[Federal Register Volume 80, Number 48 (Thursday, March 12, 2015)]
[Proposed Rules]
[Pages 13120-13198]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-03275]



[[Page 13119]]

Vol. 80

Thursday,

No. 48

March 12, 2015

Part III





Department of Energy





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10 CFR Part 430





Energy Conservation Program for Consumer Products: Energy Conservation 
Standards for Residential Furnaces; Proposed Rule

  Federal Register / Vol. 80 , No. 48 / Thursday, March 12, 2015 / 
Proposed Rules  

[[Page 13120]]


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DEPARTMENT OF ENERGY

10 CFR Part 430

[Docket Number EERE-2014-BT-STD-0031]
RIN 1904-AD20


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

AGENCY: Office of Energy Efficiency and Renewable Energy, Department of 
Energy.

ACTION: Notice of proposed rulemaking and announcement of public 
meeting.

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SUMMARY: The Energy Policy and Conservation Act of 1975 (EPCA), as 
amended, prescribes energy conservation standards for various consumer 
products and certain commercial and industrial equipment, including 
residential furnaces. EPCA also requires the U.S. Department of Energy 
(DOE) to periodically determine whether more-stringent, amended 
standards would be technologically feasible and economically justified, 
and would save a significant amount of energy. In this document, DOE 
proposes amended energy conservation standards for residential non-
weatherized gas furnaces and mobile home furnaces, in partial 
fulfillment of a court-ordered remand of DOE's 2011 rulemaking for 
these products. The proposed rule also announces a public meeting to 
receive comment on these proposed standards and associated analyses and 
results.

DATES: Meeting: DOE will hold a public meeting on Friday, March 27, 
from 9:00 a.m. to 4:00 p.m., in Washington, DC. The meeting will also 
be broadcast as a webinar. See section VII, ``Public Participation,'' 
for webinar registration information, participant instructions, and 
information about the capabilities available to webinar participants.
    Comments: DOE will accept comments, data, and information regarding 
this notice of proposed rulemaking (NOPR) before and after the public 
meeting, but no later than June 10, 2015. See section VII, ``Public 
Participation,'' for details.

ADDRESSES: The public meeting will be held at the U.S. Department of 
Energy, Forrestal Building, Room 8E-089, 1000 Independence Avenue SW., 
Washington, DC 20585. To attend, please notify Ms. Brenda Edwards at 
(202) 586-2945. Please note that foreign nationals visiting DOE 
Headquarters are subject to advance security screening procedures. Any 
foreign national wishing to participate in the meeting should advise 
DOE as soon as possible by contacting Ms. Edwards at the phone number 
above to initiate the necessary procedures. Please also note that any 
person wishing to bring a laptop computer or tablet into the Forrestal 
Building will be required to obtain a property pass. Visitors should 
avoid bringing laptops, or allow an extra 45 minutes. Persons may also 
attend the public meeting via webinar. For more information, refer to 
section VII, ``Public Participation,'' near the end of this NOPR.
    Instructions: Any comments submitted must identify the NOPR for 
Energy Conservation Standards for Residential Furnaces, and provide 
docket number EERE-2014-BT-STD-0031 and/or regulatory information 
number (RIN) number 1904-AD20. Comments may be submitted using any of 
the following methods:
    1. Federal eRulemaking Portal: www.regulations.gov. Follow the 
instructions for submitting comments.
    2. Email: [email protected]. Include the docket 
number and/or RIN in the subject line of the message. Submit electronic 
comments in Word Perfect, Microsoft Word, PDF, or ASCII file format, 
and avoid the use of special characters or any form on encryption.
    3. Postal Mail: Ms. Brenda Edwards, U.S. Department of Energy, 
Building Technologies Office, Mailstop EE-5B, 1000 Independence Avenue 
SW., Washington, DC 20585-0121. If possible, please submit all items on 
a compact disc (CD), in which case it is not necessary to include 
printed copies.
    4. Hand Delivery/Courier: Ms. Brenda Edwards, U.S. Department of 
Energy, Building Technologies Office, 950 L'Enfant Plaza SW., Suite 
600, Washington, DC 20024. Telephone: (202) 586-2945. If possible, 
please submit all items on a CD, in which case it is not necessary to 
include printed copies.
    Written comments regarding the burden-hour estimates or other 
aspects of the collection-of-information requirements contained in this 
proposed rule may be submitted to Office of Energy Efficiency and 
Renewable Energy through the methods listed above and by email to 
[email protected].
    No telefacsimilies (faxes) will be accepted. For detailed 
instructions on submitting comments and additional information on the 
rulemaking process, see section VII of this document (Public 
Participation).
    Docket: The docket, which includes Federal Register notices, public 
meeting attendee lists and transcripts, comments, and other supporting 
documents/materials, is available for review at www.regulations.gov. 
All documents in the docket are listed in the www.regulations.gov 
index. However, some documents listed in the index may not be 
publically available, such as those containing information that is 
exempt from public disclosure.
    A link to the docket Web page can be found at: http://www.regulations.gov/#!docketDetail;D=EERE-2014-BT-STD-0031. This Web 
page contains a link to the docket for this notice on the 
www.regulations.gov site. The www.regulations.gov Web page contains 
simple instructions on how to access all documents, including public 
comments, in the docket. See section VII, ``Public Participation,'' for 
further information on how to submit comments through 
www.regulations.gov.
    For further information on how to submit a comment, review other 
public comments and the docket, or participate in the public meeting, 
contact Ms. Brenda Edwards at (202) 586-2945 or by email: 
[email protected].

FOR FURTHER INFORMATION CONTACT:  Mr. John Cymbalsky, U.S. Department 
of Energy, Office of Energy Efficiency and Renewable Energy, Building 
Technologies Office, EE-5B, 1000 Independence Avenue SW., Washington, 
DC 20585-0121. Telephone: (202) 287-1692. Email: 
[email protected].
    Mr. Eric Stas or Ms. Johanna Hariharan, U.S. Department of Energy, 
Office of the General Counsel, GC-33, 1000 Independence Avenue SW., 
Washington, DC 20585-0121. Telephone: (202) 586-9507 or (202) 287-6307. 
Email: [email protected] or [email protected].
    For information on how to submit or review public comments, contact 
Ms. Brenda Edwards at (202) 586-2945 or by email: 
[email protected].

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Summary of the Proposed Rule
    A. Benefits and Costs to Consumers
    B. Impact on Manufacturers
    C. National Benefits
II. Introduction
    A. Authority
    B. Background
    1. Current Standards
    2. History of Standards Rulemaking for Residential Furnaces
III. General Discussion
    A. Product Classes and Scope of Coverage
    B. Test Procedure
    C. Technological Feasibility
    1. General
    2. Maximum Technologically Feasible Levels

[[Page 13121]]

    D. Energy Savings
    1. Determination of Savings
    2. Significance of Savings
    E. Economic Justification
    1. Specific Criteria
    a. Economic Impact on Manufacturers and Consumers
    b. Savings in Operating Costs Compared to Increase in Price (LCC 
and PBP)
    c. Energy Savings
    d. Lessening of Utility or Performance of Products
    e. Impact of Any Lessening of Competition
    f. Need for National Energy Conservation
    g. Other Factors
    2. Rebuttable Presumption
    F. Regional Standards
    G. Compliance Date
    H. Standby Mode and Off Mode
IV. Methodology
    A. Market and Technology Assessment
    1. Definition and Scope of Coverage
    2. Product Classes
    3. Technology Options
    B. Screening Analysis
    1. Screened-Out Technologies
    2. Remaining Technologies
    C. Engineering Analysis
    1. Efficiency Levels
    a. Baseline Efficiency Level and Product Characteristics
    b. Other Energy Efficiency Levels
    2. Cost-Assessment Methodology
    a. Teardown Analysis
    b. Cost Model
    c. Manufacturing Production Costs
    d. Cost-Efficiency Relationship
    e. Manufacturer Markup
    f. Manufacturer Interviews
    D. Markups Analysis
    E. Energy Use Analysis
    1. Active Mode
    2. Standby Mode and Off Mode
    F. Life-Cycle Cost and Payback Period Analysis
    1. Inputs to Installed Cost
    2. Installation Cost
    3. Inputs to Operating Costs
    a. Energy Consumption
    b. Energy Prices
    c. Maintenance and Repair Costs
    d. Product Lifetime
    e. Discount Rates
    f. Base-Case Efficiency
    4. Accounting for Product Switching Under Potential Standards
    5. Inputs to Payback Period Analysis
    G. Shipments Analysis
    1. Overview
    2. Impact of Potential Standards on Shipments: Accounting for 
Product Switching
    H. National Impact Analysis
    1. Efficiency in the Base Case and Standards Cases
    2. Product Cost Trend
    3. Product Switching
    4. National Energy Savings
    5. Net Present Value of Consumer Benefit
    I. Consumer Subgroup Analysis
    J. Manufacturer Impact Analysis
    1. Overview
    2. Government Regulatory Impact Model
    a. Government Regulatory Impact Model Key Inputs
    b. Government Regulatory Impact Model Scenarios
    3. Manufacturer Interviews
    K. Emissions Analysis
    L. Monetizing Carbon Dioxide and Other Emissions Impacts
    1. Social Cost of Carbon
    2. Valuation of Other Emissions Reductions
    M. Utility Impact Analysis
    N. Employment Impact Analysis
V. Analytical Results and Conclusions
    A. Trial Standard Levels
    1. TSLs for AFUE
    2. TSLs for Standby Mode and Off Mode Power
    B. Economic Justification and Energy Savings
    1. Economic Impacts on Individual Consumers
    a. Life-Cycle Cost and Payback Period
    b. Consumer Subgroup Analysis
    c. Rebuttable Presumption Payback Period
    2. Economic Impacts on Manufacturers
    a. Industry Cash-Flow Analysis Results
    b. Direct Impacts on Employment
    c. Impacts on Manufacturing Capacity
    d. Impacts on Subgroups of Manufacturers
    e. Cumulative Regulatory Burden
    3. National Impact Analysis
    a. Significance of Energy Savings
    b. Net Present Value of Consumer Costs and Benefits
    c. Indirect Impacts on Employment
    4. Impact on Product Utility or Performance
    5. Impact of Any Lessening of Competition
    6. Need of the Nation To Conserve Energy
    7. Other Factors
    8. Summary of National Economic Impacts
    C. Proposed Standards
    1. Benefits and Burdens of TSLs Considered for NWGFs and MHGFs 
AFUE Standards
    2. Benefits and Burdens of TSLs Considered for NWGFs and MHGFs 
Standby Mode and Off Mode Standards
    3. Summary of Benefits and Costs (Annualized) of the Proposed 
Standards
VI. Procedural Issues and Regulatory Review
    A. Review Under Executive Orders 12866 and 13563
    B. Review Under the Regulatory Flexibility Act
    1. Description and Estimated Number of Small Entities Regulated
    2. Description and Estimate of Compliance Requirements
    3. Duplication, Overlap, and Conflict With Other Rules and 
Regulations
    4. Significant Alternatives to the Rule
    C. Review Under the Paperwork Reduction Act of 1995
    D. Review Under the National Environmental Policy Act of 1969
    E. Review Under Executive Order 13132
    F. Review Under Executive Order 12988
    G. Review Under the Unfunded Mandates Reform Act of 1995
    H. Review Under the Treasury and General Government 
Appropriations Act, 1999
    I. Review Under Executive Order 12630
    J. Review Under the Treasury and General Government 
Appropriations Act, 2001
    K. Review Under Executive Order 13211
    L. Review Under the Information Quality Bulletin for Peer Review
VII. Public Participation
    A. Attendance at the Public Meeting
    B. Procedure for Submitting Requests To Speak and Prepared 
General Statements for Distribution
    C. Conduct of the Public Meeting
    D. Submission of Comments
    E. Issues on Which DOE Seeks Comment
VIII. Approval of the Office of the Secretary

I. Summary of the Proposed Rule

    Title III, Part B \1\ of the Energy Policy and Conservation Act of 
1975 (EPCA or the Act), Public Law 94-163 (42 U.S.C. 6291-6309, as 
codified), established the Energy Conservation Program for Consumer 
Products Other Than Automobiles.\2\ These products include non-
weatherized gas furnaces (NWGFs) and mobile home gas furnaces (MHGFs), 
the subject of this notice.
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    \1\ For editorial reasons, upon codification in the U.S. Code, 
Part B was redesignated Part A.
    \2\ All references to EPCA in this document refer to the statute 
as amended through the American Energy Manufacturing Technical 
Corrections Act (AEMTCA), Public Law 112-210 (Dec. 18, 2012).
---------------------------------------------------------------------------

    Pursuant to EPCA, any new or amended energy conservation standard 
must be designed to achieve the maximum improvement in energy 
efficiency that is technologically feasible and economically justified. 
(42 U.S.C. 6295(o)(2)(A)) Furthermore, the new or amended standard must 
result in a significant conservation of energy. (42 U.S.C. 
6295(o)(3)(B)) EPCA specifically provides that DOE must conduct a 
second round of energy conservation standards rulemaking for NWGFs and 
MHGFs. (42 U.S.C. 6295(f)(4)(C)) The statute also provides that not 
later than 6 years after issuance of any final rule establishing or 
amending a standard, DOE must publish either a notice of determination 
that standards for the product do not need to be amended, or a notice 
of proposed rulemaking including new proposed energy conservation 
standards. (42 U.S.C. 6295(m)(1)) Once complete, this rulemaking will 
satisfy both statutory provisions.
    In accordance with these and other statutory provisions discussed 
in this document, DOE proposes amended energy conservation standards 
for NWGFs and MHGFs. The proposed standards, which are expressed as 
minimum annual fuel utilization efficiencies (AFUE), are shown in Table 
I.1. Table I.2 shows the proposed standards for standby mode and off 
mode. These proposed standards, if adopted, would apply to all products 
listed in Table I.1 and Table I.2 and manufactured in, or imported 
into, the

[[Page 13122]]

United States on or after the date 5 years after the publication of the 
final rule for this rulemaking.

     Table I.1--Proposed AFUE Energy Conservation Standards for Non-
      Weatherized Gas Furnaces and Mobile Home Gas Furnaces (TSL 3)
------------------------------------------------------------------------
                                                 Proposed standard: AFUE
                 Product class                             (%)
------------------------------------------------------------------------
Non-Weatherized Gas-Fired Furnaces............                       92
Mobile Home Gas-Fired Furnaces................                       92
------------------------------------------------------------------------


    Table I.2--Proposed Standby Mode and Off Mode Energy Conservation
 Standards for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces
                  Electrical Energy Consumption (TSL 3)
------------------------------------------------------------------------
                                     Proposed standby  Proposed off mode
           Product class              mode standard:    standard: PW,OFF
                                      PW,SB (watts)         (watts)
------------------------------------------------------------------------
Non-Weatherized Gas-Fired Furnaces                8.5                8.5
Mobile Home Gas-Fired Furnaces....                8.5                8.5
------------------------------------------------------------------------

A. Benefits and Costs to Consumers

    Table I.3 and Table I.4 present DOE's evaluation of the economic 
impacts of the proposed AFUE and standby and off mode standards on 
consumers of NWGFs and MHGFs, as measured by the average life-cycle 
cost (LCC) savings and the simple payback period (PBP).\3\ In both 
cases, the average LCC savings are positive for all product classes. 
The PBP for each product class falls well below the average furnace 
lifetime, which is approximately 22 years.\4\
---------------------------------------------------------------------------

    \3\ The average LCC savings are measured relative to the base-
case efficiency distribution, which depicts the furnace market in 
the compliance year (see section IV.F.3.f). The simple PBP, which is 
designed to compare specific furnace AFUE and standby and off mode 
efficiency levels, is measured relative to the baseline furnace AFUE 
and standby and off mode (see section IV.C.1.a). The AFUE standard 
results include the projected fuel switching as described in chapter 
8 of the NOPR TSD.
    \4\ See appendix 8G of the NOPR TSD for details of the 
derivation of the average furnace lifetime.

  Table I.3--Impacts of Proposed AFUE Energy Conservation Standards on
                Consumers of Residential Furnaces (TSL 3)
------------------------------------------------------------------------
                                       Average LCC       Simple payback
           Product class             savings (2013$)     period (years)
------------------------------------------------------------------------
Non-Weatherized Gas-Fired Furnaces               $305                7.2
Mobile Home Gas-Fired Furnaces....                691                2.2
------------------------------------------------------------------------


   Table I.4--Impacts of Proposed Standby Mode and Off Mode Electrical
    Energy Consumption Energy Conservation Standards on Consumers of
                      Residential Furnaces (TSL 3)
------------------------------------------------------------------------
                                       Average  LCC     Median  payback
           Product class             savings (2013$)     period (years)
------------------------------------------------------------------------
Non-Weatherized Gas Furnace.......                $13                6.6
Mobile Home Gas Furnace...........                  1                5.9
------------------------------------------------------------------------

B. Impact on Manufacturers

    The industry net present value (INPV) is the sum of the discounted 
cash flows to the industry from the base year of the MIA analysis 
through the end of the analysis period (2014 to 2050). Using a real 
discount rate of 6.4 percent, DOE estimates that the INPV for 
manufacturers of NWGF and MHGF is $1055.13 million in 2013$. DOE 
analyzed the impacts of AFUE energy conservation standards and standby/
off mode electrical energy consumption energy conservation standards on 
manufacturers independently. Under the proposed AFUE standards, DOE 
expects the change in INPV to range from -7.93 percent to 0.62 percent. 
Under the proposed standby mode and off mode standards, DOE expects the 
change in INPV will range from -1.1 to 0.2 percent. Industry total 
conversion costs are expected to total $55 million as a result of the 
proposed standard.
    A key consideration in DOE's selection of the proposed standard was 
the cumulative regulatory burden associated with the residential 
furnace fan final rule, 79 FR 38130 (July 3, 2014). Today's proposed 
standard and the furnace fans standard impact the same products (i.e., 
residential furnaces), affect the same group of manufacturers, and go 
into effect in a similar timeframe. Based on currently available 
information, DOE assumes the regulatory impact of these two rules to be 
largely additive with limited opportunity for cost savings to be

[[Page 13123]]

achieved through coordinating the expenditures of the two rules. Thus, 
when considering the total conversion costs of the furnace fans final 
rule ($40.6 million), manufacturers could incur a combined total of 
$95.6 million conversion costs in the years leading up to the 2019 
furnace fans and the projected 2021 residential furnaces effective 
dates.
    DOE selected the proposed standard levels in today's proposal in 
such a way as to reduce the cumulative burden on manufacturers that 
result from the additive effects of the two rules, although higher 
standard levels for residential furnaces may have been justified based 
solely on the analytical results presented in this NOPR. See Sections 
V.B.2.e and V.C.1 for a more detail discussion of cumulative regulatory 
burden.

C. National Benefits \5\
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    \5\ Energy savings in this section refer to full-fuel-cycle 
savings (see section IV.H for discussion).
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    DOE's analyses indicate that the proposed AFUE energy conservation 
standards for NWGFs and MHGFs would save a significant amount of 
energy. The lifetime energy savings for NWGFs and MHGFs purchased in 
the 30-year period that begins in the first full year of compliance 
with amended standards (2021-2050) amount to 2.78 quads \6\ of full-
fuel-cycle energy. This is a savings of 1.1 percent relative to the 
energy use of these products in the base case without amended 
standards.
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    \6\ A quad is equal to 10\15\ British thermal units (Btu).
---------------------------------------------------------------------------

    The cumulative net present value (NPV) of total consumer costs and 
savings for the proposed NWGF and MHGF AFUE standards ranges from $3.1 
billion to $16.1 billion at 7-percent and 3-percent discount rates, 
respectively. This NPV expresses the estimated total value of future 
operating-cost savings minus the estimated increased installed product 
costs for NWGFs and MHGFs purchased in 2021-2050.
    In addition, the proposed NWGF and MHGF AFUE standards would have 
significant environmental benefits. The proposed standards would result 
in cumulative emission reductions of 137 million metric tons (Mt) \7\ 
of carbon dioxide (CO2), 3,424 thousand tons of methane 
(CH4), and 816 thousand tons of nitrogen oxides 
(NOX).\8\ Projected emissions show an increase of 203 
thousand tons of sulfur dioxide (SO2), 2.61 thousand tons of 
nitrous oxide (N2O), and 0.629 tons of mercury (Hg). The 
increase is due to projected switching from NWGFs to electric heat 
pumps and electric furnaces under the proposed standards. The 
cumulative reduction in CO2 emissions through 2030 amounts 
to 4.2 Mt, which is a savings of 0.2 percent relative to the 
CO2 emissions in the base case without amended standards.
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    \7\ A metric ton is equivalent to 1.1 short tons. Results for 
emissions other than CO2 are presented in short tons.
    \8\ DOE calculated emissions reductions relative to the Annual 
Energy Outlook 2014 (AEO 2014) Reference case, which generally 
represents current legislation and environmental regulations, 
including recent government actions for which implementing 
regulations were available as of October 31, 2013.
---------------------------------------------------------------------------

    The value of the CO2 reductions is calculated using a 
range of values per metric ton of CO2 (otherwise known as 
the Social Cost of Carbon, or SCC) developed by a recent Federal 
interagency process.\9\ The derivation of the SCC values is discussed 
in section IV.L. Using discount rates appropriate for each set of SCC 
values, DOE estimates the present monetary value of the CO2 
emissions reduction is between $0.7 billion and $11.7 billion. 
Additionally, DOE estimates the present monetary value of the 
NOX emissions reduction to be $0.32 billion to $0.88 billion 
at 7-percent and 3-percent discount rates, respectively.\10\
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    \9\ Technical Update of the Social Cost of Carbon for Regulatory 
Impact Analysis Under Executive Order 12866, Interagency Working 
Group on Social Cost of Carbon, United States Government (May 2013; 
revised November 2013) (Available at: http://www.whitehouse.gov/sites/default/files/omb/assets/inforeg/technical-update-social-cost-of-carbon-for-regulator-impact-analysis.pdf.)
    \10\ DOE is investigating valuation of avoided Hg and 
SO2 emissions.
---------------------------------------------------------------------------

    Table I.5 summarizes the national economic benefits and costs 
expected to result from the proposed AFUE standards for NWGFs and 
MHGFs.

 Table I.5--Summary of National Economic Benefits and Costs of Proposed
 AFUE Energy Conservation Standards for Non-Weatherized Gas Furnaces and
                   Mobile Home Gas Furnaces (TSL 3) *
------------------------------------------------------------------------
                                     Present value
             Category               (billion 2013$)    Discount rate (%)
------------------------------------------------------------------------
                                Benefits
------------------------------------------------------------------------
Consumer Operating Cost Savings..                8.9                 7
                                                27.7                 3
CO2 Reduction Monetized Value                    0.7                 5
 ($12.0/t case) **...............
CO2 Reduction Monetized Value                    3.8                 3
 ($40.5/t case) **...............
CO2 Reduction Monetized Value                    6.1                 2.5
 ($62.4/t case) **...............
CO2 Reduction Monetized Value                   11.7                 3
 ($119/t case) **................
NOX Reduction Monetized Value (at                0.9                 3
 $2,684/ton) **..................
                                  --------------------------------------
Total Benefits [dagger]..........               13.0                 7
                                                32.4                 3
------------------------------------------------------------------------
                                  Costs
------------------------------------------------------------------------
Consumer Incremental Installed                   5.8                 7
 Costs...........................
                                                11.6                 3
------------------------------------------------------------------------
                           Total Net Benefits
------------------------------------------------------------------------
Including Emissions Reduction                    7.2                 7
 Monetized Value [dagger]........
                                                20.8                 3
------------------------------------------------------------------------
* This table presents the costs and benefits associated with NWGFs and
  MHGFs shipped in 2021-2050. These results include benefits to
  consumers which accrue after 2050 from the products purchased in 2021-
  2050. The results account for the incremental variable and fixed costs
  incurred by manufacturers due to the standard, some of which may be
  incurred in preparation for the rule.

[[Page 13124]]

 
** The CO2 values represent global monetized values of the SCC, in
  2013$, in 2015 under several scenarios of the updated SCC values. The
  first three cases use the averages of SCC distributions calculated
  using 5%, 3%, and 2.5% discount rates, respectively. The fourth case
  represents the 95th percentile of the SCC distribution calculated
  using a 3% discount rate. The SCC time series used by DOE incorporate
  an escalation factor. The value for NOX is the average of high and low
  values found in the literature.
[dagger] Total Benefits for both the 3% and 7% cases are derived using
  the series corresponding to average SCC with a 3-percent discount rate
  ($40.5/t in 2015).

    For the proposed standby mode and off mode standards, the lifetime 
energy savings for NWGFs and MHGFs purchased in the 30-year period that 
begins in the first full year of compliance with amended standards 
(2021-2050) amount to 0.28 quads of energy. This is a savings of 15.9 
percent relative to the standby energy use of these products in the 
base case without amended standards.
    The cumulative net present value (NPV) of total consumer costs and 
savings for the proposed NWGF and MHGF standby mode and off mode 
standards ranges from $1.0 billion to $3.3 billion at 7-percent and 3-
percent discount rates, respectively. This NPV expresses the estimated 
total value of future operating-cost savings minus the estimated 
increased product costs for NWGFs and MHGFs purchased in 2021-2050.
    In addition, the proposed standby mode and off mode standards would 
have significant environmental benefits. The energy savings would 
result in cumulative emission reductions of 15.6 Mt of CO2, 
75 thousand tons of CH4, 0.22 thousand tons of 
N2O, 13.0 thousand tons of SO2, 24.3 thousand 
tons of NOX, and 0.04 tons of Hg. The cumulative reduction 
in CO2 emissions through 2030 amounts to 1.5 Mt.
    As noted above, the value of the CO2 reductions is 
calculated using a range of SCC values developed by a recent Federal 
interagency process. Using discount rates appropriate for each set of 
SCC values, DOE estimates the present monetary value of the 
CO2 emissions reduction is between $0.09 billion and $1.37 
billion. Additionally, DOE estimates the present monetary value of the 
NOX emissions reduction to be $0.01 billion to $0.03 billion 
at 7-percent and 3-percent discount rates, respectively.
    Table I.6 summarizes the national economic benefits and costs 
expected to result from the proposed standby mode and off mode 
standards for NWGFs and MHGFs.

 Table I.6--Summary of National Economic Benefits and Costs of Proposed
    Standby Mode and Off Mode Energy Conservation Standards for Non-
     Weatherized Gas Furnaces and Mobile Home Gas Furnaces (TSL 3) *
------------------------------------------------------------------------
                                     Present value
            Category                (billion 2013$)   Discount rate  (%)
------------------------------------------------------------------------
                                Benefits
------------------------------------------------------------------------
Consumer Operating Cost Savings.                1.4                  7
                                                3.9                  3
CO2 Reduction Monetized Value                   0.1                  5
 ($12.0/t case) **..............
CO2 Reduction Monetized Value                   0.4                  3
 ($40.5/t case) **..............
CO2 Reduction Monetized Value                   0.7                  2.5
 ($62.4/t case) **..............
CO2 Reduction Monetized Value                   1.4                  3
 ($119/t case) **...............
NOX Reduction Monetized Value                   0.01                 7
 (at $2,684/ton) **.............
                                                0.03                 3
                                 ---------------------------------------
Total Benefits [dagger].........                1.8                  7
                                                4.4                  3
------------------------------------------------------------------------
                                  Costs
------------------------------------------------------------------------
Consumer Incremental Installed                  0.33                 7
 Costs..........................
                                                0.67                 3
------------------------------------------------------------------------
                           Total Net Benefits
------------------------------------------------------------------------
Including Emissions Reduction                   1.5                  7
 Monetized Value [dagger].......
                                                3.7                  3
------------------------------------------------------------------------
* This table presents the costs and benefits associated with NWGFs and
  MHGFs shipped in 2021-2050. These results include benefits to
  consumers which accrue after 2050 from the products purchased in 2021-
  2050. The results account for the incremental variable and fixed costs
  incurred by manufacturers due to the standard, some of which may be
  incurred in preparation for the rule.
** The CO2 values represent global monetized values of the SCC, in
  2013$, in 2015 under several scenarios of the updated SCC values. The
  first three cases use the averages of SCC distributions calculated
  using 5%, 3%, and 2.5% discount rates, respectively. The fourth case
  represents the 95th percentile of the SCC distribution calculated
  using a 3% discount rate. The SCC time series used by DOE incorporate
  an escalation factor. The value for NOX is the average of high and low
  values found in the literature.
[dagger] Total Benefits for both the 3% and 7% cases are derived using
  the series corresponding to average SCC with a 3-percent discount rate
  ($40.5/t in 2015).

    The benefits and costs of the proposed energy conservation 
standards, for NWGFs and MHGFs products sold in 2021-2050, can also be 
expressed in terms of annualized values. Benefits and costs for the 
AFUE standards are considered separately from benefits and costs for 
the standby mode and off mode electrical consumption standards, because 
it was not feasible to develop a single, integrated standard. As 
discussed in the October 20, 2010 test procedure final rule, DOE 
concluded that due to the magnitude of the active mode energy 
consumption as compared to the standby mode and off mode electrical 
consumption, an integrated metric would not be feasible because the 
standby and off mode electrical consumption would be a de minimis 
portion of the overall energy consumption. 75 FR 64621, 64627. Thus, an 
integrated metric could not be used to effectively regulate the standby

[[Page 13125]]

mode and off mode energy consumption. The annualized monetary values 
are the sum of: (1) The annualized national economic value of the 
benefits from consumer operation of products that meet the proposed new 
or amended standards (consisting primarily of operating cost savings 
from using less energy, minus increases in product purchase and 
installation costs, which is another way of representing consumer NPV), 
and (2) the annualized monetary value of the benefits of emission 
reductions, including CO2 emission reductions.\11\
---------------------------------------------------------------------------

    \11\ To convert the time-series of costs and benefits into 
annualized values, DOE calculated a present value in 2014, the year 
used for discounting the NPV of total consumer costs and savings. 
For the benefits, DOE calculated a present value associated with 
each year's shipments in the year in which the shipments occur 
(e.g., 2020 or 2030), and then discounted the present value from 
each year to 2014. The calculation uses discount rates of 3 and 7 
percent for all costs and benefits except for the value of 
CO2 reductions, for which DOE used case-specific discount 
rates, as shown in Table I.7. Using the present value, DOE then 
calculated the fixed annual payment over a 30-year period, starting 
in the compliance year, that yields the same present value.
---------------------------------------------------------------------------

    Although combining the values of operating savings and 
CO2 emission reductions provides a useful perspective, two 
issues should be considered. First, the national operating savings are 
domestic U.S. consumer monetary savings that occur as a result of 
market transactions, whereas the value of CO2 reductions is 
based on a global value. Second, the assessments of operating cost 
savings and CO2 savings are performed with different methods 
that use different time frames for analysis. The national operating 
cost savings is measured for the lifetime of NWGFs and MHGFs shipped in 
2021-2050. The SCC values, on the other hand, reflect the present value 
of some future climate-related impacts resulting from the emission of 
one ton of carbon dioxide in each year. These impacts continue well 
beyond 2100.
    Estimates of annualized benefits and costs of the proposed AFUE 
standards are shown in Table I.7. The results under the primary 
estimate are as follows. Using a 7-percent discount rate for benefits 
and costs other than CO2 reduction, for which DOE used a 3-
percent discount rate along with the average SCC series that uses a 3-
percent discount rate ($40.5/t in 2015), the cost of the NWGFs and 
MHGFs standards proposed in this rule is $701 million per year in 
increased equipment costs, while the estimated benefits are $1,074 
million per year in reduced equipment operating costs, $231 million per 
year in CO2 reductions, and $39 million per year in reduced 
NOX emissions. In this case, the net benefit would amount to 
$642 million per year. Using a 3-percent discount rate for all benefits 
and costs and the average SCC series that uses a 3-percent discount 
rate ($40.5/t in 2015), the estimated cost of the NWGFs and MHGFs 
standards proposed in this rule is $709 million per year in increased 
equipment costs, while the estimated benefits are $1,690 million per 
year in reduced equipment operating costs, $231 million per year in 
CO2 reductions, and $54 million per year in reduced 
NOX emissions. In this case, the net benefit would amount to 
$1,264 million per year.

                  Table I.7--Annualized Benefits and Costs of Proposed AFUE Energy Conservation Standards for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces (TSL 3)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                             (Million 2013$/year)
                                                Discount rate (%)           --------------------------------------------------------------------------------------------------------------------
                                                                                      Primary  estimate *               Low net  benefits  estimate *          High net  benefits  estimate *
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                            Benefits
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings.....  7....................................  1,074................................  903..................................  1,174.
                                      3....................................  1,690................................  1,383................................  1,887.
CO2 Reduction Monetized Value ($12.0/ 5....................................  64...................................  59...................................  72.
 t case) **.
CO2 Reduction Monetized Value ($40.5/ 3....................................  231..................................  211..................................  260.
 t case) **.
CO2 Reduction Monetized Value ($62.4/ 2.5..................................  340..................................  311..................................  384.
 t case) **.
CO2 Reduction Monetized Value ($119/  3....................................  715..................................  654..................................  805.
 t case) **.
NOX Reduction Monetized Value (at     7....................................  38.50................................  35.68................................  42.48.
 $2,684/ton) **.
                                      3....................................  53.52................................  49.26................................  59.53.
    Total Benefits [dagger].........  7 plus CO2 range.....................  1,177 to 1,828.......................  998 to 1,593.........................  1,288 to 2,022.
                                      7....................................  1,343................................  1,150................................  1,476.
                                      3 plus CO2 range.....................  1,807 to 2,458.......................  1,491 to 2,087.......................  2,018 to 2,751.
                                      3....................................  1,974................................  1,643................................  2,206.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                              Costs
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Consumer Incremental Installed Costs  7....................................  701..................................  750..................................  683.
                                      3....................................  709..................................  766..................................  689.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                          Net Benefits
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Total [dagger]..................  7 plus CO2 range.....................  476 to 1,127.........................  248 to 843...........................  605 to 1,339.
                                      7....................................  642..................................  400..................................  793.
                                      3 plus CO2 range.....................  1,098 to 1,749.......................  725 to 1,320.........................  1,329 to 2,062.

[[Page 13126]]

 
                                      3....................................  1,264................................  877..................................  1,517.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
* This table presents the annualized costs and benefits associated with NWGFs and MHGFs shipped in 2021-2050. These results include benefits to consumers which accrue after 2050 from the
  products purchased in 2021-2050. The results account for the incremental variable and fixed costs incurred by manufacturers due to the standard, some of which may be incurred in preparation
  for the rule. The Primary, Low Benefits, and High Benefits Estimates utilize projections of energy prices from the AEO 2014 Reference case, Low Estimate, and High Estimate, respectively. In
  addition, incremental product costs reflect a modest decline rate for projected product price trends in the Primary Estimate, a constant rate in the Low Benefits Estimate, and a higher
  decline rate in the High Benefits Estimate. The methods used to derive projected price trends are explained in section IV.F.1.
** The CO2 values represent global monetized values of the SCC, in 2013$, in 2015 under several scenarios of the updated SCC values. The first three cases use the averages of SCC distributions
  calculated using 5%, 3%, and 2.5% discount rates, respectively. The fourth case represents the 95th percentile of the SCC distribution calculated using a 3% discount rate. The SCC time
  series used by DOE incorporate an escalation factor. The value for NOX is the average of high and low values found in the literature.
[dagger] Total Benefits for both the 3% and 7% cases are derived using the series corresponding to the average SCC with a 3-percent discount rate ($40.5/t in 2015). In the rows labeled ``7%
  plus CO2 range'' and ``3% plus CO2 range,'' the operating cost and NOX benefits are calculated using the labeled discount rate, and those values are added to the full range of CO2 values.

    Estimates of annualized benefits and costs of the proposed standby 
mode and off mode standards are shown in Table I.8. The results under 
the primary estimate are as follows. Using a 7-percent discount rate 
for benefits and costs other than CO2 reduction, for which 
DOE used a 3-percent discount rate along with the average SCC series 
that uses a 3-percent discount rate ($40.5/t in 2015), the estimated 
cost of the NWGFs and MHGFs standby mode and off mode standards 
proposed in this rule is $40.4 million per year in increased equipment 
costs, while the estimated benefits are $165.4 million per year in 
reduced equipment operating costs, $26.9 million per year in 
CO2 reductions, and $1.1 million per year in reduced 
NOX emissions. In this case, the net benefit would amount to 
$153.0 million per year. Using a 3-percent discount rate for all 
benefits and costs and the average SCC series that uses a 3-percent 
discount rate ($40.5/t in 2015), the estimated cost of the NWGFs and 
MHGFs standby mode and off mode standards proposed in this rule is 
$41.0 million per year in increased equipment costs, while the 
estimated benefits are $240.2 million per year in reduced equipment 
operating costs, $26.9 million per year in CO2 reductions, 
and $1.6 million per year in reduced NOX emissions. In this 
case, the net benefit would amount to $227.6 million per year.

       Table I.8--Annualized Benefits and Costs of Proposed Standby Mode and Off Mode Energy Conservation Standards for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces (TSL 3)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                             (Million 2013$/year)
                                                Discount rate (%)           --------------------------------------------------------------------------------------------------------------------
                                                                                      Primary  estimate *               Low net  benefits  estimate *          High net  benefits  estimate *
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                            Benefits
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings.....  7....................................  165.4................................  149.7................................  190.8
                                      3....................................  240.2................................  214.9................................  281.5
CO2 Reduction Monetized Value ($12.0/ 5....................................  7.65.................................  6.94.................................  8.60
 t case) **.
CO2 Reduction Monetized Value ($40.5/ 3....................................  26.87................................  24.31................................  30.28
 t case) **.
CO2 Reduction Monetized Value ($62.4/ 2.5..................................  39.46................................  35.68................................  44.50
 t case) **.
CO2 Reduction Monetized Value ($119/  3....................................  83.18................................  75.26................................  93.76
 t case) **.
NOX Reduction Monetized Value (at     7....................................  1.14.................................  1.04.................................  1.27
 $2,684/ton) **.
                                      3....................................  1.59.................................  1.44.................................  1.78
    Total Benefits [dagger].........  7 plus CO2 range.....................  174 to 250...........................  158 to 226...........................  201 to 286
                                      7....................................  193.4................................  175.0................................  222.4
                                      3 plus CO2 range.....................  249 to 325...........................  223 to 292...........................  292 to 377
                                      3....................................  268.6................................  240.7................................  313.5
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                              Costs
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Consumer Incremental Installed Costs  7....................................  40.35................................  45.01................................  36.86
                                      3....................................  41.02................................  46.13................................  37.19
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

[[Page 13127]]

 
                                                                                          Net Benefits
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Total [dagger]..................  7 plus CO2 range.....................  134 to 209...........................  113 to 181...........................  164 to 249
                                      7....................................  153.0................................  130.0................................  185.5
                                      3 plus CO2 range.....................  208 to 284...........................  177 to 246...........................  255 to 340
                                      3....................................  227.6................................  194.6................................  276.3
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
* This table presents the annualized costs and benefits associated with NWGFs and MHGFs shipped in 2021-2050. These results include benefits to consumers which accrue after 2050 from the
  products purchased in 2021-2050. The results account for the incremental variable and fixed costs incurred by manufacturers due to the standard, some of which may be incurred in preparation
  for the rule. The Primary, Low Benefits, and High Benefits Estimates utilize projections of energy prices from the AEO 2014 Reference case, Low Estimate, and High Estimate, respectively.
** The CO2 values represent global monetized values of the SCC, in 2013$, in 2015 under several scenarios of the updated SCC values. The first three cases use the averages of SCC distributions
  calculated using 5%, 3%, and 2.5% discount rates, respectively. The fourth case represents the 95th percentile of the SCC distribution calculated using a 3% discount rate. The SCC time
  series used by DOE incorporate an escalation factor. The value for NOX is the average of high and low values found in the literature.
[dagger] Total Benefits for both the 3% and 7% cases are derived using the series corresponding to the average SCC with a 3-percent discount rate ($40.5/t in 2015). In the rows labeled ``7%
  plus CO2 range'' and ``3% plus CO2 range,'' the operating cost and NOX benefits are calculated using the labeled discount rate, and those values are added to the full range of CO2 values.

    Estimates of the combined annualized benefits and costs of the 
proposed AFUE and standby mode and off mode standards are shown in 
Table I.9. The results under the primary estimate are as follows. Using 
a 7-percent discount rate for benefits and costs other than 
CO2 reduction, for which DOE used a 3-percent discount rate 
along with the average SCC series that uses a 3-percent discount rate 
($40.5/t in 2015), the estimated cost of the NWGFs and MHGFs AFUE and 
standby mode and off mode standards proposed in this rule is $741.2 
million per year in increased equipment costs, while the estimated 
benefits are $1,240 million per year in reduced equipment operating 
costs, $257.4 million per year in CO2 reductions, and $39.6 
million per year in reduced NOX emissions. In this case, the 
net benefit would amount to $795.5 million per year. Using a 3-percent 
discount rate for all benefits and costs and the average SCC series 
that uses a 3-percent discount rate ($40.5/t in 2015), the estimated 
cost of the NWGFs and MHGFs AFUE and standby mode and off mode 
standards proposed in this rule is $750.5 million per year in increased 
equipment costs, while the estimated benefits are $1,930 million per 
year in reduced equipment operating costs, $257.4 million per year in 
CO2 reductions, and $55.1 million per year in reduced 
NOX emissions. In this case, the net benefit would amount to 
$1,492 million per year.

   Table I.9--Annualized Benefits and Costs of Proposed AFUE and Standby Mode and Off Mode Energy Conservation Standards for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces (TSL 3)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                             (Million 2013$/year)
                                                Discount rate (%)           --------------------------------------------------------------------------------------------------------------------
                                                                                      Primary  estimate *               Low net  benefits  estimate *          High net  benefits  estimate *
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                            Benefits
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings.....  7....................................  1,240................................  1,053................................  1,365.
                                      3....................................  1,930................................  1,598................................  2,168.
CO2 Reduction Monetized Value ($12.0/ 5....................................  71.49................................  65.60................................  80.15.
 t case) **.
CO2 Reduction Monetized Value ($40.5/ 3....................................  257.4................................  235.2................................  290.0.
 t case) **.
CO2 Reduction Monetized Value ($62.4/ 2.5..................................  379.6................................  346.6................................  428.0.
 t case) **.
CO2 Reduction Monetized Value ($119/  3....................................  798.1................................  729.2................................  898.9.
 t case) **.
NOX Reduction Monetized Value (at     7....................................  39.64................................  36.72................................  43.75.
 $2,684/ton) **.
                                      3....................................  55.11................................  50.70................................  61.31.
    Total Benefits [dagger].........  7 plus CO2 range.....................  1,351 to 2,077.......................  1,155 to 1,819.......................  1,489 to 2,308.
                                      7....................................  1,537................................  1,325................................  1,699.
                                      3 plus CO2 range.....................  2,057 to 2,783.......................  1,715 to 2,378.......................  2,310 to 3,128.
                                      3....................................  2,243................................  1,884................................  2,519.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

[[Page 13128]]

 
                                                                                              Costs
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Consumer Incremental Installed Costs  7....................................  741.2................................  795.0................................  719.9.
                                      3....................................  750.5................................  812.4................................  726.3.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                          Net Benefits
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Total [dagger]..................  7 plus CO2 range.....................  609.6 to 1,336.......................  360.3 to 1,024.......................  768.9 to 1,588.
                                      7....................................  795.5................................  529.8................................  978.7.
                                      3 plus CO2 range.....................  1,306 to 2,033.......................  0,902 to 1,566.......................  1,583 to 2,402.
                                      3....................................  1,492................................  1,072................................  1,793.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
* This table presents the annualized costs and benefits associated with NWGFs and MHGFs shipped in 2021-2050. These results include benefits to consumers which accrue after 2050 from the
  products purchased in 2021-2050. The results account for the incremental variable and fixed costs incurred by manufacturers due to the standard, some of which may be incurred in preparation
  for the rule. The Primary, Low Benefits, and High Benefits Estimates utilize projections of energy prices from the AEO 2014 Reference case, Low Estimate, and High Estimate, respectively.
** The CO2 values represent global monetized values of the SCC, in 2013$, in 2015 under several scenarios of the updated SCC values. The first three cases use the averages of SCC distributions
  calculated using 5%, 3%, and 2.5% discount rates, respectively. The fourth case represents the 95th percentile of the SCC distribution calculated using a 3% discount rate. The SCC time
  series used by DOE incorporate an escalation factor. The value for NOX is the average of high and low values found in the literature.
[dagger] Total Benefits for both the 3% and 7% cases are derived using the series corresponding to the average SCC with a 3-percent discount rate ($40.5/t in 2015). In the rows labeled ``7%
  plus CO2 range'' and ``3% plus CO2 range,'' the operating cost and NOX benefits are calculated using the labeled discount rate, and those values are added to the full range of CO2 values.

    DOE has tentatively concluded that the proposed standards (for AFUE 
as well as standby mode and off mode) represent the maximum improvement 
in energy efficiency that is technologically feasible and economically 
justified, and would result in the significant conservation of energy. 
DOE further notes that products achieving these standard levels are 
already commercially available for all product classes covered by this 
proposal. Based on the analyses described above, DOE has tentatively 
concluded that the benefits of the proposed standards to the Nation 
(energy savings, positive NPV of consumer benefits, consumer LCC 
savings, and emission reductions) would outweigh the burdens (loss of 
INPV for manufacturers and LCC increases for some consumers).
    DOE also considered more-stringent energy efficiency levels as 
trial standard levels, and is still considering them in this 
rulemaking. However, DOE has tentatively concluded that the potential 
burdens of the more-stringent energy efficiency levels would outweigh 
the projected benefits. Based on consideration of the public comments 
DOE receives in response to this NOPR and related information collected 
and analyzed during the course of this rulemaking effort, DOE may adopt 
energy efficiency levels presented in this NOPR that are either higher 
or lower than the proposed standards, or some combination of level(s) 
that incorporate the proposed standards in part.

II. Introduction

    The following section briefly discusses the statutory authority 
underlying today's proposal, as well as some of the relevant historical 
background related to the establishment of amended standards for 
residential non-weatherized gas furnaces and mobile home gas furnaces.

A. Authority

    Title III, Part B of the Energy Policy and Conservation Act of 1975 
(EPCA or the Act), Public Law 94-163 (42 U.S.C. 6291-6309, as codified) 
established the Energy Conservation Program for Consumer Products Other 
Than Automobiles, a program covering most major household appliances 
(collectively referred to as ``covered products''). These products 
include the residential furnaces that are the subject of this 
rulemaking. (42 U.S.C. 6292(a)(5)) EPCA, as amended, prescribed energy 
conservation standards for these products (42 U.S.C. 6295(f)(1) and 
(2)), and directed DOE to conduct further rulemakings to determine 
whether to amend these standards (42 U.S.C. 6295(f)(4)). Under 42 
U.S.C. 6295(m), the agency must periodically review established energy 
conservation standards for a covered product; under this requirement, 
such review must be conducted no later than 6 years from the issuance 
of any final rule establishing or amending a standard for a covered 
product.
    Pursuant to EPCA, DOE's energy conservation program for covered 
products consists essentially of four parts: (1) Testing; (2) labeling; 
(3) establishing Federal energy conservation standards; and (4) 
certification and enforcement procedures. The Federal Trade Commission 
(FTC) is primarily responsible for labeling, and DOE implements the 
remainder of the program. Subject to certain criteria and conditions, 
DOE is required to conduct a second round of rulemaking under 42 U.S.C. 
6295(f)(4)(C) to consider amended energy conservation standards for 
residential furnaces, and DOE is also required to consider amended 
standards under 42 U.S.C. 6295(m)(1) by June 27, 2017 (i.e., with 
either: (1) A NOPR with proposed standards, or (2) a notice of 
determination not to amend the standards within six years of issuance 
of the last final rule for residential furnaces). DOE is further 
required to develop test procedures to measure the energy efficiency, 
energy use, or estimated annual operating cost of each covered product 
prior to the adoption of a new or amended energy conservation

[[Page 13129]]

standard. (42 U.S.C. 6295(o)(3)(A) and (r)) Manufacturers of covered 
products must use the prescribed DOE test procedure as the basis for 
certifying to DOE that their products comply with the applicable energy 
conservation standards adopted under EPCA and when making 
representations to the public regarding the energy use or efficiency of 
those products. (42 U.S.C. 6293(c) and 6295(s)) Similarly, DOE must use 
these test procedures to determine whether the products comply with 
standards adopted pursuant to EPCA. (42 U.S.C. 6295(s)) The DOE test 
procedures for residential furnaces appear at title 10 of the Code of 
Federal Regulations (CFR) part 430, subpart B, appendix N. In 2012, DOE 
initiated a rulemaking to review the residential furnace and boiler 
test procedure. Details on this rulemaking are discussed in section 
III.B.
    DOE must follow specific statutory criteria for prescribing amended 
standards for covered products, including residential furnaces. As 
indicated above, any amended standard for a covered product must be 
designed to achieve the maximum improvement in energy efficiency that 
is technologically feasible and economically justified. (42 U.S.C. 
6295(o)(2)(A) and (3)(B)) Furthermore, DOE may not adopt any standard 
that would not result in the significant conservation of energy. (42 
U.S.C. 6295(o)(3)) Moreover, DOE may not prescribe a standard: (1) For 
certain products, including residential furnaces, if no test procedure 
has been established for the product, or (2) if DOE determines by rule 
that the proposed standard is not technologically feasible or 
economically justified. (42 U.S.C. 6295(o)(3)(A)-(B)) In deciding 
whether a proposed standard is economically justified, after receiving 
comments on the proposed standard, DOE must determine whether the 
benefits of the standard exceed its burdens. (42 U.S.C. 
6295(o)(2)(B)(i)) DOE must make this determination by, to the greatest 
extent practicable, considering 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 standard;
    (3) The total projected amount of energy (or as applicable, water) 
savings likely to result directly from the standard;
    (4) Any lessening of the utility or the performance of the covered 
products likely to result from 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 
standard;
    (6) The need for national energy and water conservation; and
    (7) Other factors the Secretary of Energy (Secretary) considers 
relevant. (42 U.S.C. 6295(o)(2)(B)(i)(I)-(VII))
    EPCA, as codified, also contains what is known as an ``anti-
backsliding'' provision, which prevents the Secretary from prescribing 
any amended standard that either increases the maximum allowable energy 
use or decreases the minimum required energy efficiency of a covered 
product. (42 U.S.C. 6295(o)(1)) Also, the Secretary may not prescribe 
an amended or new standard if interested persons have established by a 
preponderance of evidence that the standard is likely to result in the 
unavailability in the United States of any covered product type (or 
class) of performance characteristics (including reliability), 
features, sizes, capacities, and volumes that are substantially the 
same as those generally available in the United States. (42 U.S.C. 
6295(o)(4))
    Further, EPCA, as codified, establishes a rebuttable presumption 
that a standard is economically justified if the Secretary finds that 
the additional cost to the consumer of purchasing a product complying 
with an energy conservation standard level will be less than three 
times the value of the energy savings during the first year that the 
consumer will receive as a result of the standard, as calculated under 
the applicable test procedure. (42 U.S.C. 6295(o)(2)(B)(iii))
    Additionally, 42 U.S.C. 6295(q)(1) specifies requirements when 
promulgating an energy conservation standard for a covered product that 
has two or more subcategories. DOE must specify a different standard 
level for a type or class of covered product that has the same function 
or intended use, if DOE determines that 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 that other products within such type (or 
class) do not have and such feature justifies a higher or lower 
standard. (42 U.S.C. 6295(q)(1)) In determining whether a performance-
related feature justifies a different standard for a group of products, 
DOE must consider such factors as the utility to the consumer of the 
feature and other factors DOE deems appropriate. Id. Any rule 
prescribing such a standard must include an explanation of the basis on 
which such higher or lower level was established. (42 U.S.C. 
6295(q)(2))
    Federal energy conservation requirements generally supersede State 
laws or regulations concerning energy conservation testing, labeling, 
and standards. (42 U.S.C. 6297(a)-(c)) DOE may, however, grant waivers 
of Federal preemption for particular State laws or regulations, in 
accordance with the procedures and other provisions set forth under 42 
U.S.C. 6297(d).
    Pursuant to amendments contained in the Energy Independence and 
Security Act of 2007 (EISA 2007), Public Law 110-140, DOE may consider 
the establishment of regional energy conservation standards for 
furnaces (except boilers). (42 U.S.C. 6295(o)(6)(B)) Specifically, in 
addition to a base national standard for a product, DOE may establish 
for furnaces a single more-restrictive regional standard. (42 U.S.C. 
6295(o)(6)(B)) The regions must include only contiguous States (with 
the exception of Alaska and Hawaii, which may be included in regions 
with which they are not contiguous), and each State may be placed in 
only one region (i.e., an entire State cannot simultaneously be placed 
in two regions, nor can it be divided between two regions). (42 U.S.C. 
6295(o)(6)(C)) Further, DOE can establish the additional regional 
standards only: (1) Where doing so would produce significant energy 
savings in comparison to a single national standard; (2) if the 
regional standards are economically justified; and (3) after 
considering the impact of these standards on consumers, manufacturers, 
and other market participants, including product distributors, dealers, 
contractors, and installers. (42 U.S.C. 6295(o)(6)(D))
    Finally, pursuant to other amendments contained in EISA 2007, any 
final rule for new or amended energy conservation standards promulgated 
after July 1, 2010, is required to address standby mode and off mode 
energy use. (42 U.S.C. 6295(gg)(3)) Specifically, when DOE adopts a 
standard for a covered product after that date, it must, if justified 
by the criteria for adoption of standards under EPCA (42 U.S.C. 
6295(o)), incorporate standby mode and off mode energy use into a 
single standard, or, if that is not feasible, adopt a separate standard 
for such energy use for that product. (42 U.S.C. 6295(gg)(3)(A)-(B)) 
DOE's current test procedures for residential furnaces address standby 
mode and off mode energy use. In this rulemaking, DOE intends to adopt 
separate energy

[[Page 13130]]

conservation standards to address standby mode and off mode energy use.

B. Background

1. Current Standards
    EPCA established the energy conservation standards that apply to 
most residential furnaces currently being manufactured. The original 
standards, which are still in place for a number of product classes 
(including all product classes except for non-weatherized oil-fired 
furnaces), consisted of a minimum AFUE of 75 percent for mobile home 
furnaces and a minimum AFUE of 78 percent for all other furnaces, 
except ``small'' gas furnaces (those having an input rate of less than 
45,000 Btu per hour), for which DOE was directed to prescribe a 
separate standard. (42 U.S.C. 6295(f)(1)-(2); 10 CFR 430.32(e)(1)(i)) 
The standard for mobile home furnaces has applied to products 
manufactured for sale in the United States, or imported into the United 
States, since September 1, 1990, and the standard for most other 
furnaces has applied to products manufactured or imported since January 
1, 1992. Id. On November 17, 1989, DOE published a final rule in the 
Federal Register adopting the current standard for ``small'' gas 
furnaces, which consists of a minimum AFUE of 78 percent that has 
applied to products manufactured or imported since January 1, 1992. 54 
FR 47916.
    EPCA also required DOE to conduct two rounds of rulemaking to 
consider amended standards for residential furnaces (42 U.S.C. 
6295(f)(4)(B)-(C)), a requirement subsequently expanded to encompass a 
six-year look back review of all covered products (42 U.S.C. 
6295(m)(1)). In a final rule published on November 19, 2007 (November 
2007 final rule), DOE prescribed amended energy conservation standards 
for residential furnaces manufactured on or after November 19, 2015. 72 
FR 65136. The November 2007 final rule revised the energy conservation 
standards for non-weatherized gas furnaces to 80 percent AFUE, 
weatherized gas furnaces to 81 percent AFUE, mobile home gas furnaces 
to 80 percent AFUE, and non-weatherized oil-fired furnaces to 82 
percent AFUE. Id. at 65169. Subsequently, on October 31, 2011, DOE 
published a notice of effective date and compliance dates (76 FR 67037) 
to confirm amended energy conservation standards and compliance dates 
contained in a June 27, 2011 direct final rule (76 FR 37408) for 
residential central air conditioners and residential furnaces. These 
two rulemakings represented the first and the second, respectively, of 
the two rulemakings required under 42 U.S.C. 6295(f)(4)(B)-(C) to 
consider amending the standards for furnaces.
    The June 2011 direct final rule and October 2011 notice of 
effective date and compliance dates amended, in relevant part, the 
energy conservation standards and compliance dates for three product 
classes of residential furnaces (i.e., non-weatherized gas furnaces, 
mobile home gas furnaces, and non-weatherized oil furnaces) The 
existing standards were left in place for three classes of residential 
furnaces (i.e., weatherized oil-fired furnaces, mobile home oil-fired 
furnaces, and electric furnaces). For one class of residential furnaces 
(weatherized gas furnaces), the existing standard was left in place, 
but the compliance date was amended. Electrical standby mode and off 
mode energy consumption standards were established for non-weatherized 
gas and oil-fired furnaces (including mobile home furnaces) and 
electric furnaces. Compliance with the energy conservation standards 
promulgated in the June 2011 direct final rule was to be required on 
May 1, 2013 for non-weatherized furnaces and on January 1, 2015 for 
weatherized furnaces. 76 FR 37408, 37547-48 (June 27, 2011); 76 FR 
67037, 67051 (Oct. 31, 2011). The amended energy conservation standards 
and compliance dates in the June 2011 direct final rule would have 
superseded those standards and compliance dates promulgated by the 
November 2007 final rule for non-weatherized gas furnaces, mobile home 
gas furnaces, non-weatherized oil furnaces. Similarly, the amended 
compliance date for weatherized gas furnaces in the June 2011 direct 
final rule supersedes the compliance date in the November 2007 final 
rule.
    After publication of the October 2011 notice, the American Public 
Gas Association (APGA) sued DOE \12\ in the United States Court of 
Appeals for the District of Columbia Circuit (D.C. Circuit) to 
invalidate the rule as it pertained to non-weatherized gas furnaces (as 
discussed further in section II.B.2). Petition for Review, American 
Public Gas Association, et al. v. Department of Energy, et al., No. 11-
1485 (D.C. Cir. filed Dec. 23, 2011). The parties to the litigation 
engaged in settlement negotiations which ultimately led to filing of an 
unopposed motion on March 11, 2014, seeking to vacate DOE's rule in 
part and to remand to the agency for further rulemaking. On April 24, 
2014, the Court granted the motion and ordered that the standards 
established for non-weatherized gas furnaces and mobile home gas 
furnaces be vacated and remanded to DOE for further rulemaking. As a 
result, only the standards for non-weatherized oil-fired furnaces and 
weatherized gas furnaces established in the June 2011 direct final rule 
will go into effect as stated in that final rule. The standards 
established by the June 2011 direct final rule for the non-weatherized 
gas furnaces and mobile home gas furnaces will not go into effect, and 
thus, the standards established for these products in the November 2007 
final rule will require compliance beginning on November 19, 2015. As 
stated previously, the standards for weatherized oil-fired furnaces, 
mobile home oil-fired furnaces, and electric furnaces were unchanged, 
and as such, the original standards for those product classes will 
remain in effect. The standards for all residential furnaces, including 
the two product classes being analyzed in this NOPR, are set forth in 
DOE's regulations at 10 CFR 430.32(e)(1)(ii). Table II.1 below shows 
the upcoming standards for product classes that have been previously 
amended (either by the November 2007 final rule or June 2011 direct 
final rule) and the existing standards for the product classes where 
there AFUE standard has not been amended.
---------------------------------------------------------------------------

    \12\ After APGA filed its petition for review on December 23, 
2011, various entities subsequently intervened.

[[Page 13131]]



    Table II.1--Federal Energy Conservation Standards for Residential
                                Furnaces
------------------------------------------------------------------------
                                      Minimum annual
           Product class             fuel utilization   Compliance date
                                      efficiency (%)
------------------------------------------------------------------------
Non-weatherized Gas-Fired *.......                 80         11/19/2015
Mobile Home Gas-Fired *...........                 80         11/19/2015
Weatherized Gas-Fired.............                 81           1/1/2015
Non-weatherized Oil-Fired.........                 83           5/1/2013
Mobile Home Oil-Fired.............                 75           9/1/1990
Weatherized Oil-Fired.............                 78           1/1/1992
Electric..........................                 78           1/1/1992
------------------------------------------------------------------------
* Only non-weatherized gas-fired and mobile home gas-fired furnaces are
  being analyzed for this current rulemaking.

2. History of Standards Rulemaking for Residential Furnaces
    Given the somewhat complicated interplay of recent DOE rulemakings 
and statutory provisions related to residential furnaces, DOE provides 
the following regulatory history as background leading to the present 
rulemaking. Amendments to EPCA in the National Appliance Energy 
Conservation Act of 1987 (NAECA; Pub. L. 100-12) established EPCA's 
original energy conservation standards for furnaces, consisting of the 
minimum AFUE levels described above for mobile home furnaces and for 
all other furnaces except ``small'' gas furnaces. (42 U.S.C. 
6295(f)(1)-(2)) Pursuant to 42 U.S.C. 6295(f)(1)(B), in November 1989, 
DOE adopted a mandatory minimum AFUE level for ``small'' furnaces. 54 
FR 47916 (Nov. 17, 1989). The standards established by NAECA and the 
November 1989 final rule for ``small'' gas furnaces are still in effect 
for all residential product classes except for non-weatherized oil-
fired furnaces, for which the standards adopted in the June 2011 direct 
final rule are in effect.
    Pursuant to EPCA, DOE was required to conduct two rounds of 
rulemaking to consider amended energy conservation standards for 
furnaces. (42 U.S.C. 6295(f)(4)(B) and (C)) In satisfaction of this 
first round of amended standards rulemaking under 42 U.S.C. 
6295(f)(4)(B), as noted above, DOE published a final rule in the 
Federal Register on November 19, 2007 (the November 2007 Rule) that 
revised these standards for most furnaces, but left them in place for 
two product classes (i.e., mobile home oil-fired furnaces and 
weatherized oil-fired furnaces; there standards were to apply to 
furnaces manufactured or imported on and after November 19, 2015). 72 
FR 65136. The energy conservation standards in the November 2007 final 
rule consist of a minimum AFUE level for each of the six classes of 
furnaces. Id. at 65169.
    Following DOE's adoption of the November 2007 final rule, several 
parties jointly sued DOE in the United States Court of Appeals for the 
Second Circuit (Second Circuit) to invalidate the rule. Petition for 
Review, State of New York, et al. v. Department of Energy, et al., Nos. 
08-0311-ag(L); 08-0312-ag(con) (2d Cir. filed Jan. 17, 2008). The 
petitioners asserted that the standards for residential furnaces 
promulgated in the November 2007 Rule did not reflect the ``maximum 
improvement in energy efficiency'' that ``is technologically feasible 
and economically justified,'' as required under 42 U.S.C. 
6295(o)(2)(A). On April 16, 2009, DOE filed with the Court a motion for 
voluntary remand that the petitioners did not oppose. The motion did 
not state that the November 2007 rule would be vacated, but indicated 
that DOE would revisit its initial conclusions outlined in the November 
2007 Rule in a subsequent rulemaking action. DOE also agreed that the 
final rule would address both regional standards for furnaces, as well 
as the effects of alternate standards on natural gas prices. The Second 
Circuit granted DOE's motion on April 21, 2009.
    On June 27, 2011 DOE published a direct final rule (June 2011 DFR) 
revising the energy conservation standards for residential furnaces 
pursuant to the voluntary remand in State of New York, et al. v. 
Department of Energy, et al. 76 FR 37408. In the June 2011 DFR, DOE 
considered the amendment of the same six product classes considered in 
the November 2007 final rule analysis plus electric furnaces. As 
discussed in section II.B.1, the June 2011 DFR amended the existing 
energy conservation standards for non-weatherized gas furnaces, mobile 
home gas furnaces, and non-weatherized oil furnaces, and amended the 
compliance date (but left the existing standards in place) for 
weatherized gas furnaces. The June 2011 DFR also established electrical 
standby mode and off mode standards for non-weatherized gas furnaces, 
non-weatherized oil furnaces, and electric furnaces. DOE confirmed the 
standards and compliance dates promulgated in the June 2011 final rule 
in a notice of effective date and compliance dates published on October 
31, 2011. 76 FR 67037. As noted earlier, following DOE's adoption of 
the June 2011 DFR, APGA filed a petition for review with the United 
States Court of Appeals for the District of Columbia Circuit to 
invalidate the DOE rule as it pertained to non-weatherized natural gas 
furnaces. Petition for Review, American Public Gas Association, et al. 
v. Department of Energy, et al., No. 11-1485 (D.C. Cir. filed Dec. 23, 
2011). On April 24, 2014, the Court granted a motion that approved a 
settlement agreement that was reached between DOE, APGA, and the 
various interveners in the case, in which DOE agreed to a remand of the 
non-weatherized gas furnace and mobile home gas furnace portions of the 
June 2011 direct final rule in order to conduct further notice-and-
comment rulemaking. Accordingly, the Court's order vacated the June 
2011 DFR in part (i.e., those portions relating to non-weatherized gas 
furnaces and mobile home gas furnaces) and remanded to the agency for 
further rulemaking.
    As part of the settlement, DOE has agreed to issue a notice of 
public rulemaking within one year of the remand, and to issue a final 
rule within the later of two years of the issuance of remand or one 
year of the issuance of the proposed rule, including at least a ninety-
day public comment period. Due to the extensive and recent rulemaking 
history for residential furnaces, as well as the associated 
opportunities for notice and comment described above, DOE is foregoing 
the typical earlier rulemaking stages (e.g., framework document, 
preliminary analysis) and has instead developed this NOPR. DOE has 
tentatively concluded that there has been a sufficient recent exchange 
of information between interested parties and DOE regarding the energy

[[Page 13132]]

conservation standards for residential furnaces such as to allow for 
this proceeding to move directly to the NOPR stage. Moreover, DOE notes 
that under 42 U.S.C. 6295(p), DOE is only required to publish a notice 
of proposed rule and accept public comments before amending energy 
conservation standards in a final rule (i.e., DOE is not required to 
conduct the earlier rulemaking stages).
    DOE has initiated this rulemaking in partial fulfillment of the 
remand in American Public Gas Association, et al. v. Department of 
Energy, et al. and pursuant to its authority under 42 U.S.C. 42 U.S.C. 
6295(f)(4)(C), which requires DOE to conduct a second round of amended 
standards rulemaking for residential non-weatherized gas furnaces and 
mobile home gas furnaces. EPCA, as amended by EISA 2007, also requires 
that not later than 6 years after issuance of any final rule 
establishing or amending a standard, DOE must publish either a notice 
of the determination that standards for the product do not need to be 
amended, or a notice of proposed rulemaking including proposed energy 
conservation standards. (42 U.S.C. 6295(m)(1)) This rulemaking will 
satisfy both statutory provisions.
    Furthermore, EISA 2007 amended EPCA to require that any new or 
amended energy conservation standard adopted after July 1, 2010, shall 
address standby mode and off mode energy consumption pursuant to 42 
U.S.C. 6295(o). (42 U.S.C. 6295(gg)(3)) If feasible, the statute 
directs DOE to incorporate standby mode and off mode energy consumption 
into a single standard with the product's active mode energy use. If a 
single standard is not feasible, DOE may consider establishing a 
separate standard to regulate standby mode and off mode energy 
consumption. Consequently, DOE will consider standby mode and off mode 
energy use as part of this rulemaking for residential furnaces.

III. General Discussion

A. Product Classes and Scope of Coverage

    When evaluating and establishing energy conservation standards, DOE 
divides covered products into product classes by the type of energy 
used or by capacity or other performance-related features that justify 
a different standard. In making a determination whether a performance-
related feature justifies a different standard, DOE must consider such 
factors as the utility of the feature to the consumer and other factors 
DOE deems appropriate. (42 U.S.C. 6295(q)).
    As previously noted in section II.B.2, DOE agreed to the partial 
vacatur of the June 2011 final rule as it relates to energy 
conservation standards for non-weatherized gas-fired furnaces and 
mobile home gas-fired furnaces in the settlement agreement to resolve 
the litigation in American Public Gas Association, et al. v. Department 
of Energy, et al. Therefore, for this rulemaking, DOE has only 
considered amending the energy conservation standards for these two 
product classes of residential furnaces (i.e., non-weatherized gas-
fired furnaces and mobile home gas-fired furnaces). This rulemaking 
considers energy conservation standards for electrical power 
consumption in standby mode and off mode, as well as the annual fuel 
utilization efficiency standards for both product classes. More 
information relating to the scope of coverage is described in section 
IV.A of this proposed rule.

B. Test Procedure

    DOE's current energy conservation standards for residential 
furnaces are expressed in terms of annual fuel utilization efficiency 
for fossil fuel consumption (see 10 CFR 430.32(e)(1)). AFUE is an 
annualized fuel efficiency metric that fully accounts for fuel 
consumption in active, standby, and off modes. The existing DOE test 
procedure for determining the AFUE of residential furnaces is located 
at 10 CFR part 430, subpart B, appendix N. The current DOE test 
procedure for residential furnaces was originally established by a May 
12, 1997 final rule, which incorporates by reference the American 
Society of Heating, Refrigerating and Air-Conditioning Engineers 
(ASHRAE)/American National Standards Institute (ANSI) Standard 103-
1993, Method of Testing for Annual Fuel Utilization Efficiency of 
Residential Central Furnaces and Boilers (1993). 62 FR 26140, 26157.
    On October 20, 2010, DOE updated its test procedures for 
residential furnaces in a final rule published in the Federal Register 
(October 2010 test procedure rule). 75 FR 64621. This rule amended 
DOE's test procedure for residential furnaces and boilers to establish 
a method for measuring the electrical energy use in standby mode and 
off mode for gas-fired, oil-fired, and electric furnaces pursuant to 
requirements established by EISA 2007. These test procedure amendments 
were primarily based on and incorporate by reference provisions of the 
International Electrotechnical Commission (IEC) Standard 62301 (First 
Edition), ``Household electrical appliances--Measurement of standby 
power.'' On December 31, 2012, DOE published a final rule in the 
Federal Register which updated the incorporation by reference of the 
standby mode and off mode test procedure provisions to refer to the 
latest edition of IEC Standard 62301 (Second Edition). 77 FR 76831.
    On July 10, 2013, DOE published a final rule in the Federal 
Register (July 2013 final rule) that modified the existing testing 
procedures for residential furnaces and boilers. 78 FR 41265. The 
modification addressed the omission of equations needed to calculate 
AFUE for two-stage and modulating condensing furnaces and boilers that 
are tested using an optional procedure provided by section 9.10 of 
ASHRAE 103-1993 (incorporated by reference into DOE's test procedure), 
which allows the test engineer to omit the heat-up and cool-down tests 
if certain conditions are met. Specifically, the DOE test procedure 
allows condensing boilers and furnaces to omit the heat-up and cool-
down tests provided that the units have no measurable airflow through 
the combustion chamber and heat exchanger during the burner off period 
and have post-purge period(s) of less than 5 seconds. For two-stage and 
modulating condensing furnaces and boilers, ASHRAE 103-1993 (and by 
extension the DOE test procedure) does not contain the necessary 
equations to calculate the heating seasonal efficiency (which 
contributes to the ultimate calculation of AFUE) when the option in 
section 9.10 is selected. The July 2013 final rule adopted two new 
equations needed to account for the use of section 9.10 for two-stage 
and modulating condensing furnaces and boilers. Id.
    EPCA, as amended by EISA 2007, requires that DOE must review test 
procedures for all covered products at least once every 7 years. (42 
U.S.C. 6293(b)(1)(A)). Accordingly, DOE must complete the residential 
furnaces and boiler test procedure rulemaking no later than December 
19, 2014 (i.e., 7 years after the enactment of EISA 2007), which is 
before the expected completion of this energy conservation standards 
rulemaking. In February 2015, DOE issued a notice of proposed 
rulemaking for the test procedure (February 2015 Test Procedure NOPR), 
a necessary step toward fulfillment of the requirement under 42 U.S.C. 
6293(b)(1)(A) for residential furnaces and boilers. DOE must base the 
analysis of amended energy conservation standards on the most recent 
version of its test procedures, and accordingly, DOE will use any 
amended test procedure when

[[Page 13133]]

considering product efficiencies, energy use, and efficiency 
improvements in its analyses. Major changes proposed in the February 
2015 Test Procedure NOPR that relate to residential furnaces included 
proposals to:
     Adopt ANSI/ASHRAE 103-2007 by reference in place of the 
existing reference to ANSI/ASHRAE 103-1993;
     Modify the requirements for the measurement of condensate 
under steady-state conditions;
     Update references to installation manuals;
     Update the auxiliary electrical consumption calculation to 
include additional measurements of electrical consumption;
     Adopt a method for qualifying the use of the minimum draft 
factor.

C. Technological Feasibility

1. General
    In each energy conservation standards rulemaking, DOE conducts a 
screening analysis based on information gathered on all current 
technology and prototype designs that could improve the efficiency of 
the products or equipment that are the subject of the rulemaking. As 
the first step in such an analysis, DOE develops a list of technology 
options for consideration in consultation with manufacturers, design 
engineers, and other interested parties. DOE then determines which of 
those means for improving efficiency are technologically feasible. DOE 
considers technologies incorporated in commercially-available products 
or in working prototypes to be technologically feasible. 10 CFR part 
430, subpart C, appendix A, section 4(a)(4)(i).
    After DOE has determined that particular technology options are 
technologically feasible, it further evaluates each technology option 
in light of the following additional screening criteria: (1) 
Practicability to manufacture, install, and service; (2) adverse 
impacts on product utility or availability; and (3) adverse impacts on 
health or safety. 10 CFR part 430, subpart C, appendix A, section 
4(a)(4)(ii)-(iv). Additionally, it is DOE policy not to include in its 
analysis any proprietary technology that is a unique pathway to 
achieving a certain efficiency level. Section IV.B of this NOPR 
discusses the results of the screening analysis for residential 
furnaces, particularly the designs DOE considered, those it screened 
out, and those that are the basis for the trial standard levels (TSLs) 
in this rulemaking. For further details on the screening analysis for 
this rulemaking, see chapter 4 of the NOPR technical support document 
(TSD).
2. Maximum Technologically Feasible Levels
    When DOE proposes to adopt an amended standard for a type or class 
of covered product, it must determine the maximum improvement in energy 
efficiency or maximum reduction in energy use that is technologically 
feasible for such product. (42 U.S.C. 6295(p)(1)). Accordingly, in the 
engineering analysis, DOE determined the maximum technologically 
feasible (max-tech) improvements in energy efficiency for NWGFs and 
MHGFs, using the design parameters for the most-efficient products 
available on the market or in working prototypes. The max-tech levels 
that DOE determined for this rulemaking are described in section IV.C 
of this proposed rule and in chapter 5 of the NOPR TSD.

D. Energy Savings

1. Determination of Savings
    For each TSL, DOE projected energy savings from the products that 
are the subject of this rulemaking purchased in the 30-year period that 
begins in the year of compliance with amended standards (2021-
2050).\13\ The savings are measured over the entire lifetime of 
products purchased in the 30-year analysis period.\14\ DOE quantified 
the energy savings attributable to each TSL as the difference in energy 
consumption between each standards case and the base case. The base 
case represents a projection of energy consumption in the absence of 
amended energy conservation standards, and it considers market forces 
and policies that affect demand for more-efficient products.
---------------------------------------------------------------------------

    \13\ DOE also presents a sensitivity analysis that considers 
impacts for products shipped in a 9-year period.
    \14\ In the past, DOE presented energy savings results for only 
the 30-year period that begins in the year of compliance. In the 
calculation of economic impacts, however, DOE considered operating 
cost savings measured over the entire lifetime of products purchased 
in the 30-year period. DOE has chosen to modify its presentation of 
national energy savings to be consistent with the approach used for 
its national economic analysis.
---------------------------------------------------------------------------

    DOE used its national impact analysis (NIA) spreadsheet model to 
estimate energy savings from potential amended standards for the 
products that are the subject of this rulemaking. The NIA spreadsheet 
model (described in section IV.H of this NOPR) calculates energy 
savings in site energy, which is the energy directly consumed by 
products at the locations where they are used. For electricity, DOE 
reports national energy savings on an annual basis in terms of primary 
(source) energy savings, which is the savings in the energy that is 
used to generate and transmit the site electricity. To calculate the 
primary energy savings, DOE derives annual conversion factors from the 
model used to prepare the Energy Information Administration's (EIA) 
most recent Annual Energy Outlook (AEO).
    DOE has begun to also estimate full-fuel-cycle energy savings, as 
discussed in DOE's statement of policy and notice of policy amendment. 
76 FR 51282 (August 18, 2011), as amended at 77 FR 49701 (August 17, 
2012). The full-fuel-cycle (FFC) metric includes the energy consumed in 
extracting, processing, and transporting primary fuels (i.e., coal, 
natural gas, petroleum fuels), and, thus, presents a more complete 
picture of the impacts of energy efficiency standards. DOE's approach 
is based on the calculation of an FFC multiplier for each of the energy 
types used by covered equipment. For more information on FFC energy 
savings, see section IV.H.3.
2. Significance of Savings
    To adopt more-stringent standards for a covered product, DOE must 
determine that such action would result in ``significant'' energy 
savings. (42 U.S.C. 6295(o)(3)(B)) Although the term ``significant'' is 
not defined in the Act, the U.S. Court of Appeals for the District of 
Columbia Circuit, in Natural Resources Defense Council v. Herrington, 
768 F.2d 1355, 1373 (D.C. Cir. 1985), opined that Congress intended 
``significant'' energy savings in the context of EPCA to be savings 
that were not ``genuinely trivial.'' The energy savings for all of the 
trial standard levels considered in this rulemaking, including the 
proposed standards (presented in section V.B.3), are nontrivial, and, 
therefore, DOE considers them ``significant'' within the meaning of 
section 325 of EPCA.

E. Economic Justification

1. Specific Criteria
    EPCA provides seven factors to be evaluated in determining whether 
a potential energy conservation standard is economically justified. (42 
U.S.C. 6295(o)(2)(B)(i)(I)-(VII)) The following sections discuss how 
DOE has addressed each of those seven factors in this rulemaking.
a. Economic Impact on Manufacturers and Consumers
    In determining the impacts of a potential amended standard on 
manufacturers, DOE conducts a manufacturer impact analysis (MIA), as 
discussed in section IV.J. DOE first uses

[[Page 13134]]

an annual cash-flow approach to determine the quantitative impacts. 
This step includes both a short-term assessment--based on the cost and 
capital requirements during the period between when a regulation is 
issued and when entities must comply with the regulation--and a long-
term assessment over a 30-year period. The industry-wide impacts 
analyzed include: (1) Industry net present value (INPV), which values 
the industry on the basis of expected future cash flows; (2) cash flows 
by year; (3) changes in revenue and income; and (4) other measures of 
impact, as appropriate. Second, DOE analyzes and reports the impacts on 
different types of manufacturers, including impacts on small 
manufacturers. Third, DOE considers the impact of standards on domestic 
manufacturer employment and manufacturing capacity, as well as the 
potential for standards to result in plant closures and loss of capital 
investment. Finally, DOE takes into account cumulative impacts of 
various DOE regulations and other regulatory requirements on 
manufacturers.
    For individual consumers, measures of economic impact include the 
changes in LCC and PBP associated with new or amended standards. These 
measures are discussed further in the following section. For consumers 
in the aggregate, DOE also calculates the national net present value of 
the economic impacts applicable to a particular rulemaking. DOE also 
evaluates the LCC impacts of potential standards on identifiable 
subgroups of consumers that may be affected disproportionately by a 
national standard.
b. Savings in Operating Costs Compared to Increase in Price (LCC and 
PBP)
    EPCA requires DOE to consider 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 product 
that are likely to result from a standard. (42 U.S.C. 
6295(o)(2)(B)(i)(II)) DOE conducts this comparison in its LCC and PBP 
analyses.
    The LCC is the sum of the purchase price of a product (including 
its installation) and the operating expense (including energy, 
maintenance, and repair expenditures) discounted over the lifetime of 
the product. The LCC analysis requires a variety of inputs, such as 
product prices, product energy consumption, energy prices, maintenance 
and repair costs, product lifetime, and consumer discount rates. To 
account for uncertainty and variability in specific inputs, such as 
product lifetime and discount rate, DOE uses a distribution of values, 
with probabilities attached to each value. For its analysis, DOE 
assumes that consumers will purchase the covered products in the first 
year of compliance with amended standards.
    The PBP is the estimated amount of time (in years) it takes 
consumers to recover the increased purchase cost (including 
installation) of a more-efficient product through lower operating 
costs. DOE calculates the PBP by dividing the change in purchase cost 
due to a more-stringent standard by the change in annual operating cost 
for the year that standards are assumed to take effect.
    The LCC savings for the considered efficiency levels are calculated 
relative to a base case that reflects projected market trends in the 
absence of amended standards. DOE identifies the percentage of 
consumers estimated to receive LCC savings or experience an LCC 
increase, in addition to the average LCC savings associated with a 
particular standard level. In contrast, the PBP is measured relative to 
the baseline product.
    DOE's LCC and PBP analyses are discussed in further detail in 
section IV.F.
c. Energy Savings
    Although significant conservation of energy is a separate statutory 
requirement for adopting an energy conservation standard, EPCA requires 
DOE, in determining the economic justification of a standard, to 
consider the total projected energy savings that are expected to result 
directly from the standard. (42 U.S.C. 6295(o)(2)(B)(i)(III)) As 
discussed in section IV.H, DOE uses the NIA spreadsheet to project 
national energy savings.
d. Lessening of Utility or Performance of Products
    In establishing product classes and in evaluating design options 
and the impact of potential standard levels, DOE evaluates potential 
standards that would not lessen the utility or performance of the 
considered products. (42 U.S.C. 6295(o)(2)(B)(i)(IV)) Based on data 
available to DOE, the standards proposed in this document would not 
reduce the utility or performance of the products under consideration 
in this rulemaking.
e. Impact of Any Lessening of Competition
    EPCA directs DOE to consider the impact of any lessening of 
competition, as determined in writing by the Attorney General, that is 
likely to result from a proposed standard. (42 U.S.C. 
6295(o)(2)(B)(i)(V)) It also directs the Attorney General to determine 
the impact, if any, of any lessening of competition likely to result 
from a proposed standard and to transmit such determination to the 
Secretary within 60 days of the publication of a proposed rule, 
together with an analysis of the nature and extent of the impact. (42 
U.S.C. 6295(o)(2)(B)(ii)) DOE will transmit a copy of this proposed 
rule to the Attorney General with a request that the Department of 
Justice (DOJ) provide its determination on this issue. DOE will publish 
and respond to the Attorney General's determination in the final rule.
f. Need for National Energy Conservation
    DOE also considers the need for national energy conservation in 
determining whether a new or amended standard is economically 
justified. (42 U.S.C. 6295(o)(2)(B)(i)(VI)) The energy savings from new 
or amended standards are likely to provide improvements to the security 
and reliability of the nation's energy system. Reductions in the demand 
for electricity also may result in reduced costs for maintaining the 
reliability of the nation's electricity system. DOE conducts a utility 
impact analysis to estimate how standards may affect the nation's 
needed power generation capacity, as discussed in section IV.M.
    New or amended standards also are likely to result in environmental 
benefits in the form of reduced emissions of air pollutants and 
greenhouse gases associated with energy production. DOE conducts an 
emissions analysis to estimate how standards may affect these 
emissions, as discussed in section IV.K. DOE reports the emissions 
impacts from the proposed standards, and from each TSL it considered, 
in section V.B.6 of this NOPR. DOE also estimates the economic value of 
emissions reductions resulting from the considered TSLs, as discussed 
in section IV.L.
g. Other Factors
    EPCA allows the Secretary of Energy, in determining whether a 
standard is economically justified, to consider any other factors that 
the Secretary deems to be relevant. (42 U.S.C. 6295(o)(2)(B)(i)(VII)) 
To the extent interested parties submit any relevant information 
regarding economic justification that does not fit into the other 
categories described above, DOE could consider such information under 
``other factors.''

[[Page 13135]]

2. Rebuttable Presumption
    As set forth in 42 U.S.C. 6295(o)(2)(B)(iii), EPCA creates a 
rebuttable presumption that an energy conservation standard is 
economically justified if the additional cost to the consumer of a 
product that meets the standard is less than three times the value of 
the first year's energy savings resulting from the standard, as 
calculated under the applicable DOE test procedure. DOE's LCC and PBP 
analyses generate values used to calculate the effects that proposed 
energy conservation standards would have on the payback period for 
consumers. These analyses include, but are not limited to, the 3-year 
payback period contemplated under the rebuttable-presumption test. In 
addition, DOE routinely conducts an economic analysis that considers 
the full range of impacts to consumers, manufacturers, the Nation, and 
the environment, as required under 42 U.S.C. 6295(o)(2)(B)(i). The 
results of this analysis serve as the basis for DOE's evaluation of the 
economic justification for a potential standard level (thereby 
supporting or rebutting the results of any preliminary determination of 
economic justification). The rebuttable presumption payback calculation 
is discussed in section V.B.1 of this proposed rule.

F. Regional Standards

    As discussed in section II.A, EISA 2007 amended EPCA to allow for 
the establishment of a single more-restrictive regional standard in 
addition to the base national standard for furnaces. (42 U.S.C. 
6295(o)(6)(B)) The regions must include only contiguous States (with 
the exception of Alaska and Hawaii, which can be included in regions 
with which they are not contiguous), and each State may be placed in 
only one region (i.e., a State cannot be divided among or otherwise 
included in two regions). (42 U.S.C. 6295(o)(6)(C))
    Further, EPCA mandates that a regional standard must produce 
significant energy savings in comparison to a single national standard, 
and provides that DOE must determine that the additional standards are 
economically justified and consider the impact of the additional 
regional standards on consumers, manufacturers, and other market 
participants, including product distributors, dealers, contractors, and 
installers. (42 U.S.C. 6295(o)(6)(D)) For this rulemaking, DOE has 
considered the above-delineated impacts of regional standards in 
addition to national standards.
    Where appropriate, DOE has addressed the potential impacts from 
considered regional standards in the relevant analyses, including the 
mark-ups to determine product price, the LCC and payback period 
analysis, the national impact analysis (NIA), and the manufacturer 
impact analysis (MIA). DOE's approach for addressing regional standards 
is included in the methodology section corresponding to each individual 
analysis (see section IV of this notice), and in the NOPR TSD, 
specifically Chapter 8 (LCC and PBP Analysis) and Chapter 10 (National 
Impact Analysis). For certain phases of the analysis, additional 
regional analysis is not required. For example, technologies for 
improving product efficiency generally do not vary by region, and thus, 
DOE did not perform any additional regional analysis for the technology 
assessment and screening analysis. Similarly, DOE did not examine the 
impacts of having two regions in the engineering analysis, since the 
technologies and manufacturer processes are the same under both a 
national and regional standard.
    To evaluate regional standards for residential furnaces, DOE 
maintained the same regions analyzed in the June 2011 direct final 
rule, which are shown in Table III.1 and Figure III.1. The allocation 
of individual States to the regions was largely based on whether a 
State's annual heating degree day (HDD) \15\ average is above or below 
5,000, which offers a rough threshold point at which space heating 
demands are significant enough to require longer operation of heating 
systems, thereby providing a basis for utilization of higher-efficiency 
systems.
---------------------------------------------------------------------------

    \15\ DOE used the population weighted state HDD as determined by 
the National Oceanic and Atmospheric Administration (NOAA) in its 
1971-2000 United States Climate Normals report, available at http://hurricane.ncdc.noaa.gov/climatenormals/hcs/HCS_51.pdf (last accessed 
July 28, 2014).

   Table III.1--National Standard and Regional Standard (by State) for
                      Analysis of Furnace Standards
------------------------------------------------------------------------
            National standard *               Northern region  standard
------------------------------------------------------------------------
Alabama...................................  Alaska
Arizona...................................  Colorado
Arkansas..................................  Connecticut
California................................  Idaho
Delaware..................................  Illinois
District of Columbia......................  Indiana
Florida...................................  Iowa
Georgia...................................  Kansas
Hawaii....................................  Maine
Kentucky..................................  Massachusetts
Louisiana.................................  Michigan
Maryland..................................  Minnesota
Mississippi...............................  Missouri
Nevada....................................  Montana
New Mexico................................  Nebraska
North Carolina............................  New Hampshire
Oklahoma..................................  New Jersey
South Carolina............................  New York
Tennessee.................................  North Dakota
Texas.....................................  Ohio
Virginia..................................  Oregon
                                            Pennsylvania
                                            Rhode Island
                                            South Dakota
                                            Utah
                                            Vermont
                                            Washington
                                            West Virginia
                                            Wisconsin
                                            Wyoming
------------------------------------------------------------------------
* DOE analyzes an approach whereby the agency would set a base National
  standard, as well as a more-stringent standard in the Northern region.
  Because compliance with the regional standard would also meet the
  National standard, Table III.1 categorizes States in terms of the most
  stringent standard applicable to that State.


[[Page 13136]]

[GRAPHIC] [TIFF OMITTED] TP12MR15.000

G. Compliance Date

    EPCA establishes a lead time between the publication of amended 
energy conservation standards and the date by which manufacturers must 
comply with the amended standards for residential furnaces. 
Specifically, EPCA dictated an eight-year period between the rulemaking 
publication date and compliance date for the first round of amended 
residential furnace standards, and a five-year period for the second 
round of amended residential furnace standards. (42 U.S.C. 
6295(f)(4)(B)-(C)) DOE notes that the first remand agreement for 
residential furnaces (resulting from the Petition for Review, State of 
New York, et al. v. Department of Energy, et al., Nos. 08-0311-ag(L); 
08-0312-ag(con) (2d Cir. filed Jan. 17, 2008)) did not vacate the 
November 2007 Rule for furnaces and boilers. Therefore, DOE has 
concluded that the November 2007 final rule completed the first round 
of rulemaking for amended energy conservation standards for furnaces, 
thereby satisfying the requirements of 42 U.S.C. 6295(f)(4)(B). The 
June 2011 direct final rule satisfied the second round of rulemaking 
for amended energy conservation standards for furnaces; however, the 
settlement resulting from the APGA lawsuit (Petition for Review, 
American Public Gas Association, et al. v. Department of Energy, et 
al., No. 11-1485 (D.C. Cir. filed Dec. 23, 2011) vacated the standards 
for non-weatherized gas furnaces and mobile home gas furnaces. As a 
result, the June 2011 direct final rule completed the second round of 
rulemaking for the furnace product classes for which it was not 
vacated, and the current rulemaking constitutes the second round of 
rulemaking for amended energy conservation standards for non-
weatherized gas and mobile home gas furnaces, as required under 42 
U.S.C. 6295(f)(4)(C). This provision prescribes a five-year period 
between the standard's publication date and compliance date. 
Accordingly, in its analysis of amended energy conservation standards 
for NWGFs and MHGFs, DOE used a 5-year lead time between the 
publication of the final rule and the compliance date for the standard.

H. Standby Mode and Off Mode

    As discussed in section II.A of this NOPR, any final rule for 
amended or new energy conservation standards that is published on or 
after July 1, 2010 must address standby mode and off mode energy use. 
(42 U.S.C. 6295(gg)(3)) As a result, DOE has analyzed and is proposing 
new energy conservation standards for the standby mode and off mode 
electrical energy consumption for residential non-weatherized gas 
furnaces and mobile home gas furnaces.
    AFUE, the statutory metric for residential furnaces, does not 
incorporate standby mode or off mode use of electricity, although it 
already fully addresses the fossil fuel use of gas-fired furnaces when 
operating in standby mode and off mode. In the October 2010 test 
procedure final rule for residential furnaces and boilers, DOE 
determined that incorporating standby mode and off mode electricity 
consumption into a single standard for residential furnaces and boilers 
is not technically feasible. 75 FR 64621, 64626-64627 (Oct. 20, 2010). 
DOE concluded that a metric that integrates standby mode and off mode 
electricity consumption into AFUE is not technically feasible, because 
the standby mode and off mode energy usage, when measured, is 
essentially lost in practical terms due to rounding conventions for 
certifying furnace compliance with Federal energy conservation 
standards. Id. Therefore, in this document, DOE is adopting amended 
furnace standards that are AFUE levels, which exclude standby mode and 
off mode electricity use, and DOE is also adopting separate standards 
that are maximum wattage (W) levels to address the standby mode 
(PW,SB) and off mode (PW,OFF) electrical energy 
use of furnaces. DOE also presents corresponding trial standard levels 
(TSLs) for energy consumption in standby mode and off mode. DOE has 
decided to use a maximum wattage requirement to regulate standby mode 
and off mode for furnaces. DOE believes using an annualized metric 
could add unnecessary complexities, such as trying to estimate an 
assumed number of hours that a furnace typically spends in standby 
mode. Instead, DOE believes that a maximum wattage standard is the most 
straightforward metric for regulating standby mode and off mode energy 
consumption of furnaces and will result in the least amount of industry 
and consumer confusion.
    DOE is using the metrics just described--AFUE, PW,SB, 
and PW,OFF--in the amended energy conservation

[[Page 13137]]

standards it is proposing in this rulemaking for furnaces. This 
approach satisfies the mandate of 42 U.S.C. 6295(gg)(3) that amended 
standards address standby mode and off mode energy use. The various 
analyses performed by DOE to evaluate minimum standards for standby 
mode and off mode electrical energy consumption for furnaces are 
discussed further in section IV.E.2 of this NOPR.

IV. Methodology

    This section addresses the analyses DOE has performed for this 
rulemaking with regard to residential furnaces. Separate subsections 
will address each component of DOE's analyses.
    DOE used three spreadsheet tools to estimate the impact of today's 
proposed standards. The first spreadsheet calculates LCCs and payback 
periods of potential standards. The second provides shipments 
forecasts, and then calculates national energy savings and net present 
value impacts of potential standards. Finally, DOE assessed 
manufacturer impacts, largely through use of the Government Regulatory 
Impact Model (GRIM).\16\
---------------------------------------------------------------------------

    \16\ All three spreadsheet tools are available online at the 
rulemaking portion of DOE's Web site at the following address: 
http://www1.eere.energy.gov/buildings/appliance_standards/product.aspx/productid/72.
---------------------------------------------------------------------------

    Additionally, DOE estimated the impacts on utilities and the 
environment that would be likely to result from potential standards for 
residential furnaces. DOE used published output from the AEO 2014 
version of Energy Information Administration's (EIA) National Energy 
Modeling System (NEMS) for both the utility and the environmental 
analyses. NEMS projects the production, imports, conversion, 
consumption, and prices of energy, subject to assumptions on 
macroeconomic and financial factors, world energy markets, resource 
availability and costs, behavioral and technological choice criteria, 
cost and performance characteristics of energy technologies, and 
demographics.\17\ EIA uses NEMS to prepare its Annual Energy Outlook, a 
widely-known energy forecast for the United States. NEMS offers a 
sophisticated picture of the effect of standards because it accounts 
for the interactions between the various energy supply and demand 
sectors and their impact on the economy as a whole.
---------------------------------------------------------------------------

    \17\ For more information on NEMS, refer to the U.S. Department 
of Energy, Energy Information Administration documentation. See, 
e.g., Energy Info. Admin., The National Energy Modeling System: An 
Overview DOE/EIA-0581(2009), available at http://www.eia.gov/oiaf/aeo/overview/.
---------------------------------------------------------------------------

A. Market and Technology Assessment

    In conducting a market and technology assessment, DOE develops 
information that provides an overall picture of the market for the 
products concerned, including the purpose of the products, the industry 
structure, manufacturers, market characteristics, and technologies used 
in the products. These activities include both quantitative and 
qualitative assessments, based primarily on publicly-available 
information. The issues covered in the market and technology assessment 
for this residential furnaces rulemaking include: (1) A determination 
of the scope of the rulemaking and product classes; (2) manufacturers 
and industry structure; (3) quantities and types of products sold and 
offered for sale; (4) retail market trends; (5) regulatory and non-
regulatory programs; and (6) technologies or design options that could 
improve the energy efficiency of the product(s) under examination. The 
key findings of DOE's market assessment are summarized below.\18\
---------------------------------------------------------------------------

    \18\ See chapter 3 of the NOPR TSD for further discussion of the 
market and technology assessment.
---------------------------------------------------------------------------

1. Definition and Scope of Coverage
    EPCA defines a ``furnace'' as ``a product which utilizes only 
single-phase electric current, or single-phase electric current or DC 
current in conjunction with natural gas, propane, or home heating oil, 
and which:
    (1) Is designed to be the principal heating source for the living 
space of a residence;
    (2) Is not contained within the same cabinet with a central air 
conditioner whose rated cooling capacity is above 65,000 Btu per hour;
    (3) Is an electric central furnace, electric boiler, forced-air 
central furnace, gravity central furnace, or low pressure steam or hot 
water boiler; and
    (4) Has a heat input rate of less than 300,000 Btu per hour for 
electric boilers and low pressure steam or hot water boilers and less 
than 225,000 Btu per hour for forced-air central furnaces, gravity 
central furnaces, and electric central furnaces.'' (42 U.S.C. 6291(23))
    DOE has incorporated this definition into its regulations in the 
Code of Federal Regulations (CFR) at 10 CFR 430.2.
    EPCA's definition of a ``furnace'' covers the following types of 
products: (1) Gas furnaces (non-weatherized and weatherized); (2) oil-
fired furnaces (non-weatherized and weatherized); (3) mobile home 
furnaces (gas and oil-fired); (4) electric resistance furnaces; (5) hot 
water boilers (gas and oil-fired); (6) steam boilers (gas and oil-
fired); and (7) combination space/water heating appliances (water-
heater/fancoil combination units and boiler/tankless coil combination 
units). In accordance with the April 24th, 2014 court order in the 
American Public Gas Association, et al. v. Department of Energy, et 
al., case, which granted the unopposed joint motion for a voluntary 
remand (see section II.B), DOE only analyzed potential amended energy 
conservation standards for non-weatherized gas-fired and mobile home 
gas-fired furnace product classes of furnaces in this rulemaking.
2. Product Classes
    When evaluating and establishing energy conservation standards, DOE 
divides covered products into product classes by the type of energy 
used, by capacity, or by other performance-related features that 
justify a different standard. In making a determination whether a 
performance-related feature justifies a different standard, DOE must 
consider factors such as the utility to the consumer of the feature and 
other factors DOE determines are appropriate. (42 U.S.C. 6295(q)) DOE 
has viewed utility as an aspect of the product that is accessible to 
the layperson and is based on user operation, rather than performing a 
theoretical function. This interpretation has been implemented 
consistently in DOE's previously determining utility through the value 
the item brings to the consumer, rather than through analyzing more 
complicated design features, or costs that anyone, including the 
consumer, manufacturer, installer, or utility companies may bear. This 
approach is consistent with EPCA requiring a separate and extensive 
analysis of economic justification for the adoption of any new or 
amended energy conservation standard (see 42 U.S.C. 6295(o)(2)(A)-(B) 
and (3)).
    Under EPCA, DOE has typically addressed consumer utility by 
establishing separate product classes or otherwise taken action when a 
consumer may value a product feature based on the consumer's everyday 
needs. For instance, DOE has determined that it would be impermissible 
under 42 U.S.C. 6295(o)(4) to include elimination of oven door windows 
as a technology option to improve the energy efficiency of cooking 
products.\19\ DOE reached this conclusion based upon how consumers 
typically use the product: Peering through the oven window to judge if 
an

[[Page 13138]]

item is finished cooking, as opposed to checking the timer and/or 
indicator light or simply opening the oven door to see if the item is 
finished cooking. DOE has also determined that consumers may value 
other qualities such as ability to self-clean,\20\ size,\21\ and 
configuration.\22\ This determination, however, can change depending on 
the technology and the consumer, and it is conceivable that certain 
products may disappear from the market entirely due to shifting 
consumer demand. DOE determines such value on a case-by-case basis 
through its own research as well as public comments received, the same 
approach that DOE employs in all other parts of its energy conservation 
standards rulemaking.
---------------------------------------------------------------------------

    \19\ 63 FR 48038, 48041 (Sept. 8, 1998).
    \20\ 73 FR 62034, 62048 (Oct. 17, 2008) (separating standard 
ovens and self-cleaning ovens into different product classes).
    \21\ 77 FR 32307, 32319 (May 31, 2012) (creating a separate 
product class for compact front-loading residential clothes 
washers).
    \22\ 75 FR 59469, 59487 (Sept. 27, 2010) (creating a separate 
product class for refrigerators with bottom-mounted freezers).
---------------------------------------------------------------------------

    As a cautionary note, disparate products may have very different 
consumer utilities, thereby making direct comparisons difficult and 
potentially misleading. For instance, in a 2011 rulemaking, DOE created 
separate product classes for vented and ventless residential clothes 
dryers based on DOE's recognition of the ``unique utility'' that 
ventless clothes dryers offer to consumers. 76 FR 22454, 22485 (April 
21, 2011). This utility could be characterized as the ability to have a 
clothes dryer in a living area where vents are impossible to install 
(i.e., an apartment in a high-rise building). As explained in that 
April 2011 direct final rule technical support document, ventless 
dryers can be installed in locations where venting dryers would be 
precluded due to venting restrictions.
    But in another rulemaking, DOE found that water heaters that 
utilize heat pump technology did not need to be put in a separate 
product class from conventional types of hot water heaters that utilize 
electric resistance technology, even though water heaters utilizing 
heat pumps require the additional installation of a condensate drain 
that a hot water heater utilizing electric resistance technology does 
not require. 74 FR 65852, 65871 (Dec. 11, 2009). DOE found that 
regardless of these installation factors, the heat pump water heater 
and the conventional water heater still had the same utility to the 
consumer: Providing hot water. Id. In both cases, DOE made its finding 
based on consumer type and utility type, rather than product design 
criteria that impact product efficiency. These distinctions in both the 
consumer type and the utility type are important because, as DOE has 
previously pointed out, taken to the extreme, each design differential 
could be designated a different ``product class'' and, therefore, 
require different energy conservation standards.
    Tying the concept of ``feature'' to a specific technology would 
effectively lock-in the currently existing technology as the ceiling 
for product efficiency and eliminate DOE's ability to address 
technological advances that could yield significant consumer benefits 
in the form of lower energy costs while providing the same 
functionality for the consumer. DOE is very concerned that determining 
features solely on product technology could undermine the Department's 
Appliance Standards Program. If DOE is required to maintain separate 
product classes to preserve less-efficient technologies, future 
advancements in the energy efficiency of covered products would become 
largely voluntary, an outcome which seems inimical to Congress's 
purposes and goals in enacting EPCA.
    Turning to the product at issue in this rulemaking, residential 
furnaces are currently divided into several product classes. For 
example, furnaces are separated into product classes based on their 
fuel source (gas, oil, or electricity), which is required by statute. 
As discussed in section IV.A.1, for this rulemaking, DOE is analyzing 
only two product classes for residential furnaces: (1) Non-weatherized 
gas-fired furnaces (NWGFs) and (2) mobile home gas-fired furnaces 
(MHGFs). DOE does not additionally separate NWGFs and MHGFs into 
condensing and non-condensing product classes because they provide the 
same utility to the consumer (i.e., both are vented appliances that 
provide heat to a consumer).
    DOE has tentatively concluded that the methods by which a furnace 
is vented do not provide any separate performance-related impacts, and, 
therefore, DOE has no statutory basis for defining a separate class 
based on venting and drainage characteristics. NWGF and MHGF venting 
methods do not provide unique utility to consumers beyond the basic 
function of providing heat, which all furnaces perform. The possibility 
that installing a non-condensing furnace may be less costly than a 
condensing furnace due to the difference in venting methods does not 
justify separating the two types of NWGFs into different product 
classes. Unlike the consumers of ventless dryers, which DOE has 
determined to be a performance-related feature based on the 
impossibility of venting in certain circumstances (e.g., high-rise 
apartments), consumers of condensing NWGFs are homeowners that may 
either use their existing venting or have a feasible alternative to 
obtain heat, which is the furnace's singular utility to the consumer. 
In other words, homeowners will still be able to obtain heat regardless 
of the venting. In contrast, a resident of a high-rise apartment or 
condominium building that is not architecturally designed to 
accommodate vented clothes dryers would have no option in terms of 
installing and enjoying the utility of a dryer in their home unless he 
uses a ventless dryer.
    As explained above, the utility of a furnace involves providing 
heat to a consumer. Such utility is provided by any type of furnace, 
but to the extent that a consumer has a preference for a particular 
fuel type (e.g., gas), improvements in venting technology may soon 
allow a consumer to obtain the efficiency of a condensing furnace using 
the existing venting in a residence by sharing venting space with water 
heaters. This update in technology significantly reduces the cost 
burden associated with installing condensing furnaces and reduces 
potential instances of ``orphaned'' water heaters, where the furnace 
and water heater can no longer share the same venting (due to one unit 
being condensing and the other noncondensing). In other words, this 
technology allows consumers to switch from a non-condensing furnace to 
a condensing furnace in a greater variety of applications, such as 
urban row houses. For more information, see appendix 8L of the NOPR 
TSD.
3. Technology Options
    DOE identified 12 technology options that would be expected to 
improve the AFUE of residential furnaces, as measured by the DOE test 
procedure: (1) Using a condensing secondary heat exchanger; (2) 
increasing the heat exchanger area; (3) heat exchanger baffles; (4) 
heat exchanger surface feature improvements; (5) two-stage modulating 
combustion; (6) step-modulating combustion; (7) pulse combustion; (8) 
low NOX premix burners; (9) burner de-rating; (10) 
insulation improvements; (11) off-cycle dampers; and (12) direct 
venting. In addition, DOE identified three technologies that would 
reduce the standby mode and off mode energy consumption of residential 
furnaces: (1) Low-loss transformer (LLTX); (2) switching mode power 
supply; and (3)

[[Page 13139]]

control relay for models with brushless permanent magnet (BPM) motors.
    After identifying potential technology options for improving the 
efficiency of residential furnaces, DOE performed the screening 
analysis (see section IV.B of this NOPR or chapter 4 of the TSD) on 
these technologies to determine which could be considered further in 
the analysis and which should be eliminated.

B. Screening Analysis

    DOE uses the following four screening criteria to determine which 
technology options are suitable for further consideration in an energy 
conservation standards rulemaking:
    1. Technological feasibility. Technologies that are not 
incorporated in commercial products or in working prototypes will not 
be considered further.
    2. Practicability to manufacture, install, and service. If DOE 
determines that mass production, reliable installation, and servicing 
of a technology in commercial products could not be achieved on the 
scale necessary to serve the relevant market at the time of the 
compliance date of the standard, then that technology will not be 
considered further.
    3. Impacts on product utility or product availability. If it is 
determined that a technology would have significant adverse impact on 
the utility of the product to significant subgroups of consumers or 
would result in the unavailability of any covered product type with 
performance characteristics (including reliability), features, sizes, 
capacities, and volumes that are substantially the same as products 
generally available in the United States at the time, it will not be 
considered further.
    4. Adverse impacts on health or safety. If it is determined that a 
technology would have significant adverse impacts on health or safety, 
it will not be considered further. (10 CFR part 430, subpart C, 
appendix A, 4(a)(4) and 5(b))
    In sum, if DOE determines that a technology, or a combination of 
technologies, fails to meet one or more of the above four criteria, it 
will be excluded from further consideration in the engineering 
analysis. The reasons for eliminating certain technologies are 
discussed below.
1. Screened-Out Technologies
    DOE decided to screen the use of pulse combustion from further 
analysis. Based on manufacturer feedback received during the analysis 
for the June 2011 direct final rulemaking, pulse combustion furnaces 
have had reliability and safety issues in the past, and therefore, 
manufacturers do not consider their use a viable option to improve 
efficiency. In addition, manufacturers can attain similar or greater 
efficiencies through the use of other technologies. For these reasons, 
DOE is not including pulse combustion as a technology option, as its 
reliability and safety issues could reduce consumer utility.
    DOE also decided to screen out burner de-rating. Burner de-rating 
reduces the burner firing rate while maintaining the same heat 
exchanger geometry/surface area and fuel-air ratio, which increases the 
ratio of heat transfer surface area to the energy input, which 
increases efficiency. However, the lower energy input means that less 
heat is provided to the user than is provided using conventional burner 
firing rates. As a result of the decreased heat output of furnaces with 
de-rated burners, DOE has screened out burner de-rating as a technology 
option, as it could reduce consumer utility.
    In addition, DOE is screening low-NOX premix burners 
from further analysis. Premix burners eliminate the need for secondary 
air in the combustion process by completely mixing heating fuel with 
primary air prior to ignition. This raises the overall flame 
temperature, which improves heat transfer and AFUE. In-shot burners 
that are commonly used in residential furnaces, on the other hand, 
cannot entrain sufficient primary air to completely premix the air and 
gas. As a result, premix burner design incorporates a fan to ensure 
sufficient and complete mixing of the air and fuel prior to combustion 
and does so by delivering the air to the fuel at positive pressure. To 
the extent of DOE's knowledge, and based on manufacturer feedback 
during the manufacturer interviews, low-NOX premix burners 
have not yet been successfully incorporated into a residential furnace 
design that is widely available on the market. DOE is aware that low-
NOX premix burners have been incorporated into boilers, but 
boilers have significantly different heat exchangers and burners, 
allowing for the integration of premix burner technology in those 
products. Incorporating this technology into furnaces on a large scale 
will require further research and development due to the technical 
constraints imposed by current furnace burner and heat exchanger 
design.
    Among the standby and off mode technologies, DOE decided to screen 
out using a control relay to depower BPM motors due to feedback 
received during the manufacturer interviews conducted for both this 
NOPR and the residential furnace June 2011 direct final rule, which 
indicated that using a control relay to depower brushless permanent 
magnet motors could reduce the lifetime of the motors (the reason for 
this reduction in product lifetime is further explained in Chapter 4 of 
the TSD). DOE believes that this reduction in lifetime would lead to a 
reduction in utility of the product. For this reason, DOE is not 
including control relays for models with brushless permanent magnet 
motors as a technology option, as it could reduce consumer utility.
2. Remaining Technologies
    Through a review of each technology, DOE found that all of the 
other identified technologies met all four screening criteria and 
consequently, are suitable for further examination in DOE's analysis. 
In summary, DOE did not screen out the following technology options to 
improve AFUE: (1) Condensing secondary heat exchanger; (2) increased 
heat exchanger face area; (3) heat exchanger baffles; (4) heat 
exchanger surface feature improvements; (5) two-stage modulating 
combustion; (6) step-modulating combustion; (7) insulation 
improvements; (8) off-cycle dampers; and (9) direct venting. DOE also 
maintained the following technology options to improve standby mode and 
off mode energy consumption: (1) Low-loss transformer; and (2) 
switching mode power supply. All of these technology options are 
technologically feasible, given that the evaluated technologies are 
being used (or have been used) in commercially-available products or 
working prototypes. Therefore, all of the trial standard levels 
evaluated in this notice are technologically feasible. DOE also found 
that all of the remaining technology options also meet the other 
screening criteria (i.e., practicable to manufacture, install, and 
service, and do not result in adverse impacts on consumer utility, 
product availability, health, or safety). For additional details, 
please see chapter 4 of the NOPR TSD.

C. Engineering Analysis

    In the engineering analysis (corresponding to chapter 5 of the NOPR 
TSD), DOE establishes the relationship between the manufacturer selling 
price (MSP) and improved residential furnace efficiency. This 
relationship serves as the basis for cost-benefit calculations for 
individual consumers, manufacturers, and the Nation. DOE typically 
structures the engineering analysis using one of three approaches: (1) 
Design-option; (2)

[[Page 13140]]

efficiency-level; or (3) reverse-engineering (or cost-assessment). The 
design-option approach involves adding the estimated cost and 
efficiency of various efficiency-improving design changes to the 
baseline to model different levels of efficiency. The efficiency-level 
approach uses estimates of cost and efficiency at distinct levels of 
efficiency from publicly-available information, as well as information 
gathered in manufacturer interviews that is supplemented and verified 
through technology reviews. The reverse-engineering approach involves 
testing products for efficiency and determining cost from a detailed 
bill of materials (BOM) derived from reverse engineering representative 
products. The efficiency values range from that of a least-efficient 
furnace sold today (i.e., the baseline) to the maximum technologically 
feasible efficiency level. At each efficiency level examined, DOE 
determines the manufacture production cost (MPC) and MSP; the 
relationship between efficiency levels and MPC is referred to as a 
cost-efficiency curve.
    DOE conducted the engineering analysis for residential furnaces 
using a combination of the efficiency-level and the reverse-engineering 
approach. More specifically, DOE identified the efficiency levels for 
analysis and then used the reverse-engineering approach to determine 
the technologies used and the associated manufacturing costs at those 
levels. In the residential furnace market, manufacturers may use slight 
variations on designs to achieve a given efficiency level. The benefit 
of using the efficiency level approach is that it allows DOE to examine 
products at each efficiency level regardless of the specific design 
options that manufacturers use to achieve that level, so the analysis 
can account for variations in design. Using the reverse-engineering 
approach to estimate a product cost at each efficiency level allows DOE 
to analyze actual models as the basis for developing the MPCs.
    For the standby mode and off mode analyses, DOE adopted a design 
option approach, which allowed for the calculation of incremental costs 
through the addition of specific design options to a baseline model. 
DOE decided on this approach because it did not have sufficient data to 
execute an efficiency-level analysis, as manufacturers typically do not 
rate or publish data on the standby mode and/or off mode energy 
consumption of their products. As such, DOE was not able to conduct a 
reverse-engineering approach due to a lack of definitive knowledge of 
the electrical energy consumption of products on the market. Also, the 
design options used to obtain higher efficiencies were composed of 
purchased parts, so obtaining price quotes on these electrical 
components was more accurate than attempting to determine their 
manufacturing costs via a reverse-engineering analysis.
    See chapter 5 of the NOPR TSD for additional details about the 
engineering analysis.
1. Efficiency Levels
    As noted above, for analysis of amended AFUE standards, DOE used an 
efficiency-level approach in combination with a reverse-engineering 
approach to identify the technology options needed to reach 
incrementally higher efficiency levels. DOE physically tore down newly 
manufactured furnaces for its analysis. Prior to teardown, all of the 
furnaces were tested to verify their AFUE ratings and determine their 
standby mode and off mode power consumption (in watts). From the market 
analysis, DOE was able to identify the most common AFUE ratings of NWGF 
and MHGF on the market and used this information to select AFUE 
efficiency levels for analysis. After identifying AFUE efficiency 
levels for analysis, DOE used the reverse-engineering approach (section 
IV.A.2) to determine the MPC at each AFUE efficiency level identified 
for analysis.
    For the analysis of amended standby mode and off-mode energy 
conservation standards, DOE used a design-option approach to identify 
the efficiency levels that would result from implementing certain 
design options for reducing power consumption in standby mode and off 
mode.
a. Baseline Efficiency Level and Product Characteristics
    DOE selected baseline units typical of the least-efficient 
commercially-available residential furnaces. DOE selected baseline 
units as reference points for both NWGF and MHGF, against which it 
measured changes resulting from potential amended energy conservation 
standards. The baseline unit in each product class represents the basic 
characteristics of products in that class. Additional details on the 
selection of baseline units may be found in chapter 5 of the NOPR TSD.
    DOE uses the baseline unit for comparison in several phases of the 
analyses, including the engineering analysis, LCC analysis, PBP 
analysis, and the NIA. To determine energy savings that will result 
from an amended energy conservation standard, DOE compares energy use 
at each of the higher energy efficiency levels to the energy 
consumption of the baseline unit. Similarly, to determine the changes 
in price to the consumer that will result from an amended energy 
conservation standard, DOE compares the price of a baseline unit to the 
price of a unit at each higher efficiency level.
    When calculating the price of a baseline furnace and comparing it 
to the price of units at each higher efficiency level, DOE factored in 
future changes to the indoor blower motor baseline design option 
resulting from the 2014 furnace fans rulemaking,\23\ which sets new 
baseline efficiency levels for furnace fans requiring compliance in the 
year 2019. Specifically, a level effectively requiring constant torque 
brushless permanent magnet (BPM) motors as the minimum standard indoor 
blower motor technology option for NWGF units, and improved primary 
split capacitor (PSC) motors as the minimum standard technology option 
for MHGF units, will be enforced beginning in 2019. As such, when 
compliance is required for this rulemaking, constant torque BPM motors 
will be the baseline design feature for NWGF units, and improved PSC 
motors will be the baseline design feature for MHGF units. DOE has 
included constant torque BPM motors and improved PSC motors in the MPCs 
for NWGF and MHGF units, respectively. The current and expected 
baseline motor types are listed in Table IV.1.
---------------------------------------------------------------------------

    \23\ For more information on the Furnace Fans Rulemaking, see 
the DOE Furnace Fans Rulemaking Web page at: http://www1.eere.energy.gov/buildings/appliance_standards/rulemaking.aspx/ruleid/41.

[[Page 13141]]



                 Table IV.1--Baseline Blower Motor Types
                     [Current and expected in 2019]
------------------------------------------------------------------------
                                                       Expected typical
                                   Current typical      baseline blower
         Product class             baseline blower        motor type
                                      motor type       starting in 2019
------------------------------------------------------------------------
NWGF...........................  PSC................  Constant-Torque
                                                       BPM.
MHGF...........................  PSC................  Improved PSC.
------------------------------------------------------------------------

    Currently, the baseline indoor blower motor design option for all 
residential furnace types is a PSC motor. From here, the next step up 
is an improved PSC motor, which consumes less energy during fan 
operation than a standard PSC motor. As compared to PSC motors, BPM 
motors offer further efficiency improvements. BPM motors feature a 
completely redesigned inner drive mechanism, as compared to PSC motors, 
which significantly reduces electricity wasted as heat during fan 
operation. The basic type of BPM motor is a constant torque BPM motor, 
which accepts a specified number of torque commands from an outside 
control source. A second type of BPM motor is a constant airflow BPM 
motor, which is similar to a constant torque BPM motor, but allows for 
more precise operational commands. Constant airflow BPM motors accept 
precise airflow commands from an outside control source, which allow it 
to adjust the building airflow to a wide range of operational demands.
    Table IV.2 presents the baseline AFUE levels identified for each 
product class of furnaces. The baseline AFUE levels analyzed represent 
the minimum AFUE standards that will be required starting on November 
19, 2015, as a result of the November 2007 final rule.

     Table IV.2--Baseline Residential Furnace AFUE Efficiency Levels
------------------------------------------------------------------------
                        Product class                          AFUE  (%)
------------------------------------------------------------------------
Non-Weatherized Gas-Fired....................................         80
Mobile Home Gas-Fired........................................         80
------------------------------------------------------------------------

    For the standby mode and off-mode analysis, DOE identified baseline 
components as those that consume the most electricity during the 
operation of those modes. Since it would not be practical for DOE to 
test every furnace on the market to determine the baseline efficiency, 
and since manufacturers do not currently report standby mode and off 
mode energy consumption, DOE ``assembled'' the most consumptive 
baseline components from the models tested to model the electrical 
system of a furnace with the expected maximum system standby mode and 
off mode power consumption observed during testing of furnaces. The 
baseline standby mode and off-mode consumption levels used in the NOPR 
analysis are presented in Table IV.3.

  Table IV.3--Baseline Standby Mode and Off Mode Power Consumption for
                              NWGF and MHGF
------------------------------------------------------------------------
                                                           Standby mode
                                                           and off-mode
                        Component                              power
                                                            consumption
                                                              (watts)
------------------------------------------------------------------------
Transformer.............................................               4
ECM Blower Motor (includes controls)....................               3
Controls/Other..........................................               4
                                                         ---------------
    Total (watts).......................................              11
------------------------------------------------------------------------

b. Other Energy Efficiency Levels
    Table IV.4 through Table IV.5 show the efficiency levels DOE 
selected for analysis of amended AFUE standards, along with a 
description of the typical technological change at each level.

    Table IV.4--AFUE Efficiency Levels for Non-Weatherized Gas-Fired
                                Furnaces
------------------------------------------------------------------------
      Efficiency level EL           AFUE  (%)       Technology options
------------------------------------------------------------------------
0--Baseline....................              80  Baseline.
1..............................              90  EL0 + Secondary
                                                  condensing heat
                                                  exchanger.
2..............................              92  EL1 + Increased heat
                                                  exchanger area.
3..............................              95  EL2 + Increased heat
                                                  exchanger area.
4--Max-Tech....................              98  EL3 + Step-modulating
                                                  combustion + Increased
                                                  heat exchanger area.
------------------------------------------------------------------------


       Table IV.5--AFUE Efficiency Levels for Mobile Home Furnaces
------------------------------------------------------------------------
        Efficiency level            AFUE  (%)       Technology options
------------------------------------------------------------------------
0--Baseline....................              80  Baseline.
1..............................              92  EL0 + Secondary
                                                  condensing heat
                                                  exchanger +.
2..............................              95  EL1 + Increased heat
                                                  exchanger area.
3--Max-Tech....................              97  EL2 + Step-modulating
                                                  combustion + Increased
                                                  heat exchanger area.
------------------------------------------------------------------------

    In addition to the technology options listed in Table IV.4 and 
Table IV.5, DOE considered certain enhanced design features that may be 
chosen for consumer comfort or to reduce electrical energy consumption 
during furnace operating periods. These enhancements are listed in 
Table IV.6.

[[Page 13142]]



             Table IV.6--Design Features Not Directly Included in Analysis of AFUE Efficiency Levels
----------------------------------------------------------------------------------------------------------------
              Design feature                     Baseline option *                    Enhanced option
----------------------------------------------------------------------------------------------------------------
NWGF Indoor Blower Motor.................  Constant Torque brushless      Constant Speed motor.
                                            permanent magnet (BPM) motor.
MHGF Indoor Blower Motor.................  Improved PSC Motor...........  Constant Torque BPM motor.
                                                                          Constant Airflow BPM motor.
Combustion system........................  Single stage combustion......  Two-stage modulating combustion
                                                                           (includes two-stage gas valve, 2-
                                                                           speed inducer assembly, upgraded
                                                                           pressure switch, and additional
                                                                           controls and wiring).
----------------------------------------------------------------------------------------------------------------
* The baseline design options listed for NWGF and MHGF indoor blower motors will not become effective until 2019
  when the 2014 furnace fan rulemaking mandates new efficiency standards for furnace fans.

    Indoor blower motors can be either improved PSC motors, constant 
torque BPM motors, or constant airflow BPM motors. As compared to 
constant torque BPM and improved PSC motors, which operate at design-
specific torque settings, constant airflow BPM motors can operate at a 
wide range of specific speed commands. As a result, constant airflow 
BPM motors can adjust airflow to different building conditions better 
than constant torque BPM and improved PSC motors, and may be chosen for 
enhanced consumer comfort. Constant airflow BPM motors are also the 
current standard motor type at the max-tech AFUE level for both NWGF 
and MHGF units. This is because precise airflow adjustments are needed 
in order to match the wide range of heating rates offered by modulating 
combustion systems, which are used to reach the max-tech AFUE levels in 
both NWGF and MHGF units.
    The combustion system baseline design feature for mobile home gas 
furnaces is a single-stage combustion system, which includes a single-
stage gas valve and a 1-speed inducer fan assembly. During building 
warm-up periods, there may be a delay between when the target building 
temperature is reached, and when the thermostat detects this condition 
and sends a signal to the furnace to switch off. As a result, the 
furnace operates for a longer amount of time than needed and warms the 
building beyond the target temperature, which is uncomfortable for the 
building occupants and consumes more energy than is necessary. To 
improve comfort and save energy, a two-stage modulating combustion 
system can be used in place of a 1-stage combustion system. A two-stage 
combustion system includes a two-stage gas valve paired with a 2-speed 
combustion inducer fan, both of which serve to decrease the heating 
rate as the target temperature is approached. This decrease in heating 
rate can diminish any overshoot of the target building temperature, 
should the thermostat delay signaling the furnace to switch off once 
the proper temperature has been reached. By stabilizing the heating 
rate during warm-up, the furnace is able to achieve the target 
temperature more precisely, which improves comfort and reduces 
extraneous energy consumption. Because the furnace fans energy 
conservation standards will likely require that NWGF incorporate two-
stage performance, DOE has included two-stage as the design for NWGF in 
this analysis.
    Two-stage modulating combustion system design was one of the 
technology options DOE considered in the engineering analysis for 
improving AFUE, although this has been shown in some products to have a 
minor to negligible effect. In addition to improving AFUE, two-stage 
combustion allows the furnace to reduce its heating load when 
approaching the target indoor air temperature, which helps to prevent 
the conditioned space from becoming too hot, thus improving the comfort 
of building occupants. Based on market analysis, DOE determined that 
two-stage combustion is a common design feature in residential 
furnaces. However, due to its high cost relative to other technologies 
that can improve AFUE, DOE determined it is primarily offered to 
consumers as a comfort feature rather than for its efficiency benefits.
    In addition to analyzing efficiency levels based on design options, 
DOE considered whether changes to the residential furnaces and boilers 
test procedure, as proposed by the February 2015 test procedure NOPR 
would necessitate changes to the AFUE levels being analyzed. The 
primary change proposed in the test procedure included updating the 
incorporation by reference to ASHRAE 103-2007. As discussed in the 
February 2015 test procedure NOPR, adopting ASHRAE 103-2007 would not 
be expected to change the AFUE rating for single-stage products and 
would result in a de minimis increase in the AFUE ratings for two-stage 
and modulating non-condensing products. Adopting ASHRAE 103-2007 
provisions was assessed to have no statistically significant impact on 
the AFUE for condensing products. DOE has tentatively determined that 
this amendment to the test procedure would not be substantial enough to 
merit a revision of the proposed AFUE efficiency levels for residential 
furnaces.
    Table IV.7 shows the efficiency levels DOE selected for the 
analysis of standby mode and off mode standards, along with a 
description of the typical technological change at each level.
    ``Standby mode'' and ``off mode'' power consumption are defined in 
the DOE test procedure for residential furnaces and boilers. DOE 
defines ``standby mode'' as ``the condition during the heating season 
in which the furnace or boiler is connected to the power source, and 
neither the burner, electric resistance elements, nor any electrical 
auxiliaries such as blowers or pumps, are activated.'' (10 CFR part 
430, subpart B, appendix N, section 2.8) ``Off mode'' is defined as 
``the condition during the non-heating season in which the furnace or 
boiler is connected to the power source, and neither the burner, 
electric resistance elements, nor any electrical auxiliaries such as 
the blowers or pumps, are activated.'' (10 CFR part 430, subpart B, 
appendix N, section 2.6) A ``seasonal off switch'' is defined as ``the 
switch on the furnace or boiler that, when activated, results in a 
measurable change in energy consumption between the standby and off 
modes.'' (10 CFR part 430, subpart B, appendix N, section 2.7.)
    Through reviewing product literature and discussing with 
manufacturers, DOE has found that furnaces generally do not have a 
seasonal off switch that would be used to turn the product off during 
the off season. Manufacturer stated that if a switch is included with a 
product, it is left in the on position during the non-heating season 
because the indoor blower motor in the furnace is needed to move air 
for the AC side of the home's HVAC system and that the switch is 
typically used only as a service or repair switch. Therefore, DOE

[[Page 13143]]

assumed that the standby mode and the off mode power consumption for 
residential furnaces are equal. DOE requests comment on the efficiency 
levels analyzed for standby mode and off mode, and on the assumption 
that standby mode and off mode energy consumption (as defined by DOE) 
would be equal. This is identified as issue 1 in section VII.E, 
``Issues on Which DOE Seeks Comment.''

    Table IV.7--Standby Mode and Off Mode Efficiency Levels for Non-
             Weatherized and Mobile Home Gas-Fired Furnaces
------------------------------------------------------------------------
                                 Standby mode and
     Efficiency level EL          off mode power     Technology options
                                 consumption (W)
------------------------------------------------------------------------
0--Baseline..................                 11    Linear Power Supply.
1............................                  9.5  Linear Power Supply
                                                     with Low-Loss
                                                     Transformer (LLTX).
2............................                  9.2  Switching Mode Power
                                                     Supply.
3--Max-Tech..................                  8.5  Switching Mode Power
                                                     Supply with LLTX.
------------------------------------------------------------------------

2. Cost-Assessment Methodology
    At the start of the engineering analysis, DOE identified the energy 
efficiency levels associated with residential furnaces on the market 
using data gathered in the market assessment. DOE also identified the 
technologies and features that are typically incorporated into products 
at the baseline level and at the various energy efficiency levels 
analyzed above the baseline. Next, DOE selected products for physical 
teardown analysis having characteristics of typical products on the 
market at the representative input capacity. DOE gathered information 
by performing a physical teardown analysis (see section IV.C.2.a) to 
create detailed BOMs, which included all components and processes used 
to manufacture the products. DOE used the BOMs from the teardowns as an 
input to a cost model, which was then used to calculate the MPC for 
products at various efficiency levels spanning the full range of 
efficiencies from the baseline to the maximum technology achievable 
(``max-tech'') level.
    During the development of the engineering analysis, DOE held 
interviews with manufacturers to gain insight into the residential 
furnace industry, and to request feedback on the engineering analysis 
and assumptions that DOE used. DOE used the information gathered from 
these interviews, along with the information obtained through the 
teardown analysis, to refine the assumptions and data used in the cost 
model for this rulemaking. Next, DOE derived manufacturer markups using 
publicly-available residential furnace industry financial data in 
conjunction with manufacturers' feedback. The markups were used to 
convert the MPCs into MSPs. Further information on the analytical 
methodology is presented in the subsections below. For additional 
detail, see chapter 5 of the NOPR TSD.
a. Teardown Analysis
    To assemble BOMs and to calculate the manufacturing costs for the 
different components in residential furnaces, DOE disassembled multiple 
units into their base components and estimated the materials, 
processes, and labor required for the manufacture of each individual 
component, a process referred to as a ``physical teardown.'' Using the 
data gathered from the physical teardowns, DOE characterized each 
component according to its weight, dimensions, material, quantity, and 
the manufacturing processes used to fabricate and assemble it.
    DOE also used a supplementary method, called a ``virtual 
teardown,'' which examines published manufacturer catalogs and 
supplementary component data to estimate the major physical differences 
between a product that was physically disassembled and a similar 
product that was not. For supplementary virtual teardowns, DOE gathered 
product data such as dimensions, weight, and design features from 
publicly-available information, such as manufacturer catalogs. The NOPR 
teardown analysis included a total of 62 physical and virtual teardowns 
of residential furnaces. These teardowns are broken down among 
equipment classes in Table IV.8.

      Table IV.8--Residential Furnace Teardowns by Equipment Class
------------------------------------------------------------------------
             Equipment class                 Physical         Virtual
------------------------------------------------------------------------
Non-weatherized Gas-Fired...............              26              32
Mobile Home Gas-Fired...................               6               0
------------------------------------------------------------------------

    The teardown analysis allowed DOE to identify the technologies that 
manufacturers typically incorporate into their products, along with the 
efficiency levels associated with each technology or combination of 
technologies. The end result of each teardown is a structured BOM, 
which DOE developed for each of the physical and virtual teardowns. The 
BOMs incorporate all materials, components, and fasteners (classified 
as either raw materials or purchased parts and assemblies), and 
characterize the materials and components by weight, manufacturing 
processes used, dimensions, material, and quantity. The BOMs from the 
teardown analysis were then used as inputs to the cost model to 
calculate the MPC for each product that was torn down. The MPCs 
resulting from the teardowns were then used to develop an industry 
average MPC for each efficiency level of each product class analyzed.
    More information regarding details on the teardown analysis can be 
found in chapter 5 of the NOPR TSD.
b. Cost Model
    The cost model is a spreadsheet that converts the materials and 
components in the BOMs into dollar values based on the price of 
materials, average labor rates associated with manufacturing and 
assembling, and the cost of overhead and depreciation, as determined 
based

[[Page 13144]]

on manufacturer interviews and DOE expertise. To convert the 
information in the BOMs to dollar values, DOE collected information on 
labor rates, tooling costs, raw material prices, and other factors. For 
purchased parts, the cost model estimates the purchase price based on 
volume-variable price quotations and detailed discussions with 
manufacturers and component suppliers. For fabricated parts, the prices 
of raw metal materials \24\ (e.g., tube, sheet metal) are estimated on 
the basis of 5-year averages (from 2009 to 2014). The cost of 
transforming the intermediate materials into finished parts is 
estimated based on current industry pricing.\25\
---------------------------------------------------------------------------

    \24\ American Metals Market, available at http://www.amm.com/ 
(last accessed August 19, 2014).
    \25\ U.S. Department of Labor, Bureau of Labor Statistics, 
Produce Price Indices, available at http://www.bls.gov/ppi/ (last 
accessed July 28, 2014).
---------------------------------------------------------------------------

c. Manufacturing Production Costs
    Once the cost estimates for all the components in each teardown 
unit were finalized, DOE totaled the cost of materials, labor, and 
direct overhead used to manufacture a product in order to calculate the 
MPC. The total cost of the product was broken down into two main costs: 
(1) The full MPC; and (2) the non-production cost, which includes 
selling, general, and administration (SG&A) expenses, the cost of 
research and development, and interest from borrowing for operations or 
capital expenditures. DOE estimated the MPC at each efficiency level 
considered for each product class, from the baseline through the max-
tech. After incorporating all calculations and determinations into the 
cost model, DOE calculated the percentages attributable to each element 
of total production cost (i.e., materials, labor, depreciation, and 
overhead). These percentages are used to validate the assumptions by 
comparing them to manufacturers' actual financial data published in 
annual reports, along with feedback obtained from manufacturers during 
interviews. DOE uses these production cost percentages in the 
manufacturer impact analysis (MIA) (see section IV.J).
    In estimating the MPC, DOE took into account the various furnace 
design enhancements offered for consumer comfort or to reduce 
electrical energy consumption during furnace operating periods (see 
Table IV.6 in section IV.C.1.b of this NOPR). In order to accommodate 
these additional design features into the MPC estimates, DOE calculated 
MPC estimates both with and without these added design features.
    All of the furnaces torn down during the teardown analysis used PSC 
indoor blower motors, except for at the max-tech efficiency level, 
where constant airflow BPM motors were used. As discussed previously, 
constant torque BPM indoor blower motors were considered the baseline 
design for NWGF units since the 2014 furnace fans rule will set a level 
\26\ that effectively requires the use of this technology before the 
compliance date of this residential furnaces rulemaking. Similarly, 
improved PSC indoor blower motors were considered as the baseline 
design feature for MHGF units as a result of the requirements set in 
the 2014 furnace fans rulemaking.\26\ DOE used the results of the 
furnace fans rulemaking to calculate the increase in furnace MPC needed 
to accommodate constant torque BPM and improved PSC indoor blower 
motors into NWGF and MHGF units, respectively, in place of the PSC 
motors present in the tear down units. In addition, DOE considered the 
increases in MPC needed to accommodate constant airflow BPM indoor 
blower motors. Motor type was assigned in the LCC analysis based on the 
market penetration of each type of motor at different efficiency 
levels. At the max-tech efficiency levels for both NWGF and MHGF units, 
DOE determined that constant airflow BPM motors are a required 
technology option. As such, the incremental MPC changes of using a 
constant airflow BPM indoor blower motor in place of a PSC motor were 
included in the MPCs for NWGF and MHGF units at their respective max-
tech AFUE levels.
---------------------------------------------------------------------------

    \26\ The Furnace Fans rule set a mandatory fan energy rating 
(FER) of .044*Qmax + 182 for NWGF units, .071*Qmax + 222 for non-
condensing MHGF units, and .071*Qmax + 240 for condensing MHGF 
units, where Qmax equals the airflow through the furnace at the 
maximum airflow-control setting operating point. For more 
information, see the furnace fans rulemaking Web page at: http://www1.eere.energy.gov/buildings/appliance_standards/rulemaking.aspx/ruleid/41.
---------------------------------------------------------------------------

    In addition to estimating the impacts on MPC of different blower 
motor design features, DOE also estimated the impact on MPC of 
switching from a single-stage to a two-stage combustion system. The 
cost to change from a single-stage to a two-stage combustion system 
includes the cost of a two-stage gas valve, a two-speed inducer 
assembly, upgraded pressure switch, and additional controls and wiring. 
Generally, these costs are completely independent of input capacity and 
AFUE. As such, for two-stage combustion, DOE developed a single cost 
adder to apply to the MPCs for all furnace input capacities and 
efficiency levels.
    Table IV.9 and Table IV.10 present DOE's estimates of the MPCs by 
AFUE efficiency level at the representative input capacity (80,000 Btu/
hr) for both the NWGF and MHGF furnaces in this rulemaking. The MPCs 
presented incorporate the appropriate design characteristics of NWGF 
and MHGF furnaces at each efficiency level. These design 
characteristics include a single-stage gas valve (and corresponding 
single-stage components) for all MHGF efficiency levels, a two-stage 
gas valve (and corresponding components) for all NWGF levels (except 
for the max-tech level, which incorporates a fully modulating (or 
``step modulating'') design), a constant-torque BPM blower motor for 
NWGF (except for the max-tech level, where the blower motor is a 
constant-airflow BPM motor), and an improved permanent split capacitor 
(PSC) blower motor for all MHGF efficiency levels. Further discussion 
of the MPCs that incorporate other design options (e.g., two-stage 
modulating combustion and constant airflow BPM motors) is included in 
chapter 5 of the TSD.

                 Table IV.9--Manufacturer Production Cost for Non-Weatherized Gas-Fired Furnaces
----------------------------------------------------------------------------------------------------------------
                                                                    Efficiency                      Incremental
                        Efficiency level                           level (AFUE)      MPC * ($)      cost above
                                                                        (%)                        baseline ($)
----------------------------------------------------------------------------------------------------------------
Baseline........................................................              80             360  ..............
EL1.............................................................              90             443              83
EL2.............................................................              92             451              91
EL3.............................................................              95             505             145

[[Page 13145]]

 
EL4.............................................................              98             616             256
----------------------------------------------------------------------------------------------------------------
* The MPC for efficiency levels from Baseline through EL3 are for two-stage operation and incorporate a constant-
  torque BPM indoor blower motor. At EL4 DOE has determined that modulating operation and a constant-airflow BPM
  blower motor are present for NWGF furnaces.


                  Table IV.10--Manufacturer Production Cost for Mobile Home Gas-Fired Furnaces
----------------------------------------------------------------------------------------------------------------
                                                                    Efficiency                      Incremental
                        Efficiency level                           level (AFUE)       MPC ($)       cost above
                                                                        (%)                        baseline ($)
----------------------------------------------------------------------------------------------------------------
Baseline........................................................              80             323  ..............
EL1.............................................................              92             420              97
EL2.............................................................              95             476             153
EL3.............................................................              97             542             219
----------------------------------------------------------------------------------------------------------------
* The MPC for efficiency levels from Baseline through EL2 are for single-stage operation and incorporate an
  improved PSC indoor blower motor. At EL 3 DOE has determined that single stage operation and an improved PSC
  blower motor are present for MHGF furnaces.

    Table IV.11 presents DOE's estimates of the incremental MPCs of 
each standby mode and off mode efficiency level for this rulemaking.

     Table IV.11--Incremental Manufacturer Production Cost for Non-
  Weatherized Gas-Fired and Mobile Home Gas-Fired Furnaces Standby Mode
                              and Off Mode
------------------------------------------------------------------------
                                           Standby mode
                                           and off mode     Incremental
            Efficiency level                  power           MPC ($)
                                         consumption (W)
------------------------------------------------------------------------
Baseline...............................             11              0
EL1....................................              9.5            1.00
EL2....................................              9.2           10.47
EL3....................................              8.5           11.12
------------------------------------------------------------------------

    Chapter 5 of the NOPR TSD presents more information regarding the 
development of DOE's estimates of the MPCs for this rulemaking.
d. Cost-Efficiency Relationship
    DOE's engineering analysis results may be portrayed as a cost-
efficiency relationship. DOE created cost-efficiency curves 
representing the cost-efficiency relationships for both product classes 
that it examined (i.e., NWGF and MHGF). To develop the cost-efficiency 
relationships for residential furnaces, DOE first calculated a market-
share-weighted baseline MPC representative of all baseline residential 
furnaces torn down in the teardown analysis. DOE then took the 
calculated MPCs of all of the furnaces at efficiency levels above the 
baseline that were torn down, and subtracted the cost of the 
manufacturer-specific baseline counterpart that was torn down in order 
to develop a data set of the incremental costs for each manufacturer to 
get from the baseline efficiency level to each higher efficiency level 
for which one of their furnaces was torn down. DOE developed an average 
incremental cost for each efficiency level analyzed from the 
incremental data, and then added the average incremental costs to the 
market-share-weighted baseline MPC to calculate the market-share-
weighted-average MPCs for the higher efficiency levels. Additional 
details on how DOE developed the cost-efficiency relationships and 
related results are available in chapter 5 of the NOPR TSD, which also 
presents these cost-efficiency curves in the form of energy efficiency 
versus MPC.
    The results indicate that cost-efficiency relationships are 
nonlinear. In other words, as efficiency increases, manufacturing 
becomes more difficult and more costly. A large cost increase is 
evident between the non-condensing (80% AFUE) and condensing (90% AFUE) 
efficiency levels due to the requirement for a heat exchanger that can 
withstand corrosive condensate, which is typically achieved through the 
addition of a secondary heat exchanger in condensing furnaces. A 
significant cost increase also occurs between the 95% and 98% AFUE 
levels due to the need for modulating combustion components paired with 
a constant airflow BPM motor at 98% AFUE.
e. Manufacturer Markup
    To account for manufacturers' non-production costs and profit 
margin, DOE applies a non-production cost multiplier (the manufacturer 
markup) to the full MPC. The resulting MSP is the price at which the 
manufacturer can recover all production and non-production costs and 
earn a profit. To meet new or amended energy conservation standards, 
manufacturers typically introduce design changes to their product lines 
that increase manufacturer production costs. Depending on the 
competitive environment for these particular products, some or all of 
the increased production costs may be passed from manufacturers to 
retailers and eventually to consumers in the form

[[Page 13146]]

of higher purchase prices. As production costs increase, manufacturers 
typically incur additional overhead. The MSP should be high enough to 
recover the full cost of the product (i.e., full production and non-
production costs) and yield a profit.
    The manufacturer markup has an important bearing on profitability. 
A high markup under a standards scenario suggests manufacturers can 
readily pass along the increased variable costs and some of the capital 
and product conversion costs (the one-time expenditures) to consumers. 
A low markup suggests that manufacturers will not be able to recover as 
much of the necessary manufacturing investments.
    To calculate the manufacturer markups, DOE used 10-K reports \27\ 
submitted to the U.S. Securities and Exchange Commission (SEC) by six 
publicly-owned residential furnace companies. The financial figures 
necessary for calculating the manufacturer markup are net sales, costs 
of sales, and gross profit. For furnaces, DOE averaged the financial 
figures spanning the years 2009 to 2013 in order to calculate the 
markups. DOE used this approach because amended standards may transform 
high-efficiency products (which currently are considered premium 
products) into typical products. DOE acknowledges that numerous 
residential furnace manufacturers are privately-held companies and do 
not file SEC 10-K reports. In addition, while the publicly-owned 
companies file SEC 10-K reports, the financial information summarized 
may not be exclusively for the residential furnace portion of their 
business and can also include financial information from other product 
sectors, whose margins could be quite different from the residential 
furnace industries. DOE discussed the manufacturer markup with 
manufacturers during interviews, and used product specific feedback on 
market share, markups and cost structure from manufacturers to adjust 
the markup calculated through review of SEC 10-K reports. See chapter 
12 of the NOPR TSD for more details about the manufacturer markup 
calculation.
---------------------------------------------------------------------------

    \27\ U.S. Securities and Exchange Commission, Annual 10-K 
Reports (various years between 2009 and 2013), available at http://sec.gov.
---------------------------------------------------------------------------

f. Manufacturer Interviews
    Throughout the rulemaking process, DOE has sought and continues to 
seek feedback and insight from interested parties that would improve 
the information used in its analyses. DOE interviewed manufacturers 
representing 35% of the product listings on the NWGF market and 50% of 
the product listings on the MHGF market as a part of the NOPR 
manufacturer impact analysis (see section IV.J.3). During the 
interviews, DOE sought feedback on all aspects of its analyses for 
residential furnaces. DOE discussed the analytical assumptions and 
estimates, cost model, and cost-efficiency curves with residential 
furnace manufacturers. DOE considered all the information manufacturers 
provided when refining the cost model and assumptions. However, DOE 
incorporated equipment and manufacturing process figures into the 
analysis as averages in order to avoid disclosing sensitive information 
about individual manufacturers' products or manufacturing processes. 
More details about the manufacturer interviews are contained in chapter 
12 of the NOPR TSD.

D. Markups Analysis

    DOE uses distribution channel markups and sales taxes (where 
appropriate) to convert the manufacturer production cost estimates from 
the engineering analysis to consumer prices, which are then used in the 
LCC, PBP, and the manufacturer impact analyses. The markups are 
multipliers that are applied to the purchase cost at each stage in the 
distribution channel.
    DOE characterized two distribution channels to describe how NWGFs 
and MHGFs pass from manufacturers to residential consumers: Replacement 
market and new construction. The replacement market channel is 
characterized as follows:

Manufacturer [rarr] Wholesaler [rarr] Mechanical contractor [rarr] 
Consumer

The new construction distribution channel is characterized as follows:

Manufacturer [rarr] Wholesaler [rarr] Mechanical contractor [rarr] 
General contractor [rarr] Consumer

    For NWGFs and MHGFs installed in commercial buildings,\28\ DOE 
understands that, in general, the on-site contractor staff purchases 
equipment directly from the wholesaler and performs the installation. 
Therefore, DOE used a distribution channel in which the product goes 
from the manufacturer to a wholesaler and then to the commercial 
consumer through a national account:
---------------------------------------------------------------------------

    \28\ DOE estimates that three percent of NWGFs are installed in 
commercial buildings. See section IV.E for further discussion.

---------------------------------------------------------------------------
Manufacturer [rarr] Wholesaler [rarr] Consumer

    The derivation of the manufacturer markup is discussed in section 
IV.C. To develop markups for the parties involved in the distribution 
of the product, DOE utilized several sources, including: (1) The 
Heating, Air-Conditioning & Refrigeration Distributors International 
(HARDI) 2013 Profit Report \29\ (to develop wholesaler markups); (2) 
the Air Conditioning Contractors of America's (ACCA) 2005 financial 
analysis on the heating, ventilation, air-conditioning, and 
refrigeration (HVACR) contracting industry \30\ (to develop mechanical 
contractor markups); and (3) U.S. Census Bureau 2007 Economic Census 
data \31\ on the residential and commercial building construction 
industry (to develop general contractor markups).
---------------------------------------------------------------------------

    \29\ Heating, Air Conditioning & Refrigeration Distributors 
International 2013 Profit Report, available at http://www.hardinet.org/Profit-Report (last accessed Aug. 19, 2014).
    \30\ Air Conditioning Contractors of America (ACCA), Financial 
Analysis for the HVACR Contracting Industry (2005), available at 
http://www.acca.org/store/ (last accessed Aug. 19, 2014).
    \31\ U.S. Census Bureau, 2007 Economic Census Data, available 
at: http://www.census.gov/econ/ (last accessed April 10, 2014).
---------------------------------------------------------------------------

    For wholesalers and contractors, DOE developed baseline and 
incremental markups based on the product markups at each step in the 
distribution chain. The baseline markup relates the change in the 
manufacturer selling price of baseline models to the change in the 
consumer purchase price. The incremental markup relates the change in 
the manufacturer selling price of higher-efficiency models (the 
incremental cost increase) to the change in the consumer purchase 
price.
    In addition to the markups, DOE derived state and local taxes from 
data provided by the Sales Tax Clearinghouse.\32\ These data represent 
weighted average taxes that include county and city rates. DOE derived 
shipment-weighted average tax values for each region considered in the 
analysis.
---------------------------------------------------------------------------

    \32\ Sales Tax Clearinghouse Inc., State Sales Tax Rates Along 
with Combined Average City and County Rates (2014) available at 
http://thestc.com/STrates.stm (last accessed May 27, 2014).
---------------------------------------------------------------------------

    Chapter 6 of the NOPR TSD provides further detail on the estimation 
of markups.

E. Energy Use Analysis

    The purpose of the energy use analysis is to assess the energy 
requirements of residential furnaces at different efficiencies in 
representative U.S. single-family homes, multi-family residences, and 
commercial buildings, and to assess the energy savings

[[Page 13147]]

potential of increased furnace efficiency. DOE estimated the annual 
energy consumption of NWGFs and MHGFs at specified energy efficiency 
levels across a range of climate zones, building characteristics, and 
heating applications. The annual energy consumption includes the 
natural gas, liquid petroleum gas (LPG), and electricity used by the 
furnace.
    DOE's analysis estimated the energy use of NWGFs and MHGFs in the 
field (i.e., as they are actually used by consumers). In contrast to 
the DOE test procedure, which provides standardized results that can 
serve as the basis for comparing the performance of different 
appliances used under the same conditions, the energy use analysis 
seeks to capture the range of operating conditions for NWGFs and MHGFs.
    To determine the field energy use of residential furnaces used in 
homes, DOE established a sample of households using NWGFs and MHGFs 
from the Energy Information Administration's (EIA) 2009 Residential 
Energy Consumption Survey (RECS 2009).\33\ DOE assumed that furnaces in 
residential buildings smaller than 11,250 sq. ft. are residential 
furnaces and that each building has one furnace. The RECS data provide 
information on the vintage of the home, as well as heating energy use 
in each household. DOE used the household samples not only to determine 
furnace annual energy consumption, but also as the basis for conducting 
the LCC and PBP analysis. DOE projected household weights and household 
characteristics in 2021, the first full year of compliance with any 
amended energy conservation standards for NWGFs and MHGFs. To 
characterize future new homes, DOE used a subset of homes that were 
built after 1990.
---------------------------------------------------------------------------

    \33\ U.S. Department of Energy: Energy Information 
Administration, Residential Energy Consumption Survey: 2009 RECS 
Survey Data (2013), available at: http://www.eia.gov/consumption/residential/data/2009/ (last accessed July 29, 2014).
---------------------------------------------------------------------------

    To determine the field energy use of NWGFs used in commercial 
buildings, DOE established a sample of buildings using NWGFs from EIA's 
2003 Commercial Building Energy Consumption Survey (CBECS 2003),\34\ 
which is the most recent such survey that is currently available. DOE 
assumed that 80 percent of furnaces in commercial buildings smaller 
than 10,000 sq. ft are residential non-weatherized gas furnaces and 
each building has one or more furnaces.
---------------------------------------------------------------------------

    \34\ U.S. Department of Energy: Energy Information 
Administration, Commercial Buildings Energy Consumption Survey 
(2003), available at http://www.eia.gov/consumption/commercial/data/2003/index.cfm?view=microdata) (last accessed July 29, 2014).
---------------------------------------------------------------------------

1. Active Mode
    To estimate the annual energy consumption in active mode of 
furnaces meeting the considered efficiency levels, DOE first calculated 
the house heating load based on the RECS estimates of household furnace 
annual energy consumption.\35\ DOE estimated the house heating load by 
reference to the existing furnace's characteristics, specifically its 
capacity \36\ and efficiency (AFUE), as well as by the heat generated 
from the electrical components. The analysis assumes that homes with 
more than 5,000 square feet (about 10 percent of the sample) have two 
furnaces, with the heating load split evenly between them. This 
assumption decreases the energy use per furnace. The AFUE of the 
existing furnaces was determined using the furnace vintage (the year of 
installation of the product) from RECS and historical data on the 
market share of furnaces by AFUE (see section IV.E). DOE then used the 
house heating load to calculate the burner operating hours at each 
considered efficiency level, which are needed to calculate the fuel 
consumption and electricity consumption based on the DOE residential 
furnace test procedure.
---------------------------------------------------------------------------

    \35\ EIA estimated the equipment's annual energy consumption 
from the household's utility bills using conditional demand 
analysis.
    \36\ DOE's analysis accounts for the over-sizing of furnace 
capacity because the furnace capacity assignment is a function of 
historical shipments by furnace capacity, which reflects actual 
practice, as well as heating square footage and the outdoor design 
temperature for heating (i.e., the temperature that is exceeded by 
the 30-year minimum average temperature 1 percent of the time).
---------------------------------------------------------------------------

    DOE adjusted the energy use estimated for 2009 to ``normal'' 
weather by using long-term heating degree-day (HDD) data for each 
geographical region.\37\ DOE also accounted for future climate trends 
based on Annual Energy Outlook 2014 (AEO 2014) projections of HDD.\38\ 
This adjustment results in approximately three percent lower building 
heating load from 2014 to 2021.
---------------------------------------------------------------------------

    \37\ National Oceanic and Atmospheric Administration (NOAA), 
NNDC Climate Data Online (2009), available at http://www7.ncdc.noaa.gov/CDO/CDODivisionalSelect.jsp (last accessed July 
29, 2014).
    \38\ The LCC and PBP analysis uses the climate projected for 
2021, the first full year of compliance with potential amended 
furnace standards.
---------------------------------------------------------------------------

    DOE accounted for change in building shell characteristics and 
building size (square footage) between 2009 and 2021 by applying the 
building shell indexes in the National Energy Modeling System (NEMS) 
associated with Annual Energy Outlook 2014.\39\ The indexes consider 
projected improvements in building thermal efficiency due to 
improvement in home insulation and other thermal efficiency practices, 
as well as projected increases in square footage. Application of the 
index results in nine percent lower building heating load from 2009 to 
2021. EIA provides separate indexes for new buildings and existing 
buildings.
---------------------------------------------------------------------------

    \39\ U.S. Department of Energy, Energy Information 
Administration, Annual Energy Outlook 2014, available at http://www.eia.gov/forecasts/aeo/pdf/0383(2014).pdf (last accessed July 29, 
2014).
---------------------------------------------------------------------------

    To calculate furnace fan electricity consumption, DOE accounted for 
field data from several sources (as described in chapter 8 of the NOPR 
TSD) on static pressures of duct systems, as well as airflow curves for 
furnace blowers from manufacturer literature. As noted in section IV.C, 
the furnace designs incorporate furnace fans that meet the standard 
that will take effect in 2019.\40\
---------------------------------------------------------------------------

    \40\ See Table 1 at: http://www1.eere.energy.gov/buildings/appliance_standards/product.aspx/productid/42.
---------------------------------------------------------------------------

    To calculate electricity consumption for the inducer fan, ignition 
device, gas valve and controls, DOE used the calculation approach 
described in DOE's test procedure \41\ as well as 2013 AHRI Directory 
of Certified Furnace Equipment and manufacturer product literature.\42\
---------------------------------------------------------------------------

    \41\ Found in 10 CFR Pt. 430, subpart B, appendix N.
    \42\ AHRI Directory of Certified Furnace Equipment, February 
2013 (Available at: http://www.ahridirectory.org/ahridirectory/pages/home.aspx).
---------------------------------------------------------------------------

    Once annual energy use had been calculated, DOE disaggregated the 
total into monthly amounts, as described in chapter 8 of the NOPR TSD. 
This allows DOE to apply monthly energy prices in the LCC and PBP 
analysis.
    Higher-efficiency furnaces reduce the operating costs for a 
consumer, which can lead to greater use of the furnace. A direct 
rebound effect occurs when a piece of equipment that is made more 
efficient is used more intensively, such that the expected energy 
savings from the efficiency improvement may not fully materialize. For 
the NOPR analysis, DOE examined a 2009 review of empirical estimates of 
the rebound effect for various energy-using products.\43\ This review 
concluded that the econometric and quasi-experimental studies suggest a 
mean value for the direct rebound effect for household heating of 
around 20 percent. DOE also

[[Page 13148]]

examined a 2012 ACEEE paper \44\ and a 2013 paper by Thomas and 
Azevedo.\45\ Both of these publications examined the same studies that 
were reviewed by Sorrell, as well as Greening et al,\46\ and identified 
methodological problems with some of the studies. The studies, believed 
to be most reliable by Thomas and Azevedo, show a direct rebound effect 
for heating products in the 1-percent to 15-percent range, while Nadel 
concludes that a more likely range is 1 to 12 percent, with rebound 
effects sometimes higher than this range for low-income households who 
could not afford to adequately heat their homes prior to 
weatherization. Based on DOE's review of these recent assessments (see 
chapter 10 of the NOPR TSD), DOE used a 15 percent rebound effect for 
NWGFs and MHGFs in this NOPR. Although a lower value might be 
warranted, DOE prefers to be conservative and not risk understating the 
rebound effect. DOE welcomes comment on its assessment of this effect 
on today's rulemaking.
---------------------------------------------------------------------------

    \43\ Steven Sorrell, et. al, Empirical Estimates of the Direct 
Rebound Effect: A Review, 37 Energy Pol'y 1356-71 (2009).
    \44\ Steven Nadel, ``The Rebound Effect: Large or Small?'' ACEEE 
White Paper (August 2012) (Available at: http://www.aceee.org/white-paper/rebound-effect-large-or-small).
    \45\ Brinda Thomas & Ines Azevedo, Estimating Direct and 
Indirect Rebound Effects for U.S. Households with Input-Output 
Analysis, Part 1: Theoretical Framework, 86 Ecological Econ. 199-201 
(2013), available at http://www.sciencedirect.com/science/article/pii/S0921800912004764.
    \46\ Lorna A. Greening, et. al., Energy Efficiency and 
Consumption--The Rebound Effect--A Survey, 28 Energy Pol'y 389-401 
(2002).
---------------------------------------------------------------------------

2. Standby Mode and Off Mode
    DOE calculated furnace standby mode and off mode electricity 
consumption for each technology option identified in the engineering 
analysis by multiplying the power consumption at each efficiency level 
by the number of standby mode and off mode hours. To calculate the 
annual number of standby mode and off mode hours for each sample 
household, DOE subtracted the estimated total furnace fan operating 
hours from the total hours in a year (8,760). The total furnace fan 
operating hours includes the furnace fan operating hours during 
heating, cooling and continuous fan modes.
    See chapter 7 in the NOPR TSD for additional detail on the energy 
analysis for furnace standby mode and off mode operation.

F. Life-Cycle Cost and Payback Period Analysis

    In determining whether an energy efficiency standard is 
economically justified, DOE considers the economic impact of potential 
standards on consumers. The effect of new or amended standards on 
individual consumers usually includes a reduction in operating cost and 
an increase in purchase cost. DOE used the following two metrics to 
measure consumer impacts:
     LCC (life-cycle cost) is the total consumer cost of an 
appliance or product, generally over the life of the appliance or 
product, including purchase and operating costs. The latter costs 
consist of maintenance, repair, and energy costs. Future operating 
costs are discounted to the time of purchase and summed over the 
lifetime of the appliance or product.
     PBP (payback period) measures the amount of time it takes 
consumers to recover the assumed higher purchase price of a more 
energy-efficient product through reduced operating costs.
    For any given efficiency level, DOE measures the change in LCC 
relative to an estimate of the base-case efficiency level. The base-
case estimate reflects the market in the absence of amended energy 
conservation standards, including market trends for equipment that 
exceeds the current energy conservation standards.
    DOE analyzed the net effect of potential amended furnace standards 
on consumers by calculating the LCC and PBP for each household by 
efficiency level. Inputs to the LCC calculation include the installed 
cost to the consumer (purchase price, including sales tax where 
appropriate, plus installation cost), operating costs (energy expenses, 
repair costs, and maintenance costs), the lifetime of the product, and 
a discount rate. Inputs to the payback period calculation include the 
installed cost to the consumer and first-year operating costs.
    DOE performed the LCC and PBP analyses using a spreadsheet model 
combined with Crystal Ball \47\ to account for uncertainty and 
variability among the input variables. Each Monte Carlo simulation 
consists of 10,000 LCC and PBP calculations using input values that are 
either sampled from probability distributions and household samples or 
characterized with single point values. The analytical results include 
a distribution of 10,000 data points showing the range of LCC savings 
for a given efficiency level relative to the base case efficiency 
forecast. In performing an iteration of the Monte Carlo simulation for 
a given consumer, product efficiency is chosen based on its 
probability. If the chosen product efficiency is greater than or equal 
to the efficiency of the standard level under consideration, the LCC 
and PBP calculation reveals that a consumer is not impacted by the 
standard level. By accounting for consumers who already purchase more-
efficient products, DOE avoids overstating the potential benefits from 
increasing product efficiency.
---------------------------------------------------------------------------

    \47\ Crystal Ball is a commercial software program developed by 
Oracle and used to conduct stochastic analysis using Monte Carlo 
simulation. A Monte Carlo simulation uses random sampling over many 
iterations of the simulation to obtain a probability distribution of 
results. Certain key inputs to the analysis are defined as 
probability distributions rather than single-point values.
---------------------------------------------------------------------------

    EPCA establishes a rebuttable presumption that a standard is 
economically justified if the Secretary finds that the additional cost 
to the consumer of purchasing a product complying with an energy 
conservation standard level will be less than three times the value of 
the energy (and, as applicable, water) savings during the first year 
that the consumer will receive as a result of the standard, as 
calculated under the test procedure in place for that standard. (42 
U.S.C. 6295(o)(B)(ii)) For each considered efficiency level, DOE 
determines the value of the first year's energy savings by calculating 
the quantity of those savings in accordance with the applicable DOE 
test procedure, and multiplying that amount by the average energy price 
forecast for the year in which compliance with the amended standards 
would be required.
    As discussed in section IV.E, DOE developed nationally-
representative household samples from 2009 RECS, and a sample of 
commercial buildings using CBECS 2003. For each sampled building, DOE 
determined the energy consumption of the furnace and the appropriate 
energy prices in the area where the building is located.
    DOE calculated the LCC and PBP for all furnace consumers as if the 
consumers were to purchase the product in the year that compliance with 
amended standards is required. At the time of preparation of the NOPR 
analysis, the expected issuance date for the final rule was in January 
2016. EPCA also prescribes a five-year period between the standard's 
publication date and the compliance date, which leads to a compliance 
date of January 2021. (42 U.S.C. 6295(f)(4)(C)) For purposes of its 
analysis, DOE modelled furnaces purchased on or after this date as if 
they operated for a full year, beginning on January 1, 2021, and 
continuing thereafter.
1. Inputs to Installed Cost
    The primary inputs for establishing the total installed cost are 
the baseline consumer product price, standard-level consumer price 
increases, and installation costs (labor and material cost). Baseline 
consumer prices and

[[Page 13149]]

standard-level consumer price increases were determined by applying 
markups to manufacturer selling price estimates, including sales tax 
where appropriate. The installation cost is added to the consumer price 
to produce a total installed cost.
    The manufacturer selling price estimated in the engineering 
analysis refers to the current price. Economic literature and 
historical data suggest that the real prices of many products may trend 
downward over time according to ``learning'' or ``experience'' curves. 
Experience curve analysis focuses on entire industries and aggregates 
over many causal factors that may not be well characterized.\48\ For 
example, experience curve analysis implicitly includes factors such as 
efficiencies in labor, capital investment, automation, materials 
prices, distribution, and economies of scale at an industry-wide level. 
An experience curve relates the product price to the cumulative 
production of the product. Using a given set of historical data, DOE 
derived an experience rate that expresses the percentage reduction in 
price for each doubling of cumulative production.
---------------------------------------------------------------------------

    \48\ Margaret Taylor & Sydny K. Fujita, Accounting for 
Technological Change in Regulatory Impact Analyses: The Learning 
Curve Technique. (Lawrence Berkeley Nat'l Lab., 2013) available at: 
http://eetd.lbl.gov/publications/accounting-for-technological-change-0.
---------------------------------------------------------------------------

    For the default price trend for residential furnaces, DOE derived 
an experience rate based on an analysis of long-term historical data. 
As a proxy for manufacturer price, DOE used Producer Price Index (PPI) 
data for warm-air furnace equipment from the Bureau of Labor Statistics 
for 1990 through 2013.\49\ An inflation-adjusted PPI was calculated 
using the implicit price deflators for GDP for the same years. To 
calculate an experience rate, DOE performed a least-squares power-law 
fit on the inflation-adjusted PPI versus cumulative shipments of 
residential furnaces, based on a corresponding series for total 
shipments of residential furnaces (see section IV.G of this NOPR for 
discussion of shipments data). A detailed discussion of DOE's 
derivation of the experience rate is provided in appendix 8C of the 
NOPR TSD.
---------------------------------------------------------------------------

    \49\ U.S. Department of Labor, Bureau of Labor Statistics, 
Produce Price Indices Series ID PCU333415333415C, available at 
http://www.bls.gov/ppi/ (last accessed July 28, 2014).
---------------------------------------------------------------------------

    DOE then derived a price factor index, with the price in 2013 equal 
to 1, to forecast prices in 2021 for the LCC and PBP analysis, and, for 
the NIA, for each subsequent year through 2050. The index value in each 
year is a function of the experience rate and the cumulative production 
through that year. To derive the latter, DOE combined the historical 
shipments data with projected shipments from the base-case projection 
made for the NIA (see section IV.H of this NOPR). Application of the 
index results in prices that decline 6 percent from 2013 to 2021.
2. Installation Cost
    Installation cost includes labor, overhead, and any miscellaneous 
materials and parts needed to install the equipment.
    DOE conducted a detailed analysis of installation costs when a non-
condensing gas furnace is replaced with a condensing gas furnace, with 
particular attention to venting issues in replacement applications. DOE 
gave separate consideration to the cost of installing a condensing gas 
furnace in new homes. As part of its analysis, DOE used information in 
the 2009 RECS to estimate the location of the furnace in each of the 
sample homes.
    First, DOE estimated basic installation costs that are applicable 
to both replacement and new home applications. These costs, which apply 
to both condensing and non-condensing gas furnaces, include putting in 
place and setting up the furnace, gas piping, ductwork, electrical 
hookup, permit and removal/disposal fees, and where applicable, 
additional labor hours for an attic installation.
    For replacement applications, DOE then included a number of 
additional costs (``adders'') for a fraction of the sample households. 
For non-condensing gas furnaces, these additional costs included 
updating flue vent connectors, vent resizing, and chimney relining. For 
condensing gas furnaces, DOE included new adders for flue venting 
(PVC), combustion air venting (PVC), concealing vent pipes, addressing 
an orphaned water heater (by updating flue vent connectors, vent 
resizing, or chimney relining), and condensate removal. Freeze 
protection is accounted for in the cost of condensate removal. Table 
IV.12 shows the fraction of installations impacted and the average cost 
for each of the adders. The estimate of the fraction of installations 
impacted was based on the furnace location (primarily derived from 
information in the 2009 RECS) and a number of other sources that are 
described in chapter 8 of the NOPR TSD. The costs were based on 2013 RS 
Means data.\50\ Chapter 8 of the NOPR TSD describes in detail how DOE 
estimated the cost for each installation item.
---------------------------------------------------------------------------

    \50\ RS Means Company Inc., RS Means Residential Cost Data. 
Kingston, MA (2013).

   Table IV.12--Additional Installation Costs for Non-Weatherized Gas
                  Furnaces in Replacement Applications
------------------------------------------------------------------------
                                         Replacement
       Installation cost adder          installations     Average cost
                                          impacted           (2013$)
------------------------------------------------------------------------
                         Non-Condensing Furnaces
------------------------------------------------------------------------
Updating Flue Vent *................                2%           $555.95
------------------------------------------------------------------------
                           Condensing Furnaces
------------------------------------------------------------------------
New Flue Venting (PVC)..............              100%           $296.12
Combustion Air Venting (PVC)........                59            295.36
Concealing Vent Pipes...............                 9            360.25
Orphaned Water Heater...............                19            672.09
Condensate Removal..................               100             70.06
------------------------------------------------------------------------
* For a fraction of installation, this cost includes the commonly vented
  water heater vent connector, relining chimney, and vent resizing.

    DOE also included installation adders for new construction 
installations. For non-condensing furnaces, the only adder is a new 
flue vent (metal, including a fraction with stainless steel venting). 
For condensing gas furnaces,

[[Page 13150]]

the adders include a new flue vent, combustion air venting for direct 
vent installations, accounting for a commonly vented water heater, and 
condensate removal. Table IV.13 shows the estimated fraction of new 
home installations impacted and the average cost for each of the 
adders. For details, see chapter 8 of the NOPR TSD.

   Table IV.13--Additional Installation Costs for Non-Weatherized Gas
                    Furnaces in New Home Applications
------------------------------------------------------------------------
                                      New construction
       Installation cost adder          installations     Average cost
                                          impacted           (2013$)
------------------------------------------------------------------------
                         Non-Condensing Furnaces
------------------------------------------------------------------------
New Flue Vent (Metal) *.............              100%         $1,273.78
------------------------------------------------------------------------
                           Condensing Furnaces
------------------------------------------------------------------------
New Flue Venting (PVC)..............              100%           $207.83
Combustion Air Venting (PVC)........                60            205.77
Concealing Vent Pipes...............                 6            125.28
Orphaned Water Heater...............                45            987.60
Condensate Removal..................               100             47.46
------------------------------------------------------------------------
* For a fraction of installation, this cost includes the commonly vented
  water heater vent connector.

    DOE included basic installation costs for mobile home gas furnaces 
similar to those described above for non-weatherized gas furnaces. DOE 
also included costs for venting and condensate removal. Freeze 
protection is accounted for in the cost of condensate removal. In 
addition, DOE considered the cost of dealing with space constraints 
that could be encountered when a condensing furnace is installed.
3. Inputs to Operating Costs
a. Energy Consumption
    For each sample household, DOE determined the energy consumption 
for a furnace at different efficiency levels using the approach 
described above in section IV.E.
    As discussed in section IV.E, DOE is taking into account the 
rebound effect associated with more-efficient residential furnaces. The 
take-back in energy consumption associated with the rebound effect 
provides consumers with increased value (e.g., enhanced comfort 
associated with a cooler or warmer indoor environment). The increased 
comfort has a cost that is equal to the monetary value of the higher 
energy use. DOE could reduce the energy cost savings to account for the 
rebound effect, but then it would have to add the value of increased 
comfort in order to conduct a proper economic analysis. The approach 
that DOE uses--not reducing the energy cost savings to account for the 
rebound effect and not adding the value of increased comfort--assumes 
that the value of increased comfort is equal to the monetary value of 
the higher energy use. Although DOE cannot measure the actual value of 
increased comfort to the consumers, the monetary value of the higher 
energy use represents a lower bound for this quantity.
b. Energy Prices
    Using the most current data from EIA on average energy prices in 
various States and regions,51 52 53 DOE assigned an 
appropriate energy price to each household or commercial building in 
the sample, depending on its location (see chapter 8 of the NOPR TSD 
for details). Average electricity and natural gas prices from the EIA 
data were adjusted using seasonal marginal price factors to derive 
monthly marginal electricity and natural gas prices. For a detailed 
discussion of the development of marginal energy price factors, see 
appendix 8F of the NOPR TSD.
---------------------------------------------------------------------------

    \51\ U.S. Department of Energy-Energy Information 
Administration, Form EIA-826 Database Monthly Electric Utility Sales 
and Revenue Data (2013) available at: http://www.eia.doe.gov/cneaf/electricity/page/eia826.html.
    \52\ U.S. Department of Energy-Energy Information 
Administration, Natural Gas Navigator (2013), available at: http://tonto.eia.doe.gov/dnav/ng/ng_pri_sum_dcu_nus_m.htm.
    \53\ U.S. Department of Energy-Energy Information 
Administration, 2012 State Energy Consumption, Price, and 
Expenditure Estimates (SEDS) (2013), available at: http://www.eia.doe.gov/emeu/states/_seds.html.
---------------------------------------------------------------------------

    To estimate future prices, DOE used the projected annual changes in 
average residential and commercial natural gas, LPG, and electricity 
prices in the Reference case projection in AEO 2014.\54\
---------------------------------------------------------------------------

    \54\ U.S. Department of Energy, Energy Information 
Administration, Annual Energy Outlook 2014, Table 3, available at 
http://www.eia.gov/forecasts/aeo/data.cfm#enprisec (last accessed 
July 29, 2014).
---------------------------------------------------------------------------

c. Maintenance and Repair Costs
    Repair costs are associated with repairing or replacing components 
that have failed, whereas maintenance costs are associated with 
maintaining the proper operation of the equipment. DOE estimated the 
frequency of annual maintenance using data from RECS 2009 survey on the 
frequency with which owners of different types of furnaces perform 
maintenance.
    DOE estimated maintenance and repair costs for residential furnaces 
at each considered efficiency level using a variety of sources, 
including 2013 RS Means,\55\ manufacturer literature, and information 
from expert consultants.
---------------------------------------------------------------------------

    \55\ RS Means Company Inc., RS Means Facilities Maintenance & 
Repair Cost Data. Kingston, MA (2013).
---------------------------------------------------------------------------

d. Product Lifetime
    Product lifetime is the age at which an appliance is retired from 
service. DOE conducted an analysis of furnace lifetimes using a 
combination of data on shipments and the furnace stock (see section 
IV.G) and RECS data on the age of the furnaces in the homes. The data 
allowed DOE to develop a survival function, which provides a range from 
minimum to maximum lifetime as well as an average lifetime. The average 
lifetimes estimated for the NOPR are 21.5 years for NWGFs and MHGFs. In 
addition, DOE reviewed a number of sources to validate the derived 
furnace lifetimes, including American and European research studies and 
field data reports.\56\ Chapter 8 of the NOPR TSD provides further 
details on the methodology and sources DOE used to develop furnace 
lifetimes.
---------------------------------------------------------------------------

    \56\ See appendix 8-F of the NOPR TSD for a listing of the 
sources.
---------------------------------------------------------------------------

e. Discount Rates
    In the calculation of LCC, DOE applies discount rates to estimate 
the present value of future operating costs. The discount rate used in 
the LCC

[[Page 13151]]

analysis represents the rate from an individual consumer's perspective.
    To establish discount rates for residential consumers, DOE 
identified all relevant household debt or asset classes in order to 
approximate a consumer's opportunity cost of funds related to appliance 
energy cost savings and maintenance costs. DOE estimated the average 
percentage shares of the various types of debt and equity by household 
income group using data from the Federal Reserve Board's Survey of 
Consumer Finances (SCF) for 1995, 1998, 2001, 2004, 2007, and 2010. DOE 
then developed a distribution of rates for each type of debt and asset 
by income group to represent the discount rates that may apply in the 
year in which amended standards would take effect. DOE assigned each 
sample household a specific discount rate drawn from one of the 
distributions. The average residential discount rate across all types 
of household debt and equity and income groups, weighted by the shares 
of each class, is 4.5 percent.
    To establish discount rates for commercial consumers, DOE estimated 
the cost of capital for the types of companies that purchase NWGFs and 
MHGFs. The weighted average cost of capital is commonly used to 
estimate the present value of cash flows from a typical company project 
or investment. Most companies use both debt and equity capital to fund 
investments, so their cost of capital is the weighted average of the 
cost to the firm of equity and debt financing. DOE estimated the 
weighted average cost of capital using financial data for publicly 
traded firms in the sectors that purchase residential furnaces.\57\
---------------------------------------------------------------------------

    \57\ Damodaran Online, Data Page: Costs of Capital by Industry 
Sector (2012), http://pages.stern.nyu.edu/~adamodar/ (last accessed 
July 29, 2014).
---------------------------------------------------------------------------

    See chapter 8 in the NOPR TSD for further details on the 
development of discount rates for the LCC analysis.
f. Base-Case Efficiency
    To estimate the share of consumers affected by a potential standard 
at a particular efficiency level, DOE's LCC and PBP analysis considers 
the projected distribution (i.e., market shares) of product 
efficiencies that consumers will purchase in the first compliance year, 
without amended energy conservation standards (base case).
    DOE considered incentives and other market forces that have 
increased the sales of high-efficiency furnaces to estimate base-case 
efficiency distributions for the considered products. DOE started with 
data provided by AHRI on historical shipments for each product class. 
For non-weatherized gas furnaces, DOE reviewed AHRI data from 1992 to 
2009, detailing the market shares of non-condensing (80 percent AFUE) 
and condensing (90 percent AFUE and greater) furnaces by region.\58\ 
DOE also compiled data on the national market shares of non-condensing 
and condensing gas furnaces from 2010 to 2012 from the ENERGY STAR 
program.\59\ With these data, DOE derived historic trends for the North 
and South regions.
---------------------------------------------------------------------------

    \58\ The market share of furnaces with AFUE between 80 and 90 
percent is well below 1 percent due to the very high installed cost 
of 81-percent AFUE furnaces, compared with condensing designs, and 
concerns about safety of operation.
    \59\ ENERGY STAR Unit Shipment Data (2012), https://www.energystar.gov/index.cfm?c=partners.unit_shipment_data.
---------------------------------------------------------------------------

    To project trends from 2011 to 2021, DOE only used the trends from 
1993 to 2004 because from 2005 to 2011, there was a sharp increase in 
the share of condensing furnaces primarily due to Federal tax credits, 
which was followed by a sharp decrease in 2012. DOE determined that 
excluding these years provides a more reasonable projection. The 
maximum share of condensing shipments for each region is assumed to be 
95 percent. In other words, at least five percent of NWGF and MHGF 
furnace shipments will be non-condensing.
    DOE used data on the distribution of models in AHRI's Directory of 
Certified Product Performance \60\ to disaggregate the condensing-level 
shipments among condensing efficiency levels. Based on stakeholder 
input, DOE assumed that for furnace replacements, the fraction of 95 
percent AFUE and above shipments in the replacement market would be 
double the fraction in the new construction market. DOE also assumed 
that the fraction of 95 percent AFUE and above shipments would be 
higher in the North compared to the South, because the ENERGY STAR 
level in the North is 95 percent AFUE compared to 90 percent in the 
South.
---------------------------------------------------------------------------

    \60\ Air Conditioning, Heating, and Refrigeration Institute, 
Directory of Certified Performance: Furnaces (2013), http://www.ahridirectory.org/.
---------------------------------------------------------------------------

    Table IV.14 and Table IV.15 show the estimated AFUE base-case 
efficiency distributions in 2021 for NWGFs and MHGFs. For further 
information on DOE's estimation of the base-case efficiency 
distributions for non-weatherized gas furnaces, see chapter 8 of the 
NOPR TSD.

              Table IV.14--Current and Base-Case AFUE Distribution for Non-Weatherized Gas Furnaces
----------------------------------------------------------------------------------------------------------------
                                                           2021 Market share in percent
                                 -------------------------------------------------------------------------------
      Efficiency, AFUE (%)                          North, Repl                     South, Repl
                                   National  (%)        (%)       North, New (%)        (%)       South, New (%)
----------------------------------------------------------------------------------------------------------------
80..............................            53.4            33.0            34.7            77.6            70.4
90..............................             5.2             5.5             8.8             3.4             5.5
92..............................            17.9            15.8            32.4            13.9            20.2
95..............................            23.0            44.9            23.6             4.9             3.8
98..............................             0.5             0.8             0.6             0.1             0.2
----------------------------------------------------------------------------------------------------------------


                Table IV.15--Current and Base-Case AFUE Distribution for Mobile Home Gas Furnaces
----------------------------------------------------------------------------------------------------------------
                                                           2021 Market share in percent
                                 -------------------------------------------------------------------------------
      Efficiency, AFUE (%)                          North, Repl                     South, Repl
                                   National  (%)        (%)       North, New (%)        (%)       South, New (%)
----------------------------------------------------------------------------------------------------------------
80..............................            73.9            65.8            64.3            87.2            89.2
92..............................            12.1             6.1            21.2             9.6             9.6
95..............................            13.8            27.7            14.3             3.2             1.2

[[Page 13152]]

 
97..............................             0.2             0.4             0.2             0.0             0.0
----------------------------------------------------------------------------------------------------------------

    DOE also estimated base-case efficiency distributions for furnace 
standby mode and off mode power. As shown in Table IV.16, DOE estimated 
that 61 percent of the affected market would be at the baseline level 
in 2021 based on data from 18 furnace models from field study conducted 
in Wisconsin \61\ and data from DOE laboratory tests (see appendix 8I). 
In addition, for MHGFs, DOE assumed that all PSC furnace fan motor 
models would have lower standby power than the max tech efficiency 
level.
---------------------------------------------------------------------------

    \61\ Scott Pigg, Electricity Use by New Furnaces: A Wisconsin 
Field Study (Energy Center of Wis. 2003), available at http://www.ecw.org/publications/electricity-use-new-furnaces-wisconsin-field-study.

    Table IV.16--Standby Mode and Off Mode Base-Case Efficiency Distribution in 2021 for Non-Weatherized Gas
                                      Furnaces and Mobile Home Gas Furnaces
----------------------------------------------------------------------------------------------------------------
                                                                                    NWGF market     MHGF market
                        Efficiency level                            Standby/off      share in        share in
                                                                   mode (watts)       percent         percent
----------------------------------------------------------------------------------------------------------------
Baseline........................................................            11.0              61               5
1...............................................................             9.5               0               0
2...............................................................             9.2              17               1
3...............................................................             8.5              22              94
----------------------------------------------------------------------------------------------------------------

4. Accounting for Product Switching Under Potential Standards
    Because home builders are sensitive to the cost of heating 
equipment, a standard level that significantly increases purchase price 
may induce some builders to switch to a different heating system than 
they would have otherwise installed (i.e., in the base case). Such an 
amended standard level may also induce some home owners to replace 
their existing furnace at the end of its useful life with a different 
type of heating product, although in this case, switching may incur 
additional costs to accommodate the different product. The decision to 
switch is also affected by the prices of the energy sources for 
competing equipment.
    For this NOPR, DOE developed a consumer choice model to estimate 
the response of builders and home owners to potential amended furnace 
standards. The model considers the options available to each sample 
household, which are to purchase and install: (1) The furnace that 
meets a particular standard level, (2) a heat pump, or (3) an electric 
furnace. In addition, DOE allowed for the possibility that households 
for which installation of a condensing furnace would leave an 
``orphaned'' gas water heater that would require expensive re-sizing of 
the vent system might choose instead to purchase an electric water 
heater when they choose any of the above three options. DOE did not 
include a repair option in the consumer choice model and associated 
analysis. Current data collected by DOE suggests that repair in the 
case of major equipment failure, such as a furnace, would be minimal, 
unless the furnace is relatively new. For option 2, purchase a heat 
pump, DOE takes into consideration the age of the existing central air 
conditioner, if one exists, because if the air conditioner is not very 
old, it is unlikely that the consumer would opt to install a heat pump 
to provide both heating and cooling.
    The consumer choice model uses the installed cost of each option, 
as would be likely for each sample household, and the operating costs, 
taking into account the space heating load and the water heating load 
for each household and the energy prices it will pay over the equipment 
lifetime of the available product options. DOE also accounted for the 
cooling load of each relevant household that might switch from gas 
furnace and CAC to a heat pump.
    For heat pumps, DOE used efficiency and consumer prices for models 
that meet the energy conservation standards due to take effect on 
January 1, 2015 (10 CFR 430.32(c)(3)),and for water heaters, it used 
efficiency and consumer prices for models that meet the standards due 
to take effect on April 16, 2015. (10 CFR 430.32(d)) For electric 
furnaces, DOE used an efficiency of 98 percent and a consumer price 
based on RS Means.\62\ For situations where a household with a gas 
furnace might switch to electric space heating, DOE used the installed 
cost of the electric heating options, including a separate circuit up 
to 100 amps that would need to be installed to power the electric 
resistance heater within an electric furnace or heat pump, as well as a 
cost for upgrading the electrical service panel for a fraction of 
households. For all installations, DOE used regional labor rates from 
RS Means.\63\
---------------------------------------------------------------------------

    \62\ RS Means Company Inc., RS Means Facilities Maintenance & 
Repair Cost Data (2013).
    \63\ RS Means Company Inc., RS Means Residential Cost Data. 
Kingston, MA (2013).
---------------------------------------------------------------------------

    Electric furnaces are estimated to have the same lifetime as NWGFs, 
but heat pumps have an estimated average lifetime of 19 years, which is 
2.5 years less than the estimated average lifetime of NWGFs (21.5 
years). To ensure comparable accounting, DOE annualized the installed 
cost of a second heat pump and multiplied the annualized cost by the 
difference in years between the heat pump and a gas furnace in a 
particular switching situation.
    The decision criteria in the model are based on proprietary data 
from Decision Analysts,\64\ which identified for a representative 
sample of consumers their willingness to purchase more-efficient space-
conditioning systems. Each of the four surveys that DOE used,

[[Page 13153]]

which span the period 2006 to 2013, involved approximately 30,000 
homeowners. The surveys asked respondents the maximum price they would 
be willing to pay for a product that was 25 percent more efficient than 
their existing product, which DOE assumed is equivalent to a 25-percent 
decrease in annual energy costs. DOE also used Decision Analyst data 
for consumer choice model in the June 27, 2011 direct final rule for 
residential central air conditioners and residential furnaces. 76 FR 
37408. From these data, DOE deduced that consumers would expect a 
payback period of 3.5 years or less for a more-expensive but more-
efficient product (see appendix 8J of the NOPR TSD for further 
discussion). This reflects that, in general, consumers place a 
relatively high importance on the first cost differences.
---------------------------------------------------------------------------

    \64\ Decision Analysts, 2006, 2008, 2010, and 2013 American Home 
Comfort Studies. Available at http://www.decisionanalyst.com/Syndicated/HomeComfort.dai
---------------------------------------------------------------------------

    The consumer choice model estimates the PBP between the higher 
efficiency NWGF in each standards case compared to the electric heating 
options using the total installed cost and first year operating cost as 
estimated for each sample household or building. For switching to 
occur, the total installed cost of the electric option has to be less 
than the NWGF standards case option. The model assumes that there will 
be switching to an electric heating option if the PBP of the NWGF 
relative to the electric heating option is greater than 3.5 years or 
the PBP is negative. In the case of switching to an electric heating 
option, the model selects the most economically beneficial case.
    In addition to the default estimate, DOE conducted sensitivity 
analyses assuming higher and lower amounts of switching. Whereas the 
default estimate uses a consumer decision metric involving expectation 
of a payback period of 3.5 years or less for a more-expensive but more-
efficient product, the sensitivity analyses use payback periods that 
are one year higher or lower than 3.5 years (i.e., 2.5 years and 4.5 
years).
    Key results of the consumer choice model are presented in section 
V.B.1 of this NOPR.
5. Inputs to Payback Period Analysis
    The payback period is the amount of time it takes the consumer to 
recover the additional installed cost of more efficient products, 
compared to baseline products, through energy cost savings. The simple 
payback period does not account for changes in operating expense over 
time or the time value of money. Payback periods that exceed the life 
of the product mean that the increase in total installed cost is not 
recovered in reduced operating expenses.
    The inputs to the PBP calculation are the total installed cost of 
the equipment to the customer for each efficiency level and the average 
annual operating expenditures for each efficiency level. The PBP 
calculation uses the same inputs as the LCC analysis, except that 
discount rates are not needed. The results of DOE's PBP analysis are 
presented in section V.B.1.
    For the rebuttable presumption PBP, for each considered efficiency 
level, DOE determined the value of the first year's energy savings by 
calculating the quantity of those savings in accordance with the 
applicable DOE test procedure, and multiplying that amount by the 
average energy price forecast for the year in which compliance with the 
amended standard would be required.

G. Shipments Analysis

1. Overview
    DOE uses forecasts of product shipments to calculate the national 
impacts of potential amended energy conservation standards on energy 
use, NPV, and future manufacturer cash flows. DOE develops shipment 
projections based on historical data and an analysis of key market 
drivers for each product. DOE estimated furnace shipments by projecting 
shipments in three market segments: (1) Replacements; (2) new housing; 
and (3) new owners in buildings that did not previously have a NWGF. 
DOE also considered whether standards that require more-efficient 
furnaces would have an impact on furnace shipments.
    First, DOE assembled historic shipments data for NWGFs and MHGFs 
from Appliance \65\ and AHRI.\66\ To project furnace replacement 
shipments, DOE developed retirement functions from the furnace lifetime 
estimates and applied them to the existing products in the housing 
stock, which are tracked by vintage.
---------------------------------------------------------------------------

    \65\ Appliance Historical Statistical Review: 1954-2012, 
Appliance Mag. (2014), available at http://www.appliancemagazine.com/marketresearch/editorial.php?article=2476.
    \66\ Air-Conditioning, Heating, & Refrigeration Institute. 
Monthly Shipments (2010-2013), available at http://www.ahrinet.org/site/498/Resources/Statistics/Monthly-Shipments).
---------------------------------------------------------------------------

    To project shipments to the new housing market, DOE utilized a 
forecast of new housing construction and historic saturation rates of 
furnace product types in new housing. DOE used AEO 2014 for forecasts 
of new housing.\67\ DOE estimated future furnace saturation rates in 
new housing based on a weighted-average of U.S. Census Bureau's 
Characteristics of New Housing \68\ values from1990 through 2013.
---------------------------------------------------------------------------

    \67\ U.S. Department of Energy, Energy Information 
Administration, Annual Energy Outlook 2014, Table 20, available at 
http://www.eia.gov/forecasts/aeo/data.cfm?filter=macroeconomic#macroeconomic (last accessed July 29, 
2014).
    \68\ U.S. Census Bureau, Characteristics of New Housing, http://www.census.gov/const/www/charindex.html (last accessed Aug. 19, 
2014).
---------------------------------------------------------------------------

    To project shipments to new owners of NWGF, DOE used data in the 
American Home Comfort Survey \69\ to estimate that the annual total 
amounts to five percent of replacement shipments.
---------------------------------------------------------------------------

    \69\ Decision Analysts, 2008 American Home Comfort Study: Online 
Database Tool, available at http://www.decisionanalyst.com/Syndicated/HomeComfort.dai.
---------------------------------------------------------------------------

    DOE developed base-case shipments forecasts for each of the four 
Census regions that, in turn, were aggregated to produce regional and 
national forecasts. DOE estimated that the fraction of residential 
NWGFs shipped to the commercial sector is approximately three 
percent.\70\
---------------------------------------------------------------------------

    \70\ The results derived from RECS 2009 and CBECS 2003 show 
there are 45.6 and 1.2 million residential furnaces in residential 
and commercial buildings, respectively. DOE assumed that the share 
of shipments is similar to the share in the stock.
---------------------------------------------------------------------------

    For details on the shipments analysis, see chapter 9 of the NOPR 
TSD.
2. Impact of Potential Standards on Shipments: Accounting for Product 
Switching
    To estimate the impacts of potential standards on furnace 
shipments, DOE applied the consumer choice model described in section 
IV.F.4. The options available to each sample household are to purchase 
and install: (1) The furnace that meets a particular standard level, 
(2) a heat pump, or (3) an electric furnace.\71\
---------------------------------------------------------------------------

    \71\ DOE also accounted for situations when installing a 
condensing furnace could leave an ``orphaned'' gas water heater that 
would require expensive re-sizing of the vent system. Rather than 
incurring this cost, the consumer could choose to purchase an 
electric water heater along with a new furnace.
---------------------------------------------------------------------------

    As applied in the LCC and PBP analysis, the model considers 
equipment prices in the compliance year and energy prices over the 
lifetime of equipment installed in that year. The shipments model 
considers the switching that might occur in each year of the considered 
2021-2050 forecast period. To do so, DOE estimated the switching in the 
final year of the shipments period (2050), and derived trends from 2021 
to 2050. First, DOE applied the furnace product price trend described 
above to project prices in 2050. DOE used the appropriate energy prices 
over the lifetime of equipment

[[Page 13154]]

installed in that year. Although the inputs vary, the decision 
criteria, as described in section IV.F.4, are the same in each year.
    For each considered standard level, the number of gas furnaces 
shipped in each year is equal to the base shipments minus the number of 
gas furnace buyers who switched to either a heat pump or an electric 
furnace. The shipments model also tracks the number of additional heat 
pumps and electric furnaces shipped in each year.
    Because measures to limit standby mode and off mode power 
consumption have a very small impact on the total installed cost and do 
not impact consumer utility, and thus have a minimal effect on consumer 
purchase decisions, DOE assumed that base-case product shipments would 
be unaffected by standards to limit standby mode and off mode power 
consumption.
    For details on DOE's shipments analysis of product and fuel 
switching, see chapter 9 of the NOPR TSD.

H. National Impact Analysis

    The NIA assesses the national energy savings (NES) and the net 
present value (NPV) from a national perspective of total consumer costs 
and savings expected to result from new or amended energy conservation 
standards at specific efficiency levels. DOE determined the NPV and NES 
for the efficiency levels considered for the furnace product classes 
analyzed.
    To make the analysis more accessible and transparent to all 
interested parties, DOE used a spreadsheet model to calculate the 
energy savings and the national consumer costs and savings from each 
TSL.\72\ The NIA calculations are based on the annual energy 
consumption and total installed cost data from the energy use analysis 
and the LCC analysis. In the NIA, DOE forecasted the energy savings, 
energy cost savings and installed product costs for each product class 
over the lifetime of products sold from 2021 through 2050.
---------------------------------------------------------------------------

    \72\ DOE's use of spreadsheet models provides interested parties 
with access to the models within a familiar context. In addition, 
the TSD and other documentation that DOE provides during the 
rulemaking help explain the models and how to use them, and 
interested parties can review DOE's analyses by changing various 
input quantities within the spreadsheet.
---------------------------------------------------------------------------

1. Efficiency in the Base Case and Standards Cases
    A key component of the NIA is the trend in energy efficiency 
forecasted for the base case (without amended standards) and each of 
the standards cases. Section IV.F.3.f describes how DOE developed a 
base-case energy efficiency distribution for each of the considered 
product classes for the first full year of compliance (2021). To 
project base-case efficiency over the 30-year shipments period, DOE 
extrapolated the historical trends in efficiency that were described in 
section IV.F.3.f. DOE estimated that the national market share of 
condensing products would grow from 45 percent in 2021 to 61 percent by 
2050 for NWGFs, and from 23 percent to 29 percent for MHGFs. The market 
shares of the different condensing efficiency levels (i.e., 90-, 92-, 
95-, and 98-percent AFUE for NWGF and 92-, 95-, and 97-percent AFUE for 
MHGF) are maintained in the same proportional relationship as in 2021.
    Due to the lack of historical efficiency data for standby mode and 
off mode power consumption, DOE estimated that the efficiency 
distribution would remain the same throughout the forecast period.
    To estimate the impact that amended energy conservation standards 
may have in the year compliance becomes required, DOE used a ``roll-
up'' scenario: products with efficiencies in the base case that do not 
meet a potential amended standard level ``roll up'' to meet that 
standard level, and products at efficiencies above the standard level 
under consideration would not be affected. DOE believes that the roll-
up approach provides a conservative estimate of the potential energy 
savings in the standards cases. For the standards case with a 90-
percent AFUE national standard, DOE estimated that many consumers will 
purchase a 92-percent AFUE furnace rather than a 90-percent AFUE 
furnace because the extra installed cost is minimal.
    After the year of compliance, DOE estimated growth in efficiency in 
the standards cases, except in the max-tech standards case. The 
estimated growth accounts for potential changes in ENERGY STAR criteria 
and the response of manufacturers to minimum standards in the 
condensing range. For the TSLs requiring 90-, 92-, and 95-percent AFUE, 
DOE projected growth in the market shares of 95-percent AFUE and 98-
percent AFUE furnaces. For the proposed NWGF AFUE standards (TSL 3, 
requiring 92-percent AFUE), the share of 95-percent AFUE furnaces 
increases from 24 to 56 percent from 2021 to 2050, and the share of 98-
percent AFUE furnaces increases from 0.5 to 8.4 percent. For the 
proposed MHGF AFUE standards (TSL 3, requiring 92-percent AFUE), the 
share of 95-percent furnaces increases from 11 percent to 34 percent, 
and the share of 97-percent AFUE furnaces increases from 0.1 percent to 
2.6 percent.
    DOE did not have a basis on which to predict a change in efficiency 
trend for standby mode and off mode power consumption, so DOE assumed 
that the efficiency distribution would not change after the first full 
year of compliance.
    Details on how the efficiency trends were developed are in chapter 
10 of the NOPR TSD.
2. Product Cost Trend
    As discussed in section IV.F.1, DOE used an experience curve method 
to project future product price trends. Application of the price index 
results in a decline of 22 percent in furnace prices from 2021 to 2050. 
In addition to the default trend described in section IV.F.1, which 
shows a modest rate of decline, DOE performed price trend sensitivity 
calculations in the NIA to examine the dependence of the analysis 
results on different analytical assumptions. The price trend 
sensitivity analysis considered a trend with a greater rate of decline 
than the default trend and a trend with constant prices. The derivation 
of these trends is described in appendix 10C of the NOPR TSD.
3. Product Switching
    As discussed in section IV.F.4, DOE estimated the extent of 
switching from NWGFs to electric heating equipment that might occur in 
each year of the considered 2021-2050 forecast period in response to 
potential amended standards. In addition to the default estimate, DOE 
conducted sensitivity analyses assuming higher and lower amounts of 
switching.
4. National Energy Savings
    To develop the NES, DOE calculated annual energy consumption for 
the base case and the standards cases. DOE calculated the annual energy 
consumption for each case using the appropriate per-unit annual energy 
use data multiplied by the projected NWGF or MHGF shipments for each 
year. The per-unit annual energy use is adjusted with the building 
shell improvement index, which results in a decline of 12 percent in 
the heating load from 2021 to 2050, and the climate index, which 
results in a decline of 6.5 percent in the heating load.
    In the standards cases, there are fewer shipments of NWGFs or MHGFs 
compared to the base case because of product switching, but there are 
additional shipments of heat pumps, electric furnaces and electric 
water heaters. DOE incorporated the per-unit

[[Page 13155]]

annual energy use of the heat pumps and electric furnaces that was 
calculated in the LCC and PBP analysis (based on the specific sample 
households that switch to these products) into the NIA model.
    As explained in section IV.E.1, DOE incorporated a rebound effect 
for NWGFs and MHGFs by reducing the site energy savings in each year by 
15 percent.
    To estimate the national energy savings expected from amended 
appliance standards, DOE used a multiplicative factor to convert site 
electricity consumption (at the home or commercial building) into 
primary energy consumption (the energy required to convert and deliver 
the site electricity). These conversion factors account for the energy 
used at power plants to generate electricity and energy losses during 
transmission and distribution. The factors vary over time due to 
changes in generation sources (i.e., the power plant types projected to 
provide electricity to the country) projected in AEO 2014.\73\ The 
factors that DOE developed are marginal values, which represent the 
response of the electricity sector to an incremental decrease in 
consumption associated with potential appliance standards.
---------------------------------------------------------------------------

    \73\ U.S. Department of Energy, Energy Information 
Administration, Annual Energy Outlook 2014, available at http://www.eia.gov/forecasts/aeo/data.cfm (last accessed July 29, 2014).
---------------------------------------------------------------------------

    In response to the recommendations of a committee on ``Point-of-Use 
and Full-Fuel-Cycle Measurement Approaches to Energy Efficiency 
Standards'' appointed by the National Academy of Science, in 2011 DOE 
announced its intention to use full-fuel-cycle (FFC) measures of energy 
use and greenhouse gas and other emissions in the national impact 
analyses and emissions analyses included in future energy conservation 
standards rulemakings. 76 FR 51281 (August 18, 2011). After evaluating 
the approaches discussed in the August 18, 2011 notice, DOE published a 
statement of amended policy in the Federal Register in which DOE 
explained that NEMS is the most appropriate tool for its FFC analysis 
and DOE intended to use NEMS for that purpose. 77 FR 49701 (August 17, 
2012). The FFC factors incorporates losses in production and delivery 
in the case of natural gas (including fugitive emissions) and 
additional energy used to produce and deliver the various fuels used by 
power plants. The approach used for this NOPR is described in more 
detail in appendix 10B of the NOPR TSD.
5. Net Present Value of Consumer Benefit
    To develop the national NPV of consumer benefits from potential 
energy conservation standards, DOE calculated projected annual 
operating costs (energy costs and repair and maintenance costs) and 
annual installation costs for the base case and the standards cases. 
DOE calculated annual energy expenditures from annual energy 
consumption using forecasted energy prices in each year. DOE calculated 
annual product expenditures by multiplying the price per unit times the 
projected shipments in each year.
    As mentioned above, in the standards cases there are fewer 
shipments of NWGFs or MHGFs than in the base case because of product 
switching, but there are additional shipments of heat pumps and 
electric furnaces. For these products, the appropriate annual operating 
costs and installed costs that were calculated in the LCC and PBP 
analysis were incorporated into the NIA model.
    The aggregate difference each year between operating cost savings 
and increased installation costs is the net savings or net costs. DOE 
multiplies the net savings in future years by a discount factor to 
determine their present value. DOE estimates the NPV of consumer 
benefits using both a 3-percent and a 7-percent real discount rate, in 
accordance with guidance provided by the Office of Management and 
Budget (OMB) to Federal agencies on the development of regulatory 
analysis.\74\ The 7-percent real value is an estimate of the average 
before-tax rate of return to private capital in the U.S. economy. The 
3-percent real value represents the ``societal rate of time 
preference,'' which is the rate at which society discounts future 
consumption flows to their present value. The discount rates for the 
determination of NPV differ from the discount rates used in the LCC 
analysis, which are designed to reflect a consumer's perspective.
---------------------------------------------------------------------------

    \74\ Office of Management and Budget, OMB Circular A-4, section 
E, Identifying and Measuring Benefits and Costs (2003), available at 
http://www.whitehouse.gov/omb/memoranda/m03-21.html.
---------------------------------------------------------------------------

    As noted above, in determining national energy savings, DOE is 
accounting for the rebound effect associated with more-efficient 
furnaces.\75\ Because consumers have foregone a monetary savings in 
energy expenses, it is reasonable to conclude that the value of the 
increased utility is equivalent to the monetary value of the energy 
savings that would have occurred without the rebound effect. Therefore, 
the economic impacts on consumers with or without the rebound effect, 
as measured in the NPV, are the same.
---------------------------------------------------------------------------

    \75\ As previously discussed in section IV.F, the rebound effect 
provides consumers with increased utility (e.g., a more comfortable 
indoor environment).
---------------------------------------------------------------------------

I. Consumer Subgroup Analysis

    In analyzing the potential impacts of new or amended standards on 
consumers, DOE evaluated the impacts on two identifiable subgroups of 
consumers, low-income consumers and senior citizens, that may be 
disproportionately affected by a national standard. DOE analyzed the 
LCC impacts and PBP for those particular consumers from alternative 
standard levels. The analysis used subsets of the RECS 2009 sample 
comprised of households that meet the criteria for the two subgroups 
for both non-weatherized gas furnaces and mobile home gas furnaces.
    Chapter 11 of the NOPR TSD describes the consumer subgroup analysis 
and its results.

J. Manufacturer Impact Analysis

1. Overview
    DOE performed a manufacturer impact analysis (MIA) to determine the 
financial impact of amended energy conservation standards on 
residential furnace manufacturers and to estimate the potential impact 
of such standards on employment and manufacturing capacity.
    The MIA has both quantitative and qualitative aspects. The 
quantitative part of the MIA primarily relies on the Government 
Regulatory Impact Model (GRIM), an industry cash-flow model with inputs 
specific to this rulemaking. The key GRIM inputs are industry cost 
structure data, shipment data, product costs, markups, and conversion 
costs. The key output is the industry net present value (INPV). The 
INPV is the sum of the discounted cash flows for the industry over the 
MIA analysis period and provides a valuation of the industry. The GRIM 
applies standard accounting principles to calculate industry cash flows 
and to estimate changes in INPV between a base case and various TSLs 
(the standards case). The difference in INPV between the base case and 
standards cases represents the financial impact of amended energy 
conservation standards on residential furnace manufacturers. DOE used 
different sets of assumptions (markup scenarios) to represent the 
uncertainty surrounding potential impacts on prices and manufacturer 
profitability as a result of amended standards. These

[[Page 13156]]

different assumptions produce a range of INPV results.
    The qualitative part of the MIA addresses the proposed standard's 
potential impacts on manufacturing capacity and industry competition, 
as well as differential impacts the proposed standard may have on any 
particular sub-group of manufacturers. DOE also assesses the cumulative 
regulatory burden stemming from the combined effects of several recent 
or impending regulations, and considers opportunities to align future 
rulemakings to reduce burden to industry (see section V.B.2.e). The 
complete MIA is outlined in chapter 12 of the NOPR TSD.
    DOE conducted the MIA for this rulemaking in three phases. In the 
first phase of the MIA, DOE prepared an industry characterization based 
on the market and technology assessment and publicly available 
information. As part of its profile of the residential furnace 
industry, DOE also conducted a top-down cost analysis of manufacturers 
in order to derive preliminary financial inputs for the GRIM (e.g., 
sales, general, and administration (SG&A) expenses; research and 
development (R&D) expenses; and tax rates). DOE used public sources of 
information, including company SEC 10-K filings,\76\ corporate annual 
reports, the U.S. Census Bureau's Economic Census,\77\ and Hoover's 
reports \78\ to conduct this analysis.
---------------------------------------------------------------------------

    \76\ U.S. Securities and Exchange Commission, Annual 10-K 
Reports (Various Years), available at: http://www.sec.gov/edgar/searchedgar/companysearch.html (last accessed August 1, 2014).
    \77\ U.S. Census Bureau, Annual Survey of Manufacturers: General 
Statistics: Statistics for Industry Groups and Industries (2011), 
available at: http://factfinder2.census.gov/faces/nav/jsf/pages/searchresults.xhtml?refresh=t.
    \78\ Hoovers Inc. Company Profiles, Various Companies, available 
at: http://www.hoovers.com.
---------------------------------------------------------------------------

    In the second phase of the MIA, DOE prepared an industry cash-flow 
analysis to quantify the potential impacts of amended energy 
conservation standards. In general, energy conservation standards can 
affect manufacturer cash flow in three distinct ways. These include: 
(1) Creating a need for increased investment; (2) raising production 
costs per unit; and (3) altering revenue due to higher per-unit prices 
and possible changes in sales volumes. DOE estimated industry cash 
flows in the GRIM at various potential standard levels using industry 
financial parameters derived in the first phase and the shipment 
scenario used in the NIA. The GRIM modeled both impacts from the AFUE 
energy conservation standards and impacts from standby mode and off 
mode energy conservation standards (i.e., standards based on standby 
mode and off mode wattage). The GRIM results from the two standards 
were evaluated independent of one another.
    In the third phase of the MIA, DOE conducted structured, detailed 
interviews with manufacturers that account for approximately 35% of 
NWGF product listings and 50% of MHGF product listings. During these 
interviews, DOE discussed engineering, manufacturing, procurement, and 
financial topics to validate assumptions used in the GRIM. DOE also 
solicited information about manufacturers' views of the industry as a 
whole and their key concerns regarding this rulemaking. See section 
IV.J.3 for a description of the key issues manufacturers raised during 
the interviews.
    Additionally, in the third phase, DOE also evaluated subgroups of 
manufacturers that may be disproportionately impacted by amended 
standards or that may not be accurately represented by the average cost 
assumptions used to develop the industry cash-flow analysis. For 
example, small manufacturers, niche players, or manufacturers 
exhibiting a cost structure that largely differs from the industry 
average could be more negatively affected by amended energy 
conservation standards. DOE identified one subgroup (small 
manufacturers) for a separate impact analysis.
    To identify small businesses for this analysis, DOE applied the 
small business size standards published by the Small Business 
Administration (SBA) to determine whether a company is considered a 
small business. 65 FR 30836, 30848 (May 15, 2000), as amended at 65 FR 
53533, 53544 (Sept. 5, 2000) and codified at 13 CFR part 121. To be 
categorized as a small business under North American Industry 
Classification System (NAICS) code 333415, ``Air-Conditioning and Warm 
Air Heating Equipment and Commercial and Industrial Refrigeration 
Equipment Manufacturing,'' a residential furnace manufacturer and its 
affiliates may employ a maximum of 750 employees. The 750-employee 
threshold includes all employees in a business' parent company and any 
other subsidiaries. Based on this classification, DOE identified three 
residential furnace companies that qualify as small businesses. The 
residential furnace small manufacturer subgroup is discussed in section 
VI.B of this NOPR and in chapter 12 of the NOPR TSD.
2. Government Regulatory Impact Model
    DOE used the GRIM to quantify the potential changes in cash flow 
due to amended standards that result in a higher or lower industry 
value. The GRIM was designed to conduct an annual cash-flow analysis 
using standard accounting principles that incorporates manufacturer 
costs, markups, shipments, and industry financial information as 
inputs. DOE calculated a series of annual cash flows, beginning in 2014 
(the base year of the analysis) and continuing to 2050 (the end of the 
analysis period). DOE calculated INPVs by summing the stream of annual 
discounted cash flows during this period. DOE applied a discount rate 
of 6.4 percent, which was derived from industry financials and feedback 
received during manufacturer interviews. More information about the 
derivation of the manufacturers' discount rate can be found in chapter 
12 of the TSD.
    After calculating industry cash flows and INPV, DOE compared 
changes in INPV between the base case and each standards case. The 
difference in INPV between the base case and a standards case 
represents the financial impact of the amended energy conservation 
standard on the industry at a particular TSL. As discussed previously, 
DOE collected this information on GRIM inputs from a number of sources, 
including publicly-available data and confidential interviews with a 
number of manufacturers.
    For consideration of standby mode and off mode regulations, DOE 
modeled the impacts of the technology options for reducing electricity 
usage discussed in the engineering analysis (chapter 5 of the TSD). The 
GRIM analysis incorporates the increases in MPC and changes in markups 
the results from the standby mode and off mode requirements. Due to the 
small cost of standby mode and off mode components relative to the 
overall cost of a residential furnace, DOE assumed that standby mode 
and off mode standards alone would not impact product shipment numbers. 
In general, the impacts of the standby and off mode standard are 
significantly smaller than the impacts of the AFUE standard. For this 
reason, the analysis of employment, capacity constraints, and sub-group 
impacts focus on the AFUE standard.
    The GRIM results for both the AFUE standard and the standby mode 
and off mode standard are discussed in section V.B.2. Additional 
details about the GRIM, the discount rate, and other financial 
parameters can be found in chapter 12 of the NOPR TSD.

[[Page 13157]]

a. Government Regulatory Impact Model Key Inputs
Manufacturer Production Costs
    Manufacturing a higher-efficiency product is typically more 
expensive than manufacturing a baseline product due to the use of more 
complex components, which are typically more costly than baseline 
components. The changes in the MPCs of the analyzed products can affect 
the revenues, gross margins, and cash flow of the industry, making 
these product cost data key GRIM inputs for DOE's analysis.
    In the MIA, DOE used the MPCs calculated in the engineering 
analysis, as described in section IV.C and further detailed in chapter 
5 of the NOPR TSD. In addition, DOE used information from its teardown 
analysis (described in chapter 5 of the TSD) to disaggregate the MPCs 
into material, labor, and overhead costs. To calculate the MPCs for 
products at and above the baseline, DOE performed teardowns and cost 
modeling that allowed DOE to estimate the incremental material, labor, 
and overhead costs for products above the baseline. These cost 
breakdowns and product markups were validated and revised with input 
from manufacturers during manufacturer interviews.
Shipments Forecast
    DOE used the GRIM to estimate manufacturer revenues based on total 
unit shipment forecasts and the distribution of these values by 
efficiency level. Changes in sales volumes and efficiency mix over time 
can significantly affect manufacturer finances. For this analysis, DOE 
used the NIA's annual shipment forecasts derived from the shipments 
analysis from 2014 (the base year) to 2050 (the end year of the 
analysis period). In the shipments analysis, DOE estimates the 
distribution of efficiencies in the base case for all equipment 
classes. See section IV.G for additional details.
    For the standards-case shipment forecast, the GRIM uses the 
shipments analysis standards case forecasts. To account for regional 
standards, shipments values inputted to the GRIM are break out the 
north and the ``rest of country'' for TSL 1 and TSL 2. The NIA assumes 
that product efficiencies in the base case that do not meet the energy 
conservation standard in the standards case either ``roll up'' to meet 
the amended standard or switch to another product such as a heat pump 
or electric furnace. In other words, the market share of products that 
are below the energy conservation standard is added to the market share 
of products at the minimum energy efficiency level allowed under each 
standard case. The market share of products above the energy 
conservation standard is assumed to be unaffected by the standard in 
the compliance year. (See section IV.H.1 for further details on the 
roll-up and product switching methodology).
Product and Capital Conversion Costs
    Amended energy conservation standards would cause manufacturers to 
incur one-time conversion costs to bring their production facilities 
and product designs into compliance. DOE evaluated the level of 
conversion-related expenditures that would be needed to comply with 
each considered efficiency level in each product class. For the MIA, 
DOE classified these conversion costs into two major groups: (1) 
Capital conversion costs; and (2) product conversion costs. Capital 
conversion costs are one-time investments in property, plant, and 
equipment necessary to adapt or change existing production facilities 
such that new compliant product designs can be fabricated and 
assembled. Product conversion costs are one-time investments in 
research, development, testing, marketing, and other non-capitalized 
costs necessary to make product designs comply with amended energy 
conservation standards.
    To evaluate the level of capital conversion expenditures 
manufacturers would likely incur to comply with amended AFUE energy 
conservation standards, DOE used manufacturer interviews to gather data 
on the anticipated level of capital investment that would be required 
at each efficiency level. Based on the manufacturer feedback, DOE 
developed a market-share weighted average capital expenditure per 
manufacturer. DOE then scaled up this number to estimate the industry 
capital conversion cost. DOE validated manufacturer comments with 
estimates of capital expenditure requirements derived from the product 
teardown analysis and engineering analysis described in chapter 5 of 
the NOPR TSD.
    DOE assessed the product conversion costs at each considered AFUE 
efficiency level by integrating data from quantitative and qualitative 
sources. DOE considered market-share weighted feedback regarding the 
potential costs at each efficiency level from multiple manufacturers to 
estimate product conversion costs (e.g., R&D expenditures, 
certification costs. Manufacturer data was aggregated to better reflect 
the industry as a whole and to protect confidential information.
    DOE separately calculated the conversion costs for the standby mode 
and off mode standard. DOE anticipated that manufacturers would incur 
minimal capital conversion costs, as the engineering analysis indicates 
that all the design options to improve standby and off mode performance 
are component swaps which would not require new investments along 
production lines. However, the standby and off mode standard may 
require product conversion costs related to the specification and 
testing of a new components, as well as one-time updates to marketing 
literature for standby mode and off mode. DOE estimated these product 
conversion costs based on the engineering analysis and feedback 
collected in manufacturer interviews.
    In general, DOE assumed that all conversion-related investments 
occur between the year of publication of the final rule and the year by 
which manufacturers must comply with the amended standards. The 
conversion cost figures used in the GRIM can be found in section V.B.2 
of this notice. For additional information on the estimation of product 
and capital conversion costs, see chapter 12 of the NOPR TSD.
b. Government Regulatory Impact Model Scenarios
Manufacturer Markup Scenarios
    As discussed in the previous section, MSPs include direct 
manufacturing production costs (i.e., labor, materials, and overhead 
estimated in DOE's MPCs) and all non-production costs (i.e., SG&A, R&D, 
and interest), along with profit. To calculate the MSPs in the GRIM, 
DOE applied non-production cost markups to the MPCs estimated in the 
engineering analysis for each product class and efficiency level. 
Modifying these markups in the standards case yielded different sets of 
impacts on manufacturers. For the MIA, DOE modeled two standards-case 
markup scenarios to represent the uncertainty regarding the potential 
impacts on prices and profitability for manufacturers following the 
implementation of amended energy conservation standards: (1) A 
preservation of gross margin percentage markup scenario; (2) a 
preservation of per-unit operating profit markup scenario; and (3) a 
three-tier markup. These scenarios lead to different markup values 
that, when applied to the inputted MPCs, resulted in varying revenue 
and cash-flow impacts. The analytic results in section V.B.2 presents 
the upper and lower bound markup

[[Page 13158]]

scenarios, which are the preservation of gross margin percentage and 
three-tier markup scenarios for AFUE standard and the preservation of 
gross margin percentage and per-unit preservation of operating profit 
markup scenarios for standby and off mode standard.
    Under the preservation of gross margin percentage markup scenario, 
DOE applied a single uniform ``gross margin percentage'' markup across 
all efficiency levels, which assumes that following amended standards, 
manufacturers would be able to maintain the same amount of profit as a 
percentage of revenue at all efficiency levels within a product class. 
As production costs increase with efficiency, this scenario implies 
that the absolute dollar markup will increase as well. Based on 
publicly-available financial information for residential furnace 
manufacturers, as well as comments from manufacturer interviews, DOE 
assumed the average non-production cost markup--which includes SG&A 
expenses, R&D expenses, interest, and profit--to be 1.34 for non-
weatherized gas furnaces and 1.27 for mobile home gas furnaces. 
Manufacturers do not believe they could maintain the same gross margin 
percentage markup as their production costs increase. Therefore, DOE 
assumes that this markup scenario represents the upper bound of the 
residential furnace industry's profitability in the standards case 
because manufacturers are able to fully pass through additional costs 
due to standards to consumers.
    In the per-unit preservation-of-operating-profit scenario, as the 
cost of production goes up under a standards case, manufacturers are 
generally required to reduce their markups to a level that maintains 
base-case operating profit. In this scenario, the industry can only 
maintain its operating profit in absolute dollars after the standard 
(but not on a percentage basis, as seen in the preservation of gross 
margin markup scenario). Manufacturer markups are set so that operating 
profit one year after the compliance date of amended energy 
conservation standards is the same as in the base case on a per-unit 
basis. In other words, manufacturers are not able to garner additional 
operating profit from the higher production costs and the investments 
that are required to comply with the amended standards, but, they are 
able to maintain the same operating profit in the standards case that 
was earned in the base case. Therefore, in percentage terms, the 
operating margin is reduced between the base case and standards case.
    DOE also modeled a three-tiered markup scenario, which reflects the 
industry's ``good, better, best'' pricing structure. DOE implemented 
the three-tiered markup scenario because multiple manufacturers stated 
in interviews that they offer multiple tiers of equipment lines that 
are differentiated, in part, by efficiency level. The higher efficiency 
tiers typically earn premiums (for the manufacturer) over the baseline 
efficiency tier. Several manufacturers suggested that amended standards 
would lead to a reduction in premium markups and reduce the 
profitability of higher efficiency products. During the MIA interviews, 
manufacturers provided information on the range of typical efficiency 
levels in those tiers and the change in profitability at each level. 
DOE used this information to estimate markups for residential gas-fired 
furnaces under a three-tier pricing strategy in the base case. In the 
standards case, DOE modeled the situation in which standards result in 
less product differentiation, compression of the markup tiers, and an 
overall reduction in profitability.
3. Manufacturer Interviews
    DOE interviewed manufacturers representing 35 percent of the 
product listings in the NWGF market and 50 percent of the product 
listings in the MHGF market for this analysis. DOE contractors 
endeavored to conduct interviews with a representative cross section of 
manufacturers (including large and small manufacturers, covering all 
equipment classes and product offerings). DOE contractors reached out 
to all the small business manufacturers that were identified as part of 
the analysis, as well as larger manufacturers that have significant 
market share in the residential furnace market. The information 
gathered during these interviews enabled DOE to tailor the GRIM to 
reflect the unique financial characteristics of the residential furnace 
industry. All interviews provided information that DOE used to evaluate 
the impacts of potential amended energy conservation standards on 
manufacturer cash flows, manufacturing capacities, and employment 
levels.
    In interviews, DOE asked manufacturers to describe their concerns 
with the rulemaking regarding residential gas-fired furnace products. 
The following section highlights manufacturer responses that helped 
shape DOE's understanding of potential impacts of an amended standard 
on the industry. Manufacturer interviews are conducted under non-
disclosure agreements (NDAs), so DOE does not document these 
discussions in the same way that it does public comments in the comment 
summaries and DOE's responses throughout the rest of this NOPR.
Replacement Market
    Multiple manufacturers noted that an energy conservation standard 
set at 90% AFUE or above would make it difficult for substantial 
portions of the install base to replace their existing residential 
furnaces. They noted that some consumers may be faced with significant 
installation or home renovation costs when for replacing non-condensing 
furnaces with new condensing units due to the challenges of disposing 
of condensate from furnaces with efficiencies above 80% AFUE.
Product Switching
    Several manufacturers stated that gas-fired furnaces may not be 
economically justified for certain customers, depending on the level of 
the amended energy conservation standard for residential furnaces. 
These customers may be forced to seek more alternatives with lower 
upfront costs. Manufacturers expressed concern that customers may opt 
to buy alternative products, such as heat pumps, water heater systems, 
or electric furnaces. Such substitutions could decrease shipments of 
gas-fired furnaces, which in turn would reduce industry revenue.
Regional Enforcement
    Several manufacturers expressed concern about the potential 
complications of implementing and enforcing regional standards. Without 
a clear enforcement plan for regional standards, manufacturers were 
concerned about the potential burdens and impacts on their residential 
furnace product lines. The manufacturers noted that any amended 
standard should provide enough lead-in time between the announcement 
date and effective date to comply with the increased burden of regional 
standard.
Negative Impacts on Industry Profitability
    During interviews, all manufacturers agreed that if DOE set amended 
energy conservation standards too high, increased standards could limit 
their ability to differentiate residential furnace products based on 
efficiency. As the standard approaches max tech, manufacturers stated 
that there would be fewer performance differences and operating cost 
savings between baseline and premium products. They were concerned the 
drop in differentiation would lead to an erosion of markups for top 
efficiency products. Thus, the

[[Page 13159]]

manufacturers' profitability would decrease with compressed product 
offerings and markups.

K. Emissions Analysis

    In the emissions analysis, DOE estimated the impacts on site and 
power sector emissions of carbon dioxide (CO2), nitrogen 
oxides (NOX), sulfur dioxide (SO2), and mercury 
(Hg) from potential amended energy conservation standards for 
residential furnaces. In addition, DOE estimated emissions impacts in 
production activities (extracting, processing, and transporting fuels) 
that provide energy to power plants or building sites. These are 
referred to as ``upstream'' emissions. Together, these emissions 
account for the full-fuel-cycle (FFC). In accordance with DOE's FFC 
Statement of Policy (76 FR 51281 (Aug. 18, 2011) as amended at 77 FR 
49701 (August 17, 2012)), the FFC analysis also includes impacts on 
emissions of methane (CH4) and nitrous oxide 
(N2O), both of which are recognized as greenhouse gases.
    DOE primarily conducted the emissions analysis using emissions 
factors for CO2 and most of the other gases derived from 
data in AEO 2014. Combustion emissions of CH4 and 
N2O were estimated using emissions intensity factors 
published by the Environmental Protection Agency (EPA) in its GHG 
Emissions Factors Hub.\79\ Site emissions of CO2 and 
NOX were estimated using emissions intensity factors from a 
separate EPA publication.\80\ DOE developed separate emissions factors 
for power sector emissions and upstream emissions. The method that DOE 
used to derive emissions factors is described in chapter 13 of the NOPR 
TSD.
---------------------------------------------------------------------------

    \79\ See http://www.epa.gov/climateleadership/inventory/ghg-emissions.html.
    \80\ U.S. Environmental Protection Agency, Compilation of Air 
Pollutant Emission Factors, AP-42, Fifth Edition, Volume I: 
Stationary Point and Area Sources (1998), available at http://www.epa.gov/ttn/chief/ap42/index.html).
---------------------------------------------------------------------------

    For CH4 and N2O, DOE calculated emissions 
reduction in tons and also in terms of units of carbon dioxide 
equivalent (CO2eq). Gases are converted to CO2eq 
by multiplying each ton of the greenhouse gas by the gas's global 
warming potential (GWP) over a 100-year time horizon. Based on the 
Fifth Assessment Report of the Intergovernmental Panel on Climate 
Change,\81\ DOE used GWP values of 28 for CH4 and 265 for 
N2O.
---------------------------------------------------------------------------

    \81\ IPCC, Climate Change 2013: The Physical Science Basis. 
Contribution of Working Group I to the Fifth Assessment Report of 
the Intergovernmental Panel on Climate Change (Cambridge University 
Press, 2013).
---------------------------------------------------------------------------

    SO2 emissions from affected electric generating units 
(EGUs) are subject to nationwide and regional emissions cap-and-trade 
programs. Title IV of the Clean Air Act sets an annual emissions cap on 
SO2 for affected EGUs in the 48 contiguous States and the 
District of Columbia (DC). (42 U.S.C. 7651 et seq.) SO2 
emissions from 28 eastern States and DC were also limited under the 
Clean Air Interstate Rule (CAIR; 70 FR 25162 (May 12, 2005)), which 
created an allowance-based trading program that operates along with the 
Title IV program. CAIR was remanded to the U.S. Environmental 
Protection Agency (EPA) by the U.S. Court of Appeals for the District 
of Columbia Circuit, but it remained in effect.\82\ In 2011, EPA issued 
a replacement for CAIR, the Cross-State Air Pollution Rule (CSAPR). 76 
FR 48208 (August 8, 2011). On August 21, 2012, the D.C. Circuit issued 
a decision to vacate CSAPR.\83\ The court ordered EPA to continue 
administering CAIR. The emissions factors used for today's NOPR, which 
are based on AEO 2014, assume that CAIR remains a binding regulation 
through 2040.\84\
---------------------------------------------------------------------------

    \82\ See North Carolina v. EPA, 550 F.3d 1176 (D.C. Cir. 2008); 
North Carolina v. EPA, 531 F.3d 896 (D.C. Cir. 2008).
    \83\ See EME Homer City Generation, LP v. EPA, 696 F.3d 7, 38 
(D.C. Cir. 2012), cert. granted, 81 U.S.L.W. 3567, 81 U.S.L.W. 3696, 
81 U.S.L.W. 3702 (2013) (No. 12-1182).
    \84\ On April 29, 2014, the U.S. Supreme Court reversed the 
judgment of the DC Circuit and remanded the case for further 
proceedings consistent with the Supreme Court's opinion. The Supreme 
Court held in part that EPA's methodology for quantifying emissions 
that must be eliminated in certain States due to their impacts in 
other downwind States was based on a permissible, workable, and 
equitable interpretation of the Clean Air Act provision that 
provides statutory authority for CSAPR. See EPA v. EME Homer City 
Generation, No 12-1182, slip op. at 32 (April 29, 2014). On October 
23, 2014, the D.C. Circuit lifted the stay of CSAPR and CSAPR went 
into effect (and the CAIR sunset) in January 1, 2015. Because DOE is 
using emissions factors based on AEO 2013 for today's NOPR, the NOPR 
assumes that CAIR, not CSAPR, is the regulation in force. The 
difference between CAIR and CSAPR is not relevant for the purpose of 
DOE's analysis of SO2 emissions.
---------------------------------------------------------------------------

    The attainment of emissions caps is typically flexible among EGUs 
and is enforced through the use of emissions allowances and tradable 
permits. Beginning in 2016, however, SO2 emissions will 
decline significantly as a result of the Mercury and Air Toxics 
Standards (MATS) for power plants. 77 FR 9304 (Feb. 16, 2012). In the 
final MATS rule, EPA established a standard for hydrogen chloride as a 
surrogate for acid gas hazardous air pollutants (HAP), and also 
established a standard for SO2 (a non-HAP acid gas) as an 
alternative equivalent surrogate standard for acid gas HAP. The same 
controls are used to reduce HAP and non-HAP acid gas; thus, 
SO2 emissions will be reduced as a result of the control 
technologies installed on coal-fired power plants to comply with the 
MATS requirements for acid gas. AEO 2014 assumes that, in order to 
continue operating, coal plants must have either flue gas 
desulfurization or dry sorbent injection systems installed by 2016. 
Both technologies, which are used to reduce acid gas emissions, also 
reduce SO2 emissions. Under the MATS, emissions will be far 
below the cap established by CAIR, so it is likely that the increase in 
electricity demand associated with the highest residential furnace 
efficiency levels would increase SO2 emissions.
    CAIR established a cap on NOX emissions in 28 eastern 
States and the District of Columbia.\85\ Thus, it is unlikely that the 
increase in electricity demand associated with the considered 
residential furnace efficiency levels would increase NOX 
emissions in those States covered by CAIR. However, these efficiency 
levels would be expected to increase NOX emissions in the 
States not affected by the caps, so DOE estimated NOX 
emissions increases for these States.
---------------------------------------------------------------------------

    \85\ CSAPR also applies to NOX, and it would 
supersede the regulation of NOX under CAIR. As stated 
previously, the current analysis assumes that CAIR, not CSAPR, is 
the regulation in force. The difference between CAIR and CSAPR with 
regard to DOE's analysis of NOX is slight.
---------------------------------------------------------------------------

    The MATS limit mercury emissions from power plants, but they do not 
include emissions caps and, as such, the increase in electricity demand 
associated with the residential furnace efficiency levels would be 
expected to increase mercury emissions. DOE estimated mercury emissions 
using emissions factors based on AEO 2014, which incorporates the MATS.

L. Monetizing Carbon Dioxide and Other Emissions Impacts

    As part of the development of this proposed rule, DOE considered 
the estimated monetary benefits from the reduced emissions of 
CO2 and NOX that are expected to result from each 
of the TSLs considered. In order to make this calculation similar to 
the calculation of the NPV of consumer benefit, DOE considered the 
reduced emissions expected to result over the lifetime of equipment 
shipped in the forecast period for each TSL. This section summarizes 
the basis for the monetary values used for each of these emissions and 
presents the values considered in this rulemaking.
    To make these calculations, DOE is relying on a set of values for 
the social cost of carbon (SCC) that was developed by a Federal 
interagency process. A

[[Page 13160]]

summary of the basis for these values is provided below, and a more 
detailed description of the methodologies used is provided as an 
appendix to chapter 14 of the NOPR TSD.
1. Social Cost of Carbon
    The SCC is an estimate of the monetized damages associated with an 
incremental increase in carbon emissions in a given year. It is 
intended to include (but is not limited to) changes in net agricultural 
productivity, human health, property damages from increased flood risk, 
and the value of ecosystem services. Estimates of the SCC are provided 
in dollars per metric ton of carbon dioxide. A domestic SCC value is 
meant to reflect the value of damages in the United States resulting 
from a unit change in carbon dioxide emissions, while a global SCC 
value is meant to reflect the value of damages worldwide.
    Under section 1(b)(6) of Executive Order 12866, ``Regulatory 
Planning and Review,'' 58 FR 51735 (Oct. 4, 1993), agencies must, to 
the extent permitted by law, ``assess both the costs and the benefits 
of the intended regulation and, recognizing that some costs and 
benefits are difficult to quantify, propose or adopt a regulation only 
upon a reasoned determination that the benefits of the intended 
regulation justify its costs.'' The purpose of the SCC estimates 
presented here is to allow agencies to incorporate the monetized social 
benefits of reducing CO2 emissions into cost-benefit 
analyses of regulatory actions. The estimates are presented with an 
acknowledgement of DOE acknowledges that there are many uncertainties 
involved in the estimates and with a clear understanding that they 
should be updated over time to reflect increasing knowledge of the 
science and economics of climate impacts.
    As part of the interagency process that developed the SCC 
estimates, technical experts from numerous agencies met on a regular 
basis to consider public comments, explore the technical literature in 
relevant fields, and discuss key model inputs and assumptions. The main 
objective of this process was to develop a range of SCC values using a 
defensible set of input assumptions grounded in the existing scientific 
and economic literatures. In this way, key uncertainties and model 
differences transparently and consistently inform the range of SCC 
estimates used in the rulemaking process.
a. Monetizing Carbon Dioxide Emissions
    When attempting to assess the incremental economic impacts of 
carbon dioxide emissions, the analyst faces a number of challenges. A 
recent report from the National Research Council \86\ points out that 
any assessment will suffer from uncertainty, speculation, and lack of 
information about: (1) Future emissions of greenhouse gases; (2) the 
effects of past and future emissions on the climate system; (3) the 
impact of changes in climate on the physical and biological 
environment; and (4) the translation of these environmental impacts 
into economic damages. As a result, any effort to quantify and monetize 
the harms associated with climate change will raise questions of 
science, economics, and ethics, and should be viewed as provisional.
---------------------------------------------------------------------------

    \86\ National Research Council. Hidden Costs of Energy: Unpriced 
Consequences of Energy Production and Use (2009).
---------------------------------------------------------------------------

    Despite the limits of both quantification and monetization, SCC 
estimates can be useful in estimating the social benefits of reducing 
carbon dioxide emissions. The agency can estimate the benefits from 
reduced (or costs from increased) emissions in any future year by 
multiplying the change in emissions in that year by the SCC value 
appropriate for that year. The net present value of the benefits can 
then be calculated by multiplying each of these future benefits by an 
appropriate discount factor and summing across all affected years.
    It is important to emphasize that the interagency process is 
committed to updating these estimates as the science and economic 
understanding of climate change and its impacts on society improves 
over time. In the meantime, the interagency group will continue to 
explore the issues raised by this analysis and consider public comments 
as part of the ongoing interagency process.
b. Development of Social Cost of Carbon Values
    In 2009, an interagency process was initiated to offer a 
preliminary assessment of how best to quantify the benefits of reducing 
carbon dioxide emissions. To ensure consistency in how benefits were 
evaluated across agencies, the Administration sought to develop a 
transparent and defensible method, specifically designed for the 
rulemaking process, to quantify avoided climate change damages from 
reduced CO2 emissions. The interagency group did not 
undertake any original analysis. Instead, it combined SCC estimates 
from the existing literature to use as interim values until a more 
comprehensive analysis could be conducted. The outcome of the 
preliminary assessment by the interagency group was a set of five 
interim global SCC estimates for 2007 (in 2006 dollars) of $55, $33, 
$19, $10, and $5 per metric ton of CO2. These interim values 
represented the first sustained interagency effort within the U.S. 
government to develop an SCC for use in regulatory analysis. The 
results of this preliminary effort were presented in several proposed 
and final rules.
c. Current Approach and Key Assumptions
    After the release of the interim values, the interagency group 
reconvened on a regular basis to generate improved SCC estimates. 
Specifically, the group considered public comments and further explored 
the technical literature in relevant fields. The interagency group 
relied on three integrated assessment models commonly used to estimate 
the SCC: the FUND, DICE, and PAGE models. These models are frequently 
cited in the peer-reviewed literature and were used in the last 
assessment of the Intergovernmental Panel on Climate Change (IPCC). 
Each model was given equal weight in the SCC values that were 
developed.
    Each model takes a slightly different approach to model how changes 
in emissions result in changes in economic damages. A key objective of 
the interagency process was to enable a consistent exploration of the 
three models, while respecting the different approaches to quantifying 
damages taken by the key modelers in the field. An extensive review of 
the literature was conducted to select three sets of input parameters 
for these models: climate sensitivity, socio-economic and emissions 
trajectories, and discount rates. A probability distribution for 
climate sensitivity was specified as an input into all three models. In 
addition, the interagency group used a range of scenarios for the 
socio-economic parameters and a range of values for the discount rate. 
All other model features were left unchanged, relying on the model 
developers' best estimates and judgments.
    In 2010, the interagency group selected four sets of SCC values for 
use in regulatory analyses. Three sets of values are based on the 
average SCC from three integrated assessment models, at discount rates 
of 2.5 percent, 3 percent, and 5 percent. The fourth set, which 
represents the 95th-percentile SCC estimate across all three models at 
a 3-percent discount rate, is included to represent higher-than-
expected impacts from climate change further out in the tails of the 
SCC distribution. The values grow in real terms over time. 
Additionally, the interagency group determined that a range of values 
from

[[Page 13161]]

7 percent to 23 percent should be used to adjust the global SCC to 
calculate domestic effects, although preference is given to 
consideration of the global benefits of reducing CO2 
emissions.\87\ Table IV.17 presents the values in the 2010 interagency 
group report,\88\ hich is reproduced in appendix 14A of the NOPR TSD.
---------------------------------------------------------------------------

    \87\ It is recognized that this calculation for domestic values 
is approximate, provisional, and highly speculative. There is no a 
priori reason why domestic benefits should be a constant fraction of 
net global damages over time.
    \88\ Interagency Working Group on Social Cost of Carbon, Social 
Cost of Carbon for Regulatory Impact Analysis Under Executive Order 
12866 (2010), available at http://www.whitehouse.gov/sites/default/files/omb/inforeg/for-agencies/Social-Cost-of-Carbon-for-RIA.pdf.

                     Table IV.17--Annual SCC Values From 2010 Interagency Report, 2010-2050
                                      [In 2007 dollars per metric ton CO2]
----------------------------------------------------------------------------------------------------------------
                                                                           Discount rate
                                                 ---------------------------------------------------------------
                                                        5%              3%             2.5%             3%
                      Year                       ---------------------------------------------------------------
                                                                                                       95th
                                                      Average         Average         Average       Percentile
----------------------------------------------------------------------------------------------------------------
2010............................................             4.7            21.4            35.1            64.9
2015............................................             5.7            23.8            38.4            72.8
2020............................................             6.8            26.3            41.7            80.7
2025............................................             8.2            29.6            45.9            90.4
2030............................................             9.7            32.8            50.0           100.0
2035............................................            11.2            36.0            54.2           109.7
2040............................................            12.7            39.2            58.4           119.3
2045............................................            14.2            42.1            61.7           127.8
2050............................................            15.7            44.9            65.0           136.2
----------------------------------------------------------------------------------------------------------------

    The SCC values used for today's notice were generated using the 
most recent versions of the three integrated assessment models that 
have been published in the peer-reviewed literature. Table IV.18 shows 
the updated sets of SCC estimates from the 2013 interagency update \89\ 
in five-year increments from 2010 to 2050. Appendix 14B of the NOPR TSD 
provides the full set of values. The central value that emerges is the 
average SCC across models at a 3-percent discount rate. However, for 
purposes of capturing the uncertainties involved in regulatory impact 
analysis, the interagency group emphasizes the importance of including 
all four sets of SCC values.
---------------------------------------------------------------------------

    \89\ Technical Update of the Social Cost of Carbon for 
Regulatory Impact Analysis Under Executive Order 12866. Interagency 
Working Group on Social Cost of Carbon, United States Government 
(May 2013; revised November 2013) (Available at: http://www.whitehouse.gov/sites/default/files/omb/assets/inforeg/technical-update-social-cost-of-carbon-for-regulator-impact-analysis.pdf).

                     Table IV.18--Annual SCC Values From 2013 Interagency Update, 2010-2050
                                      [In 2007 dollars per metric ton CO2]
----------------------------------------------------------------------------------------------------------------
                                                                           Discount rate
                                                 ---------------------------------------------------------------
                                                        5%              3%             2.5%             3%
                      Year                       ---------------------------------------------------------------
                                                                                                       95th
                                                      Average         Average         Average       Percentile
----------------------------------------------------------------------------------------------------------------
2010............................................              11              32              51              89
2015............................................              11              37              57             109
2020............................................              12              43              64             128
2025............................................              14              47              69             143
2030............................................              16              52              75             159
2035............................................              19              56              80             175
2040............................................              21              61              86             191
2045............................................              24              66              92             206
2050............................................              26              71              97             220
----------------------------------------------------------------------------------------------------------------

    The interagency group recognizes that a number of key uncertainties 
remain, and that current SCC estimates should be treated as provisional 
and revisable since they will evolve with improved scientific and 
economic understanding. The interagency group also recognizes that the 
existing models are imperfect and incomplete. The National Research 
Council report describes tension between the goal of producing 
quantified estimates of the economic damages from an incremental ton of 
carbon and the limits of existing efforts to model these effects. There 
are a number of analytical challenges that are being addressed by the 
research community, including research programs housed in many of the 
Federal agencies participating in the interagency process to estimate 
the SCC. The interagency group intends to periodically review and 
reconsider those estimates to reflect increasing knowledge of the 
science and economics of climate impacts, as well as improvements in 
modeling.
    In summary, in considering the potential global benefits resulting 
from reduced CO2 emissions, DOE used the values from the 
2013 interagency report, adjusted to 2013$ using the Gross Domestic 
Product price deflator. For each of the four SCC cases specified, the 
values used for emissions in 2015 were $12.0, $40.5, $62.4, and $119 
per metric ton avoided (values expressed in 2013$). DOE derived values 
after 2050

[[Page 13162]]

using the relevant growth rates for the 2040-2050 period in the 
interagency update.
    DOE multiplied the CO2 emissions reduction estimated for 
each year by the SCC value for that year in each of the four cases. To 
calculate a present value of the stream of monetary values, DOE 
discounted the values in each of the four cases using the specific 
discount rate that had been used to obtain the SCC values in each case.
2. Valuation of Other Emissions Reductions
    As noted above, DOE has taken into account how amended energy 
conservation standards would reduce site NOX emissions 
nationwide and increase power sector NOX emissions in those 
22 States not affected by the CAIR. DOE estimated the monetized value 
of net NOX emissions reductions resulting from each of the 
TSLs considered for today's NOPR based on estimates found in the 
relevant scientific literature. Estimates of monetary value for 
reducing NOX from stationary sources range from $476 to 
$4,893 per ton in 2013$.\90\ DOE calculated monetary benefits using a 
medium value for NOX emissions of $2,684 per short ton (in 
2013$), and real discount rates of 3 percent and 7 percent.
---------------------------------------------------------------------------

    \90\ U.S. Office of Management and Budget, Office of Information 
and Regulatory Affairs, 2006 Report to Congress on the Costs and 
Benefits of Federal Regulations and Unfunded Mandates on State, 
Local, and Tribal Entities (2006), available at http://www.whitehouse.gov/sites/default/files/omb/assets/omb/inforeg/2006_cb/2006_cb_final_report.pdf.
---------------------------------------------------------------------------

    DOE is evaluating appropriate monetization of avoided 
SO2 and Hg emissions in energy conservation standards 
rulemakings. DOE has not included monetization of those emissions in 
the current analysis.

M. Utility Impact Analysis

    The utility impact analysis estimates several effects on the power 
generation industry that would result from the adoption of new or 
amended energy conservation standards. In the utility impact analysis, 
DOE analyzes the changes in installed electrical capacity and 
generation that would result for each trial standard level. The 
analysis is based on published output from NEMS, which is a public 
domain, multi-sectored, partial equilibrium model of the U.S. energy 
sector. Each year, NEMS is updated to produce the AEO reference case as 
well as a number of side cases that estimate the economy-wide impacts 
of changes to energy supply and demand. DOE uses those published side 
cases that incorporate efficiency-related policies to estimate the 
marginal impacts of reduced energy demand on the utility sector. The 
output of this analysis is a set of time-dependent coefficients that 
capture the change in electricity generation, primary fuel consumption, 
installed capacity and power sector emissions due to a unit reduction 
in demand for a given end use. These coefficients are multiplied by the 
stream of electricity savings calculated in the NIA to provide 
estimates of selected utility impacts of new or amended energy 
conservation standards. Chapter 15 of the NOPR TSD describes the 
utility impact analysis in further detail.

N. Employment Impact Analysis

    Employment impacts from new or amended energy conservation 
standards include direct and indirect impacts. Direct employment 
impacts are any changes in the number of employees of manufacturers of 
the products subject to standards; the MIA addresses those impacts. 
Indirect employment impacts are changes in national employment that 
occur due to the shift in expenditures and capital investment caused by 
the purchase and operation of more-efficient appliances. Indirect 
employment impacts from standards consist of the jobs created or 
eliminated in the national economy, other than in the manufacturing 
sector being regulated, due to: (1) Reduced spending by end users on 
energy; (2) reduced spending on new energy supply by the utility 
industry; (3) increased consumer spending on the purchase of new 
products; and (4) the effects of those three factors throughout the 
economy.
    One method for assessing the possible effects on the demand for 
labor of such shifts in economic activity is to compare sector 
employment statistics developed by the Labor Department's Bureau of 
Labor Statistics (BLS). BLS regularly publishes its estimates of the 
number of jobs per million dollars of economic activity in different 
sectors of the economy, as well as the jobs created elsewhere in the 
economy by this same economic activity. Data from BLS indicate that 
expenditures in the utility sector generally create fewer jobs (both 
directly and indirectly) than expenditures in other sectors of the 
economy.\91\ There are many reasons for these differences, including 
wage differences and the fact that the utility sector is more capital-
intensive and less labor-intensive than other sectors. Energy 
conservation standards have the effect of reducing consumer utility 
bills. Because reduced consumer expenditures for energy likely lead to 
increased expenditures in other sectors of the economy, the general 
effect of efficiency standards is to shift economic activity from a 
less labor-intensive sector (i.e., the utility sector) to more labor-
intensive sectors (e.g., the retail and service sectors). Thus, based 
on the BLS data alone, DOE believes net national employment may 
increase because of shifts in economic activity resulting from amended 
standards for NWGFs and MHGFs.
---------------------------------------------------------------------------

    \91\ See Bureau of Economic Analysis, ``Regional Multipliers: A 
Handbook for the Regional Input-Output Modeling System (RIMS II),'' 
U.S. Department of Commerce (1992).
---------------------------------------------------------------------------

    For the amended standard levels considered in this NOPR, DOE 
estimated indirect national employment impacts using an input/output 
model of the U.S. economy called Impact of Sector Energy Technologies, 
Version 3.1.1 (ImSET).\92\ ImSET is a special-purpose version of the 
``U.S. Benchmark National Input-Output'' (I-O) model, which was 
designed to estimate the national employment and income effects of 
energy-saving technologies. The ImSET software includes a computer-
based I-O model having structural coefficients that characterize 
economic flows among the 187 sectors. ImSET's national economic I-O 
structure is based on a 2002 U.S. benchmark table, specially aggregated 
to the 187 sectors most relevant to industrial, commercial, and 
residential building energy use. DOE notes that ImSET is not a general 
equilibrium forecasting model, and understands the uncertainties 
involved in projecting employment impacts, especially changes in the 
later years of the analysis. Because ImSET does not incorporate price 
changes, the employment effects predicted by ImSET may over-estimate 
actual job impacts over the long run. For the NOPR, DOE used ImSET only 
to estimate short-term (through 2023) employment impacts.
---------------------------------------------------------------------------

    \92\ M.J. Scott, et. al., ImSET 3.1: Impact of Sector Energy 
Technologies, PNNL-18412, (2009), available at www.pnl.gov/main/publications/external/technical_reports/PNNL-18412.pdf.
---------------------------------------------------------------------------

    For more details on the employment impact analysis, see chapter 16 
of the NOPR TSD.

V. Analytical Results and Conclusions

    The following section addresses the results from DOE's analyses 
with respect to potential energy conservation standards for the 
products examined as part of this rulemaking. It addresses the trial 
standard levels examined by DOE, the projected impacts of each of these 
levels if adopted as energy conservation standards for furnaces, and 
the standards levels that DOE is proposing

[[Page 13163]]

to adopt in this NOPR. Additional details regarding the analyses 
conducted by DOE are contained in the publicly-available NOPR TSD 
supporting this document.

A. Trial Standard Levels

    DOE developed two sets of trial standard levels (TSLs) that combine 
efficiency levels for NWGFs and MHGFs, one for AFUE and one for standby 
mode and off mode power.
1. TSLs for AFUE \93\
---------------------------------------------------------------------------

    \93\ In the context of presenting TSLs and results for each of 
them, DOE uses the term ``AFUE standard'' to refer to potential 
standards on AFUE throughout section V of this notice. TSLs for 
standby mode and off mode are addressed separately.
---------------------------------------------------------------------------

    Table V.1 presents the AFUE levels in each TSL that DOE has 
identified for potential NWGF and MHGF standards. TSL 5 consists of the 
max-tech efficiency levels. TSL 4 consists of the efficiency levels 
that provide the maximum NES with an NPV greater than zero using a 7-
percent discount rate. TSL 3 consists of the efficiency levels that 
provide the highest NPV using a 7-percent discount rate, and that also 
result in a higher percentage of consumers that receive an LCC benefit 
than experience an LCC loss (see section V.B.1 for LCC results). TSL 2 
consists of the efficiency levels that represent 95-percent AFUE for 
the Northern region for each product class, and the baseline non-
condensing efficiency level for the rest of the country. TSL 1 consists 
of the baseline condensing efficiency level for the North and the 
baseline non-condensing efficiency level for the rest of the country 
for each product class.

       Table V.1--AFUE Trial Standard Levels for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces
----------------------------------------------------------------------------------------------------------------
                                                          Trial standard level (AFUE)
        Product class         ----------------------------------------------------------------------------------
                                       1                2                3               4               5
----------------------------------------------------------------------------------------------------------------
Non-Weatherized Gas Furnaces.  North: 90%......  North: 95%.....             92%             95%             98%
                               Rest: 80%.......  Rest: 80%......
Mobile Home Gas Furnaces.....  North: 92%......  North: 95%.....             92%             95%             97%
                               Rest: 80%.......  Rest: 80%......  ..............  ..............  ..............
----------------------------------------------------------------------------------------------------------------

2. TSLs for Standby Mode and Off Mode Power
    Table V.2 presents the TSLs and the corresponding product class 
efficiency levels (expressed in watts) that DOE considered for NWGF and 
MHGF standby mode and off mode power consumption. For each product 
class, DOE considered three efficiency levels.



 Table V.2--Standby Mode and Off Mode Trial Standard Levels for Non-Weatherized Gas Furnaces and Mobile Home Gas
                                                    Furnaces
----------------------------------------------------------------------------------------------------------------
                                                                           Trial standard level (watts)
                          Product class                          -----------------------------------------------
                                                                         1               2               3
----------------------------------------------------------------------------------------------------------------
Non-Weatherized Gas Furnaces....................................             9.5             9.2             8.5
Mobile Home Gas Furnaces........................................             9.5             9.2             8.5
----------------------------------------------------------------------------------------------------------------

B. Economic Justification and Energy Savings

1. Economic Impacts on Individual Consumers
    DOE analyzed the economic impacts on NWGF and MHGF consumers by 
looking at the effects standards would have on the LCC and PBP. DOE 
also examined the impacts of potential standards on selected consumer 
subgroups. These analyses are discussed below.
a. Life-Cycle Cost and Payback Period
    To evaluate the net economic impact of potential amended energy 
conservation standards on consumers of NWGFs and MHGFs, DOE conducted 
LCC and PBP analyses for each TSL. In general, higher-efficiency 
products would affect consumers in two ways: (1) Purchase price would 
increase, and (2) annual operating expense would decrease. In addition, 
some consumers may choose to switch to an alternative heating system 
rather than purchase and install a NWGF if they judge the economics to 
be favorable. DOE estimated the extent of switching at each TSL using 
the consumer choice model discussed in section IV.F.4.
    Inputs used for calculating the LCC and PBP include total installed 
costs (i.e., product price plus installation costs) and operating costs 
(i.e., annual energy savings, energy prices, energy price trends, 
repair costs, and maintenance costs). The LCC calculation also uses 
product lifetime and discount rates. In cases where consumers are 
predicted to switch, the inputs include the total installed costs, 
operating costs, and product lifetime for the chosen heating system.
    The key outputs of the LCC analysis are a mean LCC savings (or 
cost) and a median PBP relative to the base-case efficiency 
distribution for each product class of residential NWGFs and MHGFs, as 
well as the percentage of consumers for whom the LCC under an amended 
standard would decrease (net benefit), increase (net cost), or exhibit 
no change (no impact).
    DOE also performed a PBP analysis as part of the consumer impact 
analysis. The PBP is the number of years it would take for the consumer 
to recover the increased costs of higher-efficiency product as a result 
of energy savings based on the operating cost savings. The PBP is an 
economic benefit-cost measure that uses benefits and costs without 
discounting. Chapter 8 of the NOPR TSD provides detailed

[[Page 13164]]

information on the LCC and PBP analyses.
    The simple payback is measured relative to the baseline product. In 
contrast, the LCC savings are measured relative to the base-case 
efficiency distribution in the compliance year. No impacts occur when 
the base-case efficiency for a specific consumer equals or exceeds the 
efficiency at a given TSL; a standard would have no effect because the 
product installed would be at or above that standard level without 
amended standards.
    For NWGFs, the LCC and PBP results at each efficiency level include 
consumers that would purchase and install a NWGF at that level, and 
also consumers that would choose to switch to alternative heating 
equipment rather than pay the cost of installing a furnace at that 
level.\94\ The impacts for consumers that switch depend on the product 
that they choose (heat pump or electric furnace) and the NWGF that they 
would purchase in the base case. The extent of projected product 
switching (in 2021) is shown in Table V.3 for each TSL for NWGFs. As 
expected, the degree of switching increases at higher-efficiency TSLs 
where the installed cost of a NWGF is very high for some consumers. As 
discussed in section IV.F.4, DOE also conducted sensitivity analysis 
using high and low switching estimates (based on paybacks of 2.5 and 
4.5 years, respectively around the reference value of 3.5 years). 
Tables similar to Table V.3 for the high and low switching estimates 
are shown in appendix 8J of the NOPR TSD.
---------------------------------------------------------------------------

    \94\ DOE did not analyze switching for MHGFs because the 
installation cost differential is small between condensing and non-
condensing equipment, so the incentive for switching is fairly 
small.

                  Table V.3--Results of Consumer Choice Model for Non-Weatherized Gas Furnaces
----------------------------------------------------------------------------------------------------------------
                                                       TSL 1 **    TSL 2 **
                   Consumer Option                        (%)         (%)        TSL 3       TSL 4       TSL 5
----------------------------------------------------------------------------------------------------------------
Purchase NWGF at Standard Level.....................        97.8        97.4        90.6        88.6        84.7
Switch to Heat Pump*................................         1.6         1.9         6.8         8.6        12.0
Switch to Electric Furnace*.........................         0.6         0.6         2.5         2.8         3.3
                                                     -----------------------------------------------------------
Total...............................................       100         100         100         100         100
----------------------------------------------------------------------------------------------------------------
* Includes switching from a gas water heater to an electric water heater.
** Results at TSLs 1 and 2 refer to the Northern region. For the Rest of Country, the proposed standard levels
  at TSLs 1 and 2 are at the baseline, so no consumers are affected.

    Table V.4 through Table V.7 provide key results for the AFUE TSLs. 
Results for all efficiency levels are reported in chapter 8 of the NOPR 
TSD. The LCC and PBP results for NWGF include both residential and 
commercial users. For NWGFs, similar results for the high and low 
switching estimates are shown in appendix 8J of the NOPR TSD. For the 
proposed standards for AFUE (TSL 3), the average LCC savings are $253 
using high switching estimates, and $329 using low switching estimates. 
These values compare to the default LCC savings of $305 (see Table 
V.5).

                                  Table V.4--Average LCC and PBP Results for Non-Weatherized Gas Furnace AFUE Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                          Average costs  (2013$)
                                                                           ----------------------------------------------------
                                                                                            First                                  Simple      Average
                 TSL                           Region           AFUE  (%)    Installed      year's      Lifetime                  payback      lifetime
                                                                                cost      operating    operating       LCC        (years)      (years)
                                                                                             cost         cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
1...................................  North..................           90       $2,985         $737      $11,761      $14,746          8.3         21.5
                                      Rest of Country........           80        2,003          456        7,374        9,376  ...........         21.5
2...................................  North..................           95        3,133          706       11,251       14,385          7.2         21.5
                                      Rest of Country........           80        2,003          456        7,374        9,376  ...........         21.5
3...................................  National...............           92        2,669          579        9,228       11,897          7.2         21.5
4...................................  National...............           95        2,788          565        8,985       11,773          7.4         21.5
5...................................  National...............           98        2,948          554        8,771       11,718          8.3         21.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: The results for each TSL are calculated assuming that all consumers use products with that efficiency level. The PBP is measured relative to the
  baseline product.


Table V.5--Average LCC Savings Relative to the Base Case Efficiency Distribution for Non-Weatherized Gas Furnace
                                                 AFUE Standards
----------------------------------------------------------------------------------------------------------------
                                                                                      Life-Cycle cost savings
                                                                                 -------------------------------
                                                                                  % of Consumers
                  TSL                            Region              AFUE (%)          that           Average
                                                                                  Experience Net     savings*
                                                                                       Cost           (2013$)
----------------------------------------------------------------------------------------------------------------
1.....................................  North...................              90              11            $208
                                        Rest of Country.........              80               0  ..............
2.....................................  North...................              95              14             374
                                        Rest of Country.........              80               0  ..............
3.....................................  National................              92              20             305

[[Page 13165]]

 
4.....................................  National................              95              24            $388
5.....................................  National................              98              40             441
----------------------------------------------------------------------------------------------------------------
* The calculation includes households with zero LCC savings (no impact).


                                    Table V.6--Average LCC and PBP Results for Mobile Home Gas Furnace AFUE Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                           Average costs (2013$)
                                                                           ----------------------------------------------------
                                                                                            First                                  Simple      Average
                 TSL                           Region            AFUE (%)    Installed      year's      Lifetime                  payback      lifetime
                                                                                cost      operating    operating       LCC        (years)      (years)
                                                                                             cost         cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
1...................................  North..................           92       $1,760         $740      $11,415      $13,175          1.8         21.5
                                      Rest of Country........           80        1,489          489        7,762        9,251  ...........         21.5
2...................................  North..................           95        1,902          719       11,103       13,005          2.8         21.5
                                      Rest of Country........           80        1,489          489        7,762        9,251  ...........         21.5
3...................................  National...............           92        1,721          623        9,694       11,415          2.2         21.5
4...................................  National...............           95        1,864          607        9,440       11,304          3.3         21.5
5...................................  National...............           97        1,979          599        9,319       11,298          4.2         21.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: The results for each TSL are calculated assuming that all consumers use products with that efficiency level. The PBP is measured relative to the
  baseline product.


  Table V.7--Average LCC Savings Relative to the Base Case Efficiency Distribution for Mobile Home Gas Furnace
                                                 AFUE Standards
----------------------------------------------------------------------------------------------------------------
                                                                                      Life-Cycle cost savings
                                                                                 -------------------------------
                                                                                       % of
                  TSL                            Region              AFUE (%)     Consumers that      Average
                                                                                     experience      savings *
                                                                                   net cost (%)       (2013$)
----------------------------------------------------------------------------------------------------------------
1.....................................  North...................              92               4            $770
                                        Rest of Country.........              80               0  ..............
2.....................................  North...................              95               8             902
                                        Rest of Country.........              80               0  ..............
3.....................................  National................              92               7             691
4.....................................  National................              95              13             778
5.....................................  National................              97              25             784
----------------------------------------------------------------------------------------------------------------
* The calculation includes households with zero LCC savings (no impact).

    Table V.8 through Table V.11 show the national LCC and PBP results 
for standby mode and off mode TSLs. DOE did not consider regional 
standards for standby mode and off mode. The LCC and PBP results for 
NWGFs include both residential and commercial users.

                       Table V.8--Average LCC and PBP Results for Non-Weatherized Gas Furnace Standby Mode and Off Mode Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                           Average costs (2013$)
                                                                           ----------------------------------------------------
                                                                                            First                                  Simple      Average
                    TSL                             Efficiency level         Installed      year's      Lifetime                  payback      lifetime
                                                                                cost      operating    operating       LCC        (years)      (years)
                                                                                             cost         cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                             Baseline.....................           $0          $11         $159         $159  ...........         21.5
1..........................................  1............................            2            9          137          139          1.3         21.5
2..........................................  2............................           17            9          133          150          9.7         21.5

[[Page 13166]]

 
3..........................................  3............................           18            8          123          141          7.5         21.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: The results for each TSL are calculated assuming that all consumers use products with that efficiency level. The PBP is measured relative to the
  baseline product.


Table V.9--Average LCC Savings Relative to the Base-Case Efficiency Distribution for Non-Weatherized Gas Furnace
                                       Standby Mode and Off Mode Standards
----------------------------------------------------------------------------------------------------------------
                                                                                      Life-Cycle cost savings
                                                                                 -------------------------------
                                                                    Efficiency         % of
                               TSL                                     level      Consumers that      Average
                                                                                     experience      savings *
                                                                                     net cost         (2013$)
----------------------------------------------------------------------------------------------------------------
1...............................................................               1               2             $12
2...............................................................               2              15               6
3...............................................................               3               9              13
----------------------------------------------------------------------------------------------------------------
* The calculation includes households with zero LCC savings (no impact).


                         Table V.10--Average LCC and PBP Results for Mobile Home Gas Furnace Standby Mode and Off Mode Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                       Efficiency level
                                            ----------------------------------------------------------------------
                                                                               First                                 Average       Simple      Average
                    TSL                                                        year's      Lifetime                   costs       payback      lifetime
                                                     Installed cost          operating    operating       LCC        (2013$)      (years)      (years)
                                                                                cost         cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                             Baseline.....................           $0          $10         $155         $155  ...........         21.5
1..........................................  1............................            2            9          134          136          1.2         21.5
2..........................................  2............................           16            9          130          145          9.2         21.5
3..........................................  3............................           17            8          120          137          7.1         21.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: The results for each TSL are calculated assuming that all consumers use products with that efficiency level. The PBP is measured relative to the
  baseline product.


  Table V.11--Average LCC Savings Relative to the Base-Case Efficiency Distribution for Mobile Home Gas Furnace
                                       Standby Mode and Off Mode Standards
----------------------------------------------------------------------------------------------------------------
                                                                                      Life-Cycle cost savings
                                                                                 -------------------------------
                                                                    Efficiency    % of Consumers
                               TSL                                     level           that           Average
                                                                                  experience net     savings *
                                                                                       cost           (2013$)
----------------------------------------------------------------------------------------------------------------
1...............................................................               1               0              $1
2...............................................................               2               1               0
3...............................................................               3               1               1
----------------------------------------------------------------------------------------------------------------
* The calculation includes households with zero LCC savings (no impact).

b. Consumer Subgroup Analysis \95\
---------------------------------------------------------------------------

    \95\ As discussed in section IV.I, DOE did not perform a 
subgroup analysis for the residential furnace standby mode and off 
mode efficiency levels. The standby mode and off mode analysis 
relied on the test procedure to assess energy savings for the 
considered standby mode and off mode efficiency levels. Because the 
analysis used the same test procedure parameters for all sample 
households, there is no difference in energy savings between the 
consumer subgroups and the full sample.
---------------------------------------------------------------------------

    In the consumer subgroup analysis, DOE estimated the impacts of the 
considered AFUE TSLs on low-income and senior-only households. The 
average LCC savings and simple payback periods for low-income and 
senior-only households are compared to the results for all consumers 
for the AFUE standards in Table V.12 and Table V.13. Because the Rest 
of Country efficiency levels at TSLs 1 and 2 are at the baseline, these 
tables only include results for the Northern region for these TSLs. 
Chapter 11 of the NOPR TSD presents detailed results of the consumer 
subgroup analysis, including

[[Page 13167]]

results for standby mode and off mode standards.

      Table V.12--Non-Weatherized Gas Furnace AFUE Standards: Impacts for Senior-Only and Low-Income Consumer Subgroups Compared to All Households
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              Average life-cycle cost savings (2013$)              Simple payback period (years)
                   TSL                       AFUE (%)    -----------------------------------------------------------------------------------------------
                                                            Senior-only     Low-income     All consumers    Senior-only     Low-income     All consumers
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 *.....................................              90            $223            $148            $208             7.9             9.1             8.3
2 *.....................................              95             405             346             374             6.7             7.6             7.2
3.......................................              92             326             247             305             6.8             8.3             7.2
4.......................................              95             427             330             388             6.9             8.3             7.4
5.......................................              98             542             485             441             7.5             8.5             8.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Only includes results for the North region.


        Table V.13--Mobile Home Gas Furnace AFUE Standards: Impacts for Senior-Only and Low-Income Consumer Subgroups Compared to All Households
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              Average life-cycle cost savings (2013$)              Simple payback period (years)
                   TSL                       AFUE (%)    -----------------------------------------------------------------------------------------------
                                                            Senior-only     Low-income     All consumers    Senior-only     Low-income     All consumers
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 *.....................................              92            $586            $746            $770             4.1             2.2             1.8
2 *.....................................              95             670             882             902             5.5             3.4             2.8
3.......................................              92             429             677             691             4.1             2.2             2.2
4.......................................              95             455             763             778             5.5             3.4             3.3
5.......................................              97             415             768             784             6.8             4.3             4.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Only includes results for the North region.

c. Rebuttable Presumption Payback Period
    As discussed in section III.E.2, EPCA establishes a rebuttable 
presumption that an energy conservation standard is economically 
justified if the increased purchase cost for a product that meets the 
standard is less than three times the value of the first-year energy 
savings resulting from the standard. Accordingly, DOE calculated a 
rebuttable-presumption PBP for each TSL for NWGFs and MHGFs based on 
average usage profiles. As a result, DOE calculated a single 
rebuttable-presumption payback value, and not a distribution of PBPs, 
for each TSL. However, DOE routinely conducts an economic analysis that 
considers the full range of impacts to the consumer, manufacturer, 
Nation, and environment, as required by EPCA under 42 U.S.C. 
6295(o)(2)(B)(i). The results of that analysis serve as the basis for 
DOE to definitively evaluate the economic justification for a potential 
standard level, thereby supporting or rebutting the results of any 
preliminary determination of economic justification. Table V.14 shows 
the rebuttable-presumption PBPs for the considered AFUE TSLs for NWGFs 
and MHGFs. Table V.15 shows the rebuttable-presumption PBPs for the 
considered TSLs for standby mode and off mode for NWGFs and MHGFs.

  Table V.14--Rebuttable-Presumption Payback Periods (years) for NWGFs and MHGFs for Analysis of AFUE Standards
----------------------------------------------------------------------------------------------------------------
                                                                       Trial standard level
                 Product class                  ----------------------------------------------------------------
                                                     1 *          2 *           3            4            5
----------------------------------------------------------------------------------------------------------------
Non-Weatherized Gas Furnaces...................          4.2          3.5          3.9          3.9          4.8
Mobile Home Gas Furnaces.......................          0.9          1.1          1.1          1.4          1.8
----------------------------------------------------------------------------------------------------------------
* Results at TSLs 1 and 2 are for the North region. For the Rest of Country, the proposed standard levels at
  TSLs 1 and 2 are at the baseline, so no consumers are affected.


Table V.15--Rebuttable-Presumption Payback Periods (years) for NWGFs and
        MHGFs for Analysis of Standby Mode and Off Mode Standards
------------------------------------------------------------------------
                                            Trial standard level
          Product class           --------------------------------------
                                        1            2            3
------------------------------------------------------------------------
Non-Weatherized Gas Furnaces.....          1.5         11.1          8.6
Mobile Home Gas Furnaces.........          1.3          9.8          7.5
------------------------------------------------------------------------


[[Page 13168]]

2. Economic Impacts on Manufacturers
    DOE performed a manufacturer impact analysis (MIA) to estimate the 
impact of an amended energy conservation standard on manufacturers of 
residential gas-fired furnace products. The following section describes 
the expected impacts on manufacturers at each considered TSL. DOE first 
discusses the impacts of potential AFUE standards and then turns to the 
impacts of potential standby mode and off mode standards. Chapter 12 of 
the NOPR TSD explains the analysis in further detail.
a. Industry Cash-Flow Analysis Results
Cash-Flow Analysis Results for Residential Furnaces AFUE Standards
    In this section, DOE provides GRIM results from the AFUE analysis, 
which examines changes in the industry that would result from a 
potential increase in the AFUE standard. DOE applied preservation of 
gross margin markup scenario as an upper bound to GRIM results (less 
severe) and the three-tiered markup scenario as the lower bound to GRIM 
results (more severe).
    As discussed in section IV.J.2.b, DOE considered the preservation 
of gross margin percentage scenario by applying a uniform ``gross 
margin percentage'' markup across all efficiency levels. As production 
cost increases with efficiency, this scenario implies that the absolute 
dollar markup will increase. DOE assumed the nonproduction cost 
markup--which includes SG&A expenses, research and development 
expenses, interest, and profit to be a factor of 1.34 for non-
weatherized gas furnaces and 1.27 for mobile home gas furnaces. These 
markups are consistent with the ones DOE assumed in the engineering 
analysis and in the base case of the GRIM. Manufacturers have indicated 
that it is optimistic to assume that as their production costs increase 
in response to an amended energy conservation standard, they would be 
able to maintain the same gross margin percentage markup. Therefore, 
DOE assumes that this scenario represents a high bound to industry 
profitability under an amended energy conservation standard.
    To assess the more severe end of the range of potential impacts, 
DOE modeled the three-tier markup scenario, which reflects manufacturer 
concerns surrounding their inability to higher margins on premium 
efficiency products as the energy conservation standard increases. 
High-efficiency products that enjoy a premium markup in the base case 
see that premium erode in the standards case. Additional information 
can be found in section IV.J.2.b of this document and chapter 12 of the 
TSD.
    As noted in the MIA methodology section (see IV.J.2), in addition 
to markup scenarios, the MPC, shipments, and conversion cost 
assumptions also affect GRIM results. The GRIM shows a change in 
industry value net present value that results from amended standards.
    Each of the modeled scenarios in the AFUE standards analysis 
results in a unique set of annual free cash flows at each TSL. The INPV 
is the sum of the annual free cash flows from the 2014 to 2050, taking 
into account the time value of money. In the following discussion, the 
``change in INPV'' refers to the difference in industry value between 
the base case and each standards case that results from the sum of the 
discounted cash flows from the base year 2014 through 2050. The change 
in INPV reflects the potential changes in industry valuation due to 
amended standards.
    To provide perspective on the short-term impacts, DOE discusses the 
change in free cash flow between the base case and the standards case 
in the year before new standards would take effect. These figures 
provide an understanding of the magnitude of the required conversion 
costs at each TSL relative to the cash flow generated by the industry 
in the base case.
    Table V.16 and Table V.17 depict the estimated financial impacts 
for residential furnace manufacturers (represented by changes in INPV, 
the short-term cash flow impacts, and the industry conversion costs 
that DOE expects at each TSL under each of the two markup scenarios 
discussed above.

   Table V.16--Manufacturer Impact Analysis: AFUE Standards Results for Residential Gas-Fired Furnaces--Preservation of Gross Margin Percentage Markup
                                                                        Scenario
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                         Trial standard level *
                                                       Units      Base case   --------------------------------------------------------------------------
                                                                                     1              2              3              4              5
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV...............................................         $M      1,055.13       1,048.71       1,063.45       1,061.65       1,099.24       1,080.94
Change in INPV.....................................         $M  .............         (6.42)          8.32           6.52          44.10          25.80
                                                             %  .............         (0.61)          0.79           0.62           4.18           2.45
2020 Free Cash Flow (FCF)..........................         $M         22.55          10.32           0.88           0.41         (13.78)        (86.21)
Change in 2020 FCF.................................         $M  .............        (12.23)        (21.67)        (22.15)        (36.33)       (108.76)
                                                             %  .............        (54.22)        (96.09)        (98.19)       (161.08)       (482.22)
Product Conversion Costs...........................         $M  .............         15.77          23.00          16.47          23.00          64.36
Capital Conversion Costs...........................         $M  .............         16.95          33.24          38.53          65.81         199.94
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Parentheses indicate negative values


             Table V.17--Manufacturer Impact Analysis: AFUE Standards Results for Residential Gas-Fired Furnaces--Three-Tier Markup Scenario
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                         Trial standard level *
                                                       Units      Base case   --------------------------------------------------------------------------
                                                                                     1              2              3              4              5
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV...............................................         $M      1,055.13         990.43         825.26         971.41         740.79         548.20
Change in INPV.....................................         $M  .............        (64.71)       (229.87)        (83.72)       (314.34)       (506.94)
                                                             %  .............         (6.13)        (21.79)         (7.93)        (29.79)        (48.04)
2020 Free Cash Flow (FCF)..........................         $M         22.55          10.32           0.88           0.41         (13.78)        (86.21)
Change in 2020 FCF.................................         $M  .............        (12.23)        (21.67)        (22.15)        (36.33)       (108.76)
                                                             %  .............        (54.22)        (96.09)        (98.19)       (161.08)       (482.22)
Product Conversion Costs...........................         $M  .............         15.77          23.00          16.47          23.00          64.36

[[Page 13169]]

 
Capital Conversion Costs...........................         $M  .............         16.95          33.24          38.53          65.81         199.94
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Parentheses indicate negative values

    At TSL 1, DOE estimates the change in INPV to range from -$64.71 
million to -6.42 million, or a change of -6.13 percent to -0.61 
percent. At this level, industry free cash flow in 2020 (the year 
before the compliance date) is estimated to decrease to $10.32 million, 
or a change of -54.22 percent compared to the base-case value of $22.55 
million.
    TSL 1 proposes regional standards, requiring products the North to 
meet an efficiency level above the baseline while the Rest of Country 
remains at the current Federal minimum of 80% AFUE. NWGF products in 
the North would be required to meet a minimum efficiency of 90% AFUE 
while MHGF products in the North would be required to meet a minimum 
efficiency of 92% AFUE. Conversion costs are driven by the need for 
manufacturers to add a secondary condensing heat exchanger production 
capacity. Today, approximately 39% of NWGF shipments and 19 percent of 
MHGF shipments are sold at condensing levels. When the standard goes 
into effect, an additional 21 percent of NWGF shipments and 29 percent 
of MHGF will require secondary heat exchanges, requiring manufacturers 
to add capacity to their secondary heat exchanger production lines. 
Manufacturers will also incur product conversion costs driven by the 
development necessary to create compliant, cost competitive products. 
DOE estimates total conversion costs to be $32.72 million for the 
industry.
    At TSL 2, DOE estimates the change in INPV to range from -$229.87 
million to $8.32 million, or a change in INPV of -21.79 percent to 0.79 
percent. At this level, free cash flow in 2020 is estimated to decrease 
to $0.88 million, or a decrease of 96.09 percent compared to the base-
case value of $22.55 million in the year 2020.
    TSL 2 is a regional standard requiring the North to meet efficiency 
levels above the baseline while the Rest of Country remains at 
baseline. NWGFs and MHGFs in the North would be required to meet a 
minimum efficiency of 95% AFUE. Manufacturer feedback in interviews 
indicated that capital conversion costs ramp up significantly at 95% 
AFUE. DOE estimates total conversion costs to be $56.24 million for the 
industry.
    Furthermore, most 95% AFUE products today are premium offerings 
that are sold at a higher markup than baseline products. Once 95% AFUE 
becomes the amended baseline standard in the North, manufacturers would 
need to investment engineering resources to create baseline, cost-
optimized 95% AFUE models that are competitive at reduced markups. 
Additionally, manufacturers may find markups for products above 95% 
AFUE in the North are reduced, as there is less opportunity for 
differentiation based on efficiency between baseline products and 
premium products. This general reduction in markups in the North leads 
to reduced profitability for manufacturers and a potential drop in 
INPV.
    At TSL 3, DOE estimates the change in INPV to range from -$83.72 
million to $6.52 million, or a change in INPV of -7.93 percent to 0.62 
percent. At this level, free cash flow is estimated to decrease to 
$0.41 million, or a change of -98.19 percent compared to the base-case 
value of $22.55 million in the year 2020.
    TSL 3 represents a national standard at 92% AFUE for both NWGF and 
MHGF products. With a national condensing standard, an additional 5 
percent of NWGF and an additional 81 percent of MHGF industry shipments 
would need condensing heat exchangers. That increase would require 
manufacturers to add significant secondary heat exchanger capacity to 
their operations. Models accounting for 65 percent of NWGF shipments 
and 81 percent of MHGF shipments would need to be redesigned. Industry 
conversion costs reach $55 million.
    At 92% AFUE, the industry faces some compression of markups. 
However, on the whole, manufacturers are still able to maintain three 
tiers of markups with efficiency as a differentiator. As a result, even 
though TSL 3 conversion costs as similar to those at TSL 2, the INPV 
impacts are not as severe.
    At TSL 4, DOE estimates the change in INPV to range from -$314.34 
million to $44.1 million, or a change in INPV of -29.79 percent to 4.18 
percent. At this level, free cash flow is estimated to decrease to -
$13.78 million, or a change of -161.08 percent compared to the base-
case value of $22.55 million in the year 2020.
    TSL 4 represents a national standard at 95% AFUE for both NWGF and 
MHGF products. Manufacturers would need to add significant secondary 
heat exchanger capacity. Additionally, manufacturers would need to 
redesign a models accounting for 99 percent of NWGF shipments and 99 
percent of MHGF shipments. Industry conversion costs reach $88.81 
million. These conversion costs are a significant drain on industry 
cash flow and could results in manufacturers seeking outside capital to 
finance the conversion expenses.
    At 95% AFUE, the industry faces significant compression of markups. 
As noted at TSL 2, most 95% AFUE products today are premium offerings 
that are sold at a higher markup than baseline products. Once 95% AFUE 
becomes the amended baseline standard, manufacturers would need to 
investment engineering resources to create baseline, cost-optimized 95% 
AFUE models that are competitive at reduced markups. Additionally, 
there is less opportunity for differentiation between baseline products 
and premium products, resulting in reduced markups for products that 
have premium efficiencies. This reduction in markups leads to reduced 
profitability for manufacturers and a potential drop in INPV.
    At TSL 5, DOE estimates the change in INPV to range from -$506.94 
million to $25.80 million, or a change in INPV of -48.04 percent to 
2.45 percent. At this level, free cash flow is estimated to decrease to 
-$86.21 million, or a decrease of 482.22 percent compared to the base-
case value of $22.55 million in the year 2020. TSL 5 represents the 
max-tech standard level.
    Some manufacturers expressed great concern about the state of 
technology at max tech. They had concerns about the ability to deliver 
cost effectiveness of these products for their customers at such a high 
efficiency level. They also cited high conversion costs and large 
investment in R&D to produce all

[[Page 13170]]

products at this level. Total conversion costs are expected to reach 
$264.30 million for the industry. Additionally at max-tech, there is no 
opportunity for product differentiation based on efficiency. DOE models 
all shipments as having a baseline product markup. This results in a 
large drop in profitability for manufacturers in the tiered markup 
scenario.
    DOE seeks comments, information, and data on the capital conversion 
costs and product conversion costs estimated for each AFUE standard 
TSL.
Cash-Flow Analysis Results for Residential Furnaces Standby Mode and 
Off Mode Standards
    Standby mode and off mode standards results are presented in Table 
V.18 and Table V.19. The impacts of standby mode and off mode features 
were analyzed for the same product classes as the amended AFUE 
standards, but at different efficiency levels, which correspond to a 
different set of technology options for reducing standby mode and off 
mode energy consumption. Therefore, the TSLs in the standby mode and 
off mode analysis do not correspond to the TSLs in the AFUE analysis.
    DOE considered the impacts of standby mode and off mode features 
under two markup scenarios to represent the upper and lower bounds of 
industry impacts: (1) A preservation of gross margin percentage 
scenario; and (2) per-unit preservation of operating profit. As with 
the AFUE analysis, the preservation of gross margin percentage 
represents the upper bound of impacts (less severe), while the 
preservation of per-unit operating profit scenario represents the lower 
bound of impacts (more severe).

 Table V.18--Manufacturer Impact Analysis: Standby Mode and Off Mode Standards Results for Residential Gas-Fired
                   Furnace Standards--Preservation of Gross Margin Percentage Markup Scenario
----------------------------------------------------------------------------------------------------------------
                                                                            Trial standard level *
                                    Units       Base case   ----------------------------------------------------
                                                                     1                 2                3
----------------------------------------------------------------------------------------------------------------
INPV............................  $M                1055.13           1054.61          1055.58          1055.99
Change in INPV..................  $M         ..............             (0.52)           (0.45)           (0.85)
                                  %          ..............             (0.05)            0.04             0.08
2020 Free Cash Flow (FCF).......  $M                  22.55             22.16            22.16            22.16
Change in 2020 FCF..............  $M         ..............             (0.39)           (0.39)           (0.39)
                                  %          ..............             (1.75)           (1.75)           (1.75)
Product Conversion Costs........  $M         ..............              1.35             1.35             1.35
Capital Conversion Costs........  $M
----------------------------------------------------------------------------------------------------------------
* Parentheses indicate negative values.


 Table V.19--Manufacturer Impact Analysis: Standby Mode and Off Mode Standards Results for Residential Gas-Fired
                      Furnace Standards--Per-Unit Preservation of Operating Profit Scenario
----------------------------------------------------------------------------------------------------------------
                                                                             Trial standard level *
                                      Units       Base case   --------------------------------------------------
                                                                      1                2                3
----------------------------------------------------------------------------------------------------------------
INPV.............................  $M                1,055.13        1,053.41         1,046.10         1,042.97
Change in INPV...................  $M          ..............           (1.72)           (9.03)          (12.16)
                                   %           ..............           (0.16)           (0.86)           (1.15)
2020 Free Cash Flow (FCF)........  $M                   22.55           22.16            22.16            22.16
Change in 2020 FCF...............  $M          ..............           (0.39)           (0.39)           (0.39)
                                   %           ..............           (1.75)           (1.75)           (1.75)
Product Conversion Costs.........  $M          ..............            1.35             1.35             1.35
Capital Conversion Costs.........  $M
----------------------------------------------------------------------------------------------------------------
* Parentheses indicate negative values.

    At TSL 1, DOE estimates impacts on INPV for residential gas-fired 
furnace manufacturers to decrease by less than one percent in both 
markup scenarios (preservation of gross margin and per-unit 
preservation of operating profit). At this potential standard level, 
industry free cash flow is estimated to decrease by less than two 
percent, compared to the base-case value of $22.55 million in 2020. DOE 
expects conversion costs for standby and off mode to be $1.35 million.
    At TSL 2, DOE estimates impacts on INPV for residential gas-fired 
furnace manufacturers to decrease by less than one percent in both 
markup scenarios. At this potential standard level, industry free cash 
flow is estimated to decrease by less than two percent, compared to the 
base-case value of $22.55 million in 2020. DOE expects conversion costs 
for standby and off mode to be $1.35 million.
    At TSL 3, DOE estimates impacts on INPV for residential gas-fired 
furnace manufacturers to range from a decrease of 1.15 percent to an 
increase of 0.08 percent, or a change in INPV of -$12.16 million to 
$0.85 million. At this potential standard level, industry free cash 
flow is estimated to decrease by less than two percent compared to the 
base-case value of $22.55 million in 2020. DOE expects conversion costs 
for standby mode and off mode to be $1.35 million.
    DOE seeks comments, information, and data on the capital conversion 
costs and product conversion costs estimated for each standby mode and 
off mode TSL.
b. Direct Impacts on Employment
    To quantitatively assess the potential impacts of amended energy 
conservation standards on direct employment in the residential furnaces 
industry, DOE used the GRIM to estimate the domestic labor expenditures 
and number of direct employees in the base case and at each standards 
case (TSL) from 2014 through

[[Page 13171]]

2050. DOE used statistical data from the U.S. Census Bureau's 2011 
Annual Survey of Manufacturers,\96\ the results of the engineering 
analysis, and interviews with manufacturers to determine the inputs 
necessary to calculate industry-wide labor expenditures and domestic 
direct employment levels. Labor expenditures related to manufacturing 
of the product are a function of the labor intensity of the product, 
the sales volume, and an assumption that wages remain fixed in real 
terms over time. The total labor expenditures in each year are 
calculated by multiplying the MPCs by the labor percentage of MPCs.
---------------------------------------------------------------------------

    \96\ U.S. Census Bureau, Annual Survey of Manufacturers: General 
Statistics: Statistics for Industry Groups and Industries (2011) 
(Available at http://www.census.gov/manufacturing/asm/index.html).
---------------------------------------------------------------------------

    The total labor expenditures in the GRIM were then converted to 
domestic production employment levels by dividing production labor 
expenditures by the annual payment per production worker (production 
worker hours times the labor rate found in the U.S. Census Bureau's 
2011 Annual Survey of Manufacturers). The production worker estimates 
in this section only cover workers up to the line-supervisor level who 
are directly involved in fabricating and assembling a product within an 
original equipment manufacturer (OEM) facility. Workers performing 
services that are closely associated with production operations, such 
as materials handling tasks using forklifts, are also included as 
production labor. DOE's estimates only account for production workers 
who manufacture the specific products covered by this rulemaking. The 
total direct employment impacts calculated in the GRIM are the sum of 
the changes in the number of production workers resulting from the 
amended energy conservation standards for NWGFs and MHGFs, as compared 
to the base case. Table V.20 shows the range of impacts of a potential 
amended energy conservation standard on U.S. production workers of 
residential gas-fired furnace products.

              Table V.20--Potential Changes in the Total Number of Production Workers in the Residential Gas-Fired Furnace Industry in 2020
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                    Trial standard level
                                  ----------------------------------------------------------------------------------------------------------------------
                                    Base case             1                    2                    3                    4                    5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total Number of Domestic                 2,692  3,037...............  3,200..............  3,172..............  3,474..............  3,804.
 Production Workers in 2020
 (without changes in production
 locations).
Potential Changes in Domestic      ...........  (2,692) to 75.......  (2,692) to 238.....  (2,692) to 210.....  (2,692) to 512.....  (2,692) to 842.
 Production Workers in 2020 *.
--------------------------------------------------------------------------------------------------------------------------------------------------------
* DOE presents a range of potential employment impacts. Numbers in parentheses indicate negative values.

    In the absence of amended energy conservation standards, DOE 
estimates that the residential gas-fired furnace industry would employ 
2,692 domestic production workers in 2020. The upper end of the range 
estimates the maximum increase in the number of production workers in 
the residential gas-fired furnace industry after implementation of an 
energy conservation standard at each TSL. It assumes manufacturers 
would continue to produce the same scope of covered products within the 
United States and would require some additional labor to produce more-
efficient products. To establish a conservative lower bound, DOE 
assumes the entire industry shifts production to foreign countries. 
Some large manufacturers have already begun moving production to lower-
cost countries, and an amended standard that necessitates large 
increases in labor content or that requires large expenditures to re-
tool facilities could cause other manufacturers to re-evaluate 
production siting options.
    DOE notes that its estimates of the impacts on direct employment 
are based on the analysis of amended AFUE energy efficiency standards 
only. Standby mode and off mode technology options considered in the 
engineering analysis would result in component swaps, which would not 
make the product significantly more complex and would not be difficult 
to implement. While some product development effort would be required, 
DOE does not expect the standby mode and off mode standard to 
meaningfully affect the amount of labor required in production. 
Consequently, DOE does not anticipate that the proposed standby mode 
and off mode standards will have a significant impact on direct 
employment.
    These employment impact conclusions are independent of conclusions 
regarding indirect employment impacts in the broader United States 
economy, which are discussed in chapter 15 of the NOPR TSD.
c. Impacts on Manufacturing Capacity
    According to residential gas-fired furnace manufacturers 
interviewed, production facilities as they are today may not be able to 
accommodate a large shift to condensing furnaces, if such shift were 
mandated by an energy conservation standard. However, manufacturers 
would be able to add capacity and adjust product designs between the 
announcement year of the standard and the compliance year of the 
standard. DOE interviewed manufacturers representing over 50 percent of 
industry sales. None of the interviewed manufacturers expressed concern 
over the industry's ability to ramp up production lines at TSL 1 to TSL 
4 to meet consumer demand. At TSL 5, technical uncertainty was 
expressed by manufacturers that do not offer 98-percent AFUE products 
today, as they were unsure what production lines changes would be 
needed to meet a standard set at max-tech.
d. Impacts on Subgroups of Manufacturers
    As discussed above, using average cost assumptions to develop an 
industry cash flow estimate is not adequate for assessing differential 
impacts among subgroups of manufacturers. Small manufacturers, niche 
players, or manufacturers exhibiting a cost structure that differs 
substantially from the industry average could be affected 
disproportionately. DOE used the results of the industry 
characterization to group manufacturers exhibiting similar 
characteristics. Specifically, DOE identified small business 
manufacturers as a subgroup for separate impact analyses.

[[Page 13172]]

    For residential gas-fired furnace equipment, DOE identified and 
evaluated the impact of amended energy conservation standards on one 
subgroup, specifically small manufacturers. The SBA defines a ``small 
business'' as having 750 employees or less for NAICS 333415, ``Air-
Conditioning and Warm Air Heating Equipment and Commercial and 
Industrial Refrigeration Equipment Manufacturing.'' Based on this 
identification, DOE identified five domestic manufacturers in the 
industry that qualify as a small business. For a discussion of the 
impacts on the small manufacturer subgroup, see the regulatory 
flexibility analysis in section VI.B of this NOPR and chapter 12 of the 
NOPR TSD.
e. Cumulative Regulatory Burden
    While any one regulation may not impose a significant burden on 
manufacturers, the combined effects of several recent or impending 
regulations may have serious consequences for some manufacturers, 
groups of manufacturers, or an entire industry. Assessing the impact of 
a single regulation may overlook this cumulative regulatory burden. 
Multiple regulations affecting the same manufacturer can strain profits 
and can lead companies to abandon product lines or markets with lower 
expected future returns than competing products. For these reasons, DOE 
conducts an analysis of cumulative regulatory burden as part of its 
rulemakings pertaining to appliance efficiency.
    For the cumulative regulatory burden analysis, DOE looks at other 
regulations that could affect NWGF and MHGF manufacturers that will 
take effect approximately three years before or after the 2021 
compliance date of amended energy conservation standards for NWGF and 
MHGF. In interviews, manufacturers cited Federal regulations on 
equipment other than NWGF and MHGF that contribute to their cumulative 
regulatory burden. The compliance years and expected industry 
conversion costs of relevant amended energy conservation standards are 
indicated in Table V.21.

Table V.21--Compliance Dates and Expected Conversion Expenses of Federal
   Energy Conservation Standards Affecting NWGF and MHGF Manufacturers
------------------------------------------------------------------------
                                                      Estimated total
  Federal energy conservation      Approximate      industry conversion
           standards             compliance date          expense
------------------------------------------------------------------------
Commercial Packaged Air                      2018        $226.4M (2013$)
 Conditioners and Heat Pumps *
 79 FR 58948 (September, 30,
 2014)........................
Commercial Warm-Air Furnaces *               2018         $19.9M (2013$)
 80 FR 6182 (February 4,
 2015)........................
2014 Furnace Fans 79 FR 38130                2019         $40.6M (2013$)
 (July 3, 2014)...............
Miscellaneous Residential                    2019                    TBD
 Refrigeration *..............
Single Packaged Vertical Units               2019          $7.2M (2013$)
 * 79 FR 78614 (December 30,
 2014)........................
Commercial Water Heaters *....               2019                    TBD
Commercial Packaged Boilers *.               2020                    TBD
Residential Water Heaters *...               2021                    TBD
Clothes Dryers *..............               2022                    TBD
Central Air Conditioners *....               2022                    TBD
Room Air Conditioners *.......               2022                    TBD
Commercial Packaged Air                      2023                    TBD
 Conditioning and Heating
 Equipment (Evaporatively and
 Water Cooled) *..............
------------------------------------------------------------------------
* The final rule for these energy conservation standards has not been
  published. The compliance date and analysis of conversion costs have
  not been finalized at this time. (If a value is provided for total
  industry conversion expense, this value represents an estimate from
  the NOPR.)

    DOE notes that furnace fans standard creates a unique cumulative 
burden because today's proposed residential furnace standard and the 
furnace fans standard impact the same products (i.e., residential 
furnaces), affect the same group of manufacturers, and go into effect 
in a similar timeframe. A detailed summary of manufacturer impacts from 
the furnace fans final rule can be found in Table V.22. DOE explicitly 
notes the additional burdens of the furnace fan rule when weighing the 
benefits and costs of the trial standard levels in Section V.C.1 of 
this NOPR.

 Table V.22--Summary of Manufacturer Financial Impacts From the Furnace
                             Fans Final Rule
------------------------------------------------------------------------
                                                     Furnace fans final
                                      Units                 rule
------------------------------------------------------------------------
INPV..........................  $M                        290.6 to 397.8
Change in INPV................  $M                        (59.0) to 48.2
                                (%)                     (16.9) to (13.8)
Product Conversion Costs......  $M                                  25.5
Capital Conversion Costs......  $M                                  15.1
Total Conversion Costs........  $M                                  40.6
------------------------------------------------------------------------
* Values in parentheses are negative values.

    DOE requests comments on the identified regulations and their 
contribution to cumulative regulatory burden. Additionally, DOE 
requests feedback on product-specific regulations that take effect 
between 2018 and 2024 that were not listed, including identification of 
the specific regulations and data quantifying the associated burdens.
3. National Impact Analysis
    This section presents DOE's estimates of the national energy 
savings and the NPV of consumer benefits that would result from each of 
the TSLs considered as potential amended furnace AFUE standards, as 
well as from each of the TSLs considered as potential standards for 
standby mode and off mode.
a. Significance of Energy Savings
    For each TSL, DOE projected energy savings for NWGFs and MHGFs

[[Page 13173]]

purchased in the 30-year period that begins in the year of anticipated 
compliance with amended standards (2021-2050). The savings are measured 
over the entire lifetime of product purchased in the 30-year period. 
DOE quantified the energy savings attributable to each TSL as the 
difference in energy consumption between each standards case and the 
base case. Table V.23 presents the estimated primary energy savings for 
each considered TSL for AFUE standards, and Table V.24 presents the 
estimated FFC energy savings for each TSL for AFUE standards. The 
approach for estimating national energy savings is further described in 
section IV.H.

     Table V.23--Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces: Cumulative Primary National Energy Savings for Potential AFUE Standards
                                                                [Units Sold in 2021-2050]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                    Trial standard levels
                           Product class                            ------------------------------------------------------------------------------------
                                                                            1                2                3                4                5
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                           (quads)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Non-Weatherized Gas Furnaces.......................................            1.004            1.756            2.124            3.263            4.364
Mobile Home Gas Furnaces...........................................            0.062            0.066            0.127            0.131            0.142
    Total..........................................................            1.066            1.821            2.251            3.394            4.507
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Components may not sum due to rounding.


 Table V.24--Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces: Cumulative Full-Fuel-Cycle National Energy Savings for Potential AFUE Standards
                                                                [Units Sold in 2021-2050]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                    Trial standard levels
                           Product class                            ------------------------------------------------------------------------------------
                                                                            1                2                3                4                5
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                           (quads)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Non-Weatherized Gas Furnaces.......................................            1.222            2.054            2.638            3.963            5.322
Mobile Home Gas Furnaces...........................................            0.069            0.073            0.141            0.146            0.159
    Total..........................................................            1.291            2.126            2.780            4.110            5.481
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Components may not sum due to rounding.

    For the proposed standards (TSL 3), the FFC savings of 2.780 quads 
is the net sum of the FFC natural gas savings (7.061 quads) and the 
increase in FFC energy use associated with higher electricity use due 
to switching to electric heating (4.281 quads).
    As discussed in section IV.F.4, DOE conducted sensitivity analyses 
assuming higher and lower levels of product switching for NWGFs. Table 
V.25 compares the NES FFC results for potential AFUE standards under 
the default switching assumptions with the results in the sensitivity 
cases.

 Table V.25--Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces: Cumulative Full-Fuel-Cycle National Energy Savings for Potential AFUE Standards
                                            (Units Sold in 2021-2050); Product Switching Sensitivity Analysis
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                    Trial standard levels
                           Switching case                           ------------------------------------------------------------------------------------
                                                                            1                2                3                4                5
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                           (quads)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Default............................................................            1.291            2.126            2.780            4.110            5.481
High...............................................................            1.147            1.914            2.129            3.272            4.541
Low................................................................            1.484            2.319            3.433            4.904            6.424
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Components may not sum due to rounding.

    Table V.26 presents the estimated primary energy savings for each 
considered TSL for standby mode and off mode standards, and Table V.27 
presents the estimated FFC energy savings for each TSL for standby mode 
and off mode standards.

[[Page 13174]]



    Table V.26--Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces: Cumulative Primary National Energy
                         Savings for Potential Standby Mode and Off Mode Power Standards
                                            [Units Sold in 2021-2050]
----------------------------------------------------------------------------------------------------------------
                                                                            Trial standard levels
                       Product class                       -----------------------------------------------------
                                                                    1                 2                 3
----------------------------------------------------------------------------------------------------------------
                                                                                   (quads)
----------------------------------------------------------------------------------------------------------------
Non-Weatherized Gas Furnaces..............................            0.147             0.176             0.264
Mobile Home Gas Furnaces..................................            0.0002            0.0002            0.0003
    Total *...............................................            0.147             0.176             0.264
----------------------------------------------------------------------------------------------------------------
* Components may not sum due to rounding.


   Table V.27--Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces: Cumulative Full-Fuel-Cycle National
                     Energy Savings for Potential Standby Mode and Off Mode Power Standards
                                            [Units Sold in 2021-2050]
----------------------------------------------------------------------------------------------------------------
                                                                            Trial standard levels
                       Product class                       -----------------------------------------------------
                                                                    1                 2                 3
----------------------------------------------------------------------------------------------------------------
                                                                                   (quads)
----------------------------------------------------------------------------------------------------------------
Non-Weatherized Gas Furnaces..............................            0.154             0.184             0.276
Mobile Home Gas Furnaces..................................            0.0002            0.0002            0.0003
    Total *...............................................            0.154             0.185             0.277
----------------------------------------------------------------------------------------------------------------
* Components may not sum due to rounding.

    OMB Circular A-4 \97\ requires agencies to present analytical 
results, including separate schedules of the monetized benefits and 
costs that show the type and timing of benefits and costs. Circular A-4 
also directs agencies to consider the variability of key elements 
underlying the estimates of benefits and costs. For this rulemaking, 
DOE undertook a sensitivity analysis using nine, rather than 30, years 
of product shipments. The choice of a nine-year period is a proxy for 
the timeline in EPCA for the review of certain energy conservation 
standards and potential revision of and compliance with such revised 
standards.\98\ The review timeframe established in EPCA is generally 
not synchronized with the product lifetime, product manufacturing 
cycles, or other factors specific to NWGFs and MHGFs. Thus, such 
results are presented for informational purposes only and are not 
indicative of any change in DOE's analytical methodology. The primary 
NES based on a nine-year analytical period are presented for the AFUE 
TSLs in Table V.28.\99\ The impacts are counted over the lifetime of 
NWGFs and MHGFs purchased in 2021-2029. The percentage difference 
between the NES for 30 years of shipments and the NES for nine years of 
shipments is the same for FFC savings as for the primary NES.
---------------------------------------------------------------------------

    \97\ U.S. Office of Management and Budget, ``Circular A-4: 
Regulatory Analysis'' (Sept. 17, 2003) (Available at: http://www.whitehouse.gov/omb/circulars_a004_a-4/).
    \98\ Section 325(m) of EPCA requires DOE to review its standards 
at least once every 6 years, and requires, for certain products, a 
3-year period after any new standard is promulgated before 
compliance is required, except that in no case may any new standards 
be required within 6 years of the compliance date of the previous 
standards. While adding a 6-year review to the 3-year compliance 
period adds up to 9 years, DOE notes that it may undertake reviews 
at any time within the 6 year period and that the 3-year compliance 
date may yield to the 6-year backstop. A 9-year analysis period may 
not be appropriate given the variability that occurs in the timing 
of standards reviews and the fact that for some consumer products, 
the compliance period is 5 years rather than 3 years.
    \99\ DOE presents results based on a nine-year analytical period 
only for the AFUE TSLs; the percentage difference between nine-year 
and 30-year results for the standby mode and off mode TSLs is the 
same as for the AFUE TSLs.

 Table V.28--Cumulative Primary National Energy Savings for Potential AFUE Standards for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces; Nine
                                                                   Years of Shipments
                                                                [Units sold in 2021-2029]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                     Trial standard level
                           Product class                            ------------------------------------------------------------------------------------
                                                                            1                2                3                4                5
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                           (quads)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Non-Weatherized Gas Furnaces.......................................            0.330            0.570            0.601            0.950            1.307
Mobile Home Gas Furnaces...........................................            0.022            0.024            0.042            0.044            0.048
    Total *........................................................            0.352            0.594            0.643            0.994            1.355
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Note: Components may not sum due to rounding.


[[Page 13175]]

b. Net Present Value of Consumer Costs and Benefits
    Table V.29 shows the consumer NPV of the total costs and savings 
for consumers that would result from each AFUE TSL considered for NWGFs 
and MHGFs. In each case, the impacts cover the lifetime of products 
purchased in 2021-2050. In accordance with OMB's guidelines on 
regulatory analysis,\100\ DOE calculated NPV using both a 7-percent and 
a 3-percent real discount rate.
---------------------------------------------------------------------------

    \100\ OMB Circular A-4, section E (Sept. 17, 2003) (Available 
at: http://www.whitehouse.gov/omb/circulars_a004_a-4).

  Table V.29--Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces: Cumulative Net Present Value of Consumer Benefits for Potential AFUE Standards
                                                                [Units sold in 2021-2050]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                          Trial standard level
                          Product class                             Discount  --------------------------------------------------------------------------
                                                                      rate           1              2              3              4              5
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                            (billion 2013$)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Non-Weatherized Gas Furnaces....................................           3%            8.1           13.5           15.1           20.4           24.1
Mobile Home Gas Furnaces........................................  ...........            0.6            0.7            1.0            1.1            1.2
    Total *.....................................................  ...........            8.6           14.1           16.1           21.5           25.3
Non-Weatherized Gas Furnaces....................................           7%            1.9            3.3            2.8            3.7            3.3
Mobile Home Gas Furnaces........................................  ...........            0.2            0.2            0.3            0.3            0.3
    Total *.....................................................  ...........            2.1            3.6            3.1            4.0            3.7
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Note: Components may not sum due to rounding.

    The NPV results based on the aforementioned nine-year analytical 
period are presented in Table V.30 for AFUE standards. The impacts are 
counted over the lifetime of products purchased in 2021-2029. As 
mentioned previously, such results are presented for informational 
purposes only and is not indicative of any change in DOE's analytical 
methodology or decision criteria.

     Table V.30--Cumulative Net Present Value of Consumer Benefits for Potential AFUE Standards for Non-Weatherized Gas Furnaces and Mobile Home Gas
                                                            Furnaces; Nine Years of Shipments
                                                                [Units sold in 2021-2029]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                          Trial standard level
                          Product class                             Discount  --------------------------------------------------------------------------
                                                                      rate           1              2              3              4              5
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                            (billion 2013$)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Non-Weatherized Gas Furnaces....................................           3%            2.7            4.6            4.3            5.8            6.5
Mobile Home Gas Furnaces........................................  ...........            0.2            0.3            0.4            0.4            0.4
    Total *.....................................................  ...........            3.0            4.9            4.7            6.2            6.9
Non-Weatherized Gas Furnaces....................................           7%            0.8            1.5            0.9            1.2            0.7
Mobile Home Gas Furnaces........................................  ...........            0.1            0.1            0.2            0.2            0.2
    Total *.....................................................  ...........            0.9            1.6            1.1            1.4            0.9
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Note: Components may not sum due to rounding.

    The above results reflect the use of the default decreasing price 
trend (see section IV.F.1) to estimate the change in price for NWGFs 
and MHGFs over the analysis period. DOE also conducted a sensitivity 
analysis that considered one scenario with a constant price trend and 
one scenario with a slightly higher rate of price decline than the 
reference case. The results of these alternative cases are presented in 
appendix 10C of the NOPR TSD.
    As discussed in section IV.F.4, DOE conducted sensitivity analyses 
assuming higher and lower levels of product switching for NWGFs. Table 
V.31 compares the NPV results (using 3 and 7-percent discount rate) for 
potential AFUE standards under the default switching assumptions with 
the results in the sensitivity cases.

  Table V.31--Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces: Cumulative Net Present Value of Consumer Benefits for Potential AFUE Standards
                                            (Units Sold in 2021-2050); Product Switching Sensitivity Analysis
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                          Trial standard level
                          Product class                             Discount  --------------------------------------------------------------------------
                                                                      rate           1              2              3              4              5
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                            (billion 2013$)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Default.........................................................           3%            8.6           14.1           16.1           21.5           25.3

[[Page 13176]]

 
High............................................................  ...........            8.1           13.6           11.9           16.7           19.9
Low.............................................................  ...........            9.2           14.8           19.9           25.8           30.4
Default.........................................................           7%            2.1            3.6            3.1            4.0            3.7
High............................................................  ...........            1.9            3.4            1.6            2.3            1.8
Low.............................................................  ...........            2.3            3.8            4.4            5.5            5.4
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Table V.32 shows the consumer NPV results for each standby mode and 
off mode TSL considered for NWGFs and MHGFs. In each case, the impacts 
cover the lifetime of products purchased in 2021-2050. The NPV results 
based on the aforementioned nine-year analytical period are presented 
in Table V.33

 Table V.32--Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces: Cumulative Net Present Value of Consumer
                        Benefits for Potential Standby Mode and Off Mode Power Standards
                                            [Units sold in 2021-2050]
----------------------------------------------------------------------------------------------------------------
                                                                             Trial standard levels
                  Product class                     Discount  --------------------------------------------------
                                                      rate            1                2                3
----------------------------------------------------------------------------------------------------------------
                                                                                (billion 2013$)
----------------------------------------------------------------------------------------------------------------
Non-Weatherized Gas Furnaces....................           3%            2.1              2.0              3.3
Mobile Home Gas Furnaces........................  ...........            0.002            0.002            0.003
    Total *.....................................  ...........            2.1              2.0              3.3
Non-Weatherized Gas Furnaces....................           7%            0.7              0.6              1.0
Mobile Home Gas Furnaces........................  ...........            0.001            0.001            0.001
    Total *.....................................  ...........            0.7              0.6              1.0
----------------------------------------------------------------------------------------------------------------
* Note: Components may not sum due to rounding.
Note: Parentheses indicate negative values.


 Table V.33--Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces: Cumulative Net Present Value of Consumer
            Benefits for Potential Standby Mode and Off Mode Power Standards; Nine Years of Shipments
                                            [Units Sold in 2021-2029]
----------------------------------------------------------------------------------------------------------------
                                                                             Trial standard levels
                  Product class                     Discount  --------------------------------------------------
                                                      rate            1                2                3
----------------------------------------------------------------------------------------------------------------
                                                                                (billion 2013$)
----------------------------------------------------------------------------------------------------------------
Non-Weatherized Gas Furnaces....................           3%            0.8              0.7              1.2
Mobile Home Gas Furnaces........................  ...........            0.001            0.001            0.001
    Total *.....................................  ...........            0.8              0.7              1.2
Non-Weatherized Gas Furnaces....................           7%            0.4              0.3              0.5
Mobile Home Gas Furnaces........................  ...........            0.000            0.000            0.001
    Total *.....................................  ...........            0.4              0.3              0.5
----------------------------------------------------------------------------------------------------------------
* Note: Components may not sum due to rounding.

c. Indirect Impacts on Employment
    DOE expects that amended energy conservation standards for NWGFs 
and MHGFs would reduce energy costs for consumers, with the resulting 
net savings being redirected to other forms of economic activity. Those 
shifts in spending and economic activity could affect the demand for 
labor. As described in section IV.N, DOE used an input/output model of 
the U.S. economy to estimate indirect employment impacts of the TSLs 
that DOE considered in this rulemaking. DOE understands that there are 
uncertainties involved in projecting employment impacts, especially 
changes in the later years of the analysis. Therefore, DOE generated 
results for near-term time frames (2021 to 2026), where these 
uncertainties are reduced.
    The results suggest that the proposed standards would be likely to 
have a negligible impact on the net demand for labor in the economy. 
The net change in jobs is so small that it would be imperceptible in 
national labor statistics and might be offset by other, unanticipated 
effects on employment. Chapter 16 of the NOPR TSD presents results 
regarding anticipated indirect employment impacts.

[[Page 13177]]

4. Impact on Product Utility or Performance
    DOE has tentatively concluded that the amended standards it is 
proposing in this NOPR would not lessen the utility or performance of 
NWGFs and MHGFs. DOE surveyed the market and found that high efficiency 
furnaces and baseline products serve the same function and, therefore, 
there is no resulting loss in product utility by using higher 
efficiency furnaces. Furthermore, manufacturers of these products 
currently offer furnaces that meet or exceed today's proposed 
standards. While higher efficiency standards may require different 
venting techniques and other installation considerations, these 
requirements do not affect the consumer's utility with respect to the 
quality of the heat provided by the furnace. While not a utility issue, 
DOE notes that certain considerations associated with higher efficiency 
furnaces, such as increased installation costs or product size were 
examined, as appropriate, in its analyses. (See, for example, section 
IV.F.2 for discussion of installation cost for high efficiency 
condensing furnaces.)
5. Impact of Any Lessening of Competition
    DOE considered any lessening of competition that is likely to 
result from new or amended standards. The Attorney General determines 
the impact, if any, of any lessening of competition likely to result 
from a proposed standard, and transmits such determination in writing 
to the Secretary, together with an analysis of the nature and extent of 
such impact. To assist the Attorney General in making such 
determination, DOE has provided DOJ with copies of this NOPR and the 
TSD for review. DOE will consider DOJ's comments on the proposed rule 
in preparing the final rule, and DOE will publish and respond to DOJ's 
comments in that document.
6. Need of the Nation to Conserve Energy
    Enhanced energy efficiency, where economically justified, improves 
the Nation's energy security, strengthens the economy, and reduces the 
environmental impacts of energy production. Table V.34 provides DOE's 
estimate of cumulative reductions in air pollutant emissions resulting 
from the AFUE TSLs, and Table V.35 provides estimated cumulative 
emissions reductions for the TSLs considered for standby mode and off 
mode furnace efficiency. The tables include both power sector emissions 
and upstream emissions. The emissions were calculated using the 
multipliers discussed in section IV.K. The increase in emissions of 
SO2, Hg, and N2O is due to a fraction of NWGF 
consumers that are projected to switch from gas furnaces to electric 
heat pumps and electric furnaces under the potential standards. DOE 
reports annual emissions impacts for each TSL in chapter 13 of the NOPR 
TSD.

    Table V.34--Cumulative Emissions Reduction Estimated for Non-Weatherized Gas Furnaces and Mobile Home Gas
                                        Furnaces Potential AFUE Standards
----------------------------------------------------------------------------------------------------------------
                                                                         Trial standard level
                                                     -----------------------------------------------------------
                                                           1           2           3           4           5
----------------------------------------------------------------------------------------------------------------
                                         Site and Power Sector Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)...........................       51.0        91.3       105.5       163.2       215.5
SO2 (thousand tons).................................      (76.3)      (72.3)     (200.5)     (242.0)     (339.0)
NOX (thousand tons).................................      126.7       181.3       292.5       404.2       547.7
Hg (tons)...........................................     (0.238)     (0.226)     (0.624)     (0.754)     (1.056)
CH4 (thousand tons).................................      (5.79)      (4.63)     (15.89)     (18.46)     (26.14)
N2O (thousand tons).................................      (0.95)      (0.82)      (2.57)      (3.04)      (4.28)
----------------------------------------------------------------------------------------------------------------
                                               Upstream Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)...........................       13.6        18.7        31.9        43.4        59.0
SO2 (thousand tons).................................      (0.81)      (0.74)      (2.14)      (2.57)      (3.61)
NOX (thousand tons).................................      222.6       303.0       523.4       708.7         965
Hg (tons)...........................................     (0.002)     (0.002)     (0.005)     (0.006)     (0.009)
CH4 (thousand tons).................................      1,458       1,969       3,440       4,643       6,326
N2O (thousand tons).................................     (0.011)     (0.001)     (0.037)     (0.036)     (0.054)
----------------------------------------------------------------------------------------------------------------
                                               Total FFC Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)...........................       64.6       110.0       137.3       206.5       274.5
SO2 (thousand tons).................................      (77.1)      (73.0)     (202.6)     (244.6)     (342.6)
NOX (thousand tons).................................      349.3       484.3       815.9       1,113       1,513
Hg (tons)...........................................     (0.240)     (0.228)     (0.629)     (0.760)     (1.065)
CH4 (thousand tons).................................      1,452       1,964       3,424       4,624       6,300
CH4 (thousand tons CO2eq) *.........................     40,663      54,995      95,882     129,480     176,393
N2O (thousand tons).................................      (0.96)      (0.82)      (2.61)      (3.07)      (4.34)
N2O (thousand tons CO2eq) *.........................       (256)       (217)       (692)       (814)     (1,149)
----------------------------------------------------------------------------------------------------------------
* CO2eq is the quantity of CO2 that would have the same global warming potential (GWP).
Note: Parentheses indicate negative values.


[[Page 13178]]


    Table V.35--Cumulative Emissions Reduction Estimated for Non-Weatherized Gas Furnaces and Mobile Home Gas
                             Furnaces Potential Standby Mode and Off Mode Standards
----------------------------------------------------------------------------------------------------------------
                                                                               Trial standard level
                                                                 -----------------------------------------------
                                                                         1               2               3
----------------------------------------------------------------------------------------------------------------
                                         Site and Power Sector Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons).......................................             8.2             9.8            14.7
SO2 (thousand tons).............................................             7.1             8.6            12.9
NOX (thousand tons).............................................             6.5             7.8            11.8
Hg (tons).......................................................           0.022           0.026           0.040
CH4 (thousand tons).............................................            0.82            0.98            1.48
N2O (thousand tons).............................................            0.12            0.14            0.21
----------------------------------------------------------------------------------------------------------------
                                               Upstream Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons).......................................             0.5             0.6             0.9
SO2 (thousand tons).............................................            0.08            0.10            0.15
NOX (thousand tons).............................................             7.0             8.4            12.5
Hg (tons).......................................................          0.0002          0.0002          0.0003
CH4 (thousand tons).............................................            40.6            48.8            73.1
N2O (thousand tons).............................................           0.004           0.005           0.007
----------------------------------------------------------------------------------------------------------------
                                               Total FFC Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons).......................................             8.6            10.4            15.6
SO2 (thousand tons).............................................             7.2             8.7            13.0
NOX (thousand tons).............................................            13.5            16.2            24.3
Hg (tons).......................................................           0.022           0.027           0.040
CH4 (thousand tons).............................................            41.4            49.7            74.6
CH4 (thousand tons CO2eq) *.....................................           1,161           1,393           2,088
N2O (thousand tons).............................................           0.121           0.146           0.219
N2O (thousand tons CO2eq) *.....................................              32              39              58
----------------------------------------------------------------------------------------------------------------
* CO2eq is the quantity of CO2 that would have the same global warming potential (GWP).

    As part of the analysis for this proposed rule, DOE estimated 
monetary benefits likely to result from the reduced emissions of 
CO2 and NOX that DOE estimated for each of the 
TSLs considered for NWGFs and MHGFs. As discussed in section IV.L, for 
CO2, DOE used the most recent values for the SCC developed 
by an interagency process. The four sets of SCC values for 
CO2 emissions reductions in 2015 resulting from that process 
(expressed in 2013$) are represented by $12.0/metric ton (the average 
value from a distribution that uses a 5-percent discount rate), $40.5/
metric ton (the average value from a distribution that uses a 3-percent 
discount rate), $62.4/metric ton (the average value from a distribution 
that uses a 2.5-percent discount rate), and $119/metric ton (the 95th-
percentile value from a distribution that uses a 3-percent discount 
rate). The values for later years are higher due to increasing damages 
(emissions-related costs) as the projected magnitude of climate change 
increases.
    Table V.36 presents the global value of CO2 emissions 
reductions at each TSL for AFUE standards. Table V.37 presents the 
global value of CO2 emissions reductions at each TSL for 
standby mode and off mode standards. For each of the four cases, DOE 
calculated a present value of the stream of annual values using the 
same discount rate as was used in the studies upon which the dollar-
per-ton values are based. DOE calculated domestic values as a range 
from 7 percent to 23 percent of the global values, and these results 
are presented in chapter 14 of the NOPR TSD.

  Table V.36--Estimates of Global Present Value of CO2 Emissions Reduction for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces Potential AFUE
                                                                        Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                      SCC case *
                                                             -------------------------------------------------------------------------------------------
                             TSL                                5% Discount rate,      3% Discount rate,     2.5% Discount rate,     3% Discount rate,
                                                                     average                average                average            95th percentile
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                    (million 2013$)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             Site and Power Sector Emissions
--------------------------------------------------------------------------------------------------------------------------------------------------------
1...........................................................                  279.9                  1,428                  2,312                  4,432
2...........................................................                  508.4                  2,574                  4,162                  7,981
3...........................................................                  552.3                  2,880                  4,680                  8,935
4...........................................................                  870.0                  4,496                  7,295                 13,945
5...........................................................                  1,151                  5,944                  9,643                 18,436
--------------------------------------------------------------------------------------------------------------------------------------------------------

[[Page 13179]]

 
                                                                   Upstream Emissions
--------------------------------------------------------------------------------------------------------------------------------------------------------
1...........................................................                   78.2                  389.9                  628.7                1,207.6
2...........................................................                  106.9                  534.7                  862.7                  1,656
3...........................................................                  180.0                  904.2                  1,460                  2,800
4...........................................................                  244.7                  1,229                  1,985                  3,808
5...........................................................                  333.6                  1,674                  2,703                  5,185
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   Total FFC Emissions
--------------------------------------------------------------------------------------------------------------------------------------------------------
1...........................................................                  358.1                  1,818                  2,941                  5,640
2...........................................................                  615.4                  3,109                  5,024                  9,637
3...........................................................                  732.3                  3,784                  6,140                 11,735
4...........................................................                  1,115                  5,726                  9,280                 17,752
5...........................................................                  1,484                  7,618                 12,346                 23,621
--------------------------------------------------------------------------------------------------------------------------------------------------------
* For each of the four cases, the corresponding SCC value for emissions in 2015 is $12.0, $40.5, $62.4, and $119 per metric ton (2013$). The values are
  for CO2 only (i.e., not CO2eq of other greenhouse gases).


Table V.37--Estimates of Global Present Value of CO2 Emissions Reduction for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces Potential Standby
                                                               Mode and Off Mode Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                      SCC case *
                                                             -------------------------------------------------------------------------------------------
                             TSL                                5% Discount rate,      3% Discount rate,     2.5% Discount rate,     3% Discount rate,
                                                                     average                average                average            95th percentile
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                    (million 2013$)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             Site and Power Sector Emissions
--------------------------------------------------------------------------------------------------------------------------------------------------------
1...........................................................                   46.1                  231.4                 373. 6                  716.5
2...........................................................                   55.3                  277.7                  448.4                  859.8
3...........................................................                   82.9                  416.4                  672.3                  1,289
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   Upstream Emissions
--------------------------------------------------------------------------------------------------------------------------------------------------------
1...........................................................                    2.7                   13.7                   22.1                   42.4
2...........................................................                    3.2                   16.4                   26.6                   50.9
3...........................................................                    4.8                   24.6                   39.8                   76.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   Total FFC Emissions
--------------------------------------------------------------------------------------------------------------------------------------------------------
1...........................................................                   48.8                  245.1                  395.8                  758.9
2...........................................................                   58.5                  294.1                  474.9                  910.6
3...........................................................                   87.8                  441.0                  712.1                  1,365
--------------------------------------------------------------------------------------------------------------------------------------------------------
* For each of the four cases, the corresponding SCC value for emissions in 2015 is $12.0, $40.5, $62.4, and $119 per metric ton (2013$). The values are
  for CO2 only (i.e., not CO2eq of other greenhouse gases).

    DOE is well aware that scientific and economic knowledge about the 
contribution of CO2 and other greenhouse gas (GHG) emissions 
to changes in the future global climate and the potential resulting 
damages to the world economy continues to evolve rapidly. Thus, any 
value placed on reducing CO2 emissions in this rulemaking is 
subject to change. DOE, together with other Federal agencies, will 
continue to review various methodologies for estimating the monetary 
value of reductions in CO2 and other GHG emissions. This 
ongoing review will consider the comments on this subject that are part 
of the public record for this and other rulemakings, as well as other 
methodological assumptions and issues. However, consistent with DOE's 
legal obligations, and taking into account the uncertainty involved 
with this particular issue, DOE has included in this proposed rule the 
most recent values and analyses resulting from the interagency review 
process.
    DOE also estimated a range for the cumulative monetary value of the 
economic benefits associated with NOX emissions reductions 
anticipated to result from amended standards for the NWGFs and MHGFs 
that are the subject of this NOPR. The dollar-per-ton values that DOE 
used are discussed in section IV.L. Table V.38 presents the cumulative 
present values for NOX emissions reductions for each AFUE 
TSL calculated using the average dollar-per-ton value and seven-percent 
and three-percent discount rates. Similarly,

[[Page 13180]]

Table V.39 presents the cumulative present values for NOX 
emissions reductions for each standby mode and off mode TSL.

  Table V.38--Estimates of Present Value of NOX Emissions Reduction for
Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces Potential AFUE
                                Standards
------------------------------------------------------------------------
                                               3% Discount   7% Discount
                     TSL                          rate          rate
------------------------------------------------------------------------
                                                    (million 2013$)
------------------------------------------------------------------------
                     Site and Power Sector Emissions
------------------------------------------------------------------------
1...........................................         137.6          49.9
2...........................................         196.6          71.4
3...........................................         310.0         109.4
4...........................................         429.6         152.1
5...........................................         583.6         207.3
------------------------------------------------------------------------
                           Upstream Emissions
------------------------------------------------------------------------
1...........................................         246.4          92.6
2...........................................         332.8         123.6
3...........................................         568.5         209.0
4...........................................         769.2         282.2
5...........................................          1050         386.4
------------------------------------------------------------------------
                          Total FFC Emissions *
------------------------------------------------------------------------
1...........................................         384.0         142.5
2...........................................         529.5         195.0
3...........................................         878.6         318.4
4...........................................         1,199         434.4
5...........................................         1,634         593.7
------------------------------------------------------------------------
* Components may not sum to total due to rounding.


  Table V.39--Estimates of Present Value of NOX Emissions Reduction for
   Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces Potential
                   Standby Mode and Off Mode Standards
------------------------------------------------------------------------
                                               3% Discount   7% Discount
                     TSL                          rate          rate
------------------------------------------------------------------------
                                                     million 2013$
------------------------------------------------------------------------
                     Site and Power Sector Emissions
------------------------------------------------------------------------
1...........................................           7.1           2.6
2...........................................           8.5           3.2
3...........................................          12.8           4.7
------------------------------------------------------------------------
                           Upstream Emissions
------------------------------------------------------------------------
1...........................................           7.4           2.6
2...........................................           8.8           3.1
3...........................................          13.2           4.7
------------------------------------------------------------------------
                          Total FFC Emissions *
------------------------------------------------------------------------
1...........................................          14.5           5.2
2...........................................          17.4           6.3
3...........................................          26.0           9.4
------------------------------------------------------------------------
* Components may not sum to total due to rounding.

7. Other Factors
    The Secretary of Energy, 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)(VI)) No 
other factors were considered in this analysis.
8. Summary of National Economic Impacts
    The NPV of the monetized benefits associated with emissions 
reductions can be viewed as a complement to the NPV of the consumer 
savings calculated for each TSL considered in this rulemaking. Table 
V.40 presents the NPV values that result from adding the estimates of 
the potential economic benefits resulting from reduced CO2 
and NOX emissions in each of four valuation scenarios to the 
NPV of consumer savings calculated for each AFUE TSL for NWGFs and 
MHGFs considered in this rulemaking, at both a seven-percent and three-
percent discount rate. Table V.41 presents the NPV values that result 
from adding the estimates of the potential economic benefits resulting 
from reduced CO2 and NOX emissions in each of 
four valuation scenarios to the NPV of consumer savings calculated for 
each standby mode and off mode TSL for NWGFs and MHGFs considered in 
this rulemaking, at both a seven-percent and three-percent discount 
rate. The CO2 values used in the columns of each table 
correspond to the four sets of SCC values discussed above.

  Table V.40--Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces: Net Present Value of Consumer Savings
   Combined With Present Value of Monetized Benefits From CO2 and NOX Emissions Reductions for Potential AFUE
                                                    Standards
----------------------------------------------------------------------------------------------------------------
                                                   Consumer NPV at 3% Discount rate added with:
                                 -------------------------------------------------------------------------------
                                    SCC Case $12.0/     SCC Case $40.5/     SCC Case $62.4/     SCC Case $119/
               TSL                  metric ton CO2*     metric ton CO2*     metric ton CO2*     metric ton CO2*
                                   and medium value    and medium value    and medium value    and Medium value
                                        for NOX             for NOX             for NOX             for NOX
----------------------------------------------------------------------------------------------------------------
                                                                  (Billion 2013$)
----------------------------------------------------------------------------------------------------------------
1...............................                 9.4                10.8                12.0                14.7
2...............................                15.3                17.8                19.7                24.3
3...............................                17.7                20.8                23.1                28.7
4...............................                23.8                28.4                32.0                40.4
5...............................                28.4                34.5                39.2                50.5
----------------------------------------------------------------------------------------------------------------
                                                   Consumer NPV at 7% Discount Rate added with:
                                 -------------------------------------------------------------------------------
               TSL                  SCC Case $12.0/     SCC Case $40.5/     SCC Case $62.4/     SCC Case $119/
                                   metric ton CO2\*\   metric ton CO2\*\   metric ton CO2\*\   metric ton CO2\*\
                                   and Medium Value    and Medium Value    and Medium Value    and Medium Value
                                        for NOX             for NOX             for NOX             for NOX
----------------------------------------------------------------------------------------------------------------
                                                                  (Billion 2013$)
----------------------------------------------------------------------------------------------------------------
1...............................                 2.6                 4.0                 5.2                 7.9
2...............................                 4.4                 6.9                 8.8                13.4
3...............................                 4.1                 7.2                 9.5                15.1
4...............................                 5.6                10.2                13.7                22.2

[[Page 13181]]

 
5...............................                 5.7                11.9                16.6                27.9
----------------------------------------------------------------------------------------------------------------
* These label values represent the global SCC in 2015, in 2013$. For NOX emissions, each case uses the medium
  value, which corresponds to $2,684 per ton.


   Table 41--Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces: Net Present Value of Consumer Savings
  Combined with Present Value of Monetized Benefits from CO2 and NOX Emissions Reductions for Potential Standby
                                           Mode and Off Mode Standards
----------------------------------------------------------------------------------------------------------------
                                                   Consumer NPV at 3% discount rate added with:
                                 -------------------------------------------------------------------------------
                                    SCC Case $12.0/     SCC Case $40.5/     SCC Case $62.4/     SCC Case $119/
               TSL                 metric ton CO2\*\   metric ton CO2\*\   metric ton CO2\*\   metric ton CO2\*\
                                   and Medium Value    and Medium Value    and Medium Value    and Medium Value
                                        for NOX             for NOX             for NOX             for NOX
----------------------------------------------------------------------------------------------------------------
                                                                  (Billion 2013$)
----------------------------------------------------------------------------------------------------------------
1...............................                2.19                2.38                2.53                2.90
2...............................                2.09                2.32                2.51                2.94
3...............................                3.38                3.74                4.01                4.66
----------------------------------------------------------------------------------------------------------------
                                                   Consumer NPV at 7% Discount Rate added with:
                                 -------------------------------------------------------------------------------
               TSL                  SCC Case $12.0/     SCC Case $40.5/     SCC Case $62.4/     SCC Case $119/
                                    metric ton CO2*     metric ton CO2*     metric ton CO2*     metric ton CO2*
                                   and Medium Value    and Medium Value    and Medium Value    and Medium Value
                                        for NOX             for NOX             for NOX             for NOX
----------------------------------------------------------------------------------------------------------------
                                                                  (Billion 2013$)
----------------------------------------------------------------------------------------------------------------
1...............................                0.78                0.98                1.13                1.49
2...............................                0.67                0.91                1.09                1.52
3...............................                1.13                1.48                1.76                2.41
----------------------------------------------------------------------------------------------------------------
* These label values represent the global SCC in 2015, in 2013$. For NOX emissions, each case uses the medium
  value, which corresponds to $2,684 per ton.

    Although adding the value of consumer savings to the values of 
emission reductions provides a valuable perspective, two issues should 
be considered. First, the national operating cost savings are domestic 
U.S. consumer monetary savings that occur as a result of market 
transactions, while the value of CO2 reductions is based on 
a global value. Second, the assessments of operating cost savings and 
the SCC are performed with different methods that use different time 
frames for analysis. The national operating cost savings is measured 
for the lifetime of products shipped in 2021-2050. The SCC values, on 
the other hand, reflect the present value of future climate-related 
impacts resulting from the emission of one metric ton of CO2 
in each year; these impacts continue well beyond 2100.

C. Proposed Standards

    When considering standards, the new or amended energy conservation 
standard that DOE adopts for any type (or class) of covered product 
shall be designed to achieve the maximum improvement in energy 
efficiency that the Secretary determines is technologically feasible 
and economically justified. (42 U.S.C. 6295(o)(2)(A)) As discussed 
previously, in determining whether a standard is economically 
justified, the Secretary must determine whether the benefits of the 
standard exceed its burdens by, to the greatest extent practicable, 
considering the seven statutory factors discussed previously. (42 
U.S.C. 6295(o)(2)(B)(i)) The new or amended standard must also ``result 
in significant conservation of energy.'' (42 U.S.C. 6295(o)(3)(B))
    For this NOPR, DOE considered the impacts of amended standards for 
NWGFs and MHGFs at each TSL, beginning with the maximum technologically 
feasible level, to determine whether that level was economically 
justified. Where the max-tech level was not justified, DOE then 
considered the next-most-efficient level and undertook the same 
evaluation until it reached the highest efficiency level that is both 
technologically feasible and economically justified and saves a 
significant amount of energy.
    To aid the reader in understanding the benefits and/or burdens of 
each TSL, tables in this section summarize the quantitative analytical 
results for each TSL, based on the assumptions and methodology 
discussed herein. In addition to the quantitative results presented in 
the tables, DOE also considers other burdens and benefits

[[Page 13182]]

that affect economic justification. These include the impacts on 
identifiable subgroups of consumers who may be disproportionately 
affected by a national standard (see section IV.I), and impacts on 
employment. DOE discusses the impacts on direct employment in NWGF and 
MHGF manufacturing in section IV.J, and discusses the indirect 
employment impacts in section IV.N.
    DOE also notes that the economics literature provides a wide-
ranging discussion of how consumers trade off upfront costs and energy 
savings in the absence of government intervention. Much of this 
literature attempts to explain why consumers appear to undervalue 
energy efficiency improvements. There is evidence that consumers 
undervalue future energy savings as a result of: (1) A lack of 
information; (2) a lack of sufficient salience of the long-term or 
aggregate benefits; (3) a lack of sufficient savings to warrant 
delaying or altering purchases; (4) excessive focus on the short term, 
in the form of inconsistent weighting of future energy cost savings 
relative to available returns on other investments; (5) computational 
or other difficulties associated with the evaluation of relevant 
tradeoffs; and (6) a divergence in incentives (for example, renter 
versus owner or builder versus purchaser). Other literature indicates 
that with less than perfect foresight and a high degree of uncertainty 
about the future, consumers may trade off at a higher than expected 
rate between current consumption and uncertain future energy cost 
savings. This undervaluation suggests that regulation that promotes 
energy efficiency can produce significant net private gains (as well as 
producing social gains by, for example, reducing pollution).
    In DOE's current regulatory analysis, potential changes in the 
benefits and costs of a regulation due to changes in consumer purchase 
decisions are included in two ways. First, if consumers forego a 
purchase of a product in the standards case, this decreases sales for 
product manufacturers, and the cost to manufacturers is included in the 
MIA. Second, DOE accounts for energy savings attributable only to 
products actually used by consumers in the standards case; if a 
standard decreases the number of products purchased by consumers, this 
decreases the potential energy savings from an energy conservation 
standard. DOE provides estimates of changes in the volume of product 
purchases in chapter 9 of the NOPR TSD. DOE's current analysis does not 
explicitly control for heterogeneity in consumer preferences, 
preferences across subcategories of products or specific features, or 
consumer price sensitivity variation according to household 
income.\101\
---------------------------------------------------------------------------

    \101\ P.C. Reiss and M.W. White, Household Electricity Demand, 
Revisited, Review of Economic Studies (2005) 72, 853-883.
---------------------------------------------------------------------------

    While DOE is not prepared at present to provide a fuller 
quantifiable framework for estimating the benefits and costs of changes 
in consumer purchase decisions due to an energy conservation standard, 
DOE is committed to developing a framework that can support empirical 
quantitative tools for improved assessment of the consumer welfare 
impacts of appliance standards. DOE has posted a paper that discusses 
the issue of consumer welfare impacts of appliance standards, and 
potential enhancements to the methodology by which these impacts are 
defined and estimated in the regulatory process.\102\ DOE welcomes 
comments on how to more fully assess the potential impact of energy 
conservation standards on consumer choice and how to quantify this 
impact in its regulatory analysis.
---------------------------------------------------------------------------

    \102\ Alan Sanstad, Notes on the Economics of Household Energy 
Consumption and Technology Choice. Lawrence Berkeley National 
Laboratory (2010) (Available at: http://www1.eere.energy.gov/buildings/appliance_standards/pdfs/consumer_ee_theory.pdf (Last 
accessed May 3, 2013).
---------------------------------------------------------------------------

1. Benefits and Burdens of TSLs Considered for NWGFs and MHGFs AFUE 
Standards
    Table V.42 and Table V.43 summarize the quantitative impacts 
estimated for each TSL for the NWGF and MHGF AFUE standards. The 
national impacts are measured over the lifetime of NWGFs and MHGFs 
purchased in the 30-year period that begins in the year of compliance 
with amended standards (2021-2050). The energy savings, emissions 
reductions, and value of emissions reductions refer to full-fuel-cycle 
results and include the impacts of projected fuel switching discussed 
in sections IV.F.4 and IV.H.3 and chapter 8 of the Technical Support 
Document. The efficiency levels contained in each TSL are described in 
section V.A.

                Table V.42--Summary of Results for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces AFUE TSLs: National Impacts
--------------------------------------------------------------------------------------------------------------------------------------------------------
              Category                        TSL 1                   TSL 2                  TSL 3                  TSL 4                  TSL 5
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               FFC National Energy Savings
--------------------------------------------------------------------------------------------------------------------------------------------------------
quads..............................  1.291.................  2.126.................  2.780................  4.110................  5.481
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                        NPV of Consumer Benefits (2013$ billion)
--------------------------------------------------------------------------------------------------------------------------------------------------------
3% discount rate...................  8.6...................  14.1..................  16.1.................  21.5.................  25.3
7% discount rate...................  2.1...................  3.6...................  3.1..................  4.0..................  3.7
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                  Cumulative Emissions Reduction (Total FFC Emissions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)..........  64.6..................  110.0.................  137.3................  206.5................  274.5
SO2 (thousand tons)................  (77.1)................  (73.0)................  (202.6)..............  (244.6)..............  (342.6)
NOX (thousand tons)................  349.3.................  484.3.................  815.9................  1,113................  1,513
Hg (tons)..........................  (0.240)...............  (0.228)...............  (0.629)..............  (0.760)..............  (1.065)
CH4 (thousand tons)................  1,452.................  1,964.................  3,424................  4,624................  6,300
CH4 (thousand tons CO2eq) *........  40,663................  54,995................  95,882...............  129,480..............  176,393
N2O (thousand tons)................  (1.0).................  (0.8).................  (2.6)................  (3.1)................  (4.3)
N2O (thousand tons CO2eq) *........  (256).................  (217).................  (692)................  (814)................  (1,149)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                   Value of Emissions Reduction (Total FFC Emissions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
CO2 (2013$ billion) **.............  0.358 to 5.640........  0.615 to 9.637........  0.732 to 11.75.......  1.115 to 17.75.......  1.484 to 23.62

[[Page 13183]]

 
NOX--3% discount rate (2013$         384.0.................  529.5.................  878.6................  1,199................  1,634
 million).
NOX--7% discount rate (2013$         142.5.................  195.0.................  318.4................  434.4................  593.7
 million).
--------------------------------------------------------------------------------------------------------------------------------------------------------
* CO2eq is the quantity of CO2 that would have the same global warming potential (GWP).
** Range of the economic value of CO2 reductions is based on estimates of the global benefit of reduced CO2 emissions.
Note: Parentheses indicate negative values.


        Table V.43--Summary of Results for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces AFUE TSLs: Manufacturer and Consumer Impacts
--------------------------------------------------------------------------------------------------------------------------------------------------------
              Category                      TSL 1 **                TSL 2 **                 TSL 3                  TSL 4                  TSL 5
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                  Manufacturer Impacts
--------------------------------------------------------------------------------------------------------------------------------------------------------
Industry NPV ($M) Base Case =        990.43 to 1048.71.....  825.26 to 1063.45.....  971.41 to 1061.65....  740.79 to 1099.24....  548.20 to 1080.94
 1055.13.
Change in Industry NPV (%).........  (6.13) to (0.61)......  (21.79) to 0.79.......  (7.93) to 0.62.......  (29.79) to 4.18......  (48.04) to 2.45
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                            Consumer Mean LCC Savings (2013$)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Non-Weatherized Gas Furnaces.......  $208..................  $374..................  $305.................  $388.................  $441
Mobile Home Gas Furnaces...........  $770..................  $902..................  $691.................  $778.................  $784
Shipment-Weighted Average *........  $220..................  $385..................  $313.................  $396.................  $449
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               Consumer Simple PBP (years)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Non-Weatherized Gas Furnaces.......  8.3...................  7.2...................  7.2..................  7.4..................  8.3
Mobile Home Gas Furnaces...........  1.8...................  2.8...................  2.2..................  3.3..................  4.2
Shipment-Weighted Average *........  8.1...................  7.1...................  7.0..................  7.3..................  8.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                  Consumer LCC Impacts
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              Non-Weatherized Gas Furnaces
--------------------------------------------------------------------------------------------------------------------------------------------------------
Consumers with Net Cost (%)........  11%...................  14%...................  20%..................  24%..................  40%
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                Mobile Home Gas Furnaces
--------------------------------------------------------------------------------------------------------------------------------------------------------
Consumers with Net Cost (%)........  4%....................  8%....................  7%...................  13%..................  25%
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Weighted by shares of each product class in total projected shipments in 2021. The results for TSLs 1 and 2 are weighted by shares of each product
  class in projected shipments to the North in 2021.
** Results at TSLs 1 and 2 refer to the Northern region. For the Rest of Country, the proposed standard levels at TSLs 1 and 2 are at the baseline, so
  no consumers are affected.
Note: Parentheses indicate negative values.

    First, DOE considered TSL 5, which would save an estimated total of 
5.48 quads of energy, an amount DOE considers significant. TSL 5 has an 
estimated NPV of consumer benefit of $3.7 billion using a 7-percent 
discount rate, and $25.3 billion using a 3-percent discount rate.
    The cumulative emissions reductions at TSL 5 are 274 million metric 
tons of CO2, 1,513 thousand tons of NOX, and 
6,300 thousand tons of CH4. Projected emissions show an 
increase of 343 thousand tons of SO2, 4.3 thousand tons of 
N2O, and 1.065 tons of Hg. The increase is due to projected 
switching from gas furnaces to electric heat pumps and electric 
furnaces under the proposed standards. The estimated monetary value of 
the CO2 emissions reductions at TSL 5 ranges from $1.48 
billion to $23.62 billion.
    At TSL 5, the average LCC savings are $441 for non-weatherized gas 
furnaces and $784 for mobile home gas furnaces. The simple PBP is 8.3 
years for non-weatherized gas furnaces and 4.2 years for mobile home 
gas furnaces. The share of consumers experiencing a net LCC cost is 40 
percent for non-weatherized gas furnaces and 25 percent for mobile home 
gas furnaces.
    At TSL 5, the projected change in INPV ranges from a decrease of 
506.94 million to an increase of $25.80 million. The upper bound is 
considered optimistic by industry because it assumes manufacturers 
could pass on all compliance costs as price increases to their 
customers. DOE recognizes the risk of negative impacts if 
manufacturers' expectations concerning reduced profit margins are 
realized. If the larger decrease is reached, as DOE expects, TSL 5 
could result in a net loss of up to 48.04 percent in INPV for 
manufacturers.
    The Secretary tentatively concludes that, at TSL 5 for NWGFs and 
MHGFs AFUE standards, the benefits of energy savings, positive NPV of 
total consumer benefits at a 3-percent and 7-percent discount rates, 
average consumer LCC savings, emission reductions, and the estimated 
monetary value of the emissions reductions would be outweighed by the 
very large reduction in industry value at TSL 5 and the high number of 
consumers experiencing a net LCC cost for NWGFs. Consequently,

[[Page 13184]]

DOE has concluded that TSL 5 is not economically justified.
    Next, DOE considered TSL 4, which would save an estimated total of 
4.11 quads of energy, an amount DOE considers significant. TSL 4 has an 
estimated NPV of consumer benefit of $4.0 billion using a 7-percent 
discount rate, and $21.5 billion using a 3-percent discount rate.
    The cumulative emissions reductions at TSL 4 are 207 million metric 
tons of CO2, 1,113 thousand tons of NOX, and 
4,624 thousand tons of CH4. Projected emissions show an 
increase of 245 thousand tons of SO2, 3.1 thousand tons of 
N2O, and 0.760 tons of Hg. The increase is due to projected 
switching from gas furnaces to electric heat pumps and electric 
furnaces under the proposed standards. The estimated monetary value of 
the CO2 emissions reductions at TSL 4 ranges from $1.11 
billion to $17.75 billion
    At TSL 4, the average LCC savings are $388 for non-weatherized gas 
furnaces and $778 for mobile home gas furnaces. The simple PBP is 7.4 
years for non-weatherized gas furnaces and 3.3 years for mobile home 
gas furnaces. The share of consumers experiencing a net LCC cost is 24 
percent for non-weatherized gas furnaces and 13 percent for mobile home 
gas furnaces.
    At TSL 4, the projected change in INPV ranges from a decrease of 
$314.34 million to an increase of $44.10 million. If the larger 
decrease is reached, TSL 4 could result in a net loss of 29.79 percent 
in INPV.
    In considering this level, DOE notes that the agency recently 
published a final rule for energy conservation standards for furnace 
fans. 79 FR 38130 (July 3, 2014). Figure V.1 illustrates the compliance 
intervals of both the furnace fans final rule and the proposed rule for 
residential furnaces.
[GRAPHIC] [TIFF OMITTED] TP12MR15.001

    Furnace fans are a major component of residential furnaces. The 
final rule for furnace fans has a compliance date in 2019. This is 
relevant because manufacturers of furnaces also typically manufacture 
the furnace fans housed in those systems. Today's most common furnace 
blower motor technology is PSC motors. However, DOE believes that the 
furnace fan standard will likely require manufacturers to redesign 
residential furnaces to incorporate BPM motors and multi-staging for 
NWGF, and improved PSC motors for MHGF. Since these changes would also 
directly affect the furnace manufacturing industry, in addition to the 
new standards in this NOPR, DOE is aware that both rulemakings could 
present a cumulative burden impacting both product costs and upfront 
conversion costs. While cumulative burden issues are common in 
rulemakings (as manufacturers often produce more than one type of 
covered product), this situation is unique. First, both this energy 
conservation standard NOPR and the energy conservation standards 
furnace fan final rule will directly impact the design and 
manufacturing of the same product (i.e., residential furnaces). Second, 
the two rules impact an identical group of manufacturers. Third, these 
requirements are impacting the same product in a very short period of 
time. And finally the design changes resulting from this NOPR are 
additive to the design changes needed to meet the furnace fan standard. 
The combined requirements from this NOPR and from the furnace fans 
final rule will result in a larger burden in terms of both product cost 
and product conversion cost than would occur as a result of either of 
the individual rulemakings alone. Typically, manufacturers will attempt 
to recover these additional costs by passing them on to consumers. If 
these rules applied to different products the impact on consumer prices 
would be less and the impact on manufacturers could be spread across a 
larger revenue base. However, because these costs apply to the same 
product (i.e., furnaces), it may be more difficult for manufacturers to 
pass through all of the costs that they normally would to the consumer 
and the percentage reduction in industry value would be larger. Thus, 
manufacturers may feel this form of cumulative regulatory burden more 
acutely than that imposed on separate products in their manufacturing 
portfolio.
    To reach TSL 4, DOE has tentatively concluded that manufacturers 
would need to increase the heat exchanger surface area (see section 
IV.C.1.b). In order to meet the adopted furnace fan standard, as 
discussed above, manufacturers would likely need to implement an 
improved blower motor and, for NWGF, add multi-staging. Although the 
furnace heat exchanger, blower components, and combustion system are 
all integrated in the residential furnace design, the changes expected 
from the two rules are largely additive, with little overlap. Thus, 
when analyzing the combined impact of the two rules, DOE expects that 
the full costs of each rule will be incurred, with limited opportunity 
for cost savings to be achieved through coordinating the expenditures 
of the two rules. DOE estimates that, on average, the MPC at TSL 4 
would be $145 greater than the current baseline cost for NWGF. When 
added to the MPC increase projected from the furnace fan final rule of 
$68, the total resulting manufacturing cost increase would be $213 for 
NWGF. Likewise, when the estimated $154 MPC increase from this NOPR is 
combined with the $6 increase resulting from the furnace fans 
rulemaking, the total impact on the manufacturing cost of MHGF would be 
an increase of $160. In addition to the manufacturing costs being 
additive, the capital and product conversion costs are also largely 
additive, resulting in a greater impact on manufacturers than would be 
projected in the MIA results for either individual rulemaking. DOE 
projects that if TSL 4 was adopted as a result of this rulemaking, it 
would result in $65.8 million in capital conversion costs and $23.0 
million in product conversion costs. These changes are in addition to a 
projected $15.1 million in capital

[[Page 13185]]

expenditures and $25.5 million in product conversion costs from the 
furnace fan standard, for which compliance will be required in 2019. 79 
FR 38130, 38188 (July 3, 2014). In sum, manufacturers would be expected 
to incur $80.9 million and $48.5 million in capital and product 
conversion costs, respectively, leading up to the 2019 furnace fans and 
the projected 2021 residential furnaces compliance dates.
    DOE strongly considered TSL 4, and in a typical case, DOE's 
quantitative analysis would have likely led to proposed standards at 
those levels, given the potential for significant additional energy and 
carbon savings. However, as discussed above, the unique cumulative 
burden on manufacturers from this rule and the furnace fans rule is an 
important concern for DOE. In light of this situation, DOE seeks 
further information in order to balance the benefits and burdens of 
adopting TSL 4 in the final rule. For example, DOE seeks validation of 
its estimated capital conversion costs and product conversion costs. 
Conversely, DOE seeks information concerning whether its assumptions 
about cumulative regulatory burden are mistaken. That is, DOE solicits 
information regarding the potential for cost-reducing synergies in 
terms of improving the energy efficiency of furnaces and furnace fans 
at the same time. Based upon the information available at this time 
with respect to manufacturer impacts, including the cumulative effects 
of the furnace fan rulemaking, the Secretary tentatively concludes 
that, at TSL 4 for NWGF and MHGF AFUE standards, the benefits of energy 
savings, positive NPV of total consumer benefits at a 3-percent and 7-
percent discount rates, positive average consumer LCC savings, emission 
reductions, and the estimated monetary value of the emissions 
reductions would be outweighed by the potential negative impacts on 
manufacturers.
    Next, DOE considered TSL 3, which would save an estimated total of 
2.78 quads of energy, an amount DOE considers significant. TSL 3 has an 
estimated NPV of consumer benefit of $3.1 billion using a 7-percent 
discount rate, and $16.1 billion using a 3-percent discount rate.
    The cumulative emissions reductions at TSL 3 are 137 million metric 
tons of CO2, 816 thousand tons of NOX, and 3,424 
thousand tons of CH4. Projected emissions show an increase 
of 203 thousand tons of SO2, 2.6 thousand tons of 
N2O, and 0.629 tons of Hg. The increase is due to projected 
switching from gas furnaces to electric heat pumps and electric 
furnaces under the proposed standards. The estimated monetary value of 
the CO2 emissions reductions at TSL 3 ranges from $0.73 
billion to $11.75 billion.
    At TSL 3, the average LCC savings are $305 for non-weatherized gas 
furnaces and $691 for mobile home gas furnaces. The simple PBP is 7.2 
years for non-weatherized gas furnaces and 2.2 years for mobile home 
gas furnaces. The share of consumers experiencing a net LCC cost is 20 
percent for non-weatherized gas furnaces and 7 percent for mobile home 
gas furnaces.
    At TSL 3, the projected change in INPV ranges from a decrease of 
$83.72 million to an increase of $6.52 million. If the larger decrease 
is reached, TSL 3 could result in a net loss of 7.93 percent in INPV. 
DOE notes that, as explained with TSL 4, cumulative burden from the 
furnaces and furnace fans rules is a significant concern. However, at 
TSL 3, the projected manufacturer impacts are significantly less than 
at TSL 4, thereby mitigating some of these concerns.
    DOE estimates that the MPC at TSL 3 would be, on average, $91 
greater than the current baseline cost for NWGF. When added to the MPC 
increase projected from the furnace fans final rule of $68, the total 
resulting manufacturing cost increase would be $159 for NWGF. Likewise, 
for MGHF, when the estimated $98 MPC increase from this NOPR is 
combined with the $6 increase resulting from the furnace fans 
rulemaking, the total impact on the MGHF manufacturing cost would be an 
increase of $104. DOE projects that at TSL 3 manufacturers will incur 
$38.5 million in capital conversion costs and $16.5 million in product 
conversion costs. When considering the conversion costs of the furnace 
fans final rule ($15.1 million in capital expenditures and $25.5 
million in product conversion costs from the furnace fan standard) and 
residential furnaces rule as additive, manufacturers would be expected 
to incur $53.6 million in capital conversion costs and $42 million 
product conversion costs in the years leading up to the 2019 furnace 
fans and the projected 2021 residential furnaces effective dates.
    DOE notes that the extent of switching that would result from 
amended standards for NWGF AFUE (as represented in the range of 
estimates that DOE analyzed) would affect the benefits and costs of 
TSLs 3, 4, and 5. Thus, DOE requests comments on DOE's analysis of 
product switching.
    After considering the analysis and weighing the benefits and the 
burdens, the Secretary has tentatively concluded that at TSL 3 for NWGF 
and MHGF AFUE standards and based upon DOE's understanding of currently 
available information, the benefits of energy savings, positive NPV of 
consumer benefit, positive impacts on consumers (as indicated by 
positive average LCC savings and favorable PBPs), emission reductions, 
and the estimated monetary value of the emissions reductions would 
outweigh negative impacts on some consumers and the potential 
reductions in INPV for manufacturers. Consequently, DOE is proposing 
energy conservation standards for NWGFs and MHGFs at TSL 3.
    In today's proposed rule, DOE requests comments and data from 
interested parties that would assist DOE in determining whether TSL 4 
for NWGF and MHGF AFUE standards would also lead to the benefits of 
energy savings, positive NPV of total consumer benefits at a 3-percent 
and 7-percent discount rates, positive average consumer LCC savings, 
emission reductions, and the estimated monetary value of the emissions 
reductions outweighing the reduction in industry value at TSL 4. If 
additional information points to such a conclusion, DOE will strongly 
consider adoption of TSL 4 in the final rule. Because DOE has not yet 
reached a final decision to set standards at TSL 3 or TSL 4, it seeks a 
more complete understanding of the benefits and burdens of moving 
forward at each of these levels, as well as any implementation problems 
that might be reasonably foreseen.
    Based on the above considerations, DOE today proposes to adopt AFUE 
energy conservation standards for NWGFs and MHGFs at TSL 3, as 
presented in Table V.44.

Table V.44--Proposed Amended AFUE Energy Conservation Standards for Non-
          Weatherized Gas Furnaces and Mobile Home Gas Furnaces
------------------------------------------------------------------------
                        Product class                           AFUE (%)
------------------------------------------------------------------------
Non-Weatherized Gas-Fired Furnaces...........................         92
Mobile Home Gas-Fired Furnaces...............................         92
------------------------------------------------------------------------

2. Benefits and Burdens of TSLs Considered for NWGFs and MHGFs Standby 
Mode and Off Mode Standards
    Table V.45 and Table V.46 present a summary of the quantitative 
impacts estimated for each TSL considered for NWGFs and MHGFs standby 
mode and off mode standards. The national impacts are measured over the 
lifetime of NWGFs and MHGFs purchased in the 30-year period that begins 
in the year of

[[Page 13186]]

compliance with amended standards (2021-2050). The energy savings, 
emissions reductions, and value of emissions reductions refer to the 
full-fuel-cycle results. The efficiency levels contained in each TSL 
are described in section V.A.

  Table V.45--Summary of Results for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces Standby Mode and
                                         Off Mode TSLs: National Impacts
----------------------------------------------------------------------------------------------------------------
               Category                         TSL 1                    TSL 2                    TSL 3
----------------------------------------------------------------------------------------------------------------
                                           FFC National Energy Savings
----------------------------------------------------------------------------------------------------------------
quads................................  0.154..................  0.185..................  0.277
----------------------------------------------------------------------------------------------------------------
                                    NPV of Consumer Benefits (2013$ billion)
----------------------------------------------------------------------------------------------------------------
3% discount rate.....................  2.1....................  2.0....................  3.3
7% discount rate.....................  0.7....................  0.6....................  1.0
----------------------------------------------------------------------------------------------------------------
                              Cumulative Emissions Reduction (Total FFC Emissions)
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)............  8.6....................  10.4...................  15.6
SO2 (thousand tons)..................  7.2....................  8.7....................  13.0
NOX (thousand tons)..................  13.5...................  16.2...................  24.3
Hg (tons)............................  0.022..................  0.027..................  0.040
CH4 (thousand tons)..................  41.45..................  49.74..................  74.58
CH4 (thousand tons CO2eq)*...........  1,161..................  1,393..................  2,088.
N2O (thousand tons)..................  0.12...................  0.15...................  0.22
N2O (thousand tons CO2eq)*...........  32.2...................  38.6...................  57.9
----------------------------------------------------------------------------------------------------------------
                               Value of Emissions Reduction (Total FFC Emissions)
----------------------------------------------------------------------------------------------------------------
CO2 (2013$ billion)**................  0.05 to 0.76...........  0.06 to 0.91...........  0.09 to 1.37
NOX--3% discount rate (2013$ million)  14.5...................  17.4...................  26.0
NOX--7% discount rate (2013$ million)  5.2....................  6.3....................  9.4
----------------------------------------------------------------------------------------------------------------
* CO2eq is the quantity of CO2 that would have the same global warming potential (GWP).
** Range of the value of CO2 reductions is based on estimates of the global benefit of reduced CO2 emissions.


  Table V.46--Summary of Results for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces Standby Mode and
                                Off Mode TSLs: Manufacturer and Consumer Impacts
----------------------------------------------------------------------------------------------------------------
               Category                         TSL 1                    TSL 2                    TSL 3
----------------------------------------------------------------------------------------------------------------
                                              Manufacturer Impacts
----------------------------------------------------------------------------------------------------------------
Industry NPV ($M) Base case = 1055.13  1053.41 to 1054.61.....  1046.10 to 1055.58.....  1042.97 to 1055.99
Change in Industry NPV (%)...........  (0.16) to (0.05).......  (0.86) to 0.04.........  (1.15) to 0.08
----------------------------------------------------------------------------------------------------------------
                                        Consumer Mean LCC Savings (2013$)
----------------------------------------------------------------------------------------------------------------
Non-Weatherized Gas Furnaces.........  $12....................  $6.....................  $13
Mobile Home Gas Furnaces.............  $1.....................  $0.....................  $1
Shipment-Weighted Average*...........  $12....................  $6.....................  $13
----------------------------------------------------------------------------------------------------------------
                                           Consumer Simple PBP (years)
----------------------------------------------------------------------------------------------------------------
Non-Weatherized Gas Furnaces.........  1.3....................  9.7....................  7.5
Mobile Home Gas Furnaces.............  1.2....................  9.2....................  7.1
Shipment-Weighted Average*...........  1.3....................  9.6....................  7.4
----------------------------------------------------------------------------------------------------------------
                                              Consumer LCC Impacts
----------------------------------------------------------------------------------------------------------------
                                          Non-Weatherized Gas Furnaces
----------------------------------------------------------------------------------------------------------------
Consumers with Net Cost (%)..........  2%.....................  15%....................  9%
----------------------------------------------------------------------------------------------------------------
                                            Mobile Home Gas Furnaces
----------------------------------------------------------------------------------------------------------------
Consumers with Net Cost (%)..........  0%.....................  1%.....................  1%
----------------------------------------------------------------------------------------------------------------
* Weighted by shares of each product class in total projected shipments in 2021.
Note: Parentheses indicate negative values.

    First, DOE considered TSL 3, which would save an estimated total of 
0.28 quads of energy, an amount DOE considers significant. TSL 3 has an 
estimated NPV of consumer benefit of $1.0 billion using a 7-percent 
discount

[[Page 13187]]

rate, and $3.3 billion using a 3-percent discount rate.
    The cumulative emissions reductions at TSL 3 are 15.6 million 
metric tons of CO2, 24.3 thousand tons of NOX, 
13.0 thousand tons of SO2, 0.040 tons of Hg, 0.22 thousand 
tons of N2O, and 74.6 thousand tons of CH4. The 
estimated monetary value of the CO2 emissions reductions at 
TSL 3 ranges from $0.09 billion to $1.37 billion.
    At TSL 3, the average LCC savings are $13 for non-weatherized gas 
furnaces and $1 for mobile home gas furnaces. The simple PBP is 7.5 
years for non-weatherized gas furnaces and 7.1 years for mobile home 
gas furnaces. The share of consumers experiencing a net LCC cost is 9 
percent for non-weatherized gas furnaces and 1 percent for mobile home 
gas furnaces.
    At TSL 3, the projected change in INPV ranges from a decrease of 
$12.16 million to an increase of $0.08 million. If the larger decrease 
is reached, TSL 3 could result in a net loss of 1.15 percent in INPV.
    The Secretary concludes that at TSL 3 for NWGF and MHGF standby 
mode and off mode standards, the benefits of energy savings, positive 
NPV of consumer benefits at both 7-percent and 3-percent discount 
rates, positive impacts on consumers (as indicated by positive average 
LCC savings, favorable PBPs, and a higher percentage of consumers who 
would experience LCC benefits as opposed to costs), emission 
reductions, and the estimated monetary value of the CO2 
emissions reductions would outweigh the economic burden on a small 
fraction of consumers and the small potential loss in manufacturer 
INPV. After considering the analysis and the benefits and burdens of 
TSL 3, the Secretary has concluded that this TSL offers the maximum 
improvement in energy efficiency that is technologically feasible and 
economically justified, and will result in the significant conservation 
of energy. Therefore, DOE proposes to adopt TSL 3 for NWGF and MHGF 
standby mode and off mode standards. The proposed energy conservation 
standards for standby mode and off mode, expressed as maximum power in 
watts, are shown in Table V.47.

   Table V.47--Proposed Standby Mode and Off Mode Energy Conservation
  Standards for Non-Weatherized Gas Furnace and Mobile Home Gas Furnace
------------------------------------------------------------------------
                                                PWW,SB         PW,OFF
               Product class                   (watts)        (watts)
------------------------------------------------------------------------
Non-Weatherized Gas Furnaces..............            8.5            8.5
Mobile Home Gas Furnaces..................            8.5            8.5
------------------------------------------------------------------------

3. Summary of Benefits and Costs (Annualized) of the Proposed Standards
    The benefits and costs of today's proposed standards can also be 
expressed in terms of annualized values. The annualized monetary values 
are the sum of: (1) The annualized national economic value (expressed 
in 2013$) of the benefits from operation of products that meet the 
proposed standards (consisting primarily of operating cost savings from 
using less energy, minus increases in product purchase costs, which is 
another way of representing consumer NPV), and (2) the annualized 
monetary value of the benefits of emission reductions, including 
CO2 emission reductions.\103\ The value of CO2 
reductions, otherwise known as the Social Cost of Carbon (SCC), is 
calculated using a range of values per metric ton of CO2 
developed by a recent interagency process.
---------------------------------------------------------------------------

    \103\ To convert the time-series of costs and benefits into 
annualized values, DOE calculated a present value in 2014, the year 
used for discounting the NPV of total consumer costs and savings. 
For the benefits, DOE calculated a present value associated with 
each year's shipments in the year in which the shipments occur 
(e.g., 2020 or 2030), and then discounted the present value from 
each year to 2014. The calculation uses discount rates of 3 and 7 
percent for all costs and benefits except for the value of 
CO2 reductions, for which DOE used case-specific discount 
rates, as shown in Table V.48. Using the present value, DOE then 
calculated the fixed annual payment over a 30-year period, starting 
in the compliance year, that yields the same present value.
---------------------------------------------------------------------------

    Although combining the values of operating savings and 
CO2 emission reductions provides a useful perspective, two 
issues should be considered. First, the national operating savings are 
domestic U.S. consumer monetary savings that occur as a result of 
market transactions, while the value of CO2 reductions is 
based on a global value. Second, the assessments of operating cost 
savings and CO2 savings are performed with different methods 
that use different time frames for analysis. The national operating 
cost savings is measured for the lifetime of NWGFs and MHGFs shipped in 
2021-2050. The SCC values, on the other hand, reflect the present value 
of some future climate-related impacts resulting from the emission of 
one metric ton of carbon dioxide in each year. These impacts continue 
well beyond 2100.
    Estimates of annualized benefits and costs of the proposed AFUE 
standards for NWGFs and MHGFs are shown in Table V.48. The results 
under the primary estimate are as follows.
    Using a 7-percent discount rate for benefits and costs other than 
CO2 reduction, (for which DOE used a 3-percent discount rate 
along with the average SCC series that uses a 3-percent discount rate 
($40.5/t in 2015)), the estimated cost of the NWGFs and MHGFs AFUE 
standards proposed in this rule is $701 million per year in increased 
equipment costs, while the estimated benefits are $1,074 million per 
year in reduced equipment operating costs, $231 million per year in 
CO2 reductions, and $39 million per year in reduced 
NOX emissions. In this case, the net benefit would amount to 
$642 million per year.
    Using a 3-percent discount rate for all benefits and costs and the 
average SCC series that uses a 3-percent discount rate ($40.5/t in 
2015), the estimated cost of the NWGFs and MHGFs AFUE standards 
proposed in this rule is $709 million per year in increased equipment 
costs, while the estimated benefits are $1,690 million per year in 
reduced equipment operating costs, $231 million per year in 
CO2 reductions, and $54 million per year in reduced 
NOX emissions. In this case, the net benefit would amount to 
$1,264 million per year.

[[Page 13188]]



  Table V.48--Annualized Benefits and Costs of Proposed AFUE Standards (TSL 3) for Non-Weatherized Gas Furnaces
                                         and Mobile Home Gas Furnaces *
----------------------------------------------------------------------------------------------------------------
                                                                           (million 2013$/year)
                                                        --------------------------------------------------------
                                     Discount rate                           Low net benefits  High net benefits
                                                         Primary  estimate       estimate           estimate
----------------------------------------------------------------------------------------------------------------
                                                    Benefits
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost                              7%              1,074                903              1,174
 Savings......................
                                                     3%              1,690              1,383              1,887
CO2 Reduction Monetized Value                        5%                 64                 59                 72
 ($12.0/t case) **............
CO2 Reduction Monetized Value                        3%                231                211                260
 ($40.5/t case) **............
CO2 Reduction Monetized Value                      2.5%                340                311                384
 ($62.4/t case) **............
CO2 Reduction Monetized Value                        3%                715                654                805
 ($119/t case) **.............
NOX Reduction Monetized Value                        7%              38.50              35.68              42.48
 (at $2,684/ton) **...........
                                                     3%              53.52              49.26              59.53
    Total Benefits [dagger]...        7% plus CO2 range     1,177 to 1,828       998 to 1,593     1,288 to 2,022
                                                     7%              1,343              1,150              1,476
                                      3% plus CO2 range     1,807 to 2,458     1,491 to 2,087     2,018 to 2,751
                                                     3%              1,974              1,643              2,206
----------------------------------------------------------------------------------------------------------------
                                                      Costs
----------------------------------------------------------------------------------------------------------------
Consumer Incremental Equipment                       7%                701                750                683
 Costs........................
                                                     3%                709                766                689
----------------------------------------------------------------------------------------------------------------
                                               Net Benefits/Costs
----------------------------------------------------------------------------------------------------------------
    Total [dagger]............        7% plus CO2 range       476 to 1,127         248 to 843       605 to 1,339
                                                     7%                642                400                793
                                      3% plus CO2 range     1,098 to 1,749       725 to 1,320     1,329 to 2,062
                                                     3%              1,264                877              1,517
----------------------------------------------------------------------------------------------------------------
* This table presents the annualized costs and benefits associated with NWGFs and MHGFs shipped in 2021-2050.
  These results include benefits to consumers which accrue after 2050 from the products purchased in 2021-2050.
  The results account for the incremental variable and fixed costs incurred by manufacturers due to the
  standard, some of which may be incurred in preparation for the rule. The Primary, Low Benefits, and High
  Benefits Estimates utilize projections of energy prices from the AEO2014 Reference case, Low Economic Growth
  case and High Economic Growth case, respectively. In addition, incremental product costs reflect a modest
  decline rate for projected product price trends in the Primary Estimate, a constant rate in the Low Benefits
  Estimate, and a higher decline rate for projected price trends in the High Benefits Estimate. The methods used
  to derive projected price trends are explained in section IV.F.1.
** The interagency group selected four sets of SCC values for use in regulatory analyses. Three sets of values
  are based on the average SCC from the three integrated assessment models, at discount rates of 2.5, 3, and 5
  percent. The fourth set, which represents the 95th percentile SCC estimate across all three models at a 3-
  percent discount rate, is included to represent higher-than-expected impacts from temperature change further
  out in the tails of the SCC distribution. The values in parentheses represent the SCC in 2015. The SCC time
  series incorporate an escalation factor. The value for NOX is the average of the low and high values used in
  DOE's analysis.
[dagger] Total benefits for both the 3-percent and 7-percent cases are derived using the series corresponding to
  average SCC with 3-percent discount rate ($40.5/t in 2015). In the rows labeled ``7% plus CO2 range'' and ``3%
  plus CO2 range,'' the operating cost and NOX benefits are calculated using the labeled discount rate, and
  those values are added to the full range of CO2 values.

    Estimates of annualized benefits and costs of today's proposed 
standards for NWGFs and MHGFs standby mode and off mode power are shown 
in Table V.49. The results under the primary estimate are as follows.
    Using a 7-percent discount rate for benefits and costs other than 
CO2 reduction, (for which DOE used a 3-percent discount rate 
along with the average SCC series that uses a 3-percent discount rate 
($40.5/t in 2015)), the estimated cost of the NWGFs and MHGFs standby 
mode and off mode standards proposed in this rule is $40.4 million per 
year in increased equipment costs, while the estimated benefits are 
$165.4 million per year in reduced equipment operating costs, $26.9 
million per year in CO2 reductions, and $1.1 million per 
year in reduced NOX emissions. In this case, the net benefit 
would amount to $153.0 million per year.
    Using a 3-percent discount rate for all benefits and costs and the 
average SCC series that uses a 3-percent discount rate ($40.5/t in 
2015), the estimated cost of the NWGFs and MHGFs standby mode and off 
mode standards proposed in this rule is $41.0 million per year in 
increased equipment costs, while the estimated benefits are $240.2 
million per year in reduced equipment operating costs, $26.9 million 
per year in CO2 reductions, and $1.6 million per year in 
reduced NOX emissions. In this case, the net benefit would 
amount to $227.6 million per year.

[[Page 13189]]



   Table V.49--Annualized Benefits and Costs of Proposed Standby Mode and Off Mode Standards (TSL 3) for Non-
                             Weatherized Gas Furnaces and Mobile Home Gas Furnaces *
----------------------------------------------------------------------------------------------------------------
                                                                           (million 2013$/year)
                                                        --------------------------------------------------------
                                     Discount rate                           Low net benefits  High net benefits
                                                         Primary  estimate       estimate           estimate
----------------------------------------------------------------------------------------------------------------
                                                    Benefits
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost                              7%              165.4              149.7              190.8
 Savings......................
                                                     3%              240.2              214.9              281.5
CO2 Reduction Monetized Value                        5%               7.65               6.94               8.60
 ($12.0/t case) **............
CO2 Reduction Monetized Value                        3%              26.87              24.31              30.28
 ($40.5/t case) **............
CO2 Reduction Monetized Value                      2.5%              39.46              35.68              44.50
 ($62.4/t case) **............
CO2 Reduction Monetized Value                        3%              83.18              75.26              93.76
 ($119/t case) **.............
NOX Reduction Monetized Value                        7%               1.14               1.04               1.27
 (at $2,684/ton) **...........
                                                     3%               1.59               1.44               1.78
    Total Benefits [dagger]...        7% plus CO2 range         174 to 250         158 to 226         201 to 286
                                                     7%              193.4              175.0              222.4
                                      3% plus CO2 range         249 to 325         223 to 292         292 to 377
                                                     3%              268.6              240.7              313.5
----------------------------------------------------------------------------------------------------------------
                                                      Costs
----------------------------------------------------------------------------------------------------------------
Consumer Incremental Equipment                       7%              40.35              45.01              36.86
 Costs........................
                                                     3%              41.02              46.13              37.19
----------------------------------------------------------------------------------------------------------------
                                               Net Benefits/Costs
----------------------------------------------------------------------------------------------------------------
    Total [dagger]............        7% plus CO2 range         134 to 209         113 to 181         164 to 249
                                                     7%              153.0              130.0              185.5
                                      3% plus CO2 range         208 to 284         177 to 246         255 to 340
                                                     3%              227.6              194.6              276.3
----------------------------------------------------------------------------------------------------------------
* This table presents the annualized costs and benefits associated with NWGFs and MHGFs shipped in 2021-2050.
  These results include benefits to consumers which accrue after 2050 from the equipment purchased in 2021-2050.
  The results account for the incremental variable and fixed costs incurred by manufacturers due to the
  standard, some of which may be incurred in preparation for the rule. The Primary, Low Benefits, and High
  Benefits Estimates utilize projections of energy prices from the AEO2014 Reference case, Low Economic Growth
  case, and High Economic Growth case, respectively.
** The interagency group selected four sets of SCC values for use in regulatory analyses. Three sets of values
  are based on the average SCC from the three integrated assessment models, at discount rates of 2.5, 3, and 5
  percent. The fourth set, which represents the 95th-percentile SCC estimate across all three models at a 3-
  percent discount rate, is included to represent higher-than-expected impacts from temperature change further
  out in the tails of the SCC distribution. The values in parentheses represent the SCC in 2015. The SCC time
  series incorporate an escalation factor. The value for NOX is the average of the low and high values in DOE's
  analysis.
[dagger] Total benefits for both the 3-percent and 7-percent cases are derived using the series corresponding to
  average SCC with 3-percent discount rate ($40.5/t in 2015). In the rows labeled ``7% plus CO2 range'' and ``3%
  plus CO2 range,'' the operating cost and NOX benefits are calculated using the labeled discount rate, and
  those values are added to the full range of CO2 values.

    Estimates of the combined annualized benefits and costs of today's 
proposed standards for NWGFs and MHGFs AFUE and standby mode and off 
mode power are shown in Table V.50. The results under the primary 
estimate are as follows.
    Using a 7-percent discount rate for benefits and costs other than 
CO2 reduction, for which DOE used a 3-percent discount rate 
along with the average SCC series that uses a 3-percent discount rate 
($40.5/t in 2015), the estimated cost of the NWGFs and MHGFs AFUE and 
standby mode and off mode standards proposed in this rule is $741.2 
million per year in increased equipment costs, while the estimated 
benefits are $1,240 million per year in reduced equipment operating 
costs, $257.4 million per year in CO2 reductions, and $39.6 
million per year in reduced NOX emissions. In this case, the 
net benefit would amount to $795.5 million per year.
    Using a 3-percent discount rate for all benefits and costs and the 
average SCC series that uses a 3-percent discount rate ($40.5/t in 
2015), the estimated cost of the NWGFs and MHGFs AFUE and standby mode 
and off mode standards proposed in this rule is $750.5 million per year 
in increased equipment costs, while the estimated benefits are $1,930 
million per year in reduced equipment operating costs, $257.4 million 
per year in CO2 reductions, and $55.1 million per year in 
reduced NOX emissions. In this case, the net benefit would 
amount to $1,492 million per year.

Table V.50--Combined Annualized Benefits and Costs of Proposed AFUE and Standby Mode and Off Mode Standards (TSL
                       3) for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces *
----------------------------------------------------------------------------------------------------------------
                                                                           (million 2013$/year)
                                                        --------------------------------------------------------
                                     Discount rate                           Low net benefits  High net benefits
                                                         Primary  estimate       estimate           estimate
----------------------------------------------------------------------------------------------------------------
                                                    Benefits
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost                              7%              1,240              1,053              1,365
 Savings......................

[[Page 13190]]

 
                                                     3%              1,930              1,598              2,168
CO2 Reduction Monetized Value                        5%              71.49              65.60              80.15
 ($12.0/t case) **............
CO2 Reduction Monetized Value                        3%              257.4              235.2              290.0
 ($40.5/t case) **............
CO2 Reduction Monetized Value                      2.5%              379.6              346.6              428.0
 ($62.4/t case) **............
CO2 Reduction Monetized Value                        3%              798.1              729.2              898.9
 ($119/t case) **.............
NOX Reduction Monetized Value                        7%              39.64              36.72              43.75
 (at $2,684/ton) **...........
                                                     3%              55.11              50.70              61.31
Total Benefits [dagger].......        7% plus CO2 range     1,351 to 2,077     1,155 to 1,819     1,489 to 2,308
                                                     7%              1,537              1,325              1,699
                                      3% plus CO2 range     2,057 to 2,783     1,715 to 2,378     2,310 to 3,128
                                                     3%              2,243              1,884              2,519
----------------------------------------------------------------------------------------------------------------
                                                      Costs
----------------------------------------------------------------------------------------------------------------
Consumer Incremental Equipment                       7%              741.2              795.0              719.9
 Costs........................
                                                     3%              750.5              812.4              726.3
----------------------------------------------------------------------------------------------------------------
                                               Net Benefits/Costs
----------------------------------------------------------------------------------------------------------------
    Total [dagger]............        7% plus CO2 range     609.6 to 1,336     360.3 to 1,024     768.9 to 1,588
                                                     7%              795.5              529.8              978.7
                                      3% plus CO2 range     1,306 to 2,033     0,902 to 1,566     1,583 to 2,402
                                                     3%              1,492              1,072              1,793
----------------------------------------------------------------------------------------------------------------
* This table presents the annualized costs and benefits associated with NWGFs and MHGFs shipped in 2021-2050.
  These results include benefits to consumers which accrue after 2050 from the equipment purchased in 2021-2050.
  The results account for the incremental variable and fixed costs incurred by manufacturers due to the
  standard, some of which may be incurred in preparation for the rule. The Primary, Low Benefits, and High
  Benefits Estimates utilize projections of energy prices from the AEO 2014 Reference case, Low Economic Growth
  case, and High Economic Growth case, respectively. In addition, incremental product costs reflect a modest
  decline rate for projected product price trends in the Primary Estimate, a constant rate in the Low Benefits
  Estimate, and a higher decline rate in the High Benefits Estimate. The methods used to derive projected price
  trends are explained in section IV.F.1.
** The interagency group selected four sets of SCC values for use in regulatory analyses. Three sets of values
  are based on the average SCC from the three integrated assessment models, at discount rates of 2.5, 3, and 5
  percent. The fourth set, which represents the 95th-percentile SCC estimate across all three models at a 3-
  percent discount rate, is included to represent higher-than-expected impacts from temperature change further
  out in the tails of the SCC distribution. The values in parentheses represent the SCC in 2015. The SCC time
  series incorporate an escalation factor. The value for NOX is the average of the low and high values in DOE's
  analysis.
[dagger] Total benefits for both the 3-percent and 7-percent cases are derived using the series corresponding to
  average SCC with 3-percent discount rate ($40.5/t in 2015). In the rows labeled ``7% plus CO2 range'' and ``3%
  plus CO2 range,'' the operating cost and NOX benefits are calculated using the labeled discount rate, and
  those values are added to the full range of CO2 values.

    Table V.51 compares the annualized benefits and costs of today's 
proposed standards for NWGF and MHGF AFUE under the default product 
switching estimate and under high and low switching estimates. The 
results under the primary, high, and low switching estimates are as 
follows. For the proposed standards for AFUE (TSL 3), the net benefits 
using a 7-percent discount rate amount to $396 million per year using 
high switching estimates, and $866 million per year using low switching 
estimates. These values compare to the primary net benefits of $642 
million per year. The net benefits using a 3-percent discount rate 
amount to $942 million per year using high switching estimates, and 
$1,563 million per year using low switching estimates. These values 
compare to the primary net benefits of $1,264 million per year.

  Table V.51--Annualized Benefits and Costs of Proposed AFUE Standards (TSL 3) for Non-Weatherized Gas Furnaces
                  and Mobile Home Gas Furnaces Under Alternative Product Switching Estimates *
----------------------------------------------------------------------------------------------------------------
                                                                           (million 2013$/year)
                                                        --------------------------------------------------------
                                     Discount rate                            Low switching      High switching
                                                         Primary  estimate       estimate           estimate
----------------------------------------------------------------------------------------------------------------
                                                    Benefits
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost                              7%              1,074              1,271                868
 Savings......................
                                                     3%              1,690              1,958              1,411
CO2 Reduction Monetized Value                        5%                 64                 83                 44
 ($12.0/t case) **............
CO2 Reduction Monetized Value                        3%                231                298                163
 ($40.5/t case) **............
CO2 Reduction Monetized Value                      2.5%                340                439                241
 ($62.4/t case) **............
CO2 Reduction Monetized Value                        3%                715                923                505
 ($119/t case) **.............
NOX Reduction Monetized Value                        7%                 39                 40                 37
 (at $2,684/ton) **...........
                                                     3%                 54                 55                 52
    Total Benefits [dagger]...        7% plus CO2 range     1,177 to 1,828     1,395 to 2,235       950 to 1,411

[[Page 13191]]

 
                                                     7%              1,343              1,609              1,069
                                      3% plus CO2 range     1,807 to 2,458     2,097 to 2,937     1,507 to 1,968
                                                     3%              1,974              2,312              1,626
----------------------------------------------------------------------------------------------------------------
                                                      Costs
----------------------------------------------------------------------------------------------------------------
Consumer Incremental Equipment                       7%                701                743                673
 Costs........................
                                                     3%                709                748                684
----------------------------------------------------------------------------------------------------------------
                                               Net Benefits/Costs
----------------------------------------------------------------------------------------------------------------
    Total [dagger]............        7% plus CO2 range       476 to 1,127       651 to 1,491         277 to 738
                                                     7%                642                866                396
                                      3% plus CO2 range     1,098 to 1,749     1,349 to 2,189       823 to 1,284
                                                     3%              1,264              1,563                942
----------------------------------------------------------------------------------------------------------------
* This table presents the annualized costs and benefits associated with NWGFs and MHGFs shipped in 2021-2050.
  These results include benefits to consumers which accrue after 2050 from the equipment purchased in 2021-2050.
  The results account for the incremental variable and fixed costs incurred by manufacturers due to the
  standard, some of which may be incurred in preparation for the rule. The Primary, Low Switching Estimate, and
  High Switching Estimates are explained in section IV.F.4.
** The interagency group selected four sets of SCC values for use in regulatory analyses. Three sets of values
  are based on the average SCC from the three integrated assessment models, at discount rates of 2.5, 3, and 5
  percent. The fourth set, which represents the 95th-percentile SCC estimate across all three models at a 3-
  percent discount rate, is included to represent higher-than-expected impacts from temperature change further
  out in the tails of the SCC distribution. The values in parentheses represent the SCC in 2015. The SCC time
  series incorporate an escalation factor. The value for NOX is the average of the low and high values in DOE's
  analysis.
[dagger] Total benefits for both the 3-percent and 7-percent cases are derived using the series corresponding to
  average SCC with 3-percent discount rate ($40.5/t in 2015). In the rows labeled ``7% plus CO2 range'' and ``3%
  plus CO2 range,'' the operating cost and NOX benefits are calculated using the labeled discount rate, and
  those values are added to the full range of CO2 values.

VI. Procedural Issues and Regulatory Review

A. Review Under Executive Orders 12866 and 13563

    Section 1(b)(1) of Executive Order 12866, ``Regulatory Planning and 
Review,'' 58 FR 51735 (Oct. 4, 1993), requires each agency to identify 
the problem that it intends to address, including, where applicable, 
the failures of private markets or public institutions that warrant new 
agency action, as well as to assess the significance of that problem. 
The problems these proposed standards address are as follows:
    (1) Insufficient information and difficulty in analyzing relevant 
information leads some customers to miss opportunities to make cost-
effective investments in energy efficiency.
    (2) In some cases the benefits of more efficient equipment are not 
realized due to misaligned incentives between purchasers and users. An 
example of such a case is when the equipment purchase decision is made 
by a building contractor or building owner who does not pay the energy 
costs.
    (3) There are external benefits resulting from improved energy 
efficiency of residential furnaces that are not captured by the users 
of such equipment. These benefits include externalities related to 
public health, environmental protection and national security that are 
not reflected in energy prices, such as reduced emissions of air 
pollutants and greenhouse gases that impact human health and global 
warming.
    In addition, DOE has determined that this regulatory action is a 
``significant regulatory action'' under section 3(f)(1) of Executive 
Order 12866. Accordingly, section 6(a)(3) of the Executive Order 
requires that DOE prepare a regulatory impact analysis (RIA) on this 
rule and that the Office of Information and Regulatory Affairs (OIRA) 
in the Office of Management and Budget (OMB) review this rule. DOE 
presented to OIRA for review the draft rule and other documents 
prepared for this rulemaking, including the RIA, and has included these 
documents in the rulemaking record. The assessments prepared pursuant 
to Executive Order 12866 can be found in the technical support document 
for this rulemaking.
    DOE has also reviewed this regulation pursuant to Executive Order 
13563, issued on January 18, 2011 (76 FR 3281 (Jan. 21, 2011)). 
Executive Order 13563 is supplemental to and explicitly reaffirms the 
principles, structures, and definitions governing regulatory review 
established in Executive Order 12866. To the extent permitted by law, 
agencies are required by Executive Order 13563 to: (1) Propose or adopt 
a regulation only upon a reasoned determination that its benefits 
justify its costs (recognizing that some benefits and costs are 
difficult to quantify); (2) tailor regulations to impose the least 
burden on society, consistent with obtaining regulatory objectives, 
taking into account, among other things, and to the extent practicable, 
the costs of cumulative regulations; (3) select, in choosing among 
alternative regulatory approaches, those approaches that maximize net 
benefits (including potential economic, environmental, public health 
and safety, and other advantages; distributive impacts; and equity); 
(4) to the extent feasible, specify performance objectives, rather than 
specifying the behavior or manner of compliance that regulated entities 
must adopt; and (5) identify and assess available alternatives to 
direct regulation, including providing economic incentives to encourage 
the desired behavior, such as user fees or marketable permits, or 
providing information upon which choices can be made by the public.
    DOE emphasizes as well that Executive Order 13563 requires agencies 
to use the best available techniques to quantify anticipated present 
and future benefits and costs as accurately as possible. In its 
guidance, the Office of Information and Regulatory Affairs has

[[Page 13192]]

emphasized that such techniques may include identifying changing future 
compliance costs that might result from technological innovation or 
anticipated behavioral changes. For the reasons stated in the preamble, 
DOE believes that this NOPR is consistent with these principles, 
including the requirement that, to the extent permitted by law, 
benefits justify costs and that net benefits are maximized.

B. Review Under the Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires 
preparation of an initial regulatory flexibility analysis (IRFA) for 
any rule that by law must be proposed for public comment, unless the 
agency certifies that the rule, if promulgated, will not have a 
significant economic impact on a substantial number of small entities. 
As required by Executive Order 13272, ``Proper Consideration of Small 
Entities in Agency Rulemaking,'' 67 FR 53461 (August 16, 2002), DOE 
published procedures and policies on February 19, 2003, to ensure that 
the potential impacts of its rules on small entities are properly 
considered during the rulemaking process. 68 FR 7990. DOE has made its 
procedures and policies available on the Office of the General 
Counsel's Web site (http://energy.gov/gc/office-general-counsel). DOE 
has prepared the following IRFA for the products that are the subject 
of this rulemaking.
    For manufacturers of NWGFs and MHGFs, the Small Business 
Administration (SBA) has set a size threshold, which defines those 
entities classified as ``small businesses'' for the purposes of the 
statute. DOE used the SBA's small business size standards to determine 
whether any small entities would be subject to the requirements of the 
rule. 65 FR 30836, 30848 (May 15, 2000), as amended at 65 FR 53533, 
53544 (Sept. 5, 2000) and codified at 13 CFR part 121.\104\ 
Manufacturing of NWGFs and MHGFs is classified under NAICS 333415, 
``Air-Conditioning and Warm Air Heating Equipment and Commercial and 
Industrial Refrigeration Equipment Manufacturing.'' The SBA sets a 
threshold of 750 employees or less for an entity to be considered as a 
small business for this category.
---------------------------------------------------------------------------

    \104\ The size standards are listed by North American Industry 
Classification System (NAICS) code and industry description and are 
available at http://www.sba.gov/category/navigation-structure/contracting/contracting-officials/small-business-size-standards.
---------------------------------------------------------------------------

1. Description and Estimated Number of Small Entities Regulated
    DOE reviewed the proposed energy conservation standards for NWGFs 
and MHGFs considered in this notice of proposed rulemaking under the 
provisions of the Regulatory Flexibility Act and the procedures and 
policies published on February 19, 2003. 68 FR 7990. To better assess 
the potential impacts of this rulemaking on small entities, DOE 
conducted a more focused inquiry of the companies that could be small 
business manufacturers of products covered by this rulemaking. DOE 
conducted a market survey using available public information to 
identify potential small manufacturers. DOE's research involved DOE's 
Compliance Certification Management System (CCMS \105\), industry trade 
association membership directories (including AHRI \106\), individual 
company Web sites, and market research tools (e.g., Hoovers reports 
\107\) to create a list of companies that manufacture or sell the NWGF 
and MHGF products covered by this rulemaking. DOE also asked industry 
representatives if they were aware of any other small manufacturers 
during manufacturer interviews. DOE reviewed publicly available data 
and contacted companies on its list, as necessary, to determine whether 
they met the SBA's definition of a small business manufacturer of 
covered NWGF and MHGF products. DOE screened out companies that do not 
offer products covered by this rulemaking, do not meet the definition 
of a ``small business,'' or are foreign-owned and operated. Out of 12 
manufacturers DOE was able to identify, four manufacturers were 
classified as meeting the SBA's definition of a ``small business'' that 
manufactures products covered by this rulemaking. Three of those small 
manufacturers were domestic companies.
---------------------------------------------------------------------------

    \105\ DOE's Compliance Certification Management System, http://www.regulations.doe.gov/certification-data/(last accessed Aug. 19, 
2014).
    \106\ AHRI Directory, https://www.ahridirectory.org/ahridirectory/pages/home.aspx (last accessed Aug. 19, 2014).
    \107\ Hoovers[verbar]Company Information[verbar]Industry 
Information[verbar]Lists, http://www.hoovers.com/) (last accessed 
August 26, 2014).
---------------------------------------------------------------------------

    Before issuing this NOPR, DOE attempted to contact all the small 
domestic business manufacturers of NWGFs and MHGFs it had identified. 
None of the small businesses consented to formal MIA interviews. DOE 
also attempted to obtain information about small business impacts while 
interviewing large manufacturers.
2. Description and Estimate of Compliance Requirements
    Of the three small domestic manufacturers identified, one 
manufacturer was a NWGF manufacturer and two manufacturers were MHGF 
manufacturers. The small domestic NWGF manufacturer focuses on the 
residential furnace market and accounts for approximately 7 percent of 
the listings in the DOE Certification Compliance Database. This small 
manufacturer has condensing furnace product offerings, with 9 percent 
of its models meeting the proposed national standard level of 92% AFUE. 
In comparison, the NWGF industry as a whole has 46 percent of listings 
at or above 92% AFUE.
    DOE made several key assumptions to estimate the conversion costs 
for small NWGF manufacturers. First, DOE assumed that conversion costs 
scaled with the number of model listings. Second, DOE assumed that 
small manufacturers accounted for 2 percent of NWGF industry revenues. 
Using these assumptions, DOE estimates the impacts on small 
manufacturer relative to large manufacturers:

----------------------------------------------------------------------------------------------------------------
                                                       Total           Total          Capital         Product
                                                    conversion      conversion      conversion      conversion
                                                     cost as a       cost as a       cost as a       cost as a
                                                   percentage of   percentage of   percentage of   percentage of
                                                      revenue          EBIT        annual capex     annual R&D
----------------------------------------------------------------------------------------------------------------
Average Small Manufacturer......................              18             304             605             148
Average Large Manufacturer......................               3              60              99              50
----------------------------------------------------------------------------------------------------------------

    These results suggest that small NWGF manufacturers could be at a 
disadvantage relative to the large NWGF manufacturers. In general, 
small manufacturers must make many of the same product redesign and 
cost

[[Page 13193]]

optimization investments as their larger competitors. However, for the 
small manufacturer these upfront investments are spread over a smaller 
volume of shipments and smaller revenue base, making cost recovery more 
difficult.
    The two small manufacturers producing MHGFs together account for 
approximately 32 percent of MHGF listings in the DOE Certification 
Compliance Database. These two manufacturers have zero listings at or 
above 92 percent AFUE, the proposed national standard level. In 
comparison, the MHGF industry as a whole has 58 percent of listings at 
or above 92 percent AFUE. These two small MHGF manufacturers would thus 
need to upgrade all product lines to remain in the industry. DOE 
estimates industry average conversion costs of approximately $0.9 
million per company at this the proposed standard level. However, these 
estimates are driven by feedback from manufacturers who have condensing 
products today. Given that the two small manufacturers will need to 
develop a condensing product line from scratch, they may face 
substantially higher conversion costs for R&D and, perhaps, for 
tooling-up production of secondary heat exchangers. At the proposed 
AFUE standard level, the two small manufacturers may re-evaluate the 
cost-benefit of staying in the MHGF market.
    DOE has tentatively concluded that the impacts of the standby mode 
and off mode requirements on small business are small relative to the 
AFUE standard impacts. Based on the engineering analysis, the cost of 
standby mode and off mode components are small to the overall cost of a 
residential furnace. DOE estimates that the standby mode and off mode 
requirements would add between $1 to $10 to the MPC of NWGF products 
(which ranges from $380 to $650) and to the MPC of MHGF products (which 
range from $323 to $568). The engineering analysis suggests that the 
design paths required to meet the standby mode and off mode 
requirements consist of relatively straight-forward component swaps. 
Additionally, the INPV and short-term cash flow impacts of the standby 
mode and off mode requirements are dwarfed by the impacts of the AFUE 
standard. In general, the impacts of the standby and off mode standard 
are significantly smaller than the impacts of the AFUE standard. For 
this reason, the IRFA focuses on the impacts of the AFUE standard.
    DOE seeks comments, information, and data on the number of small 
businesses in the industry, the names of those small businesses, and 
their role in the market. Second, DOE requests data on the market share 
of small manufacturers in the NWGF and MHGF markets. Third, DOE request 
data on the estimate conversion costs for small manufacturers at all 
TSLs. Last, DOE requests comment on the potential impacts of the 
proposed AFUE standard and standby mode and off mode requirement on 
small manufacturers.
3. Duplication, Overlap, and Conflict With Other Rules and Regulations
    DOE is not aware of any rules or regulations that duplicate, 
overlap, or conflict with the rule being proposed today.
4. Significant Alternatives to the Rule
    The discussion in section V.B.2 analyzes impacts on small 
businesses that would result from DOE's proposed rule. In addition to 
the other TSLs being considered, the proposed rulemaking TSD includes a 
regulatory impact analysis (RIA) in chapter 17. For NWGFs and MHGFs, 
the RIA discusses the following policy alternatives: (1) No change in 
standard; (2) consumer rebates; (3) consumer tax credits; (4) 
manufacturer tax credits; (5) voluntary energy efficiency targets; and 
(6) bulk government purchases. While these alternatives may mitigate 
the economic impacts on small entities compared to the proposed 
standards, DOE has determined that the energy savings of these 
regulatory alternatives amount to 0.7 percent to 43.7 percent of the 
savings that would be expected to result from adoption of the proposed 
standard levels. Thus, DOE rejected these alternatives and is proposing 
the standards set forth in this rulemaking. See chapter 17 of the NOPR 
TSD for further detail on the policy alternatives DOE considered.

C. Review Under the Paperwork Reduction Act of 1995

    Manufacturers of residential furnaces must certify to DOE that 
their products comply with any applicable energy conservation 
standards. In certifying compliance, manufacturers must test their 
products according to the DOE test procedures for residential furnaces, 
including any amendments adopted for those test procedures. DOE has 
established regulations for the certification and recordkeeping 
requirements for all covered consumer products and commercial 
equipment, including residential furnaces. 76 FR 12422 (March 7, 2011). 
The collection-of-information requirement for the certification and 
recordkeeping is subject to review and approval by OMB under the 
Paperwork Reduction Act (PRA). This requirement has been approved by 
OMB under OMB control number 1910-1400. Public reporting burden for the 
certification is estimated to average 20 hours per response, including 
the time for reviewing instructions, searching existing data sources, 
gathering and maintaining the data needed, and completing and reviewing 
the collection of information.
    Notwithstanding any other provision of the law, no person is 
required to respond to, nor shall any person be subject to a penalty 
for failure to comply with, a collection of information subject to the 
requirements of the PRA, unless that collection of information displays 
a currently valid OMB Control Number.

D. Review Under the National Environmental Policy Act of 1969

    Pursuant to the National Environmental Policy Act (NEPA) of 1969, 
DOE has determined that the proposed rule fits within the category of 
actions included in Categorical Exclusion (CX) B5.1 and otherwise meets 
the requirements for application of a CX. See 10 CFR part 1021, App. B, 
B5.1(b); 1021.410(b) and Appendix B, B(1)-(5). The proposed rule fits 
within the category of actions because it is a rulemaking that 
establishes energy conservation standards for consumer products or 
industrial equipment, and for which none of the exceptions identified 
in CX B5.1(b) apply. Therefore, DOE has made a CX determination for 
this rulemaking, and DOE does not need to prepare an Environmental 
Assessment or Environmental Impact Statement for this proposed rule. 
DOE's CX determination for this proposed rule is available at http://cxnepa.energy.gov/.

E. Review Under Executive Order 13132

    Executive Order 13132, ``Federalism,'' 64 FR 43255 (Aug. 10, 1999), 
imposes certain requirements on Federal agencies formulating and 
implementing policies or regulations that preempt State law or that 
have Federalism implications. The Executive Order requires agencies to 
examine the constitutional and statutory authority supporting any 
action that would limit the policymaking discretion of the States and 
to carefully assess the necessity for such actions. The Executive Order 
also requires agencies to have an accountable process to ensure 
meaningful and timely input by State and local officials in the 
development of regulatory policies that have Federalism implications. 
On March 14, 2000, DOE published a statement of policy describing the 
intergovernmental consultation process

[[Page 13194]]

it will follow in the development of such regulations. 65 FR 13735. DOE 
has examined this proposed rule and has tentatively determined that it 
would not have a substantial direct effect on the States, on the 
relationship between the national government and the States, or on the 
distribution of power and responsibilities among the various levels of 
government. EPCA governs and prescribes Federal preemption of State 
regulations as to energy conservation for the products that are the 
subject of this proposed rule. States can petition DOE for exemption 
from such preemption to the extent, and based on criteria, set forth in 
EPCA. (42 U.S.C. 6297) Therefore, no further action is required by 
Executive Order 13132.

F. Review Under Executive Order 12988

    With respect to the review of existing regulations and the 
promulgation of new regulations, section 3(a) of Executive Order 12988, 
``Civil Justice Reform,'' 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; (3) 
provide a clear legal standard for affected conduct rather than a 
general standard; and (4) promote simplification and burden reduction. 
61 FR 4729 (Feb. 7, 1996). Regarding the review required by section 
3(a), section 3(b) of Executive Order 12988 specifically requires that 
Executive agencies make every reasonable effort to ensure that the 
regulation: (1) Clearly specifies the preemptive effect, if any; (2) 
clearly specifies any effect on existing Federal law or regulation; (3) 
provides a clear legal standard for affected conduct while promoting 
simplification and burden reduction; (4) specifies the retroactive 
effect, if any; (5) adequately defines key terms; and (6) addresses 
other important issues affecting clarity and general draftsmanship 
under any guidelines issued by the Attorney General. Section 3(c) of 
Executive Order 12988 requires Executive agencies to review regulations 
in light of applicable standards in section 3(a) and section 3(b) to 
determine whether they are met or it is unreasonable to meet one or 
more of them. DOE has completed the required review and determined 
that, to the extent permitted by law, this proposed rule meets the 
relevant standards of Executive Order 12988.

G. Review Under the Unfunded Mandates Reform Act of 1995

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) 
requires each Federal agency to assess the effects of Federal 
regulatory actions on State, local, and Tribal governments and the 
private sector. Public Law 104-4, sec. 201 (codified at 2 U.S.C. 1531). 
For a proposed regulatory action likely to result in a rule that may 
cause the expenditure by State, local, and Tribal governments, in the 
aggregate, or by the private sector of $100 million or more in any one 
year (adjusted annually for inflation), section 202 of UMRA requires a 
Federal agency to publish a written statement that estimates the 
resulting costs, benefits, and other effects on the national economy. 
(2 U.S.C. 1532(a), (b)) The UMRA also requires a Federal agency to 
develop an effective process to permit timely input by elected officers 
of State, local, and Tribal governments on a proposed ``significant 
intergovernmental mandate,'' and requires an agency plan for giving 
notice and opportunity for timely input to potentially affected small 
governments before establishing any requirements that might 
significantly or uniquely affect them. On March 18, 1997, DOE published 
a statement of policy on its process for intergovernmental consultation 
under UMRA. 62 FR 12820. DOE's policy statement is also available at 
http://energy.gov/gc/office-general-counsel.
    Although this proposed rule, which proposes amended energy 
conservation standards for residential furnaces, does not contain a 
Federal intergovernmental mandate, it may require expenditures of $100 
million or more on the private sector. Specifically, the proposed rule 
would likely result in a final rule that could require expenditures of 
$100 million or more, including: (1) Investment in research and 
development and in capital expenditures by residential furnace 
manufacturers in the years between the final rule and the compliance 
date for the new standards, and (2) incremental additional expenditures 
by consumers to purchase higher-efficiency residential furnaces, 
starting at the compliance date for the applicable standard.
    Section 202 of UMRA authorizes a Federal agency to respond to the 
content requirements of UMRA in any other statement or analysis that 
accompanies the proposed rule. (2 U.S.C. 1532(c)) The content 
requirements of section 202(b) of UMRA relevant to a private sector 
mandate substantially overlap the economic analysis requirements that 
apply under section 325(o) of EPCA and Executive Order 12866. The 
SUPPLEMENTARY INFORMATION section of the NOPR and the ``Regulatory 
Impact Analysis'' section of the TSD for this proposed rule respond to 
those requirements.
    Under section 205 of UMRA, the Department is obligated to identify 
and consider a reasonable number of regulatory alternatives before 
promulgating a rule for which a written statement under section 202 is 
required. (2 U.S.C. 1535(a)) DOE is required to select from those 
alternatives the most cost-effective and least burdensome alternative 
that achieves the objectives of the proposed rule unless DOE publishes 
an explanation for doing otherwise, or the selection of such an 
alternative is inconsistent with law. As required by 42 U.S.C. 6295(f) 
and (o), this proposed rule would establish amended energy conservation 
standards for residential furnaces that are designed to achieve the 
maximum improvement in energy efficiency that DOE has determined to be 
both technologically feasible and economically justified. A full 
discussion of the alternatives considered by DOE is presented in the 
``Regulatory Impact Analysis'' section of the TSD for this proposed 
rule.

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

    Section 654 of the Treasury and General Government Appropriations 
Act, 1999 (Pub. L. 105-277) requires Federal agencies to issue a Family 
Policymaking Assessment for any rule that may affect family well-being. 
This rule would not have any impact on the autonomy or integrity of the 
family as an institution. Accordingly, DOE has concluded that it is not 
necessary to prepare a Family Policymaking Assessment.

I. Review Under Executive Order 12630

    Pursuant to Executive Order 12630, ``Governmental Actions and 
Interference with Constitutionally Protected Property Rights,'' 53 FR 
8859 (March 15, 1988), DOE has determined that this proposed rule would 
not result in any takings that might require compensation under the 
Fifth Amendment to the U.S. Constitution.

J. Review Under the Treasury and General Government Appropriations Act, 
2001

    Section 515 of the Treasury and General Government Appropriations 
Act, 2001 (44 U.S.C. 3516 note) provides for Federal agencies to review 
most disseminations of information to the public under information 
quality guidelines established by each agency pursuant to general 
guidelines issued by OMB. OMB's guidelines were published at 67 FR 8452 
(Feb. 22, 2002), and DOE's guidelines were published at 67

[[Page 13195]]

FR 62446 (Oct. 7, 2002). DOE has reviewed this NOPR under the OMB and 
DOE guidelines and has concluded that it is consistent with applicable 
policies in those guidelines.

K. Review Under Executive Order 13211

    Executive Order 13211, ``Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use,'' 66 FR 28355 
(May 22, 2001), requires Federal agencies to prepare and submit to OIRA 
at OMB, a Statement of Energy Effects for any proposed significant 
energy action. A ``significant energy action'' is defined as any action 
by an agency that promulgates or is expected to lead to promulgation of 
a final rule, and that: (1) Is a significant regulatory action under 
Executive Order 12866, or any successor order; and (2) is likely to 
have a significant adverse effect on the supply, distribution, or use 
of energy, or (3) is designated by the Administrator of OIRA as a 
significant energy action. For any proposed significant energy action, 
the agency must give a detailed statement of any adverse effects on 
energy supply, distribution, or use should the proposal be implemented, 
and of reasonable alternatives to the action and their expected 
benefits on energy supply, distribution, and use.
    DOE has tentatively concluded that this regulatory action, which 
sets forth amended energy conservation standards for residential 
furnaces, is not a significant energy action because the proposed 
standards are not likely to have a significant adverse effect on the 
supply, distribution, or use of energy, nor has it been designated as 
such by the Administrator at OIRA. Accordingly, DOE has not prepared a 
Statement of Energy Effects on this proposed rule.

L. Review Under the Information Quality Bulletin for Peer Review

    On December 16, 2004, OMB, in consultation with the Office of 
Science and Technology Policy (OSTP), issued its Final Information 
Quality Bulletin for Peer Review (the Bulletin). 70 FR 2664 (Jan. 14, 
2005). The Bulletin establishes that certain scientific information 
shall be peer reviewed by qualified specialists before it is 
disseminated by the Federal Government, including influential 
scientific information related to agency regulatory actions. The 
purpose of the bulletin is to enhance the quality and credibility of 
the Government's scientific information. Under the Bulletin, the energy 
conservation standards rulemaking analyses are ``influential scientific 
information,'' which the Bulletin defines as ``scientific information 
the agency reasonably can determine will have or does have a clear and 
substantial impact on important public policies or private sector 
decisions.'' Id. at 2667.
    In response to OMB's Bulletin, DOE conducted formal in-progress 
peer reviews of the energy conservation standards development process 
and analyses and has prepared a Peer Review Report pertaining to the 
energy conservation standards rulemaking analyses. Generation of this 
report involved a rigorous, formal, and documented evaluation using 
objective criteria and qualified and independent reviewers to make a 
judgment as to the technical/scientific/business merit, the actual or 
anticipated results, and the productivity and management effectiveness 
of programs and/or projects. The ``Energy Conservation Standards 
Rulemaking Peer Review Report,'' dated February 2007, has been 
disseminated and is available at the following Web site: 
www1.eere.energy.gov/buildings/appliance_standards/peer_review.html.

VII. Public Participation

A. Attendance at the Public Meeting

    The time, date, and location of the public meeting are listed in 
the DATES and ADDRESSES sections at the beginning of this notice. If 
you plan to attend the public meeting, please notify Ms. Brenda Edwards 
at (202) 586-2945 or [email protected] . As explained in the 
ADDRESSES section, foreign nationals visiting DOE Headquarters are 
subject to advance security screening procedures. Any foreign national 
wishing to participate in the meeting should advise DOE of this fact as 
soon as possible by contacting Ms. Brenda Edwards to initiate the 
necessary procedures.X
    In addition, you can attend the public meeting via webinar. Webinar 
registration information, participant instructions, and information 
about the capabilities available to webinar participants will be 
published on DOE's Web site at: http://www1.eere.energy.gov/buildings/appliance_standards/rulemaking.aspx?ruleid=62.
    Participants are responsible for ensuring their systems are 
compatible with the webinar software.

B. Procedure for Submitting Requests to Speak and Prepared General 
Statements for Distribution

    Any person who has an interest in the topics addressed in this 
notice, or who is representative of a group or class of persons that 
has an interest in these issues, may request an opportunity to make an 
oral presentation at the public meeting. Such persons may hand-deliver 
requests to speak to the address shown in the ADDRESSES section at the 
beginning of this notice between 9:00 a.m. and 4:00 p.m., Monday 
through Friday, except Federal holidays. Requests may also be sent by 
mail or email to: Ms. Brenda Edwards, U.S. Department of Energy, 
Building Technologies Office, Mailstop EE-5B, 1000 Independence Avenue 
SW., Washington, DC 20585-0121, or [email protected]. Persons 
who wish to speak should include with their request a computer diskette 
or CD-ROM in WordPerfect, Microsoft Word, PDF, or text (ASCII) file 
format that briefly describes the nature of their interest in this 
rulemaking and the topics they wish to discuss. Such persons should 
also provide a daytime telephone number where they can be reached.
    DOE requests persons scheduled to make an oral presentation to 
submit an advance copy of their statements at least one week before the 
public meeting. DOE may permit persons who cannot supply an advance 
copy of their statement to participate, if those persons have made 
advance alternative arrangements with the Building Technologies 
Program. As necessary, requests to give an oral presentation should ask 
for such alternative arrangements.

C. Conduct of the Public Meeting

    DOE will designate a DOE official to preside at the public meeting 
and may also use a professional facilitator to aid discussion. The 
meeting will not be a judicial or evidentiary-type public hearing, but 
DOE will conduct it in accordance with section 336 of EPCA (42 U.S.C. 
6306). A court reporter will be present to record the proceedings and 
prepare a transcript. DOE reserves the right to schedule the order of 
presentations and to establish the procedures governing the conduct of 
the public meeting. There shall not be discussion of proprietary 
information, costs or prices, market share, or other commercial matters 
regulated by U.S. anti-trust laws. After the public meeting, interested 
parties may submit further comments on the proceedings, as well as on 
any aspect of the rulemaking, until the end of the comment period.
    The public meeting will be conducted in an informal, conference 
style. DOE will present summaries of comments received before the 
public meeting, allow time for prepared general statements by 
participants, and encourage all interested parties to share their views 
on issues affecting this

[[Page 13196]]

rulemaking. Each participant will be allowed to make a general 
statement (within time limits determined by DOE), before the discussion 
of specific topics. DOE will allow, as time permits, other participants 
to comment briefly on any general statements.
    At the end of all prepared statements on a topic, DOE will permit 
participants to clarify their statements briefly and comment on 
statements made by others. Participants should be prepared to answer 
questions by DOE and by other participants concerning these issues. DOE 
representatives may also ask questions of participants concerning other 
matters relevant to this rulemaking. The official conducting the public 
meeting will accept additional comments or questions from those 
attending, as time permits. The presiding official will announce any 
further procedural rules or modification of the above procedures that 
may be needed for the proper conduct of the public meeting.
    A transcript of the public meeting will be included in the docket, 
which can be viewed as described in the Docket section at the beginning 
of this notice and will be accessible on the DOE Web site. In addition, 
any person may buy a copy of the transcript from the transcribing 
reporter.

D. Submission of Comments

    DOE will accept comments, data, and information regarding this 
proposed rule before or after the public meeting, but no later than the 
date provided in the DATES section at the beginning of this proposed 
rule. Interested parties may submit comments, data, and other 
information using any of the methods described in the ADDRESSES section 
at the beginning of this NOPR.
    Submitting comments via www.regulations.gov. The 
www.regulations.gov Web page will require you to provide your name and 
contact information. Your contact information will be viewable to DOE 
Building Technologies staff only. Your contact information will not be 
publicly viewable except for your first and last names, organization 
name (if any), and submitter representative name (if any). If your 
comment is not processed properly because of technical difficulties, 
DOE will use this information to contact you. If DOE cannot read your 
comment due to technical difficulties and cannot contact you for 
clarification, DOE may not be able to consider your comment.
    However, your contact information will be publicly viewable if you 
include it in the comment itself or in any documents attached to your 
comment. Any information that you do not want to be publicly viewable 
should not be included in your comment, nor in any document attached to 
your comment. Otherwise, persons viewing comments will see only first 
and last names, organization names, correspondence containing comments, 
and any documents submitted with the comments.
    Do not submit to www.regulations.gov information for which 
disclosure is restricted by statute, such as trade secrets and 
commercial or financial information (hereinafter referred to as 
Confidential Business Information (CBI)). Comments submitted through 
www.regulations.gov cannot be claimed as CBI. Comments received through 
the Web site will waive any CBI claims for the information submitted. 
For information on submitting CBI, see the Confidential Business 
Information section below.
    DOE processes submissions made through www.regulations.gov before 
posting. Normally, comments will be posted within a few days of being 
submitted. However, if large volumes of comments are being processed 
simultaneously, your comment may not be viewable for up to several 
weeks. Please keep the comment tracking number that www.regulations.gov 
provides after you have successfully uploaded your comment.
    Submitting comments via email, hand delivery/courier, or postal 
mail. Comments and documents submitted via email, hand delivery, or 
postal mail also will be posted to www.regulations.gov. If you do not 
want your personal contact information to be publicly viewable, do not 
include it in your comment or any accompanying documents. Instead, 
provide your contact information in a cover letter. Include your first 
and last names, email address, telephone number, and optional mailing 
address. The cover letter will not be publicly viewable as long as it 
does not include any comments.
    Include contact information each time you submit comments, data, 
documents, and other information to DOE. If you submit via mail or hand 
delivery/courier, please provide all items on a CD, if feasible, in 
which case, it is not necessary to submit printed copies. No 
telefacsimiles (faxes) will be accepted.
    Comments, data, and other information submitted to DOE 
electronically should be provided in PDF (preferred), Microsoft Word or 
Excel, WordPerfect, or text (ASCII) file format. Provide documents that 
are not secured, that are written in English, and that are free of any 
defects or viruses. Documents should not contain special characters or 
any form of encryption and, if possible, they should carry the 
electronic signature of the author.
    Campaign form letters. Please submit campaign form letters by the 
originating organization in batches of between 50 to 500 form letters 
per PDF or as one form letter with a list of supporters' names compiled 
into one or more PDFs. This reduces comment processing and posting 
time.
    Confidential Business Information. Pursuant to 10 CFR 1004.11, any 
person submitting information that he or she believes to be 
confidential and exempt by law from public disclosure should submit via 
email, postal mail, or hand delivery/courier two well-marked copies: 
One copy of the document marked ``confidential'' including all the 
information believed to be confidential, and one copy of the document 
marked ``non-confidential'' with the information believed to be 
confidential deleted. Submit these documents via email or on a CD, if 
feasible. DOE will make its own determination about the confidential 
status of the information and treat it according to its determination.
    Factors of interest to DOE when evaluating requests to treat 
submitted information as confidential include: (1) A description of the 
items; (2) whether and why such items are customarily treated as 
confidential within the industry; (3) whether the information is 
generally known by or available from other sources; (4) whether the 
information has previously been made available to others without 
obligation concerning its confidentiality; (5) an explanation of the 
competitive injury to the submitting person which would result from 
public disclosure; (6) when such information might lose its 
confidential character due to the passage of time; and (7) why 
disclosure of the information would be contrary to the public interest.
    It is DOE's policy that all comments may be included in the public 
docket, without change and as received, including any personal 
information provided in the comments (except information deemed to be 
exempt from public disclosure).

E. Issues on Which DOE Seeks Comment

    Although DOE welcomes comments on any aspect of this proposal, DOE 
is particularly interested in receiving comments and views of 
interested parties concerning the following issues:
    1. The efficiency levels analyzed for standby mode and off mode, 
and on the assumption that standby mode and off mode energy consumption 
(as defined

[[Page 13197]]

by DOE) would be equal (see section IV.C.1.b).
    2. The fraction of NWGFs and MHGFs that are used in commercial 
applications (see section IV.G.1).
    3. The fraction of consumers that shut the furnace off during the 
non-heating season (see section IV.C.1.b).
    4. Installation costs for condensing NWGFs and MHGFs. Specifically, 
the estimated fraction of houses that would see a large impact for 
installing a condensing furnace because of venting and/or condensate 
withdrawal issues (see section IV.F.2).
    5. DOE's current approach for determining NWGF and MHGF lifetime 
distribution (see section IV.F.3.d).
    6. DOE's current approach for calculating the fraction of NWGF 
consumers that would be expected to switch to other products in the 
standards cases (see section IV.F.4).
    7. The estimated market share of condensing NWGFs and MHGFs in 2021 
in the absence of amended energy conservation standards (see section 
IV.F).
    8. The estimated market share of NWGFs and MHGFs that are used at 
each standby efficiency level in 2021 in the absence of amended energy 
conservation standards (see section IV.F).
    9. The reasonableness of its assumption to apply a decreasing trend 
to the manufacturer selling price (in real dollars) of NWGFs and MHGFs, 
as well as any information that would support the use of alternative 
assumptions (see section IV.F.1).
    10. Data that would allow for use of different price trend 
projections for condensing and non-condensing NWGFs and MHGFs (see 
section IV.F.1).
    11. The methodology and data sources used for projecting the future 
shipments of NWGFs and MHGFs in the absence of amended energy 
conservation standards (see section IV.G.1).
    12. The potential impacts on product shipments related to fuel and 
product switching (see section IV.G.2).
    13. The reasonableness of the value that DOE used to characterize 
the rebound effect with higher-efficiency NWGFs and MHGFs (see section 
IV.E.1).
    14. The approach for conducting the emissions analysis for NWGFs 
and MHGFs (see section IV.K).
    15. DOE's approach for estimating monetary benefits associated with 
emissions reductions (see section IV.L).
    16. Comments, information, and data on the capital conversion costs 
and product conversion costs estimated for each AFUE standard TSL (see 
section IV.J.2.a).
    17. Comments, information, and data on the capital conversion costs 
and product conversion costs estimated for each standby mode and off 
mode TSL (see section IV.J.2.a).
    18. Comments on the identified regulations and their contribution 
to cumulative regulatory burden. Additionally, DOE requests feedback on 
product-specific regulations that take effect between 2018 and 2024 
that were not listed, including identification of the specific 
regulations and data quantifying the associated burdens (see section 
V.B.2.e and V.C.1).
    19. Comments, information, and data on the number of small 
businesses in the industry, the names of those small businesses, and 
their role in the market and the market share of small manufacturers in 
the NWGF and MHGF markets (see section VI.B.1 and VI.B.2).
    20. Comment on the potential impacts of the proposed AFUE standard 
and standby mode and off mode requirement on small manufacturers (see 
section VI.B.2).
    21. Data, information, and feedback to enhance the estimate 
conversion costs for small manufacturers in the NWGF and MHGF to 
develop or adjust current product lines to meet the proposed standards 
(see section VI.B.2).
    22. Comment on the potential impacts of the proposed AFUE standard 
and standby mode and off mode requirement on small manufacturers (see 
section VI.B.2).

VIII. Approval of the Office of the Secretary

    The Secretary of Energy has approved publication of today's notice 
of proposed rulemaking.

List of Subjects in 10 CFR Part 430

    Administrative practice and procedure, Confidential business 
information, Energy conservation, Household appliances, Imports, 
Intergovernmental relations, Small businesses.

    Issued in Washington, DC, on February 10, 2015.
David T. Danielson,
Assistant Secretary, Energy Efficiency and Renewable Energy.

    For the reasons set forth in the preamble, DOE proposes to amend 
part 430 of chapter II, subchapter D, of title 10 of the Code of 
Federal Regulations, as set forth below:

PART 430--ENERGY CONSERVATION PROGRAM FOR CONSUMER PRODUCTS

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. Appendix N to subpart B of part 430 is amended by revising the note 
after the heading to read as follows:

Appendix N to Subpart B of Part 430-- Uniform Test Method for Measuring 
the Energy Consumption of Furnaces and Boilers

    Note: The procedures and calculations that refer to standby mode 
and off mode energy consumption (i.e., sections 8.6 and 10.11 of 
this appendix N) need not be performed to determine compliance with 
energy conservation standards for furnaces and boilers until 
required as specified below. However, any representation related to 
standby mode and off mode energy consumption of these products made 
after July 1, 2013 must be based upon results generated under this 
test procedure, consistent with the requirements of 42 U.S.C. 
6293(c)(2). For non-weatherized oil-fired furnaces (including mobile 
home furnaces) and electric furnaces manufactured on and after May 
1, 2013, compliance with the applicable provisions of this test 
procedure is required in order to determine compliance with energy 
conservation standards. For non-weatherized gas furnaces (including 
mobile home furnaces) manufactured on and after (compliance date of 
final rule), compliance with the applicable provisions of this test 
procedure is required in order to determine compliance with energy 
conservation standards. For boilers manufactured on and after 
(compliance date of residential boilers final rule), compliance with 
the applicable provisions of this test procedure is required in 
order to determine compliance with energy conservation standards.

* * * * *
0
3. Section 430.32 is amended by
0
a. Redesignating paragraph (e)(1)(iii) as (e)(1)(iv);
0
b. Adding a new paragraph (e)(1)(iii); and
0
c. Revising newly redesignated paragraph (e)(1)(iv).
    The additions and revisions read as follows:


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

* * * * *
    (e) * * *
    (1) * * *
    (iii) The AFUE of non-weatherized gas-fired and mobile home gas 
furnaces shall not be less than the following starting on the 
compliance date indicated in the table below:

[[Page 13198]]



------------------------------------------------------------------------
                                         AFUE
           Product class             (percent) \1\     Compliance date
------------------------------------------------------------------------
(A) Non-weatherized gas furnaces                92  date 5 years after
 (not including mobile home                          publication of
 furnaces).                                          final rule.
(B) Mobile home gas furnaces......              92  date 5 years after
                                                     publication of
                                                     final rule.
------------------------------------------------------------------------
\1\ Annual Fuel Utilization Efficiency, as determined in Sec.
  430.23(n)(2) of this part.

    (iv) Furnaces manufactured on and after the compliance date listed 
in the table below shall have an electrical standby mode power 
consumption (PW,SB) and electrical off mode power 
consumption (PW,OFF) not more than the following:

----------------------------------------------------------------------------------------------------------------
                                                   Maximum        Maximum off
                                                standby  mode         mode
                                                  electrical       electrical
                Product class                       power            power               Compliance date
                                                 consumption,     consumption,
                                                   (PW,SB)          (PW,OFF)
                                                   (watts)          (watts)
----------------------------------------------------------------------------------------------------------------
(A) Non-weatherized oil-fired furnaces                    11               11    May 1, 2013.
 (including mobile home furnaces).
(B) Electric furnaces........................             10               10    May 1, 2013.
(C) Non-weatherized gas-fired furnaces                     8.5              8.5  date 5 years after publication
 (including mobile home furnaces).                                                of final rule.
----------------------------------------------------------------------------------------------------------------

* * * * *
[FR Doc. 2015-03275 Filed 3-11-15; 8:45 am]
 BILLING CODE 6450-01-P