[Federal Register Volume 72, Number 222 (Monday, November 19, 2007)]
[Rules and Regulations]
[Pages 65136-65170]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-22216]



[[Page 65135]]

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Part II





Department of Energy





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10 CFR Part 430



 Energy Conservation Program for Consumer Products: Energy Conservation 
Standards for Residential Furnaces and Boilers; Final Rule

  Federal Register / Vol. 72, No. 222 / Monday, November 19, 2007 / 
Rules and Regulations  

[[Page 65136]]


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DEPARTMENT OF ENERGY

10 CFR Part 430

[Docket Number: EE-RM/STD-01-350]
RIN 1904-AA78


Energy Conservation Program for Consumer Products: Energy 
Conservation Standards for Residential Furnaces and Boilers

AGENCY: Department of Energy.

ACTION: Final rule.

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SUMMARY: The Department of Energy (DOE) has determined that revised 
energy conservation standards for residential furnaces and boilers will 
result in significant conservation of energy, are technologically 
feasible, and are economically justified. On this basis, DOE is today 
amending the existing energy conservation standards for these products.

DATES: The rule is effective January 18, 2008. The standards 
established in today's final rule have a compliance date of November 
19, 2015.

ADDRESSES: For access to the docket to read background documents, the 
technical support document (TSD), transcripts of the public meetings in 
this proceeding, or comments received, visit the U.S. Department of 
Energy, the Resource Room of the Building Technologies Program at 950 
L'Enfant Plaza Drive, SW., Washington, DC. 20024, (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. Please 
note: DOE's Freedom of Information Reading Room (formerly Room 1E-190 
at the Forrestal Building) no longer houses rulemaking materials. You 
may also obtain copies of certain previous rulemaking documents from 
this proceeding (i.e., Framework Document, advance notice of proposed 
rulemaking (ANOPR), notice of proposed rulemaking (NOPR or proposed 
rule)), draft analyses, public meeting materials, and related test 
procedure documents from the Office of Energy Efficiency and Renewable 
Energy's Web site at http://www.eere.energy.gov/buildings/appliance_standards/residential/furnaces_boilers.html.

FOR FURTHER INFORMATION CONTACT: Mohammed Khan, Project Manager, Energy 
Conservation Standards for Residential Furnaces and Boilers, U.S. 
Department of Energy, Energy Efficiency and Renewable Energy, Building 
Technologies Program, EE-2J, 1000 Independence Avenue, SW., Washington, 
DC 20585-0121, (202) 586-7892, e-mail: [email protected]; or 
Chris Calamita, Esq. or Francine Pinto, Esq., U.S. Department of 
Energy, Office of the General Counsel, GC-72, 1000 Independence Avenue, 
SW., Washington, DC 20585-0121, (202) 586-9507, e-mail: 
[email protected] or [email protected].

SUPPLEMENTARY INFORMATION:

I. Summary of the Final Rule and Its Benefits
    A. The Standard Levels
    B. Current Federal Standards for Residential Furnaces and 
Boilers
    C. Consumer Benefits
    D. Impact on Manufacturers
    E. National Benefits
    F. Conclusion
II. Introduction
    A. Authority
    B. Background
    1. Current Standards
    2. History of Standards Rulemaking for Residential Furnaces and 
Boilers
III. General Discussion
    A. Test Procedures
    B. Technological Feasibility
    1. General
    2. Maximum Technologically Feasible Levels
    C. Energy Savings
    D. Economic Justification
    1. Specific Criteria
    a. Economic Impact on Consumers and Manufacturers
    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 Revisions to the Analyses Employed in the 
Proposed Rule
    A. Engineering Analysis
    B. Life-Cycle Cost and Payback Period Analyses
    C. National Impact Analysis
    D. Consumer Subgroup Analysis
    E. Manufacturer Impact Analysis
    F. Employment Impact Analysis
    G. Regulatory Impact Analysis
    H. Utility Impact Analysis
    I. Environmental Analysis
V. Discussion of Other Comments
    A. Information and Assumptions Used in Analysis
    1. Engineering Analysis
    2. Life-Cycle Cost Analysis
    3. Manufacturer Impact Analysis
    B. Other Issues
    1. Joint Stakeholder Recommendation for Boilers
    2. Regional Standards and Waiver from Federal Preemption for 
States
    3. Effective Date for New Standards
    4. Consumer Benefits From Reduction in Natural Gas Prices 
Associated With a Standard of 90-Percent AFUE or Higher for Non-
Weatherized Gas Furnaces
    5. Efficiency Standards for Electric Furnaces
    6. Electricity Consumption of Furnace Fans
    7. Use of LCC Results in Selecting Standard Levels
    8. Definition of Trial Standard Levels
    9. Test Procedure
    10. Structural Cost Associated With Condensing Furnaces
VI. Analytical Results and Conclusions
    A. Trial Standard Levels
    B. Significance of Energy Savings
    C. Economic Justification
    1. Economic Impact on Consumers
    a. Life-Cycle Costs and Payback Period
    b. Consumer Subgroup Analysis
    2. Economic Impact on Manufacturers
    a. Industry Cash-Flow Analysis Results
    b. Impacts on Manufacturing Capacity and Subgroups of 
Manufacturers
    c. Cumulative Regulatory Burden
    3. National Net Present Value and Net National Employment
    4. Impact on Utility or Performance of Equipment
    5. Impact of Any Lessening of Competition
    6. Need of the Nation to Conserve Energy
    7. Other Factors
    D. Conclusion
VII. Procedural Issues and Regulatory Review
    A. Review Under Executive Order 12866
    B. Review Under the Regulatory Flexibility Act
    C. Review Under the Paperwork Reduction Act
    D. Review Under the National Environmental Policy Act
    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
    M. Review Under Executive Order 12898
    N. Congressional Notification
VIII. Approval of the Office of the Secretary

I. Summary of the Final Rule and Its Benefits

A. The Standard Levels

    The Energy Policy and Conservation Act, as amended (42 U.S.C. 6291 
et seq.; EPCA), directs the Department of Energy (DOE) to consider 
amending the energy conservation standards for residential furnaces and 
boilers established under EPCA. (42 U.S.C. 6295(f)(3)(B)) Any amended 
standard must 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)) Moreover, EPCA states that the Secretary may not 
establish an amended standard if such standard would not result in

[[Page 65137]]

``significant conservation of energy,'' or ``is not technologically 
feasible or economically justified.'' (42 U.S.C. 6295(o)(3)(B)) The 
standards in today's final rule, which apply to non-weatherized and 
weatherized gas furnaces, mobile home gas furnaces, oil-fired furnaces, 
and gas- and oil-fired boilers,\1\ satisfy these requirements.
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    \1\ These types of products are referred to collectively 
hereafter as ``residential furnaces and boilers'' or ``furnaces and 
boilers.''
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    Table I.1 shows the standard levels DOE is promulgating today. 
These standards will apply to products manufactured for sale in the 
United States, or imported to the United States, on or after November 
19, 2015.

          Table I.1.--Standard Levels for Furnaces and Boilers
------------------------------------------------------------------------
                        Product class                          AFUE* (%)
------------------------------------------------------------------------
Non-weatherized gas furnaces.................................         80
Weatherized gas furnaces.....................................         81
Mobile home gas furnaces.....................................         80
Oil-fired furnaces...........................................         82
Gas boilers..................................................         82
Oil-fired boilers............................................        83
------------------------------------------------------------------------
*AFUE = annual fuel utilization efficiency.

B. Current Federal Standards for Residential Furnaces and Boilers

    Table I.2 presents the current Federal minimum energy conservation 
standards for residential furnaces and boilers.

   Table I.2.--Current Federal Standards for Residential Furnaces and
                                 Boilers
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                        Product class                           AFUE (%)
------------------------------------------------------------------------
Non-weatherized gas furnaces.................................         78
Weatherized gas furnaces.....................................         78
Mobile home gas furnaces.....................................         75
Oil-fired furnaces...........................................         78
Gas boilers..................................................         80
Oil-fired boilers............................................         80
------------------------------------------------------------------------

C. Consumer Benefits

    Table I.3 summarizes the implications of today's standards for 
consumers of residential furnaces and boilers.

                            Table I.3.--Implications of New Standards for Consumers*
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                                                                 Installed cost    Life-cycle     Payback period
            Product class              AFUE (%)  Installed cost     increase      cost savings       (years)
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Non-weatherized gas furnaces........         80          $2,044              $8              $2              1.7
Weatherized gas furnaces............         81           3,907              19              62              3.4
Mobile home gas furnaces............         80             940              96             111              3.7
Oil-fired furnaces..................         82           3,142              17             177              0.7
Gas boilers.........................         82           3,826             199             208             12
Oil-fired boilers...................         83           3,920              28              69              0.9 
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* Average values.

    The economic impacts on consumers (i.e., the average life-cycle 
cost (LCC) savings) are positive. For example, a non-weatherized gas 
furnace meeting the standard is projected to have a very small increase 
in average total installed cost, and the annual energy savings result 
in an average LCC savings of $2 and a payback period of 1.7 years. No 
households purchasing non-weatherized gas furnaces, including southern 
households, would experience a net LCC increase. A gas boiler meeting 
the standard is projected to have an increase in average total 
installed cost of $199, but the annual energy savings result in an 
average LCC savings of $208 and a payback period of 12 years.

D. Impact on Manufacturers

    Using a real corporate discount rate of 7.4 percent for furnaces 
and 6.2 percent for boilers, DOE estimates the industry net present 
value (INPV) of the residential furnace industry to be $1,528 million 
and the INPV of the residential boiler industry to be $279 million, in 
2006$. DOE estimates the impact of today's standards on the INPV of the 
residential furnace and boiler industry to be between a 4.0 percent 
loss and a 2.7 percent loss (-$74 million to -$48 million). Based on 
DOE's interviews with the major manufacturers of residential furnaces 
and boilers, DOE estimates minimal plant closings or loss of employment 
as a result of the standards promulgated today.

E. National Benefits

    DOE estimates the standards will save approximately 0.25 quads 
(quadrillion (10\15\) British thermal units (Btu)) of energy over 24 
years (2015-2038). For comparison, approximately four quads are used 
annually for space heating in U.S. homes.
    These energy savings are projected to result in cumulative 
greenhouse gas emission reductions of approximately 7.8 million tons 
(Mt) of carbon dioxide (CO2). Additionally, the standards 
will help alleviate air pollution by resulting in approximately 9.2 
thousand tons (kt) of nitrogen oxides (NOX) emission 
reductions from 2015 through 2038, or a similar amount of NOX 
emissions allowance credits in areas where such emissions are subject 
to emissions caps, and approximately 1.8 kt of household emission 
reductions of sulfur dioxide (SO2). DOE expects the 
standards to have negligible impact on electricity generating capacity.
    The national net present value (NPV) of the standards is $0.69 
billion using a seven-percent discount rate and $2.18 billion using a 
three-percent discount rate, cumulative from 2015 to 2038 in 2006$. 
This is the estimated total value of future savings minus the estimated 
increased costs for purchasing complying products, discounted to the 
year 2007.
    The benefits and costs of today's final rule can also be expressed 
in terms of annualized 2006$ values over the forecast period 2015 
through 2038. Using a seven percent discount rate for the annualized 
cost analysis, the cost of the standards established in today's final 
rule is $41 million per year in increased equipment and installation 
costs while the annualized benefits are $144 million per year in 
reduced equipment operating costs. Using a three percent discount rate, 
the cost of the standards established n today's final rule is $40 
million per year while the benefits of today's standards are $204 
million per year.

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F. Conclusion

    DOE concludes that the benefits (energy savings, consumer LCC 
savings, national NPV increases, and emissions reductions) to the 
Nation of the standards outweigh their costs (loss of manufacturer INPV 
and consumer LCC increases for a relatively small number of furnace and 
boiler users). DOE also concludes that today's standards for furnaces 
and boilers represent that maximum improvement in energy efficiency 
that is technologically feasible and economically justified, and will 
result in significant energy savings. At present, products that meet 
the new standard levels are commercially available.

II. Introduction

A. Authority

    Title III of EPCA sets forth a variety of provisions designed to 
improve energy efficiency; specifically, Part B of title III 
establishes the Energy Conservation Program for Consumer Products other 
than Automobiles. (42 U.S.C. 6291-6309) The program covers consumer 
products (referred to hereafter as ``covered products''), including 
residential furnaces and boilers. (42 U.S.C. 6292(a)(5))
    Under EPCA, the energy conservation program consists essentially of 
the following: Testing, labeling, and Federal energy conservation 
standards. The Federal Trade Commission (FTC) has primary 
responsibility for labeling, and DOE implements the remainder of the 
program. (42 U.S.C. 3294) Section 323 of EPCA authorizes DOE, with 
assistance from the National Institute of Standards and Technology 
(NIST) and 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. (42 U.S.C. 6293) The 
applicable furnace and boiler test procedures appear at Title 10 of the 
Code of Federal Regulations (CFR) part 430, subpart B, Appendix N.
    EPCA provides criteria for prescribing new or amended standards for 
covered products. Any new or 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))
    Additionally, EPCA provides specific prohibitions on prescribing 
new and amended standards. Generally, DOE may not prescribe an amended 
or new standard for products if no test procedure has been established 
for the product.\2\ (42 U.S.C. 6295(o)(3)(A). Further, DOE may not 
prescribe an amended or new standard if DOE determines by rule that 
such standard would not result in ``significant conservation of 
energy,'' or ``is not technologically feasible or economically 
justified.'' (42 U.S.C. 6295(o)(3)(B))
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    \2\ This prohibition does not apply to standards for 
dishwashers, clothes washers, clothes dryers, and kitchen ranges and 
ovens. (42 U.S.C. 3295(o)(3)(A))
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    EPCA also provides that, in deciding whether a standard is 
economically justified, DOE must, after receiving comments on a 
proposed standard, determine whether the benefits of the standard 
exceed its burdens 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 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 conservation; and
    (7) Other factors the Secretary considers relevant. (42 U.S.C. 
6295(o)(2)(B)(i))
    EPCA contains what is commonly known as an ``anti-backsliding'' 
provision. This provision mandates that the Secretary not prescribe 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 
an amended or a new 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, features, sizes, 
capacities, and volume that are substantially the same as those 
generally available in the United States. (42 U.S.C. 6295(o)(4))
    Section 325(q) of EPCA is applicable to promulgating a standard for 
a type or class of covered product that has two or more subcategories. 
(42 U.S.C. 6295(q)) 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)(l)(A) and (B)) In 
determining whether a performance-related feature justifies such 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. (42 U.S.C. 6295(q)(1)) Any rule 
prescribing such a standard must include an explanation of the basis on 
which DOE established such higher or lower level. (42 U.S.C. 
6295(q)(2)) In 1993, DOE relied on this authority to establish four 
product classes of residential furnaces and two product classes of 
residential boilers, which are the subject of this rulemaking. 58 FR 
47326 (September 8, 1993).
    Federal energy conservation requirements generally preempt State 
laws and regulations concerning energy conservation testing, labeling, 
and standards. (42 U.S.C. 6297) DOE is authorized, however, to grant 
waivers from preemption for particular State laws or regulations, in 
accordance with the procedures and provisions set forth in section 
327(d) of EPCA. (42 U.S.C. 6297(d)) Specifically, States with a 
regulation that provides for an energy conservation standard for any 
type of covered product for which there is a Federal energy 
conservation standard may petition the Secretary for a DOE rule that 
permits the State regulation to become effective with respect to such 
covered product. In order for a petition to be granted, a State must 
establish by a preponderance of the evidence that its regulation is 
needed to meet ``unusual and compelling State or local energy * * * 
interests.'' (42 U.S.C. 6297(d)(1)(B))

B. Background

1. Current Standards
    EPCA established an energy conservation standard for residential 
furnaces and boilers. It set the standard

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in terms of the annual fuel utilization efficiency (AFUE) descriptor at 
a minimum value of 78 percent for most furnaces. (42 U.S.C. 6295(f)(1)) 
It set the minimum AFUE at 75 percent for gas steam boilers and 80 
percent for other boilers. (42 U.S.C. 6295(f)(1)(A)) For mobile home 
furnaces, EPCA set the minimum AFUE at 75 percent. (42 U.S.C. 
6295(f)(2)) These standards became effective on January 1, 1992, with 
the exception of the standard for mobile home furnaces, for which the 
effective date was September 1, 1990. (42 U.S.C. 6295(f)(1) and (2))
2. History of Standards Rulemaking for Residential Furnaces and Boilers
    As discussed in the October 2006 notice of proposed rulemaking 
(NOPR), this rulemaking began with the publication of an advance notice 
of proposed rulemaking (ANOPR) on September 28, 1990. 55 FR 39624. A 
second ANOPR was published on July 29, 2004. 69 FR 45420. On October 6, 
2006, DOE published a NOPR in the Federal Register proposing amended 
energy efficiency standards for residential furnace and boilers. 71 FR 
59203. In conjunction with the October 2006 NOPR, DOE also published on 
its Web site the complete technical support document (TSD) for the 
proposed rule, which incorporated the final analyses DOE conducted and 
technical documentation of each analysis. The NOPR TSD included the 
engineering analysis spreadsheet, the LCC spreadsheets, the national 
and regional impact analysis spreadsheets, and the manufacturer impact 
analysis (MIA) spreadsheet--all of which are available at http://www.eere.energy.gov/buildings/appliance_standards/residential/fb_nopr_analysis.html. The energy efficiency standards proposed for 
furnaces and boilers were as shown in Table II.1.

   Table II.1.--October 2006 Proposed Energy Efficiency Standards for
                          Furnaces and Boilers
------------------------------------------------------------------------
                        Product class                          AFUE* (%)
------------------------------------------------------------------------
Non-weatherized gas furnaces.................................         80
Weatherized gas furnaces.....................................         83
Mobile home gas furnaces.....................................         80
Oil-fired furnaces...........................................         82
Gas boilers..................................................         84
Oil-fired boilers............................................        83
------------------------------------------------------------------------
* AFUE = annual fuel utilization efficiency.

    The October 2006 NOPR also included additional background 
information on the history of this rulemaking and on DOE's use in this 
rulemaking of the procedures, interpretations, and policies set forth 
in the Process Rule. 71 FR 59207-59208. DOE held a public meeting in 
Washington, DC, on October 30, 2006, to hear oral comments relevant to 
the October 2006 proposed rule.
    After the publication of the October 2006 proposed rule, DOE met 
with GAMA, Carrier, and Rheem on December 14, 2006, to receive comments 
regarding cost and safety issues concerning weatherized gas furnaces 
that are manufactured to operate at 83-percent AFUE. (GAMA, No. 146 at 
p. 1) \3\ These comments are further described in section IV.A. In 
addition, DOE issued a notice of data availability and reopening of 
comment period on February 9, 2007, to respond to questions raised at 
the public meeting concerning DOE's assumptions regarding shipments in 
the base case and the installation cost for oil-fired furnaces. 72 FR 
6184.
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    \3\ A notation in the form ``GAMA, No. 146 at p. 1'' identifies 
a written comment DOE has received and has included in the docket of 
this rulemaking. This particular notation refers to a comment (1) By 
the Gas Appliance Manufacturers Association (GAMA), (2) under 
document number 146 in the docket of this rulemaking (maintained in 
the Resource Room of Building Technologies Program), and (3) 
appearing on page 1 of document number 146.
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III. General Discussion

A. Test Procedures

    Section 7(c) of the Process Rule indicates that, if modifications 
are needed to its test procedures for a covered product, DOE will issue 
a final, modified test procedure before issuing a proposed rule for 
energy conservation standards for that product. DOE has determined that 
modifications are not needed to its existing test procedure for 
furnaces and boilers, and accordingly has not adopted a revised test 
procedure for these products. Comments received about test procedures 
are discussed in section V.B.9.

B. Technological Feasibility

1. General
    As stated above, standards that DOE establishes for furnaces and 
boilers must be technologically feasible. (42 U.S.C. 6295(o)(2)(A) and 
(o)(3)(B)) DOE considers a design option to be technologically feasible 
if it is in use by the respective industry or if research has 
progressed to the development of a working prototype. The Process Rule 
sets forth a definition of technological feasibility as follows: 
``Technologies incorporated in commercial products or in working 
prototypes will be considered technologically feasible.'' 10 CFR part 
430, subpart C, Appendix A, section 4(a)(4)(i).
    This final rule considers the same design options as those 
evaluated in the October 2006 proposed rule. (See the final rule TSD 
accompanying this notice, Chapter 4.) The evaluated technologies all 
have been used (or are being used) in commercially available products 
or working prototypes. The designs all incorporate materials and 
components that are commercially available in today's furnace and 
boiler supply market. DOE has determined that all of the efficiency 
levels evaluated in this notice are technologically feasible.
2. Maximum Technologically Feasible Levels
    In developing the October 2006 proposed rule, consistent with 
section 325(p)(2) of EPCA, DOE identified the maximum technologically 
feasible levels. (See NOPR TSD Chapter 6.) DOE did not receive any 
comments on the October 2006 proposed rule to lead DOE to consider 
changes to the maximum technologically feasible (max tech) levels. 
Therefore, for today's final rule, the max tech levels for all classes 
are the same max tech levels identified in the October 2006 proposed 
rule and are provided in Table II.2 below. 71 FR 59211.

Table II.2.--Max Tech Levels Considered in Furnace and Boiler Rulemaking
------------------------------------------------------------------------
                        Product class                          AFUE* (%)
------------------------------------------------------------------------
Non-weatherized gas furnaces.................................         96
Weatherized gas furnaces.....................................         83
Mobile home gas furnaces.....................................         90
Oil-fired furnaces...........................................         85
Gas boilers..................................................         99
Oil-fired boilers............................................        95
------------------------------------------------------------------------
* AFUE = annual fuel utilization efficiency.

C. Energy Savings

    As stated above, EPCA directs DOE to establish amended standards at 
a level of maximum improvement in energy efficiency that is 
technologically feasible and economically justified. (42 U.S.C. 
6295(o)(2)(A)) DOE is prohibited from adopting a standard for a product 
if that standard would not result in ``significant'' energy savings, or 
is not technologically feasible or economically justified. (42 U.S.C. 
6295(o)(3)(B)) While EPCA does not define the term ``significant,'' the 
U.S. Court of Appeals, in Natural Resources Defense Council v. 
Herrington, indicated that Congress intended ``significant'' energy 
savings in this context to be savings that were not

[[Page 65140]]

``genuinely trivial.'' 768 F.2d 1355, 1373 (D.C. Cir. 1985). The energy 
savings for energy conservation standards at each of the trial standard 
levels (TSLs) considered in this rulemaking are nontrivial, and 
therefore, DOE has determined them to be ``significant'' within the 
meaning of section 325 of EPCA.
    DOE forecasted energy savings attributable to the TSLs using the 
national energy savings (NES) spreadsheet tool, as discussed in the 
October 2006 proposed rule. 71 FR 59211-59212, 59224-59227, and 59245-
59246. For the purpose of today's final rule, DOE has relied on the NES 
analysis as presented in the October 2006 proposed rule. EPCA further 
requires consideration of energy savings in the context of the economic 
justification.

D. Economic Justification

1. Specific Criteria
    As noted earlier, EPCA provides seven factors for DOE to evaluate 
in determining whether an energy conservation standard for residential 
furnaces and boilers is economically justified. (42 U.S.C. 
6295(o)(2)(B)(i)) The following discusses how DOE has addressed each of 
those seven factors in this rulemaking. Changes to considerations of 
those criteria between the proposed rule and the final rule are also 
discussed below. The inputs relied upon in consideration of each 
criterion and changes to those inputs are discussed in section V, 
below.
a. Economic Impact on Consumers and Manufacturers
    DOE considered the economic impact of the standard on consumers and 
manufacturers, as discussed in the October 2006 proposed rule. 71 FR 
59212, 59219-59223, 59228-59233, 59234-59245. For this final rule, DOE 
updated the analyses to incorporate more recent material price 
information.
b. Life-Cycle Costs
    DOE considered life-cycle costs of furnaces and boilers, as 
discussed in the October 2006 proposed rule. 71 FR 59212-59213, 59219-
59224, 59234-59239. It calculated the sum of the purchase price and the 
operating expense--discounted over the lifetime of the products--to 
estimate the range in expected LCC benefits to consumers due to the 
standards.
c. Energy Savings
    While significant conservation of energy is a separate statutory 
requirement for imposing an energy conservation standard, EPCA also 
requires DOE, in determining the economic justification of a proposed 
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)) As in the October 2006 Proposed Rule, DOE used 
the NES spreadsheet results in its consideration of total projected 
savings that are directly attributable to the considered standard 
levels. 71 FR 59211-59212, 59224-59227, 59245-59246.
d. Lessening of Utility or Performance of Products
    As reflected in the October 2006 proposed rule, DOE considered 
whether any lessening of the utility or performance of furnaces and 
boilers would be likely to result from today's standards. 71 FR 59213.
e. Impact of Any Lessening of Competition
    DOE considers any lessening of competition that is likely to result 
from standards. Accordingly, as discussed in the October 2006 proposed 
rule, 71 FR 59213, 59247, DOE requested that the Attorney General 
transmit to the Secretary a written determination of the impact, if 
any, of any lessening of competition likely to result from the 
standard, 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))
    To assist the Attorney General in making such a determination, DOE 
provided the Department of Justice (DOJ) with copies of the October 
2006 proposed rule and the NOPR TSD for review. The Attorney General's 
response is discussed in section VI.C.5 below, and is reprinted at the 
end of this final rule.
f. Need of the Nation To Conserve Energy
    In considering standards for furnaces and boilers, the Secretary 
must consider the need of the Nation to conserve energy. (42 U.S.C. 
6295(o)(2)(B)(i)(VI)) The Secretary recognizes that energy conservation 
benefits the Nation in several important ways, including slowing the 
depletion of domestic natural gas resources, improving the security of 
the Nation's energy system, and reducing greenhouse gas emissions. The 
potential benefits from additional natural gas conservation are further 
discussed in section V.B.4 below.
g. Other Factors
    The Secretary, in determining whether a standard is economically 
justified, may consider any other factors that the Secretary deems to 
be relevant. (42 U.S.C. 6295(o)(2)(B)(i)(VII)) In considering amended 
standards in the October 2006 proposed rule and in adopting today's 
standards, the Secretary considered the potential for furnace and 
boiler standards to pose public health risks due to carbon monoxide 
release into the home as a result of venting system or heat exchanger 
failure. As discussed in section VI of this preamble, potential safety 
concerns were weighed against adopting certain standard levels.
2. Rebuttable Presumption
    Section 325(o)(2)(B)(iii) of EPCA states that there is a rebuttable 
presumption that an energy conservation standard is economically 
justified if the increased installed 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, as calculated under the applicable 
DOE test procedure. (42 U.S.C. 6295(o)(2)(B)(iii)) Under the standard 
levels adopted in this document for non-weatherized and weatherized gas 
furnaces, mobile home gas furnaces, and hot-water oil-fired boilers, 
DOE determined that this presumption applies. Regardless of the 
rebuttable presumption, DOE also determined that all of the standard 
levels adopted in today's final rule are economically justified based 
on the above-described analyses.

IV. Methodology and Revisions to the Analyses Employed in the Proposed 
Rule

    DOE used a number of analytical tools that it previously developed 
and adapted for use in this rulemaking. One of the tools is a 
spreadsheet that calculates LCC and payback period (PBP). Another tool 
calculates NES and national NPV. DOE also used the Government 
Regulatory Impact Model (GRIM), along with other methods, in its MIA. 
Finally, DOE developed an approach using the National Energy Modeling 
System (NEMS) to estimate impacts of residential furnace and boiler 
energy efficiency standards on utilities and the environment. Each of 
the analytical tools is discussed in detail in the October 2006 NOPR. 
71 FR 59213-59234.
    As a basis for this final rule, DOE has continued to use the 
spreadsheets and approaches explained in the October 2006 NOPR. DOE 
used the same general methodology as applied in the October 2006 NOPR 
but revised some of the assumptions and inputs for the final rule in 
response to stakeholder comments. These updates are discussed in the 
sections below.

[[Page 65141]]

A. Engineering Analysis

    The purpose of the engineering analysis was to characterize the 
relationship between the efficiency and the cost of residential 
furnaces and boilers. As discussed in the NOPR, DOE used the design-
option approach, the efficiency-level approach, and the cost-assessment 
approach to the engineering analysis. 71 FR 59214-59219. As part of the 
analysis, DOE developed data--including manufacturing costs, markups, 
installation costs, and maintenance costs--that it used to establish 
the manufacturing selling price of more-efficient equipment. Chapter 6 
of the TSD contains detailed discussion of the engineering analysis 
methodology.
    In response to the publication of the October 2006 proposed rule, 
DOE received a number of comments on the engineering analysis 
methodology. These comments referred to the assumptions concerning the 
heat exchanger materials, costs for weatherized gas furnaces, the 
installation costs for gas-fired boilers, and other topics. In response 
to these comments, DOE made several changes to the data applied in its 
approach. Table IV.1 summarizes the data DOE used to derive the inputs 
to the engineering analysis for the NOPR and for today's final rule.

     Table IV.1.--Approach and Data Used to Derive the Inputs to the
                          Engineering Analysis
------------------------------------------------------------------------
            Input                 NOPR analysis      Final rule analysis
------------------------------------------------------------------------
Equipment Cost..............  For the most widely   Same method, using
                               used efficiency       average materials
                               levels, DOE used a    prices for the
                               cost model of         period 2002 to
                               manufacturing costs   2006. For
                               created by tear-      weatherized gas
                               down analysis. For    furnaces, assumed
                               the remaining         stainless steel
                               levels, DOE used      heat exchangers for
                               design-option         82-percent and 83-
                               analysis.             percent AFUE
                               Incorporated          products. For gas
                               industry feedback     boilers, assumed
                               from GAMA and         those fractions of
                               individual            boilers requiring
                               manufacturers to      Category III
                               generate              venting at various
                               manufacturing-cost-   AFUE levels will
                               versus-efficiency     also incorporate a
                               curves. Updated       draft inducer into
                               manufacturing-cost-   the product design.
                               versus-efficiency
                               curves.
Markups.....................  Derived markups from  No change.
                               an analysis of
                               corporate financial
                               data. Multiplied
                               manufacturing costs
                               by manufacturer,
                               distributor,
                               contractor, and
                               builder markups,
                               and sales tax, as
                               appropriate, to get
                               equipment price.
Installation Cost...........  Used a distribution   No change.
                               of weighted-average
                               installation costs
                               from the
                               Installation Model.
                               Installation
                               configurations are
                               weight-averaged by
                               frequency of
                               occurrence in the
                               field, and vary by
                               installation size.
                               The Installation
                               Model is based on a
                               commonly used cost-
                               estimation method
                               and is comparable
                               to available, known
                               data. New
                               assumption that all
                               81-percent AFUE gas
                               furnaces use double-
                               wall vents.
Maintenance Costs...........  Used Gas Research     Same sources for
                               Institute data for    maintenance costs.
                               gas furnaces and      Included repair
                               boilers, water        costs for gas-fired
                               heater rulemaking     equipment as a
                               survey results for    function of the
                               oil-fired             equipment price.
                               equipment, and data
                               from the 1993
                               rulemaking for
                               mobile home
                               furnaces. Accounted
                               for higher
                               maintenance
                               frequency for
                               modulating design
                               option, and used
                               same costs for
                               condensing and non-
                               condensing
                               equipment.
Annual Energy Use *.........  Calculated energy     No change.
                               use using the DOE
                               test procedure.
Energy Prices *.............  Annual Energy         AEO2007 forecast
                               Outlook (AEO)2005     prices for
                               forecast prices for   effective date of
                               effective date of     2015.
                               2015.
------------------------------------------------------------------------
* Inputs required to calculate rebuttable-presumption payback period.
  For more details on the rebuttable-presumption payback period, refer
  to sections III.D.2 and VI.C.1.a.

    GAMA, Lennox, Carrier, and Trane submitted comments urging DOE to 
revise the costs assumed in the engineering analysis for manufacturing 
high-efficiency weatherized gas furnaces. Specifically, GAMA commented 
that DOE underestimated the cost of attaining 83-percent AFUE. GAMA 
stated that a significant amount of condensation can build up upon 
start-up of a weatherized gas furnace having an 83-percent AFUE and 
that the unit must run for a considerable amount of time before the 
heat exchanger completely dries out. As a result, GAMA commented that 
manufacturers would need to design their weatherized gas furnaces at 
83-percent AFUE to handle condensate. (GAMA, No. 116 at pp. 5-8) \4\ 
Lennox pointed out that it is physically possible to design a furnace 
that will deliver 83-percent AFUE in a laboratory test, but that the 
variability of outdoor conditions will pose condensation problems at 
efficiency levels above 80-percent AFUE. At 83-percent AFUE, which 
translates to a steady-state efficiency of 85.5 percent or higher, 
Lennox stated that it may also be necessary to provide a condensate 
disposal system for the furnace. (Public Meeting Transcript, No. 107.6 
at p. 107)
    Carrier commented that weatherized gas furnaces are installed 
outdoors, and moisture in the flue gas cannot be allowed to condense, 
regardless of the corrosion-resistance of the material used. (Carrier, 
No. 118 at pp. 1-2) Carrier stated its belief that a means to dispose 
of the condensate in cold outdoor ambient conditions must be developed 
to provide for drainage or freeze protection. It further stated that, 
when cold outside air and safety factors are taken into account, the 
maximum design efficiency to avoid significant potential for continuous 
condensation on a complete model family is 80-percent AFUE. (Carrier, 
No. 118 at pp. 1-2)
    Trane commented that 83-percent AFUE for weatherized gas furnaces 
would result in a steady-state efficiency of 85-86 percent, which would 
necessitate different, more costly materials than the materials DOE 
assumed in the October 2006 proposed rule. (Public Meeting Transcript, 
No. 107.6 at p. 107)
    GAMA and Lennox specifically commented on DOE's incremental

[[Page 65142]]

manufacturing cost increase of $30 for an 83-percent AFUE weatherized 
gas furnace over the baseline. GAMA pointed out that DOE's NOPR 
analysis used increased heat exchanger area as the only design option 
needed to achieve 83-percent AFUE. GAMA stated that, based on 
manufacturer experience, the proposed 83-percent AFUE standard for 
weatherized gas furnaces would require the use of stainless steel for 
internal components such as the heat exchanger, collector box, and 
internal flue, due to the expected internal condensation. GAMA also 
commented that AL 29-4C is the most probable type of stainless steel 
that manufacturers would use, which would significantly increase the 
cost of the product. GAMA also stated its opinion that weatherized gas 
furnaces at 83-percent AFUE would also require a condensate disposal 
system that could function in below-freezing temperatures. GAMA 
surveyed its members and provided estimates of the incremental 
manufacturing costs to reach 83-percent AFUE over the baseline, which 
range from $78 to $320. (GAMA, No. 116 at pp. 5-8)
    Lennox also disagreed with DOE's analysis, which indicated that an 
83-percent AFUE weatherized gas furnace with characteristics 
satisfactory for the expected use can be manufactured and sold to the 
consumer for an additional $30. Lennox stated that GAMA's average 
incremental manufacturing cost estimate of $223 over the baseline for 
an 83-percent AFUE weatherized gas furnace, for the addition of 
stainless steel heat exchangers and condensate removal components, 
results in an increase in consumer cost of approximately $500. (Lennox, 
No. 130 at pp. 2-3)
    DOE reviewed all the statements from GAMA, Lennox, Carrier, and 
Trane and revised its engineering analysis accordingly. Specifically, 
DOE revised its cost assumptions for the heat exchangers in 82-percent- 
and 83-percent-AFUE weatherized gas furnaces. In the October 2006 
proposed rule, DOE assumed that these heat exchangers were made of 
aluminized steel--the same material used for the higher volume non-
weatherized gas furnaces, which would allow manufacturers to take 
advantage of high-volume material pricing. Thus, the incremental costs 
of increasing from the baseline to an 83-percent AFUE were only $30. 
(See NOPR TSD Chapter 6.) In light of the comments, DOE revised the 
cost model to include heat exchangers made of AL 29-4C at these two 
AFUE levels and included the cost of a condensate disposal system that 
could function at below-freezing temperatures. DOE specifically 
reviewed the costs that GAMA submitted and, based on information 
obtained during manufacturing interviews and internal engineering 
expertise, DOE believes GAMA's estimates are within the range of 
possible manufacturing costs for these systems (see Chapter 6 of the 
final rule TSD). Therefore, DOE conducted analysis at both the low and 
high points of the cost range (i.e., $78 and $320, respectively). DOE 
examined both the low and high scenarios using the LCC spreadsheet and 
presented the results in Chapter 8 of the final rule TSD.
    Ultimately, DOE used the low-cost scenario as the basis for the 
analysis because DOE's estimates corresponded more closely to the low-
range cost that GAMA provided (i.e., $78). However, DOE recognizes that 
some installations may incur a higher cost. DOE believes inclusion of 
stainless steel heat exchanger and condensate removal component costs 
takes into account manufacturer longevity and safety concerns 
associated with near-condensing weatherized gas furnaces.
    DOE did not include the cost of stainless steel heat exchangers for 
weatherized gas furnaces at 81-percent AFUE. Given the presence of 81-
percent AFUE products in the marketplace that do not contain stainless 
steel heat exchangers, DOE assumed that only units with an AFUE of 82 
percent and 83 percent would need stainless steel heat exchangers to 
prevent corrosion.
    Burnham and GAMA commented that DOE neglected to consider the costs 
associated with adding induced-draft technology to a Category III gas-
fired boiler at 84-percent AFUE and above. Burnham further stated that 
some 84-percent AFUE boilers are natural draft with draft hoods, vent 
dampers, and electronic ignition, and some are induced draft with 
either Category I or Category III venting, depending on the 
manufacturer's requirements in a given installation. In its comments on 
the October 2006 proposed rule, Burnham pointed out that DOE estimated 
that 24 percent of installations at 84-percent AFUE would be Category 
III, and this percentage represents a partial transformation of the 
baseline boiler market. However, although DOE included the costs 
associated with Category III special gas vents, Burnham noted that all 
Category III installations are induced-draft boilers, and that DOE 
neglected the costs associated with adding induced-draft technology to 
the boiler. (Public Meeting Transcript, No. 107.6 at p. 42; Burnham, 
No. 99 at p. 4) Burnham also predicted that, to avoid the venting risks 
associated with installing natural draft 84-percent AFUE boilers in 
every installation, all boiler installations at 84-percent AFUE will 
become induced-draft, and most or all of those will require Category 
III venting. Burnham urged DOE to apply the costs associated with 
adding induced-draft technology to all Category III installations. 
(Public Meeting Transcript, No. 107.6 at p. 42; Burnham, No. 99 at p. 
4)
    GAMA commented that additional concerns regarding venting safety 
would require manufacturers to reconsider the application and 
installation guidelines if the minimum standards for gas-fired boilers 
were set at 84-percent AFUE. GAMA noted that atmospheric units cost 
less and meet certain customers' requirements, but they can only be 
installed in a subset of locations due to venting limitations. At 84-
percent AFUE, GAMA commented these gas-fired boilers would be operating 
at near-condensing conditions, which would lead to potential venting 
corrosion. GAMA stated that it has been told by its members that 
concern for safety and reliability would force manufacturers to specify 
AL 29-4C stainless steel chimney liners and vent connectors in all 
Category I installations. GAMA estimated the cost of this change to 
100-percent stainless steel venting to be roughly $700 to $900. GAMA 
stated that manufacturers desiring an additional margin of safety might 
eliminate natural draft products from their product lines completely in 
favor of induced-draft units. (GAMA, No. 116 at p. 11)
    GAMA stated that safety concerns would force manufacturers to 
specify Category II or III stainless steel venting systems in some gas 
boiler installations. GAMA stated its belief that DOE's projections for 
venting consequences of 86-percent and 85-percent-AFUE gas-fired 
boilers would actually occur at 84-percent and 83-percent AFUE. GAMA 
further commented that 84-percent-AFUE gas-fired boilers would require 
100 percent stainless steel venting. GAMA surveyed its boiler 
manufacturer members regarding the additional cost of incorporating 
induced-draft technology and provided DOE with the resulting cost 
estimates, ranging between $108.75 and $145.75. (GAMA, No. 116 at pp. 
10-11)
    In response to the comments from Burnham and GAMA, DOE revised the 
cost model for gas-fired boilers and added the cost of induced-draft 
technology to the fraction of Category III boilers assumed for each 
AFUE level. In other words, DOE applied the cost of induced-draft 
technology to the 24 percent of installations requiring Category III 
venting at 84-percent AFUE. DOE agrees with stakeholders that

[[Page 65143]]

induced-draft technology is likely required for the population of 
installations using Category III venting. DOE specifically reviewed the 
costs that GAMA submitted and, based on information obtained during 
manufacturing interviews and internal engineering expertise, DOE 
believes GAMA's estimates are within the range of possible 
manufacturing costs for these systems. Therefore, DOE conducted 
analyses at both the low and high points of the cost range (i.e., 
$108.75 and $145.75, respectively). DOE used the low and high scenarios 
as inputs to the LCC model; the results are presented in Chapter 6 of 
the final rule TSD.
    DOE did not revise its estimates of the fraction of installations 
requiring Category III venting and induced-draft technology from that 
relied upon in October 2006 proposed rule. In other words, DOE did not 
apply the added cost to the entire population of gas-fired boilers at 
84-percent AFUE and above, as both Burnham and GAMA suggested. DOE 
relied on the survey data of actual installations requiring Category 
III venting that GAMA originally supplied. GAMA and Burnham did not 
provide any additional survey data to validate their claim that all 
boilers at 84-percent AFUE and above would require Category III venting 
and induced-draft technology. DOE acknowledges Burnham's and GAMA's 
assertions of safety concerns relating to venting systems failure at 
84-percent AFUE and above, and considered this issue for a standard 
level for gas-fired boilers.

B. Life-Cycle Cost and Payback Period Analyses

    The purpose of the LCC and PBP analyses was to evaluate the 
economic impacts of possible new furnace and boiler energy conservation 
standards on individual consumers. The LCC is the total consumer 
expense over the life of the furnace or boiler, including purchase and 
installation expense and operating costs (energy expenditures and 
maintenance costs). The PBP is the number of years it would take for 
the consumer to recover the increased costs of a higher-efficiency 
product through energy savings. As discussed in the NOPR, the LCC and 
PBP analyses calculated furnace and boiler energy consumption under 
field conditions for a representative sample of housing units. 71 FR 
59219-59220. To compute LCCs, DOE discounted future operating costs to 
the time of purchase and summed them over the lifetime of the furnace 
or boiler. DOE measured the change in LCC and the change in PBP 
associated with a given efficiency level relative to a base case 
forecast of equipment efficiency. The base case forecast reflects the 
market in the absence of amended mandatory energy conservation 
standards.
    As part of the LCC and PBP analyses, DOE developed data that it 
used to establish equipment prices, installation costs, annual 
household energy consumption, marginal natural gas and electricity 
prices, maintenance and repair costs, equipment lifetime, and discount 
rates. Chapter 8 of the TSD contains detailed discussion of the 
methodology followed for the LCC and PBP analyses.
    In response to the publication of the proposed rule, DOE received 
several comments on the LCC and PBP methodology. In response to these 
comments, DOE made several changes in its approach. Table IV.2 
summarizes the approaches and data DOE used to derive the inputs to the 
LCC and PBP calculations for the NOPR, and the changes it made for 
today's final rule. Discussion of the inputs and the changes follows in 
the sections below.

  Table IV.2.--Summary of Inputs and Key Assumptions Used in the Life-
                 Cycle Cost and Payback Period Analyses
------------------------------------------------------------------------
           Inputs                 NOPR analysis      Final rule analysis
------------------------------------------------------------------------
                        Affecting Installed Costs
------------------------------------------------------------------------
Equipment Price.............  Derived by            Same method, using
                               multiplying           average materials
                               manufacturer cost     prices for the
                               by manufacturer,      period 2002-2006.
                               distributor,          For weatherized gas
                               contractor, and       furnaces, assumed
                               builder markups and   stainless steel
                               sales tax, as         heat exchanger for
                               appropriate.          82% and 83% AFUE.
                                                     For gas boilers,
                                                     assumed that
                                                     furnaces that
                                                     require Category
                                                     III venting
                                                     incorporate a draft
                                                     inducer.
Installation Cost...........  Used a distribution   No change.
                               of weighted-average
                               installation costs
                               from the
                               Installation Model.
                               Weight-averaged
                               installation
                               configuration by
                               frequency of
                               occurrence in the
                               field.
------------------------------------------------------------------------
                        Affecting Operating Costs
------------------------------------------------------------------------
Maintenance and Repair Costs  Used Gas Research     Same sources for
                               Institute data for    maintenance costs.
                               gas furnaces and      Included repair
                               boilers, water        costs for gas-fired
                               heater rulemaking     equipment.
                               survey results for
                               oil-fired
                               equipment, and data
                               from the 1993
                               rulemaking for
                               mobile home
                               furnaces.
                               Supplemented with
                               information that
                               indicates higher
                               maintenance
                               frequency for
                               modulating
                               equipment, and
                               identical
                               maintenance costs
                               for condensing and
                               non-condensing
                               equipment. Did not
                               include repair
                               costs.
Annual Heating Load.........  Calculated heating    No change.
                               loads using 2001
                               Residential Energy
                               Consumption Survey
                               (RECS) data
                               (cooling loads not
                               considered).
                               Incorporated
                               adjustment to
                               account for change
                               in new home size
                               and shell
                               performance between
                               2001 and 2015.
Annual Energy Use...........  Used 26 virtual       No change.
                               models that
                               captured the range
                               of common furnace
                               sizes. Energy
                               calculations used
                               annual heating load
                               for each housing
                               unit based on RECS
                               2001.

[[Page 65144]]

 
Energy Prices...............  Calculated 2001       Same method, using
                               average and           AEO2007 forecasts
                               marginal energy       to estimate future
                               prices for each       average and
                               sample house. Used    marginal energy
                               AEO2005 forecasts     prices.
                               to estimate future
                               average and
                               marginal energy
                               prices.
------------------------------------------------------------------------
        Affecting Present Value of Annual Operating Cost Savings
------------------------------------------------------------------------
Lifetime....................  Used 2001.58(9)       No change.
                               Appliance Magazine
                               survey results,
                               except for boilers,
                               for which DOE
                               developed new
                               estimates based on
                               a literature review.
Discount Rate...............  Applied data from     Same sources, using
                               1998 and 2001         additional data
                               Survey of Consumer    from 1989, 1992,
                               Finances and other    1995, and 2004
                               sources to estimate   Survey of Consumer
                               a discount rate for   Finances. (See TSD,
                               each house.           Chapter 8).
------------------------------------------------------------------------

    The changes in the approach for estimating the equipment prices are 
discussed in Chapter 6 of the TSD.
    In the October 2006 proposed rule analysis, DOE assumed that 
maintenance costs would not vary with the AFUE level of furnaces and 
boilers. Several stakeholders commented that DOE should apply a higher 
maintenance cost for condensing gas furnaces than for non-condensing 
equipment. (Carrier, No. 100 at p. 3; Public Meeting Transcript, No. 
107.6 at p. 57; GAMA, No. 116 at p. 5; Rheem, No. 138 at p. 3)
    In its analysis for today's final rule, DOE included repair costs 
for gas furnaces and boilers. The repair cost is the cost to the 
consumer for replacing or repairing components that have failed in the 
space-conditioning equipment, while the maintenance cost is a regular 
expense. Since representative data on repair costs were not available, 
DOE used the same approach as in the 2001 Central Air Conditioner 
standards rulemaking (67 FR 36383) and assumed that annualized repair 
costs are equal to one-half the equipment price divided by the average 
lifetime. Since the equipment cost is higher for equipment that 
contains more sophisticated mechanical or electronic components, such 
as condensing furnaces, DOE applied a higher repair cost for these 
products. Since all gas equipment components are fully covered by a 
manufacturer warranty for five years, DOE assumed that consumers would 
not incur any repair costs in the first five years. As a conservative 
assumption, DOE applied the annualized cost beginning in the sixth year 
and ending in the last year of service for the equipment.
    For oil-fired furnaces and boilers, DOE included an annual 
maintenance contract, which typically includes repair of failed 
components. Therefore, DOE did not include a separate repair cost for 
these products.
    DOE defines the equipment lifetime as the age at which a furnace or 
boiler is retired from service. The American Council for an Energy-
Efficient Economy (ACEEE) commented that DOE's equipment lifetime 
estimate for oil-fired furnaces should be 18 years rather than 15 
years, which DOE assumed in the NOPR analysis. (ACEEE, No. 120 at p. 
10) DOE based the assumed lifetime of 15 years from Appliance Magazine, 
which reports data provided by furnace manufacturers. ACEEE did not 
provide data to substantiate the 18-year lifetime. Thus, DOE did not 
change its assumption about equipment lifetime for oil-fired furnaces.
    As it has done in previous rulemakings, DOE derived the discount 
rates for the LCC analysis from estimates of the finance cost to 
purchase a furnace or boiler. The Natural Resources Defense Council 
(NRDC) commented that DOE's decision to use consumer-borrowing rates as 
a basis for consumer discount rates in the LCC analysis is flawed. 
(NRDC, No. 63 at p. 12) Consistent with financial theory, the finance 
cost of raising funds to purchase appliances can be interpreted as: (1) 
The financial cost of any debt incurred to purchase products, or (2) 
the opportunity cost of equity used to purchase equipment. DOE used 
both of these interpretations in estimating discount rates for the LCC 
analysis for furnaces and boilers. For the NOPR analysis, DOE used data 
from the Federal Reserve Board's 1998 and 2001 Survey of Consumer 
Finances (SCF). 71 FR 59233. For the analysis in today's final rule, 
DOE expanded the data to include the 1989, 1992, 1995, and 2004 SCF. 
These additional data on consumer finances represent a wide range of 
economic conditions affecting consumer behavior. Thus, DOE decided to 
continue to use consumer-borrowing rates as a suitable basis for 
consumer discount rates in the LCC analysis.

C. National Impact Analysis

    The purpose of the national impact analysis (NIA) was to evaluate 
the energy and economic impacts of possible new furnace and boiler 
energy conservation standards at the national level. As discussed in 
the NOPR, DOE calculated the NES and the NPV of total customer costs 
and savings expected to result from new standards at specific 
efficiency levels. 71 FR 59224-59228. Table IV.3 summarizes the 
approach and data DOE used to derive the inputs to the shipments 
analysis for the NOPR, and the changes it made in the analysis for 
final rule. In the analysis for the NOPR, DOE analyzed fuel switching 
only in the new construction market. For this final rule, DOE also 
analyzed fuel switching in the replacement market, using the same 
method as for the new construction market. This change results in a 
larger drop in shipments of non-weatherized gas furnaces at higher 
efficiency levels than reported in the NOPR. As part of the MIA, 
furnace manufacturers provided a shipments scenario (i.e., the 
manufacturers' shipments scenario) that shows significantly greater 
decreases in gas furnace shipments with a standard at condensing levels 
(see section E, below).

[[Page 65145]]



     Table IV.3.--Approach and Data Used To Derive the Inputs to the
                           Shipments Analysis
------------------------------------------------------------------------
            Input                 NOPR analysis      Final rule analysis
------------------------------------------------------------------------
Shipments...................  Calculated total      Same approach as
                               shipments for         NOPR, with
                               replacements based    projection of new
                               on past shipments     housing updated to
                               and retirement        AEO2007.
                               function, and for
                               new homes based on
                               projection of new
                               housing from
                               (AEO)2005. The
                               projected market
                               shares in new homes
                               were a function of
                               relative heating
                               equipment prices.
                               Based conversions-
                               upon-replacement on
                               historic survey
                               data. Model used
                               two additional
                               shipment categories
                               to calibrate with
                               GAMA data. Included
                               shipments for
                               mobile home furnace
                               replacement.
Replacements in Kind........  Replacement of worn-  Same approach as
                               out heating           NOPR, except for
                               equipment with unit   non-weatherized gas
                               of same equipment     furnaces, for which
                               type (i.e., furnace   DOE modeled fuel
                               or boiler) and same   switching in the
                               fuel. Applied a       replacement market
                               replacement           according to energy
                               probability           and equipment price
                               distribution based    trends, using same
                               on equipment          method and data as
                               lifetime.             for installations
                                                     in new housing.
Conversions.................  Replacement of worn-  No change.
                               out heating
                               equipment with
                               equipment using a
                               different fuel.
                               Based on utility
                               surveys conducted
                               by American Gas
                               Association that
                               report the numbers
                               of households that
                               converted from oil
                               or electricity to
                               natural gas space
                               heating.
Installations in New Housing  Installation of       No change.
                               heating equipment
                               into new single-
                               family, multi-
                               family, or mobile
                               homes according to
                               construction rates
                               and equipment type
                               market shares. Used
                               housing completions
                               according to AEO
                               forecast and
                               modeled fuel market
                               shares according to
                               energy and
                               equipment price
                               trends.
Gas Furnace Early             Early replacement of  No change.
 Replacement.                  non-condensing
                               furnaces with more-
                               efficient
                               condensing
                               furnaces. Model
                               calibrated to GAMA
                               data, which show a
                               large increase in
                               condensing furnace
                               shipments in
                               response to rising
                               natural gas prices.
Conversion from Non-Central   Conversion from non-  No change.
 Gas Heating to Central        central gas heating
 Heating with a Gas Furnace.   to central heating
                               with a gas furnace.
                               Model used
                               Residential Energy
                               Consumption Survey
                               data, which show a
                               large increase
                               between 1993 and
                               2001 in homes with
                               central gas heating
                               that were built
                               before 1990.
------------------------------------------------------------------------

    In its assessment of fuel switching from gas to electric heating, 
DOE estimated that heat pumps and electric resistance furnaces would 
have the same market shares. The Appliance Standards Awareness Project 
(ASAP), GAMA, Nordyne, the Northeast Power Coordinating Council, and 
Rheem commented that market shares might change over the analysis 
period. (Public Meeting Transcript, No. 107.6 at p. 96; Public Meeting 
Transcript, No. 107.6 at p. 96; public Meeting Transcript, No. 107.6 at 
p. 98; Public Meeting Transcript, No. 107.6 at p. 97; Rheem, No. 101 at 
p. 2) DOE reviewed the projections of heating equipment market shares 
in EIA's AEO2007, and found that EIA's projections show little change 
in the national market shares of heat pumps and electric resistance 
furnaces until 2030. Thus, DOE believes that its assumption of constant 
market shares is reasonable.
    Table IV.4 summarizes the approach and data DOE used to derive the 
inputs to the NES and NPV analyses for the NOPR, and the changes it 
made in the analyses for this final rule.

Table IV.4.--Approach and Data Used To Derive the Inputs to the National
              Energy Savings and Net Present Value Analyses
------------------------------------------------------------------------
            Input                 NOPR analysis      Final rule analysis
------------------------------------------------------------------------
Shipments...................  Annual shipments      See Table IV.3.
                               from shipments
                               model.
Date Products Must Meet       2015................  No change.
 Standard.
Annual Unit Energy            Annual weighted-      No change.
 Consumption (UEC).            average values were
                               a function of
                               efficiency level.
                               Base case UEC for
                               non-weatherized gas
                               furnaces accounted
                               for projected share
                               of condensing
                               furnaces.
Installed Cost per Unit.....  Annual weighted-      No change.
                               average values were
                               a function of
                               efficiency level
                               (established from
                               the LCC analysis).
Maintenance Cost per Unit...  Annual weighted-      No change.
                               average values were
                               a function of
                               efficiency level
                               (established from
                               the LCC analysis).
Energy Prices...............  AEO2005 forecasts to  AEO2007 forecasts to
                               2025 and              2030 and
                               extrapolation         extrapolation
                               beyond 2025.          beyond 2030.
Energy Site-to-Source         Generated by DOE/     No change.
 Conversion.                   EIA's NEMS includes
                               electric
                               generation,
                               transmission, and
                               distribution losses.

[[Page 65146]]

 
Discount Rate...............  7-percent and 3-      No change.
                               percent real.
Present Year................  Future expenses       Future expenses
                               discounted to year    discounted to year
                               2004.                 2006.
------------------------------------------------------------------------

    The NPV calculation for the October 2006 proposed rule used 
marginal energy prices to value energy savings for natural gas and 
electricity, and average energy prices to value energy savings for fuel 
oil and liquefied petroleum gas (LPG) from AEO2005. 71 FR 59227. ACEEE 
commented that DOE should use the AEO2007 price forecast in its 
analysis for the final rule. (ACEEE, No. 120 at p. 10) DOE used energy 
price projections from AEO2007 (which ends in 2030) in its analysis for 
the final rule. For the years after 2030, DOE applied the average 
annual growth rate in 2020-2030, except for heating oil prices, for 
which DOE applied the average annual growth rate in 2015-2030. The 
above approach follows guidance provided by EIA.\5\
---------------------------------------------------------------------------

    \5\ Memorandum about Energy Price Projections for Federal LCC 
Analysis, Attachment 2, EIA/DOE, 2/10/2006.
---------------------------------------------------------------------------

    To discount future impacts, DOE used discount rates of both seven 
percent and three percent, in accordance with the Office of Management 
and Budget (OMB)'s guidelines contained in Circular A-4, Regulatory 
Analysis, September 17, 2003. (OMB Circular A-4, Sec.  E (September 17, 
2003)). NRDC commented that DOE should rely exclusively on a three-
percent discount rate in making determinations about the economic value 
of prospective standards, in part because investments in energy 
efficiency reduce overall societal risk. (NRDC, No. 131 at p. 16) As 
mentioned above, OMB recommends using discount rates of both seven 
percent and three percent for regulatory analysis. DOE concluded that 
both seven percent and three percent are appropriate to use because 
they reflect a broad range of discount rates at a national level.

D. Consumer Subgroup Analysis

    In analyzing the potential consumer impact of new or amended 
standards, DOE evaluates the impact on identifiable groups of consumers 
(i.e., subgroups) that may be disproportionately affected by a new 
national standard level. For this rulemaking, DOE analyzed the 
potential effect of standards on households with low income levels and 
households occupied by seniors, two consumer subgroups of interest. 
(See TSD, Chapter 11.)
    For today's final rule, DOE also analyzed the impact of standards 
for non-weatherized gas furnaces on households located in northern and 
southern regions. DOE defined the southern region as comprising states 
with an average of less than 5,000 heating degree-days (HDD) \6\, and 
the northern region as comprising states with an average of more than 
5,000 HDD. DOE also performed an analysis using a definition of the 
southern region as comprising states with an average of less than 6,000 
HDD and a definition of the northern region as comprising states with 
an average of more than 6,000 HDD. See TSD Chapter 11 for a listing of 
the states included in each grouping.
---------------------------------------------------------------------------

    \6\ HDDs are quantitative indices demonstrated to reflect demand 
for energy to heat residential buildings. These indices are derived 
from daily temperature observations.
---------------------------------------------------------------------------

E. Manufacturer Impact Analysis

    In determining whether a standard for a covered product is 
economically justified, the Secretary of Energy is required to consider 
in part ``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)) EPCA also requires for an assessment of the impact 
of any lessening of competition as determined by the Attorney General. 
(42 U.S.C. 6295(o)(2)(B)(i)(V)) DOE performed the MIA to estimate the 
financial impact of efficiency standards on the residential furnace and 
boiler industry and to assess the impact of such standards on 
employment and manufacturing capacity, and published the results in the 
October 2006 NOPR. 71 FR 59228-59232, 59240-59245. For this final rule, 
DOE did not introduce changes to the methodology as described in the 
October 2006 NOPR, but did update the manufacturers' shipments scenario 
based on the updated NIA results. (See TSD, Chapter 12.)

F. Employment Impact Analysis

    The Process Rule includes employment impacts among the factors DOE 
considers in selecting a proposed standard. Employment impacts include 
direct and indirect impacts. Direct employment impacts are any changes 
in the number of employees for furnace and boiler manufacturers. 
Indirect impacts are those changes of employment in the larger economy 
that occur due to the shift in expenditures and capital investment that 
is caused by the purchase and operation of more efficient furnace and 
boiler equipment. The MIA addresses direct employment impacts; the 
employment impact analysis describes indirect impacts.
    For today's final rule, DOE estimated indirect national employment 
impacts using a model of the U.S. economy called IMBUILD (impact of 
building energy efficiency programs). DOE's Office of Building 
Technology, State, and Community Programs (now the Building 
Technologies Program) developed the model. IMBUILD is a personal-
computer-based, economic-analysis model that characterizes the 
relationships among 35 sectors of the economy using national input/
output structural matrices, and data from the U.S. Bureau of Labor 
Statistics (BLS). The IMBUILD model estimates changes in employment, 
industry output, and wage income in the overall economy of the United 
States resulting from changes in expenditures in the various sectors of 
the economy.
    In comments on the proposed rule, NRDC stated that DOE failed to 
consider the economic value of increased employment at TSL 4. (NRDC, 
No. 131 at p. 12) DOE takes employment impacts into account without 
quantifying the net economic value of such impacts. While both the 
IMBUILD input/output model and the direct use of BLS employment data 
suggest the proposed furnace and boiler standards could increase the 
net demand for labor in the economy, DOE believes the gains would most 
likely be very small relative to total national employment. DOE, 
therefore, concludes only that the furnace and boiler standards are 
likely to produce employment benefits that are sufficient to offset any 
adverse impacts on employment in the furnace and boiler or energy 
industries. (See TSD, Chapter 14.)

G. Regulatory Impact Analysis

    The regulatory impact analysis provides a description and analysis 
of

[[Page 65147]]

the feasible policy alternatives to this regulation and a quantitative 
comparison of the impacts of the alternatives. In this analysis, DOE 
also investigated the impact of standards on northern and southern 
regions. DOE used the NIA spreadsheet, which uses inputs generated by 
LCC spreadsheets constructed to separately analyze the northern and 
southern regions, to generate the results presented in the NOPR for 
both regions. DOE performed the national LCC analysis on the basis of 
the nine Census divisions, plus four large States (New York, 
California, Texas, and Florida), rather than on a State-by-State basis. 
Commenting on the NOPR, ASAP stated that the results for the northern 
region, defined as areas with more than 6,000 HDDs, appear to be 
incorrect. (Public Meeting Transcript, No. 107.6 at p. 154)
    For the NOPR analysis of the potential impacts of regional 
standards, DOE based the distribution of furnace efficiency in the base 
case on data that GAMA provided on the percentage of condensing furnace 
sales in each State. DOE combined the State-level GAMA data into Census 
divisions, and then assumed condensing gas furnaces were installed in 
households solely on the basis of climate (i.e., high HDDs). This 
assumption led to the comparatively small energy savings estimated to 
result from a condensing-level standard for the northern region.
    Upon review, DOE determined that the assumption that the existing 
(and future) market for condensing furnaces (absent a standard) was 
likely to be concentrated in the coldest states was not an accurate 
reflection of the State-level data that GAMA provided. By using 
distribution assumptions that are based on the State-level data, DOE 
subsequently developed an alternative analysis, which it now believes 
is a better indicator of the energy savings likely to result in 
specified regions from various standard levels. In the revised 
analysis, a much lower percentage (45 percent) of households in the 
States with HDDs of 6,000 or higher is assigned condensing furnaces. 
This share is half of the comparable 90 percent value in the NOPR 
analysis and is close to the 48 percent share of condensing furnaces 
for the 20 States with an average HDD of 6,000 or higher in the GAMA 
shipments data. See Appendix V of the TSD for further discussion.

H. Utility Impact Analysis

    The utility impact analysis estimates the change in the forecasted 
power generation capacity for the Nation. This analysis separately 
determines the changes in energy supply and demand as a result of 
natural gas, fuel oil, LPG, or electricity residential consumption 
savings due to the standard. DOE calculated these changes using the 
NEMS-BT computer model.\7\ The analysis output provides a forecast for 
the needed generation capacities at each TSL. The estimated net benefit 
of the standard is the difference between the generation capacities 
forecasted by NEMS-BT and the AEO2006 Reference Case.
---------------------------------------------------------------------------

    \7\ NEMS, which is available in the public domain, is a large, 
multi-sectoral, partial-equilibrium model of the U.S. energy sector. 
The EIA uses NEMS to produce its AEO--a widely recognized baseline 
energy forecast for the U.S. DOE used a variant known as NEMS-BT.
---------------------------------------------------------------------------

    DOE obtained the energy savings inputs associated with electricity 
and natural gas consumption savings from the NES analysis. These inputs 
reflect the effects of efficiency improvement on furnace energy 
consumption, including both fuel (natural gas, fuel oil, and LPG) and 
electricity. The inputs also reflect the impacts associated with the 
market shift from natural gas heating to electric heating projected to 
occur at TSLs that result in an increased installed cost for gas 
furnaces. See Chapter 13 of the TSD for further discussion.
    The American Gas Association (AGA) stated that DOE's approach for 
analyzing utility impacts, and in particular its evaluation of market 
shifts from gas to electric heating equipment, does not adequately 
account for impacts on gas utilities. (AGA, No. 137 at p. 6) 
Historically, DOE's approach for the utility impact analysis has been 
to only evaluate the impact of market shifts associated with standards 
on utility energy sales. DOE has not been able to characterize what the 
impacts of standards would be on gas utilities, other than the 
financial impacts as measured by sales. Thus, DOE was not able to 
perform further evaluation of the gas utility impacts for the furnace 
and boiler standards rulemaking.

I. Environmental Analysis

    Under 42 U.S.C. 6295(o)(2)(B)(i)(VI), DOE estimated the 
environmental impacts of the standards established in today's final 
rule. DOE estimated direct emissions impacts at the household level as 
well as impacts on power plant emissions. While DOE regulating furnace 
and boiler electricity use, the electricity consumption of these 
appliances affects power plant emissions. As discussed in the NOPR, DOE 
calculated the reduction in power plant emissions of CO2 and 
NOX using the NEMS-BT computer model.\8\ DOE does not report 
estimated reduction in power plant emissions of SO2 because 
any such reduction resulting from an efficiency standard would not 
affect the overall level of SO2 emissions in the U.S.\9\
---------------------------------------------------------------------------

    \8\ Power sector NOX emissions impacts will be 
affected by the Clean Air Interstate Rule (CAIR), which the U.S. 
Environmental Protection Agency (EPA) issued on March 10, 2005. CAIR 
will permanently cap emissions of NOX in 28 eastern 
States and the District of Columbia. 70 FR 25162 (May 12, 2005). As 
with SO2 emissions, a cap on NOX emissions 
means that equipment efficiency standards may result in no physical 
effects on these emissions. When NOX emissions are 
subject to emissions caps, DOE's emissions reduction estimate 
corresponds to incremental changes in emissions allowance credits in 
cap-and-trade emissions markets rather than physical emissions 
reductions. Therefore, while the emissions cap may not result in 
physical emissions reduction from the proposed standards, it does 
produce an environment-related economic benefit in the form of 
emissions allowance credits.
    \9\ The Clean Air Act Amendments of 1990 set an SO2 
emissions cap on all power generation. The attainment of this target 
is flexible among generators and is enforced through the use of 
emissions allowances and tradable permits. Accurate simulation of 
SO2 trading implies that the effect of efficiency 
standards on physical emissions will be near zero because emissions 
will always be at or near the allowed ceiling. However, although 
there may not be an environmental benefit from reduced 
SO2 emissions from electricity savings, there still may 
be an economic benefit. Electricity savings can decrease the need to 
purchase or produce SO2 emissions allowance credits, 
which decreases the costs of complying with regulatory caps on 
emissions.
---------------------------------------------------------------------------

    The operation of most furnaces and boilers requires use of fossil 
fuels, and results in household emissions of CO2, 
NOX, and SO2 at the sites where appliances are 
used. NEMS-BT provides no means for estimating such household 
emissions, so DOE calculated separate estimates of the effect of the 
standards on household emissions of CO2, NOX, and 
SO2, based on emissions factors derived from the literature. 
DOE reports household SO2 emissions savings, because the 
SO2 emissions caps do not apply to household emissions.
    The operation of furnaces and boilers requires use of fossil fuels, 
and results in household emissions of CO2, NOX, 
and SO2 at the sites where appliances are used. NEMS-BT 
provides no means for estimating such household emissions, so DOE 
calculated separate estimates of the effect of the standards on 
household emissions of CO2, NOX, and 
SO2, based on emissions factors derived from the literature. 
DOE reports household SO2 emissions savings, because 
SO2 emissions caps do not apply to household emissions.
    NRDC and Dow Chemical commented that, although DOE had quantified 
emissions savings, it failed to put an economic value on them. (NRDC, 
No.

[[Page 65148]]

131 at p. 13; NRDC and Dow Chemical, No. 132 at p. 9) In keeping with 
the guidance of the 1996 Process Rule, DOE's analysis of the 
environmental impacts of standards included estimated impacts on 
emission of carbon and relevant criteria pollutants. 61 FR 36983 (July 
15, 1996). For the purpose of promulgating new standard levels for 
furnaces and boilers, DOE considers the potential changes to physical 
emission resulting from new standards. The detailed environmental 
analysis is part of the TSD.

V. Discussion of Other Comments

    Since DOE opened the docket for this rulemaking, it received more 
than 150 comments from a diverse set of parties, including 
manufacturers and their representatives, States, energy conservation 
advocates, consumer advocates, and utilities. Comments regarding the 
analytic methodologies DOE used are discussed in section IV of this 
preamble. Other comments addressed the burdens and benefits associated 
with new energy efficiency standards, the information DOE used in its 
analyses, results of and inferences drawn from the analyses, impacts of 
standards, the merits of the different TSLs DOE considered, other 
issues affecting adoption of standards for residential furnaces and 
boilers, and the DOE rulemaking process. DOE addressed the comments 
raised regarding the ANOPR in the October 2006 NOPR. Comments received 
on the October 2006 proposed rule are addressed below.

A. Information and Assumptions Used in Analyses

    As a basis for analysis for this final rule, DOE has continued to 
use the types of data as explained in the October 2006 NOPR. 71 FR 
59213-59234. For the final rule, DOE revised some inputs and expanded 
some of the data sources in response to stakeholder comments on the 
October 2006 proposed rule. These revisions are discussed below.
1. Engineering Analysis
    In the October 2006 proposed rule analyses, DOE used a five-year 
average of materials prices from years 2000 through 2004. 71 FR 59216. 
For the final rule, DOE revised the material price averages used in the 
cost model to include material price data from 2005 and 2006. For this 
rulemaking, DOE believes a five-year span is the longest span that 
would still provide appropriate weighting to current prices experienced 
in the market. DOE calculated a new five-year average materials price 
for cold rolled steel, aluminized steel, galvanized steel, painted cold 
rolled steel, and stainless steel. DOE used the BLS Producer Price 
Indices (PPIs) for cold rolled steel and stainless steel spanning from 
2002 to 2006 to calculate new averages, which incorporate the changes 
within each material industry and inflation. Finally, DOE adjusted all 
averages to 2006$ using the gross-domestic-product implicit-price 
deflator.
    As was the case for the October 2006 proposed rule, DOE created two 
scenarios for the material-price-sensitivity analysis: a low-bound and 
a high-bound scenario. DOE calculated the low-bound scenario by finding 
the year ranging between 2002 and 2006 with the lowest cost of cold 
rolled steel, which was 2002. DOE then used the annual prices for all 
other materials in 2002 and applied a 15-percent reduction to each of 
the raw material costs. Likewise, DOE calculated the high-bound 
scenario using the annual average price for each of the raw materials 
from 2006, when prices of raw materials were uncharacteristically high. 
DOE expressed both the low-bound scenario and the high-bound scenario 
in 2006$. DOE evaluated the results of the material-price-sensitivity 
analysis, using all three material-cost scenarios, in the engineering 
analysis and then used them as inputs for the LCC analysis. The results 
for the material-price-sensitivity analysis are presented in Appendix Z 
of the final rule TSD.
    GAMA commented that DOE's analysis for non-weatherized gas furnaces 
appears to be in error, especially as related to the 81-percent AFUE 
option, for several reasons. First, while DOE estimated in the October 
2006 NOPR that eight percent of non-weatherized gas furnace 
installations would require Category III venting at 81-percent AFUE, 
GAMA stated that this number is too low. Second, DOE concluded in the 
October 2006 NOPR that a significant fraction of the replacement 
installations will require a Type B vent connector, but GAMA pointed 
out that DOE only added the additional costs for these connectors to 40 
percent of the installations. Lastly, GAMA stated its belief that the 
number of horizontal venting configurations assumed in the October 2006 
NOPR analyses is too low.
    Regarding GAMA's first point, DOE used the approach described by 
GAMA in the ANOPR analysis. For the NOPR, DOE determined that non-
weatherized gas furnaces at 81-percent AFUE when applied in vertical 
venting installations fall into Category I. To GAMA's second point, DOE 
accounted for the cost of Type-B double-wall vent connectors for all 
replacement installations. GAMA appears to be referring to the fraction 
of existing models that already have a double walled vent connector in 
DOE's Installation Model, which was approximately 40 percent as 
discussed in the NOPR. To GAMA's last point regarding the number of 
horizontal venting configurations, DOE's October 2006 proposed rule 
analysis based the number of non-condensing horizontal vent 
configurations on the Gas Research Institute's venting survey (see NOPR 
TSD Chapter 6). DOE then verified this percentage in consultations with 
installers. Consequently, DOE did not revise the number of horizontal 
venting configurations for today's final rule.
2. Life-Cycle Cost Analysis
    The base case forecasts equipment that consumers are expected to 
purchase in the absence of new standards. In the NOPR analysis, DOE 
assigned gas furnaces to sampled housing units in the base case to 
reflect the trend toward a higher market share for condensing furnaces, 
as shown in shipments data through 2003, which GAMA provided. DOE also 
based the projected market share of condensing furnaces in 2015 on an 
evaluation of the correlation between condensing furnace market share 
and the natural gas price for the 1990-2003 period, projected natural 
gas prices from AEO2005, and market factors that could sustain the 
condensing furnace market share even with a lower gas price. The 
projected condensing furnace market share for 2015 was 35.6 percent. 
Therefore, for the LCC analysis base case, DOE assigned condensing 
furnaces to 35.6 percent of the sampled housing units with non-
weatherized gas furnaces.
    GAMA stated the market share for condensing furnaces might continue 
to grow because of growth in the replacement market, and thus DOE's 
assumption may be low. (Public Meeting Transcript, No. 107.6 at p. 105) 
Lennox commented that the market share for condensing furnaces should 
consider the replacement market. (Public Meeting Transcript, No. 107.6 
at p. 105) Rheem disagreed with DOE's estimate of market share for 
condensing furnaces, and stated that the share will be higher if 
historic trends continue. (Rheem, No. 138 at p. 5) ACEEE stated that 
the market share for condensing furnaces will depend on the price of 
natural gas and that DOE's assumptions should be internally consistent 
and reflect the price projections it uses. (Public Meeting Transcript, 
No. 107.6 at p. 102) DOE found that the empirical,

[[Page 65149]]

national-level data strongly support a correlation between condensing 
furnace market share and the natural gas price. The natural gas 
projections DOE used in this rulemaking (AEO2007) forecast that the 
national-average natural gas price in the period to 2015 does not 
exceed the recent level of prices. The condensing furnace market share 
in 2005 was approximately 35 percent. DOE determined that its 
assumption of a market share of 35.6 percent in 2015 reflects the 
empirical correlation.
3. Manufacturer Impact Analysis
    NRDC stated that DOE's assessment of the impact of TSL 4 on 
manufacturers is flawed because a decline in sales of furnaces 
associated with TSL 4 would result in increased sales of heat pumps, 
many of which are sold by the furnace manufacturers. (NRDC, No. 131 at 
p. 14) Pacific Gas and Electric (PG&E) also commented that DOE's 
analysis overstates the deleterious effect of TSL 4 on INPV. PG&E 
commented that experience with other standards has shown that the costs 
and competitiveness difficulties presented by improved energy 
efficiency standards are less burdensome in implementation than 
initially projected. (PG&E, No. 129 at p. 1)
    While some larger manufacturers of furnaces and boilers sell both 
heat pumps and furnaces, DOE is tasked with assessing the impacts of 
increased efficiency standards on furnace and boiler manufacturers, not 
on the heating, ventilation, and air-conditioning industry as a whole. 
In the furnace and air conditioner businesses, some manufacturers 
produce both types of products, switching primarily to furnaces in the 
winter and air conditioners in the summer. Heat pumps, on the other 
hand, tend to be manufactured in other manufacturing facilities. For 
the large production volume shifts found for TSL 4, DOE determined that 
the furnace divisions of large companies likely will be impacted as 
analyzed in the October 2006 proposed rule MIA. The capital (equipment) 
and labor (location) in a manufacturing facility cannot easily be 
transformed from manufacturing furnaces to manufacturing heat pumps. 
For small companies, which focus on fewer types of product lines, the 
material costs are less interchangeable. DOE also notes that, under TSL 
4, other options--such as electric furnaces--become a choice for 
consumers. In light of these uncertainties, DOE determined that its MIA 
captures the potential range of impacts at TSL 4 on furnace 
manufacturers.
    NRDC commented that, in determining industry value, DOE should not 
give equal weight to scenarios of product sales created by DOE and 
those provided by manufacturers. (NRDC, No. 131 at pp. 14-15) DOE 
looked at a range of impacts for each of the six product classes of 
furnaces and boilers and presented this entire range of results in the 
October 2006 NOPR. In doing so, DOE used both the NES shipments 
projections and the manufacturers' shipments scenario to assess the 
range of impacts on the industry value at each TSL. Although this final 
rule presents results using both shipments scenarios for the MIA, DOE 
only used the NES shipments scenario to assess the impacts on the 
Nation in the NIA.
    NRDC stated its belief that DOE's assumptions regarding markups 
biased the INPV result. (NRDC, No. 131 at pp. 14-15) NRDC also 
questioned DOE's assumption that the industry cost structure will not 
decrease. NRDC stated that manufacturers could distinguish value-added 
products in the mid-90s AFUE range based on modulating capacity and 
continue to collect higher markups on above-standard products. NRDC 
further stated that, as manufacturers gain more experience with 90-
percent AFUE products, the price of the products will come down; it 
requested that the cost structure in DOE's analysis account for this. 
(NRDC, No. 131 at pp. 14-15)
    With regard to markups, DOE considered up to four distinct markup 
scenarios to bound the range of expected product prices following 
standards. For each product class, DOE used the markup scenarios that 
characterize the markup conditions described by manufacturers, and that 
reflect the type of market responses manufacturers expect as a result 
of standards. Details of the markup scenarios by product class were 
presented in the October 2006 NOPR. 71 FR 59240. DOE has determined 
that these scenarios capture the range of variability within the 
furnace and boiler industry.
    As to NRDC's point on the industry cost structure, for condensing, 
non-weatherized gas furnaces that are already made in high volumes in 
an industry with decades of manufacturer experience, the potential cost 
of innovation prompted by higher standards is limited to that of an 
already mature industry. DOE recognizes that manufacturers' continuous 
improvement programs will continue to reduce future costs, with or 
without increased efficiency standards. DOE believes these programs are 
not a result of energy conservation standard rulemakings and are not 
appropriate to consider when estimating the impacts of energy 
conservation standards. DOE estimated the manufacturing cost of a 
condensing furnace to be $422.85 in the engineering analysis and DOE 
recognizes these costs could be reduced in a standards case scenario. 
Therefore, the MIA analysis excludes this effect, and shows a range of 
impacts on the industry results from an amended standard.
    Rheem stated that DOE's assessment of impacts on manufacturers is 
inadequate with respect to domestic manufacturing employment, capacity, 
plant closures, and loss of capital investment. Rheem commented that 
domestic manufacturing of refrigerators has declined substantially as a 
result of three energy standards and the phaseout of 
chlorofluorocarbons (CFCs) and hydrochlorofluorocarbons (HCFCs), since 
manufacturers have chosen to invest outside the USA in new facilities 
rather than upgrade their domestic facilities. Rheem summarized by 
stating that the cumulative burden of environmental and efficiency 
regulations has been a factor in the consolidation of the domestic 
appliance industry. (Rheem, No. 138 at p. 3)
    DOE notes that the two most significant regulatory actions 
affecting the furnace and boiler industries are more stringent Federal 
energy conservation standards for residential and commercial air 
conditioners, and the EPA-mandated phaseout of hydrofluorocarbon (HFC) 
and HCFC refrigerants. DOE is aware that manufacturers are working to 
redesign all of the product lines of residential air conditioners and 
have allocated most of their capital resources for redesigning and 
retooling their production lines to meet the new minimum efficiency 
standard and refrigerant phaseout. DOE quantified the anticipated level 
of investment needed to meet each of these two regulatory actions along 
with others facing the industry in Chapter 12 of the NOPR TSD. 71 FR 
59244-29245.
    In the October 2006 NOPR, DOE specifically sought comment on 
information that would allow it to monetize changes in warranty costs 
resulting from the installation of products at near-condensing levels. 
71 FR 59258. GAMA stated that DOE should consider changes in warranty 
costs related to gas-fired boilers at 84-percent AFUE. However, GAMA 
also stated that it is inappropriate with respect to anti-trust 
considerations for manufacturers to discuss information related to 
monetizing changes in warranty costs. (Public Meeting Transcript, No. 
107.6 at pp. 108-109)

[[Page 65150]]

Rheem stated that it is inappropriate to provide DOE with information 
that attempts to monetize the changes in warranty costs resulting from 
installation of products at near-condensing levels. Rheem further 
commented that these products should not be considered as an option due 
to their unacceptable safety and reliability. (Rheem, No. 101 at p. 2; 
Public Meeting Transcript, No. 107.6 at p. 82; Rheem, No. 138 at p. 6) 
Trane stated that it is inappropriate for manufacturers to discuss 
information related to monetizing changes in warranty costs for 
products at near-condensing levels. (Public Meeting Transcript, No. 
107.6 at p. 108)
    In light of the comments, DOE was not able to monetize the changes 
in warranty costs resulting from the installation of products at near-
condensing levels. However, as discussed in section VI of this 
preamble, safety concerns for standards at near-condensing levels were 
a greater factor in considering such standards, which were eventually 
rejected.

B. Other Issues

1. Joint Stakeholder Recommendation for Boilers
    On July 14, 2006, GAMA and ACEEE, on behalf of 28 residential 
boiler manufacturers and four energy efficiency organizations, 
submitted a joint recommendation for new national standards for 
residential boilers that would consist of a performance requirement 
(minimum AFUE levels) and design requirements. Table V.1 exhibits the 
performance and design requirements in the joint stakeholder 
recommendation for boilers.

Table V.1.--Joint Stakeholder Recommendation for Boilers Performance and
                           Design Requirements
------------------------------------------------------------------------
                                                               Joint
                                                            stakeholder
        Product class                                     recommendation
                                                            for boilers
------------------------------------------------------------------------
Gas Boiler...................    Water  82%.............  No Standing
                                                          Pilot *
                                                          Temperature
                                                          Reset **.
                                 Steam  80..............  No Standing
                                                          Pilot *.
------------------------------------------------------------------------
Oil-Fired Boiler.............    Water  84..............  Temperature
                                                           Reset.
                                 Steam  82..............   None.
------------------------------------------------------------------------
* The manufacturer shall not equip gas boilers with standing pilots.
** The manufacturer shall equip hot water heating boilers with automatic
  means for adjusting the temperature of the water supplied by the
  boiler such that an incremental change in inferred heat load produces
  a corresponding incremental change in supply water temperature. When
  there is no inferred heat load, such automatic means shall adjust the
  supply water temperature to no more than 140 deg. F. The boiler shall
  be operable only when the automatic means is installed. These
  requirements should be implemented five (5) years after publication of
  the Final Rule.

    For gas-fired boilers, the recommendation calls for a ban on 
standing pilots. For gas-fired water boilers only, it suggests two 
design requirements: In addition to the ban on standing pilots, the 
recommendation also requires a ``temperature reset'' feature that 
automatically adjusts the boiler output according to the outdoor 
ambient air temperature. For oil-fired water boilers, the 
recommendation contains the design requirement for the same 
``temperature reset'' feature.
    In the October 2006 NOPR, DOE determined that the recommended 
standards in the joint stakeholder recommendation are beyond the scope 
of its statutory authority. 71 FR 59209. In comments on the October 
2006 proposed rule, all of the parties to the joint recommendation 
urged DOE to reconsider and adopt the standards in the recommendation. 
(Public Meeting Transcript, No. 107.6 at p. 58; ACEEE, No. 120 at p. 4; 
Public Meeting Transcript, No. 107.6 at pp. 69, 142; Burnham, No. 99 at 
pp. 1-3; Public Meeting Transcript, No. 107.6 at p. 38; GAMA, No. 102 
at p. 2; GAMA, No. 116 at p. 2; Public Meeting Transcript, No. 107.6 at 
p. 28; Lochinvar, No. 106 at p. 2; Public Meeting Transcript, No. 107.6 
at p. 74)
    Despite these comments, DOE cannot promulgate design requirements 
for unspecified products: The plain language of section 321(6)(B) of 
EPCA limits design requirements to only those products for which design 
requirements are specified in the statute. (42 U.S.C. 6291(6)(b)) 
Furnaces are not one of those specified products. DOE legally cannot 
establish a design requirement for furnaces.
    Congress's establishment of a design requirement on an unspecified 
product, i.e., a ceiling fan, does not lift the bar on DOE placing 
design requirements on unspecified products as suggest by ACEEE. 
(ACEEE, No. 120 at p. 4) While Congress may have amended provisions of 
EPCA to require design requirements in conjunction with performances 
requirements, it did not amend section 321(6)(B) of EPCA, 42 U.S.C. 
6291(6)(B), which remains applicable to furnaces and boilers.
    Burnham suggested that section 325(r) of EPCA (42 U.S.C. 6295(r)) 
grants DOE the authority to add design requirements covered by 
performance standards under certain conditions. (Burnham, No. 99 at pp. 
1-3) Section 325(r) states in relevant part:

[FEDREG][VOL]*[/VOL][NO]*[/NO][DATE]*[/
DATE][RULES][RULE][PREAMB][AGENCY]*[/AGENCY][SUBJECT]*[/SUBJECT][/
    PREAMB][SUPLINF][HED]*[/HED]Any new or amended energy 
conservation standard prescribed under this section * * * may 
include any requirement which the Secretary determines is necessary 
to assure that each covered product to which such standard applies 
meets the required level of energy efficiency * * * specified in 
such a standard.

(42 U.S.C. 6295(r)) Despite Burnham's suggestion, the plain language of 
section 325(r) grants authority to establish requirements necessary to 
assure compliance with a required level of energy efficiency. It does 
not grant authority to establish requirements that affect the required 
level of energy efficiency, e.g., design requirements. Further, if the 
language were such that DOE could interpret the language as broadly as 
Burnham suggested, the distinction made in section 321(6)(A) and (B) 
between products for which design standards can be established and 
those for which such standards cannot, would be rendered meaningless.
 2. Regional Standards and Waiver From Federal Preemption for States
    In the October 2006 NOPR, DOE stated that the establishment of 
regional standards or design requirements for residential furnaces and 
boilers is beyond the scope of DOE's statutory authority. 71 FR 59209; 
see also, 69 FR 45420, 45425 (July 29, 2004). DOE received numerous 
comments advocating the adoption of separate standards for northern and 
southern regions. (ACEEE, No. 120 at p. 3; Public Meeting Transcript, 
No. 107.6 at p. 59; Public Meeting Transcript, No. 107.6 at p. 54; 
Public Meeting Transcript, No. 107.6 at p. 68; Office of the Ohio 
Consumers' Counsel (OCC), No. 125 at p. 9; National Consumer Law Center 
(NCLC), No. 108 at p. 2; Belmont Housing Trust, Inc., No. 127 at p. 8; 
City

[[Page 65151]]

of Boston, No. 115 at p. 1; Consumer Group, No. 121 at pp. 9-10; 
Northeast Division of Energy Resources (NEDER), No. 123 at p. 4; New 
Hampshire Office of Consumer Advocate (NHOCA), No. 134 at p. 1; State 
of Michigan (SOM), No. 114 at p. 1; State of New Hampshire Office of 
Energy and Planning, No. 139 at p. 1; NRDC, No. 131 at p. 18; Public 
Meeting Transcript, No. 107.6 at p. 116; NRDC, No. 132 at p. 10; Ohio 
Department of Development (ODD), No. 124 at p. 1; Western Electricity 
Coordinating Council (WECC), No. 113 at p. 1) DOE received comments 
that DOE incorrectly determined that it cannot implement regional 
standards. Conversely, DOE also received comments opposing the adoption 
of separate standards for northern and southern regions. (Air 
Conditioning Contractors of America, No. 135 at p. 1; Air-Conditioning 
and Refrigeration Institute (ARI), No. 133 at p. 1; National Propane 
Gas Association (NPGA), No. 142 at p. 3)
    DOE recognizes the potential benefit that could be achieved through 
regional standards. As discussed in the October 2006 NOPR, DOE analyzed 
a regional regulatory scheme based on heating degree-days. 71 FR 59253. 
This scheme contemplated efficiency standards for non-weatherized gas 
furnaces only, depending on the region of the country.
    DOE modeled the policy of regional performance standards by 
aggregating States into two broad geographic regions based on climate 
(i.e., based on heating degree-days). DOE selected the efficiency level 
for this scheme based on maximizing consumer NPV. Under this analysis 
the TSL projected to yield the maximum consumer NPV at a seven-percent 
discount rate for the cold-climates (i.e., >=5,000 heating degree days 
and >=6,000 heating degree days) was the proposed TSL 4, with the 
proposed TSL 2 for the warm climates. The projected results for both 
regions, the proposed TSL 2 (South) and the proposed TSL 4 (North), 
combined were estimated to yield higher energy savings than the than 
the proposed TSL 2 standard levels. The projected results for both 
regions combined were estimated to yield greater national NPVs (at 7% 
discount rate) than the proposed levels of TSL 2, applied as national 
standards. A more detailed discussion of this analysis is provided in 
the October 2006 NOPR and in the February 9, 2007 Notice of Data 
Availability (72 FR 6184).
    However, DOE has determined that it does not have authority under 
EPCA to establish regional standards. The language of EPCA demonstrates 
that the Secretary's authority to establish and amend standards for 
furnaces and boilers is limited to establishing and amending a single 
national standard for a particular type of furnace and boiler, as 
opposed to a national standard plus one or more regional standards. 
Section 325(a)(2) of EPCA authorizes the ``Secretary to prescribe 
amended or new energy conservation standards for each type (or class) 
of covered product.'' (42 U.S.C. 6295(a)(2)) In defining an energy 
conservation standard, EPCA employs ``a performance standard'' or ``a 
design requirement'' in the singular. (42 U.S.C. 6291(6)) This use of 
the singular indicates that the Secretary generally may only set one 
energy conservation standard for a product.
    Further, were the language of EPCA not clear as to DOE's authority 
for setting national standards, interpreting section 325 as generally 
prohibiting the establishment of regional standards is reasonable, 
particularly when section 325 is read in total. Consumer Groups stated 
that, under 1 U.S.C. section 1, the use of the singular tense includes 
consideration of the plural tense unless context indicates otherwise. 
(No. 121 at p. 10) However, the context of EPCA indicates that the 
reliance on the singular tense in the definition of energy conservation 
standard for the purpose of the Secretary establishing amended 
standards for furnaces and boilers is proper.
    EPCA specifies that the Secretary can only set multiple standards 
for a product if that product has more than one major function:

    The Secretary may set more than 1 energy conservation standard 
for products that serve more than 1 major function by setting 1 
energy conservation standard for each major function.

(42 U.S.C. 6295(o)(5)). If DOE could adopt multiple performance 
standards or design requirements under a single conservation standard, 
as suggested by commenters, EPCA's limit of one conservation standard 
per major product function would be meaningless.

    Additional commenters stated that because Congress established in 
certain instances multiple requirements on a single product, section 
321(6) should be read more broadly to define a ``conservation 
standard.'' \10\ However, while Congress has enacted multiple 
performance and design standards for covered products, the Secretary's 
authority to do so is limited under section 325(o)(5) as stated above.
---------------------------------------------------------------------------

    \10\ Section 325(ff) of EPCA establishes multiple requirements 
for ceiling fans. (42 U.S.C. 6295(ff)).
---------------------------------------------------------------------------

    Moreover, the Senate Report language accompanying the amendments to 
EPCA under the National Appliance Energy Conservation Act (NAECA; Pub. 
L. 95-619) indicates that the Secretary is to set national standards. 
``The purpose of [NAECA] is to reduce the Nation's consumption of 
energy and to reduce the regulatory and economic burdens on the 
appliance manufacturing industry through the establishment of national 
energy conservation standards for major residential appliances.'' S. 
Rep. No. 100-6, at 2 (1987) (Emphasis added).
    The two basic provisions of the NAECA amendments to EPCA concern 
the establishment of Federal standards and the preemption of State 
standards. Id. Although NAECA goes on to state that States have the 
ability to petition DOE for a waiver from the national standard, NAECA 
warns that achieving such a waiver is ``difficult,'' again indicating a 
preference for a national standard. Id.
    As a policy matter, national standards established under EPCA 
enable DOE to address the Nation's need to conserve energy while 
reducing the regulatory burden on manufacturers. The establishment of 
regional standards would be overly complicated due to the structure of 
DOE's enforcement authority as established in EPCA. Under EPCA, DOE's 
enforcement authority generally applies to products as manufactured. 
(42 U.S.C. 6302 and 6303) Under current authority, enforcement of 
Federal regional standards would be difficult given that a furnace or 
boiler could be manufactured for compliance in one region, yet be 
easily transported to a region in which it would be noncompliant. The 
potential interaction of various standards between regions, the 
subsequent potential for products to be shipped and installed in 
regions in which they are not compliant, and the resulting impact on 
energy savings would have to be considered when establishing standards. 
DOE recognizes the potential for regional standards to increase the net 
benefits of energy conservation programs under certain circumstances. 
However, establishing regional standards in the context of DOE's 
current enforcement authority would make it more difficult to achieve 
the goals of improved energy conservation and reduced regulatory 
burden.
    While DOE is prohibited from promulgating regional standards under 
the authority in section 325 of EPCA, States can apply for waivers from 
Federal preemption under section 327 of EPCA. (42 U.S.C. 6297) In the 
October 2006 NOPR, DOE discussed the necessary conditions in order for 
it to grant States a waiver from Federal

[[Page 65152]]

preemption of State energy efficiency standards for appliances subject 
to Federal regulation, as established in 10 CFR 430.41(a)(1). 71 FR 
59209.
    DOE received several comments with regard to the waiver from 
Federal preemption discussion in the NOPR. Some commenters expressed 
concern that DOE was encouraging States to apply for waivers. (Public 
Meeting Transcript, No. 107.6 at p. 111; AGA, No. 103 at p. 5; 
Association of Home Appliance Manufacturers (AHAM), No. 141 at pp. 1-2; 
ARI, No. 133 at pp. 2-3; GAMA, No. 102 at pp. 2-3; GAMA, No. 116 at p. 
2; Public Meeting Transcript, No. 107.6 at p. 30; Lennox, No. 130 at p. 
3; NPGA, No. 142 at pp. 3-4; Rheem, No. 138 at p. 3; Public Meeting 
Transcript, No. 107.6 at p. 113; GAMA, No. 153 at p. 1) Other 
commenters supported DOE giving States guidance with regard to waivers 
from Federal preemption. (Public Meeting Transcript, No. 107.6 at p. 
112; ACEEE, No. 120 at pp. 2-3; Public Meeting Transcript, No. 107.6 at 
p. 70; Consumer Groups, No. 121 at p. 2; Public Meeting Transcript, No. 
107.6 at p. 116; NEDER, No. 123 at p. 3; NRDC, No. 131 at p. 18; NRDC 
and Dow Chemical, No. 132 at p. 10; New York State Energy Research and 
Development Authority (NYSERDA), No. 117 at p. 2; OCC, No. 125 at p. 9; 
SOM, No. 114 at p. 2; WECC, No. 113 at p. 2)
    While the October 2006 NOPR provided a discussion of the necessary 
elements of a petition for waiver from Federal preemption, DOE 
recognizes the practical limitations of the process as well as the 
potential burden resulting from multiple standards. For example, DOE 
suggested that a State may include information regarding the 
efficiencies of product shipments to that State. 71 FR 59210. One 
commenter raised concern that such information may be considered 
proprietary or confidential by the manufacturers or trade 
organizations. (NCLC, No. 108 at p. 19) However, DOE notes that 
inclusion of such information was a suggestion of what a State should 
consider including if available, and that such information is not 
required for a State waiver petition.
    NCLC expressed concern that petitions filed by more than one State, 
especially if filed by contiguous or nearby States with similar HDDs, 
could be deemed in per se violation of the requirement that a petition 
must demonstrate an ``unusual and compelling State or local energy 
interest.'' (NCLC, No. 108 at p. 19) DOE provided guidance on this 
matter in the denial of the California petition for waiver from Federal 
preemption for residential clothes washer standards. 71 FR 78157 
(December 28, 2006). In that notice, DOE stated that whether a State 
has an ``unusual and compelling State interest,'' DOE will evaluate 
that interest in terms of national averages. 71 FR 58161.
    DOE has estimated that the potential energy savings likely under a 
scenario in which all northern States with 5000 HDD or 6000 HDD 
obtained waivers at a level of 90-percent AFUE is 2 quads and 1.45 
quads, respectively. While DOE does not have authority to issue 
regional standards, EPCA does provide an avenue for DOE to consider 
this savings through the waiver provision in section 327(d). As stated 
in the October 2006 NOPR, and as required under section 327(d), DOE 
would be required to evaluate the benefit of such savings from State 
level standards against the potential effects on manufacturers and 
consumer. 71 FR 59210; 42 U.S.C. 6297(d)(3) and (4).
3. Effective Date for New Standards
    In the October 2006 NOPR, DOE proposed approximately an eight-year 
implementation period for the proposed standards; i.e., DOE proposed an 
effective date in 2015. 71 FR 59223. DOE noted that EPCA had directed 
DOE to publish a final rule to determine whether to amend standards for 
furnaces and boilers by January 1, 1994, and that any amendment shall 
apply to products manufactured on or after January 1, 2002. (42 U.S.C. 
6295(f)(3)(B)) DOE applied the eight-year implementation period of the 
EPCA schedule to determine the effective date of the proposed standard. 
71 FR 59233.
    NRDC stated that the eight-year implementation period is not 
required by law and that the earlier central air conditioner efficiency 
standard rulemaking established an implementation period shorter than 
that provided in the statute. (NRDC, No. 131 at p. 13; Public Meeting 
Transcript, No. 107.6 at pp. 54, 150) ACEEE stated that large amounts 
of equipment already meet the proposed 2015 standards and are already 
available on the market. (ACEEE, No. 107 at pp. 61, 149) For furnaces, 
ACEEE suggested that DOE rely on a five-year implementation period 
associated with the second round of rulemaking for furnaces and boilers 
specified in section 325 of EPCA. (42 U.S.C. 6295(f)(3)(C)) With regard 
to boilers, ACEEE requested that DOE use the dates in the ACEEE-GAMA 
joint recommendation, given that manufacturers have agreed on those 
timeframes. (ACEEE, No. 120 at p. 9) A number of other stakeholders 
also stated that DOE should make the effective date earlier than 2015. 
(Public Meeting Transcript, No. 107.6 at p. 69; North American 
Insulation Manufacturers Association, No. 136 at p. 2; NEDER, No. 123 
at p. 6; NHOCA, No. 134 at p. 1; NRDC and Dow Chemical, No. 132 at p. 
9; NYSERDA, No. 117 at p. 2; OCC, No. 125 at p. 9; ODD, No. 124 at p. 
1; State of New Hampshire Office of Energy and Planning (OEP), No. 139 
at p. 1; South Coast Air Quality Management District, No. 128 at p. 1; 
SOM, No. 114 at p. 2; WECC, No. 113 at p. 2; National Multi Housing 
Council, No. 148 at p. 2) Other stakeholders stated that DOE should 
maintain the effective date given in the NOPR. (Public Meeting 
Transcript, No. 107.6 at p. 150; GAMA, No. 116 at p. 4; GAMA, No. 153 
at p. 1; Rheem, No. 156 at p. 2; Midwest Energy Efficiency Alliance, 
No. 150 at p. 1)
    The standards adopted in today's final rule are applicable to 
products manufactured on or after the date 8 years following 
publication of this notice of final rulemaking. DOE is maintaining an 
eight-year implementation period consistent with EPCA. NRDC is correct 
that DOE established standards with implementation periods 
substantially shorter than that specified in EPCA for central air 
conditioners. However, in that instance all of the participants in the 
rulemaking, including representatives of the manufacturers who would 
have to comply with the standards and who had expressed a view about 
the matter, had agreed that five years (the period provided in the 
statute) of lead time was not needed for central air conditioner 
manufacturers to come into compliance with the standards. 69 FR 50997, 
50998 (Aug. 17, 2004); 67 FR 36368, 36394 (May 23, 2002). There is no 
similar consensus among furnace and boiler manufacturers.
    In today's final rule, DOE is providing a lead time consistent with 
that provided under EPCA. Today's final rule has a compliance date that 
begins on the date 8 years following publication of this notice.
4. Consumer Benefits From Reduction in Natural Gas Prices Associated 
With a Standard of 90-Percent AFUE or Higher for Non-Weatherized Gas 
Furnaces
    In the October 2006 NOPR, DOE stated that it believed it would be 
unable to consider the potential impact of energy efficiency standards 
on natural gas prices because DOE believed that the analytical methods 
necessary to estimate such an impact were not available. 71 FR 59210. 
DOE

[[Page 65153]]

acknowledged a then recent study \11\ that considered the potential 
impacts of furnace and boiler standards on natural gas prices, but 
stated that DOE did not find that the study provided any conclusive 
evidence. 71 FR 59280.
---------------------------------------------------------------------------

    \11\ Wiser, R., M. Bolinger, M. St. Clair. Easing the Natural 
Gas Crisis: Reducing Natural Gas Prices through Increased Deployment 
of Renewable Energy and Energy Efficiency. Lawrence Berkley National 
Laboratory. January 2005. (http://eetd.lbl.gov/EA/reports/56756.pdf).
---------------------------------------------------------------------------

    NRDC and Dow Chemical challenged DOE's decision not to consider the 
potential impacts of reductions in natural gas use due to furnace and 
boiler standards with increased stringency, including the impact on 
natural gas prices. Commenters stated the Wiser study as well as an 
analysis performed by ACEEE indicate ``major influences of efficiency 
on price.'' (NRDC and DOW, No. 132 at p. 4) NRDC and Dow stated that 
such a price impact provides a substantial economic benefit that may be 
estimated using EIA's NEMS model. (NRDC and Dow, No. 132 at p. 10)
    In response to these comments, DOE undertook further review of the 
issue of the potential impact of residential furnace and boiler energy 
efficiency standards on natural gas prices. A review of the economic 
literature indicates that there is support for the idea that an impact 
will occur and that that impact would result in a reduction in overall 
natural gas prices. DOE conducted a preliminary analysis using a 
version of the 2007 NEMS-BT, modified to account for energy savings 
associated with possible standards. The preliminary analysis estimated 
that gas demand reductions resulting from a 90-percent-AFUE non-
weatherized gas furnace standard would reduce the U.S. average wellhead 
natural gas price by an average of 0.7 cents per million Btu over the 
2015-2030 forecast period and would reduce the average user price of 
gas by an average of 1.4 cents per million Btu.\12\
---------------------------------------------------------------------------

    \12\ DOE only analyzed the impact of a 90-percent AFUE standard 
because it anticipates that impacts to natural gas prices would not 
result from energy savings associated with the efficiency levels 
considered by DOE, which are below 90-percent AFUE.
---------------------------------------------------------------------------

    The projected change in the natural gas price varies among the end 
use sectors. DOE estimated that natural gas prices would decrease for 
the industrial and electric power sectors, and increase for residential 
consumers. The estimated average price changes amount to a decrease of 
0.7 cents per million Btu for the industrial sector and of 0.6 cents 
per million Btu for the electric power sector, an increase of 4.2 cents 
per million Btu for the residential sector, and no change for the 
commercial sector. The increase in the residential price occurs because 
the fixed charges (e.g., transmission infrastructure costs) are spread 
over fewer million Btu of gas sales in the standards case, thus placing 
upward pressure on the average price per million Btu.
    A projected decrease for the electric power sector would likely 
result in a small reduction in electricity prices across all sectors. 
Although the estimated reduction in average natural gas prices is 
small, the estimated economy-wide savings in natural gas expenditures 
over the 2015-2030 forecast period have an estimated net present value 
of $1.7 billion at a seven-percent discount rate.\13\
---------------------------------------------------------------------------

    \13\ The economy-wide savings over 2015-2038 (the period used to 
estimate the NPV of the national consumer benefits) equals $3.6 
billion at a seven-percent discount rate.
---------------------------------------------------------------------------

    In addition to conducting its own analysis using NEMS, DOE reviewed 
the results of: (1) Studies that used NEMS to investigate the price 
impact of reductions in natural gas demand, and (2) studies that used 
other energy-economic models to investigate the price impact of 
substantial change in natural gas demand. While the results vary 
considerably among the different studies, they generally show a price 
response similar to or larger than that shown by DOE's NEMS 
analysis.\14\
---------------------------------------------------------------------------

    \14\ The ratio of the percentage change in price to the 
percentage change in consumption is termed ``inverse price 
elasticity.'' DOE's analysis using NEMS found an average inverse 
price elasticity (IPE) over the forecast period of 0.9. Analysis of 
the results from studies using six other models (as reported by 
Stanford's Energy Modeling Forum in a 2003 report ``Natural Gas, 
Fuel Diversity and North American Energy Markets'') found a wide 
range of inverse price elasticities for change in natural gas 
consumption. Four of the models show an IPE in the range of 1.1 to 
2.1; two others show unusually high values of 6.3 and 7.3. DOE also 
reviewed studies that used the Energy and Environmental Analysis 
Corporation's model and found that this model results in higher 
inverse price elasticity (ranging from 4 to 16) than does NEMS.
---------------------------------------------------------------------------

    NRDC and Dow Chemical argued that this outcome would likely 
represent a net gain to society since most gas users would be better 
off, and producers, whose revenues and costs both would fall, would 
likely be no worse off. (NRDC and Dow, No. 132 at pp. 4-8). In the 
short run, DOE's preliminary analysis indicates that consumer savings 
from lower natural gas prices would be offset by declines in gas 
producer revenue.
    In most instances, a reduction in the price of a good would not 
represent a net economic benefit, but rather a transfer from producers 
(domestic or foreign) to consumers. In other words, there is a 
corresponding $1.7 billion reduction in revenue to natural gas 
producers.
    However, since natural gas is an exhaustible resource, price 
effects may be felt differently. There is a literature 15 16 
indicating that, for exhaustible resources, at least some portion of a 
price reduction reflects the fact that reduced demand effectively 
increases future supply and as such would represent a net economic or 
resource benefit, rather than just a transfer between parties. 
Although, it is uncertain as to the magnitude of price reduction that 
would not be a transfer benefit.
---------------------------------------------------------------------------

    \15\ Fisher, A., Resource and Environmental Economics. Cambridge 
University Press. 1981.
    \16\ Hotelling, H., The economics of exhaustible resources. 
Journal of Political Economy. Vol. 39, 137-75. 1931.
---------------------------------------------------------------------------

    Based on the discussed analysis, DOE recognizes that there is 
uncertainty about the magnitude, distribution, and timing of the costs, 
benefits, and net benefits within the economy. DOE's preliminary 
analysis indicates that the prices of natural gas to residential 
consumers would increase slightly. If there is an increase in the 
prices of natural gas for residential consumers the LCCs will be 
affected and the LCC savings would be reduced if such price changes 
were incorporated in the LCC analysis. While DOE has not been able to 
estimate these potential effects, DOE anticipates the effect will be 
small since the magnitude of the residential gas price change is small 
(but likely to vary as the natural gas savings increases).
    Similarly, DOE is uncertain of the effects of the drop in natural 
gas on producers and distributors of natural gas. While their revenues 
and costs are expected to drop, it is uncertain whether they will drop 
in proportion over time. The supply side will likely experience revenue 
loss due to both the price changes and the reduction in gas sales that 
they will experience.
    DOE considered the potential impact on natural gas prices in the 
establishment of the final standards, but because of the uncertainty of 
these impacts, and because DOE's analysis has not been subjected to 
public review, this factor had little impact on DOE's conclusion. The 
Department did seek to provide an opportunity for public review and 
comment on this analysis, which if affirmed, would have merited 
consideration in deciding whether to finalize higher efficiency levels 
in this rulemaking, but because certain parties opposed DOE's ability 
to provide opportunity for additional comment and because the U.S. 
District Court ultimately denied DOE the additional

[[Page 65154]]

time that would be required, DOE was unable to do so.
    More specifically, this rulemaking is subject to a Consent Decree 
filed with the U.S. District Court for the Southern District of New 
York, which settled the consolidated cases of State of New York, et al. 
v. Bodman, and Natural Resources Defense Council, Inc., et al., v. 
Bodman (No. 05-Civ.-7807 (JES) and No. 05-Civ.-7808 (JES), respectively 
(S.D.N.Y consolidated December 6, 2005). Under that Consent Decree, DOE 
was required to publish a final rule for amended energy conservation 
standards for residential furnaces and boilers by September 30, 2007.
    DOE had received comments on the NOPR that indicated the 
feasibility and desirability of addressing natural gas price impacts as 
a result of the standards at issue in this rulemaking. DOE wished to 
consider those impacts prior to promulgating a final rule, and 
preliminarily believed that, if confirmed, would have merited 
consideration in evaluating higher efficiency standards for the 
products covered by this rulemaking, including a 90% AFUE standard for 
non-weatherized gas furnaces. Therefore, in order to further address 
the natural gas price analysis and potentially promulgate higher 
efficiency standard levels, DOE moved the Court to modify the Consent 
Decree so that the required publication date for the final rule would 
be extended nine months, which would allow DOE to publish a 
supplemental notice of proposed rulemaking, consider the additional 
information, and potentially use it to form the basis for a final rule.
    However, certain other parties--specifically, the Gas Appliance 
Manufactures Association, the Air-Conditioning and Refrigeration 
Institute, the Association of Home Appliance Manufacturers objected to 
DOE's motion. The State of New York et al. and NRDC et al. submitted 
that DOE did not establish the requisite ``good cause'' for modifying 
the Consent Decree, but would be willing to stipulate to the DOE's 
proposed extension, provided that certain conditions are met.
    On September 25, 2007, the Court granted a stay of the September 
30th deadline to further consider DOE's motion, then on November 1, 
2007, the Court denied the motion, thus necessitating DOE's issuance of 
a final rule by November 8, 2007. As part of its basis for denying the 
motion, the Court said that the 90-percent AFUE standard for non-
weatherized gas furnaces was previously subject to public review. 
However, nowhere had DOE made available an analysis of the potential 
impact of such a standard on natural gas prices. As indicated by GAMA, 
DOE must provide a rationale for the final standard level, and that 
generally requires that the analysis underlying DOE's determination be 
subject to review and comment. See, Memorandum Filed in Support of 
Plaintiff-Intervenors' Opposition to Motion to Modify the Consent 
Decree, p. 23. Because DOE was denied additional time to promulgate a 
final rule, DOE was unable to solicit data and comment on its natural 
gas price analysis, particularly with regard to the uncertainty 
thereof. Therefore, DOE must issue a final rule by November 8, 2007, as 
ordered by the Court, based on the record available to DOE at this 
time.
5. Efficiency Standards for Electric Furnaces
    In the October 2006 NOPR, DOE did not propose energy efficiency 
standards for electric furnaces because DOE found that the resulting 
energy savings would be de minimis given the high efficiency level of 
such furnaces. AGA and NPGA objected to DOE's decision not to propose 
efficiency standards for electric furnaces, stating that these furnaces 
meet the statutory definition of 'furnaces' under current law. (AGA, 
No. 103 at p. 3; NPGA, No. 142 at p. 4) AGA disagreed with DOE's 
finding that energy savings would be de minimis. (AGA, No. 137 at p. 4)
    DOE found that the reports of furnace manufacturers to the FTC list 
the efficiency of the electric furnaces at 100-percent AFUE. 16 CFR 
Part 305, Appendix G2. As stated in the October 2006 NOPR, DOE did not 
consider electric furnaces since their efficiency approaches 100-
percent AFUE and improvements to them would also offer de minimis 
energy-savings potential. 71 FR 59214. In addition, commenters did not 
provide any additional data to substantiate their claims for electric 
furnaces. Therefore, for electric furnaces, DOE is not adopting 
standards in today's final rule.
6. Electricity Consumption of Furnace Fans
    ACEEE, NEDER, NHOCA, NYSERDA, ODD, and OEP commented that DOE 
should consider standards concerning the electricity consumption of 
furnace fans, either in the current rulemaking or in the future. 
(ACEEE, No. 120 at p. 9; Public Meeting Transcript, No. 107.6 at p. 69; 
NEDER, No. 123 at pp. 5-6; NHOCA, No. 134 at p. 1; NYSERDA, No. 117 at 
p. 1; ODD, No. 124 at p. 2; OEP, No. 139 at p. 1) As stated in the 
October 2006 NOPR, since adding electricity consumption standards to 
this rulemaking would likely cause further substantial delay in the 
rulemaking process, DOE accepted the recommendations from GAMA and ASAP 
and decided not to address furnace electricity consumption in this 
rulemaking. 71 FR 59209. DOE may consider furnace electricity 
consumption separately in a subsequent rulemaking.
7. Use of LCC Results in Selecting Standard Levels
    ACEEE commented that the average LCC results reported in the 
October 2006 NOPR show inconsequential differences among ``mainstream'' 
efficiency options. Therefore, ACEEE stated that, given ``virtually 
indistinguishable differences in LCC and the fact that all of these 
options are technically feasible,'' DOE should follow NAECA's dictate 
to select standards with the maximum savings that are technically 
feasible and economically justified. (ACEEE, No. 120 at p. 11) As 
discussed above in section III.D.1.b, the LCC is one factor DOE used in 
determining whether an energy conservation standard for residential 
furnaces and boilers is economically justified. In its consideration, 
DOE took into account the magnitude of differences in average LCC 
impacts between alternative standards, as well as the percentages of 
consumers predicted to experience a positive or negative LCC impact.
8. Definition of Trial Standard Levels
    NRDC and Dow Chemical commented that DOE should analyze two 
intermediate levels between 90-percent AFUE and 96-percent AFUE (92-
percent AFUE and 94-percent AFUE) for non-weatherized gas furnaces. 
NRDC stated that DOE has failed to determine whether these two 
additional levels may be economically justified. (NRDC and Dow 
Chemical, No. 132 at p. 8; NRDC, No. 131 at p. 10) DOE included the 92-
percent AFUE for non-weatherized gas furnaces in most of the rulemaking 
analyses. DOE did not include this efficiency level in any TSL because 
it has a lower NPV (at a three-percent discount rate) than the 90-
percent-AFUE furnace. DOE did not include 94-percent AFUE for non-
weatherized gas furnaces in any TSL because DOE's initial evaluations 
indicate the costs and benefits of this efficiency level are similar to 
those of the 96-percent-AFUE level, which DOE has initially determined 
is the max-tech option.
9. Test Procedure
    National Oilheat Research Alliance (NORA) encouraged DOE to more 
fully

[[Page 65155]]

integrate information about energy saving strategies into the DOE test 
procedure for oil-fired equipment. (Public Meeting Transcript, No. 
107.6 at p. 63) While the test procedure for furnaces and boilers is 
not under revision at this time, DOE acknowledges the comment from NORA 
and will take it into consideration when DOE revises the test 
procedure.
10. Structural Costs Associated With Condensing Furnaces
    DOE stated in the October 2006 NOPR that it recognizes that some 
consumers may experience additional costs that exceed those used in 
DOE's analysis to address necessary structural changes for installing a 
condensing furnace, primarily for the vent systems associated with non-
weatherized gas furnaces and for mobile home gas furnaces at or above 
90-percent-AFUE. 71 FR 59218. DOE noted that, for some dwellings, it 
may be necessary to make ``structural'' changes, such as the removal or 
penetration of an interior wall, exterior wall, or roof, to accommodate 
new vent systems (and combustion air intakes). While DOE did not have 
data to quantify the number of consumers that may be affected in this 
manner and the cost magnitude, it believes the possible cost impacts 
may be significant enough to warrant consideration in evaluating the 
adoption of a standard level that would require condensing technology. 
Therefore, DOE invited comments on the number of consumers that may be 
affected by structural changes for installing a condensing furnace and 
the cost magnitude of any structural changes. 71 FR 59218.
    DOE received two opposing comments on this issue. ACEEE commented 
that it does not believe there are extraordinary costs or structural 
changes needed for condensing furnaces that DOE did not account for in 
the Installation Model. (Public Meeting Transcript, No. 107.6 at p. 94) 
Conversely, Rheem acknowledged that there could be structural changes 
associated with installing a new vent system in a house, assuming it is 
physically feasible to do so in the existing house. (Rheem, No. 101 at 
p. 2; Rheem, No. 138 at p. 4) Specifically, Rheem stated that major 
building structural changes could be required when changing from a 
traditional, 80-percent-AFUE, Category I vent, which is a high-
temperature and negative-pressure metal B-vent, to a 90-percent-AFUE, 
Category IV vent, which is a low-temperature, sealed, positive-pressure 
vent made with polyvinyl chloride (PVC). In many cases, Rheem pointed 
out that installing a new condensing furnace in retrofit applications 
may be impossible, which would require the consumer to change to all-
electric heating. (Rheem, No. 101 at p. 2; Rheem, No. 138 at p. 4)
    DOE did not revise the Installation Model to include costs 
associated with the structural changes that could be required for 
installing a condensing furnace in retrofit applications. DOE accounted 
for many types of installation configurations and the costs associated 
with each of these in the Installation Model, which it derived with 
consultations and studies conducted by the Gas Research Institute. See, 
Appendix C of the TSD.

VI. Analytical Results and Conclusions

A. Trial Standard Levels

    Table VI.1 presents the TSLs analyzed for today's final rule and 
the efficiency levels within each TSL for each class of product. TSL 5 
is the max-tech level for each class of product. TSL levels 1, 2, 4, 
and 5 represent the corresponding TSL levels evaluated in the October 
2006 NOPR, but with the revisions to the analysis discussed above. TSL 
levels A and B are comprised of standard levels presented in the NOPR, 
but not in the particular grouping as present in TSL A and B. TSL A and 
B were also evaluated using the updated analysis.

                           Table VI.1.--Trial Standard Levels for Furnaces and Boilers
----------------------------------------------------------------------------------------------------------------
                                                                 Trial standard levels (AFUE, %)
                Product classes                -----------------------------------------------------------------
                                                  TSL 1      TSL A      TSL 2      TSL B      TSL 4      TSL 5
----------------------------------------------------------------------------------------------------------------
Non-weatherized gas furnaces..................         80         80         81         90         90         96
Weatherized gas furnaces......................         80         81         81         81         81         83
Mobile home gas furnaces......................         80         80         80         90         90         90
Oil-fired furnaces............................         80         82         82         82         84         85
Gas boilers...................................         82         82         84         82         84         99
Oil-fired boilers.............................         83         83         83         84         84         95
----------------------------------------------------------------------------------------------------------------

    TSL 1 represents the most common product efficiencies of the 
current market. For example, for non-weatherized gas furnaces, TSL 1 is 
80-percent AFUE, which represents the highest number of models listed 
in the 2005 GAMA directory.
    TSL 2 is the set of efficiencies for all product classes that 
yields the maximum NPV as calculated in the NES analysis, assuming a 
seven-percent discount rate and only considering non-condensing 
technologies.
    TSL A is comparable to TSL 2 except DOE modified the efficiency 
levels for non-weatherized gas furnaces and gas boilers. As discussed 
in section IV.A, DOE determined there are safety concerns related to 
potential venting failure due to condensation for non-weatherized gas 
furnaces at 81-percent AFUE and for gas boilers at 84-percent AFUE. 
Therefore, TSL A includes efficiency levels at which DOE initially 
determined that there are no safety concerns for these two products 
(i.e., 80-percent AFUE for non-weatherized gas furnaces and 82-percent 
AFUE for gas boilers).
    TSL 4 consists of efficiency levels that correspond to the maximum 
efficiency level with a positive NPV as calculated in the NES analysis, 
assuming a three-percent discount rate.
    TSL B is comparable to TSL 4 except DOE modified the efficiency 
levels for oil-fired furnaces and gas boilers. As discussed in section 
IV.A, DOE determined there are safety concerns related to potential 
venting failure due to condensation for oil furnaces at 84-percent AFUE 
and for gas boilers at 84-percent AFUE. Therefore, TSL B includes lower 
efficiency levels for these two products where there are no safety 
concerns (i.e., 82-percent AFUE for oil-fired furnaces and 82-percent 
AFUE for gas boilers). TSL B also includes the 84-percent AFUE level 
for oil-fired boilers as found in TSL 4, which is the same AFUE level 
as included in the Joint Stakeholder Recommendation for boilers 
discussed in section V.B.1, above.
    TSL 5 is the max-tech level. It represents condensing technologies 
for all classes except weatherized gas-fired

[[Page 65156]]

furnaces. For the latter class, other technologies provide the maximum 
technical efficiency.
    As presented in the October 2006 NOPR, the only difference between 
TSL 3 and 2 was the efficiency levels for non-weatherized gas furnaces 
and mobile home furnaces, 81-percent AFUE as compared to 80-percent 
AFUE, respectively. In today's notice of final rulemaking, an 81-
percent AFUE for non-weatherized gas furnaces is included in TSL 2. 
Further, an 81-percent AFUE for mobile home furnaces no longer yields 
the maximum NPV as calculated in the NES analysis, assuming a seven-
percent discount rate. As such, DOE did not evaluate the proposed 
standard TSL 3 in this notice, as it would have been redundant for non-
weatherized gas furnaces and inappropriate for mobile home furnaces.

B. Significance of Energy Savings

    To estimate the energy savings through 2038 that would result from 
new standards, DOE compared the energy consumption of residential 
furnaces and boilers under the base case (no new standards) to the 
energy consumption of these products under amended standards. Table 
VI.2 shows DOE's NES estimates for each TSL. DOE reports both 
undiscounted and discounted values of energy savings. Discounted energy 
savings represent a policy perspective wherein energy savings farther 
in the future are less significant than energy savings closer to the 
present.

         Table VI.2.--Summary of Cumulative National Energy Savings for Residential Furnaces and Boilers
                                [Energy savings for units sold from 2015 to 2038]
----------------------------------------------------------------------------------------------------------------
                                                                          National energy savings (quads)
                      Trial standard level                       -----------------------------------------------
                                                                  Not discounted   3% discounted   7% discounted
----------------------------------------------------------------------------------------------------------------
1...............................................................            0.20            0.10            0.04
A...............................................................            0.25            0.13            0.06
2...............................................................            0.69            0.35            0.15
B...............................................................            3.21            1.62            0.70
4...............................................................            3.34            1.68            0.73
5...............................................................            6.76            3.41            1.47
----------------------------------------------------------------------------------------------------------------

C. Economic Justification

1. Economic Impact on Consumers
a. Life-Cycle Costs and Payback Period
    Consumers will be affected by the standards in that they will 
experience higher purchase prices and lower operating costs. Generally, 
these impacts are best captured by changes in LCC and by the PBP. 
Therefore, DOE calculated the LCC and PBP for the standard levels 
considered in this rulemaking. DOE's LCC and PBP analyses provided six 
key outputs for each TSL, which are reported in Tables VI.3 through 
VI.8 below. The first two outputs are the LCC and the average net life-
cycle savings for a design that complies with each TSL, and the next 
three outputs are the proportion of purchases where the purchase of a 
complying unit would create a net life-cycle cost, no impact, or net 
life-cycle savings for the consumer.
    The final output is the average PBP for the consumer purchase of a 
design that complies with the TSL. The PBP is the number of years it 
would take for the consumer to recover, as a result of energy savings, 
the increased costs of higher-efficiency equipment, based on the 
operating cost savings from the first year of ownership. The PBP is an 
economic benefit-cost measure that uses benefits and costs without 
discounting. DOE's PBP analysis and its analysis under the rebuttable-
presumption test both concern the payback period for a standard. 
However, DOE based the PBP analysis for residential furnaces and 
boilers on energy consumption under conditions of actual use of each 
product by consumers, whereas, as required by EPCA, it based the 
rebuttable presumption test on consumption as determined under 
conditions prescribed by the DOE test procedure. As indicated 
previously, while DOE examined the rebuttable-presumption criteria, it 
evaluated whether the standard levels in today's notice are 
economically justified through a more detailed analysis of the economic 
impacts of increased efficiency as directed under section 
325(o)(2)(B)(i) of EPCA. (42 U.S.C. 6295(o)(2)(B)(i)) Detailed 
information on the LCC and PBP analyses can be found in TSD Chapter 8.

                                 Table VI.3.--Summary of LCC and Payback Period Results for Non-Weatherized Gas Furnaces
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                               LCC                                        Payback period
                                           Efficiency   ------------------------------------------------------------------------------------------------
          Trial standard level            level  (AFUE)        LCC         LCC savings      Net cost        No impact      Net benefit
                                            (percent)   --------------------------------------------------------------------------------      Years
                                                              2006$           2006$             %               %               %
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                     78          13,016  ..............  ..............  ..............  ..............  ...............
1......................................              80          12,804               2               0              99               1              1.7
A......................................              80          12,804               2               0              99               1              1.7
2......................................              81          12,771              15              29              36              35             22
B......................................              90          12,617              55              37              36              27             20
4......................................              90          12,617              55              37              36              27             20
5......................................              96          13,547           (865)              89               2               9             76
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 65157]]


                                   Table VI.4.--Summary of LCC and Payback Period Results for Weatherized Gas Furnaces
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                               LCC                                        Payback period
                                           Efficiency   ------------------------------------------------------------------------------------------------
          Trial standard level            level  (AFUE)        LCC         LCC savings      Net cost        No impact      Net benefit
                                            (percent)   --------------------------------------------------------------------------------      Years
                                                              2006$           2006$             %               %               %
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                     78          10,491  ..............  ..............  ..............  ..............  ...............
1......................................              80          10,383              19               0              82              18              1.6
A......................................              81          10,337              62               3               7              91              3.4
2......................................              81          10,337              62               3               7              91              3.4
B......................................              81          10,337              62               3               7              91              3.4
4......................................              81          10,337              62               3               7              91              3.4
5......................................              83          10,419            (20)              71               0              29             20
--------------------------------------------------------------------------------------------------------------------------------------------------------


                                   Table VI.5.--Summary of LCC and Payback Period Results for Mobile Home Gas Furnaces
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                               LCC                                        Payback period
                                           Efficiency   ------------------------------------------------------------------------------------------------
          Trial standard level            level  (AFUE)        LCC         LCC savings      Net cost        No impact      Net benefit
                                            (percent)   --------------------------------------------------------------------------------      Years
                                                              2006$           2006$             %               %               %
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                     75          11,271  ..............  ..............  ..............  ..............  ...............
1......................................              80          10,529             111               1              85              14              3.7
A......................................              80          10,529             111               1              85              14              3.7
2......................................              80          10,529             111               1              85              14              3.7
B......................................              90          10,187             434              30               5              65             18
4......................................              90          10,187             434              30               5              65             18
5......................................              90          10,187             434              30               5              65             18
--------------------------------------------------------------------------------------------------------------------------------------------------------


                                      Table VI.6.--Summary of LCC and Payback Period Results for Oil-Fired Furnaces
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                               LCC                                        Payback period
                                           Efficiency   ------------------------------------------------------------------------------------------------
          Trial standard level            level  (AFUE)        LCC         LCC savings      Net cost        No impact      Net benefit
                                            (percent)   --------------------------------------------------------------------------------      Years
                                                              2006$           2006$             %               %               %
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                     78          16,248  ..............  ..............  ..............  ..............  ...............
1......................................              80          15,971              10               0              96               4              0.3
A......................................              82          15,716             177               0              30              70              0.7
2......................................              82          15,716             177               0              30              70              0.7
B......................................              82          15,716             177               0              30              70              0.7
4......................................              84          15,815              96              38              15              47             14
5......................................              85          15,876              40              51               7              42             16
--------------------------------------------------------------------------------------------------------------------------------------------------------


                                         Table VI.7.--Summary of LCC and Payback Period Results for Gas Boilers
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                               LCC                                        Payback period
                                           Efficiency   ------------------------------------------------------------------------------------------------
          Trial standard level            level  (AFUE)        LCC         LCC savings      Net cost        No impact      Net benefit
                                            (percent)   --------------------------------------------------------------------------------      Years
                                                              2006$           2006$             %               %               %
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                     80          20,472  ..............  ..............  ..............  ..............  ...............
1......................................              82          19,898             208              11              44              46             12
A......................................              82          19,898             208              11              44              46             12
2......................................              82          19,898             208              11              44              46             12
B......................................              82          19,898             208              11              44              46             12
4......................................              84          19,802             300              18              15              67             12
5......................................              99          21,042           (881)              75               3              22             35
--------------------------------------------------------------------------------------------------------------------------------------------------------


                                      Table VI.8.--Summary of LCC and Payback Period Results for Oil-Fired Boilers
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                               LCC                                        Payback period
                                           Efficiency   ------------------------------------------------------------------------------------------------
          Trial standard level            level  (AFUE)        LCC         LCC savings      Net cost        No impact      Net benefit
                                            (percent)   --------------------------------------------------------------------------------      Years
                                                              2006$           2006$             %               %               %
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                     80          24,594  ..............  ..............  ..............  ..............  ...............
1......................................              83          23,952              69               0              84              16              0.9

[[Page 65158]]

 
A......................................              83          23,952              69               0              84              16              0.9
2......................................              83          23,952              69               0              84              16              0.9
B......................................              84          23,987              56              17              61              22             19
4......................................              84          23,987              56              17              61              22             19
5......................................              95          24,551           (456)              72               0              28             27
--------------------------------------------------------------------------------------------------------------------------------------------------------

b. Consumer Subgroup Analysis
    DOE estimated consumer subgroup impacts by analyzing the potential 
effects of standards for non-weatherized gas furnaces on low-income 
households, households occupied only by seniors, and southern and 
northern households. DOE defined northern households as those in States 
with average HDD over 6,000, and it defined southern households as 
those in States with average HDD below 5,000.
    DOE's analysis indicates that today's standard for non-weatherized 
gas furnaces would have an impact on low-income households and senior-
only households that would be similar to its impact on all households.
    Tables VI.9 and VI.10 show for each TSL the summary of LCC and PBP 
results for northern and southern households. Today's standard for non-
weatherized gas furnaces (80 percent AFUE) would result in similar LCC 
savings in northern and southern households, with a shorter PBP for 
northern households.

                     Table VI.9.--Summary of LCC and Payback Period Results for Non-Weatherized Gas Furnaces in Northern Households
                                                                       [>6000 HDD]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                LCC                                       Payback period
                                            Efficiency   -----------------------------------------------------------------------------------------------
          Trial standard level             level  (AFUE)        LCC         LCC savings      Net cost        No impact      Net benefit
                                             (percent)   --------------------------------------------------------------------------------      years
                                                               2006$           2006$             %               %               %
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                      78          15,492  ..............  ..............  ..............  ..............  ..............
1.......................................              80          15,222               3               0              98               2             0.7
A.......................................              80          15,222               3               0              98               2             0.7
2.......................................              81          15,161              32              47              47              34              14
B.......................................              90          14,779             212              22              47              31              13
4.......................................              90          14,779             212              22              47              31              13
5.......................................              96          15,582           (598)              84             2.4              13              61
--------------------------------------------------------------------------------------------------------------------------------------------------------


                     Table VI.10.--Summary of LCC and Payback Period Results for Non-Weatherized Gas Furnaces in Southern Households
                                                                       [<5000 HDD]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                LCC                                       Payback period
                                            Efficiency   -----------------------------------------------------------------------------------------------
          Trial standard level             level  (AFUE)        LCC         LCC savings      Net cost        No impact      Net benefit
                                             (percent)   --------------------------------------------------------------------------------      years
                                                               2006$           2006$             %               %               %
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                      78          10,439  ..............  ..............  ..............  ..............  ..............
1.......................................              80          10,285               2               0              98               2             2.2
A.......................................              80          10,285               2               0              98               2             2.2
2.......................................              81          10,280               1              40              23              37              29
B.......................................              90          10,345            (82)              55              21              23              26
4.......................................              90          10,345            (82)              55              21              23              26
5.......................................              96          11,389         (1,108)              92             1.4               7             101
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Chapter 11 of the TSD explains DOE's method for conducting the 
consumer subgroup analysis and presents the detailed results of that 
analysis.
2. Economic Impact on Manufacturers
    DOE determined the economic impacts on manufacturers of more 
stringent standards for residential furnaces and boilers, as described 
in the October 2006 NOPR. 71 FR 59212, 59228-59232, 59240-59245. The 
only modifications DOE made to the MIA for this final rule were the 
inclusion of the revised manufacturing costs from the engineering 
analysis, the conversion of the capital and product conversion cost to 
2006$, and the revised shipments from the NES analysis. DOE fully 
describes this analysis in Chapter 12 of the final rule TSD.
a. Industry Cash-Flow Analysis Results
    Using four different markup scenarios and two shipments forecasts, 
71 FR 59230-59232, 59240, DOE estimated the impact of amended standards 
for

[[Page 65159]]

residential furnaces and boilers on the INPV of the furnace and boiler 
industry. The impact of new standards on INPV consists of the 
difference between the INPV in the base case (no new standards) and the 
INPV in the standards case (with amended standards). INPV is the 
primary metric used in the MIA, and provides one measure of the fair 
value of the industry in today's dollars. DOE calculated the INPV by 
summing all of the net cash flows, discounted at the industry's cost of 
capital, or discount rate.
    Tables VI.11 through VI.16 show the estimated changes in INPV that 
would result from the TSLs DOE considered in this rulemaking, using 
both the shipments estimates calculated in the NES analysis, and the 
shipments data that manufacturers provided. Each table shows the 
changes attributable to one of the product classes DOE evaluated. The 
figures in these tables reflect and are affected by the product 
conversion expenses and capital investments that the industry would 
incur at each TSL, but the tables do not display these expenses and 
investments.

                                  Table VI.11.--Changes in Industry Net Present Value for Non-Weatherized Gas Furnaces
                                                                         [2006$]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                  NES shipments
                                                       -------------------------------------------------------------------------------------------------
                                                                          Flat markup                                    Two-tier markup
                          TSL                          -------------------------------------------------------------------------------------------------
                                                                            Change in INPV from base                         Change in INPV from base
                                                           INPV $MM    ---------------------------------    INPV $MM    --------------------------------
                                                                              $MM           % change                           $MM           % change
--------------------------------------------------------------------------------------------------------------------------------------------------------
Base case.............................................           1,197  ...............  ..............           1,161  ...............  ..............
1.....................................................           1,197               0                0           1,162               1                0
A.....................................................           1,197               0                0           1,162               1                0
2.....................................................           1,125             (72)              -6           1,084             (78)              -7
B.....................................................           1,217              20                2             881            (280)             -24
4.....................................................           1,217              20                2             881            (280)             -24
5.....................................................           1,505             307               26             937            (224)             -19
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                Manufacturers' shipments
--------------------------------------------------------------------------------------------------------------------------------------------------------
Base case.............................................           1,227  ...............  ..............           1,235  ...............  ..............
1.....................................................           1,227               0                0           1,235               0                0
A.....................................................           1,227               0                0           1,235               0                0
2.....................................................           1,152             (74)              -6           1,155             (79)              -6
B.....................................................           1,110            (117)             -10             839            (396)             -32
4.....................................................           1,110            (117)             -10             839            (396)             -32
5.....................................................             902            (324)             -26             595            (640)             -52
--------------------------------------------------------------------------------------------------------------------------------------------------------


                                    Table VI.12.--Changes in Industry Net Present Value for Weatherized Gas Furnaces
                                                                         [2006$]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                  NES shipments
                                                       -------------------------------------------------------------------------------------------------
                                                                          Flat markup                                 Constant price markup
                          TSL                          -------------------------------------------------------------------------------------------------
                                                                            Change in INPV from base                         Change in INPV from base
                                                           INPV $MM    ---------------------------------    INPV $MM    --------------------------------
                                                                              $MM           % change                           $MM           % change
--------------------------------------------------------------------------------------------------------------------------------------------------------
Base case.............................................             272  ...............  ..............             272  ...............  ..............
1.....................................................             239             (32)             -12             235             (37)             -14
A.....................................................             232             (40)             -15             218             (54)             -20
2.....................................................             232             (40)             -15             218             (54)             -20
B.....................................................             232             (40)             -15             218             (54)             -20
4.....................................................             232             (40)             -15             218             (54)             -20
5.....................................................             223             (48)             -18             181             (91)             -33
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 65160]]


                                    Table VI.13.--Changes in Industry Net Present Value for Mobile Home Gas Furnaces
                                                                         [2006$]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                   Flat markup
                                                       -------------------------------------------------------------------------------------------------
                                                                         NES shipments                               Manufacturers' shipments
                          TSL                          -------------------------------------------------------------------------------------------------
                                                                            Change in INPV from base                         Change in INPV from base
                                                           INPV $MM    ---------------------------------    INPV $MM    --------------------------------
                                                                              $MM           % change                           $MM           % change
--------------------------------------------------------------------------------------------------------------------------------------------------------
Base case.............................................              23  ...............  ..............              23  ...............  ..............
1.....................................................              23               0                0              23               0                0
A.....................................................              23               0                0              23               0                0
2.....................................................              23               0                0              23               0                0
B.....................................................              11             (11)             -50              11             (13)             -56
4.....................................................              11             (11)             -50              11             (13)             -56
5.....................................................              11             (11)             -50              11             (13)             -56
--------------------------------------------------------------------------------------------------------------------------------------------------------


                   Table VI.14.--Changes in Industry Net Present Value for Oil-Fired Furnaces
                                                     [2006$]
----------------------------------------------------------------------------------------------------------------
                                                           NES Shipments
                 -----------------------------------------------------------------------------------------------
                                    Flat markup                                Constant price markup
       TSL       -----------------------------------------------------------------------------------------------
                                     Change in INPV from base                        Change in INPV from base
                     INPV $MM    --------------------------------    INPV $MM    -------------------------------
                                        $MM          % change                           $MM          % change
----------------------------------------------------------------------------------------------------------------
Base case.......              36  ..............  ..............              36  ..............  ..............
1...............              35             (2)              -5              35             (2)              -5
A...............              33             (4)             -10              31             (5)             -14
2...............              33             (4)             -10              31             (5)             -14
B...............              33             (4)             -10              31             (5)             -14
4...............              29             (8)             -21              25            (12)             -32
5...............              28             (8)             -23              22            (15)             -40
----------------------------------------------------------------------------------------------------------------


                       Table VI.15.--Changes in Industry Net Present Value for Gas Boilers
                                                     [2006$]
----------------------------------------------------------------------------------------------------------------
                                                     Manufacturers' Shipments
                 -----------------------------------------------------------------------------------------------
                                    Flat markup                                  Three-tier markup
       TSL       -----------------------------------------------------------------------------------------------
                                     Change in INPV from base                        Change in INPV from base
                     INPV $MM    --------------------------------    INPV $MM    -------------------------------
                                        $MM          % change                           $MM          % change
----------------------------------------------------------------------------------------------------------------
Base case.......             201  ..............  ..............             201  ..............  ..............
1...............             200             (1)              -1             196             (5)              -3
A...............             200             (1)              -1             196             (5)              -3
2...............             184            (17)              -8             174            (27)             -13
B...............             200             (1)              -1             196             (5)              -3
4...............             184            (17)              -8             174            (27)             -13
5...............             171            (30)             -15             100           (101)             -50
----------------------------------------------------------------------------------------------------------------


                    Table VI.16.--Changes in Industry Net Present Value for Oil-Fired Boilers
                                                     [2006$]
----------------------------------------------------------------------------------------------------------------
                                                     Manufacturers' Shipments
                 -----------------------------------------------------------------------------------------------
                                    Flat markup                                  Three-tier markup
       TSL       -----------------------------------------------------------------------------------------------
                                     Change in INPV from base                        Change in INPV from base
                     INPV $MM    --------------------------------    INPV $MM    -------------------------------
                                        $MM          % change                           $MM          % change
----------------------------------------------------------------------------------------------------------------
Base case.......              78  ..............  ..............              78  ..............  ..............
1...............              74             (4)              -5              63            (14)             -18
A...............              74             (4)              -5              63            (14)             -18
2...............              74             (4)              -5              63            (14)             -18

[[Page 65161]]

 
B...............              74             (4)              -5              62            (15)             -20
4...............              74             (4)              -5              62            (15)             -20
5...............              59            (18)             -23              32            (45)             -58
----------------------------------------------------------------------------------------------------------------

    The October 2006 NOPR provides a detailed discussion of the 
estimated impact of amended furnace and boiler standards on INPV for 
each product class. 71 FR 59240-59244.
b. Impacts on Manufacturing Capacity and Subgroups of Manufacturers
    As discussed in the October 2006 NOPR, to the extent that more 
stringent energy conservation standards increase the size of the heat 
exchanger, they could reduce plant throughput, particularly for those 
plants that are limited in available space used for fabricating heat 
exchangers. The standards, thus, could necessitate that manufacturers 
add floor space to their existing plants and warehouses. In addition, 
assembly and fabrication times could increase for the larger equipment. 
In an attempt to recoup capacity, manufacturers might need to invest in 
productivity, or equipment, or consider outsourcing some heat exchanger 
production. 71 FR 59244.
    It is not clear that all new capacity would be added in the United 
States. During the MIA interviews, several manufacturers stated that 
there has been a trend in the industry to move production facilities to 
overseas locations where labor markets offer cost savings. Some of 
these companies commented that new standards could speed up this trend. 
However, DOE does not expect the standards being adopted in today's 
final rule to significantly reduce plant throughput.
    As discussed in the October 2006 NOPR, using average cost 
assumptions to develop an industry-cash-flow estimate is not adequate 
for assessing differential impacts among subgroups of manufacturers. 71 
FR 59244. Small manufacturers, niche players, or manufacturers 
exhibiting a cost structure that differs largely from the industry 
average could be affected differently. DOE used the results of the 
industry characterization to group manufacturers exhibiting similar 
characteristics. As discussed in the October 2006 NOPR, DOE expects the 
standard levels being adopted in today's final rule to have a 
relatively minor differential impact on small manufacturers of 
residential furnaces and boilers. 71 FR 59244.
c. Cumulative Regulatory Burden
    As discussed in the October 2006 NOPR, one aspect of the assessment 
of manufacturer burden is the cumulative impact of multiple DOE 
standards and other regulatory actions that affect the manufacture of 
the same covered products. 71 FR 59244-59245. Manufacturers of 
residential furnaces and boilers also manufacture approximately 82 
percent of the residential central air conditioners and heat pumps. 
New, higher Federal efficiency standards became applicable to 
residential central air conditioners manufactured after January 23, 
2006, and new, higher Federal standards will apply to commercial air 
conditioning equipment manufactured after January 1, 2010. In addition, 
the EPA has mandated the phaseout, by January 1, 2010, of certain 
refrigerants used in these products. The furnace and boiler 
manufacturers who also produce residential and commercial air 
conditioning products have been and will be devoting substantial 
resources to complying with these requirements. Manufacturers have been 
working to redesign all of the product lines and have allocated most of 
their capital resources for redesigning and retooling their production 
lines to meet the new minimum efficiency standards. Manufacturers are 
also now re-designing their product offerings and will need to retool 
to meet the EPA standards. Chapter 12 of the final rule TSD addresses 
in greater detail the issue of cumulative regulatory burden.
3. National Net Present Value and Net National Employment
    The NPV analysis estimates the cumulative benefits or costs to the 
Nation that would result from particular standard levels. While the NES 
analysis estimates the energy savings from a proposed energy efficiency 
standard, the NPV analysis provides estimates of the national economic 
impacts of a proposed standard relative to a base case of no new 
standard. Table VI.17 provides an overview of the NPV results, using 
both a seven-percent and a three-percent real discount rate. See TSD 
Chapter 10 for more detailed NPV results.

  Table VI.17.--Summary of Cumulative Net Present Value for Residential
                          Furnaces and Boilers
               [Impacts for units sold from 2015 to 2038]
------------------------------------------------------------------------
                                                    NPV  (billion 2006$)
                                                   ---------------------
              Trial  standard  level                    7%         3%
                                                     discount   discount
                                                       rate       rate
------------------------------------------------------------------------
1.................................................       0.51       1.69
A.................................................       0.69       2.18
2.................................................       0.89       4.02
B.................................................       0.98      11.07
4.................................................       0.98      11.53
5.................................................     -21.38     -26.03
------------------------------------------------------------------------

    DOE also estimated the national employment impacts due to each of 
the TSLs. As discussed in the October 2006 NOPR, 71 FR 59232-59233, 
59247, DOE expects the net monetary savings from standards to be 
redirected to other forms of economic activity. As shown in Table 
VI.18, DOE estimates net indirect employment impacts--changes in 
employment in the larger economy (other than in the manufacturing 
sector being regulated)--from furnace and boiler energy efficiency 
standards to be positive but relatively small. Although DOE's analysis 
suggests that today's furnace and boiler standards would result in a 
very small increase in the net demand for labor in the economy, 
relative to total national employment, this increase would be 
sufficient to offset fully any adverse impacts on employment that might 
occur in the furnace and boiler industry. For details on the employment 
impact analysis

[[Page 65162]]

methods and results, see TSD Chapter 14.

        Table VI.18.--Net National Change in Indirect Employment
                       [Thousands of jobs in 2038]
------------------------------------------------------------------------
                Trial Standard Level (Thousands of Jobs)
-------------------------------------------------------------------------
    TSL1         TSLA        TSL2        TSLB        TSL4        TSL5
------------------------------------------------------------------------
      0.74         0.94        2.55       11.71       12.96       26.07
------------------------------------------------------------------------

4. Impact on Utility or Performance of Equipment
    As indicated in section V.B.4 of the October 2006 NOPR, DOE 
believes that the new standards it is adopting today will not lessen 
the utility or performance of any residential furnaces and boilers. 71 
FR 59247.
5. Impact of Any Lessening of Competition
    As previously discussed in the October 2006 NOPR, 71 FR 59213, 
59247, and in section II.F.1.e of this preamble, DOE considers any 
lessening of competition that is likely to result from standards and 
the Attorney General determines the impact, if any, of any such 
lessening of competition. To assist the Attorney General in making such 
a determination, DOE provided DOJ with copies of the October 2006 
proposed rule and the NOPR TSD for review.
    In comment on the October 2006 proposed rule, DOJ expressed concern 
that the proposed standards for weatherized gas furnaces at 83 percent 
AFUE and gas boilers at 84 percent AFUE could adversely affect 
competition, and that manufacturers would have difficulty designing 
products that safely meet the proposed standards. (DOJ at No. 144, p. 
2) DOJ noted that, for weatherized gas furnaces, meeting the standard 
would likely result in increased condensation, potentially resulting in 
significant deterioration that would jeopardize the safety of the 
product, and, for gas-fired water boilers, meeting the standard would 
make effective CO2 venting more difficult. DOJ further noted 
that any resulting costs incurred to solve these issues could adversely 
affect the competitiveness of these products in relation to electric 
heat pumps and water heaters. DOJ urged DOE to carefully consider its 
proposed standards in light of these concerns.
    As described in section V.D of this preamble, DOE is adopting lower 
efficiency levels for the standards for weatherized gas furnaces and 
gas boilers than the levels proposed in the October 2006 proposed rule. 
DOE expects that the lower efficiency levels avoid the problems that 
DOJ mentioned for weatherized gas furnaces and gas boilers. 
Manufacturers would not incur costs to solve these issues and, 
therefore, the standards established in today's rule would not 
adversely affect the competitiveness of these products in relation to 
electric heat pumps and water heaters.
6. Need of the Nation To Conserve Energy
    The Secretary recognizes the need of the Nation to save energy. 
Enhanced energy efficiency, where economically justified, improves the 
Nation's energy security, strengthens the economy, and reduces the 
environmental impacts or costs of energy production. The energy savings 
from residential furnace and boiler standards is projected to result in 
(1) reduced power sector emissions of CO2, (2) either 
reduced power sector emissions of NOX or an economic benefit 
in the form of emission allowance credits for this pollutant, and (3) 
reduced household emissions (i.e., emissions at the sites where 
appliances are used) of CO2, NOX, and 
SO2. DOE expects the standards to have negligible impact on 
electricity generating capacity.
    Table VI.19 provides DOE's estimate of the emissions reductions 
projected to result from adoption of the TSLs considered in this 
rulemaking.

                                   Table VI.19.--Summary of Emissions Reductions for Residential Furnaces and Boilers
                                                [Cumulative reductions for units sold from 2015 to 2038]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                        Emission                               TSL 1           TSL A           TSL 2           TSL B           TSL 4           TSL 5
--------------------------------------------------------------------------------------------------------------------------------------------------------
CO2 (Mt)................................................            -6.1            -7.8           -20.0          -137.1          -141.3          -322.0
NOX (kt)................................................            -7.3            -9.2           -23.9          -164.6          -169.2          -373.1
SO2 (kt)................................................             0.0            -1.8            -2.0            -6.2           -10.5           -63.9
--------------------------------------------------------------------------------------------------------------------------------------------------------

    DOE also calculated discounted values for future emissions, using 
the same seven-percent and three-percent real discount rates that it 
used in calculating the NPV. Table VI .20 shows the discounted 
cumulative emissions impacts for residential furnaces and boilers.

                              Table VI.20.--Summary of Discounted Emissions Reductions for Residential Furnaces and Boilers
                                                [Cumulative reductions for units sold from 2015 to 2038]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                        Emission                               TSL 1           TSL A           TSL 2           TSL B           TSL 4           TSL 5
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                    7% Discount Rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
CO2 (Mt)................................................            -1.6            -2.1            -5.3           -36.2           -37.3           -83.9
NOX (kt)................................................            -1.7            -2.1            -5.4           -37.3           -38.3           -84.4

[[Page 65163]]

 
SO2 (kt)................................................             0.0            -0.4            -0.5            -1.4            -2.4           -14.7
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                    3% Discount Rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
CO2 (Mt)................................................            -3.4            -4.3           -10.9           -74.8           -77.1          -174.9
NOX (kt)................................................            -3.8            -4.7           -12.3           -84.5           -86.9          -191.5
SO2 (kt)................................................             0.0            -0.9            -1.0            -3.2            -5.4           -33.0
--------------------------------------------------------------------------------------------------------------------------------------------------------

    For further details on the environmental impacts of today's 
standards, see the ``Environmental Assessment for Proposed Energy 
Conservation Standards for Residential Furnaces and Boilers,'' a 
separate report in the TSD for today's rule.
7. Other Factors
    EPCA 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, other factors the 
Secretary considers relevant. (42 U.S.C. 6295(o)(2)(B)(i)) In 
developing today's standard, the Secretary took into consideration 
safety concerns related to carbon monoxide exposure resulting from 
potential failures of venting systems (and heat exchangers), stemming 
from extraneous condensate production in furnaces and boilers.

D. Conclusion

    EPCA contains criteria for DOE to consider in prescribing new or 
amended energy conservation standards. It states that any such standard 
for any type (or class) of covered product must 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)) As stated above, in determining whether a 
standard is economically justified, the Secretary must determine 
whether the benefits of the standards exceed its burdens considering:
    (1) The economic impact of the standard on the manufacturers and on 
the consumers of the products subject to such standard;
    (2) The savings in operating costs throughout the estimated average 
life of the covered product in the type (or class) compared to any 
increase in the price of, or in the initial charges for, or maintenance 
expenses of, the covered products which 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)) A determination of whether a standard 
level is economically justified is not made based on any one of these 
factors in isolation. The Secretary must weigh each of these seven 
factors in total in determining whether a standard is economically 
justified. Further, the Secretary may not establish an amended standard 
if such standard would not result in ``significant conservation of 
energy,'' or ``is not technologically feasible or economically 
justified.'' (42 U.S.C. 6295(o)(3)(B))
    In selecting energy conservation standards for residential furnaces 
and boilers for consideration in the October 2006 proposed rule as well 
as this final rule, DOE started by examining the maximum 
technologically feasible levels, and determined whether those levels 
were economically justified. Upon finding the maximum technologically 
feasible levels not to be justified, DOE analyzed the next lower TSL to 
determine whether that level was economically justified. DOE repeated 
this procedure until it identified a TSL that was economically 
justified.
    Table VI.21 summarizes DOE's quantitative analysis results for all 
of the TSLs it considered. This table presents the results or, in some 
cases, a range of results, for each TSL, and will aid the reader in the 
discussion of costs and benefits of each TSL. The range of values 
reported in this table for industry impacts represents the results for 
the different markup scenarios and shipments forecasts that DOE used to 
estimate manufacturer impacts.

                                                            Table VI.21.--Summary of Results
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                        TSL 1                TSL A               TSL 2               TSL B               TSL 4               TSL 5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Primary energy saved (quads)...  0.20...............  0.25..............  0.69..............  3.21..............  3.34..............  6.76
    7% Discount rate...........  0.04...............  0.06..............  0.15..............  0.70..............  0.73..............  1.47
    3% Discount rate...........  0.10...............  0.13..............  0.35..............  1.62..............  1.68..............  3.41
Generation capacity change (GW)  0.4................  0.5...............  1.2...............  8.2...............  8.4...............  17.8
 **.
NPV (2006$billion):
    7% Discount rate...........  0.51...............  0.69..............  0.89..............  0.98..............  0.98..............  -21.38
    3% Discount rate...........  1.69...............  2.18..............  4.02..............  11.07.............  11.53.............  -26.03
Industry impacts:
    Industry NPV (2006$million)  -38 to -58.........  -48 to -74........  -136 to -179......  -39 to -483.......  -59 to -519.......  192 to -904
    Industry NPV (% Change)....  -2 to -3...........  -3 to -4..........  -8 to -10.........  -2 to -26.........  -3 to -28.........  11 to -49
Cumulative emissions impacts:
 ***

[[Page 65164]]

 
    CO2 (Mt)...................  -6.1...............  -7.8..............  -20.0.............  -137.1............  -141.3............  -322.0
    NOX (kt)...................  -7.3...............  -9.2..............  -23.9.............  -164.6............  -169.2............  -373.1
    SO2 (kt)...................  0.0................  -1.8..............  -2.0..............  -6.2..............  -10.5.............  -63.9
Mean life-cycle cost savings
 (2006$):
    Non-Weatherized Gas          $2.................  $2................  $15...............  $55...............  $55...............  ($865)
     Furnaces.
    Weatherized Gas Furnaces...  $19................  $62...............  $62...............  $62...............  $62...............  ($20)
    Oil-Fired Furnaces.........  $10................  $177..............  $177..............  $177..............  $96...............  $40
    Gas Boilers................  $208...............  $208..............  $208..............  $208..............  $300..............  ($881)
    Oil-Fired Boilers..........  $69................  $69...............  $69...............  $56...............  $56...............  ($456)
    Mobile Home Gas Furnaces...  $111...............  $111..............  $111..............  $434..............  $434..............  $434
Mean Payback Period (years):
    Non-Weatherized Gas          1.7................  1.7...............  22................  20................  20................  76
     Furnaces.
    Weatherized Gas Furnaces...  1.6................  3.4...............  3.4...............  3.4...............  3.4...............  20
    Oil-Fired Furnaces.........  0.3................  0.7...............  0.7...............  0.7...............  14................  16
    Gas Boilers................  12.................  12................  12................  12................  12................  35
    Oil-Fired Boilers..........  0.9................  0.9...............  0.9...............  19................  19................  27
    Mobile Home Gas Furnaces...  3.7................  3.7...............  3.7...............  18................  18................  18
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Parentheses indicate negative (-) values.
** Change in installed generation capacity by the year 2038 based on AEO2007 Reference Case.
*** CO2 emissions impacts include physical reductions at power plants and households. NOX emissions impacts include physical reductions at power plants
  and households as well as production of emissions allowance credits where NOX emissions are subject to emissions caps. SO2 emissions impacts include
  physical reductions at households only.

    In addition to the quantitative results, DOE also considered other 
burdens and benefits that affect economic justification. DOE took into 
consideration safety concerns arising from the potential failure of 
venting systems or heat exchangers used for residential furnaces and 
boilers. These concerns affect non-weatherized gas furnaces at 81 
percent, weatherized gas furnaces at 83 percent and 82 percent, oil 
furnaces at 84 percent, and gas boilers at 84 percent AFUE. See section 
IV.A of this preamble and final rule TSD Chapter 6 for further 
discussion.
    First, DOE considered TSL 5, the maximum technologically feasible 
level, for each product class. TSL 5 would likely save 6.76 quads of 
energy through 2038, an amount DOE considers significant. Discounted at 
seven percent, the energy savings through 2038 would be 1.47 quads. For 
the Nation as a whole, TSL 5 would result in a net cost of $21.4 
billion in NPV, discounted at seven percent. Although DOE did not 
quantify the potential benefits from reductions in natural gas prices 
as a result of TSL 5, DOE has determined that the overall impact on the 
economy would still be overwhelmingly negative because the decline in 
NPV at TSL 5 is very large. The emissions reductions are projected at 
322 Mt of CO2,\17\ 373 kt of NOX, and 64 kt of 
SO2. Total generating capacity in 2030 is estimated to 
increase 17.8 gigawatts (GW) under TSL 5, due to projected switching 
from gas furnaces to electric heating equipment.
---------------------------------------------------------------------------

    \17\ For all of the TSLs, CO2 emissions impacts 
include physical reductions at power plants and households. 
NOX emissions impacts include physical reductions at 
power plants and households as well as production of emissions 
allowance credits where NOX emissions are subject to 
emissions caps. SO2 emissions impacts include physical 
reductions at households only.
---------------------------------------------------------------------------

    At TSL 5, the average consumer is projected to experience a 
significant increase in LCC for most product classes. Purchasers of 
non-weatherized gas furnaces are projected to lose on average $865 over 
the life of the product in present value terms and purchasers of gas-
fired boilers would lose on average $881 in present value terms.\18\ 
The LCC savings are estimated to be negative for 89 percent of 
households in the Nation that purchase non-weatherized gas furnaces, 
and for 92 percent of all non-weatherized gas furnace consumers in the 
southern region. The mean payback period of all product classes, except 
for oil-fired gas furnaces, is estimated to be substantially longer 
than the mean lifetime.
---------------------------------------------------------------------------

    \18\ Non-weatherized gas furnaces are the most prominent class 
of residential furnaces and boilers, accounting for approximately 72 
percent of the total industry sales and approximately 81 percent of 
residential furnace sales. Gas-fired boilers are the most prominent 
class of residential boilers, accounting for 6 percent of the total 
industry sales and 61 percent of residential boiler sales.
---------------------------------------------------------------------------

    The projected change in industry value (INPV) ranges from an 
increase of $192 million to a decrease of $904 million. The magnitude 
of the impacts is largely determined by the cashflow results for non-
weatherized gas furnaces. For this product class, the impacts are 
driven primarily by the assumptions regarding future product shipments 
and the ability of manufacturers to offer differentiated products that 
command a premium markup. DOE recognizes the significant difference 
between the shipments forecasted by the NES analysis and those 
anticipated by manufacturers. DOE is concerned about the projected 
increase in total installed cost of $1,859, or 82 percent, for non-
weatherized gas furnaces. With an increase of this size, there is a 
significant risk of consumers switching to other heating systems, 
including heat pumps and electric resistance heating. DOE also 
recognizes that maintaining a full product line is more difficult for 
manufacturers at higher standard levels. Therefore, DOE places more 
weight on the two-tiered markup scenario for non-weatherized gas 
furnaces at TSL 5. In particular, if the high range of impacts is 
reached as DOE expects, TSL 5 could result in a net loss of $640 
million to the non-weatherized gas furnace industry.
    After carefully considering the analysis, comments on the proposed 
rule, and weighing the benefits and burdens, the Secretary reached a 
similar conclusion as set forth in the NOPR: At TSL 5 the benefits of 
energy savings and emissions reduction are expected to be outweighed by 
the potential multi-billion dollar negative net economic cost to the 
Nation, the economic burden on consumers, and the large capital-
conversion costs that could result in a reduction in INPV for 
manufacturers. Consequently, the Secretary has concluded that TSL 5, 
the maximum technologically feasible level, is not economically 
justified.
    Next, DOE considered TSL 4. Primary energy savings is estimated at 
3.34 quads of energy through 2038, which DOE considers significant. 
Discounted

[[Page 65165]]

at seven percent, the energy savings through 2038 would be 0.73 quads. 
For the Nation as a whole, TSL 4 is projected to result in net savings 
of $0.98 billion in NPV, discounted at seven percent. The emissions 
reductions are projected to be 141 Mt of CO2, 169 kt of 
NOX, and 10.5 kt of SO2. Total generating 
capacity in 2030 under TSL 4 is estimated to increase by 8.4 GW due to 
the projected switching from gas furnaces to electric heating 
equipment.
    At TSL 4, consumers are projected to experience a decrease in LCC 
for all of the product classes. Purchasers of non-weatherized gas 
furnaces are projected to save, on average, $55 over the life of the 
product in present value terms, and purchasers of gas-fired boilers are 
projected to save, on average, $300 over the life of the boiler in 
present value terms. DOE found that 37 percent of households with non-
weatherized gas furnaces would be expected to experience a net cost, 
and 27 percent of households with non-weatherized gas furnaces would be 
expected to experience a net gain.
    TSL 4 requires the use of condensing technology for non-weatherized 
gas furnaces. A majority of the affected consumers in the south would 
be expected to experience a significant increase in total installed 
cost. Since the operating cost savings of condensing technology are 
less of a factor in warmer climates, the substantial increase in total 
installed cost leads to increased life-cycle costs. DOE found that 55 
percent of households in the south purchasing a non-weatherized gas 
furnace would experience a life-cycle net cost. The average LCC 
increase to the southern consumer purchasing a non-weatherized gas 
furnace is $82. The mean payback period of non-weatherized gas furnaces 
in the south would be substantially longer than the mean lifetime of 
these furnaces.
    At TSL 4, the projected change in INPV ranges from a loss of $59 
million to a loss of $519 million, which could potentially cause up to 
a 42 percent drop in total industry value. The magnitude of projected 
impacts is still largely determined by the cashflow results for the 
non-weatherized gas furnaces. For this product class, the projected 
impacts continue to be driven primarily by the assumptions regarding 
future product shipments and the ability to offer differentiated 
products. Although the projected impacts will not be as severe as 
expected for TSL 5 for the non-weatherized gas furnace industry, the 
magnitude of the projected impacts would still be determined primarily 
by the assumptions regarding future product shipments and the ability 
to offer differentiated products that command a premium markup. 
Although the range of possible impacts is not as large as for TSL 5, 
DOE still recognizes the significant differences between the shipments 
forecast by the NES analysis and those anticipated by manufacturers. 
DOE believes that with an increase in total installed cost of $701 for 
non-weatherized gas furnaces, or 31 percent, some consumers are likely 
to switch to other heating systems, including heat pumps and electric 
resistance heating. The low-end estimate of losses in INPV is based on 
DOE's estimate of the fuel switching that is most likely to occur, 
while the high end estimate of losses is based largely on manufacturer 
estimates of fuel switching. Additionally, some product classes would 
likely require large product-conversion costs because the products 
would require new heat-exchanger designs to meet the efficiency 
requirements prescribed in TSL 4. Even though the ability of 
manufacturers to differentiate products is greater at TSL 4 than at TSL 
5, it will still be harder for manufacturers to differentiate products 
because all of the products offered in TSL 4 for non-weatherized gas 
furnaces use condensing technology. In particular, if the high range of 
impacts is reached, TSL 4 could result in a net loss of $396 million to 
the non-weatherized gas furnace industry.
    After carefully considering the results of the analysis, comments 
on the proposed rule, and the benefits versus burdens, the Secretary 
reached a similar conclusion as set forth in the NOPR: At TSL 4, the 
benefits of energy and cost savings and emissions impacts would be 
outweighed by the economic burden on southern households and the 
capital conversion costs that are likely to result in a significant 
reduction in INPV for manufacturers. In addition, DOE determined that 
there are safety concerns related to potential venting failure due to 
condensation with oil-fired furnaces at 84 percent AFUE and with gas 
boilers at 84 percent AFUE. DOE received numerous comments reaffirming 
these safety concerns, and the Secretary has concluded upon 
consideration of the factors to determine whether a standard is 
economically justified that TSL 4 is not economically justified and 
contains two efficiency levels that could pose a safety or health risk 
to consumers.
    Next, DOE considered TSL B. TSL B is the same as TSL 4 except for 
oil-fired furnaces and gas boilers, for which there are safety concerns 
as described above. Therefore, for these two products TSL B includes 
lower efficiency levels at which these safety concerns are not present 
(i.e., 82 percent AFUE for oil furnaces and 82 percent for gas 
boilers).
    TSL B is projected to save 3.21 quads of energy through 2038, an 
amount DOE considers significant. Discounted at seven percent, the 
projected energy savings through 2038 would be 0.70 quads. For the 
Nation as a whole, TSL B would result in net savings in NPV of $0.98 
billion, discounted at seven percent. The emissions reductions are 
projected at 137 Mt of CO2, 165 kt of NOX, and 
6.2 kt of SO2. Total generating capacity in 2030 under TSL B 
is projected to increase by 8.2 GW due to the projected switching from 
gas furnaces to electric heating equipment.
    At TSL B, DOE estimates that purchasers of non-weatherized gas 
furnaces would save, on average, $55 over the life of the product and 
purchasers of gas-fired boilers would save, on average, $208. As with 
TSL 4, DOE estimates that 37 percent of households with non-weatherized 
gas furnaces would experience a net cost, and 27 percent of households 
with non-weatherized gas furnaces would experience a net gain, with the 
remaining 36 percent being unaffected. DOE estimated that 55 percent of 
households in the south with a non-weatherized gas furnace would 
experience a net life-cycle cost. The estimated average LCC increase to 
the southern consumer purchasing a non-weatherized gas furnace is $82. 
The mean payback period of non-weatherized gas furnaces in the south is 
projected to be substantially longer than the mean lifetime of these 
furnaces.
    The projected change in INPV ranges between a loss of $39 million 
and a loss of $483 million. Just as with TSL 4, the projected impacts 
continue to be driven primarily by the assumptions regarding future 
product shipments and the ability to offer differentiated products. 
More specifically, most of these differences are attributable to the 
significant differences between the shipments forecast by the NES 
analysis and those anticipated by manufacturers. Furthermore, some 
manufacturers stated they would likely use a de-rating strategy to 
reduce the increased capital costs associated with TSL B. If 
manufacturers use such a strategy, it is anticipated that the variety 
of products offered by the manufacturers would be reduced by 
eliminating some of the higher-capacity models to reduce the negative 
impacts. At TSL B, consumers would experience an average increase in 
total installed cost of $700 for non-weatherized gas furnaces (compared 
to an 80-percent AFUE furnace). There is a potential risk at this level 
of consumers switching to electric heating

[[Page 65166]]

systems, as further detailed in the shipments forecast discussion in 
Chapter 12 of the TSD. For the furnace industry alone, the industry 
value would decrease from 2.1 percent to 26.2 percent.
    After carefully considering the analysis, comments on the October 
2006 proposed rule, and the benefits versus burdens, the Secretary 
concludes after weighing the statutory criteria in total that TSL B 
would not be economically justifiable. In particular, the benefits of 
energy and cost savings and emissions impacts are likely to be 
outweighed by the economic burden on southern households and the 
capital conversion costs that are likely to result in a significant 
reduction in INPV for manufacturers.
    Next, DOE considered TSL 2. Primary energy savings at this level 
would likely be 0.69 quad of energy through 2038, which DOE considers 
significant. Discounted at seven percent, the energy savings through 
2038 is projected to be 0.15 quads. For the Nation as a whole, TSL 2 is 
projected to result in a net savings of $0.89 billion in NPV, 
discounted at seven percent. The emissions reductions are projected at 
20 Mt of CO2, 24 kt of NOX, and 2 kt of 
SO2. Total generating capacity in 2030 under TSL 2 would 
likely increase by 1.2 GW due to the projected switching from gas 
furnaces to electric heating equipment.
    At TSL 2, purchasers of non-weatherized gas furnaces would save, on 
average, an estimated $15 over the life of the product and purchasers 
of gas-fired boilers would save, on average, an estimated $208. The 
mean payback period for non-weatherized gas furnaces at TSL 2 is 
estimated to be 22 years, which is longer than the mean lifetime.
    TSL 2 includes a standard for non-weatherized gas furnaces at 81-
percent AFUE. DOE is concerned that, at this level, there is likely an 
increased risk of safety concerns with this equipment due to venting 
issues. Most manufacturers and DOJ commented that the margin of safety 
is diminished in many instances at 81-percent AFUE. Some manufacturers 
commented that they would not be willing to accept the risk and/or cost 
involved in producing a full line or family of products at 81-percent 
AFUE. This potential safety concern is a factor that the Secretary 
considers relevant. Based on DOE's evaluation of all the information 
considered during the rulemaking, DOE believes that a standard at 81-
percent AFUE for non-weatherized gas furnaces could pose a potential 
for safety problems for some consumers.
    The projected change in industry value ranges from a loss of INPV 
of $136 to a loss of $179 million. TSL 2 potentially could result in up 
to a nine-percent loss in INPV for the furnace industry and up to a 15-
percent loss in INPV for the boiler industry. However, DOE anticipates 
that manufacturers of non-weatherized gas furnaces would still be able 
to differentiate their premium products and retain profitability 
margins.
    After carefully considering the results of the analysis, comments 
on the NOPR, and the benefits versus burdens, the Secretary concluded 
that at TSL 2, the benefits of energy savings and emissions impacts 
would be outweighed by the reduction in industry value for 
manufacturers and the safety concerns related to potential venting 
failure due to condensation with non-weatherized gas furnaces at 81 
percent AFUE. Consequently, the Secretary has concluded that TSL 2 is 
not economically justified.
    Next, DOE considered TSL A. Primary energy savings at this level is 
projected to be 0.25 quad of energy through 2038, which DOE considers 
significant. Discounted at seven percent, the energy savings through 
2038 is calculated to be 0.06 quads. For the Nation as a whole, TSL A 
would likely result in a net savings of $0.69 billion in NPV, 
discounted at seven percent. The emissions reductions are projected at 
7.8 Mt of CO2, 9.2 kt of NOX, and 1.8 kt of 
SO2. Total generating capacity in 2030 under TSL A would 
likely increase by 0.5 GW due to the projected switching from gas 
furnaces to electric heating equipment.
    At TSL A, purchasers of non-weatherized gas furnaces would save, on 
average, an estimated $2 over the life of the product and purchasers of 
gas-fired boilers would save, on average, an estimated $208. DOE's 
analysis indicates that no households purchasing non-weatherized gas 
furnaces would experience an increase in LCC at TSL A, including 
southern households. The calculated mean payback periods are less than 
the average equipment lifetime for all product classes at TSL A. For 
example, the mean payback period for non-weatherized gas furnaces at 
TSL A is calculated to be 1.7 years.
    The projected change in industry value ranges from a loss of INPV 
of $48 million to a loss of $74 million. TSL A potentially could result 
in up to a four-percent loss in INPV for the furnace industry and up to 
a five-percent loss in INPV for the boiler industry. Furthermore, DOE 
anticipates that manufacturers of non-weatherized gas furnaces would 
still be able to differentiate their premium products and retain 
profitability margins.
    TSL A includes an 83-percent AFUE standard level for oil-fired 
boilers. DOE notes that the joint stakeholder recommendation for 
boilers suggested an 84-percent AFUE standard level (in combination 
with a temperature reset design requirement) for oil-fired boilers, 
which is estimated to result in greater energy savings than the 83-
percent level proposed in the NOPR and included in TSL A. DOE concluded 
that the 84-percent AFUE for oil-fired boilers was inconsistent with 
the other standard levels included in TSL A. TSL A was derived from TSL 
2, which was described in the NOPR. As discussed in the NOPR, TSL 2 
represents the set of efficiency levels, which yield the maximum NPV, 
and an 83-percent AFUE for oil boilers is consistent with this grouping 
of standard levels for analysis. 71 FR 59203.
    After carefully considering the analysis, comments on the NOPR, and 
the benefits and burdens, the Secretary concludes that this standard 
saves a significant amount of energy and is technologically feasible 
and economically justified. DOE also believes the efficiency levels 
contained in TSL A do not pose a safety or health risk to consumers. 
Therefore, DOE is adopting the energy conservation standards for 
residential furnaces and boilers at TSL A.

VII. Procedural Issues and Regulatory Review

A. Review Under Executive Order 12866

    This regulatory action has been determined to be a ``significant 
regulatory action'' under section 3(f)(1) of Executive Order 12866, 
``Regulatory Planning and Review.'' 58 FR 51735 (October 4, 1993). The 
Executive Order requires that each agency identify in writing the 
specific market failure or other specific problem that it intends to 
address that warrant new agency action, as well as assess the 
significance of that problem, to enable assessment of whether any new 
regulation is warranted. Executive Order 12866, Sec.  1(b)(1).
    In the context of furnaces and boilers, problems are expected to 
arise due to: (1) Lack of consumer information and/or information 
processing capability about energy efficiency opportunities; (2) 
misplaced incentives, which separate responsibility for buying new 
appliances and for paying their operating costs; (3) transactions 
costs, which prevent access to capital to finance energy efficiency 
investment; and (4) imperfect competition, which

[[Page 65167]]

may prevent energy efficient appliances from reaching the market place. 
Furthermore, for renters in particular, there are split incentives for 
more energy efficient equipment. The owner of the home (landlord) may 
not invest in efficient equipment because the landlord does not pay the 
energy bill, and the renter does not want to invest so as not to risk 
losing the capital investment if the renter moves. Furthermore, 
imperfect competition may prevent many efficient technologies from 
reaching the market. In this case, individual manufacturers may be 
limited by capital rationing or more concerned with competing under 
existing market conditions, than with offering a full range of energy 
efficient products to consumers.
    Today's action also required a regulatory impact analysis (RIA) 
and, under the Executive Order, was subject to review by the Office of 
Information and Regulatory Affairs (OIRA) in OMB. DOE presented to OIRA 
for review the draft final 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 the Building Technologies Program at 950 L'Enfant Plaza Drive, 
SW., Washington, DC 20024, (202) 586-9127, between 9 a.m. and 4 p.m., 
Monday through Friday, except Federal holidays.
    The RIA calculates the effects of feasible policy alternatives to 
residential furnace and boiler standards, 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 as input to the NES/Shipments Model for furnaces 
and boilers, which it modified to allow inputs for these measures. 71 
FR 59253-59255. The complete RIA, ``Regulatory Impact Analysis for 
Proposed Energy Conservation Standards for Residential Furnaces and 
Boilers,'' is contained in the TSD prepared for today's rule. 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.
    As explained in the NOPR, DOE determined that, with the exception 
of regional performance standards, which DOE has determined it lacks 
authority to adopt, none of the alternatives it examined would save as 
much energy or have an NPV as high as the proposed standards. 71 FR 
59253. The same conclusions apply to the standards in this final rule. 
In addition, several of the alternatives would require new enabling 
legislation, since authority to carry out those alternatives does not 
presently exist. Additional detail on the regulatory alternatives is 
found in the RIA report in the final rule TSD.

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, and a final 
regulatory flexibility analysis (FRFA) for any such rule that an agency 
adopts as a final rule, unless the agency certifies that the rule, if 
promulgated, will not have a significant economic impact on a 
substantial number of small entities. A regulatory flexibility analysis 
examines the impact of the rule on small entities and considers 
alternative ways of reducing negative impacts. Also, 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 General Counsel's 
Web site: http:// www.gc.doe.gov.
    Small businesses, as defined by the Small Business Administration 
(SBA) for both furnace manufacturers and boiler manufacturers, are 
manufacturing enterprises with 750 employees or fewer. Prior to issuing 
the proposed rule in this rulemaking, DOE interviewed five such small 
businesses affected by the rulemaking.
    As explained in the NOPR, DOE reviewed the proposed rule under the 
provisions of the Regulatory Flexibility Act and the procedures and 
policies published on February 19, 2003. 71 FR 59255-59256. On the 
basis of this review, DOE certified that the proposed rule, if 
promulgated, would ``have no significant economic impact on a 
substantial number of small entities.'' 71 FR 59256. Therefore, DOE did 
not prepare an initial regulatory flexibility analysis for the proposed 
rule. DOE transmitted its certification and a supporting statement of 
factual basis to the Chief Counsel for Advocacy of the SBA for review.
    DOE received no comments on the certification in response to the 
NOPR, and reaffirms the certification. Therefore, DOE has not prepared 
a final regulatory flexibility analysis for this rule.

C. Review Under the Paperwork Reduction Act

    DOE stated in the NOPR that this rulemaking would impose no new 
information and recordkeeping requirements, and that, therefore, OMB 
clearance is not required under the Paperwork Reduction Act (44 U.S.C. 
3501 et seq.). 71 FR 59256. DOE received no comments on this in 
response to the NOPR, and, as with the proposed rule, today's rule 
imposes no information and recordkeeping requirements. Therefore, DOE 
has taken no further action in this rulemaking with respect to the 
Paperwork Reduction Act.

D. Review Under the National Environmental Policy Act

    DOE prepared an environmental assessment of the impacts of today's 
standards (DOE/EA-1530), which it published as a separate report within 
the TSD for this rule. DOE found the environmental effects associated 
with various standard efficiency levels for residential furnaces and 
boilers to be not significant, and therefore it is issuing a Finding of 
No Significant Impact (FONSI) 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). The FONSI is available in the docket for this 
rulemaking.

E. Review Under Executive Order 13132

    DOE reviewed this rule pursuant to Executive Order 13132, 
``Federalism,'' 64 FR 43255 (August 4, 1999), which imposes certain 
requirements on agencies formulating and implementing policies or 
regulations that preempt State law or that have federalism 
implications. In accordance with DOE's statement of policy describing 
the intergovernmental consultation process it will follow in the 
development of regulations that have federalism implications, 65 FR 
13735 (March 14, 2000), DOE examined the proposed rule and determined 
that the rule would not have a substantial direct effect on the States, 
on the relationship between the national government and the States, or

[[Page 65168]]

on the distribution of power and responsibilities among the various 
levels of government. 71 FR 59256. DOE received no comments on this 
issue in response to the NOPR, and its conclusions on this issue are 
the same for the final rule as they were for the proposed rule. 
Therefore DOE is taking no further action in today's final rule with 
respect to 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 (February 7, 1996) imposes on 
Federal 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, the final regulations meet the relevant standards of 
Executive Order 12988.

G. Review Under the Unfunded Mandates Reform Act of 1995

    As described in the NOPR, Title II of the Unfunded Mandates Reform 
Act of 1995 (Pub. L. 104-4) (UMRA) imposes requirements on Federal 
agencies when their regulatory actions will have certain types of 
impacts on State, local, and Tribal governments and the private sector. 
71 FR 59256-59257. DOE concluded that, because the proposed rule would 
contain neither an intergovernmental mandate nor a mandate that would 
likely result in expenditures in the residential furnace and boiler 
industry of $100 million or more in any year, the requirements of UMRA 
do not apply to the rule. 71 FR 59257. DOE received no comments 
concerning the UMRA in response to the NOPR, and its conclusions on 
this issue are the same for the final rule as they were for the 
proposed rule. Therefore, DOE is taking no further action in today's 
final rule with respect to the UMRA.

H. Review Under the Treasury and General Government Appropriations Act, 
1999

    DOE determined that, for this rulemaking, it need not prepare a 
Family Policymaking Assessment under section 654 of the Treasury and 
General Government Appropriations Act, 1999 (Pub. L. 105-277). 71 FR 
59257. DOE received no comments concerning section 654 in response to 
the NOPR, and, therefore, is taking no further action in today's final 
rule with respect to this provision.

I. Review Under Executive Order 12630

    DOE determined, under Executive Order 12630, ``Governmental Actions 
and Interference with Constitutionally Protected Property Rights,'' 53 
FR 8859 (March 18, 1988), that today's rule would not result in any 
takings which might require compensation under the Fifth Amendment to 
the United States Constitution. 71 FR 59257. DOE received no comments 
concerning Executive Order 12630 in response to the NOPR, and, 
therefore, is taking no further action in today's final rule with 
respect to this Executive Order.

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. The OMB's guidelines were published at 67 FR 8452 (February 22, 
2002), and DOE's guidelines were published at 67 FR 62446 (October 7, 
2002). DOE has reviewed today's final rule 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 the 
Office of Information and Regulatory Affairs of the OMB a Statement of 
Energy Effects for any significant energy action. DOE determined that 
the proposed rule was not a ``significant energy action'' within the 
meaning of Executive Order 13211. 71 FR 59257. Accordingly, it did not 
prepare a Statement of Energy Effects on the proposed rule. DOE 
received no comments on this issue in response to the NOPR. As with the 
proposed rule, DOE has concluded that today's final rule is not a 
significant energy action within the meaning of Executive Order 13211, 
and has not prepared a Statement of Energy Effects on the 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 Policy (OSTP), issued its Final Information 
Quality Bulletin for Peer Review (the Bulletin). 70 FR 2664, January 
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.
    DOE's Office of Energy Efficiency and Renewable Energy, Building 
Technologies Program, held formal in-progress peer reviews covering the 
analyses (e.g., screening/engineering analysis, LCC analysis, MIA, and 
utility impact analysis) used in conducting the energy efficiency 
standards development process on June 28-29, 2005. The in-progress 
review is a rigorous, formal, and documented evaluation process using 
objective criteria and qualified and independent reviewers to make a 
judgment of the technical/scientific/business merit, the actual or 
anticipated results, and the productivity and management effectiveness 
of programs and/or projects. The Building Technologies Program staff is 
preparing a peer review report which, upon completion, will be 
disseminated on the Office of Energy Efficiency and Renewable Energy's 
Web site and included in the administrative record for this rulemaking.

M. Review Under Executive Order 12898

    DOE considers environmental justice under Executive Order 12898, 
``Federal Actions to Address Environmental Justice in Minority 
Populations and Low-Income Populations.'' 59 FR 7629 (February 16, 
1994). The Executive Order requires Federal agencies to

[[Page 65169]]

assess whether a proposed Federal action causes any disproportionately 
high and adverse human health or environmental effects on low-income or 
minority populations. DOE evaluated the socioeconomic effects of 
standards on low-income households and found that they are similar to 
the impacts on the rest of the population.

N. Congressional Notification

    As required by 5 U.S.C. 801, DOE will submit to Congress a report 
regarding the issuance of today's final rule prior to the effective 
date set forth at the outset of this notice. The report will state that 
it has been determined that the rule is a ``major rule'' as defined by 
5 U.S.C. 804(2). DOE also will submit the supporting analyses to the 
Comptroller General in the U.S. Government Accountability Office (GAO) 
and make them available to each House of Congress.

VIII. Approval of the Office of the Secretary

    The Secretary of Energy has approved publication of this final 
rule.

List of Subjects in 10 CFR Part 430

    Administrative practice and procedure, Energy conservation, 
Household appliances.

    Issued in Washington, DC, on November 8, 2007.
Alexander A. Karsner,
Assistant Secretary, Energy Efficiency and Renewable Energy.

0
For the reasons set forth in the preamble, part 430 of Title 10, Code 
of Federal Regulations, is amended to read as set forth below.

PART 430--ENERGY CONSERVATION PROGRAM FOR CONSUMER PRODUCTS

0
1. The authority citation for part 430 continues to read as follows:

    Authority: 42 U.S.C. 6291-6309; 28 U.S.C. 2461 note.


0
2. Section 430.32 is amended by revising the section heading and 
paragraph (e) to read as follows:


Sec.  430.32  Energy and water conservation standards and their 
effective dates.

* * * * *
    (e) Furnaces. (1) Non-weatherized and weatherized gas furnaces, 
mobile home gas furnaces, oil-fired furnaces, and gas- and oil-fired 
boilers, manufactured before November 19, 2015 and all other types of 
furnaces, shall have an efficiency no less than:

------------------------------------------------------------------------
                                             AFUE \1\
              Product class                  (percent)    Effective date
------------------------------------------------------------------------
(i) Furnaces (excluding classes noted                 78        01/01/92
 below) (percent).......................
(ii) Mobile Home Furnaces...............              75        09/01/90
(iii) Small furnaces (other than
 furnaces designed solely for
 installation in mobile homes) having an
 input rate of less than 45,000 Btu/hr:
    (A) Weatherized (outdoor)...........              78        01/01/92
    (B) Non-weatherized (indoor)........              78        01/01/92
(iv) Boilers (excluding gas steam)                    80        01/01/92
 (percent)..............................
(v) Gas steam boilers (percent).........              75        01/01/92
------------------------------------------------------------------------
\1\ Annual Fuel Utilization Efficiency, as determined in Sec.
  430.22(n)(2) of this part.

    (2) Non-weatherized and weatherized gas furnaces, mobile home gas 
furnaces, oil-fired furnaces, and gas- and oil-fired boilers, 
manufactured on or after November 19, 2015, shall have an efficiency no 
less than:

------------------------------------------------------------------------
                                                               AFUE \1\
                        Product class                          (percent)
------------------------------------------------------------------------
(i) Non-weatherized gas furnaces............................          80
(ii) Weatherized gas furnaces...............................          81
(iii) Mobile home gas furnaces..............................          80
(iv) Oil-fired furnaces.....................................          82
(v) Gas hot-water boilers...................................          82
(vi) Oil-fired hot-water boilers............................          83
------------------------------------------------------------------------
\1\ Annual Fuel Utilization Efficiency, as determined in Sec.
  430.22(n)(2) of this part.

* * * * *

Appendix

    [The following letter from the Department of Justice will not 
appear in the Code of Federal Regulations.]

Department of Justice

Antitrust Division, Main Justice Building, 950 Pennsylvania Avenue, 
N.W., Washington, DC 20530-0001, (202) 514-2401/(202) 616-2645 
(Fax), E-mail: [email protected], Web site: http://www.usdoj.gov/atr.

January 16, 2007.

Warren Belmar, Esq., Deputy General Counsel for Energy Policy, U.S. 
Department of Energy, Washington, DC 20585.

Dear Deputy General Counsel Belmar:

    I am responding to your November 14, 2006 letters seeking the 
views of the Attorney General about the potential impact on 
competition of proposed energy efficiency standards relating to (1) 
liquid-immersed and medium-voltage, dry-type distribution 
transformers (``distribution transformers''), and (2) residential 
furnaces and boilers (``furnaces and boilers''). The Energy Policy 
and Conservation Act (``EPCA'') authorizes the Department of Energy 
(``DOE'') to establish energy conservation standards for a number of 
appliances where DOE determines that those standards would be 
technologically feasible, economically justified, and result in 
significant energy savings.
    Your requests were submitted pursuant to Section 325(o)(2)(B)(I) 
of the Energy Policy and Conservation Act, 42 U.S.C. 6291, 6295 
(``EPCA''), which states that, before the Secretary of Energy may 
prescribe a new or amended energy conservation standard, the 
Secretary shall ask the Attorney General to make a determination of 
``the impact of any lessening of competition * * * that is likely to 
result from the imposition of the standard.'' The Attorney General's 
responsibility for responding to requests from other departments 
about the effect of a program on competition has been delegated to 
the Assistant Attorney General for the Antitrust Division in 28 CFR 
0.40(g). In conducting its analysis the Antitrust Division examines 
whether a standard may lessen competition, for example, by placing 
certain manufacturers of a product at an unjustified competitive 
disadvantage compared to other manufacturers, or by inducing 
avoidable inefficiencies in production or distribution of particular 
products. In addition to harming consumers directly through higher 
prices, these effects could undercut the ultimate goals of the 
legislation.
    Your requests included the Notices of Proposed Rulemaking 
(``NOPR'') that were published in the Federal Register and 
transcripts of public hearings relating to the proposed standards. 
The NOPR relating to distribution transformers proposed Trial 
Standard Level 2 and explained why DOE had decided not to propose 
higher trial standard levels. The NOPR relating to furnaces and 
boilers proposed the following standards: 80% annual fuel 
utilization efficiency (``AFUE'') for non-weatherized gas furnaces 
and mobile home gas furnaces; 82% AFUE for oil-fired furnaces; 83% 
AFUE for weatherized gas furnaces and oil-fired boilers; and 84% 
AFUE for gas boilers. Our review regarding distribution transformers 
and furnaces and boilers has focused upon the standards DOE has 
proposed adopting; we have not determined the impact on competition 
of more stringent standards than those set forth in the NOPRs.

[[Page 65170]]

    In addition to the NOPRs and transcripts, your staff provided us 
comments that had been submitted to DOE regarding the proposed 
standards. (We understand that the docket has not closed with 
respect to furnaces and that more comments may be forthcoming.) We 
have reviewed these materials and additionally conducted interviews 
with members of the industries.
    Based on this inquiry, the Division is concerned that the 
distribution transformer Trial Standard Level 2 may adversely affect 
competition with respect to distribution transformers used in 
industries, such as underground coal mining, where physical 
conditions limit the size of equipment that can be effectively 
utilized. We understand manufacturers would not be able to satisfy 
the proposed standard without increasing the size (or decreasing the 
power) of each class of distribution transformer. Firms facing space 
constraints would incur significantly increased costs due to 
enlarging the required installation space (which, for example, could 
involve removal of solid rock around coal seams in underground 
mines) or reconfiguring the size and number of each class of 
distribution transformers at each site. The resulting cost increases 
could constitute production inefficiencies that could make certain 
products less competitive. For example, the rule could, by raising 
the costs of certain coal mines, adversely affect production 
decisions at those mines and potentially result in increased use of 
less efficient energy alternatives. We urge the DOE to consider 
these concerns carefully in its analysis, and to consider creating 
an exception for distribution transformers used in industries with 
space constraints.
    The Division is also concerned that the standards for 
weatherized gas furnaces and gas boilers could adversely affect 
competition. We understand that manufacturers would have difficulty 
designing products that safely meet the proposed standards. For 
weatherized gas furnaces, meeting the standard would likely result 
in increased condensation, potentially resulting in significant 
deterioration that would jeopardize the safety of the product, and, 
for weatherized gas-fired water boilers, meeting the standard would 
make effective carbon dioxide venting more difficult. Any resulting 
costs incurred to solve these issues could adversely affect the 
competitiveness of these products in relation to electric heat pumps 
and water heaters. We urge the DOE to carefully consider its 
proposed standards in light of these concerns.
    Aside from the discussion above, the Division does not otherwise 
believe the proposed standards would adversely impact competition.

 Yours sincerely,

J. Bruce McDonald,

Acting Assistant Attorney General.

 [FR Doc. E7-22216 Filed 11-16-07; 8:45 am]
BILLING CODE 6450-01-P