8)............ 1.2-(1.8)........... 80.3-(65.9)
million).
Industry NPV (% change).. 0.2-(0.3)............ 0.2-(0.3)............ 0.2-(0.3)............ 0.2-(0.3)............ 0.2-(0.3)............ 0.2-(0.3)........... 13.3-(10.9)
Cumulative Emissions Reduction...
[[Page 65963]]
CO2 (Mt)..................... 88.7................. 137.................. 147.................. 154.................. 217.................. 346................. 965
NOX (kt)..................... 68.5................. 106.................. 113.................. 118.................. 165.................. 254................. 730
Hg (t)....................... 0.11................. 0.16................. 0.19................. 0.20................. 0.60................. 2.18................ 4.43
Value of Cumulative Emissions
Reduction (2008$
million)[Dagger].
CO2--3% discount rate........ 480-5,285............ 741-8,151............ 794-8,732............ 833-9,166............ 1,162-12,787......... 1,824-20,066........ 5,132-56,447
CO2--7% discount rate........ 211-2,317............ 325-3,575............ 348-3,832............ 366-4,024............ 492-5,409............ 749-8,235........... 2,134-23,476
NOX--3% discount rate........ 16-163............... 24-252............... 26-269............... 27-282............... 37-377............... 54.1-556............ 159-1,632
NOX--7% discount rate........ 7-76................. 11-118............... 12-126............... 13-132............... 16-168............... 23.0-236............ 69-710
Hg--3% discount rate......... 0.05-2.2............. 0.07-3.3............. 0.08-3.7............. 0.09-4.1............. 0.28-12.53........... 0.93-41.7........... 1.90-84.8
Hg--7% discount rate......... 0.03-1.2............. 0.04-1.8............. 0.05-2.1............. 0.05-2.2............. 0.16-6.94............ 0.49-21.7........... 0.99-44.1
Mean LCC Savings* (2008$)........
Gas-Fired Storage............ 69................... 68................... 68................... 68................... 78................... 68.................. (55)
Electric Storage............. 16................... 23................... 32................... 39................... 96................... 224................. 273
Oil-Fired Storage............ 171.................. 288.................. 395.................. 395.................. 395.................. 395................. 655
Gas-Fired Instantaneous...... 0.................... 0.................... 0.................... 0.................... 0.................... 0................... (307)
Median PBP (years)...............
Gas-Fired Storage............ 1.4.................. 2.7.................. 2.7.................. 2.7.................. 3.0.................. 2.7................. 14.1
Electric Storage......... 2.8.................. 3.0.................. 4.5.................. 5.8.................. 5.9.................. 8.3................. 8.2
Oil-Fired Storage........ 0.7.................. 0.4.................. 0.5.................. 0.5.................. 0.5.................. 0.5................. 1.4
Gas-Fired Instantaneous.. 23.5................. 23.5................. 23.5................. 23.5................. 23.5................. 23.5................ 39.5
Distribution of Consumer LCC
Impacts
Gas-Fired Storage............
Net Cost (%)............. 9.................... 15................... 15................... 15................... 16................... 15.................. 62
No Impact (%)............ 22................... 17................... 17................... 17................... 16................... 17.................. 1
Net Benefit (%).......... 69................... 68................... 68................... 68................... 68................... 68.................. 36
Electric Storage.............
Net Cost (%)............. 10................... 11................... 20................... 25................... 25................... 45.................. 45
No Impact (%)............ 32................... 29................... 14................... 10................... 10................... 5................... 1
Net Benefit (%).......... 59................... 60................... 66................... 65................... 65................... 50.................. 54
Oil-Fired Storage............
Net Cost (%)............. 0.................... 0.................... 0.................... 0.................... 0.................... 0................... 0
No Impact (%)............ 69................... 52................... 45................... 45................... 45................... 45.................. 7
Net Benefit (%).......... 31................... 48................... 55................... 55................... 55................... 55.................. 93
Gas-Fired Instantaneous......
Net Cost (%)............. 11................... 11................... 11................... 11................... 11................... 11.................. 83
No Impact (%)............ 85................... 85................... 85................... 85................... 85................... 85.................. 6
Net Benefit (%).......... 4.................... 4.................... 4.................... 4.................... 4.................... 4................... 12
Generation Capacity Change (0.129).............. (0.195).............. (0.221).............. (0.242).............. (0.956).............. (2.59).............. (5.28)
(GW)[dagger].
Employment Impacts
Total Potential Changes in
Domestic Production Workers
in 2015.
Gas-Fired and Electric (3,690)-68........... (3,690)-152.......... (3,690)-191.......... (3,690)-287.......... (3,690)-706.......... (3,690)-4,078....... (3,690)-6,133
Storage.
Oil-Fired Storage........ (38)-(1)............. (38)-2............... (38)-(1)............. (38)-(1)............. (38)-(1)............. (38)-(1)............ (38)-9
Gas-Fired Instantaneous.. Not Applicable *..... ..................... ..................... ..................... ..................... .................... ....................
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Indirect domestic jobs 3.32................. 4.38................. 6.70................. 8.49................. 17.82................ 55.67............... 68.11
(thousands) [dagger]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Parentheses indicate negative (-) values.
* For LCCs, a negative value means an increase in LCC by the amount indicated.
** The industry for gas-fired instantaneous water heaters is international.
[dagger] Changes in 2044
[Dagger] Range of the economic value of CO2 reductions is based on estimates of the global benefit of reduced CO2 emissions.
DOE first considered TSL 7, which represents the max-tech
efficiency levels for all four product classes. TSL 7 would save 16.85
quads of energy, an amount DOE considers significant. TSL 7 would
provide a NPV of consumer benefit of $2.75 billion, using a discount
rate of 7 percent, and $48.0 billion, using a discount rate of 3
percent.
The cumulative emissions reductions at TSL 7 are 965 Mt of
CO2, 730 kt of NOX, and 4.43 t of Hg. The
estimated monetary value of the cumulative CO2 emissions
reductions at TSL 7 is $2.13 billion to $23.48 billion, using a
discount rate of 7 percent, and $5.13 to $56.45 billion, using a
discount rate of 3 percent. Total electricity generating capacity in
2044 is estimated to decrease by 5.28 gigawatts (GW) under TSL 7.
At TSL 7, DOE projects that the average LCC impact for consumers is
a
[[Page 65964]]
loss of $55 for gas-fired storage water heaters, a gain of $273 for
electric storage water heaters, a gain of $655 for oil-fired storage
water heaters, and a loss of $307 for gas-fired instantaneous water
heaters. The median payback period is 14.1 years for gas-fired storage
water heaters, 8.2 years for electric storage water heaters, 1.4 years
for oil-fired storage water heaters, and 39.5 years for gas-fired
instantaneous water heaters (which is substantially longer than the
mean lifetime of the product). At TSL 7, the fraction of consumers
experiencing an LCC benefit is 36 percent for gas-fired storage water
heaters, 54 percent for electric storage water heaters, 93 percent for
oil-fired storage water heaters, and 12 percent for gas-fired
instantaneous water heaters. The fraction of consumers experiencing an
LCC cost is 62 percent for gas-fired storage water heaters, 45 percent
for electric storage water heaters, 0 percent for oil-fired storage
water heaters, and 83 percent for gas-fired instantaneous water
heaters.
At TSL 7, the projected change in the INPV is estimated to decrease
up to $538 million for gas-fired and electric storage water heaters, a
decrease of up to $3.5 million for residential oil-fired storage water
heaters, and a decrease of up to $66 million for gas-fired
instantaneous water waters, in 2008$. For gas and electric storage
water heaters, the impacts are driven primarily by the assumptions
regarding the ability for manufacturers to produce products at these
efficiency levels in the volumes necessary to serve the entire market.
Manufacturers would need to redesign almost all of their products at
TSL 7, which would force manufacturers to incur significant product and
capital conversion costs. Some loss in product utility may also occur
for units that are presently installed in space-constrained
applications because condensing and heat pump technologies would
typically cause water heaters to have a larger footprint. At TSL 7, DOE
recognizes the risk of very large negative impacts if manufacturers'
expectations about reduced profit margins are realized. In particular,
if the high end of the range of impacts is reached as DOE expects, TSL
7 could result in a net loss of 63.8 percent in INPV for gas-fired and
electric storage water heaters, a net loss of 39.9 percent in INPV for
oil-fired storage water heaters, and a net loss of 10.9 percent in INPV
for gas-fired instantaneous water heaters.
At TSL 7, the average LCC savings are lower for all of the
considered consumer subgroups than for the full household sample for
electric and gas-fired storage water heaters. In the case of electric
storage water heaters, the multi-family subgroup would experience an
average negative LCC savings of $357 (i.e., the average LCC would
increase), and three-fourths of the households would experience a net
cost. For the other subgroups, the fraction of households that would
experience a net cost is close to or just above 50 percent, which is
slightly higher than for the full household sample. The impact on the
multi-family subgroup is primarily due to the lower hot water use per
family among these households.
For gas-fired storage water heaters at TSL 7, condensing operation
would be required. DOE has several concerns related to the condensing
gas-fired storage water heater market. At the time of the NOPR
analysis, there were no condensing gas-fired storage water heaters
available to residential consumers in the United States. DOE is
concerned about the ability of manufacturers to convert all product
lines to manufacture condensing gas-fired storage water heaters in the
volumes needed by the compliance date of the standard, because the
manufacturers' ability to afford the necessary conversion costs is
uncertain. In addition, uncertainties exist about whether manufacturers
will be able to train enough installers and servicers of condensing
gas-fired water heaters to serve the relevant market by the compliance
date of the standard. As with electric storage heat pump water heaters,
DOE is concerned that a typical installer or repair person will not
have the knowledge required to troubleshoot or repair condensing gas-
fired storage water heaters since they are more complex than
traditional gas-fired storage water heaters. It is unclear whether
reliable installation and servicing could be achieved by the effective
date for compliance with the standard.
TSL 7 also includes an efficiency level for electric storage water
heaters that will require the use of heat pump technology. The
substantial average savings for customers estimated by DOE's analysis
for TSL 7 are primarily driven by the results for heat pump water
heaters. However, DOE has concerns about issues with the current heat
pump water heater market that may prevent heat pump technology from
being ready for full scale implementation. DOE fully discusses these
concerns and seeks comments from interested parties on a variety of
issues associated with heat pump water heaters in its discussion of the
benefits and burdens of TSL 6, below.
The Secretary tentatively concludes that at TSL 7, the benefits of
energy savings, positive NPV of consumer benefits, generating capacity
reductions, and emission reductions would be outweighed by the economic
burden on a significant fraction of consumers due to the large
increases in first costs associated with electric heat pump water
heaters and gas-fired condensing water heaters, the disproportionate
impacts to consumers in multi-family housing, the large capital
conversion costs that could result in a large reduction in INPV for the
manufacturers, as well as the uncertainty associated with providing
products at the max-tech level on a scale necessary to serve the entire
market. Consequently, the Secretary has tentatively concluded that TSL
7 is not economically justified.
Next, DOE considered TSL 6. The efficiency levels in TSL 6 include
the ENERGY STAR program level for electric storage water heaters, which
requires heat pump water heaters. TSL 6 would save 10.4 quads of
energy, an amount DOE considers significant. TSL 6 would increase
consumer NPV by $8.4 billion, using a discount rate of 7 percent, and
increase the NPV by $41.5 billion, using a discount rate of 3 percent.
The cumulative emissions reductions at TSL 6 are 346 Mt of
CO2, 254 kt of NOX, and 2.18 t of Hg. The
estimated monetary value of the cumulative CO2 emissions
reductions at TSL 6 is $749 billion to $8.235 billion, using a discount
rate of 7 percent, and $1.824 billion to $20.066 billion, using a
discount rate of 3 percent. Total generating capacity in 2044 is
estimated to decrease by 2.59 GW under TSL 6.
At TSL 6, DOE projects that the average LCC impact is a gain of $68
for gas-fired storage water heaters, a gain of $224 for electric
storage water heaters, a gain of $395 for oil-fired storage water
heaters, and no change for gas-fired instantaneous water heaters. The
median payback period is 2.7 years for gas-fired storage water heaters,
8.3 years for electric storage water heaters, 0.5 years for oil-fired
storage water heaters, and 23.5 years for gas-fired instantaneous water
heaters (which is longer than the mean lifetime of the product). At TSL
6, the fraction of consumers experiencing an LCC benefit is 68 percent
for gas-fired storage water heaters, 50 percent for electric storage
water heaters, 55 percent for oil-fired storage water heaters, and 4
percent for gas-fired instantaneous water heaters. The fraction of
consumers experiencing an LCC cost is 15 percent for gas-fired storage
water heaters, 45 percent for
[[Page 65965]]
electric storage water heaters, 0 percent for oil-fired storage water
heaters, and 11 percent for gas-fired instantaneous water heaters.
At TSL 6, the projected change in INPV ranges from a decrease of up
to $305.8 million for gas-fired and electric storage water heaters, a
decrease of up to $0.4 million for oil-fired storage water heaters, and
a decrease of up to $1.8 million for gas-fired instantaneous water
heaters, in 2008$. The negative impacts on INPV are driven largely by
the required efficiencies for electric storage water heaters which
effectively require heat pump technology. The oil-fired storage water
heater and gas-fired instantaneous water heater efficiencies do not
require substantial changes to the existing operations for some
manufacturers. The significant changes for electric storage water
heaters help to drive the INPVs negative, especially if profitability
is impacted after the compliance date of the amended energy
conservation standard. In particular, if the high end of the range of
impacts is reached as DOE expects, TSL 6 could result in a net loss of
36.3 percent in INPV for gas-fired and electric storage water heaters,
a net loss of 4.3 percent in INPV for oil-fired storage water heaters,
and a net loss of 0.3 percent in INPV for gas-fired instantaneous water
heaters.
TSL 6 includes efficiency levels for electric storage water heaters
that are currently only achievable through the use of advanced heat
pump technologies. DOE's analysis indicates that dramatic reductions in
energy use and substantial economic savings are possible for electric
water heaters with the use of these technologies. The average savings
for electric water heater customers estimated by DOE's analysis for TSL
6 are primarily driven by the results for heat pump water heaters.
While DOE finds the potential energy savings resulting from a national
heat pump water heater standard very favorable, DOE has some concerns
regarding the manufacturability and the market for heat pump water
heaters, which are further discussed below.
Heat pump technologies are currently used in space heating and
cooling, and other refrigeration-cycle products, indicating that this
technology is a viable design option. The use of heat pump water
heaters adds dramatically to the MSP estimates, increasing the MSP more
than $400 over the baseline electric storage water heater. In part due
to this change, the total installed cost to the consumer increases by
an average of $900 for heat pump water heaters compared to traditional
electric storage water heaters that use electric resistance heating
elements. Even though there are potential benefits of adopting an
amended energy conservation standard requiring heat pump technologies,
DOE is concerned about the uncertainties currently experienced in the
heat pump water heater market.
Although most manufacturers are in the process of developing a heat
pump water heater to offer to consumers in response to the ENERGY STAR
program or have recently began to offer a heat pump water heater model
for sale, heat pump water heaters were not offered for sale at the time
DOE's analysis was developed. DOE's shipments model projects that by
2015 heat pump water heaters will achieve approximately five percent
market share. The manufacturer impacts are driven primarily by the
assumptions regarding the ability of manufacturers to produce heat pump
water heaters in the full range of rated storage volumes in the
quantities necessary to serve the entire market. Though most electric
storage water heater manufacturers indicated that they are in the
process of developing heat pump water heaters, all manufacturers
believe that an efficiency level that requires heat pump water heater
technology is not appropriate as an amended energy conservation
standard. Several manufacturers expect that they will have to buy the
heat pump modules from outside vendors because most water heater
manufacturers have no experience manufacturing heat pumps and have
limited space in their facilities to produce heat pump systems.
Manufacturers stated that they would consider moving all or part of
their existing production capacity abroad if the energy conservation
standard is set at TSL 6 because many manufacturers expect to have to
redesign their facilities completely to accommodate a minimum energy
conservation standard requiring heat pump water heaters. DOE is
concerned about the capability of manufacturers to convert all product
lines to manufacture heat pump water heaters in the volumes needed by
the compliance date of the standard, because producing exclusively heat
pump water heaters will require $119 million in conversion costs plus
an additional $256 million in working capital for a $375 million cash
requirement. In addition, water heater manufacturers would be dependent
upon the ability of heat pump component manufacturers (e.g., compressor
manufacturers) to ramp up production to support the new market by the
compliance date of the amended standard. DOE invites comments on the
viability for high-volume production of heat pump water heaters in the
full range of rated storage volumes and also requests information or
data that would allow an assessment of such viability to be conducted.
(See Issue 11 under ``Issues on Which DOE Seeks Comment'' in section
VII.E of this NOPR.)
DOE also notes that the service industry has very little experience
with integrated heat pump water heater designs because heat pump water
heaters have only been available in the U.S. market in the past for
short periods of time, and have only recently become available to the
U.S. market once again. DOE is concerned that a typical installer or
repair person would not have the requisite knowledge to troubleshoot or
repair heat pump water heaters because they are more complex than
traditional electric storage water heaters. It is unclear whether
reliable installation and servicing could be achieved on the scale
needed by the compliance date of the amended standard.
In addition, although DOE's analysis reveals that heat pump water
heaters are capable of being installed in all of the types of
installations currently serviced by the residential electric storage
water heating market, DOE found that in certain situations (especially
indoor locations) installations could be very costly for consumers,
requiring them to alter their existing space to accommodate a heat pump
water heater. DOE estimates 30 to 40 percent of installations would
require such building modifications. In part for this reason, DOE
estimated that 12 percent of electric storage water heater consumers
would experience an increase of more than $500 in their LCC compared to
the base case.
Another concern DOE has regarding heat pump water heaters is the
impact on consumer utility in the instances when electric storage water
heaters are installed in conditioned indoor spaces. DOE estimates that
39 percent of electric storage water heaters are installed in
conditioned spaces. In these cases, the cold air given off by the heat
pump module may negatively impact consumer comfort due to uneven
heating and cooling.
DOE strongly considered TSL 6 as the proposed standard level for
residential water heaters. DOE is concerned, however, about the ability
for manufacturers to ramp up production in time to meet the demand by
the compliance date of amended standards, the potential large increases
in total installed cost to certain consumers, the ability for the
service industry to gain the knowledge and experience necessary to
provide reliable service to consumers, the potential impacts on
[[Page 65966]]
multi-family households, and the potential impacts on the space
conditioning of the residence. DOE seeks comments and data from
interested parties that will allow DOE to further bring clarity to the
issues surrounding heat pump water heaters, and determine how the
issues discussed in the paragraphs above could be adequately addressed
prior to the compliance date of an amended national energy conservation
standard for water heaters that would effectively require the use of
such technology. (See Issue 16 under ``Issues on Which DOE Seeks
Comment'' in section VII.E of this NOPR.) For today's proposed rule,
the Secretary tentatively concludes that at TSL 6, the benefits of
energy savings, generating capacity reductions, and emission reductions
would be outweighed by the negative economic impacts on those consumers
that would have to make structural changes to accommodate the larger
footprint of the heat pump water heaters, the economic burden on a
large fraction of consumers due to the large increases in first costs
associated with heat pump water heaters, the disproportionate impacts
to consumers in multi-family housing and others with comparatively low
usage rates, the large capital conversion costs that could result in a
large reduction in INPV for the manufacturers, and the uncertainties
associated with the heat pump water heater market. DOE is particularly
concerned about product availability for the heat pump water heater
market since it is unclear whether manufacturers would be able to
produce equipment in the volumes necessary to serve the entire market.
DOE will revisit this decision and strongly reconsider adoption of TSL
6 in the final rule in light of any comments and data submitted by
interested parties.
Next, DOE considered TSL 5, in which DOE paired efficiency levels
that would effectively require different technologies for large-volume
and small-volume gas-fired and electric storage water heaters in an
effort to promote advance technology penetration into the market and
potentially save additional energy. Specifically, TSL 5 would
effectively require heat pump technology for electric storage water
heaters greater than 55 gallons and condensing technology for gas-fired
storage water heaters greater than 55 gallons.
TSL 5 would save 3.7 quads of energy, an amount DOE considers
significant. Under TSL 5, the NPV of consumer benefit would be $6.64
billion, using a discount rate of 7 percent, and $21.89 billion, using
a discount rate of 3 percent.
The cumulative emissions reductions at TSL 5 are 217 Mt of
CO2, 165 kt of NOX, and 0.60 t of Hg. The
estimated monetary value of the cumulative CO2 emissions
reductions at TSL 5 is $0.492 to $5.409 billion, using a discount rate
of 7 percent, and $1.162 to $12.787 billion, using a discount rate of 3
percent. Total generating capacity in 2044 is estimated to decrease by
0.96 GW under TSL 5.
At TSL 5, DOE projects that the average LCC impact is a gain
(consumer cost savings) of $78 for gas-fired storage water heaters, a
gain of $96 for electric storage water heaters, a gain of $395 for oil-
fired storage water heaters, and no change for gas-fired instantaneous
water heaters. The median payback period is 3.0 years for gas-fired
storage water heaters, 5.9 years for electric storage water heaters,
0.5 years for oil-fired storage water heaters, and 23.5 years for gas-
fired instantaneous water heaters (which is longer than the mean
lifetime of the product). At TSL 5, the fraction of consumers
experiencing an LCC benefit is 68 percent for gas-fired storage water
heaters, 65 percent for electric storage water heaters, 55 percent for
oil-fired storage water heaters, and 4 percent for gas-fired
instantaneous water heaters. The fraction of consumers experiencing an
LCC cost is 16 percent for gas-fired storage water heaters, 25 percent
for electric storage water heaters, 0 percent for oil-fired storage
water heaters, and 11 percent for gas-fired instantaneous water
heaters.
At TSL 5, the projected change in INPV ranges from a decrease of up
to $129.9 million for gas-fired and electric storage water heaters, a
decrease of up to $0.4 million for oil-fired storage water heaters, and
a decrease of up to $1.8 million for gas-fired instantaneous water
heaters, in 2008$. The negative impacts on INPV are driven largely by
the required efficiencies for gas-fired and electric storage water
heaters with rated storage volumes above 55 gallons. TSL 5 would
effectively require heat pump technology and condensing technology for
the electric and gas-fired storage water heaters at these volume sizes.
The efficiency requirements at TSL 5 for electric storage water heater
with a rated volume less than 55 also result in negative impacts
because such large increases in insulation also require manufacturers
to implement changes to their existing equipment. The oil-fired storage
water heater and gas-fired instantaneous water heater efficiencies at
TSL 5 do not require substantial changes to the existing operations for
some manufacturers. The significant changes gas-fired and electric
storage water heaters with rated storage volumes greater than 55
gallons help to drive the INPVs negative, especially if profitability
is impacted after the compliance date of the amended energy
conservation standard. In particular, if the high end of the range of
impacts is reached as DOE expects, TSL 5 could result in a net loss of
15.4 percent in INPV for gas-fired and electric storage water heaters,
a net loss of 4.3 percent in INPV for oil-fired storage water heaters,
and a net loss of 0.3 percent in INPV for gas-fired instantaneous water
heaters.
DOE believes TSL 5 would provide an effective mechanism for
increasing the market penetration for advanced-technology water
heaters. Given DOE's concerns with TSL 6 (which includes a national
heat pump water heater standard for electric storage water heaters
across the entire range of rated storage volumes) as described above,
DOE also strongly considered proposing TSL 5. TSL 5 results in positive
NPV of consumer benefit for both electric and gas-fired storage water
heaters, while also providing additional energy and carbon savings.
Using DOE's shipments model and market assessment, DOE estimated
approximately 4 percent of gas-fired storage water heater shipments and
11 percent of models would fall into the large-volume water heater
category using the TSL 5 division (i.e., large water heaters with
storage volumes above 55 gallons). Similarly, DOE estimated
approximately 9 percent of electric storage water heater shipments and
27 percent of models would fall into the large-volume water heater
category using the TSL 5 division. Compared to TSL 6, TSL 5 effectively
requires heat pump technology for a relatively small fraction of the
electric storage water heater market, reduces the number of
installations that would necessitate significant building modifications
due to the size of heat pump water heaters, reduces the number of
installations that have space conditioning impacts from cool air
produced by the heat pump water heater operation, results in higher
average savings and lower median payback periods, and reduces the
negative impacts on consumer subgroups. For gas-fired storage water
heaters, compared to a national condensing standard level (TSL 7), TSL
5 requires condensing technology for a relatively small fraction of the
gas storage water heater market, reduces the number of installations
that require significant building modifications due to the size of
condensing gas water heaters, and
[[Page 65967]]
results in higher average LCC savings and lower median payback period.
Even though DOE has identified a number of benefits associated with
TSL 5, DOE is aware that there are multiple issues associated with
promulgating an amended energy conservation standard that affects only
a subset of the products on the market. Potential issues with TSL 5
affecting both heat pump water heaters and condensing gas-fired water
heaters include: (1) Consumer acceptance; (2) training; (3) product
substitution; (4) engineering resource constraints; (5) product
discontinuation; and (6) manufacturing issues.
First, consumers may elect not to buy the larger volume water
heaters for a number of reasons, including increased first cost, being
unfamiliar with the advanced technologies being used, and installation
size constraints. Both heat pump and condensing water heaters are
significantly more expensive than baseline water heaters of the same
nominal capacity and take up more space per nominal gallon of capacity.
As a result, consumers may buy multiple water heaters that are under
the capacity limit and use them in parallel to achieve the same nominal
capacity, although at a higher standby loss.
Furthermore, the current water heater service and installation
infrastructure has little to no experience installing and servicing
these advanced-technology storage water heaters, leading to possible
reluctance of contractors to install these products. To minimize unit
damage and warranty claims and to improve market acceptance,
manufacturers would likely have to expend significant additional
resources to hire training staff to tour the country and to provide
technical support at headquarters. Additionally, field technicians
likely would need additional licenses and test equipment to be able to
service heat pump water heaters properly (for example, to recover
refrigerant). These additional requirements would likely increase
installation and service costs beyond current levels, since consumers
will have fewer servicers/installers to choose from and the products
have become more complex.
Due to the price discrepancy between the cost of commercial
equipment (not covered by the heat pump and condensing requirement) and
residential products of the same capacity, the use of commercially-
classified storage water heater equipment in residential applications
would likely significantly expand beyond current levels under TSL 5.
Such substitutions have health and safety considerations such as the
typical lack of FVIR protection and the higher allowable set-point
temperatures for commercial equipment.
Manufacturers would likely face constraints regarding the abilities
of their engineering teams to develop multiple water heater families,
as most engineering departments have limited experience with either
advanced technology. At a minimum, condensing gas-fired products would
require manufacturers to convert existing commercial equipment lines to
residential use. However, multiple manufacturers are expected to have
to develop completely new platforms in order to remain cost-
competitive.
In light of the above, manufacturers could decide that the demand
for residential heat pump and condensing gas water heaters would likely
drop to a point where product conversion and capital costs required to
modify their operations are not justified. As a result, some
manufacturers would likely no longer manufacture residential storage
water heaters at rated storage volumes above the division point (i.e.,
56 gallons and above). Even if a manufacturer were to offer products,
development and capital costs make it likely that consumers would have
fewer product families to choose from than presently exist. Mass-
manufacturing facilities visited by DOE were typically fine-tuned for
units with similar assembly processes and cannot accommodate units with
a wide scope of assembly requirements. Units that fall outside these
standardized (high-volume) production settings would likely have to be
assembled on a separate line in a new facility adjacent to current
manufacturing space. The costs to retrofit a manufacturing plant to
allow production of these units are high and the industry reaction is
uncertain. DOE seeks comments about whether manufacturers would upgrade
just one of their facilities (and produce all heat pump and/or
condensing units there) or would upgrade multiple facilities to
minimize shipping costs and distribution costs. Additionally,
manufacturers could continue the trend to relocate to new facilities or
expand existing facilities abroad.
DOE strongly considered TSL 5 and believes it would provide
additional energy and carbon savings, while mitigating some of the
issues associated with a national heat pump water heater standard.
However, DOE has identified a number of potential issues with TSL 5
related to proposing standards that effectively require different
technologies for different subsets of products. For today's proposed
rule, the Secretary tentatively concludes that at TSL 5, the benefits
of energy savings, generating capacity reductions, economic savings for
most consumers, and the emission reductions would be outweighed by the
large capital conversion costs that could result in a large reduction
in INPV for the manufacturers, the uncertainties associated with the
rapid introduction of new product technologies, the large increases in
first costs, especially for those consumers that would have to make
structural changes, and the uncertainties associated with a
promulgation of an amended energy conservation standards that only
affects a subset of the market. DOE seeks comments and data from
interested parties that will assist DOE in bringing further clarity to
some of the issues surrounding the product division used in the two
slope energy-efficiency equations, promulgation of different standards
for a subset of products, the heat pump water heater market, the
condensing water heater market, as well as help DOE determine how these
issues can be adequately addressed prior to the compliance date of an
amended energy conservation standard for residential water heaters.
(See Issue 17 under ``Issues on Which DOE Seeks Comment'' in section
VII.E of this NOPR.) DOE will revisit this decision and strongly
consider adoption of TSL 5 in the final rule in light of any comments
and data submitted by interested parties.
Next, DOE considered TSL 4. TSL 4 would save 2.6 quads of energy,
an amount DOE considers significant. Under TSL 4, the NPV of consumer
benefit would be $4.8 billion, using a discount rate of 7 percent, and
$15.6 billion, using a discount rate of 3 percent.
The cumulative emissions reductions at TSL 4 are 154 Mt of
CO2, 118 kt of NOX, and 0.2 t of Hg. The
estimated monetary value of the cumulative CO2 emissions
reductions at TSL 4 is $0.366 to $4.024 billion, using a discount rate
of 7 percent, and $0.833 to $9.166 billion, using a discount rate of 3
percent. Total generating capacity in 2044 is estimated to decrease by
0.24 GW under TSL 4.
At TSL 4, DOE projects that the average LCC impact is a gain of $68
for gas-fired storage water heaters, a gain of $39 for electric storage
water heaters, a gain of $395 for oil-fired storage water heaters, and
no change for gas-fired instantaneous water heaters. The median payback
period is 2.7 years for gas-fired storage water heaters, 5.8 years for
electric storage water heaters, 0.5 years for oil-fired storage water
heaters, and 23.5 years for gas-fired instantaneous water heaters
(which is longer than the mean lifetime of the product). At TSL 4, the
fraction of
[[Page 65968]]
consumers experiencing an LCC benefit is 68 percent for gas-fired
storage water heaters, 65 percent for electric storage water heaters,
55 percent for oil-fired storage water heaters, and 4 percent for gas-
fired instantaneous water heaters. The fraction of consumers
experiencing an LCC cost is 15 percent for gas-fired storage water
heaters, 25 percent for electric storage water heaters, 0 percent for
oil-fired storage water heaters, and 11 percent for gas-fired
instantaneous water heaters. For gas-fired instantaneous water heaters,
85 percent of consumers would not be impacted at TSL 4 because DOE
projects that they would purchase an appliance of equal or higher
efficiency than the TSL 4 level.
At TSL 4, the projected change in INPV ranges from a decrease of up
to $79 million for gas-fired and electric storage water heaters, a
decrease of up to $0.4 million for oil-fired storage water heaters, and
a decrease of up to $1.8 million for gas-fired instantaneous water
heaters, in 2008$. The impacts on manufacturers are less significant at
TSL4 because the technology used at TSL 4 does not greatly differ from
baseline models for gas-fired, electric, and oil-fired storage water
heaters. In addition, most manufacturers of gas-fired instantaneous
water heaters offer products that meet or exceed the efficiencies
required at TSL 4. If the high end of the range of impacts is reached
as DOE expects, TSL 4 could result in a net loss of 9.4 percent in INPV
for gas-fired and electric storage water heaters, a net loss of 4.3
percent in INPV for oil-fired storage water heaters, and a net loss of
0.3 percent in INPV for gas-fired instantaneous water heaters.
After considering the analysis, comments on the January 13, 2009,
notice and the preliminary TSD, and the benefits and burdens of TSL 4,
the Secretary tentatively concludes that this TSL will offer the
maximum improvement in efficiency that is technologically feasible and
economically justified, and will result in significant conservation of
energy. Further, benefits from carbon dioxide reductions (at a central
value of $20) would increase NPV by between $366 million and $4,024
million (2008$) at a 7% discount rate and between $833 million and
$9,166 million at a 3% discount rate. These benefits from carbon
dioxide emission reductions, when considered in conjunction with the
consumer savings NPV and other factors described above support DOE's
tentative conclusion that trial standard level 4 is economically
justified. Therefore, the Department today proposes to adopt TSL 4 as
amended energy conservation standards for water heaters as shown in
Table V.60.
Table V.60--Proposed Minimum Energy Factor Requirements for Residential
Water Heaters (TSL 4)
------------------------------------------------------------------------
Energy factor
Product class requirement
------------------------------------------------------------------------
Gas-fired Storage........... For tanks with a For tanks with a
Rated Storage Rated Storage
Volume at or below Volume above 60
60 gallons:. gallons:
EF = 0.675 - (0.0012 EF = 0.717 -(0.0019
x Rated Storage x Rated Storage
Volume in gallons). Volume in gallons)
Electric Storage............ For tanks with a For tanks with a
Rated Storage Rated Storage
Volume at or below Volume above 80
80 gallons:. gallons:
EF = 0.96 - (.0003 x EF = 1.088 - (.0019
Rated Storage x Rated Storage
Volume in gallons). Volume in gallons)
-------------------------------------------
Oil-fired Storage........... EF = 0.68 - (.0019 x Rated Storage Volume
in gallons)
Gas-fired Instantaneous..... EF = 0.82 - (.0019 x Rated Storage Volume
in gallons)
------------------------------------------------------------------------
DOE also calculated the annualized values for certain benefits and
costs under the considered TSLs. The annualized values refer to
consumer operating cost savings, consumer incremental product and
installation costs, the quantity of emissions reductions for
CO2, NOX, and Hg, and the monetary value of
CO2 emissions reductions (using a value of $20/t
CO2, which is in the middle of the values considered by DOE
for valuing the potential global benefits resulting from reduced
CO2 emissions).
DOE used a two-step calculation process to convert the time-series
of costs and benefits into annualized values. First, DOE calculated a
present value for the time-series of costs and benefits using a
discount rate of either three or seven percent. From the present value,
DOE then calculated the fixed annual payment over the analysis time
period (2015 to 2045 for water heaters) that yielded the same present
value. The fixed annual payment is the annualized value. Although DOE
calculated annualized values, this does not imply that the time-series
of cost and benefits from which the annualized values were determined
are a steady stream of payments.
Table V.61 presents the annualized values for each TSL considered
for water heaters. The tables also present the annualized net benefit
that results from summing the two monetary benefits and subtracting the
consumer incremental product and installation costs. Although summing
the value of operating savings with the value of CO2
reductions provides a valuable perspective, please note the following.
The operating cost savings are domestic U.S. consumer monetary savings
found in market transactions while the CO2 value is based on
an estimate of imputed marginal SCC, which is meant to reflect the
global benefits of CO2 reductions. In addition, the SCC
value considers a longer time frame than the period considered for
operating cost savings.
Table V.61--Annualized Benefits and Costs for Water Heaters by Trial Standard Level
--------------------------------------------------------------------------------------------------------------------------------------------------------
Primary estimate (AEO reference Low estimate (AEO low growth High estimate (high growth case)
case) case) ---------------------------------
TSL Category Unit --------------------------------------------------------------------
7% 3% 7% 3% 7% 3%
--------------------------------------------------------------------------------------------------------------------------------------------------------
Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 65969]]
1.......... Monetized Million 2008$.... 709.5.......... 885.3.......... 663.7.......... 824.2.......... 755.3.......... 946.6
Operating Cost
Savings.
Quantified CO2 (Mt)......... 2.63........... 2.83........... 3.04........... 3.01........... 0.52........... 0.77
Emissions
Reductions.
NOX (kt)......... 2.04........... 2.19........... 2.38........... 2.35........... 0.47........... 0.67
Hg (t)........... 0.005.......... 0.004.......... (0.002)........ (0.006)........ 0.005.......... 0.007
Monetized Avoided Million 2008$.... 90.4........... 108.0.......... 105.1.......... 126.5.......... 17.6........... 30.8
CO2 Value (at $19/
t).
--------------------------------------------------------------------------------------------------------------------------------------------
Costs
--------------------------------------------------------------------------------------------------------------------------------------------
Monetized Million 2008$.... 292.9.......... 282.3.......... 277.2.......... 265.3.......... 308.7.......... 299.4
Incremental
Product and
Installation
Costs.
--------------------------------------------------------------------------------------------------------------------------------------------
Net Benefits
--------------------------------------------------------------------------------------------------------------------------------------------
Monetized Value... Million 2008$.... 507.0.......... 711.0.......... 491.6.......... 685.4.......... 464.3.......... 677.9
--------------------------------------------------------------------------------------------------------------------------------------------------------
2.......... Benefits
--------------------------------------------------------------------------------------------------------------------------------------------
Monetized Million 2008$.... 1,051.1........ 1,309.8........ 984.4.......... 1,220.4........ 1,117.9........ 1,399.4
Operating Cost
Savings.
Quantified CO2 (Mt)......... 4.07........... 4.37........... 4.68........... 4.63........... 0.85........... 1.24
Emissions
Reductions.
NOX (kt)......... 3.16........... 3.38........... 3.66........... 3.61........... 0.77........... 1.07
Hg (t)........... 0.007.......... 0.006.......... (0.003)........ (0.009)........ 0.008.......... 0.011
Monetized Avoided Million 2008$.... 139.6.......... 166.5.......... 161.9.......... 194.6.......... 28.9........... 49.2
CO2 Value (at $19/
t).
--------------------------------------------------------------------------------------------------------------------------------------------
Costs
--------------------------------------------------------------------------------------------------------------------------------------------
Monetized Million 2008$.... 576.2.......... 557.9.......... 545.2.......... 524.1.......... 607.5.......... 591.9
Incremental
Product and
Installation
Costs.
--------------------------------------------------------------------------------------------------------------------------------------------
Net Benefits
--------------------------------------------------------------------------------------------------------------------------------------------
Monetized Value... Million 2008$.... 614.5.......... 918.5.......... 601.1.......... 890.8.......... 539.4.......... 856.8
--------------------------------------------------------------------------------------------------------------------------------------------------------
3.......... Benefits
--------------------------------------------------------------------------------------------------------------------------------------------
Monetized Million 2008$.... 1,297.3........ 1,610.6........ 1,210.0........ 1,496.1........ 1,384.7........ 1,725.0
Operating Cost
Savings.
Quantified CO2 (Mt)......... 4.36........... 4.68........... 5.05........... 5.00........... 0.72........... 1.13
Emissions
Reductions.
NOX (kt)......... 3.38........... 3.62........... 3.95........... 3.90........... 0.67........... 0.99
Hg (t)........... 0.008.......... 0.007.......... (0.003)........ (0.010)........ 0.009.......... 0.012
Monetized Avoided Million 2008$.... 149.6.......... 178.4.......... 175.0.......... 210.3.......... 24.1........... 45.2
CO2 Value (at $19/
t).
--------------------------------------------------------------------------------------------------------------------------------------------
Costs
--------------------------------------------------------------------------------------------------------------------------------------------
Monetized Million 2008$.... 785.3.......... 761.4.......... 742.9.......... 715.3.......... 828.0.......... 807.9
Incremental
Product and
Installation
Costs.
--------------------------------------------------------------------------------------------------------------------------------------------
Net Benefits
--------------------------------------------------------------------------------------------------------------------------------------------
Monetized Value... Million 2008$.... 661.7.......... 1,027.7........ 642.0.......... 991.2.......... 580.8.......... 962.4
--------------------------------------------------------------------------------------------------------------------------------------------------------
4.......... Benefits
--------------------------------------------------------------------------------------------------------------------------------------------
Monetized Million 2008$.... 1,487.1........ 1,842.4........ 1,383.7........ 1,708.4........ 1,590.5........ 1,976.2
Operating Cost
Savings.
Quantified CO2 (Mt)......... 4.58........... 4.92........... 5.34........... 5.28........... 0.61........... 1.04
Emissions
Reductions.
NOX (kt)......... 3.54........... 3.79........... 4.17........... 4.11........... 0.58........... 0.92
Hg (t)........... 0.009.......... 0.008.......... (0.003)........ (0.011)........ 0.010.......... 0.013
Monetized Avoided Million 2008$.... 157.1.......... 187.3.......... 184.8.......... 222.1.......... 20.2........... 41.9
CO2 Value (at $19/
t).
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 65970]]
Costs
--------------------------------------------------------------------------------------------------------------------------------------------
Monetized Million 2008$.... 945.5.......... 917.3.......... 894.4.......... 861.7.......... 997.0.......... 973.4
Incremental
Product and
Installation
Costs.
--------------------------------------------------------------------------------------------------------------------------------------------
Net Benefits
--------------------------------------------------------------------------------------------------------------------------------------------
Monetized Value... Million 2008$.... 698.8.......... 1,112.4........ 674.1.......... 1,068.9........ 613.7.......... 1,044.7
--------------------------------------------------------------------------------------------------------------------------------------------------------
5.......... Benefits
--------------------------------------------------------------------------------------------------------------------------------------------
Monetized Million 2008$.... 2,163.1........ 2,670.6........ 2,005.0........ 2,469.3........ 2,320.8........ 2,871.2
Operating Cost
Savings.
Quantified CO2 (Mt)......... 6.18........... 6.83........... 14.38.......... 14.84.......... 3.11........... 3.56
Emissions
Reductions.
NOX (kt)......... 4.72........... 5.20........... 11.09.......... 11.41.......... 2.43........... 2.78
Hg (t)........... 0.023.......... 0.022.......... 0.038.......... 0.030.......... 0.011.......... 0.017
Monetized Avoided Million 2008$.... 211.2.......... 261.2.......... 318.5.......... 383.1.......... 26.2........... 52.1
CO2 Value (at $19/
t).
--------------------------------------------------------------------------------------------------------------------------------------------
Costs
--------------------------------------------------------------------------------------------------------------------------------------------
Monetized Million 2008$.... 1,413.1........ 1,376.1........ 1,336.7........ 1,292.6........ 1,490.2........ 1,460.4
Incremental
Product and
Installation
Costs.
--------------------------------------------------------------------------------------------------------------------------------------------
Net Benefits
--------------------------------------------------------------------------------------------------------------------------------------------
Monetized Value... Million 2008$.... 961.2.......... 1555.7......... 668.3.......... 1176.7......... 830.6.......... 1410.8
--------------------------------------------------------------------------------------------------------------------------------------------------------
6.......... Benefits
--------------------------------------------------------------------------------------------------------------------------------------------
Monetized Million 2008$.... 6,331.1........ 7,745.0........ 5,801.0........ 7,097.1........ 6,857.9........ 8,387.1
Operating Cost
Savings.
Quantified CO2 (Mt)......... 9.49........... 10.72.......... 15.61.......... 16.89.......... (2.13)......... (1.50)
Emissions
Reductions.
NOX (kt)......... 7.02........... 7.90........... 11.90.......... 12.82.......... (1.58)......... (1.08)
Hg (t)........... 0.077.......... 0.075.......... 0.038.......... 0.036.......... 0.004.......... 0.012
Monetized Avoided Million 2008$.... 321.6.......... 410.0.......... 537.9.......... 646.5.......... (86.7)......... (62.2)
CO2 Value (at $19/
t).
--------------------------------------------------------------------------------------------------------------------------------------------
Costs
--------------------------------------------------------------------------------------------------------------------------------------------
Monetized Million 2008$.... 5,405.0........ 5,315.6........ 5,112.0........ 4,992.4........ 5,700.5........ 5,641.7
Incremental
Product and
Installation
Costs.
--------------------------------------------------------------------------------------------------------------------------------------------
Net Benefits
--------------------------------------------------------------------------------------------------------------------------------------------
Monetized Value... Million 2008$.... 1,247.7........ 2,839.3........ 689.0.......... 2,104.7........ 1,157.4........ 2,745.4
--------------------------------------------------------------------------------------------------------------------------------------------------------
7.......... Benefits
--------------------------------------------------------------------------------------------------------------------------------------------
Monetized Million 2008$.... 9,837.9........ 12,187.1....... 9,105.6........ 11,255.5....... 10,568.4....... 13,115.0
Operating Cost
Savings.
Quantified CO2 (Mt)......... 26.82.......... 30.05.......... 39.27.......... 39.00.......... 3.17........... 5.19
Emissions
Reductions.
NOX (kt)......... 20.41.......... 22.79.......... 30.34.......... 29.99.......... 2.91........... 4.51
Hg (t)........... 0.157.......... 0.153.......... 0.078.......... 0.056.......... 0.007.......... 0.024
Monetized Avoided Million 2008$.... 916.6.......... 1,153.3........ 1,357.0........ 1,634.6........ 85.6........... 192.1
CO2 Value (at $19/
t).
--------------------------------------------------------------------------------------------------------------------------------------------
Costs
--------------------------------------------------------------------------------------------------------------------------------------------
Monetized Million 2008$.... 9,527.4........ 9,348.7........ 9,010.5........ 8,779.1........ 10,048.9....... 9,923.2
Incremental
Product and
Installation
Costs.
--------------------------------------------------------------------------------------------------------------------------------------------
[[Page 65971]]
Net Benefits
--------------------------------------------------------------------------------------------------------------------------------------------
Monetized Value... Million 2008$.... 1,227.2........ 3,991.8........ 1,452.1........ 4,110.9........ 605.1.......... 3,383.9
--------------------------------------------------------------------------------------------------------------------------------------------------------
2. Direct Heating Equipment
Table V.62 presents a summary of the impacts for each TSL
considered for DHE.
Table V.62--Summary of Results for Direct Heating Equipment
--------------------------------------------------------------------------------------------------------------------------------------------------------
Category TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6
--------------------------------------------------------------------------------------------------------------------------------------------------------
National Energy Savings (quads)......................... 0.15 0.17 0.22 0.39 0.44 1.08
3% discount rate.................................... 0.09 0.10 0.12 0.22 0.24 0.61
7% discount rate.................................... 0.04 0.05 0.06 0.11 0.12 0.31
NPV of Consumer Benefits (2008$ billion):
3% discount rate.................................... 1.68 1.87 2.22 (0.33) (0.26) (2.63)
7% discount rate.................................... 0.71 0.79 0.91 (0.89) (0.93) (3.54)
Industry Impacts:
Traditional Direct Heating Equipment:
Industry NPV (2008$ million).................... (0.4)-(1.6) (0.6)-(3.1) (1.1)-(6.0) (1.3)-(7.6) (1.8)-(8.0) (2.2)-(10.8)
Industry NPV (% change)......................... (2.3)-(9.1) (3.4)-(17.2) (5.9)-(33.5) (7.2)-(42.1) (10.0)-(44.8) (12.3)-(60.0)
Gas Hearth Direct Heating Equipment:
Industry NPV (2008$ million).................... (0.2)-(0.9) (0.2)-(0.9) (0.2)-(0.9) 2.4-(14.8) 2.4-(14.8) 10.2-(55.1)
Industry NPV (% change)......................... (0.2)-(1.1) (0.2)-(1.1) (0.2)-(1.1) 2.8-(17.1) 2.8-(17.1) 11.8-(63.8)
Cumulative Emissions Reduction*:
CO2 (Mt)............................................ 6.3 7.0 8.5 16.7 18.5 43.0
NOX (kt)............................................ 5.8 6.4 7.7 15.2 16.9 39.6
Value of Cumulative Emissions Reduction (2008$
million)[Dagger]:
CO2--3% discount rate............................... 34.3-377 38.1-419 46.2-508 90.5-996 100-1,101 233-2,564
CO2--7% discount rate............................... 16.2-178 18.0-198 21.8-240 42.9-472 47.4-521 111-1,216
NOX--3% discount rate............................... 1.4-14.5 1.6-16.1 1.9-19.4 3.7-38.3 4.1-42.5 9.7-99.4
NOX--7% discount rate............................... 0.7-7.3 0.8-8.0 0.9-9.7 1.9-19.2 2.1-21.3 4.9-50.0
Mean LCC Savings** (2008$):
Gas Wall Fan........................................ 73 90 104 135 73 135
Gas Wall Gravity.................................... 25 83 192 192 68 68
Gas Floor........................................... 13 13 13 13 13 13
Gas Room............................................ 42 96 143 143 646 646
Gas Hearth.......................................... 96 96 96 (70) (70) (253)
Median PBP (years):
Gas Wall Fan........................................ 3.1 3.9 6.0 9.8 3.1 9.8
Gas Wall Gravity.................................... 8.1 6.5 8.3 8.3 13.0 13.0
Gas Floor........................................... 14.7 14.7 14.7 14.7 14.7 14.7
Gas Room............................................ 8.1 4.9 5.3 5.3 7.0 7.0
Gas Hearth.......................................... 0.0 0.0 0.0 25.9 25.9 37.5
Distribution of Consumer LCC Impacts
Gas Wall Fan:
Net Cost (%).................................... 3 5 30 44 3 44
No Impact (%)................................... 59 55 14 5 59 5
Net Benefit (%)................................. 38 41 56 52 38 52
Gas Wall Gravity:
Net Cost (%).................................... 12 19 39 39 59 59
No Impact (%)................................... 70 40 0 0 0 0
Net Benefit (%)................................. 18 41 61 61 41 41
Gas Floor:
Net Cost (%).................................... 25 25 25 25 25 25
No Impact (%)................................... 57 57 57 57 57 57
Net Benefit (%)................................. 18 18 18 18 18 18
Gas Room:
Net Cost (%).................................... 19 19 20 20 26 26
No Impact (%)................................... 50 25 25 25 25 25
Net Benefit (%)................................. 31 56 55 55 49 49
[[Page 65972]]
Gas Hearth:
Net Cost (%).................................... 9 9 9 69 69 81
No Impact (%)................................... 51 51 51 13 13 0
Net Benefit (%)................................. 40 40 40 17 17 19
Generation Capacity Change (GW)***...................... +0.023 +0.025 +0.031 +0.045 +0.049 +0.119
Employment Impacts:
Total Potential Changes in Domestic Production
Workers in 2013:
Traditional Direct Heating Equipment............ (300)-5 (300)-30 (300)-44 (300)-50 (300)-48 (300)-61
Gas Hearth Direct Heating Equipment............. (1,243)-7 (1,243)-7 (1,243)-7 (1,243)-516 (1,243)-516 (1,243)-846
Indirect domestic jobs (thousands)***............... 0.16 0.18 0.23 0.08 0.09 0.24
--------------------------------------------------------------------------------------------------------------------------------------------------------
Parentheses indicate negative (-) values.
* Hg emissions increase slightly (0.01 to 0.02 t) for the considered TSLs.
** For LCCs, a negative value means an increase in LCC by the amount indicated.
*** Changes in 2042.
[Dagger] Range of the economic value of CO2 reductions is based on estimates of the global benefit of reduced CO2 emissions.
DOE first considered TSL 6, the max-tech level. TSL 6 would save
1.08 quads of energy, an amount DOE considers significant. TSL 6 would
decrease consumer NPV by $3.54 billion, using a discount rate of 7
percent, and by $2.63 billion, using a discount rate of 3 percent.
The emissions reductions at TSL 6 are 43.0 Mt of CO2 and
39.6 kt of NOX. The estimated monetary value of the
cumulative CO2 emissions reductions at TSL 6 is $111 to
$1,216 million, using a discount rate of 7 percent, and $233 to $2,564
million, using a discount rate of 3 percent. Total generating capacity
in 2044 is estimated to increase slightly under TSL 6.
At TSL 6, DOE projects that the average LCC impact for consumers is
a gain of $135 for gas wall fan DHE, $68 for gas wall gravity DHE, $13
for gas floor DHE, $646 for gas room DHE and a loss of $253 for gas
hearth DHE. The median payback period is 9.8 years for gas wall fan
DHE, 13.0 years for gas wall gravity DHE, 14.7 years for gas floor DHE,
7.0 years for gas room DHE and 37.5 for gas hearth DHE (which is
significantly longer than the mean lifetime of the product). At TSL 6,
the fraction of consumers experiencing an LCC benefit is 52 percent for
gas wall fan DHE, 41 percent for gas wall gravity DHE, 18 percent for
gas floor DHE, 49 percent for gas room DHE and 19 percent for gas
hearth DHE. The fraction of consumers experiencing an LCC cost is 44
percent for gas wall fan DHE, 59 percent for gas wall gravity DHE, 25
percent for gas floor DHE, 26 percent for gas room DHE and 81 percent
for gas hearth DHE.
At TSL 6, the projected change in INPV ranges from a decrease of up
to $10.8 million for traditional DHE and a decrease of up to $55.1
million for gas hearth DHE, in 2008$. Very few manufacturers offer
products at the max-tech level for both traditional and gas hearth DHE.
At TSL 6, almost every manufacturer would face substantial product and
capital conversion costs to completely redesign most of their current
products and existing production facilities. In addition, higher
component costs could significantly harm profitability. If the high end
of the range of impacts is reached as DOE expects, TSL 6 could result
in a net loss of 60.0 percent in INPV for traditional DHE and a net
loss of 63.8 percent in INPV for gas hearth DHE. In addition to the
large, negative impacts on INPV at TSL 6, the required capital and
product conversion costs could cause material harm to a significant
number of small businesses in both the traditional and gas hearth DHE
market. The conversion costs could cause many of these small businesses
to exit the market.
The Secretary tentatively concludes that at TSL 6, the benefits of
energy savings, generating capacity reductions, and emission reductions
would be outweighed by the negative impacts on consumer NPV, the
economic burden on some consumers, the large capital conversion costs
that could result in a large reduction in INPV for the manufacturers,
and the potential impacts on a significant number of small businesses.
Consequently, the Secretary has tentatively concluded that TSL 6 is not
economically justified.
Next, DOE considered TSL 5. TSL 5 would save 0.44 quads of energy,
an amount DOE considers significant. TSL 5 would decrease consumer NPV
by $0.93 billion, using a discount rate of 7 percent, and by $0.26
billion, using a discount rate of 3 percent.
The emissions reductions at TSL 5 are 18.5 Mt of CO2 and
16.9 kt of NOX. The estimated monetary value of the
cumulative CO2 emissions reductions at TSL 5 is $47.4 to
$521 million, using a discount rate of 7 percent, and $100 to $1,101
million, using a discount rate of 3 percent. Total generating capacity
in 2044 is estimated to increase slightly under TSL 5.
At TSL 5, DOE projects that the average LCC impact for consumers is
a gain of $73 for gas wall fan DHE, $68 for gas wall gravity DHE, $13
for gas floor DHE, $646 for gas room DHE and a loss of $70 for gas
hearth DHE. The median payback period is 3.1 years for gas wall fan
DHE, 13.0 years for gas wall gravity DHE, 14.7 years for gas floor DHE,
7.0 years for gas room DHE, and 25.9 for gas hearth DHE. At TSL 5, the
fraction of consumers experiencing an LCC benefit is 38 percent for gas
wall fan DHE, 41 percent for gas wall gravity DHE, 18 percent for gas
floor DHE, 49 percent for gas room DHE, and 17 percent for gas hearth
DHE. The fraction of consumers experiencing an LCC cost is 3 percent
for gas wall fan DHE, 59 percent for gas wall gravity DHE, 25 percent
for gas floor DHE, 26 percent for gas room DHE, and 69 percent for gas
room DHE.
At TSL 5, the projected change in INPV ranges from a decrease of up
to $8 million for traditional DHE and a decrease of up to $15 million
for gas hearth DHE, in 2008$. While some manufacturers offer a limited
number of products at TSL 5, most of the current products would have to
be redesigned to meet the required efficiencies at TSL 5. In addition,
higher component costs for both traditional and gas hearth DHE could
significantly harm profitability. If the high end of the range of
impacts is reached as DOE expects, TSL 5 could
[[Page 65973]]
result in a net loss of 44.8 percent in INPV for traditional DHE and a
net loss of 17.1 percent in INPV for gas hearth DHE. In addition to the
large, negative impacts on INPV at TSL 5, the required capital and
product conversion costs could cause material harm to a significant
number of small businesses in both the traditional and gas hearth DHE
market. These manufacturers could be forced to discontinue many of
their existing product lines and, possibly, exit the market altogether.
The Secretary tentatively concludes that at trial standard level 5,
the benefits of energy savings, generating capacity reductions, and
emission reductions would be outweighed by the negative impacts on
consumer NPV, the economic burden on some consumers, the large capital
conversion costs that could result in a large reduction in INPV for the
manufacturers, and the potential for small businesses to have to reduce
or discontinue a significant number of their product lines.
Consequently, the Secretary has tentatively concluded that trial
standard level 5 is not economically justified.
Next, DOE considered TSL 4. TSL 4 would save 0.39 quads of energy,
an amount DOE considers significant. TSL 4 would provide a NPV of
consumer benefit of $0.89 billion, using a discount rate of 7 percent,
and $0.33 billion, using a discount rate of 3 percent.
The emissions reductions at TSL 4 are 16.7 Mt of CO2 and
15.2 kt of NOX. The estimated monetary value of the
cumulative CO2 emissions reductions at TSL 4 is $42.9 to
$472 million, using a discount rate of 7 percent, and $90.5 to $996
million, using a discount rate of 3 percent. Total generating capacity
in 2044 is estimated to increase slightly under TSL 4.
At TSL 4, DOE projects that the average LCC impact for consumers is
a gain of $73 for gas wall fan DHE, $68 for gas wall gravity DHE, $13
for gas floor DHE, $646 for gas room DHE, and a loss of $70 for gas
hearth DHE. The median payback period is 9.8 years for gas wall fan
DHE, 8.3 years for gas wall gravity DHE, 14.7 years for gas floor DHE,
5.3 years for gas room DHE and 25.9 years for gas hearth DHE (which is
significantly beyond the mean lifetime of the equipment). At TSL 4, the
fraction of consumers experiencing an LCC benefit is 52 percent for gas
wall fan DHE, 61 percent for gas wall gravity DHE, 18 percent for gas
floor DHE, 55 percent for gas room DHE, and 17 percent for gas hearth
DHE. The fraction of consumers experiencing an LCC cost is 44 percent
for gas wall fan DHE, 39 percent for gas wall gravity DHE, 25 percent
for gas floor DHE, 20 percent for gas room DHE and 69 percent for gas
hearth DHE.
At TSL 4, the projected change in INPV ranges from a decrease of up
to $8 million for traditional DHE and decrease of up to $15 million for
gas hearth DHE. While some manufacturers offer a limited number of
products at TSL 4, most of the current products would have to be
redesigned to meet the required efficiencies at TSL 4. In addition,
higher component costs for both traditional and gas hearth DHE could
significantly harm profitability. If the high end of the range of
impacts is reached as DOE expects, TSL 4 could result in a net loss of
42.1 percent in INPV for traditional DHE and a net loss of 17.1 percent
in INPV for gas hearth DHE. In addition to the large, negative impacts
on INPV at TSL 4, the required capital and product conversion costs
could cause material harm to a significant number of small businesses
in both the traditional and gas hearth DHE market. These manufacturers
could be forced to reduce their product offerings to remain
competitive.
The Secretary tentatively concludes that at trial standard level 4,
the benefits of energy savings, generating capacity reductions, and
emission reductions would be outweighed by the negative impacts on
consumer NPV, the economic burden on some consumers, the large capital
conversion costs that could result in a large reduction in INPV for the
manufacturers, and the potential for small businesses of DHE to reduce
their product offerings. Consequently, the Secretary has tentatively
concluded that trial standard level 4 is not economically justified.
Next, DOE considered TSL 3. TSL 3 would save 0.22 quads of energy,
an amount DOE considers significant. TSL 3 would provide a NPV of
consumer benefit of $0.91 billion, using a discount rate of 7 percent,
and $2.22 billion, using a discount rate of 3 percent.
The emissions reductions at TSL 3 are 8.5 Mt of CO2 and
7.7 kt of NOX. The estimated monetary value of the
cumulative CO2 emissions reductions at TSL 3 is $21.8 to
$240 million, using a discount rate of 7 percent, and $46.2 to $508
million, using a discount rate of 3 percent. Total electric generating
capacity in 2044 is estimated to increase slightly under TSL 3.
At TSL 3, DOE projects that the average LCC impact for consumers is
a gain of $104 for gas wall fan DHE, $192 for gas wall gravity DHE, $13
for gas floor DHE, $143 for gas room DHE, and $96 for gas hearth DHE.
The median payback period is 6.0 years for gas wall fan DHE, 8.3 years
for gas wall gravity DHE, 14.7 years for gas floor DHE, 5.3 years for
gas room DHE, and 0.0 years for gas hearth DHE. At TSL 3, the fraction
of consumers experiencing an LCC benefit is 56 percent for gas wall fan
DHE, 61 percent for gas wall gravity DHE, 18 percent for gas floor DHE,
55 percent for gas room DHE, and 40 percent for gas hearth DHE. The
fraction of consumers experiencing an LCC cost is 30 percent for gas
wall fan DHE, 39 percent for gas wall gravity DHE, 25 percent for gas
floor DHE, 20 percent for gas room DHE, and 9 percent for gas hearth
DHE.
At TSL 3, the projected change in INPV ranges from a decrease of up
to $6 million for traditional DHE and decrease of up to $1 million for
gas hearth DHE. Most traditional direct heating manufacturers have
existing products that meet the efficiencies required at TSL 3 in three
out of four product categories. The impacts on gas hearth manufacturers
are less significant at TSL 3 because manufacturers offer a wide range
of product lines that meet the required efficiencies at TSL 3 and most
products that do not meet TSL 3 could be upgraded with inexpensive
purchased parts and fairly small conversion costs. If the high end of
the range of impacts is reached, TSL 3 could result in a net loss of
33.5 percent in INPV for traditional DHE and a net loss of 1.1 percent
in INPV for gas hearth DHE. In addition, the required capital and
product conversion costs faced by small businesses decrease, mitigating
the potential harm to a significant number of small businesses.
After considering the analysis, comments on the January 13, 2009,
notice and the preliminary TSD, and the benefits and burdens of TSL 3,
the Secretary tentatively concludes that this trial standard level will
offer the maximum improvement in efficiency that is technologically
feasible and economically justified, and will result in significant
conservation of energy. Further, benefits from carbon dioxide
reductions (at a central value of $20) would increase NPV by between
$21.8 million and $240 million (2008$) at a 7% discount rate and
between $46.2 million and $508 million at a 3% discount rate. These
benefits from carbon dioxide emission reductions, when considered in
conjunction with the consumer savings NPV and other factors described
above support DOE's tentative conclusion that trial standard level 3 is
economically justified. Therefore, the Department today proposes to
adopt the energy conservation standards for DHE at TSL 3, as shown in
Table V.63.
[[Page 65974]]
Table V.63--Proposed Minimum AFUE Requirements for Direct Heating
Equipment (TSL 3)
------------------------------------------------------------------------
Annual fuel
Direct heating equipment design Product class input utilization
type capacity range Btu/h efficiency %
------------------------------------------------------------------------
Gas wall fan................... up to 42,000........... 76
over 42,000............ 77
Gas wall gravity............... up to 27,000........... 70
over 27,000 and up to 71
46,000.
over 46,000............ 72
Gas floor...................... up to 37,000........... 57
over 37,000............ 58
Gas room....................... up to 20,000........... 62
over 20,000 and up to 67
27,000.
over 27,000 and up to 68
46,000.
over 46,000............ 69
Gas hearth..................... up to 20,000........... 61
over 20,000 and up to 66
27,000.
over 27,000 and up to 67
46,000.
over 46,000............ 68
------------------------------------------------------------------------
DOE also calculated the annualized values for certain benefits and
costs under the considered TSLs. The annualized values refer to
consumer operating cost savings, consumer incremental product and
installation costs, the quantity of emissions reductions for
CO2, NOX, and Hg, and the monetary value of
CO2 emissions reductions (using a value of $20/t
CO2, which is in the middle of the values considered by DOE
for valuing the potential global benefits resulting from reduced
CO2 emissions).
DOE used a two-step calculation process to convert the time-series
of costs and benefits into annualized values. First, DOE calculated a
present value for the time-series of costs and benefits using a
discount rate of either three or seven percent. From the present value,
DOE then calculated the fixed annual payment over the analysis time
period (2013 to 2043 for DHE) that yielded the same present value. The
fixed annual payment is the annualized value. Although DOE calculated
annualized values, this does not imply that the time-series of cost and
benefits from which the annualized values were determined are a steady
stream of payments. Table V.64 presents the annualized values for each
TSL considered for DHE.
Table V.64--Annualized Benefits and Costs for Direct Heating Equipment by Trial Standard Level
--------------------------------------------------------------------------------------------------------------------------------------------------------
Primary Estimate (AEO Low Estimate (AEO low High Estimate (AEO high
reference case) growth case) growth case)
TSL Category Unit -----------------------------------------------------------------------------
7% 3% 7% 3% 7% 3%
--------------------------------------------------------------------------------------------------------------------------------------------------------
Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.................. Monetized Operating Cost Million 2008$............ 97.7 121.1 93.5 115.5 100.7 125.0
Savings.
Quantified Emissions CO2 (Mt)................. 0.18 0.20 0.32 0.34 0.10 0.11
Reductions.
NOX (kt)................. 0.16 0.18 0.27 0.28 0.10 0.12
Hg (t)................... (0.000) (0.000) (0.000) (0.001) (0.000) (0.000)
Monetized Avoided CO2 Million 2008$............ 6.1 7.2 0.5 0.5 15.4 29.0
Value (at $19/t).
------------------------------------------------------------------------------------------------------------------------------------
Costs
------------------------------------------------------------------------------------------------------------------------------------
Monetized Incremental Million 2008$............ 28.1 27.4 28.1 27.4 28.1 27.4
Product and Installation
Costs.
------------------------------------------------------------------------------------------------------------------------------------
Net Benefits
------------------------------------------------------------------------------------------------------------------------------------
Monetized Value........... Million 2008$............ 75.7 100.9 65.8 88.7 88.0 126.5
------------------------------------------------------------------------------------------------------------------------------------
Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
2.................. Monetized................. Million 2008$............ 108.8 135.0 104.1 128.9 112.2 139.3
Operating Cost Savings....
Quantified Emissions CO2 (Mt)................. 0.20 0.22 0.35 0.37 0.11 0.12
Reductions.
NOX (kt)................. 0.18 0.20 0.30 0.32 0.11 0.13
Hg (t)................... (0.000) (0.000) (0.000) (0.001) (0.000) (0.000)
[[Page 65975]]
Monetized Avoided CO2 Million 2008$............ 6.7 8.1 0.8 0.9 25.3 46.4
Value (at $19/t).
------------------------------------------------------------------------------------------------------------------------------------
Costs
------------------------------------------------------------------------------------------------------------------------------------
Monetized................. Million 2008$............ 31.3 30.5 31.3 30.5 31.3 30.5
Incremental Product and
Installation Costs.
------------------------------------------------------------------------------------------------------------------------------------
Net Benefits
------------------------------------------------------------------------------------------------------------------------------------
Monetized Value........... Million 2008$............ 84.2 112.6 73.6 99.3 106.1 155.2
------------------------------------------------------------------------------------------------------------------------------------
Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
3.................. Monetized Operating Cost Million 2008$............ 132.2 164.4 126.4 156.9 136.2 169.6
Savings.
Quantified Emissions CO2 (Mt)................. 0.24 0.27 0.43 0.46 0.13 0.14
Reductions.
NOX (kt)................. 0.22 0.24 0.36 0.38 0.14 0.15
Hg (t)................... (0.000) (0.001) (0.000) (0.001) (0.000) (0.000)
Monetized Avoided CO2 Million 2008$............ 8.2 9.8 2.5 2.9 21.0 42.6
Value (at $19/t).
------------------------------------------------------------------------------------------------------------------------------------
Costs
------------------------------------------------------------------------------------------------------------------------------------
Monetized Incremental Million 2008$............ 41.8 40.6 41.8 40.6 41.8 40.6
Product and Installation
Costs.
------------------------------------------------------------------------------------------------------------------------------------
Net Benefits
------------------------------------------------------------------------------------------------------------------------------------
Monetized Value........... Million 2008$............ 98.5 133.5 87.1 119.2 115.4 171.6
------------------------------------------------------------------------------------------------------------------------------------
Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
4.................. Monetized Operating Cost Million 2008$............ 250.4 310.9 239.6 297.0 257.9 320.7
Savings.
Quantified Emissions CO2 (Mt)................. 0.48 0.52 0.85 0.89 0.32 0.36
Reductions.
NOX (kt)................. 0.43 0.48 0.71 0.75 0.32 0.36
Hg (t)................... 0.001 0.000 (0.003) (0.004) (0.000) 0.000
Monetized Avoided CO2 Million 2008$............ 16.1 19.2 3.0 3.5 17.7 39.5
Value (at $19/t).
------------------------------------------------------------------------------------------------------------------------------------
Costs
------------------------------------------------------------------------------------------------------------------------------------
Monetized Incremental Million 2008$............ 337.8 329.1 337.8 329.1 337.8 329.1
Product and Installation
Costs.
------------------------------------------------------------------------------------------------------------------------------------
Net Benefits
------------------------------------------------------------------------------------------------------------------------------------
Monetized Value........... Million 2008$............ (71.3) 1.0 (95.2) (28.6) (62.2) 31.1
------------------------------------------------------------------------------------------------------------------------------------
Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
5.................. Monetized Operating Cost Million 2008$............ 279.4 347.3 267.3 331.8 287.7 358.3
Savings.
Quantified Emissions CO2 (Mt)................. 0.53 0.58 0.93 0.99 0.35 0.40
Reductions.
NOX (kt)................. 0.48 0.53 0.79 0.83 0.35 0.40
Hg (t)................... 0.001 0.000 (0.003) (0.004) (0.000) 0.000
[[Page 65976]]
Monetized Avoided CO2 Million 2008$............ 17.8 21.2 4.1 4.7 65.3 152.0
Value (at $19/t).
------------------------------------------------------------------------------------------------------------------------------------
Costs
------------------------------------------------------------------------------------------------------------------------------------
Monetized Incremental Million 2008$............ 371.6 361.8 371.6 361.8 371.6 361.8
Product and Installation
Costs.
------------------------------------------------------------------------------------------------------------------------------------
Net Benefits
------------------------------------------------------------------------------------------------------------------------------------
Monetized Value........... Million 2008$............ (74.5) 6.7 (100.1) (25.3) (18.6) 148.5
------------------------------------------------------------------------------------------------------------------------------------
Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
6.................. Monetized Operating Cost Million 2008$............ 686.8 850.9 656.6 811.8 707.9 878.5
Savings.
Quantified Emissions CO2 (Mt)................. 1.24 1.35 2.21 2.33 0.81 0.92
Reductions.
NOX (kt)................. 1.13 1.23 1.87 1.98 0.82 0.93
Hg (t)................... 0.001 0.001 (0.007) (0.011) (0.000) 0.000
Monetized Avoided CO2 Million 2008$............ 41.5 49.4 8.6 10.0 74.7 181.1
Value (at $19/t).
------------------------------------------------------------------------------------------------------------------------------------
Costs
------------------------------------------------------------------------------------------------------------------------------------
Monetized Incremental Million 2008$............ 1,036.2 997.3 1,036.2 997.3 1,036.2 997.3
Product and Installation
Costs.
------------------------------------------------------------------------------------------------------------------------------------
Net Benefits
------------------------------------------------------------------------------------------------------------------------------------
Monetized Value........... Million 2008$............ (307.9) (97.0) (371.0) (175.6) (253.5) 62.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
3. Pool Heaters
Table V.65 presents a summary of the energy savings and economic
impacts for each TSL considered for pool heaters.
Table V.65--Summary of Results for Pool Heaters
--------------------------------------------------------------------------------------------------------------------------------------------------------
Category TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6
--------------------------------------------------------------------------------------------------------------------------------------------------------
National Energy Savings (quads)......................... 0.02 0.03 0.08 0.10 0.13 0.28
3% discount rate.................................... 0.01 0.02 0.05 0.06 0.08 0.16
7% discount rate.................................... 0.00 0.01 0.03 0.03 0.04 0.09
NPV of Consumer Benefits (2008$ billion):
3% discount rate.................................... 0.16 0.18 0.40 0.25 (1.97) (4.51)
7% discount rate.................................... 0.08 0.07 0.14 0.03 (1.27) (2.94)
Industry Impacts:
Industry NPV (2008$ million)........................ 0.1-(0.2) 0.4-(1.0) (0.2)-(5.6) 0.5-(7.5) 3.1-(19.5) 12.9-(44.5)
Industry NPV (% change)............................. 0.1-(0.3) 0.7-(1.7) (0.4)-(9.1) 0.9-(12.1) 5.0-(31.8) 21.0-(72.6)
Cumulative Emissions Reduction*:
CO2 (Mt)............................................ 0.61 1.05 3.31 4.21 5.74 12.12
NOX (kt)............................................ 0.55 0.94 2.98 3.74 5.10 10.77
Value of Cumulative Emissions Reduction (2008$ million)
[Dagger]:
CO2--3% discount rate............................... 3.3 to 36 5.7 to 63 18 to 197 23 to 251 31 to 342 66 to 723
CO2--7% discount rate............................... 1.6 to 18 2.8 to 31 8.9 to 97 11 to 123 15 to 168 33 to 354
NOX--3% discount rate............................... 0.1 to 1.4 0.2 to 2.4 0.7 to 7.7 0.9 to 9.7 1.3 to 13.2 2.7 to 27.8
NOX--7% discount rate............................... 0.1 to 0.7 0.1 to 1.3 0.4 to 4.0 0.5 to 5.0 0.7 to 6.9 1.4 to 14.5
Mean LCC Savings** (2008$).............................. 24 18 39 (13) (555) (1,323)
Median PBP (years)...................................... 2.5 7.4 10.6 13.0 28.6 28.1
Distribution of Consumer LCC Impacts:
[[Page 65977]]
Net Cost (%)........................................ 6 31 52 59 90 96
No Impact (%)....................................... 64 46 24 22 6 1
Net Benefit (%)..................................... 30 22 24 20 5 3
Generation Capacity Change (GW)***...................... + 0.002 + 0.004 + 0.011 + 0.012 + 0.016 + 0.034
Employment Impacts:
Total Potential Changes in Domestic Production (644)-13 (644)-34 (644)-66 (644)-93 (644)-163 (644)-331
Workers in 2013....................................
Indirect domestic jobs (thousands)***............... 3.32 4.38 6.70 8.49 50.59 14.82
--------------------------------------------------------------------------------------------------------------------------------------------------------
Parentheses indicate negative (-) values.
* The impacts for Hg emissions are negligible (less than 0.01 ton).
** For LCCs, a negative value means an increase in LCC by the amount indicated.
*** Changes in 2042.
[Dagger] Range of the economic value of CO2 reductions is based on estimates of the global benefit of reduced CO2 emissions.
DOE first considered TSL 6, the max-tech level. TSL 6 would save
0.28 quads of energy, an amount DOE considers significant. TSL 6 would
decrease consumer NPV by $2.9 billion, using a discount rate of 7
percent, and by $4.5 billion, using a discount rate of 3 percent.
The emissions reductions at TSL 6 are 12.1 Mt of CO2 and
10.8 kt of NOX. The estimated monetary value of the
cumulative CO2 emissions reductions at TSL 6 is $33 million
to $354 million, using a discount rate of 7 percent, and $66 million to
$723 million, using a discount rate of 3 percent. Total generating
capacity in 2044 is estimated to increase slightly under TSL 6.
At TSL 6, DOE projects that the average LCC impact for consumers is
a loss of $1,323. The median payback period is 28.1 years (which is
substantially longer than the mean lifetime of the product). At TSL 6,
the fraction of consumers experiencing an LCC benefit is 3 percent. The
fraction of consumers experiencing an LCC cost is 96 percent.
At TSL 6, the projected change in INPV to decrease by up to $44.5
million for gas-fired pool heaters. Currently, gas-fired pool heaters
that meet the efficiencies required by TSL 6 are manufactured in
extremely low volumes by a limited number of manufacturers. The
significant impacts on manufacturers arise from the large costs to
develop or increase the production of fully condensing products. In
addition, manufacturers are significantly harmed if profitability is
negatively impacted to keep consumers in the market for a luxury item
that is significantly more expensive than most products currently sold.
If the high end of the range of impacts is reached as DOE expects, TSL
6 could result in a net loss of 72.6 percent in INPV for gas-fired pool
heaters.
The Secretary tentatively concludes that at TSL 6, the benefits of
energy savings and emission reductions would be outweighed by the
negative economic impacts to the Nation, the economic burden on some
consumers (as indicated by the large increase in total installed cost),
and the large capital conversion costs that could result in a large
reduction in INPV for the manufacturers. Consequently, the Secretary
has tentatively concluded that TSL 6 is not economically justified.
Next, DOE considered TSL 5. TSL 5 would save 0.13 quads of energy,
an amount DOE considers significant. TSL 5 would decrease consumer NPV
by $1.3 billion, using a discount rate of 7 percent, and by $2.0
billion, using a discount rate of 3 percent.
The emissions reductions at TSL 5 are 5.7 Mt of CO2 and
5.1 kt of NOX. The estimated monetary value of the
cumulative CO2 emissions reductions at TSL 5 is $15 million
to $168 million, using a discount rate of 7 percent, and $31 million to
$342 million, using a discount rate of 3 percent. Total generating
capacity in 2044 is estimated to increase slightly under TSL 5.
At TSL 5, DOE projects that the average LCC impact for consumers is
a loss of $555. The median payback period is 28.6 years (which is
substantially longer than the mean lifetime of the product). At TSL 5,
the fraction of consumers experiencing an LCC benefit is 5 percent. The
fraction of consumers experiencing an LCC cost is 90 percent.
At TSL 5, the projected change in INPV to decrease by up to $19.5
million for gas-fired pool heaters. Currently, gas-fired pool heaters
that meet the efficiencies required by TSL 5 are manufactured in
extremely low volumes by a limited number of manufacturers, as with TSL
6. The significant adverse impacts on manufacturers arise from the
large costs to develop or increase the production of products with
multiple efficiency improvements. In addition, the potential for
manufacturers to be significantly harmed increases if consumers
purchasing decisions are impacted and shipments decline due to the
large increases in first cost for a luxury item. If the high end of the
range of impacts is reached as DOE expects, TSL 5 could result in a net
loss of 31.8 percent in INPV for gas-fired pool heaters.
The Secretary tentatively concludes that at TSL 5, the benefits of
energy savings and emission reductions would be outweighed by the
negative economic impacts to the Nation, the economic burden on some
consumers (as indicated by the large increase in total installed cost),
and the large capital conversion costs that could result in a large
reduction in INPV for the manufacturers. Consequently, the Secretary
has tentatively concluded that TSL 5 is not economically justified.
Next, DOE considered TSL 4. TSL 4 would save 0.10 quads of energy,
an amount DOE considers significant. TSL 4 would increase consumer NPV
by $0.03 billion, using a discount rate of 7 percent, and by $0.25
billion, using a discount rate of 3 percent.
The cumulative emissions reductions at TSL 4 are 4.2 Mt of
CO2 and 3.7 kt of NOX. The estimated monetary
value of the cumulative CO2 emissions reductions at TSL 4 is
$11 million to $123 million, using a discount rate of 7 percent, and
$23 million to $251 million, using a discount rate of 3 percent. Total
generating capacity in 2044 is estimated to increase slightly under TSL
4.
At TSL 4, the estimated increase in the installed cost is $335.
Because this increase is substantially balanced by a decrease in
operating costs, DOE projects that the average LCC impact for consumers
is a loss of $13 (note that this quantity represents only 0.2 percent
of the average total LCC). The median payback period is 13.0 years,
compared to a typical product life of 8 years. At TSL 4, the fraction
of consumers
[[Page 65978]]
experiencing an LCC benefit is 20 percent. The fraction of consumers
experiencing a net increase in LCC (mainly due to having low pool
heater operation) is 59 percent. Of these consumers, the average net
increase in LCC would be about $172, which is about 3 percent of the
average LCC for these consumers.
At TSL 4, DOE projects that INPV decreases by up to $7.5 million
for gas-fired pool heaters. At TSL 4, manufacturers believe that
profitability could be harmed in order to keep consumers in the market
for a luxury item that is more expensive than the most common products
currently sold. If the high end of the range of impacts is reached as
DOE expects, TSL 4 could result in a net loss of 12.1 percent in INPV
for gas-fired pool heaters.
After considering the analysis, comments on the January 13, 2009,
notice and the preliminary TSD, and the benefits and burdens of TSL 4,
the Secretary tentatively concludes that this trial standard level will
offer the maximum improvement in efficiency that is technologically
feasible and economically justified, and will result in significant
conservation of energy. Further, benefits from carbon dioxide
reductions (at a central value of $20) would increase NPV by between
$11 million and $123 million (2008$) at a 7% discount rate and between
$23 million and $251 million at a 3% discount rate. These benefits from
carbon dioxide emission reductions, when considered in conjunction with
the consumer savings NPV and other factors described above support
DOE's tentative conclusion that trial standard level 4 is economically
justified. Therefore, the Department today proposes to adopt the energy
conservation standards for pool heaters at TSL 4, which requires a
thermal efficiency of 84 percent for gas-fired pool heaters as shown in
Table V.66. As discussed above, approximately 59 percent of consumers
with pool heaters would experience a life cycle cost from the proposed
standard for pool heaters, TSL 4. Further, DOE estimates that one-
quarter of these consumers would experience LCC of less than 2%.
Although most consumers would experience some savings or very small
increases in life cycle costs, DOE is seeking comment regarding the
appropriateness of proposing TSL 4 for pool heaters since this
efficiency level would increase life-cycle costs for most consumers.
DOE also seeks comment on its consideration of TSL 3 as an alternative
for the final standard level for pool heaters. (See Issue 18 under
``Issues on Which DOE Seeks Comment'' in section VII.E of this NOPR.)
Table V.66--Proposed Minimum Thermal Efficiency Requirements for Pool
Heaters (TSL 4)
------------------------------------------------------------------------
Thermal
Product class efficiency %
------------------------------------------------------------------------
Gas-fired Pool Heaters.................................... 84
------------------------------------------------------------------------
DOE also calculated the annualized values for certain benefits and
costs under the considered pool heater TSLs. The annualized values
refer to consumer operating cost savings, consumer incremental product
and installation costs, the quantity of emissions reductions of
CO2, NOX, and Hg, and the monetary value of
CO2 emissions reductions (using a value of $20/t
CO2, which is in the middle of the values considered by DOE
for valuing the potential global benefits resulting from reduced
CO2 emissions).
DOE used a two-step calculation process to convert the time-series
of costs and benefits into annualized values. First, DOE calculated a
present value for the time-series of costs and benefits using a
discount rate of either three or seven percent. From the present value,
DOE then calculated the fixed annual payment over the analysis time
period (2013 to 2043 for pool heaters) that yielded the same present
value. The fixed annual payment is the annualized value. Although DOE
calculated annualized values, this does not imply that the time-series
of costs and benefits from which the annualized values were determined
are a steady stream of payments. Table V.67 presents the annualized
values for each TSL considered for pool heaters.
Table V.67--Annualized Benefits and Costs for Pool Heaters by Trial Standard Level
--------------------------------------------------------------------------------------------------------------------------------------------------------
Primary estimate (AEO Low estimate (AEO low High estimate (AEO
reference case) growth case) high growth case)
TSL Category Unit -----------------------------------------------------------------------
7% 3% 7% 3% 7% 3%
--------------------------------------------------------------------------------------------------------------------------------------------------------
Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
1................................. Monetized Operating Million 2008$........ 9.52 10.93 9.10 10.43 9.80 11.26
Cost Savings.
Quantified Emissions CO2 (Mt)............. 0.02 0.02 0.02 0.03 0.01 0.01
Reductions. NOX (kt)............. 0.017 0.018 0.021 0.022 0.013 0.014
Hg (t)............... 0.000 0.000 (0.000) (0.000) (0.000) 0.000
Monetized Avoided CO2 Million 2008$........ 0.61 0.70 0.82 0.94 0.47 0.54
Value (at $19/t).
---------------------------------------------------------------------------------------------------------------------
Costs
---------------------------------------------------------------------------------------------------------------------
Monetized Incremental Million 2008$........ 2.06 1.98 2.06 1.98 2.06 1.98
Product and
Installation Costs.
---------------------------------------------------------------------------------------------------------------------
Net Benefits
---------------------------------------------------------------------------------------------------------------------
Monetized Value...... Million 2008$........ 8.07 9.65 7.86 9.39 8.21 9.82
---------------------------------------------------------------------------------------------------------------------
Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 65979]]
2................................. Monetized Operating Million 2008$........ 16.35 18.78 15.64 17.92 16.83 19.35
Cost Savings.
Quantified Emissions CO2 (Mt)............. 0.03 0.03 0.04 0.04 0.02 0.03
Reductions. NOX (kt)............. 0.029 0.030 0.036 0.038 0.023 0.024
Hg (t)............... 0.000 0.000 (0.000) (0.000) (0.000) 0.000
Monetized Avoided CO2 Million 2008$........ 1.06 1.20 1.40 1.62 0.80 0.93
Value (at $19/t).
---------------------------------------------------------------------------------------------------------------------
Costs
---------------------------------------------------------------------------------------------------------------------
Monetized Incremental Million 2008$........ 8.98 8.66 8.98 8.66 8.98 8.66
Product and
Installation Costs.
---------------------------------------------------------------------------------------------------------------------
Net Benefits
---------------------------------------------------------------------------------------------------------------------
Monetized Value...... Million 2008$........ 8.42 11.33 8.06 10.88 8.65 11.62
---------------------------------------------------------------------------------------------------------------------
Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
3................................. Monetized Operating Million 2008$........ 50.33 57.83 48.16 55.20 51.79 59.57
Cost Savings.
Quantified Emissions CO2 (Mt)............. 0.10 0.11 0.13 0.14 0.08 0.08
Reductions. NOX (kt)............. 0.091 0.095 0.113 0.120 0.072 0.077
Hg (t)............... 0.000 0.000 (0.000) (0.001) (0.000) 0.000
Monetized Avoided CO2 Million 2008$........ 3.33 3.80 4.42 5.10 2.55 2.93
Value (at $19/t).
---------------------------------------------------------------------------------------------------------------------
Costs
---------------------------------------------------------------------------------------------------------------------
Monetized Incremental Million 2008$........ 36.72 35.38 36.72 35.38 36.72 35.38
Product and
Installation Costs.
---------------------------------------------------------------------------------------------------------------------
Net Benefits
---------------------------------------------------------------------------------------------------------------------
Monetized Value...... Million 2008$........ 16.94 26.25 15.86 24.92 17.62 27.12
---------------------------------------------------------------------------------------------------------------------
Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
4................................. Monetized Operating Million 2008$........ 59.88 68.79 57.29 65.66 61.62 70.86
Cost Savings.
Quantified Emissions CO2 (Mt)............. 0.13 0.13 0.16 0.17 0.09 0.10
Reductions. NOX (kt)............. 0.112 0.119 0.134 0.143 0.085 0.091
Hg (t)............... 0.000 0.000 (0.000) (0.001) (0.000) 0.000
Monetized Avoided CO2 Million 2008$........ 4.20 4.84 5.24 6.08 3.01 3.47
Value (at $19/t).
---------------------------------------------------------------------------------------------------------------------
Costs
---------------------------------------------------------------------------------------------------------------------
Monetized Incremental Million 2008$........ 56.66 54.59 56.66 54.59 56.66 54.59
Product and
Installation Costs.
---------------------------------------------------------------------------------------------------------------------
Net Benefits
---------------------------------------------------------------------------------------------------------------------
Monetized Value...... Million 2008$........ 7.41 19.04 5.88 17.15 7.97 19.74
---------------------------------------------------------------------------------------------------------------------
Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
5................................. Monetized Operating Million 2008$........ 82.08 94.30 78.54 90.00 84.48 97.14
Cost Savings.
Quantified Emissions CO2 (Mt)............. 0.17 0.18 0.21 0.23 0.12 0.13
Reductions. NOX (kt)............. 0.153 0.162 0.183 0.195 0.116 0.124
Hg (t)............... 0.000 0.000 (0.000) (0.001) (0.000) 0.000
[[Page 65980]]
Monetized Avoided CO2 Million 2008$........ 5.72 6.58 7.15 8.25 4.11 4.73
Value (at $19/t).
---------------------------------------------------------------------------------------------------------------------
Costs
---------------------------------------------------------------------------------------------------------------------
Monetized Incremental Million 2008$........ 207.11 204.15 207.11 204.15 207.11 204.15
Product and
Installation Costs.
---------------------------------------------------------------------------------------------------------------------
Net Benefits
---------------------------------------------------------------------------------------------------------------------
Monetized Value...... Million 2008$........ (119.31) (103.27) (121.42) (105.90) (118.52) (102.28)
---------------------------------------------------------------------------------------------------------------------
Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
6................................. Monetized Operating Million 2008$........ 174.79 200.78 167.22 191.59 179.91 206.84
Cost Savings.
Quantified Emissions CO2 (Mt)............. 0.37 0.39 0.45 0.48 0.26 0.27
Reductions. NOX (kt)............. 0.324 0.343 0.388 0.411 0.244 0.261
Hg (t)............... 0.000 0.000 (0.001) (0.002) (0.000) 0.000
Monetized Avoided CO2 Million 2008$........ 12.04 13.94 15.10 17.45 8.65 9.98
Value (at $19/t).
---------------------------------------------------------------------------------------------------------------------
Costs
---------------------------------------------------------------------------------------------------------------------
Monetized Incremental Million 2008$........ 464.57 452.23 464.57 452.23 464.57 452.23
Product and
Installation Costs.
---------------------------------------------------------------------------------------------------------------------
Net Benefits
---------------------------------------------------------------------------------------------------------------------
Monetized Value...... Million 2008$........ (277.74) (237.52) (282.25) (243.19) (276.01) (235.41)
--------------------------------------------------------------------------------------------------------------------------------------------------------
VI. Procedural Issues and Regulatory Review
A. Review Under Executive Order 12866
Section 1(b)(1) of Executive Order 12866, ``Regulatory Planning and
Review,'' 58 FR 51735 (Oct. 4, 1993), requires each agency to identify
in writing the market failure or other problem that it intends to
address, and that warrants agency action (including where applicable,
the failure of private markets or public institutions), as well as
assess the significance of that problem, to enable assessment of
whether any new regulation is warranted. The problems that today's
proposed standards address are as follows:
(1) There is a lack of consumer information and/or information
processing capability about energy efficiency opportunities in the home
appliance market.
(2) There is asymmetric information (one party to a transaction has
more and better information than the other) and/or high transactions
costs (costs of gathering information and effecting exchanges of goods
and services).
(3) There are external benefits resulting from improved energy
efficiency of heating products that are not captured by the users of
such equipment. These benefits include externalities related to
environmental protection and energy security that are not reflected in
energy prices, such as reduced emissions of greenhouse gases.
In addition, DOE has determined that today's regulatory action is a
``significant regulatory action'' under section 3(f)(1) of Executive
Order 12866. Accordingly, section 6(a)(3) of the Executive Order
requires that DOE prepare a regulatory impact analysis (RIA) on today's
proposed rule and that the Office of Information and Regulatory Affairs
(OIRA) in the OMB review this proposed rule. DOE presented to OIRA for
review the draft proposed rule and other documents prepared for this
rulemaking, including the RIA, and has included these documents in the
rulemaking record. They are available for public review in the Resource
Room of DOE's Building Technologies Program, 950 L'Enfant Plaza, SW.,
Suite 600, Washington, DC 20024, (202) 586-2945, between 9:00 a.m. and
4:00 p.m., Monday through Friday, except Federal holidays.
The RIA is contained in the TSD prepared for the rulemaking. The
RIA consists of: (1) A statement of the problem addressed by this
regulation, and the mandate for government action; (2) a description
and analysis of the feasible policy alternatives to this regulation;
(3) a quantitative comparison of the impacts of the alternatives; and
(4) the national economic impacts of the proposed standards.
The RIA calculates the effects of feasible policy alternatives to
mandatory standards for heating products, and provides a quantitative
comparison of the impacts of the alternatives. DOE evaluated each
alternative in terms of its ability to achieve significant energy
savings at reasonable costs, and compared it to the effectiveness of
the proposed rule. DOE analyzed these alternatives using a series of
regulatory scenarios for the three types of heating products. It
modified the heating
[[Page 65981]]
product NIA models to allow inputs for these policy alternatives. Of
the four product classes of residential water heaters subject to
proposed standards, this RIA concerns only gas-fired storage and
electric storage water heaters, which together represent the majority
of shipments. Of the five product classes of DHE, this RIA concerns
only gas wall fan DHE and gas hearth DHE, which together represent the
majority of DHE shipments.
DOE identified the following major policy alternatives for
achieving increased energy efficiency in the three types of heating
products:
No new regulatory action;
Consumer rebates;
Consumer tax credits;
Manufacturer tax credits;
Voluntary energy efficiency targets;
Bulk government purchases;
Early replacement programs; and
The proposed approach (energy conservation standards).
DOE evaluated each alternative in terms of its ability to achieve
significant energy savings at reasonable costs and compared it to the
effectiveness of the proposed rule. Table VI.1 through Table VI.5 show
the results for energy savings and consumer NPV.
Table VI.1--Impacts of Non-Regulatory Alternatives for Gas-Fired Storage Water Heaters That Meet the Proposed
Standard (TSL 4)
----------------------------------------------------------------------------------------------------------------
Net present value* billion 2008$
Policy alternative Primary energy -------------------------------------
savings quads 7% discount rate 3% discount rate
----------------------------------------------------------------------------------------------------------------
No New Regulatory Action.............................. 0.00 0.00 0.00
Consumer Rebates...................................... 0.51 1.19 3.46
Consumer Tax Credits.................................. 0.31 0.72 2.08
Manufacturer Tax Credits.............................. 0.15 0.36 1.04
Voluntary Energy Efficiency Targets................... 0.12 0.29 0.83
Early Replacement..................................... 0.001 -0.02 -0.04
Bulk Government Purchases............................. 0.005 0.01 0.04
Proposed Standard..................................... 1.29 3.09 9.04
----------------------------------------------------------------------------------------------------------------
* DOE determined the NPV from 2015 to 2045.
Table VI.2--Impacts of Non-Regulatory Alternatives for Electric Storage Water Heaters That Meet the Proposed
Standard (TSL 4)
----------------------------------------------------------------------------------------------------------------
Net present value* billion 2008$
Policy alternative Primary energy --------------------------------------
savings quads 7% discount rate 3% discount rate
----------------------------------------------------------------------------------------------------------------
No New Regulatory Action............................. 0.00 0.00 0.00
Consumer Rebates..................................... 0.42 0.47 1.87
Consumer Tax Credits................................. 0.25 0.28 1.12
Manufacturer Tax Credits............................. 0.13 0.14 0.56
Voluntary Energy Efficiency Targets.................. 0.09 0.19 0.60
Early Replacement.................................... 0.0023 -0.03 -0.05
Bulk Government Purchases............................ 0.0017 0.004 0.01
Proposed Standard.................................... 1.21 1.59 6.02
----------------------------------------------------------------------------------------------------------------
* DOE determined the NPV from 2015 to 2045.
Table VI.3--Impacts of Non-Regulatory Alternatives for Gas Wall Fan DHE That Meet the Proposed Standard (TSL 3)
----------------------------------------------------------------------------------------------------------------
Net present value* billion 2008$
Policy alternative Primary energy -------------------------------------
savings quads 7% discount rate 3% discount rate
----------------------------------------------------------------------------------------------------------------
No New Regulatory Action.............................. 0.00 0.00 0.00
Consumer Rebates...................................... 0.003 0.010 0.023
Consumer Tax Credits.................................. 0.002 0.006 0.006
Manufacturer Tax Credits.............................. 0.001 0.003 0.003
Voluntary Energy Efficiency Targets................... 0.0003 0.001 0.001
Early Replacement..................................... <0.0001 -0.00001 -0.00003
Bulk Government Purchases[dagger]..................... NA NA NA
Proposed Standard..................................... 0.013 0.042 0.11
----------------------------------------------------------------------------------------------------------------
* DOE determined the NPV from 2013 to 2043.
[dagger] DOE did not evaluate the bulk government purchase alternative for gas wall fan DHE because the market
share associated with publicly-owned housing is minimal.
[[Page 65982]]
Table VI.4--Impacts of Non-Regulatory Alternatives for Gas Hearth DHE That Meet the Proposed Standard (TSL 3)
----------------------------------------------------------------------------------------------------------------
Net present value* billion 2008$
Policy alternative Primary energy ---------------------------------------
savings quads 7% discount rate 3% discount rate
----------------------------------------------------------------------------------------------------------------
No New Regulatory Action............................ 0.00 0.00 0.00
Consumer Rebates.................................... 0.03 0.15 0.36
Consumer Tax Credits................................ 0.02 0.09 0.22
Manufacturer Tax Credits............................ 0.01 0.05 0.11
Voluntary Energy Efficiency Targets................. 0.012 0.06 0.15
Early Replacement................................... <0.001 -0.005 -0.006
Bulk Government Purchases[dagger]................... NA NA NA
Proposed Standard................................... 0.14 0. 64 1.52
----------------------------------------------------------------------------------------------------------------
* DOE determined the NPV from 2013 to 2043.
[dagger] DOE did not evaluate the bulk government purchase alternative for gas hearth DHE because the market
share associated with publicly-owned housing is minimal.
Table VI.5--Impacts of Non-Regulatory Alternatives for Pool Heaters That Meet the Proposed Standards (TSL 4)
----------------------------------------------------------------------------------------------------------------
Net present value* billion 2008$
Policy alternative Primary energy ---------------------------------------
savings quads 7% discount rate 3% discount rate
----------------------------------------------------------------------------------------------------------------
No New Regulatory Action............................ 0.00 0.00 0.00
Consumer Rebates.................................... 0.02 0.01 0.04
Consumer Tax Credits................................ 0.01 0.003 0.03
Manufacturer Tax Credits............................ 0.005 0.002 0.01
Voluntary Energy Efficiency Targets................. 0.004 0.005 0.02
Early Replacement................................... <0.001 -0.002 -0.003
Bulk Government Purchases [dagger].................. NA NA NA
Proposed Standard................................... 0.10 0.03 0.25
----------------------------------------------------------------------------------------------------------------
* DOE determined the NPV from 2013 to 2043.
[dagger] DOE did not evaluate the bulk government purchase alternative for pool heaters because there is no
market share associated with publicly-owned housing.
The NPV amounts shown in Table VI.1 through Table VI.5 refer to the
NPV of consumer benefits. The costs to the government of each policy
(such as rebates or tax credits) are not included in the costs for the
NPV since, on balance, consumers in the aggregate both pay for rebates
and tax credits through taxes and receive their benefits. The following
paragraphs discuss the cumulative effect of each policy alternative
listed in Table VI.1 through Table VI.5. (See the regulatory impact
analysis in the NOPR TSD for details.) For comparison with the results
reported below for the non-regulatory policies, the combined impacts of
the proposed standards for the considered products are projected as
2.75 quads of national energy savings and an NPV of $5.39 billion (at a
7-percent discount rate).
No new regulatory action. The case in which no regulatory action is
taken constitutes the ``base case'' (or ``no action'') scenario. Since
this is the base case, energy savings and NPV are zero by definition.
Rebates. If consumers were offered a rebate that covered a portion
of the incremental price difference between products meeting baseline
efficiency levels and those meeting the energy efficiency levels in the
proposed standard, DOE estimates that the percentage of consumers
purchasing the more-efficient products would increase by 17.5 percent
to 40 percent, depending on the product and the product class. DOE
assumed this policy would permanently transform the market so that the
increased percentage of consumers purchasing more-efficient products
seen in the first year of the program would be maintained throughout
the forecast period. At the estimated participation rates, the rebates
would provide 0.98 quads of national energy savings and an NPV of $1.83
billion (at a 7-percent discount rate) for the considered products.
Although DOE estimates that rebates would provide national benefits,
they are expected to be much smaller than the benefits resulting from
the proposed national standards.
Consumer Tax Credits. If consumers were offered a tax credit that
covered a portion of the incremental price difference between products
meeting baseline efficiency levels and those meeting the energy
efficiency levels in the proposed standards, DOE's research suggests
that the number of consumers buying a water heater, pool heater, or DHE
that would take advantage of the tax credit would be approximately 60
percent of the number that would take advantage of rebates. As a result
of the tax credit, the percentage of consumers purchasing more-
efficient products would increase by 10.5 percent to 24 percent,
depending on the product and product class. Therefore, tax credits
would yield a fraction of the benefits of rebates. DOE assumed this
policy would permanently transform the market so that the increased
percentage of consumers purchasing more-efficient products seen in the
first year of the program would be maintained throughout the forecast
period. At the estimated participation rates, consumer tax credits
would provide 0.59 quads of national energy savings and an NPV of $1.10
billion (at a seven-percent discount rate) for the considered products.
Manufacturer Tax Credits. DOE believes even smaller benefits would
[[Page 65983]]
result from a manufacturer tax credit program that would effectively
result in a lower price to the consumer by an amount that covers part
of the incremental price difference between products meeting baseline
efficiency levels and those meeting the proposed standards. Because
these tax credits would go to manufacturers instead of consumers, DOE
believes that fewer consumers would be aware of this program than a
consumer tax credit program. DOE assumes that 50 percent of the
consumers who would take advantage of consumer tax credits would buy
more-efficient products offered through a manufacturer tax credit
program. Thus, as a result of the manufacturer tax credit, the
percentage of consumers purchasing the more-efficient products would
increase by 5.2 percent to 12 percent (i.e., 50 percent of the impact
of consumer tax credits), depending on the product class.
DOE assumed this policy would permanently transform the market so
that the increased percentage of consumers purchasing more-efficient
products seen in the first year of the program would be maintained
throughout the forecast period. At the estimated participation rates,
the rebates would provide 0.30 quads of national energy savings and an
NPV of $0.56 billion (at a seven-percent discount rate) for the
considered products. Thus, DOE estimated that manufacturer tax credits
would yield a fraction of the benefits that consumer tax credits and
rebates would provide.
Voluntary Energy Efficiency Targets. The Federal government's
ENERGY STAR program has voluntary energy efficiency targets for gas-
fired and electric storage water heaters and gas-fired instantaneous
water heaters. Some equipment purchases that result from the ENERGY
STAR program already are reflected in DOE's base-case scenario. DOE
evaluated the potential impacts of increased marketing efforts by
ENERGY STAR that would encourage the purchase of products meeting the
proposed standard. DOE modeled the voluntary efficiency program based
on this scenario and assumed that the resulting increased percentage of
consumers purchasing more-efficient products would be maintained
throughout the forecast period. DOE estimated that the enhanced
effectiveness of voluntary energy efficiency targets would provide 0.23
quads of national energy savings and an NPV of $0.55 billion (at a 7-
percent discount rate) for the considered products. Although this would
provide national benefits, they would be much smaller than the benefits
resulting from the proposed national standards.
Early Replacement Incentives. This policy alternative envisions a
program to replace old, inefficient water heaters, DHE, and pool
heaters with models meeting the efficiency levels in the proposed
standards. DOE projected a 4-percent increase in the annual retirement
rate of the existing stock in the first year of the program. It assumed
the program would last as long as it took to completely replace all of
the eligible existing stock in the year that the program begins (2013
or 2015). DOE estimated that such an early replacement program would
provide negligible national energy savings and NPV for the considered
products. The national energy savings benefits would be negligible in
comparison with the benefits resulting from the proposed national
standards, and the NPV would actually be negative.
Bulk Government Purchases. Under this policy alternative, the
government would be encouraged to purchase increased amounts of
equipment that meet the efficiency levels in the proposed standards.
Federal, State, and local government agencies could administer such a
program. At the Federal level, this would be an enhancement to the
existing Federal Energy Management Program (FEMP). DOE modeled this
program by assuming an increase in installation of equipment meeting
the efficiency levels of the proposed standards among those households
for whom government agencies purchase or influence the purchase of
water heaters. (Because the market share of DHE units in publicly-owned
housing is minimal and the market share of pool heaters in publicly-
owned housing is zero, the Department did not consider bulk government
purchases for those products.) DOE estimated that bulk government
purchases would provide negligible national energy savings (0.01 quads)
and NPV ($0.14 billion) for the considered products, benefits that are
much smaller than those estimated for the proposed national standards.
Proposed Standards. DOE proposes to adopt the efficiency levels
listed in section V.C. As indicated in the paragraphs above, none of
the alternatives DOE examined would save as much energy as today's
proposed standards. Also, several of the alternatives would require new
enabling legislation because authority to carry out those alternatives
may not exist.
Additional Policy Evaluation. In addition to the above non-
regulatory policy alternatives, DOE evaluated the potential impacts of
a policy that would allow States to require that some water heaters
installed in new homes have an efficiency level higher than the Federal
standard. At present, States are prohibited to require efficiency
levels higher than the Federal standard; the considered policy would
remove this prohibition in the case of residential water heaters. DOE
notes that removing the prohibition would require either legislative
authority or DOE approval, after a case-by-case basis consideration on
the merits, of waivers submitted by States. For the present rulemaking,
DOE evaluated the impacts that such a policy would have for electric
storage water heaters.
Specifically, DOE estimated the impacts for a policy case in which
several States adopted provisions in their building codes that would
require electric storage water heaters to meet efficiency level 6 (2.0
EF, heat pump with two-inch insulation). DOE assumed that such codes
would affect 25 percent of water heaters in all new homes built in the
United States in 2015 and that the percentage would increase linearly
to 75 percent by 2045. (DOE did not attempt to define the specific
geographic areas that would be affected.) In this policy case, all
other water heaters (those bought for replacement in existing homes)
would meet the proposed standard level of 0.95 (efficiency level 5).
DOE's analysis accounts for the estimate that some new homes would have
a water heater with EF greater than or equal to 2.0 (e.g., heat pump
technology) in the absence of any amended standards (the base case).
Table VI.6 shows the additional estimated national energy savings
that would result from the considered building code policy, as well as
the net present value of additional benefits to consumers (the
purchasers of new homes that have electric water heaters that have an
EF of at least 2.0). The table also shows the estimated national energy
savings and NPV for electric storage water heaters under the proposed
standards. The energy savings from this State building code requirement
for new homes would be greater than the savings from the proposed
standard for electric storage water heaters. This contrasts with the
non-regulatory policy alternatives discussed above, whose savings are
lower than those of the proposed standards.
[[Page 65984]]
Table VI.6--Impacts of Policy Allowing States To Incorporate Requirements for High-Efficiency Electric Storage
Water Heaters in Building Codes
----------------------------------------------------------------------------------------------------------------
Net present value billion 2008$
Policy alternative Primary energy -------------------------------------
savings quads 7% discount rate 3% discount rate
----------------------------------------------------------------------------------------------------------------
Proposed Standard (TSL 4) (Electric Storage Water 1.21 1.59 6.02
Heaters)..............................................
Proposed Standard (TSL 4) AND Policy Allowing States to 1.69 2.13 8.33
Require Higher-Efficiency Electric Storage Water
Heaters in New Homes..................................
----------------------------------------------------------------------------------------------------------------
B. Review Under the Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires
preparation of an initial regulatory flexibility analysis (IRFA) for
any rule that by law must be proposed for public comment, unless the
agency certifies that the rule, if promulgated, will not have a
significant economic impact on a substantial number of small entities.
As required by Executive Order 13272, ``Proper Consideration of Small
Entities in Agency Rulemaking'' 67 FR 53461 (August 16, 2002), DOE
published procedures and policies on February 19, 2003, to ensure that
the potential impacts of its rules on small entities are properly
considered during the rulemaking process. 68 FR 7990. DOE has made its
procedures and policies available on the Office of the General
Counsel's Web site (http://www.gc.doe.gov).
For the manufacturers of the three types of heating products, the
Small Business Administration (SBA) has set a size threshold, which
defines those entities classified as ``small businesses'' for the
purposes of the statute. DOE used the SBA's small business size
standards to determine whether any small entities would be subject to
the requirements of the rule. 65 FR 30836, 30850 (May 15, 2000), as
amended at 65 FR 53533, 53545 (September 5, 2000) and codified at 13
CFR part 121.The size standards are listed by North American Industry
Classification System (NAICS) code and industry description and are
available at http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf. Residential water heater and pool
heater manufacturing are classified under NAICS 335228, ``Other Major
Household Appliance Manufacturing'' and DHE is classified under NAICS
333414, ``Heating Equipment (except warm air furnaces) Manufacturing.''
The SBA sets a threshold of 500 employees or less for an entity to be
considered as a small business for both of these categories as shown in
Table VI.7.
Table VI.7--SBA and NAICS Classification of Small Businesses Potentially Affected by This Rule
----------------------------------------------------------------------------------------------------------------
Industry description Revenue limit Employee limit NAICS
----------------------------------------------------------------------------------------------------------------
Residential Water Heater Manufacturing................. N/A 500 335228
Direct Heating Manufacturing........................... N/A 500 333414
Pool Heater Manufacturing.............................. N/A 500 335228
----------------------------------------------------------------------------------------------------------------
DOE reviewed the potential standard levels considered in today's
NOPR under the provisions of the Regulatory Flexibility Act and the
procedures and policies published on February 19, 2003. To better
assess the potential impacts of this rulemaking on small entities, DOE
conducted a more focused inquiry of the companies that could be small
business manufacturers of products covered by this rulemaking. During
its market survey, DOE used all available public information to
identify potential small manufacturers. DOE's research involved several
industry trade association membership directories (including AHRI,
HPBA, and APSP), product databases (e.g., AHRI, CEC, and ENERGY STAR
databases), individual company Web sites, and marketing research tools
(e.g., Dunn and Bradstreet reports) to create a list of every company
that manufactures or sells water heaters, DHE, and gas-fired pool
heaters covered by this rulemaking. DOE also asked stakeholders and
industry representatives if they were aware of any other small
manufacturers during manufacturer interviews and at previous DOE public
meetings. DOE reviewed all publicly-available data and contacted select
companies on its list, as necessary, to determine whether they met the
SBA's definition of a small business manufacturer of covered
residential water heaters, DHE, and pool heaters. DOE screened out
companies that did not offer products covered by this rulemaking, did
not meet the definition of a ``small business,'' or are foreign owned
and operated. Ultimately, DOE identified five small residential water
heater manufacturers, 12 small DHE manufacturers, and one small pool
heater manufacturer that produce covered products and can be considered
small businesses. Next, DOE attempted to contact these potential small
business manufacturers to request an interview about the possible
impacts on small business manufacturers. The results of discussions
with manufacturers are set forth below. From these discussions, DOE
determined the expected impacts of the rule on affected small entities.
DOE looked at each type of heating product (water heaters, pool
heaters, and direct heating) separately for purposes of determining
whether certification was appropriate or an initial regulatory
flexibility analysis was needed.
1. Water Heater Industry
The majority of residential water heaters are currently
manufactured in the United States. Three large manufacturers control
the overwhelming majority of storage water heater sales. Many foreign-
owned and foreign-operated manufacturers of instantaneous gas-fired
water heaters offer products for sale in the United States and make up
part of the remaining domestic residential water heater market. A very
small portion of the remaining residential water heater market is
supplied by a combination of international and domestic companies, all
of which have less than a one-
[[Page 65985]]
percent total market share. Part of the remaining market is also
supplied by domestic companies that focus primarily on commercial,
niche, or other products, but also manufacture residential water
heaters that are covered by this rulemaking.
DOE identified five domestic small businesses that manufacture
residential water heaters. Each company's product offerings were
examined to help determine the potential impact of amended energy
conservation standards.
Only one of the small businesses identified by DOE manufactures
primarily products that are covered by this rulemaking. This company
offers two gas-fired instantaneous water heaters and is also developing
a heat pump water heater. The products offered by this manufacturer are
expected to meet the ENERGY STAR criteria for residential water heaters
and to achieve efficiencies higher than the levels being proposed in
this NOPR. Therefore, DOE believes that none of the products offered by
this manufacturer would be impacted by the proposed energy conservation
standards for residential water heaters.
Three of the small businesses identified by DOE manufacture covered
oil-fired residential water heaters, but focus mainly on other
products. One of these three small businesses holds a significant
portion of the residential oil-fired water heater market. The products
offered by this manufacturer exceed the efficiencies of the proposed
standard levels for residential oil-fired storage water heaters.
Therefore, DOE does not believe that the products offered by this
manufacturer would be impacted by the proposed energy conservation
standards for residential water heaters. The two other two small
businesses that manufacture residential oil-fired storage water heaters
both have a lower market share and collectively ship fewer than 5,000
units per year. The first of these companies with low market share
offers one residential oil-fired water heater model, but it would not
need to be upgraded at the proposed energy conservation standard level.
In addition, this manufacturer specializes in products outside of the
scope of coverage for this rulemaking (e.g., commercial gas-fired
storage water heaters, indirect water heaters, commercial electric
storage water heaters, storage tanks, and boilers). The other company
with low market share in the residential oil-fired market offers seven
different oil-fired storage water heater models. However, this company
does not certify these products on public databases and does not
provide information about the input capacity or efficiency in its
product literature, making it difficult to determine whether these are
commercial or residential products and if they would need to be
upgraded in response to the proposed energy conversation standards.
However, from a review of the company Web site, DOE believes this
manufacturer is also focused mostly on non-covered products.
The final small manufacturer of residential water heaters has a
full line of residential electric storage water heaters that would need
to be upgraded or, possibly, discontinued in response to the proposed
energy conservation standards. Depending on the importance of this
residential line, this small business could exit the residential
electric storage market rather than invest in the changes necessary to
upgrade and recertify its existing electric storage products. However,
this manufacturer has less than a one-percent market share in the
residential storage water heater market. Product certification
databases and the company Web site also indicate that this manufacturer
focuses primarily on commercial water heaters and other non-covered
products including indirect water heaters and boilers. Because of its
focus on non-covered products, it is unlikely that this small business
would be forced out of business in response to the proposed energy
conservation standards.
Because only one small manufacturer with very low market share in
the electric storage water heater market and potentially one small
business with very low market share in the residential oil-fired market
would potentially be impacted by the proposed energy conservation
standards in today's rule, DOE certifies that the standards for water
heaters set forth in the proposed rule, if promulgated, would not have
a significant economic impact on a substantial number of small
entities. Accordingly, DOE has not prepared a regulatory flexibility
analysis for the water heaters portion of this rulemaking. DOE will
transmit the certification and supporting statement of factual basis to
the Chief Counsel for Advocacy of the Small Business Administration for
review under 5 U.S.C. 605(b).
DOE requests comment on the above analysis, as well as any
information concerning small businesses that could be impacted by this
rulemaking and the nature and extent of those potential impacts of the
proposed energy conservation standards on small residential water
heater manufacturers. (See Issue 19 under ``Issues on Which DOE Seeks
Comment'' in section VII.E of this NOPR.)
2. Pool Heater Industry
The vast majority of residential pool heaters are currently
manufactured in the United States. Four manufacturers supply over 95
percent of the market. Based on its market research, DOE identified
only one small manufacturer of residential gas-fired pool heaters. The
small manufacturer specializes in high-efficiency products that exceed
the proposed energy conservation standard level, and, therefore, DOE
does not believe the products offered by this manufacturer would be
impacted by the proposed amended energy conservation standards for
residential pool heaters. Additionally, this small business
manufacturer has a very low share of the residential gas-fired pool
heater market. Because only one small business manufacturer of
residential gas-fired pool heaters with small market share exists and
because this company's product exceeds the proposed energy conservation
standard levels, DOE certifies that the standards for pool heaters set
forth in the proposed rule, if promulgated, would not have a
significant economic impact on a substantial number of small entities
in the gas-fired pool heater industry. Accordingly, DOE has not
prepared a regulatory flexibility analysis for the pool heaters portion
of this rulemaking. DOE will transmit this certification and supporting
statement of factual basis to the Chief Counsel for Advocacy of the
Small Business Administration for review under 5 U.S.C 605(b).
DOE requests comment on the above analysis, as well as any
information concerning small businesses that could be impacted by this
rulemaking and the nature and extent of those potential impacts of the
proposed energy conservation standards on small residential gas-fired
pool heater manufacturers. (See Issue 20 under ``Issues on Which DOE
Seeks Comment'' in section VII.E of this NOPR.)
3. Direct Heating Equipment Industry Characteristics
As discussed in further detail below, DOE determined that it cannot
certify that the proposed energy conservation standard levels for DHE,
if promulgated, would not have a significant economic impact on a
substantial number of small entities. This determination results from
the large number of small DHE manufacturers and the expected impact of
the proposed standards on these manufacturers, as well as the likely
greater impact of the proposed standards on these small businesses.
[[Page 65986]]
Consequently, DOE has prepared an IRFA for the direct heating equipment
portion of this rulemaking, a copy of which DOE will transmit to the
Chief Counsel for Advocacy of the SBA for review under 5 U.S.C 605(b).
As presented and discussed below, the IFRA describes potential impacts
on small DHE manufacturers associated with the required capital and
product conversion costs at each TSL and discusses alternatives that
could minimize these impacts.
a. Description and Estimated Number of Small Entities Regulated
After examining structure of the DHE industry, DOE determined it
necessary to divide potential impacts on small DHE manufacturers into
two broad categories: (1) Impacts on small manufacturers of traditional
DHE (i.e., manufacturers of gas wall fan, gas wall gravity, gas floor,
and gas room DHE); and (2) impacts on small manufacturers of gas hearth
products. The IRFA presents the results for traditional DHE and gas
hearth DHE separately to be consistent with the MIA results in section
V.B.2.b, which also separate DHE in this manner. Traditional DHE and
gas hearth DHE are made by different manufacturers (i.e., all
manufacturers of gas hearth products do not manufacture traditional
DHE, and vice versa, with one exception).
i. Traditional Direct Heating Equipment
Three major manufacturers control almost 100 percent of the
traditional DHE market. Two of the three major manufacturers of
traditional DHE are small businesses. One of the small businesses
produces only traditional DHE and has products in all four traditional
DHE product classes (i.e., gas wall fan, gas wall gravity, gas floor,
and gas room DHE). The second business produces all five products
classes of DHE, including gas hearth DHE. DOE identified a third small
business with less than a one-percent share of the traditional DHE
market. This company offers two gas wall gravity models, but is mainly
focused on specialty hearth products not covered by this rulemaking.
ii. Gas Hearth Direct Heating Equipment
DOE identified 10 small manufacturers of gas hearth DHE. Before
issuing this NOPR, DOE attempted to contact the small business
manufacturers of gas hearth DHE. One of the small businesses consented
to being interviewed during the MIA interviews, and DOE received
feedback from an additional two small businesses through survey
responses. DOE also obtained information about small business impacts
while interviewing manufacturers that exceed the small business size
threshold of 500 employees in this industry. Both small business
manufacturers and large manufacturers indicated that the number of
competitors in the market has been declining in recent years due to
industry consolidation and smaller companies exiting the market. Three
major domestic manufacturers now supply a majority of the marketplace.
None of the three major manufacturers is considered a small business.
The remainder of the market is either imported (mostly by Canadian
companies) or produced by one of 12 domestic manufacturers that hold
varying market shares.
b. Reasons for the Proposed Rule
Title III of EPCA sets forth a variety of provisions designed to
improve energy efficiency. Part A of Title III (42 U.S.C. 6291-6309)
provides for the ``Energy Conservation Program for Consumer Products
Other Than Automobiles.'' The program covers consumer products and
certain commercial equipment, including residential DHE, and the
statute directs DOE to consider new and amended energy conservation
standards for those products. (42 U.S.C. 6292(9)) DOE is proposing in
today's notice to amend energy conservation standards for DHE, as
required by EPCA. (42 U.S.C. 6295(e)(4))
c. Objectives of, and Legal Basis for, the Proposed Rule
EPCA provides criteria for prescribing new or amended standards for
covered products and equipment. (42 U.S.C 6295(o)) As indicated above,
any new or amended standard for the products must be designed to
achieve the maximum improvement in energy efficiency that is
technologically feasible and economically justified (42 U.S.C.
6295(o)(2)(A)), although EPCA precludes DOE from adopting any standard
that would not result in significant conservation of energy. (42 U.S.C.
6295(o)(3)(B)) Moreover, DOE may not prescribe a standard: (1) For
certain products, if no test procedure has been established for the
product; or (2) if DOE determines by rule that the standard is not
technologically feasible or economically justified. (42 U.S.C.
6295(o)(3)) DOE's current test procedures for water heaters, vented
DHE, and pool heaters appear at Title 10 Code of Federal Regulations
(CFR) part 430, subpart B, appendices E, O and P, respectively. EPCA
also provides that, in deciding whether a standard is economically
justified, DOE must, after receiving comments on the proposed standard,
determine whether the benefits of the standard exceed its burdens by
considering to the greatest extent practicable seven enumerated factors
(described in section II.B above of the preamble). (42 U.S.C.
6295(o)(2)(B)(i))
EPCA prescribes energy conservation standards for direct heating
products, (42 U.S.C. 6295(e)(3)) and directs DOE to conduct two cycles
of rulemakings to determine whether to amend these standards. (42
U.S.C. 6295(e)(4)) This rulemaking represents the first round of
amendments to the energy conservation standards for DHE.
d. Description and Estimate of Compliance Requirements
i. Traditional Direct Heating Equipment
The number of manufacturers in the traditional DHE market has
declined over the past decade and leveled off with three major
manufacturers remaining. While DOE explicitly analyzed one
representative input capacity range for the gas wall gravity, gas wall
fan, gas floor, and gas room types of DHE, manufacturers offer product
lines that typically span multiple BTU ranges with many different
features. This can result in many individual products, or stock keeping
units (SKUs), offered by each manufacturer per product line. The wide
range of product offering by manufacturers is a legacy of a higher-
volume market that now typically supplies replacement units. The
remaining manufacturers have stayed in business by consolidating brands
and the legacy products of companies that are no longer in business to
take increasing shares of a smaller total market. Because each product
line is manufactured in low volumes, the discrepancy between unit
shipments and the number of product lines requiring significant product
and capital conversion costs results in negative impacts for all
manufacturers. Many product development costs (e.g., testing,
certification, and marketing) are somewhat fixed, making manufacturing
scale an important consideration in determining whether the product
conversion costs are economically justified. Similarly, even though any
capital conversion costs can be capitalized over a number of years,
these costs must be paid up front and have a large enough volume to
justify an added per-unit cost.
DOE calculated its capital and product conversion costs for
traditional DHE by estimating a per-product-line
[[Page 65987]]
cost and assuming that every manufacturer would face the same per-
product-line cost within each product class. DOE also assumed that any
product line that did not meet the efficiency level being analyzed
would be upgraded, thereby requiring product conversion and capital
conversion costs. DOE used public data to calculate the number of
product lines that would need to be upgraded at each TSL for each
product class. To show how the small businesses could be differentially
harmed, DOE compared the conversion costs for a typical large
manufacturer and a typical small manufacturer within the industry. To
calculate the conversion costs for a typical small manufacturer and a
typical large manufacturer, DOE used publicly-available information to
determine the average number of product lines that met each efficiency
level in each product category for a typical small manufacturer and a
typical large manufacturer of traditional DHE. For both small and
large, DOE multiplied the number of product lines that fell below the
required efficiency level by its estimate of the per-line capital and
product conversion cost. Table VI.8 and Table VI.9 show DOE's estimates
for the average number of product lines at each TSL for a typical small
manufacturer and a typical large manufacturer of traditional DHE,
respectively.
Table VI.8--Number of Product Lines of a Typical Small Manufacturer
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number of gas wall
Number of gas wall gravity-type Number of gas Number of gas room- Total product
fan-type product product lines at floor-type product type product lines lines for all
lines at each TSL each TSL lines at each TSL at each TSL product classes
--------------------------------------------------------------------------------------------------------------------------------------------------------
Baseline............................................ 2 *1.5 0.5 1 5
TSL 1............................................... 0 1 0.5 0.5 2
TSL 2............................................... 1 0.5 0.5 0.5 2.5
TSL 3............................................... 0.5 0 0.5 0 1
TSL 4............................................... 1 0 0.5 0 1.5
TSL 5............................................... 0 1 0.5 0 1.5
TSL 6............................................... 1 1 0.5 0 2.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Fractions of product lines result from taking the average number of product lines from publicly-available information.
Table VI.9--Number of Product Lines of Typical Large Manufacturer
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number of gas wall
Number of gas wall gravity-type Number of gas Number of gas room- Total product
fan-type product product lines at floor-type product type product lines lines for all
lines at each TSL each TSL lines at each TSL at each TSL product classes
--------------------------------------------------------------------------------------------------------------------------------------------------------
Baseline............................................ 1 0 1 0 2
TSL 1............................................... 1 1 1 0 3
TSL 2............................................... 2 3 1 0 6
TSL 3............................................... 2 0 1 1 4
TSL 4............................................... 0 0 1 1 2
TSL 5............................................... 1 0 1 0 2
TSL 6............................................... 0 0 1 0 1
--------------------------------------------------------------------------------------------------------------------------------------------------------
Amended energy conservation standards have the potential to
differentially affect the small businesses, because they generally lack
the large-scale resources to alter their existing products and
production facilities for those TSLs requiring major redesigns. While
all manufacturers would be expected to be negatively impacted by
amended energy conservation standards to varying degrees, the small
businesses would face higher product conversion costs at lower TSLs
than their large competitor. Both large and small manufacturers have
several product offerings in each product class, sometimes at varying
efficiency levels, but the larger manufacturer produces products with
higher efficiencies in larger volumes. As a result, the small
manufacturers would have to upgrade more product lines than the large
manufacturer at lower TSLs. As shown in Table VI.10 and Table VI.11,
modifying facilities and developing new, more-efficient products would
cause a typical small manufacturer to incur higher product conversion
costs than a typical larger manufacturer for TSL 1 through TSL 5.
Table VI.10--Total Conversion Costs for a Typical Small Manufacturer of Traditional Direct Heating Equipment
----------------------------------------------------------------------------------------------------------------
Capital conversion Product conversion Total conversion
costs for a costs for a costs for a
typical small typical small typical small
manufacturer manufacturer manufacturer
(2008$ millions) (2008$ millions) (2008$ millions)
----------------------------------------------------------------------------------------------------------------
Baseline............................................ 0 0 0
TSL 1............................................... 0.58 0.29 0.86
TSL 2............................................... 1.03 0.44 1.47
TSL 3............................................... 1.61 0.69 2.31
TSL 4............................................... 1.89 0.80 2.69
TSL 5............................................... 1.57 1.20 2.77
TSL 6............................................... 2.13 1.40 3.53
----------------------------------------------------------------------------------------------------------------
[[Page 65988]]
Table VI.11--Total Conversion Costs for a Typical Large Manufacturer of Traditional Direct Heating Equipment
----------------------------------------------------------------------------------------------------------------
Capital conversion Product conversion Total conversion
costs for a costs for a costs for a
typical large typical large typical large
manufacturer manufacturer manufacturer
(2008$ millions) (2008$ millions) (2008$ millions)
----------------------------------------------------------------------------------------------------------------
Baseline............................................ 0 0 0
TSL 1............................................... 0.05 0.06 0.11
TSL 2............................................... 0.31 0.15 0.46
TSL 3............................................... 1.24 0.54 1.77
TSL 4............................................... 1.82 0.77 2.59
TSL 5............................................... 1.52 1.08 2.60
TSL 6............................................... 2.49 1.47 3.96
----------------------------------------------------------------------------------------------------------------
Because the larger manufacturer offers more products at higher
efficiencies, a typical small manufacturer faces disproportionate costs
at the lower TSLs in absolute terms at TSL 1 through TSL 5. However, at
TSL 4 through TSL 6 a typical small manufacturer and a typical large
manufacturer face similar product and capital conversion costs because
a similar number of product lines fall below the required efficiencies.
Despite being similar in absolute terms, at these TSLs the small
manufacturers would be more likely to be disproportionately harmed at
any TSL because they have a much lower volume across which to spread
similar costs. To show how a smaller scale would harm a typical small
business manufacturer, DOE used estimates of the market shares within
the industry for each product class to estimate the typical annual
revenue, operating profit, research and development expense, and
capital expenditures for a typical large manufacturer and a typical
small manufacturer using the financial parameters in the DHE GRIM.
Comparing the conversion costs of a typical small manufacturer to a
typical large manufacturer with operating profit (earnings before
interest and taxation (EBIT)) is a rough estimate of how quickly the
investments could be recouped. Table VI.12 and Table VI.13 show these
comparisons.
Table VI.12--Comparison of a Typical Small Manufacturer's Conversion Costs to Annual Expenses, Revenue, and
Operating Profit
----------------------------------------------------------------------------------------------------------------
Capital
conversion cost Product Total conversion Total conversion
as a percentage conversion cost cost as a cost as a
of annual capital as a percentage percentage of percentage of
expenditures of annual R&D annual revenue annual EBIT
(percent) expense (percent) (percent) (percent)
----------------------------------------------------------------------------------------------------------------
Baseline............................ ................. ................. ................. .................
TSL 1............................... 170 128 6 163
TSL 2............................... 242 155 8 221
TSL 3............................... 378 245 12 347
TSL 4............................... 443 283 14 404
TSL 5............................... 367 425 15 416
TSL 6............................... 499 495 19 531
----------------------------------------------------------------------------------------------------------------
Table VI.13--Comparison of a Typical Large Manufacturer's Conversion Costs to Annual Expenses, Revenue, and
Operating Profit
----------------------------------------------------------------------------------------------------------------
Capital
conversion cost Product Total conversion Total conversion
as a percentage conversion cost cost as a cost as a
of annual capital as a percentage percentage of percentage of
expenditures of annual R&D annual revenue annual EBIT
(percent) expense (percent) (percent) (percent)
----------------------------------------------------------------------------------------------------------------
Baseline............................ ................. ................. ................. .................
TSL 1............................... 7 12 0 10
TSL 2............................... 42 30 1 40
TSL 3............................... 167 110 5 154
TSL 4............................... 246 158 8 225
TSL 5............................... 206 220 8 225
TSL 6............................... 337 300 12 344
----------------------------------------------------------------------------------------------------------------
Table VI.12 and Table VI.13 illustrate that, although the
investments required at each TSL can be considered substantial for all
companies, the impacts could be greater for a typical small business
because of much lower production volumes and a comparable number of
product offerings. At higher TSLs, it is more likely that manufacturers
of traditional DHE would reduce the number of product lines they offer
to keep their conversion costs at manageable levels. At higher TSLs,
small manufacturers would face increasingly difficult decisions on
[[Page 65989]]
whether to invest the capital required to be able to continue offering
a full range of products, cut product lines, consolidate to maintain a
large enough combined scale to spread the required conversion costs and
operating expenses, or exit the market altogether. Because of the high
conversion costs, manufacturers would likely eliminate their lower-
volume product lines. Small manufacturers might only be able to afford
to selectively upgrade their most popular products and be forced to
discontinue lower-volume products because the product development costs
that would be required to upgrade all of their existing product lines
would be too high.
DOE's product line analysis reveals the potential for small
businesses to be disproportionately harmed by the proposed standard
levels and higher TSLs. Small traditional direct heating manufacturers
have less access to capital than their larger competitor. Larger
manufacturers profit from offering a variety of products and have the
ability to fund required capital and product conversion costs using
cash generated from all products. Unlike large manufacturers, the small
manufacturers cannot leverage resources from other departments. With
these considerations, it is more likely that the small businesses would
have to spend an even greater proportion of their annual R&D and
capital expenditures than shown in the industry-wide figures.
In addition, small manufacturers have less buying power than their
larger competitor. Traditional DHE is a low-volume industry, which can
make it difficult for any manufacturer to take advantage of bulk
purchasing power or economies of scale. The two small businesses have
approximately half the market share of their large competitor, which
puts them at a disadvantage when purchasing components and raw
materials. In addition, the large manufacturer has a parent company
that manufactures products and equipment other than traditional DHE.
This manufacturer's larger scale and additional manufacturing capacity
(required for products and equipment other than DHE) also give the
company more leverage with its suppliers as it purchases greater
volumes of components and raw materials. During the manufacturer
interviews, the small businesses commented that to comply with amended
energy conservation standards, they would likely need to buy more
purchased parts instead of producing most of the final product in-
house. Because the large manufacturer has an advantage in purchasing
power that would likely allow it to buy purchased parts at lower costs,
an amended energy conservation standard that requires more purchased
parts may differentially harm the profitability of the small
businesses.
Even though there is a potential for small businesses to be
negatively impacted by the proposed standards, DOE believes that
manufacturers, including the small businesses, would be able to
maintain viable number of product offerings at TSL 3, the proposed
standard level. A typical small business offers product families in
three out of the four product types that would meet or exceed the
proposed standard levels in today's NOPR. For example, products are
currently available on the market at the proposed standard level for
gas wall gravity DHE, which comprise over 60 percent of the traditional
DHE market. The proposed standard levels do not require manufacturers,
including those that are small, to completely redesign all their
product lines. For those product lines that would need to be
redesigned, DOE believes that small manufacturers would offer fewer
product lines after amended energy conservation standards. However, DOE
believes that the proposed standards would allow the small
manufacturers to selectively upgrade their existing product lines and
maintain viable production volumes after the compliance date of the
amended energy conservation standards. DOE seeks comment on the
potential impacts of amended standards on the small traditional DHE
manufacturers. (See Issue 21 and 22 under ``Issues on Which DOE Seeks
Comment'' in section VII.E of this NOPR.)
ii. Gas Hearth-Type Direct Heating Equipment
While the three large manufacturers have a larger product offering
than the smaller manufacturers, both small and large manufacturers
typically offer a wide range of covered gas hearth DHE. During
interviews, manufacturers indicated that product lines typically are
not based on efficiency. Rather, product lines are groups of gas
stoves, gas inserts, or gas fireplaces with similar appearances and
shapes that span input ratings to appeal to a range of customers with
different heating and aesthetic requirements. A product line is
typically built on the same production platform and shares many of the
same appearance and optional features. However, because products lines
are based on appearance, features, and dimensions, product lines do not
necessarily have the same efficiency across all input capacities.
DOE calculated the anticipated capital and product development
costs for gas hearth DHE by estimating per-line cost. DOE used
certification databases, product catalogs, interviews with
manufacturers, and sources of public information to estimate the number
of product lines that meet each TSL for every gas hearth DHE
manufacturer for which data was available. If a product line contained
several products that met different efficiencies at different
capacities, DOE assumed that the product line would be redesigned in
response to amended energy conservation standards whenever the least-
efficient product did not meet the required efficiency level.
To show how small manufacturers would be potentially impacted
compared to the large manufacturers, DOE assumed that the entire gas
hearth DHE industry was comprised of the 12 manufacturers identified in
the market and technology assessment (see chapter 3 of the TSD for more
information). Using all available public data, DOE then identified the
product lines and the efficiency levels for each product line made by
these manufacturers. DOE used this information calculate the product
line offerings of a ``typical'' large manufacturer and small
manufacturer. Table VI.14 and Table VI.15 show DOE's estimates for the
product lines of a typical small and a typical large gas hearth
manufacturer.
Table VI.14--Number of Product Lines of a Typical Small Manufacturer
------------------------------------------------------------------------
Number of
AFUE (percent) product lines
------------------------------------------------------------------------
Baseline............................ 64 5
TSL 1, 2, and 3..................... 67 3
TSL 4 and 5......................... 72 1
TSL 6............................... 93 0
------------------------------------------------------------------------
[[Page 65990]]
Table VI.15--Number of Product Lines of Typical Large Manufacturer
------------------------------------------------------------------------
Number of
AFUE (percent) product lines
------------------------------------------------------------------------
Baseline............................ 64 8
TSL 1, 2, and 3..................... 67 6
TSL 4 and 5......................... 72 3
TSL 6............................... 93 0
------------------------------------------------------------------------
Table VI.14 shows that a typical small manufacturer currently
offers nine total product lines: 5 at baseline efficiency (i.e., 64
percent AFUE), 3 at 67 percent AFUE, and 1 at 72 percent AFUE. Table
VI.14 suggests that a typical small manufacturer would need to upgrade
up to five product lines at TSL 1 through TSL 3, up to eight product
lines at TSL 4 and TSL 5, and up to nine at TSL 6. Table VI.15 shows
that a typical large manufacturer currently offers 17 total product
lines: Eight at the baseline (64 percent AFUE), six at 67 percent AFUE,
and three at 72 percent AFUE. Table VI.15 suggests that a typical large
manufacturer would upgrade up to eight product lines at TSL 1 through
TSL 3, up to 14 product lines at TSL 4 and TSL 5, and up to 17 at TSL
6. However, DOE recognizes that not all manufacturers of gas hearth DHE
currently report the efficiency of their products using the DOE test
procedure, and as a result they may offer products at other
efficiencies. DOE requests comment on its characterization of a typical
large and a typical small gas hearth DHE manufacturer. (See Issue 23
under ``Issues on Which DOE Seeks Comment'' in section VII.E of this
NOPR.)
To calculate the capital and product conversion costs for a typical
large and a typical small manufacturer, DOE multiplied its estimate of
the per-product-line capital and product conversion costs by the number
of product lines a typical large and a typical small manufacturer would
need to upgrade at each TSL. As described in section IV.H.2 above, DOE
assumed manufacturers would only upgrade fifty percent of their
existing product lines that did not meet the required efficiencies at
each TSL for gas hearth DHE. Table VI.16 and Table VI.17 show DOE's
estimates for the product and capital conversion costs that a typical
large manufacturer and a typical small manufacturer would be expected
to incur at each TSL.
Table VI.16--Total Conversion Costs for a Typical Small Manufacturer of Gas Hearth Direct Heating Equipment
----------------------------------------------------------------------------------------------------------------
Capital Product
conversion costs conversion costs Total conversion
for a typical for a typical costs for a
small small typical small
manufacturer manufacturer manufacturer
----------------------------------------------------------------------------------------------------------------
Baseline.................................................. ................ ................ ................
TSL 1, 2, and 3........................................... $25,000 $66,667 $91,667
TSL 4 and 5............................................... 75,000 200,000 275,000
TSL 6..................................................... 400,000 800,000 1,200,000
----------------------------------------------------------------------------------------------------------------
Table VI.17--Total Conversion Costs for a Typical Large Manufacturer of Gas Hearth Direct Heating Equipment
----------------------------------------------------------------------------------------------------------------
Capital Product
conversion costs conversion costs Total conversion
for a typical for a typical costs for a
large large typical large
manufacturer manufacturer manufacturer
----------------------------------------------------------------------------------------------------------------
Baseline.................................................. ................ ................ ................
TSL 1, 2, and 3........................................... $50,000 $133,333 $183,333
TSL 4 and 5............................................... 125,000 333,333 458,333
TSL 6..................................................... 800,000 1,600,000 2,400,000
----------------------------------------------------------------------------------------------------------------
Because a typical large manufacturer has significantly higher
market shares and a greater number product lines, a large manufacturer
would have higher conversion costs on an absolute basis than a typical
small manufacturer. However, at every TSL, a typical small business
manufacturer could be disproportionately impacted. To show how a much
smaller manufacturing scale could harm small business manufacturers as
compared to large manufacturers, DOE used the market share of a typical
large manufacturer and a typical small manufacturer to estimate the
annual revenue, EBIT, R&D expense, and capital expenditures for a
typical large and typical small manufacturer. DOE then compared these
costs to the required capital and product conversion costs at each TSL
for a typical large and typical small manufacturer. Table VI.18 through
Table VI.19 show these comparisons.
[[Page 65991]]
Table VI.18--Comparison of a Typical Small Gas Hearth Direct Heating Equipment Manufacturer's Conversion Costs
to Annual Expenses, Revenue, and Profit
----------------------------------------------------------------------------------------------------------------
Capital
conversion cost Product Total conversion Total conversion
as a percentage conversion cost cost as a cost as a
of annual as a percentage percentage of percentage of
capital of annual R&D annual revenue annual EBIT
expenditures expense (percent) (percent)
(percent) (percent)
----------------------------------------------------------------------------------------------------------------
Baseline................................ ................ ................ ................ -
TSL 1, 2, and 3......................... 33.2 141.8 2.9 83.0
TSL 4 and 5............................. 99.7 425.5 8.8 248.9
TSL 6................................... 531.9 1,702.2 38.3 1,086.2
----------------------------------------------------------------------------------------------------------------
Table VI.19--Comparison of a Typical Large Gas Hearth-Type Direct Heating Equipment Manufacturer's Conversion
Costs to Annual Expenses, Revenue, and Profit
----------------------------------------------------------------------------------------------------------------
Capital
conversion cost Product Total conversion Total conversion
as a percentage conversion cost cost as a cost as a
of annual as a percentage percentage of percentage of
capital of annual R&D annual revenue annual EBIT
expenditures expense (percent) (percent)
(percent) (percent)
----------------------------------------------------------------------------------------------------------------
Baseline................................ ................ ................ ................ ................
TSL 1, 2, and 3......................... 3.2 13.5 0.3 7.9
TSL 4 and 5............................. 7.9 33.8 0.7 19.8
TSL 6................................... 50.7 162.1 3.6 103.4
----------------------------------------------------------------------------------------------------------------
DOE's product line analysis illustrates that small businesses have
the potential to be differentially impacted by any amended energy
conservation standard because the small businesses have a
disproportionate number of product lines relative to their much smaller
scale. For TSLs 4, 5 and 6, amended energy conservation standards could
force a typical small business to hire additional engineers,
discontinue product lines, or selectively upgrade more popular products
with their present limited engineering and product development
resources. Because the annual shipments of small manufacturers are
several times lower than those of major manufacturers and small
manufacturers typically only manufacture gas hearth DHE, small
companies have less buying power than their larger competitors. The
much larger production volumes of large manufacturers give them more
leverage to negotiate lower prices with component and material
suppliers. Because these conversion costs are more substantial relative
to the size of a typical small business, large manufacturers could take
additional market share from small manufacturers at TSL 4 through TSL
6. Because TSLs 4 and 5 require additional plant modifications, the
added conversion costs make it more likely that small manufacturers
could discontinue some of their least popular product lines at TSL 4
and TSL 5. At TSL 6, the substantial conversion costs could cause even
a large manufacturer to potentially decide to offer fewer product
lines, to bring down the significant product conversion costs.
Consequently, it is increasingly likely that higher conversion costs
could cause many small businesses to exit the market or become severely
constrained with the number of product lines offered at TSLs 4, 5, and
6.
At TSLs 1 through 3, a typical small manufacturer would not face
prohibitively large conversion costs to meet the amended energy
conservation standards. At these TSLs, the amended energy conservation
standards could be met with products that use electric ignition, which
is not particularly capital intensive. These changes would also not
require significant investments in product development costs by small
businesses. The most substantial portion of the conversion costs at
TSLs 1 through 3 would be testing, recertifying, and remarketing all
the existing product lines that currently meet the baseline
efficiencies. In addition, at TSL 1 through TSL 3, it is likely that
small manufacturers would not discontinue a large number of product
lines to lower product and capital conversion costs because these costs
are not substantial. A typical small manufacturer has multiple product
lines that meet and exceed the required efficiencies at TSL 3. Also,
the proposed standard levels do not require manufacturers to
substantially redesign product lines that fall below TSL 3.
DOE's analysis indicates that a typical small manufacturer of gas
hearth DHE already offers multiple product lines that meet and exceed
the required efficiencies at TSL 3, the proposed energy conservation
standard. In addition, the proposed standard levels do not require
substantial redesign to existing product lines that do not meet the
proposed TSL 3. Because most of the product lines that do not meet the
proposed TSL could be upgraded with relatively minor changes, DOE
believes that manufacturers, including the small businesses, will be
able to maintain a viable number of product offerings at the proposed
standard level. DOE seeks comment on the potential impacts on the small
gas hearth DHE manufacturers. (See Issue 24 under ``Issues on Which DOE
Seeks Comment'' in section VII.E of this NOPR.)
e. Duplication, Overlap, and Conflict With Other Rules and Regulations
DOE is not aware of any rules or regulations that duplicate,
overlap, or conflict with the rule being considered today.
f. Significant Alternatives to the Proposed Rule
The discussion above analyzes impacts on small businesses that
would result from the other TSLs DOE considered. Though TSLs lower than
the proposed TSLs are expected to reduce the impacts on small entities,
DOE is required by EPCA to establish standards that achieve the maximum
[[Page 65992]]
improvement in energy efficiency that are technically feasible and
economically justified, and result in a significant conservation of
energy. Thus DOE rejected the lower TSLs.
In addition to the other TSLs being considered, the NOPR TSD
includes a regulatory impact analysis. For DHE, this report discusses
the following policy alternatives: (1) No standard, (2) consumer
rebates, (3) consumer tax credits, (4) manufacturer tax credits, and
(5) early replacement. While these alternatives may mitigate the
economic impacts on small entities compared to the proposed standards,
the energy savings of these regulatory alternatives are at least four
times smaller than those expected from the proposed standard levels.
Thus, DOE rejected these alternatives and is proposing the standards
set forth in this rulemaking.
DOE continues to seek input from businesses that would be affected
by this rulemaking and will consider comments received in the
development of any final rule.
C. Review Under the Paperwork Reduction Act of 1995
This rule contains a collection-of-information requirement subject
to the Paperwork Reduction Act (PRA) which has been approved by OMB
under control number 1910-1400. Public reporting burden for compliance
reporting for energy and water conservation standards is estimated to
average 30 hours per response, including the time for reviewing
instructions, searching existing data sources, gathering and
maintaining the data needed, and completing and reviewing the
collection of information. Send comments regarding this burden
estimate, or any other aspect of this data collection, including
suggestions for reducing the burden, to DOE (see ADDRESSES) and by e-
mail to [email protected].
Notwithstanding any other provision of the law, no person is
required to respond to, nor shall any person be subject to a penalty
for failure to comply with, a collection of information subject to the
requirements of the PRA, unless that collection of information displays
a currently valid OMB Control Number.
D. Review Under the National Environmental Policy Act of 1969
DOE has prepared a draft environmental assessment (EA) of the
impacts of the proposed rule, pursuant to the National Environmental
Policy Act of 1969 (42 U.S.C. 4321 et seq.), the regulations of the
Council on Environmental Quality (40 CFR parts 1500-1508), and DOE's
regulations for compliance with the National Environmental Policy Act
(10 CFR part 1021). This assessment includes an examination of the
potential effects of emission reductions likely to result from the rule
in the context of global climate change, as well as other types of
environmental impacts. The draft EA has been incorporated into the TSD.
Before issuing a final rule for the three type of heating products, DOE
will consider public comments and, as appropriate, determine whether to
issue a finding of no significant impact (FONSI) as part of a final EA
or to prepare an environmental impact statement (EIS) for this
rulemaking.
E. Review Under Executive Order 13132
Executive Order 13132, ``Federalism,'' 64 FR 43255 (August 4, 1999)
imposes certain requirements on agencies formulating and implementing
policies or regulations that preempt State law or that have Federalism
implications. The Executive Order requires agencies to examine the
constitutional and statutory authority supporting any action that would
limit the policymaking discretion of the States and to carefully assess
the necessity for such actions. The Executive Order also requires
agencies to have an accountable process to ensure meaningful and timely
input by State and local officials in the development of regulatory
policies that have Federalism implications. On March 14, 2000, DOE
published a statement of policy describing the intergovernmental
consultation process it will follow in the development of such
regulations. 65 FR 13735. DOE has examined today's proposed rule and
has determined that it would not have a substantial direct effect on
the States, on the relationship between the national government and the
States, or on the distribution of power and responsibilities among the
various levels of government. EPCA governs and prescribes Federal
preemption of State regulations as to energy conservation for the
products that are the subject of today's proposed rule. States can
petition DOE for exemption from such preemption to the extent, and
based on criteria, set forth in EPCA. (42 U.S.C. 6297(d)) No further
action is required by Executive Order 13132.
F. Review Under Executive Order 12988
With respect to the review of existing regulations and the
promulgation of new regulations, section 3(a) of Executive Order 12988,
``Civil Justice Reform'' (61 FR 4729 (Feb. 7, 1996)) imposes on
Executive agencies the general duty to adhere to the following
requirements: (1) Eliminate drafting errors and ambiguity; (2) write
regulations to minimize litigation; and (3) provide a clear legal
standard for affected conduct rather than a general standard and
promote simplification and burden reduction. Section 3(b) of Executive
Order 12988 specifically requires that Executive agencies make every
reasonable effort to ensure that the regulation: (1) Clearly specifies
the preemptive effect, if any; (2) clearly specifies any effect on
existing Federal law or regulation; (3) provides a clear legal standard
for affected conduct while promoting simplification and burden
reduction; (4) specifies the retroactive effect, if any; (5) adequately
defines key terms; and (6) addresses other important issues affecting
clarity and general draftsmanship under any guidelines issued by the
Attorney General. Section 3(c) of Executive Order 12988 requires
Executive agencies to review regulations in light of applicable
standards in section 3(a) and section 3(b) to determine whether they
are met or it is unreasonable to meet one or more of them. DOE has
completed the required review and determined that, to the extent
permitted by law, this proposed rule meets the relevant standards of
Executive Order 12988.
G. Review Under the Unfunded Mandates Reform Act of 1995
Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-
4) (UMRA) requires each Federal agency to assess the effects of Federal
regulatory actions on State, local, and Tribal governments and the
private sector. For a proposed regulatory action likely to result in a
rule that may cause the expenditure by State, local, and Tribal
governments, in the aggregate, or by the private sector of $100 million
or more in any one year (adjusted annually for inflation), section 202
of UMRA requires a Federal agency to publish a written statement that
estimates the resulting costs, benefits, and other effects of the rule
on the national economy. (2 U.S.C. 1532(a),(b)) The UMRA also requires
a Federal agency to develop an effective process to permit timely input
by elected officers of State, local, and Tribal governments on a
proposed ``significant intergovernmental mandate,'' and requires an
agency plan for giving notice and opportunity for timely input to
potentially affected small governments before establishing any
requirements that might significantly or uniquely affect small
governments. On March 18, 1997, DOE published a statement of policy on
its process for intergovernmental consultation under UMRA (62 FR 12820)
(also available at http://
[[Page 65993]]
www.gc.doe.gov). Although today's proposed rule does not contain a
Federal intergovernmental mandate, it may impose expenditures of $100
million or more on the private sector.
Today's proposed rule would likely result in a final rule that
could impose expenditures of $100 million or more between 2013 and 2045
in the residential sector. Therefore, DOE must publish a written
statement assessing the costs, benefits, and other effects of the rule
on the national economy. Section 205 of UMRA also requires DOE to
identify and consider a reasonable number of regulatory alternatives
before promulgating a rule for which UMRA requires such a written
statement. DOE must select from those alternatives the most cost-
effective and least burdensome alternative that achieves the objectives
of the rule, unless DOE publishes an explanation for doing otherwise or
the selection of such an alternative is inconsistent with law.
As required by EPCA (42 U.S.C. 6295(o)), today's proposed energy
conservation standards for the three types of heating products would
achieve the maximum improvement in energy efficiency that DOE has
determined to be both technologically feasible and economically
justified. DOE may not select a regulatory alternative that does not
meet this statutory standard. A full discussion of the alternatives
considered by DOE is presented in the ``Regulatory Impact Analysis''
section of the TSD for this proposed rule. Also, section 202(c) of UMRA
authorizes an agency to prepare the written statement required by UMRA
in conjunction with or as part of any other statement or analysis that
accompanies the proposed rule. (2 U.S.C. 1532(c)) The TSD, preamble,
and regulatory impact analysis for today's proposed rule contain a full
discussion of the rule's costs, benefits, and other effects on the
national economy, and, therefore satisfy UMRA's written statement
requirement.
H. Review Under the Treasury and General Government Appropriations Act,
1999
Section 654 of the Treasury and General Government Appropriations
Act, 1999 (Pub. L. 105-277) requires Federal agencies to issue a Family
Policymaking Assessment for any rule that may affect family well-being.
This rule would not have any impact on the autonomy or integrity of the
family as an institution. Accordingly, DOE has concluded that it is not
necessary to prepare a Family Policymaking Assessment.
I. Review Under Executive Order 12630
DOE has determined under Executive Order 12630, ``Governmental
Actions and Interference with Constitutionally Protected Property
Rights,'' 53 FR 8859 (March 18, 1988), that this regulation would not
result in any takings that might require compensation under the Fifth
Amendment to the U.S. Constitution.
J. Review Under the Treasury and General Government Appropriations Act,
2001
Section 515 of the Treasury and General Government Appropriations
Act, 2001 (44 U.S.C. 3516 note) provides for agencies to review most
disseminations of information to the public under guidelines
established by each agency pursuant to general guidelines issued by
OMB. OMB's guidelines were published at 67 FR 8452 (Feb. 22, 2002), and
DOE's guidelines were published at 67 FR 62446 (Oct. 7, 2002). DOE has
reviewed today's notice under the OMB and DOE guidelines and has
concluded that it is consistent with applicable policies in those
guidelines.
K. Review Under Executive Order 13211
Executive Order 13211, ``Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use,'' 66 FR 28355
(May 22, 2001), requires Federal agencies to prepare and submit to OIRA
at OMB, a Statement of Energy Effects for any proposed significant
energy action. A ``significant energy action'' is defined as any action
by an agency that promulgates or is expected to lead to promulgation of
a final rule, and that: (1) Is a significant regulatory action under
Executive Order 12866, or any successor order; and (2) is likely to
have a significant adverse effect on the supply, distribution, or use
of energy; or (3) is designated by the Administrator of OIRA as a
significant energy action. For any proposed significant energy action,
the agency must give a detailed statement of any adverse effects on
energy supply, distribution, or use should the proposal be implemented,
and of reasonable alternatives to the action and their expected
benefits on energy supply, distribution, and use.
DOE has tentatively concluded that today's regulatory action, which
sets forth energy conservation standards for three types of heating
products, is not a ``significant energy action'' because the proposed
standards are not likely to have a significant adverse effect on the
supply, distribution, or use of energy, nor has it been designated as
such by the Administrator at OIRA. Therefore, DOE has not prepared a
Statement of Energy Effects on the proposed rule.
L. Review Under the Information Quality Bulletin for Peer Review
On December 16, 2004, OMB, in consultation with the Office of
Science and Technology (OSTP), issued its ``Final Information Quality
Bulletin for Peer Review'' (the Bulletin). 70 FR 2664 (Jan. 14, 2005).
The Bulletin establishes that certain scientific information shall be
peer reviewed by qualified specialists before it is disseminated by the
Federal government, including influential scientific information
related to agency regulatory actions. The purpose of the Bulletin is to
enhance the quality and credibility of the government's scientific
information. Under the Bulletin, the energy conservation standards
rulemaking analyses are ``influential scientific information,'' which
the Bulletin defines as ``scientific information the agency reasonably
can determine will have, or does have, a clear and substantial impact
on important public policies or private sector decisions.'' 70 FR 2664,
2667 (Jan. 14, 2005).
In response to OMB's Bulletin, DOE conducted formal in-progress
peer reviews of the energy conservation standards development process
and analyses, and has prepared a Peer Review Report on the energy
conservation standards rulemaking analyses. Generation of this report
involved a rigorous, formal, and documented evaluation using objective
criteria and qualified and independent reviewers to make a judgment as
to the technical/scientific/business merit, the actual or anticipated
results, and the productivity and management effectiveness of programs
and/or projects. The ``Energy Conservation Standards Rulemaking Peer
Review Report'' dated February 2007 has been disseminated and is
available at the following Web site: http://www1.eere.energy.gov/buildings/appliance_standards/peer_review.htm.
VII. Public Participation
A. Public Meeting
The time, date and location of the public meeting are listed in the
DATES and ADDRESSES sections at the beginning of this document. To
attend the public meeting, please notify Ms. Brenda Edwards at (202)
586-2945 or [email protected]. As explained in the ADDRESSES
section, foreign nationals visiting DOE Headquarters are subject to
advance security screening procedures.
[[Page 65994]]
B. Procedure for Submitting Requests To Speak
Any person who has an interest in today's notice, or who is a
representative of a group or class of persons that has an interest in
these issues, may request an opportunity to make an oral presentation.
Such persons may hand-deliver requests to speak, along with a computer
diskette or CD in WordPerfect, Microsoft Word, PDF, or text (ASCII)
file format, to the address shown in the ADDRESSES section at the
beginning of this NOPR between the hours of 9 a.m. and 4 p.m., Monday
through Friday, except Federal holidays. Requests may also be sent by
mail, or by e-mail to: [email protected].
Persons requesting an opportunity to speak should briefly describe
the nature of their interest in this rulemaking and provide a telephone
number for contact. DOE requests persons scheduled to make an oral
presentation to submit an advance copy of their statements at least one
week before the public meeting. At its discretion, DOE may permit any
person who cannot supply an advance copy of their statement to
participate, if that person has made advance alternative arrangements
with the Building Technologies Program. The request to give an oral
presentation should ask for such alternative arrangements.
C. Conduct of Public Meeting
DOE will designate a DOE official to preside at the public meeting
and may also use a professional facilitator to aid discussion. The
meeting will not be a judicial or evidentiary-type public hearing, but
DOE will conduct it in accordance with section 336 of EPCA. (42 U.S.C.
6306) A court reporter will be present to record the proceedings and to
prepare a transcript. DOE reserves the right to schedule the order of
presentations and to establish the procedures governing the conduct of
the public meeting. After the public meeting, interested parties may
submit further comments on the proceedings as well as on any aspect of
the rulemaking until the end of the comment period.
The public meeting will be conducted in an informal, conference
style. DOE will present summaries of comments received before the
public meeting, allow time for presentations by participants, and
encourage all interested parties to share their views on issues
affecting this rulemaking. Each participant will be allowed to make a
prepared general statement (within time limits determined by DOE),
before the discussion of specific topics. DOE will permit other
participants to comment briefly on any general statements.
At the end of all prepared statements on a topic, DOE will permit
participants to clarify their statements briefly and comment on
statements made by others. Participants should be prepared to answer
questions from DOE and from other participants concerning these issues.
DOE representatives may also ask questions of participants concerning
other matters relevant to this rulemaking. The official conducting the
public meeting will accept additional comments or questions from those
attending, as time permits. The presiding official will announce any
further procedural rules or modification of the above procedures that
may be needed for the proper conduct of the public meeting.
DOE will make the entire record of this proposed rulemaking,
including the transcript from the public meeting, available for
inspection at the U.S. Department of Energy, Resource Room of the
Building Technologies Program, 950 L'Enfant Plaza, SW., Washington, DC
20024, (202) 586-2945, between 9 a.m. and 4 p.m., Monday through
Friday, except Federal holidays.
D. Submission of Comments
DOE will accept comments, data, and other information on the
proposed rule before or after the public meeting, but no later than the
date provided at the beginning of this NOPR. Comments, data, and other
information submitted to DOE's e-mail address for this rulemaking
should be provided in WordPerfect, Microsoft Word, PDF, or text (ASCII)
file format. Interested parties should avoid the use of special
characters or any form of encryption and, wherever possible, comments
should carry the electronic signature of the author. Comments, data,
and information submitted to DOE via mail or hand delivery/courier
should include one signed original paper copy. No telefacsimiles
(faxes) will be accepted.
According to 10 CFR 1004.11, any person submitting information that
he or she believes to be confidential and exempt by law from public
disclosure should submit two copies: one copy of the document including
all the information believed to be confidential, and one copy of the
document with the information believed to be confidential deleted. DOE
will make its own determination about the confidential status of the
information and treat it according to its determination.
Factors of interest to DOE when evaluating requests to treat
submitted information as confidential include: (1) A description of the
items; (2) whether and why such items are customarily treated as
confidential within the industry; (3) whether the information is
generally known by or available from other sources; (4) whether the
information has previously been made available to others without
obligation concerning its confidentiality; (5) an explanation of the
competitive injury to the submitting person which would result from
public disclosure; (6) when such information might lose its
confidential character due to the passage of time; and (7) why
disclosure of the information would be contrary to the public interest.
E. Issues on Which DOE Seeks Comment
DOE is particularly interested in receiving comments and views of
interested parties concerning the following issues:
1. The max-tech efficiency levels identified for the analyses,
including whether the efficiency levels identified by DOE can be
achieved using the technologies screened-in during the screening
analysis (see section IV.B), and whether higher efficiencies are
achievable using technologies that were screened-in during the
screening analysis.
2. The potential burdens to manufacturers of hearth-type DHE as a
result of the testing, certification, reporting, and enforcement
provisions.
3. EPCA's efficiency descriptor requirements in any potential test
procedure revisions for electric pool heaters.
4. DOE's proposed definition for vented hearth heaters.
5. DOE's product classes for water heaters. In particular, DOE is
seeking comment about the need for a separate product class for low-boy
water heaters.
6. DOE's approach for analyzing ultra-low NOX gas-fired
storage water heaters and the need for a separate product class.
7. DOE's approach to developing the energy efficiency equations,
the appropriate slope of energy efficiency equations at each efficiency
level analyzed, and the appropriate storage volumes for changing the
slope of the line. DOE is also interested in any alternatives to the
energy efficiency equations that DOE should consider for the final
rule.
8. The need for a separate product class for heat pump water
heaters. Specifically, DOE is interested in receiving comments on
whether a heat pump water heater can be used as a direct replacement
for an electric resistance water heater, and the types and frequency of
instances a heat pump water heater cannot be used as a direct
[[Page 65995]]
replacement for an electric resistance water heater.
9. DOE's proposed product classes for the four existing types of
DHE.
10. DOE's proposed product class divisions for gas hearth DHE.
11. The manufacturability of heat pump water heaters and the
capability of manufacturers to ramp up production of heat pump water
heaters. Specifically, DOE is seeking comment on how long it would take
and the magnitude of the costs for manufacturers to convert all product
lines to heat pump water heaters if it were required by an amended
energy conservation standard. In addition, DOE is seeking comment about
the length of time required to retrain installers and servicers of
water heaters for the installation and servicing of heat pump water
heaters.
12. DOE's estimated manufacturer production costs for storage water
heaters at storage volumes outside of the representative volume.
13. DOE's analysis of installation costs for water heaters. DOE is
particularly interested in comments on its analysis of installation
costs for heat pump water heaters.
14. DOE's analysis of repair and maintenance costs for heat pump
water heaters.
15. DOE's approach for analyzing fuel switching that may result
from the proposed standards on water heaters and the other heating
products. In particular, DOE requests comments on its general approach,
which does not involve price elasticities; its analysis of switching to
gas-fired storage water heaters in the case of a standard that
effectively requires an electric heat pump water heater; its conclusion
that the proposed standards would not induce switching from a gas
storage water heater to an electric storage water heater; and its
conclusion that the proposed standards would not induce switching for
gas-fired instantaneous water heaters, DHE, and pool heaters.
16. DOE's consideration of TSL 6 in the final rule for residential
water heaters and the associated issues DOE has identified surrounding
heat pump water heaters.
17. DOE's consideration of TSL 5 in the final rule for residential
water heaters and the associated issues DOE has identified surrounding
standards that effectively require different technologies for different
subsets of products.
18. The appropriateness of TSL 4 for residential pool heaters in
light of the negative life cycle costs for a majority of consumers. In
addition, DOE's consideration of other TSLs, including TSL 3, as an
alternative for the final standard level.
19. The impacts of the proposed amended energy conservation
standards on small manufacturers of residential water heaters.
20. The impacts of the proposed amended energy conservation
standards on small manufacturers of gas-fired residential pool heaters.
21. The impacts of the proposed amended energy conservation
standards on small manufacturers of traditional DHE. DOE is interested
in specific information regarding the potential for small manufacturers
of traditional DHE to discontinue particular product lines as a result
of the proposed standard, as well as the potential economic effect
discontinuing those particular product lines would have on small
manufacturers of traditional DHE.
22. Alternatives to the proposed amended energy conservation
standards for traditional DHE. Specifically, DOE is interested in
information regarding alternatives that could provide significant cost-
savings for small manufacturers while meeting DOE's energy conservation
goals.
23. DOE's characterization of typical small and large gas hearth
DHE manufacturers.
24. The impacts of the proposed amended energy conservation
standards on small manufacturers of gas hearth DHE.
VIII. Approval of the Office of the Secretary
The Secretary of Energy has approved publication of today's
proposed rule.
List of Subjects in 10 CFR Part 430
Administrative practice and procedure, Confidential business
information, Energy conservation, Household appliances, Imports,
Intergovernmental relations, Reporting and recordkeeping requirements,
and Small businesses.
Issued in Washington, DC, on November 23, 2009.
Cathy Zoi,
Assistant Secretary, Energy Efficiency and Renewable Energy.
For the reasons set forth in the preamble, DOE proposes to amend
chapter II, subchapter D, of title 10 of the Code of Federal
Regulations, as set forth below:
PART 430--ENERGY CONSERVATION PROGRAM FOR CONSUMER PRODUCTS
1. The authority for part 430 continues to read as follows:
Authority: 42 U.S.C. 6291-6309; 28 U.S.C. 2461 note.
2. In Sec. 430.2, add the definitions ``Direct heating equipment''
and ``Vented hearth heater,'' in alphabetical order to read as follows:
Sec. 430.2 Definitions.
* * * * *
Direct heating equipment means vented home heating equipment and
unvented home heating equipment.
* * * * *
Vented hearth heater means a vented, freestanding, recessed, zero
clearance fireplace heater, a gas fireplace insert or a gas-stove,
which simulates a solid fuel fireplace and is designed to furnish warm
air, without ducts to the space in which it is installed.
* * * * *
3. In Sec. 430.32 revised paragraphs (d), (i), (k) to read as
follows:
Sec. 430.32 Energy and water conservation standards and their
effective dates.
* * * * *
(d) Water heaters. The energy factor of water heaters shall not be
less than the following for products manufactured on or after the
indicated dates.
------------------------------------------------------------------------
Energy factor as of
Energy factor as [INSERT DATE 5 YEARS
Product class of January 20, AFTER DATE OF
2004 PUBLICATION OF THE
FINAL RULE]
------------------------------------------------------------------------
Gas-fired Water Heater........ 0.67-(0.0019 x For tanks with Rated
Rated Storage Storage Volume at or
Volume in below 60 gallons:
gallons). 0.675-(0.0012 x
Rated Storage Volume
in gallons);
For tanks with Rated
Storage Volume above
60 gallons: 0.717-
(0.0019 x Rated
Storage Volume in
gallons).
Oil-fired Water Heater........ 0.59-(0.0019 x 0.68-(0.0019 x Rated
Rated Storage Storage Volume in
Volume in gallons).
gallons).
Electric Water Heater......... 0.97-(0.00132 x For tanks with Rated
Rated Storage Storage Volume at or
Volume in below 80 gallons:
gallons). 0.96-(0.0003 x Rated
Storage Volume in
gallons);
[[Page 65996]]
For tanks with Rated
Storage Volume above
80 gallons: 1.088-
(0.0019 x Rated
Storage Volume in
gallons).
Tabletop Water Heater......... 0.93-(0.00132 x 0.93-(0.00132 x Rated
Rated Storage Storage Volume in
Volume in gallons).
gallons).
Instantaneous Gas-fired Water 0.62-(0.0019 x 0.82-(0.0019 x Rated
Heater. Rated Storage Storage Volume in
Volume in gallons).
gallons).
Instantaneous Electric Water 0.93-(0.00132 x 0.93-(0.00132 x Rated
Heater. Rated Storage Storage Volume in
Volume in gallons).
gallons).
------------------------------------------------------------------------
Note: The Rated Storage Volume equals the water storage capacity of a
water heater, in gallons, as specified by the manufacturer.
* * * * *
(i) Direct heating equipment. (1) Direct heating equipment
manufactured on or after January 1, 1990 and before [INSERT DATE 3
YEARS AFTER DATE OF PUBLICATION OF THE FINAL RULE], shall have an
annual fuel utilization efficiency no less than:
------------------------------------------------------------------------
Annual fuel utilization
Product class efficiency, Jan. 1, 1990
(percent)
------------------------------------------------------------------------
1. Gas wall fan type up to 42,000 Btu/h....... 73
2. Gas wall fan type over 42,000 Btu/h........ 74
3. Gas wall gravity type up to 10,000 Btu/h... 59
4. Gas wall gravity type over 10,000 Btu/h up 60
to 12, 000 Btu/h.............................
5. Gas wall gravity type over 12,000 Btu/h up 61
to 15,000 Btu/h..............................
6. Gas wall gravity type over 15,000 Btu/h up 62
to 19,000 Btu/h..............................
7. Gas wall gravity type over 19,000 Btu/h and 63
up to 27,000 Btu/h...........................
8. Gas wall gravity type over 27,000 Btu/h and 64
up to 46,000 Btu/h...........................
9. Gas wall gravity type over 46,000 Btu/h.... 65
10. Gas floor up to 37,000 Btu/h.............. 56
11. Gas floor over 37,000 Btu/h............... 57
12. Gas room up to 18,000 Btu/h............... 57
13. Gas room over 18,000 Btu/h up to 20,000 58
Btu/h........................................
14. Gas room over 20,000 Btu/h up to 27,000 63
Btu/h........................................
15. Gas room over 27,000 Btu/h up to 46,000 64
Btu/h........................................
16. Gas room over 46,000 Btu/h................ 65
------------------------------------------------------------------------
(2) Direct heating equipment manufactured on or after [INSERT DATE
3 YEARS AFTER DATE OF PUBLICATION OF THE FINAL RULE], shall have an
annual fuel utilization efficiency no less than:
------------------------------------------------------------------------
Annual fuel utilization
efficiency, [INSERT DATE
Product class 3 YEARS AFTER DATE OF
PUBLICATION OF THE FINAL
RULE] (percent)
------------------------------------------------------------------------
1. Gas wall fan type up to 42,000 Btu/h....... 76
2. Gas wall fan type over 42,000 Btu/h........ 77
3. Gas wall gravity type up to 27,000 Btu/h... 70
4. Gas wall gravity type over 27,000 Btu/h up 71
to 46,000 Btu/h..............................
5. Gas wall gravity type over 46,000 Btu/h.... 72
6. Gas floor up to 37,000 Btu/h............... 57
7. Gas floor over 37,000 Btu/h................ 58
8. Gas room up to 20,000 Btu/h................ 62
9. Gas room over 20,000 Btu/h up to 27,000 Btu/ 67
h............................................
10. Gas room over 27,000 Btu/h up to 46,000 68
Btu/h........................................
11. Gas room over 46,000 Btu/h................ 69
12. Gas hearth up to 20,000 Btu/h............. 61
13. Gas hearth over 20,000 Btu/h and up to 66
27,000 Btu/h.................................
14. Gas hearth over 27,000 Btu/h and up to 67
46,000 Btu/h.................................
15. Gas hearth over 46,000 Btu/h.............. 68
------------------------------------------------------------------------
[[Page 65997]]
* * * * *
(k) Pool heaters. (1) Gas-fired pool heaters manufactured on or
after January 1, 1990 and before [INSERT DATE 3 YEARS AFTER DATE OF
PUBLICATION OF THE FINAL RULE], shall have a thermal efficiency not
less than 78%.
(2) Gas-fired pool heaters manufactured on or after [INSERT DATE 3
YEARS AFTER DATE OF PUBLCIATION OF THE FINAL RULE], shall have a
thermal efficiency not less than 84%.
* * * * *
[FR Doc. E9-28774 Filed 12-10-09; 8:45 am]
BILLING CODE 6450-01-P