[Federal Register Volume 81, Number 185 (Friday, September 23, 2016)]
[Proposed Rules]
[Pages 65720-65852]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-22080]



[[Page 65719]]

Vol. 81

Friday,

No. 185

September 23, 2016

Part II





Department of Energy





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10 CFR Parts 429 and 430





Energy Conservation Program: Energy Conservation Standards for 
Residential Furnaces; Proposed Rules

  Federal Register / Vol. 81 , No. 185 / Friday, September 23, 2016 / 
Proposed Rules  

[[Page 65720]]


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DEPARTMENT OF ENERGY

10 CFR Parts 429 and 430

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


Energy Conservation Program: Energy Conservation Standards for 
Residential Furnaces

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

ACTION: Supplemental notice of proposed rulemaking (SNOPR) 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. On March 12, 2015, DOE 
published in the Federal Register a notice of proposed rulemaking 
(NOPR), in which DOE proposed amendments to the energy conservation 
standards for residential non-weatherized gas furnaces and mobile home 
gas furnaces. In response to the NOPR, DOE received comment expressing 
concern regarding DOE's proposed approach and encouraging the 
Department to examine establishing a separate product class for small 
furnaces. In response, DOE published a notice of data availability 
(NODA) in the Federal Register on September 14, 2015 that contained an 
analysis of a potential product class for small non-weatherized gas 
furnaces. In this supplemental notice of rulemaking (SNOPR), DOE 
responds to comments received on the NOPR and NODA and is making a 
modified proposal regarding amended energy conservation standards for 
the subject residential furnaces (including a separate small furnaces 
product class), which supersedes DOE's earlier proposal, as set forth 
in the March 12, 2015 NOPR. The notice also requests comment on the 
SNOPR's proposed standards and associated analyses and results. The 
SNOPR also proposes clarifications to the certification and reporting 
requirements of standby mode and off mode values for non-weatherized 
oil furnaces (including mobile home oil furnaces) and electric 
furnaces, to provide direction on the rounding of standby mode and off 
mode values, generally, and to clarify the level of precision for the 
furnace and boiler standards.

DATES: Comments: DOE will accept comments, data, and information 
regarding this supplemental notice of proposed rulemaking before and 
after the public meeting, but no later than November 22, 2016. See 
section VII, ``Public Participation,'' for details.
    Comments regarding the likely competitive impact of the proposed 
standards should be sent to the Department of Justice contact listed in 
the ADDRESSES section before November 22, 2016.
    Meeting: DOE will hold a public meeting on October 17, 2016, from 
9:00 a.m. to 5:00 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.

ADDRESSES: The public meeting will be held at the U.S. Department of 
Energy, Forrestal Building, Room 6E-069, 1000 Independence Avenue SW, 
Washington, DC 20585.
    Instructions: Any comments submitted must identify the SNOPR on 
Energy Conservation Standards for Residential Furnaces, and provide 
docket number EERE-2014-BT-STD-0031 and/or regulatory information 
number (RIN) 1904-AD20. Comments may be submitted using any of the 
following methods:
    Federal eRulemaking Portal: www.regulations.gov. Follow the 
instructions for submitting comments.
    Email: [email protected]. Include the docket number 
and/or RIN in the subject line of the message. Submit electronic 
comments in WordPerfect, Microsoft Word, PDF, or ASCII file format, and 
avoid the use of special characters or any form of encryption.
    Postal Mail: Mr. John Cymbalsky, 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.
    Hand Delivery/Courier: Mr. John Cymbalsky, U.S. Department of 
Energy, Building Technologies Office, 950 L'Enfant Plaza SW., Room 
6002, 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.
    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'').
    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].
    EPCA requires the Attorney General to provide DOE a written 
determination of whether the proposed standard is likely to lessen 
competition. The U.S. Department of Justice Antitrust Division invites 
input from market participants and other interested persons with views 
on the likely competitive impact of the proposed standard. Interested 
persons may contact the Division at [email protected] before 
November 22, 2016. Please indicate in the ``Subject'' line of your 
email the title and Docket Number of this rulemaking notice.
    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 publicly 
available, such as those containing information that is exempt from 
public disclosure.
    The docket Web page can be found at: https://www.regulations.gov/docket?D=EERE-2014-BT-STD-0031. The docket 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 Appliance and Equipment Standards Staff at (202) 586-6636 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:

[[Page 65721]]

[email protected].
    Mr. Eric Stas or Ms. Johanna Jochum, 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 further information on how to submit or review public comments, 
contact the Appliance and Equipment Standards Staff at (202) 586-6636 
or by email: [email protected].

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Synopsis of the Proposed Rule
    A. Benefits and Costs to Consumers
    B. Impact on Manufacturers
    C. National Benefits and Costs
    1. AFUE Standards
    2. Standby Mode and Off Mode Standards
    3. Combined Results for AFUE Standards and Standby Mode and Off 
Mode Standards
    D. Conclusion
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
    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. Other Issues
    1. Economic Justification of the March 2015 NOPR Proposed 
Standards
    a. General
    b. Consumer Impacts from the Proposed Standards
    c. Product Switching Due to the Proposed Standards
    d. Summary Response to Comments on the Economic Justification of 
the March 2015 NOPR Proposed Standards for Non-Weatherized Gas 
Furnaces
    e. Economic Justification of the March 2015 NOPR Proposed 
Standards for Mobile Home Gas Furnaces
    2. Safety Concerns Regarding the Proposed Standards
    3. Standby Mode and Off Mode Standards
    4. Rulemaking Process
    5. Compliance Date
    6. Regional Standards
    7. Regulatory Issues
    8. Certification of Compliance and Level of Precision
IV. Methodology and Discussion of Related Comments
    A. Market and Technology Assessment
    1. Scope of Coverage and Product Classes
    a. General Approach
    b. Condensing and Non-Condensing Furnaces
    c. Input Capacity
    d. Other Comments
    2. 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 Estimation Method
    c. Manufacturing Production Costs
    d. Cost-Efficiency Relationship
    e. Manufacturer Markup
    f. Manufacturer Interviews
    3. Electric Furnaces
    D. Markups Analysis
    E. Energy Use Analysis
    1. Active Mode
    a. Furnace Capacity
    b. Adjustments to Energy Use Estimated for 2009
    c. Furnace Electricity Use
    d. Rebound Effect
    2. Standby Mode and Off Mode
    3. Comments on Energy Use Results
    F. Life-Cycle Cost and Payback Period Analysis
    1. Product Cost
    2. Installation Cost
    a. Basic Installation Cost
    b. Additional Installation Costs for Non-Weatherized Gas 
Furnaces
    c. Comments on Installation Cost Results for Non-Weatherized Gas 
Furnaces
    d. Installation Cost for Mobile Home Gas Furnaces
    3. Annual Energy Consumption
    4. Energy Prices
    5. Maintenance and Repair Costs
    6. Product Lifetime
    7. Discount Rates
    8. Efficiency Distribution in the No-New-Standards Case
    9. Accounting for Product Switching Under Potential Standards
    a. Consumer Choice Model
    b. Product Switching Decision Criteria
    c. Summary of Product Switching Model
    d. Switching Resulting From Standards for Mobile Home Gas 
Furnaces
    10. Payback Period
    G. Shipments Analysis
    1. Shipments Model and Inputs
    2. Impact of Potential Standards on Shipments
    H. National Impact Analysis
    1. Product Efficiency Trends
    2. National Energy Savings
    3. Net Present Value Analysis
    I. Consumer Subgroup Analysis
    J. Manufacturer Impact Analysis
    1. Overview
    2. Government Regulatory Impact Model Analysis and Key Inputs
    a. Capital and Product Conversion Costs
    b. Manufacturer Production Costs
    c. Shipment Scenarios
    d. Manufacturer Markup Scenarios
    3. Discussion of Comments
    a. Direct Employment Impacts
    b. Cumulative Regulatory Burden
    c. Impacts of the July 2014 Furnace Fan Final Rule on GRIM
    d. Regulatory Flexibility Analysis
    K. Emissions Analysis
    L. Monetizing Carbon Dioxide and Other Emissions Impacts
    1. Social Cost of Carbon
    a. Monetizing Carbon Dioxide Emissions
    b. Development of Social Cost of Carbon Values
    c. Current Approach and Key Assumptions
    2. Social Cost of Other Air Pollutants
    M. Utility Impact Analysis
    N. Employment Impact Analysis
V. Analytical Results and Conclusions
    A. Trial Standard Levels
    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 Utility or Performance of Products
    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. Conclusion
    1. Benefits and Burdens of TSLs Considered for Non-Weatherized 
Gas Furnace and Mobile Home Gas Furnace AFUE Standards
    2. Benefits and Burdens of TSLs Considered for Non-Weatherized 
Gas Furnace and Mobile Home Gas Furnace Standby Mode and Off Mode 
Standards
    3. Summary of Annualized Benefits and Costs 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 of Reasons Why Action Is Being Considered and 
Legal Basis
    2. Description and Estimated Number of Small Entities Regulated
    3. Description and Estimate of Compliance Requirements

[[Page 65722]]

    a. Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces 
AFUE Standards
    b. Weatherized Gas Furnaces and Mobile Home Gas Furnaces Standby 
Mode and Off Mode Standards
    4. Identification of Duplication, Overlap, and Conflict With 
Other Rules and Regulations
    5. A Description of 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. Information Quality
VII. Public Participation
    A. Attendance at the Public Meeting
    B. Procedure for Submitting 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. Synopsis 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 rulemaking. (42 U.S.C. 6292(a)(5))
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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 Energy Efficiency Improvement Act of 2015 
(EEIA 2015), Public Law 114-11 (April 30, 2015).
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    Pursuant to EPCA, any new or amended energy conservation standard 
must be designed to achieve the maximum improvement in energy 
efficiency that the Secretary of Energy determines 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 (proceeding to a final rule, as 
appropriate). (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 the subject residential furnaces (i.e., NWGFs and MHGFs). The 
proposed standards, which are expressed in terms of minimum annual fuel 
utilization efficiency (AFUE) by certified input capacity and 
electrical energy consumption, are shown in Table I.1 and Table I.2. 
These proposed standards, if adopted, would apply to all NWGFs and 
MHGFs listed in Table I.1 and Table I.2 manufactured in, or imported 
into, the United States starting on the date 5 years after the 
publication of the final rule for this rulemaking. For non-weatherized 
gas furnaces, DOE has also suggested an alternative certified input 
capcity threshold of 60 kBtu/h for the proposed standard of 80 percent 
AFUE, and requests public comment on this alternative. Increasing the 
small furnace threshold reduces the fuel switching impacts relative to 
the proposed standard (see Table V.3), and has a significantly lower 
fraction of consumers who would be negatively impacted (see Table 
V.41). See Section V.C.1 for more discussion on this alternative.

     Table I.1--Proposed AFUE Energy Conservation Standards for Non-
          Weatherized Gas Furnaces and Mobile Home Gas Furnaces
                                 [TSL 6]
------------------------------------------------------------------------
                                             Certified       Proposed
              Product class               input capacity  standard: AFUE
                                             (kBtu/h)           (%)
------------------------------------------------------------------------
Non-Weatherized Gas Furnaces............            <=55            80.0
                                                     >55            92.0
Mobile Home Gas Furnaces................             All            92.0
------------------------------------------------------------------------


    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 mode    Proposed off
              Product class                  standard:    mode standard:
                                           PW,SB (watts)  PW,OFF (watts)
------------------------------------------------------------------------
Non-Weatherized Gas Furnaces............             8.5             8.5
Mobile Home Gas 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 standards and standby mode and off mode 
standards, respectively, on consumers of NWGFs and MHGFs, as measured 
by the average life-cycle cost (LCC) savings and the

[[Page 65723]]

simple payback period (PBP).\3\ In both cases, the average LCC savings 
are positive for all product classes, and the PBP is less than the 
average lifetime of NWGFs and MHGFs, which is estimated to be 21.5 
years (see section IV.F.6).
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    \3\ The average LCC savings are measured relative to the 
efficiency distribution in the no-new-standards case, which depicts 
the market in the compliance year in the absence of amended or new 
standards (see section IV.F.8). The simple PBP, which is designed to 
compare specific efficiency levels, is measured relative to the 
baseline product (see section IV.C.1.a). The AFUE standard results 
include the projected fuel switching as described in chapter 8 of 
the SNOPR TSD.

  Table I.3--Impacts of Proposed AFUE Energy Conservation Standards on
 Consumers of Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces
                                 [TSL 6]
------------------------------------------------------------------------
                                            Average LCC
              Product class                   savings     Simple payback
                                              (2015$)     period (years)
------------------------------------------------------------------------
Non-Weatherized Gas Furnaces............             692             6.1
Mobile Home Gas Furnaces................           1,049             1.7
------------------------------------------------------------------------


     Table I.4--Impacts of Proposed Standby Mode and Off Mode Energy
 Conservation Standards on Consumers of Non-Weatherized Gas Furnaces and
                        Mobile Home Gas Furnaces
                                 [TSL 3]
------------------------------------------------------------------------
                                            Average LCC
              Product class                   savings     Simple payback
                                              (2015$)     period (years)
------------------------------------------------------------------------
Non-Weatherized Gas Furnaces............              19             7.0
Mobile Home Gas Furnaces................              19             6.9
------------------------------------------------------------------------

    Estimates of the combined impact of the proposed AFUE and standby 
mode and off mode standards on consumers are shown in Table I.5.

  Table I.5--Combined Impacts of Proposed AFUE and Standby Mode and Off
 Mode Energy Conservation Standards on Consumers of Non-Weatherized Gas
                  Furnaces and Mobile Home Gas Furnaces
------------------------------------------------------------------------
                                            Average LCC
              Product class                   savings     Simple payback
                                              (2015$)     period (years)
------------------------------------------------------------------------
Non-Weatherized Gas Furnaces............             411             7.0
Mobile Home Gas Furnaces................           1,050             1.9
------------------------------------------------------------------------

    DOE's analysis of the impacts of the proposed standards on 
consumers is described in further detail in section IV.F of this 
document.

B. Impact on Manufacturers

    The industry net present value (INPV) is the sum of industry 
discounted cash flows from the reference year of the manufacturer 
impact analysis (MIA) through the end of the analysis period (2016 to 
2051). Using a real discount rate of 6.4 percent, DOE estimates that 
the INPV for manufacturers of NWGFs and MHGFs in the case without 
amended standards is $1,104.3 million in 2015$. DOE analyzed the 
impacts of AFUE energy conservation standards and standby mode and off 
mode energy conservation standards on manufacturers independently. 
Under the proposed AFUE standards, DOE expects the impacts on INPV to 
range from -8.0 percent to 3.5 percent, or a change of -$88.0 million 
to $38.5 million. Under the proposed standby mode and off mode 
standards, DOE expects impacts on INPV to range from -0.3 percent to 
0.5 percent, or a change of -$3.4 million to $5.7 million. Industry 
conversion costs are expected to total $54.7 million as a result of the 
proposed standards.
    DOE's analysis of the impacts of the proposed standards on 
manufacturers is described in further detail in section IV.J of this 
document.

C. National Benefits and Costs \4\
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    \4\ All monetary values in this document are expressed in 2015 
dollars and, where appropriate, are discounted to 2016 unless 
explicitly stated otherwise.
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    Benefits and costs for the AFUE standards are considered separately 
from benefits and costs for the standby mode and off mode 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 
mode and off mode energy consumption.
1. AFUE Standards
    DOE's analyses indicate that the proposed AFUE energy conservation 
standards for NWGFs and MHGFs would save a significant amount of

[[Page 65724]]

energy. Relative to the case without amended standards, the lifetime 
energy savings for NWGFs and MHGFs purchased in the 30-year period that 
begins in the anticipated first year of compliance with the amended 
standards (2022-2051) amount to 2.9 quadrillion British thermal units 
(Btu), or quads.\5\ This represents a savings of 2.3 percent relative 
to the energy use of these products in the case without amended 
standards (referred to as the ``no-new-standards case'').
---------------------------------------------------------------------------

    \5\ The quantity refers to full-fuel-cycle (FFC) energy savings. 
FFC energy savings 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. For more information on the 
FFC metric, see section IV.H.1. A quad is equal to 10\15\ Btu.
---------------------------------------------------------------------------

    The cumulative net present value (NPV) of total consumer benefits 
of the proposed AFUE standards for NWGFs and MHGFs ranges from $5.6 
billion (at a 7-percent discount rate) to $21.7 billion (at a 3-percent 
discount rate). This NPV expresses the estimated total value of future 
operating-cost savings minus the estimated increased product and 
installation costs for NWGFs and MHGFs purchased in 2022-2051.
    In addition, the proposed AFUE standards for NWGFs and MHGFs are 
projected to yield significant environmental benefits. DOE estimates 
that the proposed AFUE standards would result in cumulative emission 
reductions (over the same period as for energy savings) of 143 million 
metric tons (Mt) \6\ of carbon dioxide (CO2), 687 thousand 
tons of nitrogen oxides (NOX), and 2,777 thousand tons of 
methane (CH4).\7\ Projected emissions show an increase of 
76.8 thousand tons of sulfur dioxide (SO2), 1.07 thousand 
tons of nitrous oxide (N2O), and 0.3 tons of mercury (Hg). 
The increase is due to projected switching from NWGFs to electric heat 
pumps and electric furnaces under the proposed standards. Note that the 
reduction in carbon emissions would be diminished by 18 percent if DOE 
were to utilize an alternate threshold for small furnaces of less than 
or equal to 60 kBTU/hr to set its proposed standard of 80 percent AFUE. 
See Section V.C.1 for more analysis. The cumulative reduction in 
CO2 emissions through 2030 amounts to 6.44 Mt, which is 
equivalent to the emissions resulting from the annual electricity use 
of 0.88 million homes.
---------------------------------------------------------------------------

    \6\ A metric ton is equivalent to 1.1 short tons. Results for 
emissions other than CO2 are presented in short tons.
    \7\ DOE calculated emissions reductions relative to the no-new-
standards case, which includes key assumptions in the Annual Energy 
Outlook 2015 (AEO 2015) Reference case. AEO 2015 generally 
represents current legislation and environmental regulations for 
which implementing regulations were available as of October 31, 
2014. At the time when the SNOPR was prepared, AEO 2015 was the most 
recent available AEO. DOE intends to use AEO 2016 for the final 
rule.
---------------------------------------------------------------------------

    The value of the CO2 reductions is calculated using a 
range of values per metric ton (t) of CO2 (otherwise known 
as the ``Social Cost of Carbon,'' or SCC) developed by a Federal 
interagency working group.\8\ The derivation of the SCC values is 
discussed in section IV.L. Using discount rates appropriate for each 
set of SCC values (see Table I.6), DOE estimates the present monetary 
value of the CO2 emissions reduction (not including 
CO2 equivalent emissions of other gases with global warming 
potential) is between $0.8 billion and $12.6 billion, with a value of 
$4.12 billion using the central SCC case represented by $40.6/t in 
2015.
---------------------------------------------------------------------------

    \8\ 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 July 2015) (Available at https://www.whitehouse.gov/sites/default/files/omb/inforeg/scc-tsd-final-july-2015.pdf).
---------------------------------------------------------------------------

    DOE estimates the present monetary value of the NOX 
emissions reduction to be $0.2 billion at a 7-percent discount rate and 
$0.5 billion at a 3-percent discount rate.\9\ DOE is still 
investigating appropriate valuation of changes in methane and other 
emissions, and therefore did not include any such values in the 
analysis for this SNOPR. However, the available evidence indicates that 
the value of the reduction in methane emissions from the proposed 
standards would far outweigh the cost associated with the relatively 
small increase in SO2, N2O, and Hg emissions. 
Consideration of those values would not affect the standards DOE 
proposes in this SNOPR.
---------------------------------------------------------------------------

    \9\ DOE estimated the monetized value of NOX 
emissions reductions associated with electricity savings using 
benefit per ton estimates from the Regulatory Impact Analysis for 
the Clean Power Plan Final Rule, published in August 2015 by EPA's 
Office of Air Quality Planning and Standards. Available at 
www.epa.gov/cleanpowerplan/clean-power-plan-final-rule-regulatory-impact-analysis. See section IV.L.2 for further discussion. The U.S. 
Supreme Court has stayed the rule implementing the Clean Power Plan 
until the current litigation against it concludes. Chamber of 
Commerce, et al. v. EPA, et al., Order in Pending Case, 577 U.S. __ 
(2016). However, the benefit-per-ton estimates established in the 
Regulatory Impact Analysis for the Clean Power Plan are based on 
scientific studies that remain valid irrespective of the legal 
status of the Clean Power Plan. DOE is primarily using a national 
benefit-per-ton estimate for NOX emitted from the 
Electricity Generating Unit sector based on an estimate of premature 
mortality derived from the ACS study (Krewski et al. 2009). If the 
benefit-per-ton estimates were based on the Six Cities study 
(Lepuele et al. 2011), the values would be nearly two-and-a-half 
times larger.
---------------------------------------------------------------------------

    Table I.6 summarizes the economic benefits and costs expected to 
result from the proposed AFUE standards for NWGFs and MHGFs.

   Table I.6--Summary of Economic Benefits and Costs of Proposed AFUE
   Energy Conservation Standards for Non-Weatherized Gas Furnaces and
                        Mobile Home Gas Furnaces
                                [TSL 6] *
------------------------------------------------------------------------
                                           Present value
                Category                     (billion      Discount rate
                                              2015$)         (percent)
------------------------------------------------------------------------
                                Benefits
------------------------------------------------------------------------
Consumer Operating Cost Savings.........            10.1               7
                                                    30.2               3
CO2 Reduction (using mean SCC at 5%                  0.8               5
 discount rate) **......................
CO2 Reduction (using mean SCC at 3%                  4.1               3
 discount rate) **......................
CO2 Reduction (using mean SCC at 2.5%                6.7             2.5
 discount rate) **......................
CO2 Reduction (using 95th percentile SCC            12.6               3
 at 3% discount rate) **................
NOX Reduction [dagger]..................             0.2               7
                                                     0.5               3
Total Benefits [dagger].................            14.3               7
                                                    34.8               3
------------------------------------------------------------------------

[[Page 65725]]

 
                                  Costs
------------------------------------------------------------------------
Consumer Incremental Installed Costs....             4.4               7
                                                     8.5               3
------------------------------------------------------------------------
                           Total Net Benefits
------------------------------------------------------------------------
Including CO2 and NOX Reduction                      9.9               7
 Monetized Value [dagger]...............            26.3               3
------------------------------------------------------------------------
* This table presents the costs and benefits associated with NWGFs and
  MHGFs shipped in 2022-2051. These results include benefits to
  consumers which accrue after 2051 from the products shipped in 2022-
  2051. The incremental installed costs include incremental equipment
  cost as well as installation costs. The results account for the
  incremental variable and fixed costs incurred by manufacturers due to
  the proposed standards, some of which may be incurred in preparation
  for the rule. The CO2 reduction benefits are global benefits due to
  actions that occur domestically.
** 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 integrated assessment models, at discount rates of 5 percent,
  3 percent, and 2.5 percent. For example, for 2015 emissions, these
  values are $12.4/t, $40.6/t, and $63.2/t, in 2015$, respectively. The
  fourth set ($118/t in 2015$ for 2015 emissions), which represents the
  95th percentile of the SCC distribution calculated using 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 SCC values are emission year specific. See section
  IV.L.1 for more details.
[dagger] DOE estimated the monetized value of NOX emissions reductions
  associated with electricity savings using benefit per ton estimates
  from the Regulatory Impact Analysis for the Clean Power Plan Final
  Rule, published in August 2015 by EPA's Office of Air Quality Planning
  and Standards. (Available at www.epa.gov/cleanpowerplan/clean-power-plan-final-rule-regulatory-impact-analysis.) See section IV.L.2 for
  further discussion. DOE is primarily using a national benefit-per-ton
  estimate for NOX emitted from the Electricity Generating Unit sector
  based on an estimate of premature mortality derived from the ACS study
  (Krewski et al. 2009). If the benefit-per-ton estimates were based on
  the Six Cities study (Lepuele et al. 2011), the values would be nearly
  two-and-a-half times larger.
[dagger] Total Benefits for both the 3 percent and 7 percent cases are
  presented using only the average SCC with 3-percent discount rate
  ($40.6/t in 2015).

    The benefits and costs of the proposed AFUE standards, for NWGFs 
and MHGFs sold in 2022-2051, can also be expressed in terms of 
annualized values. The monetary values for the total annualized net 
benefits are: (1) The value of the benefits in reduced consumer 
operating costs, minus (2) the increase in product purchase prices and 
installation costs, plus (3) the value of the benefits of 
CO2 and NOX emission reductions, all 
annualized.\10\
---------------------------------------------------------------------------

    \10\ To convert the time-series of costs and benefits into 
annualized values, DOE calculated a present value in 2016, 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 2016. 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.6. 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.
---------------------------------------------------------------------------

    The national operating cost savings are domestic private U.S. 
consumer monetary savings that occur as a result of purchasing the 
covered products. The national operating cost savings are measured for 
the lifetime of NWGFs and MHGFs shipped in 2022-2051 and include 
savings that accrue from such products after 2051. The benefits 
associated with reduced carbon emissions achieved as a result of the 
proposed standards are also calculated based on the lifetime of NWGFs 
and MHGFs shipped in 2022-2051. Because CO2 emissions have a 
very long residence time in the atmosphere, the SCC values for 
emissions in future years reflect CO2-emissions impacts that 
continue through 2300. In addition, the CO2 reduction is a 
benefit that accrues globally. As discussed in section IV.L.1, DOE 
maintains that consideration of global benefits is appropriate because 
of the global nature of the climate change problem.
    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 has a 
value of $40.6/metric ton in 2015),\11\ the estimated cost of the NWGFs 
and MHGFs standards proposed in this rule is $500 million per year in 
increased equipment costs, while the estimated annual benefits are 
$1,138 million in reduced equipment operating costs, $243 million in 
CO2 reductions, and $18.6 million in reduced NOX 
emissions. In this case, the net benefit amounts to $900 million per 
year. Using a 3-percent discount rate for all benefits and costs and 
the average SCC series that has a value of $40.6/t in 2015, the 
estimated cost of the proposed NWGFs and MHGFs AFUE standards is $504 
million per year in increased equipment costs, while the estimated 
annual benefits are $1,785 million in reduced operating costs, $243 
million in CO2 reductions, and $29.3 million in reduced 
NOX emissions. In this case, the net benefit amounts to 
$1,553 million per year.
---------------------------------------------------------------------------

    \11\ DOE used a 3-percent discount rate because the SCC values 
for the series used in the calculation were derived using a 3-
percent discount rate (see section IV.L).

[[Page 65726]]



  Table I-7--Annualized Benefits and Costs of Proposed AFUE Energy Conservation Standards for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces
                                                                        [TSL 6] *
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                              Discount rate                Primary estimate        Low-net-benefits estimate  High-net-benefits estimate
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      (million 2015$/year)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings...  7%..............................  1,138.....................  1,007.....................  1,353.
                                    3%..............................  1,785.....................  1,548.....................  2,156.
CO2 Reduction (using mean SCC at    5%..............................  69.7......................  62.2......................  80.8.
 5% discount rate) **.
CO2 Reduction (using mean SCC at    3%..............................  243.......................  217.......................  283.
 3% discount rate) **.
CO2 Reduction (using mean SCC at    2.5%............................  360.......................  320.......................  418.
 2.5% discount rate) **.
CO2 Reduction (using 95th           3%..............................  742.......................  661.......................  862.
 percentile SCC at 3% discount
 rate ) **.
NOX Reduction [dagger]............  7%..............................  18.6......................  16.8......................  47.9.
                                    3%..............................  29.3......................  26.3......................  76.8.
Total Benefits [dagger]...........  7% plus CO2 range...............  1,226 to 1,899............  1,086 to 1,684............  1,482 to 2,263.
                                    7%..............................  1,400.....................  1,240.....................  1,684.
                                    3% plus CO2 range...............  1,884 to 2,557............  1,636 to 2,235............  2,315 to 3,096.
                                    3%..............................  2,058.....................  1,791.....................  2,517.
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Consumer Incremental Product Costs  7%..............................  500.......................  554.......................  452.
                                    3%..............................  504.......................  559.......................  460.
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      Net Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total [dagger]....................  7% plus CO2 range...............  726 to 1,399..............  531 to 1,130..............  1,030 to 1,811.
                                    7%..............................  900.......................  686.......................  1,232.
                                    3% plus CO2 range...............  1,380 to 2,052............  1,077 to 1,676............  1,855 to 2,637.
                                    3%..............................  1,553.....................  1,232.....................  2,057.
--------------------------------------------------------------------------------------------------------------------------------------------------------
* This table presents the annualized costs and benefits associated with NWGFs and MHGFs shipped in 2022-2051. These results include benefits to
  consumers which accrue after 2051 from the products shipped in 2022-2051.The incremental installed costs include incremental equipment cost as well as
  installation costs. The results account for the incremental variable and fixed costs incurred by manufacturers due to the proposed standards, some of
  which may be incurred in preparation for the rule. The CO2 reduction benefits are global benefits due to actions that occur domestically. The Primary,
  Low-Net-Benefits, and High-Net-Benefits Estimates utilize projections of energy prices from the AEO 2015 Reference case, Low Economic Growth case, and
  High Economic Growth case, respectively. In addition, incremental product costs reflect a medium decline rate in the Primary Estimate, a constant
  price trend in the Low Net Benefits Estimate, and a high decline rate in the High Net Benefits Estimate. The methods used to derive projected price
  trends are explained in section IV.L.1. Note that the Benefits and Costs may not sum to the Net Benefits due to rounding.
** The CO2 reduction benefits are calculated using four different sets of SCC values. The first three use the average SCC calculated using 5 percent, 3
  percent, and 2.5 percent discount rates, respectively. The fourth represents the 95th percentile of the SCC distribution calculated using a 3-percent
  discount rate. The SCC values are emission year specific. See section IV.L.1 for more details.
[dagger] DOE estimated the monetized value of NOX emissions reductions associated with electricity savings using benefit per ton estimates from the
  Regulatory Impact Analysis for the Clean Power Plan Final Rule, published in August 2015 by EPA's Office of Air Quality Planning and Standards.
  (Available at www.epa.gov/cleanpowerplan/clean-power-plan-final-rule-regulatory-impact-analysis.) See section IV.L.2. for further discussion. For the
  Primary Estimate and Low-Net-Benefits Estimate, DOE used national benefit-per-ton estimates for NOX emitted from the Electric Generating Unit sector
  based on an estimate of premature mortality derived from the ACS study (Krewski et al. 2009). For the High-Net-Benefits Estimate, the benefit-per-ton
  estimates were based on the Six Cities study (Lepuele et al. 2011); these are nearly two-and-a-half times larger than those from the ACS study.
[dagger] Total Benefits for both the 3 percent and 7 percent cases are presented using only the average SCC with 3-percent discount rate. 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.

2. Standby Mode and Off Mode Standards
    For the proposed standby mode and off mode standards, relative to 
the case without new standards, the lifetime energy savings for NWGFs 
and MHGFs purchased in the 30-year period that begins in the 
anticipated first year of compliance with the new standards (2022-2051) 
amount to 0.28 quads.\12\ This represents a savings of 16 percent 
relative to the energy use of these products in standby mode and off 
mode in the case without new standards (referred to as the ``no-new-
standards case'').
---------------------------------------------------------------------------

    \12\ The quantity refers to full-fuel-cycle (FFC) energy 
savings.
---------------------------------------------------------------------------

    The cumulative net present value (NPV) of total consumer benefits 
of the proposed standby mode and off mode standards for NWGFs and MHGFs 
ranges from $1.31 billion (at a 7-percent discount rate) to $3.96 
billion (at a 3-percent discount rate). This NPV expresses the 
estimated total value of future operating-cost savings minus the 
estimated increased product costs for NWGFs and MHGFs purchased in 
2022-2051.
    In addition, the proposed standby mode and off mode standards for 
NWGFs and MHGFs are projected to yield significant environmental 
benefits. DOE estimates that the proposed standby mode and off mode 
standards would result in cumulative emission reductions (over the same 
period as for energy savings) of 16.3 Mt of CO2, 9.17 
thousand tons of SO2, 30.0 thousand tons of NOX, 
72.3 thousand tons of CH4, 0.192 thousand tons of 
N2O, and 0.034 tons of Hg. The cumulative reduction in

[[Page 65727]]

CO2 emissions through 2030 amounts to 1.23 Mt, which is 
equivalent to the emissions resulting from the annual electricity use 
of 0.169 million homes.
    Using discount rates appropriate for each set of SCC values (see 
Table I.6), DOE estimates the present monetary value of the 
CO2 emissions reduction (not including CO2-
equivalent emissions of other gases with global warming potential) is 
between $0.098 billion and $1.454 billion, with a value of $0.477 
billion using the central SCC case represented by $40.6/t in 2015. DOE 
also estimates the present monetary value of the NOX 
emissions reduction to be $0.02 billion at a 7-percent discount rate 
and $0.05 billion at a 3-percent discount rate.
    Table I.8 summarizes the economic benefits and costs expected to 
result from the proposed standby mode and off mode standards for NWGFs 
and MHGFs.

  Table I.8--Summary of Economic Benefits and Costs of Proposed Standby
   Mode and Off Mode Energy Conservation Standards for NWGFs and MHGFs
                                [TSL 3] *
------------------------------------------------------------------------
                                            Present value
                 Category                     (billion     Discount rate
                                               2015$)        (percent)
------------------------------------------------------------------------
                                Benefits
------------------------------------------------------------------------
Consumer Operating Cost Savings..........            1.7            7
                                                     4.7            3
CO2 Reduction (using mean SCC at 5%                  0.1            5
 discount rate) **.......................
CO2 Reduction (using mean SCC at 3%                  0.5            3
 discount rate) **.......................
CO2 Reduction (using mean SCC at 2.5%                0.8            2.5
 discount rate) **.......................
CO2 Reduction (using 95th percentile SCC             1.5            3
 at 3% discount rate) **.................
NOX Reduction [dagger]...................            0.02           7
                                                     0.05           3
Total Benefits [dagger]..................            2.2            7
                                                     5.2            3
------------------------------------------------------------------------
                                  Costs
------------------------------------------------------------------------
Consumer Incremental Installed Costs.....            0.4            7
                                                     0.7            3
------------------------------------------------------------------------
                           Total Net Benefits
------------------------------------------------------------------------
Including CO2 and NOX Reduction Monetized            1.8            7
 Value [dagger]..........................
                                                     4.5            3
------------------------------------------------------------------------
* This table presents the costs and benefits associated with NWGFs and
  MHGFs shipped in 2022-2051. These results include benefits to
  consumers which accrue after 2051 from the products shipped in 2022-
  2051. The incremental installed costs include incremental equipment
  cost as well as installation costs. The results account for the
  incremental variable and fixed costs incurred by manufacturers due to
  the proposed standards, some of which may be incurred in preparation
  for the rule. The CO2 reduction benefits are global benefits due to
  actions that occur domestically.
** 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 integrated assessment models, at discount rates of 5 percent,
  3 percent, and 2.5 percent. For example, for 2015 emissions, these
  values are $12.4/t, $40.6/t, and $63.2/t, in 2015$, respectively. The
  fourth set ($118/t in 2015$ for 2015 emissions), which represents the
  95th percentile of the SCC distribution calculated using 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 SCC values are emission year specific. See section
  IV.L.1 for more details.
[dagger] DOE estimated the monetized value of NOX emissions reductions
  associated with electricity savings using benefit per ton estimates
  from the ``Regulatory Impact Analysis for the Clean Power Plan Final
  Rule,'' published in August 2015 by EPA's Office of Air Quality
  Planning and Standards. (Available at www.epa.gov/cleanpowerplan/clean-power-plan-final-rule-regulatory-impact-analysis.) See section IV.L.2
  for further discussion. DOE is primarily using a national benefit-per-
  ton estimate for NOX emitted from the Electricity Generating Unit
  sector based on an estimate of premature mortality derived from the
  ACS study (Krewski et al. 2009). If the benefit-per-ton estimates were
  based on the Six Cities study (Lepuele et al. 2011), the values would
  be nearly two-and-a-half times larger.
[dagger] Total Benefits for both the 3 percent and 7 percent cases are
  presented using only the average SCC with 3-percent discount rate.

    The benefits and costs of the proposed standby mode and off mode 
standards, for NWGFs and MHGFs sold in 2022-2051, can also be expressed 
in terms of annualized values. The monetary values for the total 
annualized net benefits are: (1) The national economic value of the 
benefits in reduced consumer operating costs, minus (2) the increase in 
product purchase prices and installation costs, plus (3) the value of 
the benefits of CO2 and NOX emission reductions, 
all annualized.\13\
---------------------------------------------------------------------------

    \13\ To convert the time-series of costs and benefits into 
annualized values, DOE calculated a present value in 2016, 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 2016. 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.8. 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.
---------------------------------------------------------------------------

    Estimates of annualized benefits and costs of the proposed 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 has a value of $40.6/metric ton in 2015), the estimated cost of 
the NWGFs and MHGFs standards proposed in this rule is $40.7 million 
per year in increased equipment costs, while the estimated annual 
benefits are $188 million in reduced equipment operating costs, $28.2 
million in CO2 reductions, and $1.79 million in reduced 
NOX emissions. In this case, the net benefit amounts to $178 
million per year. Using a 3-percent discount rate for all benefits and 
costs and the average SCC series

[[Page 65728]]

that has a value of $40.6/metric ton in 2015, the estimated cost of the 
proposed NWGFs and MHGFs standby mode and off mode standards is $41.4 
million per year in increased equipment costs, while the estimated 
annual benefits are $276 million in reduced operating costs, $28.2 
million in CO2 reductions, and $2.77 million in reduced 
NOX emissions. In this case, the net benefit amounts to $265 
million per year.

Table I.9--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] *
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                              Discount rate                Primary estimate        Low-net-benefits estimate  High-net-benefits estimate
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      (million 2015$/year)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings...  7%..............................  188.......................  169.......................  219
                                    3%..............................  276.......................  246.......................  329
--------------------------------------------------------------------------------------------------------------------------------------------------------
CO2 Reduction (using mean SCC at    5%..............................  8.2.......................  7.4.......................  9.2
 5% discount rate) **.
CO2 Reduction (using mean SCC at    3%..............................  28.2......................  25.5......................  31.8
 3% discount rate) **.
CO2 Reduction (using mean SCC at    2.5%............................  41.6......................  37.6......................  46.9
 2.5% discount rate) **.
CO2 Reduction (using 95th           3%..............................  86.0......................  77.8......................  96.9
 percentile SCC at 3% discount
 rate ) **.
NOX Reduction [dagger]............  7%..............................  1.8.......................  1.6.......................  4.5
                                    3%..............................  2.8.......................  2.5.......................  7.1
Total Benefits [dagger]...........  7% plus CO2 range...............  198 to 276................  178 to 249................  233 to 321
                                    7%..............................  218.......................  197.......................  255
                                    3% plus CO2 range...............  287 to 365................  256 to 326................  345 to 433
                                    3%..............................  307.......................  274.......................  368
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Consumer Incremental Product Costs  7%..............................  40.7......................  37.2......................  45.4
                                    3%..............................  41.4......................  37.5......................  46.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      Net Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total [dagger]....................  7% plus CO2 range...............  157 to 235................  141 to 212................  187 to 275
                                    7%..............................  178.......................  159.......................  210
                                    3% plus CO2 range...............  245 to 323................  218 to 288................  298 to 386
                                    3%..............................  265.......................  236.......................  321
--------------------------------------------------------------------------------------------------------------------------------------------------------
* This table presents the annualized costs and benefits associated with NWGFs and MHGFs shipped in 2022-2051. These results include benefits to
  consumers which accrue after 2051 from the products shipped in 2022-2051.The incremental installed costs include incremental equipment cost as well as
  installation costs. The results account for the incremental variable and fixed costs incurred by manufacturers due to the proposed standards, some of
  which may be incurred in preparation for the rule. The CO2 reduction benefits are global benefits due to actions that occur domestically. The Primary,
  Low-Net-Benefits, and High-Net-Benefits Estimates utilize projections of energy prices from the AEO 2015 Reference case, Low Economic Growth case, and
  High Economic Growth case, respectively. In addition, incremental product costs reflect a constant price trend for each of the estimates. Note that
  the Benefits and Costs may not sum to the Net Benefits due to rounding.
** The CO2 reduction benefits are calculated using 4 different sets of SCC values. The first three use the average SCC calculated using 5-percent, 3-
  percent, and 2.5-percent discount rates, respectively. The fourth represents the 95th percentile of the SCC distribution calculated using a 3-percent
  discount rate. The SCC values are emission year specific. See section IV.L.1 for more details.
[dagger] DOE estimated the monetized value of NOX emissions reductions associated with electricity savings using benefit per ton estimates from the
  Regulatory Impact Analysis for the Clean Power Plan Final Rule, published in August 2015 by EPA's Office of Air Quality Planning and Standards.
  (Available at www.epa.gov/cleanpowerplan/clean-power-plan-final-rule-regulatory-impact-analysis.) See section IV.L.2 for further discussion. For the
  Primary Estimate and Low-Net-Benefits Estimate, DOE used national benefit-per-ton estimates for NOX emitted from the Electric Generating Unit sector
  based on an estimate of premature mortality derived from the ACS study (Krewski et al., 2009). For the High-Net-Benefits Estimate, the benefit-per-ton
  estimates were based on the Six Cities study (Lepuele et al., 2011); these are nearly two-and-a-half times larger than those from the ACS study.
[dagger][dagger] Total Benefits for both the 3-percent and 7-percent cases are presented using only the average SCC with 3-percent discount rate. In the
  rows labeled ``7 percent plus CO2 range'' and ``3 percent 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.

3. Combined Results for AFUE Standards and Standby Mode and Off Mode 
Standards
    DOE also added the annualized benefits and costs from the 
individual annualized tables to provide a combined benefit and cost 
estimate of the proposed AFUE and standby mode and off mode standards, 
as shown in Table I.10.\14\ 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 has a value of 
$40.6/metric ton in 2015), the estimated cost of the NWGF and MHGF 
standards proposed in this rule is $541 million per year in increased 
equipment costs, while the estimated annual benefits are $1,326 million 
in reduced equipment operating costs, $272 million in CO2 
reductions, and $20 million in reduced NOX emissions. In 
this case, the net benefit amounts to $1,077 million per year. Using a 
3-percent discount rate for all

[[Page 65729]]

benefits and costs and the average SCC series that has a value of 
$40.6/metric ton in 2015, the estimated cost of the proposed NWGF and 
MHGF standards is $546 million per year in increased equipment costs, 
while the estimated annual benefits are $2,061 million in reduced 
operating costs, $272 million in CO2 reductions, and $32 
million in reduced NOX emissions. In this case, the net 
benefit amounts to $1,819 million per year.
---------------------------------------------------------------------------

    \14\ To obtain the combined results, DOE added the results for 
the AFUE standards in Table I.7 with the results for the standby 
mode and off mode standards in Table I.9.

     Table I.10--Annualized Benefits and Costs of Proposed AFUE (TSL 6) and Standby Mode and Off Mode (TSL 3) Energy Conservation Standards for Non-
                                                 Weatherized Gas Furnaces and Mobile Home Gas Furnaces *
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                              Discount rate                Primary estimate        Low-net-benefits estimate  High-net-benefits estimate
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      (million 2015$/year)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings...  7%..............................  1326......................  1176......................  1572
                                    3%..............................  2061......................  1794......................  2486
CO2 Reduction (using mean SCC at    5%..............................  78........................  70........................  90
 5% discount rate) **.
CO2 Reduction (using mean SCC at    3%..............................  272.......................  242.......................  315
 3% discount rate) **.
CO2 Reduction (using mean SCC at    2.5%............................  401.......................  358.......................  465
 2.5% discount rate) **.
CO2 Reduction (using 95th           3%..............................  828.......................  739.......................  959
 percentile SCC at 3% discount
 rate ) **.
NOX Reduction [dagger]............  7%..............................  20........................  18........................  52
                                    3%..............................  32........................  29........................  84
Total Benefits [dagger]...........  7% plus CO2 range...............  1424 to 2175..............  1264 to 1933..............  1715 to 2584
                                    7%..............................  1618......................  1437......................  1939
                                    3% plus CO2 range...............  2171 to 2921..............  1892 to 2561..............  2660 to 3529
                                    3%..............................  2364......................  2065......................  2884
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Consumer Incremental Product Costs  7%..............................  541.......................  592.......................  497
                                    3%..............................  546.......................  597.......................  506
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      Net Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total [dagger]....................  7% plus CO2 range...............  884 to 1634...............  673 to 1342...............  1217 to 2086
                                    7%..............................  1077......................  845.......................  1442
                                    3% plus CO2 range...............  1625 to 2375..............  1295 to 1964..............  2154 to 3023
                                    3%..............................  1819......................  1468......................  2378
--------------------------------------------------------------------------------------------------------------------------------------------------------
* This table presents the annualized costs and benefits associated with NWGFs and MHGFs shipped in 2022-2051. These results include benefits to
  consumers which accrue after 2051 from the products shipped in 2022-2051. The results account for the incremental variable and fixed costs incurred by
  manufacturers due to the proposed standards, some of which may be incurred in preparation for the rule. The CO2 reduction benefits are global benefits
  due to actions that occur domestically. The Primary, Low-Net-Benefits, and High-Net-Benefits Estimates utilize projections of energy prices from the
  AEO 2015 Reference case, Low-Economic-Growth case, and High-Economic-Growth case, respectively. In addition, incremental product costs for AFUE
  standards reflect a medium decline rate in the Primary Estimate, a constant price trend in the Low-Net-Benefits Estimate, and a high decline rate in
  the High-Net-Benefits Estimate. The methods used to derive projected price trends are explained in section IV.F.1. Note that the Benefits and Costs
  may not sum to the Net Benefits due to rounding.
** The CO2 reduction benefits are calculated using four different sets of SCC values. The first three use the average SCC calculated using 5-percent, 3-
  percent, and 2.5-percent discount rates, respectively. The fourth represents the 95th percentile of the SCC distribution calculated using a 3-percent
  discount rate. The SCC values are emission year specific. See section IV.L.1 for more details.
[dagger] DOE estimated the monetized value of NOX emissions reductions associated with electricity savings using benefit per ton estimates from the
  Regulatory Impact Analysis for the Clean Power Plan Final Rule, published in August 2015 by EPA's Office of Air Quality Planning and Standards.
  (Available at www.epa.gov/cleanpowerplan/clean-power-plan-final-rule-regulatory-impact-analysis.) See section IV.L.2 for further discussion. For the
  Primary Estimate and Low-Net-Benefits Estimate, DOE used national benefit-per-ton estimates for NOX emitted from the Electric Generating Unit sector
  based on an estimate of premature mortality derived from the ACS study (Krewski et al. 2009). For the High-Net-Benefits Estimate, the benefit-per-ton
  estimates were based on the Six Cities study (Lepuele et al. 2011); these are nearly two-and-a-half times larger than those from the ACS study.
[dagger] Total Benefits for both the 3-percent and 7-percent cases are presented using only the average SCC with 3-percent discount rate. 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's analysis of the national impacts of the proposed standards is 
described in further detail in sections IV.H, IV.K, and IV.L of this 
document.

D. Conclusion

    DOE has tentatively concluded that the proposed AFUE standards and 
standby mode and off mode standards represent the maximum improvement 
in energy efficiency that DOE has determined 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 
potential standards, and is still considering them in this rulemaking. 
However, DOE has tentatively concluded that the potential burdens of 
the more-stringent energy

[[Page 65730]]

efficiency levels would outweigh the projected benefits. DOE is also 
seeking comment on an option that considers an alternate capacity size 
for the small furnace threshold for the 80 percent AFUE standard (See 
section V.C.1), which reduces the fuel switching impacts relative to 
the proposed option (see Table V.3), and has a significantly lower 
fraction of consumers who would be negatively impacted (see Table 
V.41). Based on consideration of the public comments DOE receives in 
response to this SNOPR and related information collected and analyzed 
during the course of this rulemaking effort, DOE may adopt energy 
efficiency levels presented in this notice 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 this supplemental proposal, as well as some of the relevant 
historical background related to the establishment of amended and new 
standards for residential NWGFs and MHGFs.

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 
includes 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 future 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 its already 
established energy conservation standards for a covered product no 
later than six 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) the establishment of 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 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 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.
    DOE must follow specific statutory criteria for prescribing new or 
amended standards for covered products, including residential furnaces. 
Any new or amended standard for a covered product must be designed to 
achieve the maximum improvement in energy efficiency that the Secretary 
of Energy determines 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 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 statutory 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))

    Further, EPCA, as amended, 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))
    EPCA, as amended, 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 the evidence that the standard is likely to result in 
the unavailability in the United States in 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))
    Additionally, EPCA 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 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 which 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 capacity or another performance-
related feature justifies a different standard for a group of products, 
DOE must consider

[[Page 65731]]

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 the 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 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 established a minimum AFUE of 75-percent for mobile home 
furnaces. For all other furnaces, the original standards generally 
established a minimum AFUE of 78-percent. However, Congress recognized 
the potential need for a separate standard based on the capacity of a 
furnace and directed DOE to undertake a rulemaking to establish a 
standard for ``small'' gas furnaces (those having an input of less than 
45,000 Btu per hour). (42 U.S.C. 6295(f)(1)-(2)) DOE initially 
established a standard for small furnaces at the same level as furnaces 
generally (i.e., a minimum AFUE of 78-percent). (10 CFR 
430.32(e)(1)(i); 54 FR 47916 (Nov. 17, 1989))
    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 to 80-percent AFUE for non-weatherized gas furnaces (NWGF), 
to 81-percent AFUE for weatherized gas furnaces, to 80-percent AFUE for 
mobile home gas furnaces (MHGF), and to 82-percent AFUE for non-
weatherized oil-fired furnaces. Id. at 65169. Based on market 
assessment and the standard levels at issue, the October 2006 NOPR 
proposed and the November 2007 final rule established standards without 
regard to the certified input capacity of a furnace. 71 FR 59204, 59214 
(Oct. 6, 2006); 72 FR 65136, 65169 (Nov. 19, 2007). 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 (June 2011 DFR; 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 residential furnaces.
    The June 2011 DFR 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., NWGFs, MHGFs, 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 DFR 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 DFR would have superseded those 
standards and compliance dates promulgated by the November 2007 final 
rule for NWGFs, MHGFs, and non-weatherized oil furnaces. Similarly, the 
amended compliance date for weatherized gas furnaces in the June 2011 
DFR superseded the compliance date in the November 2007 final rule.
    After publication of the October 2011 notice, the American Public 
Gas Association (APGA) sued DOE \15\ in the United States Court of 
Appeals for the District of Columbia Circuit (D.C. Circuit) to 
invalidate the rule as it pertained to NWGFs (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

[[Page 65732]]

for NWGFs and MHGFs 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 DFR went into effect as stated in that final rule. The standards 
established by the June 2011 DFR for the NWGFs and MHGFs did not go 
into effect, and thus, compliance with the standards established in the 
November 2007 final rule for these products was required 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 remain in effect. The standards for all residential 
furnaces, including the two product classes being analyzed in this 
SNOPR, are set forth in DOE's regulations at 10 CFR 430.32(e)(1)(ii). 
Table II.1 below shows the current standards for product classes that 
have been previously amended (either by the November 2007 final rule or 
June 2011 DFR) and the existing standards for the product classes where 
the AFUE standard has not been amended.
---------------------------------------------------------------------------

    \15\ After APGA filed its petition for review on December 23, 
2011, various entities subsequently intervened.

    Table II.1--Federal Energy Conservation Standards for Residential
                                Furnaces
------------------------------------------------------------------------
                                          Minimum annual
                                               fuel
              Product class                 utilization     Compliance
                                            efficiency         date
                                                (%)
------------------------------------------------------------------------
Non-weatherized Gas *...................              80      11/19/2015
Mobile Home Gas *.......................              80      11/19/2015
Weatherized Gas.........................              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 and mobile home gas 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 mobile home oil-fired furnaces, weatherized oil-fired furnaces, and 
electric furnaces.
    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). The standards amended in the November 
2007 Rule 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. As previously noted, 
based on the market analysis for the November 2007 final rule and the 
standards established under that rule, the November 2007 final rule 
eliminated the distinction between furnaces based on their certified 
input capacity, (i.e., the standards applicable to ``small'' furnaces 
were established at the same level and as part of their appropriate 
class of furnace generally).
    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 final rule did not reflect the 
``maximum improvement in energy efficiency'' that ``is technologically 
feasible and economically justified'' 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 final 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 in 
that subsequent rulemaking action 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. 
DOE notes that the Second Circuit's order did not vacate the energy 
conservation standards set forth in the November 2007 final rule, and 
during the remand, they went into effect as originally scheduled.
    As described previously in section II.B, 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 NWGFs, MHGFs, 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

[[Page 65733]]

off mode standards for NWGFs, non-weatherized oil furnaces, and 
electric furnaces. DOE confirmed the standards and compliance dates 
promulgated in the June 2011 DFR 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 NWGFs. 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 intervenors in the case, in which DOE agreed 
to a partial vacatur and remand of the NWGFs and MHGFs portions of the 
June 2011 DFR 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 NWGFs and MHGFs) and remanded to 
the agency for further rulemaking.
    As part of the settlement, DOE agreed to use best efforts to issue 
a notice of proposed 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 
forwent the typical earlier rulemaking stages (e.g., Framework 
Document, preliminary analysis) and instead published a NOPR on March 
12, 2015 (March 2015 NOPR). 80 FR 13120. DOE concluded that there was a 
sufficient recent exchange of information between interested parties 
and DOE regarding the energy 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) and 5 
U.S.C. 553(b) and (c), DOE is only required to publish a notice of 
proposed rulemaking and accept public comments before amending energy 
conservation standards in a final rule (i.e., DOE is not required to 
conduct any earlier rulemaking stages).
    In the March 2015 NOPR, DOE proposed adopting a national standard 
of 92-percent AFUE for all NWGFs and MHGFs. 80 FR 13120, 13198 (March 
12, 2015). In response, while some stakeholders supported the national 
92-percent AFUE standard, others opposed the proposed standards and 
encouraged DOE to withdraw the March 2015 NOPR. (See section III.F.1 
for comments providing specific reasons for opposing or supporting the 
proposed standards are summarized in that section.)
    Multiple parties suggested that DOE should create a separate 
product class for furnaces based on input capacity and set lower 
standards for the ``small furnaces'' product class in order to mitigate 
some of the negative impacts of the proposed standards. Among other 
reasons, commenters suggested that such an approach would reduce the 
number of low-income consumers switching to electric heat due to higher 
installation costs, because those consumers typically have smaller 
homes in which a furnace with a lower input capacity would be installed 
and, therefore, would not be impacted if a condensing standard were 
adopted only for higher-input-capacity furnaces. (These comments are 
discussed further in section IV.I.A.) To explore the potential impacts 
of such an approach, DOE published a notice of data availability (NODA) 
in the Federal Register on September 14, 2015 (September 2015 NODA). 80 
FR 55038. The September 2015 NODA contained analysis that considered 
thresholds for defining the small furnace product class from 45 kBtu/h 
to 65 kBtu/h certified input capacity and maintaining a non-condensing 
80-percent AFUE standard for that product class, while increasing the 
standard to a condensing level (i.e., either 90-percent, 92-percent, 
95-percent, or 98-percent AFUE) for large furnaces. Id. at 55042. The 
results indicated that life-cycle cost savings increased and the share 
of consumers with net costs decreased as a result of an 80-percent AFUE 
standard for the small furnace product class. Id. at 55042-44. It also 
showed that national energy savings increased because fewer consumers 
switched to more energy-intensive electric heat. Id. at 55044.
    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)) To this end, DOE 
published a NOPR for the subject furnaces on March 12, 2015, and this 
SNOPR is a continuation of that rulemaking in light of comments and 
other information received at earlier stages of the process. Once 
completed, 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 is considering standby mode and off mode 
energy use as part of this rulemaking for residential furnaces. In the 
March 2015 NOPR, DOE proposed a maximum energy use of 8.5 watts in both 
standby and off mode for NWGF and MHGF. 80 FR 13120, 13198 (March 12, 
2015). The changes in this SNOPR apply only to the active mode AFUE 
standards, and therefore, the proposed standby mode and off mode 
standards set forth in the March 2015 NOPR remain part of this SNOPR.
    DOE received a number of written comments from interested parties 
in response to the March 2015 NOPR and September 2015 NODA. DOE 
considered these comments, as well as comments from the March 2015 NOPR 
public meeting, in preparing this SNOPR. The commenters are summarized 
in Table II.2. Relevant comments, and DOE's responses, are provided in 
the appropriate sections of this notice.\16\
---------------------------------------------------------------------------

    \16\ To the extent interested parties filed requests under the 
Freedom of Information Act (FOIA) that related to this rulemaking, 
such requests were addressed through DOE's FOIA process under 10 CFR 
part 1004.

[[Page 65734]]



 Table II.2--Interested Parties Providing Written Comment on the NOPR and NODA for Non-Weatherized Gas Furnaces
                                          and Mobile Home Gas Furnaces
----------------------------------------------------------------------------------------------------------------
                  Name                                         Acronyms                              Type
----------------------------------------------------------------------------------------------------------------
A Ware Productions.....................  A Ware.............................................  CR
African American Environmentalist        AAEA...............................................  CR
 Association.
American Gas Association and American    AGA and APGA.......................................  U
 Public Gas Association.
American Gas Association, American       AGA, APGA, and GTI.................................  U
 Public Gas Association, and Gas
 Technology Institute.
AGL Resources..........................  ...................................................  U
Air Conditioning Contractors of America  ACCA...............................................  TA
Air-Conditioning, Heating, and           AHRI...............................................  TA
 Refrigeration Institute.
Alliance to Save Energy................  ASE................................................  EA
Allied Air.............................  ...................................................  M
American Association of Blacks in        AABE...............................................  CR
 Energy.
American Council for an Energy-          ACEEE..............................................  EA
 Efficient Economy.
American Council for an Energy-          Joint Advocates....................................  EA
 Efficient Economy, Appliance Standards
 Awareness Project, and Alliance to
 Save Energy.
American Energy Alliance...............  AEA................................................  EA
American Gas Association...............  AGA................................................  U
American Public Gas Association........  APGA...............................................  U
American Public Power Association......  APPA...............................................  U
Anonymous..............................  ...................................................  I
Appliance Standards Awareness Project..  ASAP...............................................  EA
Austell Natural Gas System.............  Austell............................................  U
Borough of Chambersburg, PA............  Chambersburg.......................................  G
California Energy Commission...........  CEC................................................  G
Cato Institute.........................  ...................................................  PP
CenterPoint Energy.....................  ...................................................  U
City of Adairsville, Georgia...........  Adairsville........................................  G
City of Cairo, Georgia.................  Cairo..............................................  G
City of Camilla, Georgia...............  Camilla............................................  G
City of Cartersville, Georgia..........  Cartersville.......................................  G
City of Commerce, Georgia..............  Commerce...........................................  G
City of Covington, Georgia.............  Covington..........................................  G
City of Dublin, Georgia................  Dublin.............................................  G
City of Lawrenceville, Georgia.........  Lawrenceville......................................  G
City of Louisville, Georgia............  Louisville.........................................  G
City of Monroe, Georgia................  Monroe.............................................  G
City of Moultrie.......................  Moultrie...........................................  G
City of Sugar Hill, Georgia............  Sugar Hill.........................................  G
City of Sylvania, Georgia..............  Sylvania...........................................  G
City of Thomasville, Georgia...........  Thomasville........................................  G
City of Tifton, Georgia................  Tifton.............................................  G
City of Toccoa/Toccoa Natural Gas......  Toccoa.............................................  G/U
Clearwater Gas System..................  CGS................................................  U
Members of the U.S. Congress *.........  Joint Congress Members.............................  G
Gregory W. Meeks (Member of Congress)..  Meeks..............................................  G
Sanford D. Bishop, Jr. (Member of        Bishop.............................................  G
 Congress).
Donald M. Payne, Jr. (Member of          Payne..............................................  G
 Congress).
Consumer Federation of America,          Joint Consumer Commenters..........................  CR
 National Consumer Law Center,
 Massachusetts Union of Public Housing
 Tenants, and Texas Ratepayers'
 Organization to Save Energy.
Contractor Advisors....................  ...................................................  C
Arthur Corbin..........................  Corbin.............................................  I
Jim Darling............................  Darling............................................  I
DC Jobs or Else........................  DC Jobs or Else....................................  CR
Earthjustice...........................  ...................................................  EA
Edison Electric Institute..............  EEI................................................  U
Energy Association of Pennsylvania.....  ...................................................  U
Environmental Defense Fund, Institute    Joint Advocates....................................  EA
 for Policy Integrity at NYU School of
 Law, Natural Resources Defense
 Council, and Union of Concerned
 Scientists.
Fitzgerald Utilities...................  Fitzgerald.........................................  U
Catherine Fletcher.....................  Fletcher...........................................  I
Florida Natural Gas Association........  FNGA...............................................  U
Gas Technology Institute...............  GTI................................................  U
Goodman Global, Inc....................  Goodman............................................  M
Heating, Air-Conditioning &              HARDI..............................................  TA
 Refrigeration Distributors
 International.
Jennifer Hombach.......................  Hombach............................................  I
Ingersoll Rand.........................  Ingersoll Rand.....................................  M
David Johnson..........................  Johnson............................................  I
Johnson Controls, Inc..................  JCI................................................  M
Jointly Owned Natural Gas..............  ...................................................  U
Aaron Kelly............................  Kelly..............................................  I
The Laclede Group, Inc.................  Laclede............................................  U
Lennox International Inc...............  Lennox.............................................  M
Liberty Utilities......................  ...................................................  U

[[Page 65735]]

 
Manufactured Housing Institute.........  MHI................................................  TA
Mark Nayes.............................  Nayes..............................................  I
Mercatus Center at George Mason          Abdukadirov et al..................................  I
 University.
Metal-Fab..............................  ...................................................  CS
Metropolitan Utilities District, Omaha,  Metropolitan Utilities District....................  U
 NE.
Don Meyers.............................  Meyers.............................................  I
Cameron Moore..........................  Moore..............................................  I
Mortex Products, Inc...................  Mortex.............................................  M
Municipal Gas Authority of Georgia.....  Gas Authority......................................  U
National Association of Home Builders..  NAHB...............................................  TA
National Energy & Utility Affordability  NEUAC..............................................  CR
 Coalition.
National Multifamily Housing Council,    NMHC, NAA, NLHA....................................  TA
 National Apartment Association,
 National Leased Housing Association.
National Propane Gas Association.......  NPGA...............................................  U
Natural Gas Association of Georgia.....  NGA................................................  U
Natural Resources Defense Council......  NRDC...............................................  EA
New Jersey Natural Gas.................  NJNG...............................................  U
NiSource Inc...........................  NiSource...........................................  U
Nortek Global HVAC.....................  Nortek.............................................  M
Northeast Energy Efficiency              NEEP...............................................  EA
 Partnerships.
ONE Gas, Inc...........................  ONE Gas............................................  U
Pacific Gas and Electric Company.......  PG&E...............................................  U
Pennsylvania Chamber of Business and     ...................................................  G
 Industry.
Pennsylvania Department of               ...................................................  G
 Environmental Protection.
Philadelphia Gas Works.................  PGW................................................  U
Plumbing-Heating-Cooling Contractors...  PHCC...............................................  C
Prime Energy Partners, LLC.............  Prime Energy Partners..............................  ..................
Questar Gas Company....................  Questar Gas........................................  U
Rheem Manufacturing Company............  Rheem..............................................  M
David Schroeder........................  Schroeder..........................................  I
Terry Small............................  Small..............................................  I
Southern California Gas Company........  SoCalGas...........................................  U
Southern Company.......................  ...................................................  U
Southern Gas Association...............  SGA................................................  U
Southside Heating and Air Conditioning.  ...................................................  C
State of Indiana.......................  Indiana............................................  G
Kimberly Swanson.......................  Swanson............................................  I
Town of Rockford Alabama...............  Rockford...........................................  G
Ubuntu Center of Chicago...............  Ubuntu.............................................  CR
United Technologies Building and         Carrier............................................  M
 Industrial Systems--Carrier
 Corporation.
United States Joint Representatives **.  Joint Representatives..............................  G
University of Pennsylvania, Kleinman     Kleinman Center....................................  EI
 Center for Energy Policy.
U.S. Chamber of Commerce, the American   Associations.......................................  TA
 Chemistry Council, the American Coke
 and Coal Chemicals Institute, the
 American Forest & Paper Association,
 the American Fuel & Petrochemical
 Manufacturers, the American Petroleum
 Institute, the Brick Industry
 Association, the Council of Industrial
 Boiler Owners, the National
 Association of Home Builders, the
 National Association of Manufacturers,
 the National Mining Association, the
 National Oilseed Processors
 Association, and the Portland Cement
 Association.
Vectren Corporation....................  Vectren............................................  U
John von Harz..........................  von Harz...........................................  I
Washington Gas Light Company...........  Washington Gas.....................................  U
Walter Wood............................  Wood...............................................  I
----------------------------------------------------------------------------------------------------------------
C: Mechanical Contractor; CS: Component Supplier; CR: Consumer Representative; EA: Efficiency/Environmental
  Advocate; EI: Educational Institution; G: Government; I: Individual; M: Manufacturer; PP: Public Policy
  Research Organization; TA: Trade Association; U: Utility or Utility Trade Association.
* Paul D. Tonka, Ra[uacute]l M. Grijalva, Michael M. Honda, Scott H. Peters, Alan S. Lowenthal, Jerrold Nadler,
  Sander M. Levin, Chris Van Hollen, Alan S. Lowenthal, Rep. Ted Lieu, Donald S. Beyer, Jr., Louise M.
  Slaughter, Rep. Lois Capps, and Donna F. Edwards.
** Mo Brooks, Tom Price, Lou Barletta, Bradley Byrne, Glenn `GT' Thompson, Steve Russell, Joe Heck, Gary Palmer,
  Kevin Yoder, Jim Bridenstine, Scott Tipton, Robert Pittenger, Chuck Fleischmann, Robert Aderholt, Mimi
  Walters, Barry Loudermilk, Gregg Harper, Mark Walker, Brian Babin, Candice S. Miller, Chris Stewart, Mike D.
  Rogers, Jim Renacci, Bob Gibbs, Dave Brat, Jeff Miller, Phil Roe, David Schweikert, Tom Marino, David B.
  McKinley, Scott DesJarlais, Marc Veasey, Ralph Abraham, Matt Salmon, David Rouzer, Richard Hudson, Cresent
  Hardy, Buddy Carter, Mike Pompeo, Martha Roby, Glenn Grothman, Tom Emmer, Paul Gosar, Ted S. Yoho, Rick Allen,
  Dan Benishek, David Young, Randy Weber, Mark Meadows, Kay Granger, Blake Farenthold, Bill Flores, Kevin
  Cramer, Daniel Webster, Tim Huelskamp, Markwayne Mullin, Chris Collins, Jason Smith, Steve Womack, Diane
  Black, Keith Rothfus, Sean P. Duffy, Renee Ellmers, Alex X. Mooney, Jim Costa, Brad Wenstrup, Sam Graves,
  Charles W. Boustany, Jr., Andy Barr, Mike Bost, Doug Collins, Jody Hice, Mike Kelly, Jim Jordan, Lynn Jenkins,
  Andy Harris, Billy Long, Bill Johnson, Rob Woodall, David W. Jolly, Rodney Davis, Joe Barton, Gus M.
  Bilirakis, Pete Olson, Randy Forbes, Ed Whitfield, Ken Calvert, John Duncan, Henry Cuellar, Steve King, John
  Shimkus, Jeb Hensarling, Pete Sessions, Vicky Hartzler, Adrian Smith, Louie Gohmert, Marsha Blackburn, Sam
  Johnson, Tom McClintock, Walter Jones, Patrick T. McHenry, Steve Chabot, Doug Lamborn, Frank D. Lucas, Sanford
  D. Bishop, Jr., Lamar Smith, Austin Scott, Mick Mulvaney, Steve Pearce, Brett Guthrie, Trent Franks, Blaine
  Luetkemeyer, Tom Graves, Mike Coffman, Robert E. Latta, F. James Sensenbrenner, Jr., Stephen Fincher, Tom
  Cole, Lynn Westmoreland, John Ratcliffe, and John Moolenaar.


[[Page 65736]]

III. General Discussion

    DOE issued this supplemental proposal after considering oral and 
written comments, data, and information from interested parties that 
represent a variety of interests. DOE considered all comments received 
in response to both the March 2015 NOPR and the September 2015 NODA 
when developing this SNOPR, but acknowledges that in light of this 
modified proposal some comments received to date may no longer apply. 
The following discussion addresses issues raised by commenters in 
response to both notices on the listed topics.

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 by other performance-related feature that 
justify a different standard. In making a determination whether a 
performance-related feature justifies a different standard, DOE must 
consider such factors such as the utility of the feature to the 
consumer and other factors DOE deems appropriate. (42 U.S.C. 6295(q))
    DOE agreed to the partial vacatur and remand of the June 2011 DFR, 
specifically as it related to energy conservation standards for NWGFs 
and MHGFs in the settlement agreement to resolve the litigation in 
American Public Gas Ass'n v. U.S. Dept. of Energy (No. 11-1485, D.C. 
Cir. Filed Dec 23, 2011). 80 FR 13120, 13130-32 (March 12, 2015). These 
two product classes were evaluated in the March 2015 NOPR. In today's 
SNOPR, DOE is proposing to further divide NWGFs into two product 
classes based on capacity. For a detailed discussion of this proposal 
and the comments on product classes received in response to the March 
2015 NOPR and September 2015 NODA, please see Section IV.A.1.

B. Test Procedure

    DOE's current energy conservation standards for residential 
furnaces are expressed in terms of AFUE 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.
    On March 11, 2015, DOE published a notice of proposed rulemaking 
for its test procedure for residential furnaces and boilers in the 
Federal Register (March 2015 Test Procedure NOPR). 80 FR 12876. In the 
March 2015 Test Procedure NOPR, DOE proposed a range of changes to the 
test procedure including incorporating by reference ANSI/ASHRAE 103-
2007 in place of ANSI/ASHRAE 103-1993. After publication of the March 
2015 Test Procedure NOPR, DOE granted a request from AHRI to reopen the 
comment period for an additional 45 days, so as to allow further time 
to conduct product testing and to review supporting information. 80 FR 
31324 (June 2, 2015). In response to the March 2015 Test Procedure 
NOPR, several commenters raised concerns that some proposed test 
provisions would affect efficiency ratings. DOE published a final rule 
for the residential furnaces and boilers test procedure in the Federal 
Register on January 15, 2016 (January 2016 test procedure final rule). 
81 FR 2628. In that final rule, DOE did not adopt those provisions for 
which commenters expressed concern regarding impacts on efficiency 
ratings, including a decision to withdraw its proposal to incorporate 
by reference ANSI/ASHRAE 103-2007. Id. at 2628-30. The final revisions 
included:

     Clarification of the electrical power term ``PE'';
     Adoption of a smoke stick test for determining use of 
minimum default draft factors;
     Allowance for the measurement of condensate under 
steady-state conditions;
     Reference to manufacturer's installation and operation 
manual and clarifications for when that manual does not specify test 
set-up;
     Specification of ductwork requirements for units that 
are installed without a return duct; and
     Revision of the requirements regarding AFUE reporting 
precision.

Id. at 2628.

    DOE determined that none of the adopted test procedure amendments 
would alter the projected measured energy efficiency or energy use of 
residential furnaces. 81 FR 2628-2641 (Jan. 15, 2016). Commenters also 
raised issues regarding the timing of the test procedure rulemaking 
vis-[agrave]-vis the standards rulemaking. In response to the March 
2015 NOPR, AHRI asserted that the timing of the test procedure 
rulemaking and proposed standards rulemaking was contrary to both EPCA 
and DOE's own regulation on process.

[[Page 65737]]

AHRI added that it is unfair to propose a standard that will be 
enforced by DOE and FTC in terms of labeling requirements, but that 
will be measured by some undetermined test procedure. AHRI further 
stated that it is only after DOE has considered and resolved all 
comments on the test procedure that the required analysis of the impact 
on the related standard can be actually determined. (AHRI, No. 0159 at 
pp. 9-10) Several stakeholders stated that the test procedure must be 
finalized before issuing a NOPR for efficiency standards, which DOE did 
not do for residential furnaces. (AGA, No. 0118 at p. 6; Vectren, No. 
0111 at p. 7; Goodman, No. 0135 at p. 10; Laclede, No. 0141 at p. 35, 
JCI, No. 0148 at pp. 3-4; ACCA, No. 0158-1 at pp. 4-5; APGA, No. 0106 
at pp. 8-9) AGA and HARDI stated that stakeholders cannot properly 
assess the proposed standards without knowing the impact of the final 
test procedure on AFUE. (AGA, No. 0118 at pp. 43-44; HARDI, No. 0131 at 
p. 2)
    In response to the March 2015 NOPR and the September 2015 NODA, 
several stakeholders expressed concern about the potential change in 
furnace efficiency due to the provisions of the proposed furnace and 
boiler test procedure and the resulting impact on the standards 
rulemaking analyses. (Laclede, No. 0141 at p. 35; JCI, No. 0148 at pp. 
3-4; Ingersoll Rand, No. 0156 at p. 7; Ingersoll Rand, No. 0182 at p. 
2) Ingersoll Rand also suggested that the amended test procedure 
proposed in the March 2015 Test Procedure NOPR would have an impact on 
the measured efficiency of furnaces. Ingersoll Rand suggested that on 
average, two-stage/modulating condensing furnaces would see a drop of 
0.7-percent AFUE, and two-stage/modulating non-condensing furnaces 
would see an increase of 0.4-percent AFUE under the proposed test 
procedure, and that the efficiency levels analyzed in the engineering 
analysis should be adjusted based on these changes in ratings. 
(Ingersoll Rand, No. 0182 at p. 2) AGA urged DOE to issue an SNOPR and 
re-open the comment period after the test procedure is finalized to 
implement appropriate adjustments regarding the test procedure. (AGA, 
No. 0118 at pp. 43-44)
    In response, DOE finalized its amendments to the residential 
furnace and boiler test procedure on January 15, 2016, which means that 
the test procedure amendments have been completed as of the issuance of 
the modified proposal contained in this SNOPR. Furthermore, in the 
January 2016 test procedure final rule, DOE addressed the comments 
regarding the timing of that test procedure final rule and the 
standards rulemaking process, stating that appendix A to 10 CFR part 
430, subpart C, establishes procedures, interpretations, and policies 
to guide DOE in the consideration and promulgation of new or revised 
appliance efficiency standards under EPCA. (See section 1 of 10 CFR 
part 430, subpart C, appendix A) Those procedures are a general guide 
to the steps DOE typically follows in promulgating energy conservation 
standards, but the guidance recognizes that DOE can and will, on 
occasion, deviate from the typical process. (See 10 CFR part 430, 
subpart C, appendix A, section 14(a)) Accordingly, DOE concluded that 
there was no basis to either: (1) Delay the final rules adopting 
standards for residential furnaces and boilers; or (2) suspend the test 
procedure rulemaking until the standards rulemaking has been completed. 
81 FR 2628, 2631 (Jan. 15, 2016). With regards to the effect of test 
procedure changes on measured efficiency and accounting for such 
changes in the standards rulemaking analyses, DOE again notes that its 
final rule did not adopt those specific provisions about which 
commenters on the test procedure rulemaking expressed concern for these 
impacts. As DOE concluded in the January 2016 test procedure final 
rule, the amendments to the test procedure adopted in that final rule 
will not alter the measured energy efficiency or energy use of the 
covered products that are subject to the test procedures. Id. at 2642. 
Therefore, no further action is necessary in this standards rulemaking 
in order to accommodate the test procedure amendments. This SNOPR is 
consistent with the guidance provided in the Process Rule, section 7(c) 
of 10 CFR part 430, subpart C, appendix A, because it was issued 
subsequent to the finalization of the relevant test procedure.

C. Technological Feasibility

1. General
    In each energy conservation standards rulemaking, DOE conducts a 
screening analysis based on information gathered on all current 
technology options and prototype designs that could improve the 
efficiency of the products or equipment that are the subject of the 
rulemaking. As the first step in such 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 notice 
discusses the results of the screening analysis for NWGFs and MHGFs, 
particularly the designs DOE considered, those it screened out, and 
those that are the basis for the potential standards considered in this 
rulemaking. For further details on the screening analysis for this 
rulemaking, see chapter 4 of the SNOPR 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.1.b of this SNOPR and in chapter 5 of the SNOPR TSD.

D. Energy Savings

1. Determination of Savings
    For each trial standard level (TSL), DOE projected energy savings 
from application of the TSL to NWGFs and MHGFs purchased in the 30-year 
period that begins in the expected first year of compliance with the 
proposed

[[Page 65738]]

standards (2022-2051).\17\ The savings are measured over the entire 
lifetime of NWGFs and MHGFs purchased in the above 30-year period. DOE 
quantified the energy savings attributable to each TSL as the 
difference in energy consumption between each standards case and the 
no-new-standards case. The no-new-standards case represents a 
projection of energy consumption that reflects how the market for a 
product would likely evolve in the absence of amended energy 
conservation standards.
---------------------------------------------------------------------------

    \17\ Each TSL is composed of specific efficiency levels for each 
product class. The TSLs considered for this SNOPR are described in 
section V.A. DOE conducted a sensitivity analysis that considers 
impacts for products shipped in a 9-year period.
---------------------------------------------------------------------------

    DOE used its national impact analysis (NIA) spreadsheet model to 
estimate national energy savings (NES) from potential amended standards 
for NWGFs and MHGFs. The NIA spreadsheet model (described in section 
IV.H of this SNOPR) calculates energy savings in terms of site energy, 
which is the energy directly consumed by products at the locations 
where they are used. For electricity, DOE reports national energy 
impacts on an annual basis in terms of primary (source) energy, which 
is the energy that is used to generate and transmit the site 
electricity. To calculate the primary energy impacts, DOE derives 
annual conversion factors from the model used to prepare the Energy 
Information Administration's (EIA) most recent Annual Energy Outlook 
(AEO).\18\ DOE also calculates NES in terms of full-fuel-cycle (FFC) 
energy savings. The 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 conservation standards.\19\ DOE's 
approach is based on the calculation of an FFC multiplier for each of 
the energy types used by covered products or equipment. For more 
information on FFC energy savings, see section IV.H.2 of this notice. 
For natural gas, the primary energy savings are considered to be equal 
to the site energy savings.
---------------------------------------------------------------------------

    \18\ At the time when the SNOPR was prepared, AEO 2015 was the 
most recent available AEO. DOE intends to use AEO 2016 for the final 
rule.
    \19\ The FFC metric is 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).
---------------------------------------------------------------------------

2. Significance of Savings
    To adopt any new or amended 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 are not ``genuinely trivial.'' The energy savings for all of the 
TSLs considered in this rulemaking, including the proposed standards 
(presented in section V.B.3.a), are nontrivial, and, therefore, DOE 
considers them ``significant'' within the meaning of section 325 of 
EPCA.

E. Economic Justification

1. Specific Criteria
    As noted above, 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 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 payback period (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 consumer costs and benefits expected 
to result from particular standards. DOE also evaluates the impacts of 
potential standards on identifiable subgroups of consumers that may be 
affected disproportionately by a 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 
analysis.
    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 discount rates appropriate for 
consumers. 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.
    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.
    For its LCC and PBP analysis, DOE assumes that consumers will 
purchase the covered products in the first year of compliance with new 
or amended standards. The LCC savings for the considered efficiency 
levels are calculated relative to the case that reflects projected 
market trends in the absence of new or amended standards. DOE's LCC and 
PBP analysis is 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

[[Page 65739]]

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 III.D, DOE uses 
the NIA spreadsheet models 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 supplemental 
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. DOE invites comment from the public regarding the 
competitive impacts that are likely to result from this proposed rule. 
In addition, stakeholders may also provide comments separately to DOJ 
regarding these potential impacts. See ADDRESSES section for 
information to send comments to DOJ.
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 the 
proposed 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.
    DOE maintains that environmental and public health benefits 
associated with the more efficient use of energy are important to take 
into account when considering the need for national energy 
conservation. The proposed standards are likely to result in 
environmental benefits in the form of reduced emissions of air 
pollutants and greenhouse gases (GHGs) associated with energy 
production and use. DOE conducts an emissions analysis to estimate how 
potential standards may affect these emissions, as discussed in section 
IV.K; the emissions impacts are reported in section V.B.6 of this 
notice. DOE also estimates the economic value of emissions reductions 
resulting from the considered TSLs, as discussed in section IV.L.
g. Other Factors
    In determining whether an energy conservation standard is 
economically justified, DOE may consider any other factors that the 
Secretary deems to be relevant. (42 U.S.C. 6295(o)(2)(B)(i)(VII)) To 
the extent DOE identifies any relevant information regarding economic 
justification that does not fit into the other categories described 
above, DOE could potentially consider such information under ``other 
factors.''
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 full 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 IV.F.9.d of this document.

F. Other Issues

1. Economic Justification of the March 2015 NOPR Proposed Standards
a. General
    The March 2015 NOPR elicited a large number of public comments 
which represented a range of views regarding DOE's proposed standards 
for NWGFs and MHGFs and the economic justification and other impacts 
thereof. Comments on the general reasons for opposing or supporting the 
proposed standards are summarized and summarily addressed here. 
Comments related to DOE's NOPR analysis, and how DOE addressed them in 
its subsequent analyses, are presented in section IV.
    Several stakeholders stated that there was no economic 
justification for a national condensing standard for NWGFs. (AGA, No. 
0036 at p. 3; AGL Resources, No. 0039 at p. 1; APGA, No. 0106 at p. 12; 
AGL Resources, No. 0112 at pp. 1-, 2; Carrier, No. 0116 at pp. 3-4; 
AGA, No. 0118 at pp. 3-5; Lennox, No. 0125 at p. 15; NPGA, No. 0130 at 
p. 8; SoCalGas, No. 0132 at p. 5; Goodman, No. 0135 at p. 2; Nortek, 
No. 0137 at p. 2; Laclede, No. 0141 at p. 58; Rheem, No. 0142 at p. 2; 
JCI, No. 0148 at p. 9; AHRI, No. 0181 at p. 1; Metal-Fab, No. 0192 at 
p. 2; Municipal Gas Authority of Georgia, No. 0086 at p. 3; Natural Gas 
Association of Georgia, No. 0110 at p. 1) Stakeholders also expressed 
concern that the proposed standard would harm rather than benefit 
consumers. (AGA, No. 0040 at pp. 2-3; AGA, No. 0118 at pp. 2-3; Joint 
Representatives, No. 0067 at p. 1; NAHB, No. 0124 at p. 5; Southern Gas 
Association, No. 0145 at p. 1; Energy Association of Pennsylvania, No. 
0146 at p. 1; NiSource, No. 0127 at pp. 8-9) Many stakeholders stated 
that the proposed standard would result in a net cost for many 
consumers, particularly those living in the south and low-income 
consumers (see section III.F.1.b), and would cause an unacceptable 
amount of switching from NWGFs to electric heating products (see 
section III.F.1.c).
    Many other stakeholders opposed the proposed 92-percent AFUE 
national standards for NWGFs and encouraged DOE to withdraw the NOPR. 
(Moore, No. 0033 at p. 1; Wood, No. 0068 at p.

[[Page 65740]]

1; Dublin, No. 0071 at p. 1; CenterPoint Energy, No. 0083 at p. 5; NGA, 
No. 0110 at p. 1; PGW, No. 0122 at p. 1; NiSource, No. 0127 at p. 10; 
Nortek, No. 0137 at p. 2; Meeks, No. 0140 at p. 2; Laclede, No. 0141 at 
p. 7; Rockford, No. 0070 at p. 1; Chambersburg, No. 0084 at p. 1; 
Dublin, No. 0071 at p. 1; Sylvania, No. 0085 at p. 1; Louisville, No. 
0087 at p. 1; Monroe, No. 0088 at p. 1; Cairo, No. 0089 at p. 1; 
Jointly Owned Natural Gas, No. 0090 at p. 1; Adairsville, No. 0091 at 
p. 1; Camilla, No. 0092 at p. 1; Sugar Hill, No. 0093 at p. 1; 
Covington, No. 0096 at p. 1; Austell, No. 0097 at p. 1; Fitzgerald, No. 
0100 at p. 1; Cartersville, No. 0101 at p. 1; Commerce, No. 0103 at p. 
1; Thomasville, No. 0104 at p. 1; Toccoa, No. 0105 at p. 1; Tifton, No. 
0114 at p. 1; Moultrie; No. 0121 at p. 1; SGA, No. 0145 at p. 2; Gas 
Authority, No. 0086 at pp. 7-8; Laclede, No. 0178 at pp. 3-4; Rheem, 
No. 0184 at p. 2; Johnson, No. 0190 at p. 1; AABE, No. 0197 at p. 1; 
Rheem, No. 0199 at p. 2; APGA, No. 0106 at pp. 1, 50; AGA, No. 0118 at 
p. 45; SoCalGas, No. 0132-1 at p. 2)
    On the other hand, the Joint Congress Members, PG&E, CEC, the Joint 
Consumer Commenters, ACEEE, ASE, NRDC, NEEP, and Fletcher supported the 
standards proposed in the NOPR. (Joint Consumer Commenters, No. 0123 at 
p. 1; PG&E, No. 0153 at pp. 1-2; CEC, No. 0120 at p. 4; Joint Congress 
Members, No. 0161 at pp. 1-3; ACEEE, No. 0113 at p. 1; ASE, No. 0115 at 
p. 1; NRDC, No. 0134 at p. 2; NEEP, No. 0150 at p. 2; Fletcher, No. 
0064 at p. 1) The Joint Consumer Commenters stated that the performance 
standards in the proposed rule is are well designed in that it 
addresses clear market imperfections which lead to market failure; is 
technology neutral, product neutral, and pro-competitive; is 
technologically feasible; and offers adequate lead time. (Joint 
Consumer Commenters, No. 0123 at pp. 27-28) The Joint Congress Members 
stated that because furnaces are one of the longest-lived products in a 
home, it is important to set an aggressive standard to ensure that 
consumers will benefit from maximum energy savings over the lifetime of 
this investment. NEEP and the Joint Congress Members stated that many 
States have been actively pursuing and advocating for condensing 
furnace standards but are preempted by Federal standards. (Joint 
Congress Members, No. 0161 at pp. 1-3; NEEP, No. 0150 at pp. 1-2) The 
CEC stated that DOE's current standards for furnaces have formed a 
significant barrier to California being able to achieve its climate 
goals for new and existing buildings. The CEC stated that any further 
delay in adopting more stringent Federal furnace standards threatens to 
set California back in its efforts to double energy efficiency in 
existing buildings by 2030 and to achieve zero net energy in newly 
constructed residential buildings by 2020. (CEC, No. 0120 at p. 3)
    ACEEE, ASE, NRDC, PG&E, and Kelly suggested that DOE should 
establish a 95-percent AFUE national standard for NWGFs. (ACEEE, No. 
0113 at p. 4; ASE, No. 0115 at p. 1; NRDC, No. 0134 at p. 3; PG&E, No. 
0153 at pp. 2-3; Kelly, No. 0038 at p. 1) Prime Energy Partners and CGS 
stated that DOE's analysis presents a clear case for a standard for 
NWGFs at 98-percent AFUE as the maximum improvement in energy 
efficiency that is technologically feasible and economically justified. 
(Prime Energy Partners, No. 0143 at p. 2; CGS, No. 0098 at p. 5)
b. Consumer Impacts From the Proposed Standards
    AGA stated that DOE should not find that a standard is economically 
justified when such a significant share of consumers would be worse off 
under the proposed rule. (AGA, No. 0036 at p. 3; AGA, No. 0118 at p. 5) 
AGA, Ingersoll Rand, and Laclede stated that the majority of consumers 
impacted by the rule would see a net cost under a condensing standard. 
(AGA, No. 0118 at pp. 16, 26; Ingersoll Rand, No. 0156 at p. 2;) JCI 
and Laclede expressed concern about the number of consumers that would 
be negatively impacted by a condensing furnace standard. (JCI, No. 0202 
at p. 2; Laclede, No. 0141 at p. 6) AGA, CGS, PCCBI, NGA, and SoCalGas 
stated that the proposed rule would unnecessarily burden millions of 
residents. (AGA, No. 0036 at pp. 2-3; CGS, No. 0098 at p. 1; PCCBI, No. 
0082 at p. 1; NGA, No. 0110 at p. 1; SoCalGas, No. 0132-2 at p. 1) AHRI 
stated that if the proposed standards are finalized, virtually all 
affected consumers would experience a net cost. (AHRI, No. 0159 at pp. 
57-58) AHRI added that purchasers who do not currently buy condensing 
furnaces predominantly have poor economic returns or face difficult 
installations. (AHRI, No. 0159 at pp. 69-70) Metal-Fab stated that due 
to the higher initial cost of condensing gas furnaces and low natural 
gas prices, installing a condensing gas furnace does not make economic 
sense for the majority of U.S. consumers. (Metal-Fab, No. 0192 at p. 1)
    A number of stakeholders stated that according to DOE's own 
analysis for the NOPR, 20 percent of households nationwide would see a 
net life-cycle cost increase. (AGA, No. 0036 at p. 3; Corbin, No. 0066 
at p. 1; Lawrenceville, No. 0074 at p. 1; Mercatus Center, No. 0079 at 
p. 4; Pennsylvania Chamber of Business and Industry, No. 0082 at p. 1; 
CenterPoint Energy, No. 0083 at p. 32; Indiana, No. 0094 at p. 1; 
Vectren, No. 0111 at pp. 2, 5; Goodman, No. 0135 at p. 2; Metropolitan 
Utilities District, No. 0144 at pp. 1-2; Energy Association of 
Pennsylvania, No. 0146 at p. 1; ONE Gas, No. 0102 at p. 2) NAHB argued 
that 20 percent of consumers with net cost is unacceptable, but that 
such figure would be much higher after incorporating the changes in 
product cost, energy use, and discount rates that NAHB believes to be 
more appropriate. NAHB stated that regulations that negatively impact a 
large portion of the population would result in consumers being priced 
out of the market for a new home and living in older, less-efficient 
homes with less-efficient equipment, which is contrary to the purpose 
of the rule. (NAHB, No. 0124 at p. 5) AGA, ONE Gas, and Vectren also 
stated that according to DOE's analysis, in the replacement market, 
fully one-quarter of all households would see a net cost increase. 
(AGA, No. 0118 at p. 5; ONE Gas, No. 0102 at p. 2; Vectren, No. 0111 at 
pp. 2, 5) The report by GTI submitted by SoCalGas stated that DOE's 
analysis shows that more Southern California consumers would suffer a 
net cost than would experience a net benefit under the proposed 
standard. (SoCalGas, No. 0132-7 at p. v)
    On the other hand, the Joint Consumer Commenters stated that in the 
case of a NWGF standard at 92-percent AFUE or higher, the winners 
exceed the losers by a wide margin. (The Joint Consumer Commenters 
considered those who break even financially and enjoy other indirect 
benefits of the standard as winners.) The Joint Consumer Commenters 
stated that the economic analysis also shows that the winners gain more 
per household, on average, than the losers lose. (Joint Consumer 
Commenters, No. 0123 at pp. 9-11)
    Many stakeholders expressed concern that consumers in the South may 
be disproportionately impacted by the proposed NWGF standard. 
(Contractor Advisors, No. 0061 at p. 1; Corbin, No. 0066 at p. 1; U.S. 
Joint Representatives, No. 0067 at p. 1; Lawrenceville, No. 0074 at p. 
1; PGW, No. 0122 at p. 3; Liberty Utilities, No. 0109 at p. 1; NPGA, 
No. 0130 at p. 5; Anonymous, No. 0060 at p. 1; AEA, No. 0069 at p. 1; 
Meyers, No. 0072 at p. 1; JCI, No. 0202 at p. 2; Vectren, No. 0111 at 
pp. 2, 5; CenterPoint Energy, No. 0083 at p. 3; Rheem, No. 0142 at pp. 
1-2; MUD,

[[Page 65741]]

No. 0144 at p. 1) APGA, AGA, and NAHB stated that the proposed NWGF 
standard is too burdensome on consumers in the South to be economically 
justified. (APGA, No. 0034 at p. 6; AGA, No. 0036 at p. 3; AGA, No. 
0118 at pp. 27-28; NAHB, No. 0124 at p. 5) Several stakeholders stated 
that according to DOE's analysis, 31 percent of overall consumers in 
the South and 39% of low-income consumers in the South would experience 
a net life-cycle cost increase. (AGA, No. 0036 at p. 3; Corbin, No. 
0066 at p. 1; Lawrenceville, No. 0074 at p. 1; Mercatus Center, No. 
0079 at p. 4; PCCBI, No. 0082 at p. 1; CenterPoint Energy, No. 0083 at 
p. 3; Indiana, No. 0094 at p. 1; Vectren, No. 0111 at pp. 2, 5; MHI, 
No. 0129 at p. 2; Goodman, No. 0135 at p. 2; Nortek, No. 0137 at p. 4; 
SGA, No. 0145 at p. 1) Many contractors who responded to PHCC and 
ACCA's survey commented that in some Southern areas, the payback from a 
condensing furnace is unacceptable to the customer. (PHCC, No. 0136 at 
p. 12; ACCA, No. 0158-2 at p. 12) Metal-Fab stated that based on 
current natural gas prices, for consumers in the South, the LCC is 
higher for a condensing furnace than a non-condensing furnace. (Metal-
Fab, No. 0192 at p. 1)
    Many stakeholders expressed concern that low-income consumers may 
be disproportionately impacted by the proposed standards. (Contractor 
Advisors, No. 0061 at p. 1; Corbin, No. 0066 at p. 1; U.S. Joint 
Representatives, No. 0067 at p. 1; Lawrenceville, No. 0074 at p. 1; 
PGW, No. 0122 at p. 3; Liberty Utilities, No. 0109 at p. 1; NPGA, No. 
0130 at pp. 3-4; Anonymous, No. 0060 at p. 1; AEA, No. 0069 at p. 1; 
Meyers, No. 0072 at p. 1; JCI, No. 0202 at p. 24; Vectren, No. 0111 at 
pp. 2, 5; CenterPoint Energy, No. 0083 at p. 3; Rheem, No. 0142 at pp. 
1-2; AGA, No. 0036 at p. 3; Lawrenceville, No. 0074 at p. 1; Mercatus 
Center, No. 0079 at p. 4; PCCBI, No. 0082 at p. 1; CenterPoint Energy, 
No. 0083 at p. 3; Indiana, No. 0094 at p. 1; Vectren, No. 0111 at pp. 
2, 5; AGL Resources, No. 0112 at p. 8; Goodman, No. 0135 at p. 2; MUD, 
No. 0144 at p. 2; Nortek, No. 0137 at p. 4; SGA, No. 0145 at p. 1; 
Energy Association of Pennsylvania, No. 0146 at p. 12; ONE Gas, No. 
0102 at p. 2; MUD, No. 0144 at p. 41) Many stakeholders stated that the 
proposed rule would hurt the very people who can least afford 
additional costs. (Corbin, No. 0066 at p. 1; Rockford, No. 0070 at p. 
1; Chambersburg, No. 0084 at p. 1; Sylvania, No. 0085 at p. 1; 
Louisville, No. 0087 at p. 1; Monroe, No. 0088 at p. 1; Cairo, No. 0089 
at p. 1; Jointly Owned Natural Gas, No. 0090 at p. 1; Adairsville, No. 
0091 at p. 1; Camilla, No. 0092 at p. 1; Sugar Hill, No. 0093 at p. 1; 
Covington, No. 0096 at p. 1; Austell, No. 0097 at p. 1; Fitzgerald, No. 
0100 at p. 1; Cartersville, No. 0101 at p. 1; Commerce, No. 0103 at p. 
1; Thomasville, No. 0104 at p. 1; Toccoa, No. 0105 at p. 1; Tifton, No. 
0114 at p. 1; Moultrie; No. 0121 at p. 1; Carrier, No. 0116 at p. 37) 
APGA and, AGA, and NAHB stated that the proposed NWGF standard is too 
burdensome on low-income consumers to be economically justified. (APGA, 
No. 0034 at p. 6; AGA, No. 0036 at p. 3; AGA, No. 0118 at pp. 27-28; 
NAHB, No. 0124 at p. 5)
    AGA, the U.S. Joint Representatives, CenterPoint Energy, Energy 
Association of Pennsylvania, SoCalGas, NiSource, CA, Indiana, and A 
Ware stated that a condensing standard would place an undue burden on 
low-income consumers, especially in the South, who will be faced with 
the difficult choice of having to replace their non-condensing furnace 
with either a condensing furnace with higher installation costs or an 
electric space heating appliance with higher monthly energy bills. 
(AGA, No. 0036 at p. 3; U.S. Joint Representatives, No. 0067 at p. 1; 
CenterPoint Energy, No. 0083 at p. 3; Energy Association of 
Pennsylvania, No. 0146 at pp. 1-2; SoCalGas, No. 0132-2 at p. 4; 
SoCalGas, No. 0132-6 at p. 8; NiSource, No. 0127 at pp. 8-9; Contractor 
Advisors, No. 0061 at p. 1; Indiana, No. 0094 at p. 1; A Ware, No. 0204 
at p. 1) Vectren stated that a large percentage of its customers, who 
fall within Federal poverty guidelines, would be negatively impacted by 
the proposed furnace rule. (Vectren, No. 0111 at p. 5)
    AGL Resources, SoCalGas, and Nortek stated that the rule would 
disproportionally affect low- and fixed-income consumers. AGL Resources 
and SoCalGas stated that because low- and fixed-income homeowners 
typically live in smaller spaces that require less energy to heat, the 
reduced fuel costs from a 92-percent AFUE furnace would never be enough 
to offset the total installed cost of a condensing furnace. AGL 
Resources stated that the overwhelming majority of low- and fixed-
income homeowners would receive neutral or negative paybacks when they 
install a new condensing furnace. (AGL Resources, No. 0039 at p. 4; AGL 
Resources, No. 0112 at p. 8; SoCalGas, No. 0132-2 at p. 3; SoCalGas, 
No. 0132-6 at p. 8; Nortek, No. 0137 at pp. 3-4)
    AABE, Payne, Bishop, Meeks, and Nortek stated that many low-income 
homeowners have less access to capital, and consequently, they do not 
have the equity or cash savings to afford the significant upfront costs 
of a condensing NWGF. Payne and Bishop stated that while it is true 
that low-income consumers would save money in the long run by switching 
to a condensing furnace, many low-income families do not have the 
financial flexibility to make decisions based on life-cycle-costs. 
(AABE, No. 0155 at p. 1; AABE, No. 0197 at p. 1; Payne, No. 0075 at p. 
1; Bishop, No. 0076 at p. 12; Meeks, No. 0140 at p. 1; Nortek, No. 0137 
at pp. 3-4) MHI stated that low-income homeowners have limited access 
to credit to finance a new furnace, creating additional hardships. 
(MHI, No. 0129 at p. 2) AABE stated that because over 50 percent of 
low-income gas households are owner-occupied, it is important that the 
rulemaking process acknowledge the social, financial, and economic 
implications on low-income communities of retrofitting gas furnaces. 
(AABE, No. 0155 at p. 1; AABE, No. 0197 at p. 1)
    On the other hand, the Joint Congress Members, CEC, the Joint 
Consumer Commenters, PG&E, NEEP, and ASAP stated that furnace 
efficiency standards are beneficial for low-income consumers because 
heating bills represent such a large portion of their monthly bills and 
income. (Joint Congress Members, No. 0161 at p. 23; Joint Consumer 
Commenters, No. 0123 at p. 13; PG&E, No. 0153 at pp. 11-12; NEEP, No. 
0150 at p. CEC, No. 120 at p. 5; ASAP, No. 0154 at p. 6) NEEP stated 
that roughly 75 percent of low-income consumers would receive net 
benefits from the proposed standards. (NEEP, No. 0150 at p. 3)
    Many stakeholders are concerned that landlords would avoid the high 
costs of installing a condensing natural gas furnace by installing a 
system less expensive to install but more expensive to operate, with 
the operating costs being left in the hands of the tenant. (A Ware, No. 
0045 at p. 1; PGW, No. 0003-1 at p. 3; PWG, No. 0003-2 at pp. 4-6; 
AAEA, No. 0056 at p. 2; Ubuntu, No. 0057 at p. 1; DC Jobs or Else, No. 
0059 at p. 1; Corbin, No. 0066 at p. 1; Lawrenceville, No. 0074 at p. 
1; Payne, No. 0075 at p. 1; Bishop, No. 0076 at p. 1; Gas Authority, 
No. 0086 at p. 6; Vectren, No. 0111 at p. 6; NiSource, No. 0127 at p. 
5; AGL Resources, No. 0112 at p. 8; AGL Resources, No. 0039 at p. 5; 
SoCalGas, No. 0132-2 at pp. 3-4; SoCalGas, No. 0132-6 at p. 8; Ubuntu, 
No. 0191 at p. 1; A Ware, No. 0204 at p. 1) NMHC, NAA, and NLHA stated 
that for properties that replace gas furnaces with electric furnaces, 
there would likely be an increase in operating

[[Page 65742]]

cost for consumers. (NMHC, NAA, and NLHA, No. 0117 at p. 4)
    NMHC, NAA, and NLHA stated that unplanned retrofits would likely 
require property owners to raise their rents. (NMHC, NAA, and NLHA, No. 
0117 at p. 1) NEUAC, AGL Resources, SoCalGas, and MUD stated that 
landlords often pass along infrastructure costs to their tenants in 
higher rents. (NEUAC, No. 0095 at pp. 1-2; AGL Resources, No. 0039 at 
pp. 5, 8; SoCalGas, No. 0132-2 at pp. 3-4; SoCalGas, No. 0132-6 at p. 
8; MUD, No. 0144 at p. 2) NAHB stated that increases in energy 
efficiency will not be free to renters, because if landlords cannot get 
an adequate return on their investment, they will leave the market, 
thereby decreasing supply and increasing rents. (NAHB, No. 0050 at pp. 
24-25) However, PG&E stated that replacement of equipment is part of 
normal repair and maintenance of a property and is built into the 
landlord's cost structure, so rents do not necessarily increase because 
a furnace is replaced. (PG&E, No. 0153 at pp. 11-12)
    Several stakeholders pointed to positive impacts of the proposed 
standards on low-income renters. The Joint Congress Members, Joint 
Consumer Commenters, PG&E, NEEP, and CEC, and ASAP stated that many 
low-income consumers are renters who are responsible for monthly energy 
bills, but do not choose their heating equipment. They stated that a 
strong national energy efficiency standard would address the split 
incentive situation, protecting these consumers from having to pay 
higher bills to heat their homes. (Joint Congress Members, No. 0161 at 
p. 23; Joint Consumer Commenters, No. 0123 at pp. 26-27; PG&E, No. 0153 
at pp. 11-12; NEEP, No. 0150 at p. 3; CEC, No. 0120 at pp. 5-6; ASAP, 
No. 0154-1 at p. 6) ACEEE stated that the majority of low-income 
households are renters, so in many cases, the capital costs will be 
borne by the owners. ACEEE stated that because DOE's analysis 
implicitly assumes that the full cost of furnace efficiency 
improvements are passed on in rent increases, the LCC analysis 
underestimates the LCC savings for such low-income consumers. (ACEEE, 
No. 0113 at p. 8) PG&E stated that utility subsidies are given to low-
income customers, who are predominantly renters, to cover gas and 
electricity consumption. PG&E stated that a condensing furnace would 
reduce the gas consumption of low-income consumers, thereby allowing 
the subsidy to cover a large portion of the heating season gas costs. 
(PG&E, No. 0153 at p. 12)
c. Product Switching Due to the Proposed Standards
    Many stakeholders expressed concern that the proposed standards 
would cause product switching from gas furnaces to less-efficient 
heating alternatives, which are less expensive to install but more 
costly to operate, because consumers would not be able to afford the 
initial purchase and installation cost of a condensing furnace, the 
installation of a condensing furnace may be impossible, or consumers 
would not realize sufficient savings. (Contractor Advisors, No. 0061 at 
p. 1; Corbin, No. 0066 at p. 1; U.S. Joint Representatives, No. 0067 at 
p. 1; Lawrenceville, No. 0074 at p. 1; PGW, No. 0122 at p. 3; Liberty 
Utilities, No. 0109 at p. 1; Goodman, No. 0135 at p. 1; Laclede, No. 
0141 at pp. 3, 6; Anonymous, No. 0060 at p. 1; AEA, No. 0069 at p. 1; 
Meyers, No. 0072 at p. 1; Chambersburg, No. 0084 at p. 1; Gas 
Authority, No. 0086 at pp. 4-5; NPGA, No. 0130 at pp. 4-5; PCCBI, No. 
0082 at p. 1; Carrier, No. 0116 at p. 10; Nortek, No. 0137 at pp. 2-3; 
NGA, No. 0110 at p. 1; SoCalGas, No. 0132-2 at pp. 2-3; SoCalGas, No. 
0132-6 at p. 9; SoCalGas, No. 0132-7 at p. 2; NMHC, NAA, and NLHA, No. 
0117 at p. 4; Washington Gas, No. 0133 at p. 2; NiSource, No. 0127 at 
pp. 4-5; Ingersoll Rand, No. 0203 at p. 2) Specifically, many 
stakeholders expressed concern that due to physical limitations, 
building code issues, or prohibitively high costs, the venting and 
condensate withdrawal requirements of condensing furnaces would be 
impossible or impractical to accommodate in some buildings, such as 
rowhouses, older buildings, and multi-family housing, and could force 
consumers to switch to alternative space heating systems. (PGW, No. 
0003-2 at p. 3; Kleinman Center, No. 0053 at p. 1; AAEA, No. 0056 at 
pp. 1-2; Corbin, No. 0066 at p. 1; Lawrenceville, No. 0074 at p. 1; 
Pennsylvania Department of Environmental Protection, No. 0099 at p. 1; 
AGL Resources, No. 0112 at pp. 11-12; NMHC, NAA, and NLHA, No. 0117 at 
pp. 2, 3; NiSource, No. 0127 at p. 5; Washington Gas, No. 0133 at p. 2; 
Rheem, No. 0142 at p. 8; MHI, No. 0129 at p. 1)
    APGA stated that the high levels of fuel switching reported in the 
NOPR render the proposed standard unacceptable. (APGA, No. 0034 at p. 
5) The U.S. Joint Representatives, Lawrenceville, Nortek, and AAEA are 
concerned that product switching caused by the proposed rule would 
financially burden consumers and ultimately undermine the efficiency 
goals that underlie the Energy Policy and Conservation Act. (U.S. Joint 
Representatives, No. 0067 at p. 1; Lawrenceville, No. 0074 at p. 1; 
Nortek, No. 0137 at pp. 2-3-4; AAEA, No. 0056 at pp. 1-2) ONE Gas, 
NiSource, Vectren, Dublin, Gas Authority, and Lawrenceville stated that 
an efficiency standard that encourages consumers to switch from natural 
gas to electricity would not improve overall efficiency and would be 
bad economic and environmental policy. (ONE Gas, No. 0102 at p. 2; 
NiSource, No. 0127 at p. 6; Vectren, No. 0111 at p. 2; Dublin, No. 0071 
at p. 1; Gas Authority, No. 0086 at pp. 6-7; Lawrenceville, No. 0074 at 
p. 1) JCI stated that given the life of furnaces, the lost energy 
savings, increased emissions, and costs for consumers become a 
significant number over a 20-year lifetime for each household that 
switches fuel. (JCI, No. 0148 at p. 7)
    Many stakeholders expressed concern that low-income and/or senior-
only households would be unable to afford the higher up-front costs for 
a condensing furnace and would switch to alternative space heating 
products that are cheaper to install but have higher operating costs. 
(AGA, No. 0036 at p. 3; U.S. Joint Representatives, No. 0067 at p. 1; 
CenterPoint Energy, No. 0083 at p. 3; Energy Association of 
Pennsylvania, No. 0146 at pp. 1-2; SoCalGas, No. 0132-2 at p. 4; 
SoCalGas, No. 0132-6 at p. 8; A Ware, No. 0045 at p. 1; AAEA, No. 0056 
at p. 1; Ubuntu, No. 0057 at p. 1; DC Jobs or Else, No. 0059 at p. 1; 
Contractor Advisors, No. 0061 at p. 1; Rockford, No. 0070 at p. 1; 
Dublin, No. 0071 at p. 1; Chambersburg, No. 0084 at p. 1; Sylvania, No. 
0085 at p. 1; Louisville, No. 0087 at p. 1; Monroe, No. 0088 at p. 1; 
Cairo, No. 0089 at p. 1; Jointly Owned Natural Gas, No. 0090 at p. 1; 
Adairsville, No. 0091 at p. 1; Sugar Hill, No. 0093 at p. 1; Camilla, 
No. 0092 at p. 1; Covington, No. 0096 at p. 1; Austell, No. 0097 at p. 
1; Fitzgerald, No. 0100 at p. 1; Cartersville, No. 0101 at p. 1; 
Commerce, No. 0103 at p. 1; Thomasville, No. 0104 at p. 1; Toccoa, No. 
0105 at p. 1; NGA, No. 0110 at p. 1; Tifton, No. 0114 at p. 1; 
Moultrie,; No. 0121 at p. 1; A Ware, No. 02054 at p. 1; Payne, No. 0075 
at p. 1; Bishop, No. 0076 at p. 1; Meeks, No. 0140 at p. 1; NJNG, No. 
0119 AT P. 2; Pennsylvania Department of Environmental Protection, No. 
0099 at p. 1; PGW, No. 0003-1 at p. 3; PGW, No. 0003-2 at pp. 2-6; PGW, 
No. 0122 at p. 2; Gas Authority, No. 0086 at pp. 5-6; NGA, No. 0110 at 
p. 1; DC Jobs or Else, No. 0059 at p. 1; Pennsylvania Department of 
Environmental

[[Page 65743]]

Protection, No. 0099 at p. 1) NPGA stated that consumers in the South 
and low-income consumers would be more likely to switch fuels based on 
the high total installed cost of a condensing furnace combined with 
their less frequent reliance on heating appliances. (NPGA, No. 0171 at 
pp. 1-2) NPGA also stated that consumers who switch from a propane 
furnace to another product would have less incentive to maintain a 
propane storage tank to supply appliances that utilize a smaller amount 
of fuel, thus encouraging switching to all electric appliances (e.g., 
water heater or stove). (NPGA, No. 0130 at p. 5; NPGA, No. 0171 at pp. 
1-2; NPGA, No. 0200 at pp. 2-3) Gas Authority stated that consumers 
would likely fuel switch to avoid the high cost of a condensing 
furnace, especially given the generous incentives for installing heat 
pumps offered by electric utilities. (Gas Authority, No. 0086 at pp. 6-
7)
    CenterPoint Energy stated that fuel switching from natural gas to 
electric space heating would create a net cost for consumers and 
increase energy use. (CenterPoint Energy, No. 0083 at pp. 2-3) Questar 
Gas stated that because condensing furnaces are not economically 
justified in the new single-family home market, especially in areas 
with limited need for heating, home builders may choose electric space 
heating options that significantly lower FFC energy efficiency and 
increase operating costs. (Questar Gas, No. 0151 at p. 1)
    Many stakeholders stated that the proposed standards would cause 
switching to electric or oil-fired space heating equipment that would 
increase harmful emissions. (AGL Resources, No. 0039 at p. 3; DC Jobs 
or Else, No. 0059 at p. 1; Dublin, No. 0071 at p. 1; AGA, No. 0036 at 
p. 3; AGA, No. 0118 at pp. 3, 5-6, 29; Rockford, No. 0070 at p. 1; 
Chambersburg, No. 0084 at p. 1; Sylvania, No. 0085 at p. 1; Louisville, 
No. 0087 at p. 1; Monroe, No. 0088 at p. 1; Cairo, No. 0089 at p. 1; 
Jointly Owned Natural Gas, No. 0090 at p. 1; Adairsville, No. 0091 at 
p. 1; Sugarhill, No. 0093 at p. 1; Camilla, No. 0092 at p. 1; 
Covington, No. 0096 at p. 1; Austell, No. 0097 at p. 1; Fitzgerald, No. 
0100 at p. 1; Cartersville, No. 0101 at p. 1; Commerce, No. 0103 at p. 
1; Thomasville, No. 0104 at p. 1; Toccoa, No. 0105 at p. 1; NGA, No. 
0110 at p. 1; Tifton, No. 0114 at p. 1; Moultrie; No. 0121 at p. 1; 
Vectren, No. 0111 at p. 2; PGW, No. 0003-2 at p. 5; CenterPoint Energy, 
No. 0083 at pp. 2-3; Lawrenceville, No. 0074 at p. 1; NPGA, No. 0130 at 
p. 6; AGL Resources, No. 0112 at pp. 5-6; Carrier, No. 0116 at p. 10; 
NMHC, NAA, and NLHA, No. 0117 at p. 4; Laclede, No. 0141 at p. 6; 
Questar Gas, No. 0151 at p. 1; AAEA, No. 0056 at pp. 1-2; Questar Gas, 
No. 0151 at p. 1; Corbin, No. 0066 at p. 1; A Ware, No. 0204 at p. 1; 
Liberty Utilities, No. 0109 at p. 1) Laclede stated that emissions 
benefits are likely not to materialize due to fuel switching to 
electric space heaters and water heaters. (Laclede, No. 0141 at p. 23) 
In contrast, EEI stated that due to flaws in the product switching 
analysis, the emissions impacts of increased use of electricity for 
home heating are overestimated. (EEI, No. 0179 at p. 4)
    The Joint Congress Members stated that while product switching may 
occur in a small number of situations, such as new construction in the 
South where air conditioning is a higher priority than heating, it is 
unrealistic for other parts of the country or for existing residences 
because the cost of fuel switching would likely be much greater for 
installation and operation than the incremental costs of installing a 
condensing furnace. The Joint Congress Members stated that the most 
likely alternative choice, a heat pump, is not as cost-competitive or 
as effective as a gas furnace for most housing in regions with 
sustained cold weather. (Joint Congress Members, No. 0161 at p. 3)
d. Summary Response to Comments on the Economic Justification of the 
March 2015 NOPR Proposed Standards for Non-Weatherized Gas Furnaces
    The Department appreciates the stakeholder comments with regard to 
the proposed standards for NWGFs. As discussed in section II.B.2, a 
number of parties suggested that DOE should create a separate product 
class for NWGFs based on certified input capacity and set lower 
standards for that product class in order to mitigate some of the 
negative impacts of the proposed standards, and in particular, the 
impact of fuel switching. The September 2015 NODA evaluated the impacts 
of adopting separate standards for product classes based on certified 
input capacity. Subsequent refinement of that analysis, along with 
comments on the September 2015 NODA, formed the basis for selecting the 
standards proposed in this document. The results of the SNOPR analysis, 
and the reasons why DOE has tentatively determined that the currently-
proposed standards are economically justified, are presented in section 
V of this document.
    DOE believes that the standards for NWGFs proposed in this SNOPR 
address many of the concerns raised in the March 2015 NOPR comments 
described in sections III.F.1.a through III.F.1.c. Because replacement 
of a non-condensing NWGF with a condensing NWGF would not be necessary 
in many of the buildings where their installation poses challenges or 
would entail considerable cost, the currently-proposed standards 
significantly reduce the number of consumers expected to experience 
negative impacts or to switch to electric heating, compared with a 
standard at 92-percent AFUE for all NWGFs.
e. Economic Justification of the March 2015 NOPR Proposed Standards for 
Mobile Home Gas Furnaces
    AHRI and JCI expressed concern that MHGF consumers would be 
negatively affected or would switch fuels for heating if an amended 
minimum efficiency standard of 92-percent were adopted. (AHRI, No. 0195 
at p. 1; JCI, No. 0202 at pp. 2-4) MHI and Mortex commented that the 
proposed rule would be particularly burdensome to many of the 22 
million Americans residing in mobile homes, which primarily house low- 
and moderate-income families. (MHI, No. 0129 at p. 2; Mortex, No. 0157 
at pp. 2-3) MHI and Nortek commented that mobile home buyers are 
particularly sensitive to price increases because of their limited 
incomes and limited access to credit. (MHI, No. 0129 at p. 2; Nortek, 
No. 0137 at pp. 4-5)
    The results presented in section V.B.1 indicate that under the 
proposed standard of 92-percent AFUE for MHGFs, 63 percent of MHGF 
consumers would see a net benefit, and only 8 percent would see a net 
cost. DOE believes that there would be minimal switching away from 
MHGFs for several reasons. First, for new mobile homes, the type of 
heating equipment is determined more by the intended location of the 
home, the expected heating load, and availability of a gas supply. For 
replacement applications, switching away from gas is not likely because 
the cost increase for installing a condensing furnace relative to a 
non-condensing furnace is not a significant factor due to the much 
simpler venting system compared to installation of a NWGF.
    MHI and Nortek stated that the proposed energy conservation 
standards for manufactured housing developed by DOE's Appliance 
Standards Rulemaking Advisory Committee (ASRAC) Working Group on 
Manufactured Housing will likely increase the cost a new single-section 
mobile home by an average of $1,734. MHI and Nortek stated that adding 
an additional cost for a condensing furnace and an upgraded furnace fan 
could mean that more than one million households would be

[[Page 65744]]

unable to afford an average-priced single-section mobile home. (MHI, 
No. 0129 at p. 2; Nortek, No. 0137 at pp. 4-5)
    In response, DOE notes that the expected average cost of a 
condensing furnace in a new mobile home is comparable to a non-
condensing furnace because the increase in the price of the product is 
offset by a lower installation cost for a condensing furnace for most 
installations.\20\ New furnaces installed in mobile homes must be 
approved by the U.S. Department of Housing and Urban Development, which 
requires special sealed combustion (direct vent) for all non-condensing 
and condensing installations of manufactured home furnaces. (24 CFR 
3280.709(d)(1)) For condensing installations, the PVC piping is usually 
less expensive than the metal vent system used for non-condensing 
furnaces. Thus, there is not likely to be any effect on the 
affordability of single-section mobile homes due to the proposed MHGF 
standard.
---------------------------------------------------------------------------

    \20\ The standard for MHGF furnace fans requires technology 
(improved PSC motor) that entails a slight price increase ($11) in 
2013$ compared to the baseline PSC motor (see furnace fan energy 
conservation standards final rule; available at: https://www.regulations.gov/#!documentDetail;D=EERE-2010-BT-STD-0011-0117). 
This cost is applicable to less than 50 percent of installations 
because the rest of the market is already comprised of MHGFs with 
improved PSC motors or motors with higher efficiencies.
---------------------------------------------------------------------------

2. Safety Concerns Regarding the Proposed Standards
    Several stakeholders raised potential safety concerns related to 
condensing furnace installations. CenterPoint Energy and NMHC, NAA, and 
NLHA stated that in the case of replacement with a condensing furnace, 
changes in the volume of gas being vented due to orphaning the water 
heater would affect the draw of the venting system, and could result in 
toxic combustion gases being drawn back into the building.\21\ NMHC, 
NAA, and NLHA stated that it is foreseeable that local building 
inspectors would have concerns about the adequacies of the draw of a 
vent when it is carrying a reduced volume of gases. (CenterPoint 
Energy, No. 0083 at p. 23; NMHC, NAA, and NLHA, No. 0117 at pp. 3-4) 
MUD stated that many contractors fail to inform consumers that an 
orphaned water heater may require resizing existing vent stacks or 
installing chimney liners, resulting in the vent stacks of consumers 
who elect not to make those changes eventually being degraded. (MUD, 
No. 0144 at p. 2)
---------------------------------------------------------------------------

    \21\ The venting systems for commonly vented non-condensing 
NWGFs and gas water heaters that are atmospherically vented rely on 
a certain volume of air to operate properly. When a water heater is 
orphaned, the volume of air being vented is reduced.
---------------------------------------------------------------------------

    As discussed in section IV.F.2, DOE's analysis accounts for 
resizing existing vent stacks or installing chimney liners in the case 
of an orphaned water heater. DOE has concluded that the National Fuel 
Gas Code (NFGC) provides adequate guidance for installers regarding 
vent sizing to ensure that the venting system is safe when a condensing 
furnace is installed.\22\ DOE notes that AHRI has previously stated 
that from 2000 to 2010, there were about 7.5 million replacement 
installations of condensing NWGFs, some of which must have resulted in 
orphaned gas water heaters. (Docket No. EERE-2011-BT-STD-0011, AHRI, 
No. 0046 at p. 4) However, there is no evidence from the field over 
that time that consumers incurred a higher safety risk because they 
chose to not address the water heater's venting system when the new 
condensing furnace was installed.
---------------------------------------------------------------------------

    \22\ National Fire Protection Association and American Gas 
Association. National Fuel Gas Code. 2015. (Last accessed April 20, 
2016.) available at: www.nfpa.org/codes-and-standards/document-information-pages?mode=code&code=54.
---------------------------------------------------------------------------

    The Pennsylvania Department of Environmental Protection, Carrier, 
PGW, Gas Authority, Nayes, and AGL Resources stated that due to the 
difficulty and expense of installing a condensing furnace, many 
homeowners will probably choose to repair rather than replace their 
failing furnace, or they might turn to an unlicensed contractor, 
thereby jeopardizing safety by not following the minimum fuel gas code 
requirements. (Pennsylvania Department of Environmental Protection, No. 
0099 at p. 2; Carrier, No. 0116 at pp. 8, 20; PGW, No. 0122 at p. 3; 
Gas Authority, No. 0086 at pp. 4-5; Nayes, No. 0055 at p. 1; AGL 
Resources, No. 0112 at p. 7) PGW stated that repairing existing 
products long after the point when they should be replaced has serious 
potential safety ramifications related to gas leaks for consumers, 
neighbors, and utility employees. (PGW, No. 0003-2 at pp. 5-6) AGL 
Resources, PGW, and MUD stated that trying to extend the life of a 
worn-out product is dangerous, and can lead to fires or carbon monoxide 
(CO) poisoning. (AGL Resources, No. 0112 at pp. 6-7; PGW, No. 0122 at 
p. 3; MUD, No. 0144 at p. 2)
    In response, DOE has tentatively concluded that the vast majority 
of furnace consumers will make efforts to ensure that furnace repairs 
are done properly, despite certain commenters' speculation to the 
contrary. DOE notes that establishing a minimum efficiency standard 
that requires a condensing design does not alter the existing situation 
regarding the fraction of consumers who do not repair faulty equipment. 
Regarding extended repair of a furnace, DOE notes that AHRI previously 
stated that establishing a minimum condensing standard for NWGFs would 
not alter the situation regarding consumers who do not repair faulty 
equipment or who perform unsafe home repairs. AHRI also stated that 
service technicians must alert the consumer when they determine that 
the appliance is unsafe, and utility service technicians are obligated 
to turn off the gas to an unsafe appliance. (Docket No. EERE-2011-BT-
STD-0011, AHRI, No. 0046 at pp. 4-5) Thus, consumers' own safety 
incentives and these additional safeguards would be expected to ensure 
proper furnace operation, maintenance, and repair.
    Rheem believes that the conversion of a non-condensing furnace to a 
condensing furnace has significant safety implications that may not be 
addressed in a no-heat emergency. (Rheem, No. 0142 at pp. 1-2; Rheem, 
No. 0184 at pp. 1, 2-3; Rheem, No. 0199 at pp. 1, 2-3) Carrier stated 
that in some cases, it is impossible to install a condensing furnace 
due to physical constraints, and forcing homeowners into these 
situations could lead to dangerous complications arising from life-
threatening no-heat situations. (Carrier, No. 0116 at pp. 8, 20)
    In response, DOE has tentatively concluded that the provisions of 
the NFGC and manufacturers provide adequate guidance for installers to 
ensure that the condensing furnace is installed safely, and the vast 
majority of contractors understand that they are liable for safety 
problems. DOE's analysis accounts for situations where extreme 
difficulties in installing a condensing furnace could lead to 
significant installation costs or switching to electric furnaces or 
heat pumps to maintain adequate indoor space heating.
    PGW, AGL Resources, NiSource, and Carrier stated that many 
consumers, particularly low-income consumers, may choose to rely on 
electric space heaters or other supplemental heating sources, which 
puts them at increased risk of fire, especially with older electric 
space heaters. (PGW, No. 0122 at p. 3; AGL Resources, No. 0112 at p. 7; 
NiSource, No. 0127 at pp. 8-9; Carrier, No. 0116 at pp. 8, 20) Jointly 
Owned Natural Gas and Adairsville areis concerned that consumers may 
choose an inferior source of heat that may not be intended or safe for 
homes. (Jointly Owned Natural Gas, No. 0090 at p. 1; Adairsville, No. 
0091 at p. 1)

[[Page 65745]]

    DOE believes that it is speculative to assume that the currently-
proposed standards would lead to greater use of unsafe electric space 
heaters or other supplemental heating sources. Unsafe use of electric 
space heaters may occur with or without the proposed standards. There 
is no evidence to indicate that the proposed standards would lead to 
switching of this kind.
    AGL Resources stated that because DOE is effectively forcing 
homeowners to install heat tape in a large percentage of U.S. homes, it 
can be assumed that the number of heat tape-related fires, injuries, 
and deaths will increase proportionally. AGL Resources stated that 
according to data published by the National Fire Protection Association 
in 2013, on average, heat tape causes 350 fires per year, leads to 
around seven injuries per year, accounts for $9.4 million in property 
damage per year, and causes about two deaths per year. (AGL Resources, 
No. 0112 at pp. 6-7)
    DOE notes that like other appliances, heat tape requires proper 
installation, maintenance, and replacement to operate safely. In 
addition, DOE believes that once condensing furnace become more common, 
contractors will become better trained and more aware of potential 
issues, thereby reducing the impacts of heat tape or using other 
options that protect the condensate pipe from exposure to freezing 
environments.
3. Standby Mode and Off Mode Standards
    DOE received comments on the standby mode and off mode standards 
proposed for NWGFs and MHGFS in the NOPR. In response to the March 2015 
NOPR, APPA and EEI commented on DOE's proposed standby mode and off 
mode standards. The commenters stated that DOE should select TSL 1 for 
the standby mode and off mode standards because of the low PBP, LCC, 
and percentage of consumers experiencing net cost compared to the other 
TSLs. (APPA, No. 0149 at p. 1; EEI, No. 0160 at pp. 14-15) In response, 
DOE notes that only a small percentage of consumers experience a net 
cost under the proposed standby mode and off mode standards, and the 
national benefits and emission reductions are significantly greater for 
TSL 3 than TSL 1. Therefore, DOE continues to propose TSL 3 as the 
standard level for standby mode and off mode.
    For NWGFs (including MHGFs), for which this notice proposes new 
standby mode and off mode standards (see section V.C.2), DOE is 
proposing to revise the regulatory text governing certification reports 
in 10 CFR 429.18. The proposed revisions would specify that on and 
after the compliance dates for the standby mode and off mode standards, 
reporting of these values would be required.
    In this SNOPR, DOE is also proposing to clarify the regulations 
governing the certification and reporting requirements for non-
weatherized oil furnaces (including mobile home oil furnaces) and 
electric furnaces. For non-weatherized oil furnaces (including mobile 
home oil furnaces) and electric furnaces, compliance with standby mode 
and off mode energy conservation standards was required starting May 1, 
2013. (10 CFR 430.32(e)(1)(iii)) Each manufacturer, before distributing 
in commerce any basic model of a covered product subject to an 
applicable energy conservation standard set forth in parts 430 must 
submit a certification report to DOE certifying that each basic model 
meets the applicable energy conservation standard(s). (10 CFR 
429.12(a)) Certification reports for these product classes on or after 
May 1, 2013 must include standby mode and off mode electrical power 
consumption in order to certify compliance with those standards. DOE 
proposes to clarify in its certification regulations at 10 CFR 
429.18(b)(2)(i) that certification reports for non-weatherized oil 
furnaces (including mobile home oil furnaces) and electric furnaces 
must include representative values for standby mode and off mode 
electrical power consumption.
    Additionally, DOE proposes to specify rounding requirements in 10 
CFR 429.18(a)(2)(vii) for the representative value of standby mode and 
off mode electrical power consumption. Specifically, DOE proposes that 
these values be rounded up to the next tenth of one watt.
4. Rulemaking Process
    CenterPoint Energy, NiSource, Meeks, and Laclede urged DOE to work 
with all stakeholders to develop a natural gas furnace standard that 
will address stakeholder concerns and will reduce energy use without 
incentivizing fuel switching. (CenterPoint Energy, No. 0083 at p. 5; 
NiSource, No. 0127 at p. 10; Meeks, No. 0140 at p. 2; Laclede, No. 0141 
at pp. 7-8) AABE argued that DOE should suspend the current rulemaking 
and start with a new proposal that includes all stakeholders, including 
those most harmed by the proposal, such as African-American, minority, 
and low-income communities, and acknowledges the social, financial, and 
economic implications on low-income families when retrofitting natural 
gas furnaces. AABE is concerned about the lack of transparency and 
engagement of all stakeholders in earlier proceedings. (AABE, No. 0197 
at pp. 1-2)
    In response, DOE conducts all appliance standards rulemakings 
through the public notice-and-comment process, in which all members of 
the public are given the opportunity to comment on the rulemaking. DOE 
provided a longer than normal comment period on the March 2015 NOPR, 
and it subsequently extended the comment period on both the March 2015 
NOPR and the September 2015 NODA at stakeholder request. As part of 
this rulemaking, DOE also hosted a number of public meetings, including 
one focused on its analytical models, in order to increase the 
transparency of its process. In addition, all documents are publicly 
available at www.regulations.gov. In sum, all proceedings involved in 
this rulemaking have been open to all members of the interested public.
    APGA objected that DOE declined to respond to the joint request 
from AGA and APGA submitted on September 15, 2015 (before the initial 
October 14, 2015 deadline to submit comments) for DOE to extend the 
September 2015 NODA comment period. (AGA, No. 0194 at p. 2; APGA, No. 
0193 at p. 2) AGA inquired why a response to their request for more 
data in response to the NODA or a notice of extension of the NODA 
comment period was delayed beyond the initial October 14, 2015 comment 
period close date. AGA noted that multiple stakeholders in favor of 
DOE's analytical position did not submit comments by the October 14, 
2015 date, and inquired if anyone at DOE communicated to these 
stakeholders that there would be a comment period extension. (AGA, No. 
0205 at pp. 1-2) In its comments, Laclede shares the concerns raised by 
AGA regarding the extension of the comment period that seems designed 
to provide a substantial advantage to those who support a separate 
product class for small furnaces. (Laclede, No. 0198 at p. 3)
    In response, DOE carefully considered and ultimately granted the 
request contained in AGA and APGA's September 15, 2015 letter to re-
open and extend the comment period, as well as to answer a number of 
technical questions. (AGA and APGA, No. 0168 at p. 1) On October 15, 
2015, DOE published both a document responding to technical questions 
and a notice re-opening and extending the comment period. In a 
subsequent October 22, 2015 letter, APGA asserted that certain parties 
participating in the rulemaking did not submit comments by the original 
deadline ``because they were aware that DOE would be re-opening the

[[Page 65746]]

comment period.'' (APGA, No. 0193 at p. 4) DOE cannot speak to the 
decision-making of other parties participating in the rulemaking. But, 
as a matter of general practice and policy, DOE does not disclose its 
deliberative process, including whether a request to re-open a comment 
period will be granted, and DOE is not aware of any deviation from that 
policy with respect to the re-opening and extension of the comment 
period here. DOE is committed to a fair and open rulemaking process, so 
any characterization of DOE's actions as intended to ``tilt the playing 
field'' is simply not correct.
    AHRI encouraged DOE to consider other ways to promote energy 
conservation and the use of efficient products because there will be 
regions where condensing furnaces will never be economically attractive 
or practical. AHRI stated that energy use can be reduced through 
changing consumer behavior and other factors, which would more likely 
reduce heating fuel consumption at lower cost and with fewer negative 
impacts than an efficiency standard. (AHRI, No. 0159 at pp. 69-70) The 
Mercatus Center and Laclede stated that DOE did not consider the 
alternatives to regulation. (Mercatus Center, No. 0079 at p. 2; 
Laclede, No. 0141 at p. 20)
    Contrary to these commenters' views, DOE did evaluate non-
regulatory alternatives to energy conservation standards, as described 
in chapter 17 of the NOPR TSD and the SNOPR TSD. However, DOE 
determined that none of the non-regulatory alternatives would save as 
much energy as the proposed standards. Furthermore, DOE does not have 
discretion under the statute to substitute energy conservation 
standards that are economically justified with other policies.
    Laclede stated that because average consumers do not use an LCC 
analysis, DOE should use simple paybacks instead of LCC savings. 
Laclede stated that the ``rebuttable presumption'' of a 3-year simple 
payback is a much more reasonable criterion to use for the general 
public. (Laclede, No. 0141 at p. 18) DOE's use of LCC analysis is 
responsive to the EPCA mandate to consider the savings in operating 
costs throughout the estimated average life of the covered product 
compared to any increase in the price of, initial charges for, or 
maintenance expenses of the covered products which are likely to result 
from the imposition of a standard. (42 U.S.C. 6295(o)(2)(B)(i)(II))
5. Compliance Date
    AGA, Vectren, and APGA stated that section 325(f)(4) of EPCA 
provides a schedule with 10 years between the compliance dates of the 
first and second required furnace rulemakings. Compliance with DOE's 
first furnace standard amendment rulemaking was required in 2015. Those 
commenters stated that the compliance date for the second rulemaking 
should therefore be 2025. AGA stated that section 325(f)(4)(C) 
prescribes that DOE undertake a rulemaking between 1997 and 2006 (which 
it did not do), and that the period from the publication of the final 
rule to the compliance date was to be from 5 to 15 years. AGA stated 
that EPCA does not require that the compliance date be set 5 years from 
the final rule, and a separate provision of EPCA supports adoption of a 
2025 compliance date. Laclede supported AGA and APGA's comments on a 
compliance date of 2025. (AGA, No. 0118 at pp. 42-43; Vectren, No. 0111 
at p. 6; APGA, No. 0106 at pp. 9-11; Laclede, No. 0141 at p. 38)
    As noted in the March 2015 NOPR, EPCA typically provides for 
compliance lead time, i.e., the time between publication of amended 
energy conservation standards for a covered product and the date by 
which manufacturers must comply with the amended energy conservation 
standards for such product. 80 FR 13120, 13136 (March 12, 2015). When 
EPCA was enacted to include furnaces as a covered product, those dates 
were specified. (See e.g., 42 U.S.C. 6295(f)(4)(B) and (C)). 
Specifically, EPCA provided a 1994 compliance date for a final rule due 
in 1992, a 2002 compliance date for a final rule due in 1994, and a 
2012 compliance date for a final rule due between 1997 and 2007. By 
including these dates in the statute, Congress indicated a 2-year 
period between the rulemaking publication date and compliance date for 
the first round of amended residential furnace standards, an 8-year 
lead time for the second round of rulemaking, and a minimum of 5 years 
for the last round of amended residential furnace standards. Id. Even 
in situations where statutory deadlines have passed before a rulemaking 
could be fully completed, DOE has generally maintained these timeframes 
as a reflection of a congressional choice. However, Congress has also 
chosen to require DOE to re-examine existing standards and, if 
appropriate, to update those standards following specific time frames 
for both completion and compliance. See 42 U.S.C. 6295(m)(4). DOE also 
recognizes that there is a difference between compliance lead time 
(i.e., the time between the publication of a final rule and the date 
compliance is required during which time manufacturers take steps to 
come into compliance) and rule spacing (i.e., the time between new 
standards which imposes no requirement on manufacturers).
    In the present case, 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 (June 2011 DFR) 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. 011-1485 (D.C. Cir. filed Dec. 23, 2011) vacated 
the standards for NWGFs and MHGFs. As a result, the June 2011 DFR 
completed the second round of rulemaking for the furnace product 
classes for which that rule was not vacated, and the current rulemaking 
constitutes the second round of rulemaking for amended energy 
conservation standards for NWGFs and MHGFs, as required under 42 U.S.C. 
6295(f)(4)(C).
    Missed deadlines in the furnaces rulemaking history have resulted 
in ambiguity in terms of the applicable statutory compliance date. More 
specifically, the statute does not clearly specify an applicable 
compliance date for the furnaces rulemaking proceedings because the 
dates set forth in the statute are based on rulemakings that were to 
have been conducted earlier. For the reasons that follow, DOE does not 
agree with the commenters' interpretation of the relevant statutory 
language regarding setting the compliance date for this rulemaking.
    These commenters contend that, in 42 U.S.C. 6295(f)(4)(B) and (C), 
Congress mandated a 10-year gap between the compliance dates for the 
latest two rounds of rulemaking for amended residential furnace 
standards (i.e., applicable to products manufactured on or after 
January 1, 2002 and January 1, 2012, respectively). (42 U.S.C. 
6295(f)(4)(B) and (C)). These dates were established by Congress in the 
National Appliance Energy Conservation Act of 1987, which also 
established separate

[[Page 65747]]

product classes for small and large furnaces.\23\ However, the statute 
did not specify that a 10-year gap is always required. Instead the 
statute linked specific compliance deadlines (2002 and 2012) to 
specific statutory deadlines for completion of rulemaking proceedings 
(1994 and 2007). DOE acknowledges that it missed the statutory 
deadlines for completion of these amended furnace standards rules 
(along with those of other products) and thus, also missed the 
statutory compliance dates. In light of those missed deadlines, 
Congress passed a requirement in the Energy Policy Act of 2005 that DOE 
submit a semi-annual report to Congress summarizing the reasons DOE did 
not comply with deadlines and providing a plan to expeditiously 
eliminate the rulemaking backlog.\24\ Congress subsequently passed the 
Energy Independence and Security Act of 2007 (EISA 2007) to include the 
6-year-lookback provision at 42 U.S.C. 6265(m).\25\ In establishing 
this lookback requirement, Congress eliminated the previously-existing 
lookback requirement, which provided that ``the last final rules 
required under subsections (b) through (i)'' must be issued before 42 
U.S.C. 6295(m) could apply.'' Thus, between 2005 and 2007, Congress 
recognized the need for DOE to quickly promulgate energy conservation 
rules that should have been issued years earlier and to review those 
rules regardless whether DOE had exhausted its product-specific 
rulemaking authority.
---------------------------------------------------------------------------

    \23\ Public Law 100-12 (enacted March 17, 1987).
    \24\ Section 141, Public Law 100-58 (enacted Aug. 8, 2005).
    \25\ Public Law 110-140 (enacted Dec. 19, 2007).
---------------------------------------------------------------------------

    Congress enacted EISA 2007 subsequent to the promulgation of the 
November 2007 final rule fulfilling DOE's rulemaking obligation under 
42 U.S.C. 6295(f)(4)(B) and subsequent to the date DOE was obligated to 
complete the rulemaking required in 42 U.S.C. 6295(f)(4)(C). As such, 
with knowledge of the missed deadlines for these required furnace 
rulemakings, Congress specifically mandated a lead time for furnaces 
rulemakings under 42 U.S.C. 6295(m)(4)(A)(ii) (i.e., 5 years) and set a 
spacing requirement between rulemakings (i.e., a minimum of 6 years 
since compliance with the last standards rule). This later-in-time 
enactment, with awareness of the missed deadlines in 42 U.S.C. 
6295(f)(4)(B) and (C), demonstrates Congress's updated direction 
regarding the lead time and spacing specifically for furnaces 
rulemakings going forward. Given the ambiguity in the statutory 
provisions and Congress's desire to expedite the energy conservation 
standards rulemaking process, DOE interprets the more-recent-in-time 
provision, specifying a 5-year lead time for compliance, as the most 
appropriate indicator of congressional intent. Such interpretation is 
also consistent with EPCA's policy purposes ``to conserve energy 
supplies through energy conservation programs'' and ``to provide for 
improved energy efficiency of . . . major appliances, and certain other 
consumer products.'' (42 U.S.C. 6201(4) and (5))
    Consequently, DOE has tentatively decided to proceed with a lead 
time for compliance of 5 years after publication of the final rule for 
amended furnaces standards, consistent with the requirements of both 42 
U.S.C. 6295(f)(4)(C) and (m)(4)(A)(ii). DOE notes that such lead time 
is the same lead time accorded to other furnace product classes in the 
June 27, 2011 DFR, thereby providing a level playing field for 
manufacturers of similar products. Regarding the spacing between rules, 
DOE will also ensure that any amended standards are not required with 
respect to furnaces within 6 years of the last time new standards were 
required (42 U.S.C. 6295(m)(4)(B)); as explained in the paragraphs 
which immediately follow, this 6-year limitation will also be met in 
the current rulemaking. For these reasons, in its analysis of amended 
energy conservation standards for NWGFs and MHGFs in this SNOPR, DOE is 
using a 5-year lead time between the expected publication of the final 
rule and the compliance date for the standard.
    AGA, Vectren, Rheem, AHRI, and APGA stated that EPCA provides that 
new standards cannot be applied to a product if other new standards 
have been required during the prior 6 years. Amended furnace standards 
took effect in November 2015, and furnace fan standards take effect in 
2019. Thus, these commenters argued that new proposed amendments to the 
furnace standards should not take effect until 2025, 6 years after the 
compliance date for the furnace fan rule. (AGA, No. 0118 at pp. 42-43; 
Vectren, No. 0111 at p. 6; Rheem, No. 0142 at p. 3; AHRI, No. 0159 at 
p. 3; APGA, No. 0106 at p. 11)
    DOE disagrees with these commenters' interpretation of the relevant 
statutory provisions. The standards on furnace fans were responsive to 
the statutory directive that DOE ``shall consider and prescribe energy 
conservation standards or energy use standards for electricity used for 
purposes of circulating air through duct work.'' (42 U.S.C. 
6295(f)(4)(D)) DOE published the final rule for ``furnace fans'' \26\ 
in the Federal Register on July 3, 2014, with a compliance date of July 
3, 2019. 79 FR 38130. DOE did not intend nor does it believe Congress 
intended that the furnace fan standards are to be understood as a 
standard on residential furnaces, but instead, DOE has interpreted that 
statutory provision as authority to set standards for a separate 
covered product. Consequently, the furnace fans rule is not the 
operative rule for purposes of determining the appropriate compliance 
date under the statute for NWGFs and MHGFs standards. As described 
above, under DOE's 6-year-lookback authority to review prior standards 
rules, manufacturers shall not be subject to new standards for a 
covered product for which other new standards have been required in the 
past 6 years. (42 U.S.C. 6295(m)(4)(B)) Therefore, the relevant date 
for the aforementioned 6-year window is November 2015, and the 
compliance date for newly-amended standards must be after November 19, 
2021.
---------------------------------------------------------------------------

    \26\ Although in the furnace fan rulemaking DOE only covered 
those circulation fans that are used in furnaces and modular 
blowers, the EPCA language could be interpreted as encompassing 
electrically-powered devices used in any residential HVAC product to 
circulate air through duct work. If Congress had wanted to limit the 
regulation of fans to only furnaces, it could have provided 
narrowly-tailored language to that end, rather than the broader 
language it employed.
---------------------------------------------------------------------------

    Accordingly, the relevant statutory timing requirements are in good 
alignment. The provision at 42 U.S.C. 6295(m)(4)(A)(ii) require a 5-
year lead time for amended furnace standards, and given the publication 
date of this SNOPR combined with the public comment period, the final 
rule should be completed such that the compliance date would fall after 
November 19, 2021 (i.e., a date fulfilling the 6-year gap required by 
42 U.S.C. 6295(m)(4)(B)). DOE further notes that this lead time for 
NWGFs and MHGFs would be consistent with the 5 years of lead time 
provided under 42 U.S.C. 6295(f)(4)(C) to the other furnaces product 
classes for which standards were promulgated in the June 2011 DFR.
    EEI stated that to act in a more fuel and market neutral manner, 
the new standards for NWGFs should take effect before or coincident 
with any new standards for heat pumps. (EEI, No. 0160 at p. 2) DOE 
notes that the compliance dates for energy conservation standards are 
specified by EPCA and tied to promulgation of the final rule. In any 
case, DOE expects that amended standards for central air conditioners 
and heat pumps will be issued later in 2016 with a compliance

[[Page 65748]]

year of 2023 (about a year after the compliance year for residential 
furnaces).
6. 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 SNOPR 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 March 2015 NOPR, 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) \27\ 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.
---------------------------------------------------------------------------

    \27\ 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 65749]]

[GRAPHIC] [TIFF OMITTED] TP23SE16.000

    ACEEE, NAHB, NRDC, SGA, NMHC, NAA, and NLHA stated that setting 
regional standards with condensing NWGFs in the North and non-
condensing NWGFs in the South would be an alternative to a national 92-
percent AFUE standard, separate standards for non-condensing and 
condensing furnaces, or separate standards for small furnaces. (ACEEE, 
No. 0113 at pp. 4-5; NAHB, No. 0124 at p. 5; NRDC, No. 0134 at p. 4; 
SGA, No. 0145 at p. 2; NMHC, NAA, and NLHA, No. 0117 at p. 5) However, 
ACEEE and NRDC added that enforcing a regional standard is more 
difficult than enforcing a standard for small-capacity units. (ACEEE, 
No. 0113 at p. 5; NRDC, No. 0134 at p. 4)
    SGA stated that even regional standards would only be a partial 
solution because there are still numerous situations where condensing 
furnaces cannot be installed, including multi-family or row houses and 
other situations where side venting is not possible. SGA stated that 
many single-family retrofits, especially in small homes, would not be 
able to economically justify replacing a non-condensing furnace with a 
condensing furnace. (SGA, No. 0145 at p. 2) NMHC, NAA, and NLHA stated 
that with a regional standard, it would be necessary to provide a 
condensing furnace exemption in the North for existing buildings or a 
waiver process for especially difficult retrofits to provide relief for 
some or all of the more expensive retrofits. (NMHC, NAA, and NLHA, No. 
0117 at p. 5)
    DOE evaluated regional standards (North/South) for the SNOPR as TSL 
3, and it determined that they would save much less energy than the 
currently-proposed standards. In addition, as discussed in section 
IV.F.2.b, DOE's analysis already includes installation costs where 
venting for condensing furnaces is difficult. Also, in Canada, where 
the national standards require condensing furnaces and which has many 
similarities to the stock using NWGFs in the North, neither Natural 
Resources Canada nor its mortgage agency has found any significant 
implementation problems with that standard. DOE's proposed separate 
standards for small and large NWGFs would significantly reduce the 
number of installations described as difficult. Therefore, DOE is not 
proposing regional standards for residential furnaces.
7. Regulatory Issues
    AGA and Laclede stated that NEPA compliance should be required for 
this rulemaking because the rule is projected by DOE to cause 
significant changes in the outdoor concentrations of potentially 
harmful substances, including significant increases in the emission of 
mercury, SO2, and N2O. AGA and Laclede stated 
that in addition, DOE projects that the proposed standards would result 
in net increases of about 3,000 MW of electricity generation capacity, 
including 600 MW of coal-fired generation capacity, which should be 
considered a significant change in manufacturing infrastructure. AGA 
and Laclede also stated that categorical exclusions are not appropriate 
due to extraordinary circumstances related to the proposal that may 
affect the significance of the environmental effects of the proposal. 
(AGA, No. 0118 at p. 30; Laclede, No. 0141 at p. 35)
    DOE has reviewed the proposed rule pursuant to the National 
Environmental Policy Act (NEPA) of 1969. Section VI.D of this document 
describes this review, including the consideration of the factors 
mentioned in the above comments.
    AHRI stated that including environmental benefits in EPCA's cost-
benefit analysis is impermissible. AHRI stated that by relying on 
environmental impacts in the cost-benefit analysis, which Congress did 
not intend DOE to consider, DOE acted arbitrarily and capriciously. 
AHRI stated that although DOE might argue that environmental factors 
can be considered as ``other factors the Secretary considers 
relevant,'' DOE specifically disclaimed any such argument in the NOPR. 
(AHRI, No. 0159 at p. 23) Rheem expressed agreement with AHRI's points. 
(Rheem, No. 0142 at p. 2)
    DOE maintains that environmental and public health benefits 
associated with the more efficient use of energy are important to take 
into account when considering the need for national energy and water 
conservation, which is one of the seven factors that EPCA requires DOE 
to consider when tentatively determining whether proposed standards are 
economically justified. (42 U.S.C. 6295(o)(2)(B)(i)(VI)) In particular, 
given the threats posed by global climate change to the economy, public 
health, ecosystems, and national

[[Page 65750]]

security,\28\ combined with the well-recognized potential of well-
designed energy conservation measures to reduce GHG emissions, DOE 
believes that evaluation of the potential benefits from slowing 
anthropogenic climate change are properly part of the consideration of 
the need for national energy conservation.
---------------------------------------------------------------------------

    \28\ National Climate Assessment 2014 (Available at: http://nca2014.globalchange.gov/). The National Security Implications of a 
Changing Climate (May 2015), The White House (Available at: https://www.whitehouse.gov/the-press-office/2015/05/20/white-house-report-national-security-implications-changing-climate).
---------------------------------------------------------------------------

    AHRI also stated that DOE's consideration of environmental factors 
is imbalanced relative to the other required factors under EPCA, and 
the environmental impacts, rather than energy savings at point of use, 
are the fundamental justification of the proposed standards. (AHRI, No. 
0159 at p. 23) DOE disagrees. As discussed in section III.E.1, DOE 
considers seven factors (listed at 42 U.S.C. 6295(o)(2)(B)(i)) when 
tentatively determining whether the proposed standards are economically 
justified. DOE considers environmental benefits as part of its 
evaluation of the need for national energy and water conservation. To 
date, this accounting for environmental benefits has not had a decisive 
impact on the outcome of any standards rulemaking--i.e., DOE would have 
adopted the same standards even if environmental benefits had not been 
considered at all. The same is true for today's SNOPR. DOE further 
notes that 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, and not just the energy 
savings at point of use. (42 U.S.C. 6295(o)(2)(B)(i)(III))
    Laclede stated that key elements of the analysis have not been 
subjected to an unbiased and current peer review as required by an OMB 
Bulletin. Laclede commented that the peer review cited in the NOPR is 
approximately eight years old and does not cover a number of key 
elements in DOE's furnaces analysis. Laclede stated that the peer 
review process was insufficiently robust and independent. (Laclede, No. 
0141 at pp. 37-38)
    As discussed in more detail in section VI.L, DOE conducted formal 
peer reviews of the energy conservation standards development process 
and the analyses that are typically used, and prepared a Peer Review 
Report, consistent with the requirements of OMB's Bulletin, that 
describes the peer review. 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. DOE has determined that the peer-reviewed analytical process 
continues to reflect current practice, and the Department followed that 
process for developing energy conservation standards in the case of the 
present NWGFs and MHGFs rulemaking.
    In addition, there has been extensive interaction with stakeholder 
experts and detailed review by these parties of DOE's analytical models 
and data in the subject furnace standards rulemaking. As further 
discussed in section VI.L, DOE incorporated a number of inputs from 
these reviewers into its analyses in this rulemaking. For the reasons 
described in section VI.L, DOE believes that the reviews provided by 
stakeholders in the course of this rulemaking could complement the 
prior peer review.
    Laclede stated that DOE did not respond to Laclede's Freedom of 
Information Act (FOIA) request. (Laclede, No. 0141 at pp. 38-39). DOE 
has since responded to this request.
    CGS and NJNG stated that under section 305(f) [sic] of EPCA and 42 
U.S.C. 6291(f) [sic], for furnaces with an input capacity of 45 kBtu/h 
or smaller, DOE cannot promulgate efficiency standards that would lead 
to significant switching from natural gas furnaces to electric 
resistance heating systems. (CGS, No. 0098 at pp. 4-5; NJNG, No. 0119 
at p. 2) (DOE believes the commenters intended to reference 42 U.S.C. 
6295(f); 42 U.S.C. 6291(f) does not exist.) In response, DOE notes that 
because the standard proposed in this SNOPR for furnaces with a 
certified input capacity of 55 kBtu/h or smaller is easily met by 
typical equipment in the market, it would not be expected to lead to 
significant fuel switching for such furnaces.
    Carrier stated that the rapid pace of regulatory change on 
contractors and consumers (due to revised furnace standards in addition 
to other regulatory revisions and new regulations introduced throughout 
the last decade) will create ongoing confusion in the marketplace, 
thereby increasing the risk of poor installation quality and customer 
dissatisfaction. (Carrier, No. 0116 at p. 33) There have been limited 
changes in the standards applicable for NWGFs since originally 
established in EPCA. In addition, condensing NWGFs already have a 
significant market share, indicating that contractors have experience 
installing these furnaces. Distributors and manufacturers will have 
ample time to prepare for the amended standards, given the lead time of 
5 years prior to the compliance date.
    Nortek stated that DOE must consider the cumulative burden of all 
rulemakings affecting heating and air conditioning systems. According 
to Nortek, rulemakings on standby power, furnace fan efficiency, and 
CAC and heat pumps are on a path to potentially take effect within a 
year or two of each other. Nortek stated that depending on the level 
set by the CAC and heat pump rule, this could mean that a consumer that 
now can simply replace a CAC system with a condensing unit and a coil, 
may instead have to purchase and install not only a condensing unit and 
coil, but also a 92-percent AFUE furnace with a high efficiency motor 
and a new thermostat required by the new CAC system. Nortek believes 
this could increase the cost by several thousand dollars, pricing a 
complete system out of the reach of many homeowners and forcing them to 
seek less expensive alternatives. (Nortek, No. 0137 at p. 5) In 
response, DOE understands that many consumers replacing a CAC would be 
more likely to use the existing noncondensing furnace (albeit achieving 
lower CAC efficiency) rather than purchase and install a new furnace at 
the same time. It is expected that a consumer's decision to install a 
new furnace would depend on the age and condition of the existing 
furnace.
8. Certification of Compliance and Level of Precision
    In this SNOPR, DOE is clarifying the standards to reflect the level 
of precision required under the reporting and compliance requirements. 
In the January 2016 Test Procedure Final Rule, DOE clarified that a 
represented AFUE value is to be truncated to the tenth of a percentage 
point. 81 FR 2628, 2638; 10 CFR 429.18(a)(2)(vii). Compliance for 
furnaces and boilers is determined at this level of precision. This 
SNOPR proposes to amend the standards to reflect a consistent level of 
precision with the compliance and reporting requirements. DOE also 
proposes a clarification that input capacity for the purpose of 
certifying compliance means the nameplate maximum fuel input rate. 
These revisions are for clarification and consistency, and reflect 
current practice. DOE does not anticipate that these revisions would 
impact the current compliance of a manufacturer.

[[Page 65751]]

IV. Methodology and Discussion of Related Comments

    This section addresses the analyses DOE has performed for this 
rulemaking with regard to NWGFs and MHGFs. Separate subsections address 
each component of DOE's analyses. Comments on the methodology and DOE's 
responses are presented in each section.
    DOE used several analytical tools to estimate the impact of the 
standards proposed in this document. The first tool is a spreadsheet 
that calculates the LCC savings and PBP of potential amended or new 
energy conservation standards. The national impacts analysis uses a 
second spreadsheet set that provides shipments forecasts and calculates 
national energy savings and net present value of total consumer costs 
and savings expected to result from potential energy conservation 
standards. DOE uses the third spreadsheet tool, the Government 
Regulatory Impact Model (GRIM), to assess manufacturer impacts of 
potential standards. These three spreadsheet tools are available on the 
DOE Web site for this rulemaking: www1.eere.energy.gov/buildings/appliance_standards/rulemaking.aspx?ruleid=62. Additionally, DOE used 
output from the latest version of EIA's Annual Energy Outlook (AEO), a 
widely known energy forecast for the United States, for the emissions 
and utility impact analyses.

A. Market and Technology Assessment

    DOE develops information in the market and technology assessment 
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. This activity includes both quantitative and 
qualitative assessments, based primarily on publicly-available 
information. The subjects addressed in the market and technology 
assessment for this rulemaking include: (1) A determination of the 
scope of the rulemaking and product classes; (2) manufacturers and 
industry structure; (3) existing efficiency programs; (4) historical 
shipments information; (5) market and industry trends; and (6) 
technologies or design options that could improve the energy efficiency 
of NWGFs and MHGFs. The key findings of DOE's market assessment are 
summarized below. See chapter 3 of the SNOPR TSD for further discussion 
of the market and technology assessment.
1. Scope of Coverage and Product Classes
a. General Approach
    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 \29\ 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))
---------------------------------------------------------------------------

    \29\ DOE uses certified input capacity to mean heat input rate 
in determining scope of coverage and product class.
---------------------------------------------------------------------------

    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). As discussed in the March 2015 NOPR, DOE agreed to the partial 
vacatur and remand of the June 2011 DFR, specifically as it related to 
energy conservation standards for NWGFs and MHGFs in the settlement 
agreement to resolve the litigation in American Public Gas Ass'n v. 
U.S. Dept. of Energy (No. 11-1485, D.C. Cir. Filed Dec 23, 2011). 80 FR 
13120, 13130-32 (March 12, 2015). Therefore, DOE only considered 
amending the energy conservation standards for these two product 
classes of residential furnaces (i.e., NWGFs and MHGFs) in the March 
2015 NOPR.
    As discussed in section III.A, when evaluating and establishing 
energy conservation standards, DOE is authorized to divide 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 capacity or other 
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))
    In response to the March 2015 NOPR, a number of interested parties 
raised concerns pertaining to potential impacts of a national 
condensing standard on certain consumers as a result of either 
increased installation costs (due to installing a condensing furnace) 
or switching to electric heat (resulting in higher monthly bills). 
Several commenters responding to the March 2015 NOPR recommended that 
DOE consider establishing a separate product class for furnaces with a 
lower input capacity, one of the statutory bases for establishing a 
separate product class, and analyze a less stringent standard to reduce 
negative impacts on some furnace consumers while maintaining the 
overall economic and environmental benefits of the standards. 80 FR 
55038, 55038-39 (Sept. 14, 2015). The September 2015 NODA, therefore, 
contained analyses examining the potential impacts of such a product 
class. In the September 2015 NODA, DOE discussed certain comments that 
were received in response to the March 2015 NOPR that were relevant to 
such a product class.
    In response to the March 2015 NOPR and September 2015 NODA, several 
stakeholders recommended that DOE establish separate product classes 
based on furnace capacity to preserve the availability of non-
condensing NWGFs for buildings with lower heating loads and, thereby 
help alleviate the negative impacts of the proposed standard. (ASAP, 
No. 0154-1 at p. 8; ASE, No. 0115 at p. 1; ACEEE, No. 0113 at p. 3; 
NMHC, NAA, and NLHA, No. 0117 at p. 5; Joint Consumer Commenters, No. 
0123 at pp. 8, 35; NRDC, No. 0134 at pp. 2, 4-5; NRDC, No. 0186 at p. 
1; A Ware, No. 0204 at p. 1; NPGA, No. 0171 at p. 2) \30\ Furthermore, 
ACEEE and AHRI stated that a size threshold would not present the 
potential enforcement challenges associated with regional standards. 
(ACEEE, No. 0113 at p. 3; AHRI, No. 0181 at p. 2) Ubuntu expressed the 
belief that establishing separate furnace classes by capacity is a

[[Page 65752]]

viable solution for achieving energy efficiency while also protecting 
low-income and minority communities. (Ubuntu, No. 0191 at p. 1)
---------------------------------------------------------------------------

    \30\ A notation in this form provides a reference for 
information that is in Docket No. EERE-2014-BT-STD-0031 (unless 
otherwise denoted) from the listed stakeholder on the specified page 
of the specified docket number. For example, the first comment is 
from ASAP on p. 8 of document number 0154-1 in the docket.
---------------------------------------------------------------------------

    NRDC stated that separating furnaces based on capacity is 
reasonable because larger and smaller furnaces are distinct products 
that serve different homes. NRDC stated that the consumer utility in 
both cases is still home heating but smaller furnaces provide 
sufficient consumer utility only for those homes with lower heating 
loads, whether due to excellent insulation or geographic location. 
(NRDC, No. 0134 at pp. 6-7) NRDC also theorized that separating 
furnaces based on capacity may reduce the negative impacts for 
manufacturers by limiting conversion costs. (NRDC, No. 0134 at pp. 3-4)
    Many stakeholders commented in response to DOE's September 2015 
NODA that they supported creation of product classes by capacity. AHRI, 
Carrier, JCI, and Ingersoll Rand stated that separating small and large 
furnaces by product class provides a reasonable solution for most of 
the installations that cannot accommodate a condensing furnace without 
extraordinary costs or installation site renovations; address the 
concern of those areas of the U.S. that have low heating loads where 
the installation of a condensing furnace is not economically justified; 
and focus the benefit of a condensing standard on the input capacities 
where energy savings are maximized. (AHRI, No. 0181 at pp. 1-2; 
Carrier, No. 0183 at pp. 2-3; JCI, No. 0202 at p. 3; Ingersoll Rand, 
No. 0203 at p. 1) Carrier and JCI added that it benefits economically-
challenged or low-income individuals/families with a gas furnace option 
that minimizes installation or electrical changes. (Carrier, No. 0183 
at p.3; JCI, No. 0202 at p. 3) Carrier commented that the approach may 
be satisfactory to all stakeholders and satisfy the parameters that 
guide DOE's decision-making process. Carrier, Ingersoll Rand, and AHRI 
stated that this concept warranted further consideration. (Carrier, No. 
0183 at p. 2; Ingersoll Rand, No. 0182 at p. 4; AHRI, No. 0181 at p. 1)
    Lennox also agreed that the September 2015 NODA justified creating 
a separate product class for lower-input capacity non-condensing 
furnaces. Lennox stated that lower capacity furnaces serve smaller 
residences where the physical complexities and costs of replacing non-
condensing furnaces with condensing furnaces is unduly burdensome, and 
that setting separate standard levels for smaller non-condensing 
furnaces could increase economic benefits and energy savings. (Lennox, 
No. 0201 at pp. 3-4)
    AGL Resources stated that EPCA gives DOE the authority to establish 
separate product classes on the basis of product capacity, and DOE has 
previously opted to create separate product classes on the basis of 
product capacity for a wide variety of covered products. (AGL 
Resources, No. 0112 at pp. 15-16)
    Johnson also commented that a two-product-class standard could help 
prevent furnace oversizing, which could increase the seasonal 
efficiency of the furnace and reduce energy consumption. In addition, 
Johnson stated that a two-product-class standard could help encourage 
other energy conservation measures, such as increasing the insulation 
in the ceiling and walls, improved caulking and weather-stripping doors 
and windows, to enable consumers to purchase a small furnace. (Johnson, 
No. 0190 at p. 1) In its comments, the Joint Consumer Commenters 
requested DOE consider tailoring the rule to the particular 
circumstances (e.g. mild climates) that result in consumers having net 
costs based on furnace input capacity in order to reduce the number of 
losers and increase the overall net benefit. (Joint Consumer 
Commenters, No. 0123 at pp. 1, 11)
    DOE has tentatively concluded that the establishment of a small 
furnace class has merit. Accordingly, DOE decided to develop a 
capacity-based approach to set standards for NWGFs. In determining 
whether a less-stringent standard is justified for small NWGFs pursuant 
to 42 U.S.C. 6295(q), DOE considered the costs and benefits of such a 
capacity-based approach in light of the results contained in the 
September 2015 NODA. In this way, DOE sought to determine the impact 
that a modified standard in an SNOPR would be expected to have in terms 
of mitigating fuel switching. The building sample and furnace sizing 
criteria developed for the LCC analysis (described in section E) show 
that small furnaces are commonly installed in circumstances that are 
different from those of large furnaces--namely that the buildings into 
which small furnaces are installed are more often smaller or are found 
in the South where heating loads are much lower due to warmer climate. 
The cost-benefit analysis found that a less-stringent standard for 
small furnaces would be economically justified because it would reduce 
the number of consumers experiencing net costs (due to higher 
installation costs for condensing furnaces or switching to electric 
heat). Thus, establishing a less stringent standard for small furnaces 
would reduce fuel switching because they are more likely to be used in 
instances where there would otherwise be negative impacts due to a 
higher standard.
b. Condensing and Non-Condensing Furnaces
    Other stakeholders urged DOE to set standards based on the use of 
condensing vs. non-condensing technology, arguing that the type of 
venting required for furnaces constitutes a ``feature.'' In the March 
2015 NOPR, DOE stated that it would not consider separate product 
classes for condensing and non-condensing furnaces and detailed its 
reasons for not doing so. 80 FR 13120, 13137-38 (March 12, 2015) 
However, in response to the March 2015 NOPR, a number of stakeholders 
still encouraged DOE to establish separate efficiency standards for 
non-condensing and condensing NWGFs. Those comments are available in 
the docket for this rulemaking. Those same commenters raised, 
essentially, the same comments in response to the September 2015 NODA 
while also responding to the concept of a small capacity product class.
    As explained in detail in the March 2015 NOPR, DOE has implemented 
the ``feature'' provision of EPCA such that the Department ascertains 
the utility of the purported feature to the consumer as the basis for 
setting a separate product class. 80 FR 13120, 13137-38 (March 12, 
2015). In the present case, DOE maintains the view that the consumer 
utility of a furnace is that it provides heat to a dwelling, and that 
the type of venting used for particular furnace technologies does not 
impact that utility. As further explained in the March 2015 NOPR, DOE 
has consistently followed this approach in its various appliance 
rulemakings, making such determinations on a case-by-case basis to 
reflect the unique characteristics and circumstances of different 
products. As explained in the March 2015 NOPR, disparate products may 
have very different consumer utilities, thereby making direct 
comparisons difficult and potentially misleading. Id. Furthermore, 
tying the concept of ``feature'' to a specific technology, as suggested 
in the gas utility comments, would effectively lock in the technology 
existing at the time of such decision as the ceiling for product 
efficiency. As a result, doing so would 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 consumers. Moreover, establishing separate standards 
based on preserving a type of venting (i.e., establishing

[[Page 65753]]

separate classes for condensing and non-condensing furnaces) would not 
place any restriction on the use of non-condensing furnaces and, 
therefore, would not be a meaningful standard, resulting in little or 
no change in products offered and their market shares nor energy 
savings. If such classes were to be established, the baseline 
efficiency level for non-condensing products would be 80-percent (i.e., 
the current minimum standard) and baseline for the condensing product 
class would likely be 90-percent AFUE (based on condensing products 
currently on the market). There are currently no efficiency levels 
available for non-condensing furnaces that are above 80-percent. Using 
such a product class approach, furnace manufacturers could continue 
making and selling furnaces at the current baseline efficiency (80-
percent AFUE), undercutting any possible energy savings that might be 
achieved by improving the efficiency standard for the condensing 
product class (i.e., setting a standard higher than 90-percent AFUE for 
the condensing product class). For these reasons, DOE continues to 
decline to define a separate product class for furnaces based on 
venting. (i.e., non-condensing and condensing product classes).
    In its comments in response to the September 2015 NODA, Laclede 
stated that creating a separate product class based on the input 
capacities analyzed would still result in the unavailability of large 
non-condensing furnaces and cause millions of customers to either 
choose a furnace that is not cost effective or switch to other 
equipment that will increase overall energy usage and degrade the 
environment. Laclede believed that the September 2015 NODA did not 
provide evidence or analysis that would support the establishment of a 
separate product class for small furnaces. (Laclede, No. 0178 at pp. 5-
6)
    Rheem also commented that the adoption of a two-tier product class 
system would limit choices for residential furnace consumers. Rheem 
added that although capacity-based product classes would benefit low 
and fixed income consumers who live in small energy-efficient homes, 
the concept would not aid consumers with challenging financial 
circumstances who live in older homes that are not well insulated or 
maintained. (Rheem, No. 0184 at p. 2; Rheem, No. 0199 at p. 2)
    NPGA stated that DOE's categorization of ``small'' furnaces by 
input capacity is not adequately justified and that DOE must produce 
analysis and technical documents that demonstrate the division of 
product classes based on input capacity is the most practical and 
economical means to achieve the energy efficiency objectives. (NPGA, 
No. 0200 at pp. 1-2)
    With regards to concerns that the separate small furnace product 
class approach would result in the unavailability of a covered product 
(namely non-condensing large furnaces), DOE notes that, as discussed 
above, venting is not a ``feature'' of furnaces under U.S.C. 
6295(o)(4).). Therefore, DOE does not agree that a standard that would 
effectively require the use of condensing technology for large 
furnaces, as has been proposed in this SNOPR, would result in the 
unavailability of products with similar performance characteristics and 
features that are substantially the same as those generally available 
today. DOE has tentatively concluded that the methods by which a 
furnace is vented, which is a significant differentiator of condensing 
and non-condensing furnaces, do not provide any separate performance-
related utility, and, therefore, DOE has no statutory basis for 
defining a separate product class based on venting and drainage 
characterisitics. 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. As previously discussed, DOE 
is proposing a separate product class based on the input capacity of 
NWGFs. The establishment of a small furnace product class would reduce 
the number of consumers that would experience a net cost, as compared 
to a single, more stringent standard, including consumers in buildings 
such as rowhomes, townhomes, or multi-family dwellings.
    In response to Laclede's and Rheem's concern that some consumers 
may experience a net cost under the proposed standard, DOE has taken 
such considerations into account through its LCC analysis (see section 
IV.E.3) and consumer subgroup analysis (see section IV.I), while 
national energy savings (NES) are estimated as described in section 
IV.H and environmental impacts are estimated as described in sections 
IV.K and IV.L. As described in section IV.A.1.c below, DOE has 
tentatively determined based on its comprehensive cost-benefit analysis 
that the benefits of separate standards for small and large NWGFs 
outweigh the burdens.
    EEI stated that DOE cannot justify a separate standard for small 
and large furnaces by claiming that the small furnace standard produces 
greater savings due to less fuel switching. (EEI, No. 0179 at p. 10) In 
response, DOE notes that fuel switching is only one component of the 
rationale for proposing such an approach, and for the reasons stated it 
is a valid consideration. Moreover, as described below in IV.A.1.c, DOE 
was required by statute in a prior rulemaking to consider differential 
standards for small furnaces based upon input capacity as a means to 
address fuel switching pursuant to 42 U.S.C. 6295(f)(1)(B).
c. Input Capacity
    Because there are potential benefits of establishing a separate 
small furnaces product class, DOE analyzed these benefits to determine 
a potential capacity cutoff for small furnaces. Typically, DOE looks to 
natural capacity breakpoints in a given market to create new product 
classes based on capacity. However, DOE did not find an obvious 
breakpoint in the residential gas furnace market based upon input 
capacity that would delineate a boundary between the small and large 
non-weatherized gas furnace product classes. Commenters on the 
September 2015 NODA who supported the concept of separate, capacity-
based product classes expressed varying viewpoints as to the most 
appropriate boundary for those classes, as outlined below.
    ACEEE and the Joint Consumer Commenters recommended a capacity 
limit for small NWGFs of 50 kBtu/h or less. (ACEEE, No. 0113 at p. 3; 
Joint Consumer Commenters, No. 0123 at pp. 1, 9) ACEEE also stated that 
by setting a higher standard for large NWGFs, DOE will make up some of 
the lost energy savings by leaving the standard for small NWGFs 
unchanged, achieving larger national benefits. (ACEEE, No. 0113 at p. 
4)
    NRDC stated that the capacity threshold should be set low enough 
that the benefits of a national condensing standard are largely 
preserved while allowing consumers in small and moderately-sized, well 
insulated, and weatherized homes in moderate and warm climates to have 
a non-condensing option. NRDC stated that a key objective in choosing a 
capacity threshold is to capture most of the energy and cost savings 
potential of high efficiency furnaces while simultaneously allowing 
homes with the lowest heating load to use 80-percent AFUE furnaces 
where those are significantly more cost-effective. NRDC stated that 
encouraging utility efficiency programs that improve insulation and 
weatherization in new and existing

[[Page 65754]]

homes, and reducing the risk and extent of negative impacts on 
manufacturers, are valuable secondary objectives. (NRDC, No. 0134 at 
pp. 2, 4-5) NRDC stated that the NODA analysis suggests that the most 
appropriate capacity threshold lies between 50 kBtu/h and 65 kBtu/h 
input capacity. (NRDC, No. 0186 at p. 2) (In response to the March 2015 
NOPR, NRDC had initially suggested a threshold of 50 kBtu/h output 
capacity; NRDC, No. 134 at p. 5). NRDC commented that DOE should 
evaluate and publish the distribution of consumer, environmental, 
energy savings, and manufacturer impacts as a function of furnace 
capacity. This will serve to highlight that larger and smaller furnaces 
are distinct products that serve different homes. (NRDC, No. 0134, pp. 
6134, p. 2-7) NRDC encouraged DOE to perform a broader range of 
analyses in an SNOPR, e.g., from 40 kBtu/h to 75 kBtu/h, to choose an 
appropriate threshold. (NRDC, No. 0186 at p. 2) NRDC also recommended 
that DOE adopt a 95-percent AFUE for large furnaces, regardless of the 
capacity threshold for small furnaces due to the significant benefits 
to customers and the environment, and that DOE adopt an 80-percent AFUE 
standard for furnaces below the specified maximum capacity threshold. 
(NRDC, No. 0186 at pp. 2-3)
    CEC requested that if DOE continues with a two-tier capacity-based 
approach, it should publish a final rule that at minimum incorporates 
the following recommendations: (1) Defines a small furnace capacity 
cutoff at 45 kBtu/hour to ensure that smaller furnaces are used only 
for homes with small heating loads, while also achieving the most 
energy savings of any of the cutoff points; (2) analyzes alternative 
standard levels in addition to 80 percent AFUE for small furnaces; (3) 
set the standard for large furnaces at 98 percent AFUE. (CEC, No. 0172 
at p. 2)
    The Efficiency Advocates stated that it is important that the cut-
off for small furnaces be set low enough to avoid having non-condensing 
furnaces installed in a large fraction of new homes each year. The 
Efficiency Advocates expressed support for a capacity limit of no more 
than 55 kBtu/h because of impacts on state and local building energy 
code requirements. The Efficiency Advocates also stated that using the 
50 to 55 kBtu/h small furnace limit, the energy savings and net 
consumer benefits are significantly higher for a 95-percent AFUE 
standard for large furnaces than for a 92-percent AFUE standard. 
Therefore, the Efficiency Advocates recommended that DOE adopt a 95-
percent AFUE for large furnaces, regardless of the capacity threshold 
for small furnaces due to the significant benefits to customers and the 
environment. The Efficiency Advocates stated that a 95-percent AFUE 
standard becomes even more important if DOE sets the size limit higher 
than they recommend, because the higher the breakpoint between small 
and large furnaces, the lower the energy savings. (Efficiency 
Advocates, No. 0196 at pp. 3-5)
    ASE suggested an input capacity limit for small NWGFs of no more 
than 50 kBtu/h to 65 kBtu/h. However, ASE urged DOE to take more fully 
into account the success with condensing furnace installations in many 
parts of the US, Canada, and Europe, as well as the recent emergence of 
innovative venting solutions. (ASE, No. 0115 at p. 1) ASE also 
recommended that DOE assure that the majority of furnaces be covered by 
a 95-percent AFUE standard. (ASE, No. 0115 at ppp. 1-2)
    AHRI commented that the NODA indicates that at each efficiency 
level, the average LCC savings across the considered small furnace 
input capacity definitions are similar, but the estimated percentage of 
consumers who experience a net cost decreases significantly as the 
input capacity definition for small furnaces increases. AHRI stated 
that the average LCC savings for the small furnace capacity limits from 
70 kBtu/h to 85 kBtu/h are higher than the LCC savings for the small 
furnace capacity limits lower than 60 kBtu/h. AHRI stated that at a 
small furnace capacity limit of 80 kBtu/h or higher, the percent of 
consumer with a net cost drops to 2 percent, less than one-third the 
percentage at the 65 kBtu/h limit and less than one-eighth the 
percentage at the 55 kBtu/h limit. AHRI noted that the combination of 
92-percent AFUE for large furnaces and 80 percent for small furnaces 
provides the highest average LCC savings for every input capacity. 
(AHRI, No. 0181 at pp. 1, 3)
    Of the input capacities reviewed by DOE in the NODA, NPGA stated 
that <=65 kBtu/h presents the most reasonable benefits. NPGA stated 
that the information presented by DOE demonstrates that <=65 kBtu/h 
presents valuable LCC savings that are comparable among consumers in 
different regions. NPGA also stated that an input capacity of less than 
65 kBtu/h presents the lowest percentage of consumers likely to 
experience a net cost. (NPGA, No. 0171 at p. 4)
    Johnson stated that the small furnace size limit should be at least 
65 kBtu/h. (Johnson, No. 0190 at p. 1)
    Ubuntu stated that based on existing housing data, a furnace size 
threshold of 75 kBtu/h is needed to effectively target larger furnaces 
and homes that have the greatest impact on national energy efficiency, 
while also protecting smaller furnaces in homes where low-income and 
working class families are likely to reside. Ubuntu also stated that a 
furnace size threshold of 75 kBtu/h is necessary to prevent low-income 
homeowners and landlords who rent to low-income families from trying to 
avoid costly condensing furnace installations by switching to lower-
initial cost electric alternatives that lead to higher energy expenses 
in the long term. (Ubuntu, No. 0191 at p. 1)
    Lennox stated that a limit of 55 kBtu/h for small furnaces only 
provides for the installation of non-condensing options in very small 
dwellings, especially in colder climates, and is not adequate to 
provide relief for many consumers. Lennox stated that the 55 kBtu/h 
limit also negatively impacts Southern consumers where a condensing 
furnace is not economically feasible and will detract from cooling 
operational efficiency, which is paramount in the South. Additionally, 
Lennox stated that the 55 kBtu/h limit disproportionately impacts low-
income consumers. Lennox indicated that a limit of 80 kBtu/h improves 
LCC savings and significantly reduces the percentage of consumers with 
net cost. Lennox recommended DOE to further analyze the 80 kBtu/h input 
level for non-condensing products combined with a 92-percent AFUE 
standard for products above 80 kBtu/h. (Lennox, No. 0201 at p. 2) 
Lennox stated that with higher input capacity limits for small 
furnaces, the LCC analysis indicates that a 92-percent AFUE standard 
optimizes the LCC savings while minimizing the percentage of consumers 
with negative cost impacts. (Lennox, No. 0201 at p. 5) Lennox also 
stated that higher capacity limits need to be analyzed to fully 
evaluate the trend of a decreasing percentage of consumers that would 
experience a net cost as the definition of small furnace expands to 
include more furnaces. (Lennox, No. 0201 at p. 4)
    JCI recommended DOE consider thresholds of up to 80 kBtu/h to 
properly consider the various applications, installations and 
geographic regions. (JCI, No. 0202 at pp. 3-4)
    Ingersoll Rand stated that DOE must consider input capacity limits 
greater than 65 kBtu/h to reflect the furnace market and consumer 
needs. Ingersoll Rand recommended that DOE consider not only the 
furnace but also the central air conditioner in defining the input 
capacity of small furnaces because the

[[Page 65755]]

air conditioning needs in the South are hard to meet with a furnace 
that is smaller than 65 kBtu/h while at the same time providing a 
comfortable supply air temperature in heating mode. For these 
situations, Ingersoll Rand stated that an appropriate maximum input for 
the non-condensing class is in the 75-80 kBtu/h range. (Ingersoll Rand, 
No. 0182 at p. 5; Ingersoll Rand, No. 0203 at p. 2)
    NAHB and NMHC, NAA, and NLHA requested that DOE retain the 80-
percent AFUE minimum for NWGFs with an input capacity of 80 kBtu/h or 
less. (NAHB, No. 0124 at p. 5; NMHC, NAA, and NLHA, No. 0117 at p. 5) 
Carrier recommended DOE keep non-condensing furnaces with an input 
capacity of up to 90 kBtu/h for replacement applications where a 
condensing furnace would be cost prohibitive. (Carrier, No. 0116 at p. 
9)
    NPGA and AHRI urged DOE to broaden the input capacities reviewed 
and present for public comment separate standards for small NWGFs 
defined as <=100 kBtu/h. (NPGA, No. 0171 at pp. 3-4; AHRI, No. 0167 at 
p. 1)
    Several commenters suggested establishing a separate product class 
based on the size of the dwelling in which the furnace would be 
installed, which would serve as a proxy for capacity. Washington Gas 
and NJNG recommended that DOE establish a separate product class for 
NWGFs for consumers living in smaller dwellings. (Washington Gas, No. 
0133 at p. 2; NJNG, No. 0119 at pp. 2-3) AABE, A Ware, and AGL 
Resources stated that establishing a cut-off at 1,500 square feet and 
below could potentially protect the larger part of low-income and 
working-class families. (AABE, No. 0197 at pp. 1-2; A Ware, No. 0204 at 
p. 1; AGL Resources, No. 0112 at pp. 15-16)
    DOE relied on the results of the September 2015 NODA and the 
analyses prepared for this SNOPR and its policy discretion based on 
congressional intent to set the proposed bounds of the small and large 
non-weatherized gas furnace products classes, with special attention 
being paid to the prevention of fuel switching. In its analysis, in 
response to suggestions to broaden the range of input capacities 
considered for the small furnace threshold, DOE also considered TSLs 
for this SNOPR using 70 kBtu/h and 80 kBtu/h for the small furnace 
threshold.
    For the small furnace product class, DOE only analyzed a standard 
at 80 percent AFUE. DOE did not find furnaces with AFUE ratings between 
80 percent and 90 percent on the current market. DOE understands that 
such units are generally not viable products in the residential furnace 
market because such efficiencies approach condensing or in some 
applications may condense, requiring the design of the unit to 
incorporate features to handle condensation and prevent corrosion. DOE 
understands that such features are not cost effective for consumers 
unless the unit is designed to fully condense, and therefore furnaces 
with AFUE between 80 percent and 90 percent are generally not produced 
by manufacturers. DOE did, however, consider a 95 percent standard 
level for the proposed large furnace product class, as was suggested by 
some stakeholders. DOE did not ultimately propose this level, and DOE's 
rationale for selecting the proposed standard levels is contained in 
section V of this document.
    In its analysis, DOE prioritized alleviating the most difficult 
installation problems and impacts on consumers in the South, all while 
carefully balancing the impacts on NES and NPV. As a result of these 
deliberations, DOE has tentatively determined that the requirements of 
42 U.S.C. 6295(q)(1) would be satisfied by a small furnace product 
class for non-weatherized gas furnaces with a certified input capacity 
cut-off of 55 kBtu/h (for which a non-condensing standard (80 percent 
AFUE) would apply). An input capacity product class distinction at this 
level would allow for the best balance of alleviating installation and 
other cost concerns for the consumer while maintaining national energy 
savings and associated benefits. Under such a scenario with a 92-
percent AFUE standard level for large furnaces (i.e., >55 kBtu/h 
certified input capacity) and an 80-percent AFUE standard level for 
small furnaces (i.e., <=55 kBtu/h certified input capacity), the 
estimated average LCC savings would increase by $75 to $692, as 
compared to a savings of $617 for the single standard at 92-percent 
AFUE. The share of consumers experiencing a net cost would be reduced 
from 17 percent under the single 92-percent to 11 percent under the 
approach presented in this SNOPR. National energy savings would 
increase from 2.8 quads for the single 92-percent AFUE standard to 2.9 
quads under the approach presented in this SNOPR (by reducing the share 
of consumers switching to electric heat from 11.5 percent to 6.8 
percent). See section V for full analytical results.
    Based upon the foregoing considerations, DOE proposes to establish 
a separate product class for small NWGFs, defined as those furnaces 
with a certified input capacity of less than or equal to 55 kBtu/h. 
Pursuant to 42 U.S.C. 6295(q)(1), DOE has tentatively determined that 
the certified input capacity of these furnaces is a statutorily 
permissible basis for setting a class and that a less-stringent 
standard would be justified for this class, as compared to furnaces 
with a certified input capacity above 55 kBtu/h, due to the potential 
for less fuel switching. It is noted in addition that these positive 
impacts would also be accompanied by an overall increase in NES, NPV, 
and CO2 reductions, as compared to the 92-percent AFUE 
standard originally proposed for all of the subject furnaces.
    DOE notes that it was required by statute in a prior rulemaking to 
consider differential standards for small furnaces based upon input 
capacity as a means to address fuel switching. Specifically, under 42 
U.S.C. 6295(f)(1)(B), Congress directed DOE to consider the appropriate 
standard level to be set for furnaces with an input capacity of less 
than 45 kBtu/h. In doing so, Congress directed DOE to consider a 
standard level within a specified range that was not likely to result 
in a significant shift from gas heating to electric resistance heating 
with respect to either residential construction or furnace replacement. 
Id. at 6295(f)(1)(B)(iii)).
    DOE could justify more than one product class capacity cutoff for 
small furnaces based on the available data. For example, if DOE only 
prioritized reducing fuel switching for small gas furnaces, a small 
furnace product class at 60 kBtu/h or less might be more appropriate. 
DOE notes that at a 60 kBtu/h cut-off, the share of consumers with net 
costs is further reduced from 11.1-percent to 6.6-percent and the share 
of consumers switching to electric heat is further reduced from 6.8-
percent to 4.1-percent, but the national energy savings is also reduced 
from 2.9 to 2.3 quads.
    DOE seeks further input regarding selection of the most appropriate 
small furnaces product class. DOE may consider adopting a different 
certified input capacity threshold for defining the class of small 
furnaces in the final rule, or may not adopt a small capacity product 
class, and seeks comment from stakeholders on its weighing of the 
benefits and burdens of the various certified input capacity thresholds 
for defining the small furnaces product class. Although DOE has 
tentatively determined that the 55 kBtu/h division offers the best 
balance of benefits and burdens, DOE seeks comment on the balancing of 
benefits and burdens regarding a small furnace product class of 60 
kBtu/h or less. This is identified

[[Page 65756]]

as issue 1 in section VII.E ``Issues on Which DOE Seeks Comment.''
d. Other Comments
    CEC expressed concern about the impact that a two-tier capacity-
based approach would have on new construction in the nation, 
particularly given the preemptive effect of federal appliance standards 
on state building codes. CEC stated that a two-tier capacity-based 
approach would create a difficult situation for California: Either the 
state could continue to ensure that furnaces are properly sized, which 
may mean installing a smaller-size furnace with a lower efficiency 
standard, or it could require larger furnaces to be installed, but 
sacrifice proper sizing for a more-efficient product. (CEC, No. 0172 at 
pp. 1-2) DOE recognizes the preemptive effect energy conservation 
standards may have on State building code standards. (See 42 U.S.C. 
6297(f)(3)) The sizing assumptions used for the cost-benefit analysis 
are discussed in section IV.E.
    Some stakeholders commented on separate small and large product 
classes for MHGFs. AHRI and JCI requested that DOE analyze separate 
standard levels for small and large MHGFs. (AHRI, No. 0195 at p. 1; 
JCI, No. 0202 at p. 4) JCI suggested that 80-percent AFUE MHGFs with an 
input capacity of up to 80 kBtu/h should be allowed in replacement 
applications to provide cost-effective replacement units for consumers 
that are typically known to be an economically-challenged market 
segment. (JCI, No. 0202 at p. 4) ACEEE did not recommend a size cutoff 
for MHGFs, but stated that if DOE were to consider such a cutoff, it 
would need to be much lower than that for NWGFs. (ACEEE, No. 0113 at p. 
5)
    DOE does not believe that the considerations for small NWGFs apply 
equally to small MHGFs. In particular, DOE believes the installation 
and usage of small and large MHGF are not significantly different and 
that the cost-benefit is similar regardless of capacity. Therefore, DOE 
is not proposing a separate product class for small MHGFs.
2. Technology Options
    In the market analysis and technology assessment for the March 2015 
NOPR, DOE identified 12 technology options that would be expected to 
improve the AFUE of NWGFs and MHGFs, as measured by the DOE test 
procedure: (1) Using a condensing secondary heat exchanger; (2) 
increasing the heat exchanger surface area; (3) heat exchanger baffles; 
(4) heat exchanger surface feature improvements; (5) two-stage 
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. 80 FR 13119, 13138 (Mar. 12, 2015). In addition, DOE 
identified three technologies that would reduce the standby mode and 
off mode energy consumption of residential furnaces: (1) Low-loss 
linear transformer (LL-LTX); (2) switching mode power supply (SMPS); 
and (3) control relay for models with brushless permanent magnet (BPM) 
motors. Id.
    In response to DOE's proposal, NRDC commented that DOE should 
consider using a control relay to completely disconnect the BPM motor 
and other controls when these components of a furnace are not in use. 
In order to address manufacturer concerns with regard to product 
lifetime, NRDC suggests that DOE assess whether such a technology 
option can be implemented in a way that minimizes the number of power 
cycles, such as only disconnecting the motor and controls components 
when the furnace has been inactive for more than 24 hours. NRDC 
estimates that this technology option could potentially provide 2.5 
billion kWh of annual energy savings. (NRDC, No. 0134 at p. 8)
    In response, DOE notes that in most furnace installations, the 
furnace fan is still used during periods when the furnace itself is not 
operating in order to provide airflow for cooling and ventilation 
purposes. As such, DOE believes that the potential energy savings of a 
technology option which disconnects power from BPM and controls 
components after long periods of inactivity would be small, due to the 
frequency for which the fan is in active mode. However, DOE welcomes 
further feedback as to a technology option that would disconnect the 
BPM motor and controls components after long periods of inactivity, 
especially with regard to the potential energy savings and reliability 
impacts of such a technology option. This is identified as issue 2 in 
section VII.E, ``Issues on Which DOE Seeks Comment.''
    After identifying potential technology options for improving the 
efficiency of residential furnaces, DOE performed the screening 
analysis (see section IV.B of this SNOPR or chapter 4 of the SNOPR 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 it 
is determined that mass production and 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 projected 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 any technology are discussed 
below.
    The subsequent sections include comments from interested parties in 
response to the March 2015 NOPR and the September 2015 NODA pertinent 
to the screening criteria, DOE's evaluation of each technology option 
against the screening analysis criteria, and whether DOE determined 
that a technology option should be excluded (``screened out'') based on 
the screening criteria.
1. Screened-Out Technologies
    DOE screened out four identified technologies: Pulse combustion, 
burner de-rating, low-NOX premix burners, and control relay 
to depower brushless permanent magnetic motors. The rationale for 
screening out each these technologies is outlined below.
    DOE decided to screen out the use of pulse combustion from further 
analysis. Pulse combustion furnaces use self-sustaining pressure waves 
to draw a fresh fuel-air mixture into the combustion chamber, heat it 
by way of compression, and then ignite it using a spark. Based on 
manufacturer feedback received during the manufacturer interviews 
conducted for the analysis

[[Page 65757]]

for the June 2011 DFR, DOE understands that 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 achieve similar or greater 
efficiencies through the use of other technologies that do not operate 
with positive pressure in the heat exchanger, such as those relying on 
induced draft. (In pulse combustion systems, the positive pressure in 
the heat exchanger could cause hazardous combustion products (e.g., 
carbon monoxide) to leak into the home if fatigue caused the heat 
exchanger to breach.) For these reasons, DOE is not including pulse 
combustion as a technology option.
    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, resulting in slower heating and longer operating hours 
and/or not enough heat available to heat the intended space. 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 out 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 conducted prior to the March 2015 
NOPR, 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.
    Lennox commented that the screening analysis should have prevented 
the elimination of non-condensing furnaces from the market because 
these units cannot be easily replaced by condensing furnaces. Lennox 
argued that under a condensing furnace standard, consumers using non-
condensing furnaces in cold weather could be at a safety risk if the 
furnace fails, due to the difficulty of replacing a non-condensing 
furnace with a condensing model. Therefore, Lennox believes that the 
potential elimination of non-condensing furnaces from the marketplace 
is a violation of screening criteria number 4: Adverse impacts on 
health or safety. (Lennox, No. 0125 at pp. 6-7)
    As stated in 10 CFR part 430, subpart C, appendix A, 4(a)(4) and 
5(b), DOE screens out a technology option from further consideration in 
the engineering analysis if DOE determines that the technology option 
itself would have ``significant adverse impacts on health or safety.'' 
Although DOE recognizes that replacing a non-condensing furnace with a 
condensing furnace may take additional time as compared to replacing a 
non-condensing furnace, DOE does not believe that the amount of time is 
significant enough to constitute a safety issue for occupants whose 
furnace has failed. The additional time for replacing a non-condensing 
furnace with a condensing furnaces was considered in the LCC analysis 
(section IV.F of this SNOPR and chapter 8 of the SNOPR TSD), and DOE 
estimated that the maximum additional time needed for such replacement 
would total approximately 5 hours. DOE considered safety concerns 
presented by commenters responding to the March 2015 NOPR and September 
2015 NODA (see section III.F.2) but determined that they were not 
sufficient to screen out condensing heat exchanger technology.
    Among the standby and off mode technologies, DOE screened out using 
a control relay to depower BPM motors due to feedback received during 
the manufacturer interviews conducted for the residential furnaces June 
2011 DFR. For this technology option, a switch is spring-loaded to a 
disconnected position, and can only close to allow a supply of 
electrical power to the BPM motor upon an inrush of current. 
Manufacturer interviews indicated that using a control relay to depower 
BPM 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.
    Ingersoll Rand commented that due to a lack of manufacturer 
experience, implementation of SMPS as a technology option for improving 
furnace efficiency in standby/off mode may introduce reliability 
issues. Ingersoll Rand believes that when considering the amount of 
energy savings offered by SMPS, which Ingersoll Rand considers to be 
low, the potential reliability issues for consumers are not justified. 
(Ingersoll Rand, NOPR public meeting transcript, No. 0044 at pp. 99-
100) In response, DOE considers SMPS to have reached technological 
maturity in other consumer products, and is not aware of any specific 
reasons as to why it would not be able to achieve the same level of 
long-term reliability in furnaces that it has reached in other 
products. As such, DOE considers SMPS as a technology option to reduce 
standby/off mode energy consumption in the analyses for this SNOPR.
    Goodman commented that DOE should not consider LL-LTX as a 
technology option for reducing standby/off mode energy consumption. Due 
to what Goodman sees as currently limited market penetration, Goodman 
believes that manufacturers need more time to research the failure 
modes, repair costs, and design changes that are incurred with 
implementation of LL-LTX technology, and that the LCC analysis cannot 
currently address the repair costs associated with LL-LTX. (Goodman, 
No. 0135 at pp. 4-5) DOE is not aware of any specific barriers to 
implementation of LL-LTX as a technology option to reduce standby/off 
mode energy consumption. DOE believes that due to the technological 
similarities between LL-LTX and LTX technology, the latter of which is 
already commonplace in many consumer products, LL-LTX would have little 
difficulty achieving market acceptance in furnaces. Therefore, DOE has 
considered LL-LTX as a technology option to reduce standby/off mode 
energy consumption in this SNOPR.
2. Remaining Technologies
    Through a review of each technology, DOE tentatively concludes that 
all of the other identified technologies listed in

[[Page 65758]]

section IV.A.2 met all four screening criteria as needed to be examined 
further as design options in DOE's NOPR 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 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. DOE determined that 
these technology options are technologically feasible because they are 
being used or have previously been used in commercially-available 
products or working prototypes. DOE also finds that all of the 
remaining technology options 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, see chapter 4 of the SNOPR TSD.

C. Engineering Analysis

    In the engineering analysis, DOE establishes the relationship 
between the manufacturer selling price (MSP) and improved NWGF and MHGF 
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) efficiency level; or (3) reverse 
engineering (or cost assessment). The design-option approach involves 
adding the estimated cost and associated efficiency of various 
efficiency-improving design changes to the baseline product to model 
different levels of efficiency. The efficiency-level approach uses 
estimates of cost and efficiency of products available on the market at 
distinct efficiency levels to develop the cost-efficiency relationship. 
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. For both NWGF 
and MHGF, the efficiency ranges from that of the least-efficient unit 
sold today (i.e., the baseline efficiency level) to the maximum 
technologically feasible efficiency level. At each efficiency level 
examined, DOE determines the MSP; this relationship is referred to as a 
cost-efficiency curve.
    DOE conducted the AFUE engineering analysis for residential 
furnaces in this SNOPR using a methodology similar to that which was 
used for the March 2015 NOPR, but with some updates which are discussed 
both below and in chapter 5 of the SNOPR TSD. For completeness and 
convenience of the reader, DOE is reiterating portions of the 
engineering analysis information already presented in the March 2015 
NOPR. The AFUE engineering analysis for this SNOPR used a combination 
of the efficiency-level and reverse-engineering approaches. More 
specifically, DOE identified the efficiency levels for analysis and 
then used the reverse-engineering approach to determine both the 
technologies used and their 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 production cost at each efficiency level allows 
DOE to analyze actual models as the basis for developing the MSPs.
    For the standby mode and off mode analysis conducted for this 
SNOPR, DOE also replicated the methodology that was used for this 
analysis in the March 2015 NOPR. In this analysis, 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.
1. Efficiency Levels
    As noted above, for analysis of amended AFUE standards in this 
SNOPR, 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 (see section IV.C.2.a) to determine the manufacturer 
production cost (MPC) at each AFUE efficiency level identified for 
analysis.
    For the analysis of new 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 NWGFs and MHGFs, 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 SNOPR 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.
AFUE
    In the analysis of amended AFUE standards, when calculating the 
price of a baseline furnace and comparing it to the price of units at 
each higher

[[Page 65759]]

efficiency level, DOE factored in future changes to the indoor blower 
motor baseline design option resulting from the 2014 furnace fans final 
rule.\31\ 79 FR 38219 (July 3, 2014), 10 CFR 430.32(y). The 2014 
furnace fans final rule set new baseline efficiency levels for furnace 
fans requiring compliance on July 3, 2019, which include a level 
effectively requiring constant torque 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. As such, beginning in July 2019, 
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.
---------------------------------------------------------------------------

    \31\ 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.

                                     Table IV.1--Baseline Blower Motor Types
                                         [Current and expected in 2019]
----------------------------------------------------------------------------------------------------------------
                                                                                           Expected  typical
             Product class                 Current  typical  baseline  blower  motor    baseline  blower  motor
                                                             type                        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 improved PSC 
motors, BPM motors offer further efficiency improvements. BPM motors 
feature a completely redesigned inner drive mechanism, 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 are the 
same as the current federal minimum AFUE standards for furnaces, as 
established by the November 2007 final rule. 10 CFR 430.32(e)(1)(ii); 
72 FR 65136, 65169 (Nov. 19, 2007).

     Table IV.2--Baseline Residential Furnace AFUE Efficiency Levels
------------------------------------------------------------------------
                                     Certified input
         Product class              capacity (kBtu/h)     AFUE (percent)
------------------------------------------------------------------------
Non-Weatherized Gas Furnaces...  <=55 kBtu/h............              80
                                 >55 kBtu/h.............              80
Mobile Home Gas Furnaces.......  All....................              80
------------------------------------------------------------------------

Standby/off mode
    ``Standby mode'' and ``off mode'' power consumption are defined in 
the DOE test procedure for residential furnaces and boilers. DOE 
defines ``standby mode'' for residential furnaces and boilers 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'' for residential furnaces and boilers 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 discussions 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. Manufacturers 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. Rheem commented that 
it does not believe that energy consumption is the same for standby and 
off mode, but also stated that it has not rated any furnaces in the off 
mode. (Rheem, No. 0142 at p. 5). As previously discussed, DOE estimates 
that for a large majority of furnaces an off switch is not included on 
the unit. However, DOE notes that if a furnace does include an off 
switch, then the energy consumption in off mode for that furnace would 
be reduced below that of standby mode. Accordingly, in the

[[Page 65760]]

analysis of standby mode and off mode energy conservation standards, 
DOE treated the standby mode and the off mode power consumption for 
residential furnaces as equal in order to be conservative. DOE requests 
further comment on the treatment of standby mode and off mode energy 
consumption (as defined by DOE) as equal. This is identified as issue 3 
in section VII.E, ``Issues on Which DOE Seeks Comment.''
    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. Because it would not be practical for DOE to 
test every furnace on the market to determine the baseline efficiency, 
and 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.
    In response to this approach detailed in the March 2015 NOPR, EEI 
commented that this method of selecting the baseline efficiency level 
is very conservative, and as a result, there are many units on the 
market which will already comply with the max-tech standby/off mode 
efficiency level proposed in the March 2015 NOPR. (EEI, No. 169 at p. 
12) However, EEI also commented that due to potential future additions 
of furnace functions that consume energy in standby/off mode (i.e., 
smart-grid applications, gas demand response, carbon monoxide 
monitoring, self-diagnostics, maintenance warnings, energy usage 
displays, remote temperature settings, methane leak detection/warnings, 
etc.), the future max-tech standby/off mode efficiency level may have 
higher energy consumption in standby/off mode than the max-tech 
identified by DOE. (EEI, No. 0169 at pp. 12-14)
    DOE understands EEI's concern that the max-tech efficiency level 
identified in the March 2015 NOPR analysis does not account for 
additional functions that consume energy in standby/off mode that may 
be added to units in the future. However, DOE believes that, as EEI 
also commented, the conservatively-selected baseline efficiency level 
that DOE selected in the March 2015 NOPR may be substantially lower 
(i.e. higher power consumption) than the efficiencies of many units 
currently on the market today. DOE believes that the baseline used for 
this SNOPR allows for the future addition of furnace functions that 
operate in the standby/off mode, while still allowing the unit to 
comply with the proposed standard. Additionally, due to a lack of 
detailed information as to what additional functions may be added to 
furnaces in the future, DOE has tentatively maintained the March 2015 
NOPR baseline efficiency level in this SNOPR. However, DOE seeks 
further detailed feedback as to anticipated furnace functions that 
would operate in the standby/off mode and the energy consumption of 
such functions in relation to the baseline efficiency in standby/off 
mode. This is identified as issue 4 in section VII.E, ``Issues on Which 
DOE Seeks Comment.'' The components of the baseline standby mode and 
off-mode consumption level used in this SNOPR 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
AFUE
    Table IV.4 and Table IV.5 show the efficiency levels DOE selected 
for analysis of amended AFUE standards for NWGF (both small and large) 
and MHGF, respectively, along with a description of the typical 
technological change at each level. The efficiency levels analyzed for 
both small and large NWGF in this SNOPR are the same as those which 
were analyzed for NWGF in the March 2015 NOPR. For MHGF, the efficiency 
levels analyzed in this SNOPR are the same as in the NOPR, except at 
the max-tech efficiency level, which is 96 percent AFUE in this SNOPR, 
but was 97 percent AFUE in the March 2015 NOPR. 80 FR 13120, 13141 
(March 12, 2015). This change occurred because the January 2016 
residential furnaces test procedure final rule amended the rounding 
requirements for AFUE ratings to require rounding to the nearest 0.1 
percent AFUE point, rather than rounding to the nearest 1 percent AFUE 
point, as was required prior to the test procedure amendment. 81 FR 
2627, 2638 (Jan. 15, 2016). Because the max-tech MHGF unit in the March 
2015 NOPR analysis was 96.5 percent AFUE, this unit could have been 
rated as 97 percent AFUE under the test procedure requirements at the 
time of the March 2015 NOPR. (10 CFR 430.23(n) as codified on January 
1, 2016) The max-tech MHGF unit at the time of the analysis for this 
SNOPR was still 96.5 percent AFUE, but due to the changes in rounding 
procedures for AFUE ratings since the March 2015 NOPR, this unit would 
not be able to achieve a 97 percent AFUE rating under the current DOE 
test procedure. As such, DOE revised the MHGF max-tech efficiency level 
to 96 percent AFUE in the analyses for this SNOPR.

   Table IV.4--AFUE Efficiency Levels for Non-Weatherized Gas Furnaces
                            [Small and large]
------------------------------------------------------------------------
     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 + Increased heat
                                                  exchanger area + Step-
                                                  modulating combustion
                                                  + Constant-airflow BPM
                                                  blower motor.
------------------------------------------------------------------------


[[Page 65761]]


     Table IV.5--AFUE Efficiency Levels for Mobile Home Gas 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....................              96  EL2 + 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.

  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    Constant airflow BPM
                                 brushless          motor.
                                 permanent magnet
                                 (BPM) motor *.
MHGF Indoor Blower Motor......  Improved PSC       Constant torque BPM
                                 motor *.           motor.
                                                   Constant airflow BPM
                                                    motor.
MHGF combustion system........  Single-stage       Two-stage combustion
                                 combustion.        (includes two-stage
                                                    gas valve, two-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.

    DOE research suggests that furnaces contain either PSC or BPM fan 
motors; PSC motors are typically available with up to 5 speeds, whereas 
BPM fan motors are variable-speed and typically offer higher 
efficiency. Within the BPM product family, fan motors are generally 
classified as either constant torque or constant airflow. The 
construction of these motors is similar, but the more sophisticated 
electronics on constant airflow fan motors allow a wider fan modulation 
range and can be programmed to maintain a desired airflow across a wide 
range of static pressures. DOE research suggests that systems with 
constant airflow BPM motors can better accommodate varying building 
conditions than constant torque BPM and 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 NWGF units.
    The combustion system baseline design feature for MHGF is a single-
stage combustion system, which includes a single-stage gas valve and a 
single-speed inducer fan assembly. The hysteresis of the thermostat 
controlling the furnace may cause this system to over- and undershoot 
the target temperature, which is uncomfortable for the mobile home 
occupants and consumes more energy than is necessary. To improve 
comfort and potentially save energy, a two-stage combustion system can 
be used in place of a single-stage combustion system. A two-stage 
combustion system allows a suitable thermostat to vary the heating 
input in stages, potentially resulting in better actual building versus 
target temperature performance. As discussed in the 2014 furnace fans 
final rule, the furnace fans energy conservation standards have a 
mandatory compliance date of July 3, 2019. Thus, manufacturers will 
likely incorporate two-stage combustion into the designs of most NWGFs 
by 2019 in order to comply with the furnace fans standards. 79 FR 
38129, 38184, 38201 (July 3, 2014). Therefore, for the purpose of its 
engineering analysis in the March 2015 NOPR and in this SNOPR, DOE 
assumed that a majority of furnaces would switch to two-stage 
combustion in order to comply with the furnace fan standard. As such, 
DOE included two-stage combustion as a standard design for NWGF in this 
analysis.
    Two-stage combustion technology was also one of the technology 
options DOE considered in the engineering analysis for improving AFUE. 
However, depending on the product, this option appears to offer a minor 
to negligible improvement of AFUE. Based on market analysis, DOE 
determined that two-stage combustion is a common design feature in 
residential furnaces. DOE research suggests that two-stage combustion 
is currently primarily offered to consumers as a comfort feature rather 
than for its efficiency benefits.
Standby/Off Mode
    Table IV.7 shows the efficiency levels DOE selected for the 
analysis of standby mode and off mode standards in this SNOPR, along 
with a description of the design options used to achieve each 
efficiency level above baseline. The baseline technology options 
include a linear power supply and a 40VA linear transformer (LTX). 
Technology options that may be used to achieve efficiency levels above 
baseline include a low-loss LTX (LL-LTX) and a switching mode power 
supply (SMPS).

[[Page 65762]]



    Table IV.7--Standby Mode and Off Mode Efficiency Levels for Non-
              Weatherized Gas and Mobile Home Gas Furnaces
------------------------------------------------------------------------
                                  Standby mode
                                  and off  mode
      Efficiency Level EL             power         Technology options
                                consumption  (W)
------------------------------------------------------------------------
0--Baseline...................                11  Linear Power Supply
                                                   with 40VA LTX.
1.............................               9.5  Linear Power Supply
                                                   with 40VA LL-LTX.
2.............................               9.2  SMPS with 20VA LTX.
3--Max-Tech...................               8.5  SMPS with 20VA LL-LTX.
------------------------------------------------------------------------

    In response to the analysis DOE presented in the March 2015 NOPR 
for standby/off mode efficiency standards, EEI commented that the 
Nielsen study referenced by DOE in Chapter 3 (on page 3-38) of the 
March 2015 NOPR TSD states that standard 2-3 watt transformers have no 
load losses ranging between 0.5 and 1.5 watts, and therefore EEI wanted 
clarification on how DOE determined in the March 2015 NOPR that 
transitioning from a conventional linear transformer to a low-loss 
linear transformer (LL-LTX) could save 1.5 watts. (EEI, No. 0160 at p. 
14) DOE notes that, as discussed in the Nielsen study, these ``standard 
2-3 watt transformers'' feature a much lower capacity than the 
transformers typically used in residential furnaces. DOE's teardown 
analysis (see section IV.C.2) and review of product literature 
indicated that furnaces typically ship with much larger 40VA 
transformers. DOE estimates that larger 40 VA transformers used in 
residential furnaces will have standby losses of approximately two 
watts. The Nielsen study concludes that an LL-LTX standby losses are 
about 25 percent of the losses of a LTX.\32\ As such, an LL-LTX will 
consume approximately 25 percent of the two watts consumed in standby 
mode by a LTX, which for a 40 VA LL-LTX is 0.5 watts, thus reducing LTX 
transformer losses by 1.5 watts. Therefore, DOE has maintained in the 
SNOPR standby/off mode analysis that the implementation of an LL-LTX at 
EL1 will result in a 1.5 watt reduction in standby losses relative to 
the baseline efficiency level. Similarly, at EL3 a 20 VA LL-LTX will 
consume approximately 25 percent of the one watt consumed at EL2 by a 
20 VA LTX. As such, the 20 VA LL-LTX at EL3 will consume approximately 
0.25 watts, reducing 20 VA LTX transformer losses by 0.75 watts at EL2.
---------------------------------------------------------------------------

    \32\ N. Nielsen. ``Loss Optimizing Low Power 50 Hz Transformers 
Intended for AC/DC Standby Power Supplies.'' Applied Power 
Electronics Conference and Exposition, 2004. IEEE, pp. 420-25, 
September 9, 2004.
---------------------------------------------------------------------------

    EEI also commented that the margin of error for the equipment used 
to test the standby/off mode energy consumption of furnaces may be 
larger than the incremental reduction in standby losses between some 
efficiency levels. As a result, EEI stated that some units would not 
experience a measurable reduction in standby losses as a result of 
implementing some of the design options. (EEI, NOPR Public Meeting 
Transcript, No. 0044 at pp. 94-95) DOE notes that the equipment used to 
test the standby/off mode energy consumption of the furnaces in this 
analysis has a published accuracy of within 0.1 percent (see Chapter 5 
of the SNOPR TSD for further information). Between the efficiency 
levels analyzed, the smallest incremental decrease in standby/off mode 
energy consumption (which occurs between EL1 and EL2) is 0.3 watts. 
This is significantly larger than both of the 0.1 percent margins of 
error for EL1 and EL2, which are 0.0095 watts and 0.0092 watts, 
respectively. Therefore, DOE believes that a reduction in standby 
losses at each efficiency level would be captured by current test 
methods, because the incremental reductions in standby losses are 
outside of the margin of error of testing equipment.
    In addition, EEI questioned how implementation of an LL-LTX at EL1 
offers 1.5 watts of energy savings and implementation of a SMPS at EL2 
offers 1.8 watts of energy savings, but implementation of both of these 
design options at EL3 only offers 2.5 watts of energy savings, rather 
than the sum of the savings at EL1 and EL2, which would be 3.3 watts of 
savings. (EEI, No. 0169 at p. 13) In response, DOE clarifies that the 
implementation of a SMPS provides the proper voltage reduction needed 
for the furnace control board, but a smaller AC-AC transformer is still 
required to provide 24VAC power for thermostats. DOE estimated that a 
20VA transformer would be sufficient to power thermostats. As such, the 
required capacity for a LL-LTX implemented in tandem with a SMPS at EL3 
is smaller than that of a LL-LTX implemented with a linear power supply 
at EL1 (20VA vs. 40VA, respectively, as shown in Table IV.7). Because 
the transformer at EL3 has half the capacity of the transformer at EL1, 
the potential energy savings of switching to a LL-LTX at EL3 is lower 
than the savings provided at EL1 (see prior discussion).
    EEI commented that due to the low wattage differences between each 
efficiency level, implementing the design options listed (see Table 
IV.7) to achieve efficiency levels above baseline may not always result 
in a reduction in energy consumption. EEI suggested that, due to the 
potential range of standby/off mode energy consumption values for units 
that incorporate any of these given design options, units could 
potentially have a higher energy usage than units which incorporate a 
design option corresponding with a lower efficiency level 
(corresponding efficiency levels also listed in Table IV.7).
    In response, DOE understands that units which incorporate any of 
the design options listed in Table IV.7 will have a range of energy 
consumption values which may differ from the corresponding energy 
consumption value listed in the table.
    As mentioned previously, DOE developed the baseline efficiency 
level as a sum of the highest energy consumption measurements it 
obtained by testing the various components that consume standby power 
in furnaces. The specific energy consumption values associated with 
each incremental efficiency levels were then developed by reducing the 
baseline energy consumption by the reduction in energy consumption 
provided by the particular design option implemented at that efficiency 
level. Because of the conservative nature by which the baseline energy 
consumption value was developed, DOE expects that many units already 
achieve standby/off mode energy usage levels which are lower than the 
current baseline. DOE further expects that those units that do not

[[Page 65763]]

currently meet the proposed efficiency level could do so via 
implementation of the listed design options corresponding with that 
level in Table IV.7.
    Goodman commented that to properly accommodate the LL-LTX design 
option (which is used at EL1 and EL3), it may be necessary to redesign 
the furnace platform, because LL-LTX are larger than baseline LTX. 
(Goodman, No. 0135 at pp. 4-5) In the engineering analyses for this 
SNOPR, DOE has not accounted for any particular design changes to the 
furnace platform as a requirement in order to implement an LL-LTX. 
Every furnace reverse-engineered by DOE appeared to have room for a 
larger transformer. DOE estimates that the 20VA LL-LTX transformer that 
could be used (along with other components) to reach EL3 is not 
significantly larger than the current 40VA LTX typically used in 
baseline designs. DOE has reverse-engineered a number of control boards 
in space-constrained appliances where the power supplies made a 
transition from a linear power supply to SMPS without any changes to 
the size of the printed circuit board. DOE welcomes further feedback as 
to any design modifications which may be necessary in order to 
integrate LL-LTX into furnaces. This is identified as issue 5 in 
section VII.E, ``Issues on Which DOE Seeks Comment.''
    DOE requests further comment on the efficiency levels analyzed for 
standby mode and off mode. In particular, DOE welcomes any additional 
feedback as to the technological feasibility of achieving the proposed 
max-tech standby/off mode energy consumption value of 8.5 watts. This 
is identified as issue 6 in section VII.E, ``Issues on Which DOE Seeks 
Comment.''
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 
inputs 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 for the March 
2015 NOPR, DOE held interviews with manufacturers to gain insight into 
the residential furnace industry, and to request feedback on the 
engineering analysis. DOE used the information gathered from these 
interviews, along with the information obtained through the teardown 
analysis, to refine its MPC estimates 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 SNOPR 
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. For this 
SNOPR, data from a total of 77 physical and virtual teardowns of 
residential furnaces were used to calculate industry MPCs in the 
engineering analysis.
    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 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. For more detailed information on 
DOE's teardown analysis, see Chapter chapter 5 of the SNOPR TSD.
    In response to the NOPR, DOE received multiple comments suggesting 
that the engineering analysis be based on furnace pricing currently 
seen in the market, rather than teardowns, due to the fact that the 
inputs to the teardown analysis are not made publicly available. APGA 
expressed concern with the level of transparency given that DOE does 
not disclose the product specific details obtained through the teardown 
analysis. APGA stated that without disclosure of the product specific 
details from the teardown analysis, it is not possible to verify that 
its outputs are accurate. Further, APGA stated that DOE should not use 
inputs to its analysis that it cannot make public, and should examine 
the real world prices of furnaces as a way of determining consumer 
prices. (APGA, No. 0106 at pp. 32-34) Laclede commented that its 
employees solicited price bids for installation of condensing furnaces 
in their homes, and found that the incremental installed costs were 
higher than those determined by DOE's analysis. Laclede stated that 
using this type of methodology to determine costs is better founded 
than the teardown methodology used by DOE. (Laclede, No. 0141 at pp. 
24-27) Ingersoll Rand inquired as to whether DOE compares the 
manufacturing costs generated by the teardown analysis with the prices 
that DOE pays to purchase the furnaces which it tears down. (Ingersoll 
Rand, NOPR Public Meeting Transcript, No. 0044 at p. 5960)
    DOE notes that the sales prices of furnaces currently seen in the 
market place, which include both an MPC and various markups applied 
through the distribution chain, are not necessarily indicative of what 
the sales prices of those furnaces would be following the 
implementation of a more stringent energy conservation standard. At a 
given efficiency level, the furnace MPC depends in part on the 
production volume. At any given efficiency level above the current 
baseline, the industry-

[[Page 65764]]

aggregated MPC for furnaces at that level may be high relative to what 
it would be under a more stringent standard, due to the increase in 
production volume (and thus, improved economies of scale and purchasing 
power for furnace components) which would occur at that level if a 
federal standard made it the new baseline efficiency. Under a more 
stringent standard, the markups incorporated into the sales price may 
change relative to current markups. This could occur due to the changes 
in market forces caused by an increase in demand for furnaces at that 
higher efficiency, as well as changes in the production and 
installation costs of furnaces at that level resulting from higher 
production volumes, greater experience with condensing furnace 
installations, and a multitude of other factors. As higher efficiency 
furnaces become a commodity rather than a premium product, high 
efficiency furnaces may not command the same markups that can be 
applied to such products presently. Therefore, basing the engineering 
analysis on prices of furnaces as currently seen in the market place 
would be a less accurate method of estimating future furnace prices 
following an amended standard. It is for these reasons that DOE 
conducts interviews with manufacturers under non-disclosure agreements 
(NDAs) to determine if the MPCs developed by the analysis reflect the 
industry average cost rather than current sales prices. Because the 
cost estimation methodology uses data supplied by manufacturers under 
the NDAs (such as raw material and purchased part prices), the 
resulting individual model cost estimates themselves cannot be 
published.
    Stakeholders also suggested that DOE take action to improve the 
transparency of the engineering analysis by releasing certain 
information currently not available within the public domain. AGA 
requested that all information used as inputs to the development of 
manufacturing costs be made publicly available so that its validity can 
be assessed, emphasizing its view that MPC calculations are 
foundational to the entire analytical process. (AGA, NOPR Public 
Meeting Transcript, No. 0044 at pp. 73-74) Similarly, Laclede commented 
that it would like access to the BOM spreadsheets used in the 
engineering analysis in order to determine how accurate the 
manufacturer cost calculations are. (Laclede, NOPR Public Meeting 
Transcript, No. 0044, at pp. 71-72) However, Rheem objected to DOE 
publishing any information on the manufacturing costs of Rheem's units. 
Further, Rheem commented that manufacturers in general will object to 
having a BOM from a complete teardown analysis of their product(s) 
available to the public. (Rheem, NOPR Public Meeting Transcript, No. 
0044, at pp. 74-75).
    DOE acknowledges both AGA and Laclede's concern about the public 
availability of the information that is derived from the teardown 
analysis. However, DOE also understands Rheem's comment that furnace 
manufacturers would object to having any sensitive information related 
to the design of their products being released into the public domain. 
Additionally, DOE notes that all manufacturers that participated in 
manufacturer interviews had access to DOE's MPC estimates for models 
they manufacture that were torn down, as well as the raw material and 
purchased part price data underlying the MPC estimates for those 
models. These discussions were covered by NDAs to allow manufacturers 
to submit confidential data and to comment freely on the inputs into 
the DOE analysis as well as the results. The MPCs presented herein take 
into account this feedback from manufacturers.
    DOE's treatment of confidential business information is governed by 
the Freedom of Information Act (FOIA) and 10 CFR 1004.11. (5 U.S.C. 
552(b)(4)) While DOE is responsible for making the final determination 
whether to disclose such information contained in requested documents, 
DOE will consider the submitter's views in making its determination. 
(10 CFR 1004.11(a),(c)) 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. 
(10 CFR 429.7(c)(2)) For additional discussion of confidential business 
information, see the Confidential Business Information Discussion 
below.
    In the present case, as is generally the case in appliance 
standards rulemakings, manufacturer and product specific data is 
presented in aggregate. Given the potential for competitive harm, data 
is not released outside the aggregated form to DOE or its National 
Labs. The BOMs used to estimate the industry-aggregate MPCs are 
developed by a DOE contractor and are not provided to DOE; DOE only 
receives the industry-aggregate MPCs from its contractor for use in its 
analyses. This approach allows manufacturers to provide feedback under 
NDA, improving the quality of the analysis.
    More information regarding details on the teardown analysis can be 
found in chapter 5 of the SNOPR TSD.
b. Cost Estimation Method
    The costs of individual models are estimated using the content of 
the BOMs (i.e. materials, fabrication, labor, and all other aspects 
that make up a production facility) to generate MPCs. These MPCs hence 
include overhead and depreciation, for example. DOE collected 
information on labor rates, tooling costs, raw material prices, and 
other factors as inputs into the cost estimates. For purchased parts, 
DOE 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' 
\33\ (e.g., tube, sheet metal) are estimated on the basis of 5-year 
averages (from 2010 to 2015). The cost of transforming the intermediate 
materials into finished parts is estimated based on current industry 
pricing.\34\
---------------------------------------------------------------------------

    \33\ American Metals Market, available at http://www.amm.com/.
    \34\ U.S. Department of Labor, Bureau of Labor Statistics, 
Produce Price Indices, available at http://www.bls.gov/ppi/.
---------------------------------------------------------------------------

c. Manufacturing Production Costs
    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 document). In order to 
accommodate these additional design features into the MPC estimates, 
DOE calculated MPC estimates both with and without these added design 
features. DOE estimated the MPC at each efficiency level considered for 
each product class, from the baseline through the max-tech and then 
calculated the percentages attributable to each cost category (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

[[Page 65765]]

feedback obtained from manufacturers during interviews. DOE uses these 
production cost percentages in the manufacturer impact analysis (MIA) 
(see section IV.J).
    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. Constant torque BPM indoor 
blower motors were considered the baseline design for NWGF units, 
because the July 2014 furnace fans final rule set a level \35\ at which 
manufacturers are likely to incorporate constant torque BPM indoor 
blower motors into NWGFs before the compliance date of amended furnace 
standards resulting from today's rulemaking (2022), the 2014 furnace 
fan final rule compliance date of July 3, 2019. (10 CFR 430.32(y)). 
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.\35\ 79 FR 38129, 38151 (July 
3, 2014). 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 increase in MPC resulting 
from the implementation of a constant airflow BPM indoor blower motor. 
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 level for NWGF, 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 MPC for NWGF at the 
max-tech AFUE level.
---------------------------------------------------------------------------

    \35\ 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.
---------------------------------------------------------------------------

    PG&E commented that it found the language regarding the costs of 
BPM motor technology in chapter 5 of the NOPR TSD to be confusing, and 
that its interpretation of DOE's analyses is that no incremental PSC to 
BPM motor costs were applied in the residential furnace NOPR analyses. 
(PG&E, No. 0153 at pp. 8-9) ASAP expressed the same confusion as PG&E 
with regard to the incremental costs of a BPM versus PSC motor, and 
pointed to PG&E's comment in its own comment filings. (ASAP No. 0154 at 
p. 3) DOE clarifies that the additional costs of implementing constant 
torque BPM motor technology in place of PSC motor technology were 
included and based on the results of the engineering analysis performed 
in the July 2014 furnace fans rulemaking. See chapter 5 of the SNOPR 
TSD for further information.
    For the purpose of its engineering analysis in this SNOPR (and in 
the March 2015 NOPR) DOE expects that, in light of the July 2014 
furnace fan final rule, manufacturers will incorporate two-stage 
combustion technology into NWGF design in order to comply with the 
furnace fan standard. DOE therefore developed a single cost adder for 
two-stage combustion that applies to the MPCs for all furnace input 
capacities and efficiency levels. 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/
tubing assembly, and additional controls and wiring; these costs are 
estimated to be constant across input capacities and efficiency levels.
    In response to the March 2015 NOPR, Carrier commented that it 
believes the costs of a two-stage gas valve, two-stage inducer, 
additional pressure switch, deluxe control board, wiring harness, and 
pressure switch tubing were not included in the cost adder for two-
stage combustion. Carrier also commented that it believes the value of 
the two-stage combustion adder was not mentioned anywhere by DOE. 
(Carrier, No. 0116, at pp. 6-7) DOE included the components that 
Carrier identified in its comments in the two-stage combustion adder, 
as discussed in section 5.8.2 of the March 2015 NOPR TSD.
    Goodman commented that the efficiency requirements promulgated by 
the furnace fans rule can be achieved by using single-stage combustion, 
and do not necessitate the use of two-stage combustion, as is currently 
implemented in the analysis. (Goodman, No. 0135, at p. 7) Based on the 
engineering analysis performed for the furnace fans rule, DOE estimates 
that a minority of NWGF designs would be able to achieve the new 
furnace fan efficiency standards by using a constant-torque BPM motor 
while still using single-stage combustion technology. However, DOE had 
limited quantitative data to use in the March 2015 NOPR and this SNOPR 
that detailed what portion of furnace designs would be capable of 
achieving the new standards without transitioning from single-stage to 
two-stage combustion. As such, in this SNOPR DOE has continued to apply 
a two-stage combustion adder to the MPCs for all units at the 80 AFUE 
though 95 AFUE efficiency levels for NWGFs. DOE requests comment as to 
what percentage of NWGFs may be capable of achieving the efficiency 
levels promulgated by the furnace fans rule via implementation of a 
constant-torque BPM motor with single-stage combustion technology, 
rather than two-stage combustion technology. This is identified as 
issue 7 in section VII.E, ``Issues on Which DOE Seeks Comment.''
    Multiple stakeholders commented on the accuracy of the incremental 
differences between the baseline MPC (for a non-condensing furnace) and 
the MPCs for higher efficiency levels (condensing furnaces), as 
presented in the March 2015 NOPR. APGA commented that it found it 
counter-intuitive for the MPC of a baseline furnace to increase 
substantially between the June 2011 DFR and March 2015 NOPR, while the 
MPCs for condensing furnaces increased by what they regard as a `very 
minor' amount. (APGA, No. 0106, at pp. 33-34) Both AHRI and Lennox 
commented that a survey of AHRI member manufacturers demonstrate that 
the incremental MPCs for higher efficiency levels (relative to 
baseline) estimated by DOE in the March 2015 NOPR are between 35 
percent and 45 percent lower than the actual incremental MPCs relative 
to baseline that the industry sees, and that the actual costs 
themselves (not the incremental costs) are approximately 10 percent 
lower than the actual costs faced by industry. AHRI supplemented these 
comments with aggregated MPCs for each efficiency level, which were 
developed based on feedback from furnace manufacturers that are AHRI 
members. (AHRI, No. 0159 at pp. 48-49; Lennox, No. 0125 at p. 13) 
Similarly, Ingersoll Rand commented in response to the September 2015 
NODA that the MPC for 92 percent AFUE furnaces is likely 
underestimated. (Ingersoll Rand, No. 0182 at p. 3) NiSource stated that 
according to information compiled by AGA, the initial purchase price of 
a condensing furnace is $300 to $700 more than a non-condensing one. 
(NiSource, No. 0127 at p. 3) Metropolitan Utilities District stated 
that DOE's product prices derived from a teardown analysis do not agree 
with actual market pricing as noted in the

[[Page 65766]]

GTI report.\36\ (Metropolitan Utilities District, No. 0144 at p. 1)
---------------------------------------------------------------------------

    \36\ MUD is referring to the report titled ``Gas Technology 
Institute--Fuel Switching Study'', located at https://www.regulations.gov/#!documentDetail;D=EERE-2014-BT-STD-0031-0011.
---------------------------------------------------------------------------

    In the March 2015 NOPR analysis, DOE calculated the incremental 
difference between the baseline efficiency level (80 percent AFUE) and 
EL1 (90 percent AFUE) for NWGFs to be $83 (in 2013$). 80 FR 13120, 
13144 (March 12, 2015). In the analysis conducted for this SNOPR, DOE 
conducted additional teardowns and updated its database of component 
and material prices for furnaces to account for market changes through 
December 2015 and provided results in 2015$. This data update from 2013 
data to 2015 data, in addition to other refinements of the cost 
estimation methodology (described in chapter 5 of the SNOPR TSD), 
resulted in the incremental MPC between baseline and EL1 increasing to 
$105 (in 2015$). After accounting for inflation, this difference 
represents a 25-percent increase in the incremental manufacturing cost 
of a condensing furnace, relative to a non-condensing unit. This change 
in the incremental MPC aligns with the stakeholder feedback. However, 
this 25-percent increase in the incremental MPC (from 80 to 90-percent 
AFUE) between the March 2015 NOPR and this SNOPR analysis is still 
lower than the 35-percent to 40-percent deviation AHRI reported between 
the March 2015 NOPR incremental MPCs and the true incremental MPCs in 
industry. This variation between the results of DOE's analysis and 
AHRI's estimates is likely due to the AHRI-estimated industry MPCs 
being based on current production costs, whereas DOE estimated MPCs for 
a hypothetical case where the standard is at the analyzed level (e.g., 
a condensing level such as 90 percent AFUE). Thus, the standards case 
production volumes would be higher than current production volumes for 
a given efficiency level and could explain the discrepancy between the 
incremental MPCs estimated by AHRI and the incremental MPCs estimated 
by DOE in the engineering analysis for this SNOPR. DOE welcomes 
additional feedback on the MPCs and incremental MPCs presented in this 
SNOPR. This is identified as issue 8 in section VII.E, ``Issues on 
Which DOE Seeks Comment.''
    Table IV.8 and Table IV.9 present DOE's estimates of the MPCs by 
AFUE efficiency level at the representative input capacity (80 kBtu/h) 
for both the NWGF and MHGF furnaces in this rulemaking. The MPCs 
presented incorporate the appropriate design characteristics of NWGFs 
and MHGFs 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 PSC blower motor for all MHGF efficiency 
levels. Further discussion of the MPCs that incorporate other design 
options (e.g., constant-airflow BPM motors) is included in chapter 5 of 
the TSD.

                    Table IV.8--Manufacturer Production Cost for Non-Weatherized Gas Furnaces
----------------------------------------------------------------------------------------------------------------
                                                                                                    Incremental
                                                                    Efficiency                      cost above
                        Efficiency level                           level (AFUE)    MPC * (2015$)     baseline
                                                                        (%)                           (2015$)
----------------------------------------------------------------------------------------------------------------
Baseline........................................................              80             321  ..............
EL1.............................................................              90             426             105
EL2.............................................................              92             449             127
EL3.............................................................              95             497             176
EL4.............................................................              98             601             280
----------------------------------------------------------------------------------------------------------------
* The MPCs for the NWGF efficiency levels from Baseline through EL3 include two-stage combustion and
  incorporation of a constant-torque BPM indoor blower motor. DOE has determined that NWGFs at EL4 incorporate
  modulating operation and a constant-airflow BPM blower motor.


                      Table IV.9--Manufacturer Production Cost for Mobile Home Gas Furnaces
----------------------------------------------------------------------------------------------------------------
                                                                                                    Incremental
                                                                    Efficiency                      cost above
                        Efficiency level                           level (AFUE)    MPC * (2015$)     baseline
                                                                        (%)                           (2015$)
----------------------------------------------------------------------------------------------------------------
Baseline........................................................              80             285  ..............
EL1.............................................................              92             379              94
EL2.............................................................              95             428             143
EL3.............................................................              96             454             169
----------------------------------------------------------------------------------------------------------------
* The MPCs for all MHGF efficiency levels include single-stage combustion and incorporation of an improved PSC
  indoor blower motor.

    Table IV.10 presents DOE's estimates of the incremental MPCs of 
each standby/off mode efficiency level for this rulemaking, relative to 
the baseline efficiency level.

[[Page 65767]]



     Table IV.10--Incremental Manufacturer Production Cost for Non-
 Weatherized Gas and Mobile Home Gas Furnaces Standby Mode and Off Mode
------------------------------------------------------------------------
                                           Standby mode
                                           and off mode
            Efficiency level                   power        Incremental
                                            consumption    MPC  (2015$)
                                                (W)
------------------------------------------------------------------------
Baseline................................              11               0
EL1.....................................             9.5            1.02
EL2.....................................             9.2            9.19
EL3.....................................             8.5            9.85
------------------------------------------------------------------------

    Chapter 5 of the SNOPR TSD presents more information regarding the 
development of DOE's estimates of the MPCs for this rulemaking.
d. Cost-Efficiency Relationship
    DOE created cost-efficiency curves representing the cost-efficiency 
relationships for the product classes that it examined (i.e., small and 
large NWGFs, and MHGFs). To develop the cost-efficiency relationships 
for NWGFs at the representative capacity (80 kBtu/h), DOE calculated a 
market-share weighted average MPC for each efficiency level analyzed, 
based on the units torn down at that efficiency level. As discussed in 
section IV.C.2.a, DOE also performed virtual teardowns of units at 
input capacities other than the representative input capacity. These 
virtual teardowns allowed DOE to develop cost-efficiency curves for 
NWGF at different input capacities. These cost-efficiency curves were 
then used in the downstream analyses. The cost-efficiency curves 
developed for input capacities other than the representative input 
capacity are presented in chapter 5 of the SNOPR TSD. For MHGFs, DOE 
compared both MHGF and NWGF teardowns produced by a common 
manufacturer, in order to determine the typical design differences 
between the two product classes. Using this information, DOE then 
developed cost adders which it applied to the NWGF MPCs, in order to 
estimate the MPCs of MHGFs at each of the MHGF efficiency levels. 
Additional details on how DOE developed the cost-efficiency 
relationships and related results are available in chapter 5 of the 
SNOPR TSD.
    The results indicate that cost-efficiency relationships are 
nonlinear. The cost increase between the non-condensing (80 percent 
AFUE) and condensing (90 percent AFUE) efficiency levels is due to the 
addition a secondary heat exchanger, and so there is a large step in 
both AFUE and MPC. For NWGFs, a significant cost increase also occurs 
between the 95 percent and 98 percent AFUE levels due to the addition 
of modulating combustion components paired with a constant airflow BPM 
indoor blower motor at 98 percent AFUE. However, the ratio of the 
incremental increase in MPC to incremental increase in AFUE (i.e. the 
slope of the cost-efficiency curve) always increases with 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 MPC. The resulting MSP is the price that DOE research 
suggests the manufacturer can sell a given unit into marketplace under 
a standards scenario. To meet new or amended energy conservation 
standards, manufacturers typically redesign their baseline products. 
These design changes typically increase MPCs relative to those of 
previous baseline MPCs. 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 of higher purchase prices. As production costs 
increase, manufacturers may also incur additional overhead (e.g., 
warranty costs). The MSP is typically high enough so that the 
manufacturer can 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 have greater difficulty 
recovering their investments, product conversion costs, and/or 
incremental MPCs.
    To calculate the manufacturer markups, DOE used 10-K reports \37\ 
submitted to the U.S. Securities and Exchange Commission (SEC) by six 
publicly-owned residential furnace manufacturing 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 manufacturer markups. DOE used this approach because 
amended standards may reduce product differentiation opportunities for 
manufacturers and may hence reduce markup opportunities as well. 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 initially calculated through 
review of SEC 10-K reports. See chapter 12 of the SNOPR TSD for more 
details about the manufacturer markup calculation.
---------------------------------------------------------------------------

    \37\ 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 NWGF and MHGF 
manufacturers as a part of the NOPR manufacturer impact analysis (see 
section IV.J). During the interviews, DOE sought feedback on all 
aspects of

[[Page 65768]]

its analyses for residential furnaces. DOE discussed the analytical 
assumptions and estimates, cost estimation method, and cost-efficiency 
curves with residential furnace manufacturers. DOE considered all the 
information manufacturers provided while refining its cost estimates 
(and underlying data) and analytical assumptions. In order to avoid 
disclosing sensitive information about individual manufacturers' 
products or manufacturing processes, DOE incorporated equipment and 
manufacturing process figures into the analysis as averages. Additional 
information on manufacturer interviews can be found in chapter 12 of 
the TSD.
3. Electric Furnaces
    In addition to NWGFs and MHGFs, DOE also performed an engineering 
analysis to estimate the MPCs of electric furnaces. This analysis was 
performed to develop accurate electric furnace cost data as an input to 
the product switching analysis (see section IV.F.9 for additional 
information). To estimate the MPCs of electric furnaces, DOE used 
information obtained from the teardowns of three modular blower units, 
as well as a teardown of an electric heat kit assembly, which were all 
originally used as inputs to the engineering analysis performed for the 
2014 furnace fans rulemaking.\38\
---------------------------------------------------------------------------

    \38\ Modular blower units with electric heat kits are also 
referred to as electric furnaces.
---------------------------------------------------------------------------

    The MPCs of electric furnaces were developed by calculating a 
market share-weighted MPC of the three modular blower units that were 
torn down, and then adding the MPC of the electric heat kit to the 
market share-weighted modular blower MPC. The MPC of the electric heat 
kit was scaled appropriately in order to approximate the MPCs of 
different input capacity electric furnaces. Similar to the engineering 
analysis performed for NWGFs, DOE estimated the MPCs of electric 
furnaces at input capacities of 60, 80, 100, and 120 kBtu/h. These MPCs 
are presented below in Table IV.11.

                   Table IV.11--Electric Furnace MPCs
------------------------------------------------------------------------
                 Input capacity (kBtu/h)                        MPC
------------------------------------------------------------------------
60......................................................            $239
80......................................................             261
100.....................................................             270
120.....................................................             293
------------------------------------------------------------------------

    Further details regarding the methodology used to estimate electric 
furnace MPCs are provided in chapter 5 of the SNOPR TSD. DOE seeks 
comment on its methodology and estimates for electric furnace MPCs and 
this is identified as issue 9 in section VII.E ``Issues on Which DOE 
Seeks Comment.''
D. Markups Analysis
    The markups analysis develops appropriate markups (e.g., for 
wholesalers, mechanical contractors, general contractors, mobile home 
manufacturers, and mobile home dealers) in the distribution chain and 
sales taxes to convert the MSP estimates derived in the engineering 
analysis to consumer prices, which are then used in the LCC and PBP 
analysis and in the MIA. The markups are multipliers that represent 
increases above the MSP for NWGFs and MHGFs. DOE develops baseline and 
incremental markups for each step in the distribution chain. The 
baseline markups are applied to the price of products with baseline 
efficiency to determine the consumer purchase cost. Likewise, the 
incremental markups are applied to the difference in price between 
baseline and higher-efficiency models (the incremental cost increase) 
to determine the change in the consumer price for higher-efficiency 
products compared to baseline products. Before developing markups, DOE 
defines key market participants and identifies distribution channels.
    Commenting on the March 2015 NOPR, AHRI stated that DOE's continued 
reliance on the incremental markup concept is unsupported. AHRI stated 
that: (1) The minimal empirical data cited in support of DOE's 
assumption either is irrelevant or tends to support the presence of 
consistent gross margins; (2) AHRI has supplied interview data with 
distributors and wholesalers, interview data with contractors, and 
survey data of contractors, all of which directly contradict DOE's 
assumption; and (3) DOE has not supplied any references to any 
empirical data that shows a difference in markups on pre- and post-
standard products. (AHRI, No. 0159 at pp. 39) Rheem and HARDI agreed 
with AHRI. (Rheem, No. 0142 at pp. 3-4; HARDI, No. 0131 at p. 2) 
Goodman stated that the argument for incremental markups depends on the 
proposition that firms in aggregate are constrained in some manner so 
that they cannot earn profits above their normal cost of capital. 
(Goodman, No. 0135 at pp. 3-4)
    DOE's incremental markup approach is based on the widely-accepted 
economic view that prices closely reflect marginal costs in perfectly 
competitive markets or in markets with a limited degree of 
concentration. According to microeconomic theory of firm behavior, an 
incremental cost may have a markup that is different from the markup on 
the baseline product. DOE is not aware of any representative empirical 
observations of markups over time in the air conditioning or heating 
equipment industries, except at an aggregate level. DOE evaluated time 
series margins and price data from three industries that experienced 
rapidly changing input prices--the LCD television retail market, the 
U.S. oil and gasoline market, and the U.S. housing market. The results 
indicate that dollar margins vary across different markets to reflect 
changes in input price, but the percent margins do not remain fixed 
over time in any of these industries. Appendix 6B in the SNOPR TSD 
describes DOE's findings. Regarding the interview data with 
distributors and contractors, and the survey of contractors, DOE has 
reservations about the applicability of these data, as discussed below.
    PHCC, ACCA, and AHRI stated that based on their survey of 
contractors on markup practices, contractors do not use different 
markups before and after standards. PHCC, ACCA, and AHRI stated that if 
anything, contractors report that markups increased. (PHCC, No. 0136 at 
p. 9; ACCA, No. 0158-2 at p. 9; AHRI, No. 0159 at pp. 38) DOE 
acknowledges that the survey provides additional insight into 
contractor markup practices, but DOE found some deficiencies in the way 
the questions were phrased and presented to contractors. Particularly, 
the two markup-related questions appear to emphasize the short-term 
impact of a new standard on pricing strategy, and the limited choices 
provided under each question do not address the dynamics between short-
term and long-term profitability in a fairly competitive market like 
the HVAC construction industry. In contrast to the survey responses, an 
in-depth interview with an HVAC consultant conducted by DOE indicates 
that while HVAC contractors aim to maintain fixed-percentage markups, 
eventually they will likely either have to lower their markup based on 
market pressures, or choose to lower their markup after the company's 
finances have been reviewed. (DOE's questions and consultant responses 
are provided in appendix 6B of the SNOPR TSD.)
    In summary, DOE acknowledges that its approach to estimating 
distributor and contractor markup practices after amended standards 
take effect and

[[Page 65769]]

change product costs is necessarily an approximation of real-world 
practices that are both complex and varying with business conditions. 
At this time, however, given the remarks from the consultant about the 
difficulty of maintaining fixed-percentage markups, and the lack of 
persuasive evidence that standards facilitate a sustainable increase in 
profitability for distributors and contractors (as would be implied by 
keeping a fixed markup when product price increases), DOE continues to 
maintain that its use of incremental markups is reasonable. DOE intends 
to further examine this issue and welcomes information that could 
support improvement in its methodology.
    PG&E commented that the incremental markups DOE used in the March 
2015 NOPR were too high because once the furnace efficiency standard 
takes effect, manufacturer, wholesaler, and contractor costs for 
furnaces meeting the new requirements are likely to drop due to 
economies of scale for manufacturers (and thereby wholesalers), product 
familiarity for contractors, and change of high-efficiency furnaces 
from premium to commodity-priced products. (PG&E, No. 0153 at p. 4) 
ASAP expressed agreement with PG&E. (ASAP, No. 0154-1 at p. 3)
    DOE acknowledges that the costs of manufacturing, distributing and 
installing condensing furnaces could decline in the future if all or 
more of the market moves to condensing furnaces. Indeed, decline in the 
manufacturer selling price is reflected in the price trend discussed in 
section IV.F.1. However, a decline in costs associated with 
manufacturing and distributing condensing furnaces does not suggest 
that DOE's incremental markups are too high for wholesalers and 
contractors. DOE's incremental markup approach in the March 2015 NOPR 
was based on the premise that less expensive products (i.e., non-
condensing furnaces) would be replaced by more expensive products 
(i.e., condensing furnaces) under the proposed standards. Applying 
incremental markups on the incremental cost increase of higher-
efficiency products should be addressed separately from potential 
declines in the costs of distributing and installing condensing 
furnaces due to the proliferation of higher-efficiency furnaces in the 
market. However, the increased product price of condensing furnaces DOE 
analyzed in both the March 2015 NOPR and today's SNOPR are 
distinguishable from potential declines in the cost of distributing and 
installing condensing furnaces.
    At each step in the distribution channel, companies mark up the 
price of the product to cover business costs and profit margin. For the 
March 2015 NOPR and September 2015 NODA, DOE characterized three 
distribution channels to describe how NWGF products pass from the 
manufacturer to residential and commercial consumers: \39\ (1) 
replacement market; (2) new construction, and (3) national 
accounts.\40\ The NWGFs and MHGFs replacement market distribution 
channel is characterized as follows:
---------------------------------------------------------------------------

    \39\ DOE estimates that three percent of NWGFs are installed in 
commercial buildings. See section IV.E.3 for further discussion.
    \40\ The national accounts channel is an exception to the usual 
distribution channel that is only applicable to those NWGFs 
installed in the small to mid-size commercial buildings where the 
on-site contractor staff purchase equipment directly from the 
wholesalers at lower prices due to the large volume of equipment 
purchased, and perform the installation themselves. DOE's analysis 
assumes that about 17.5 percent of the NWGFs installed in the 
commercial sector use national accounts.

Manufacturer >< Wholesaler 
>< Mechanical contractor 
---------------------------------------------------------------------------
>< Consumer

    The NWGF new construction distribution channel is characterized as 
follows:

Manufacturer >< Wholesaler 
>< Mechanical contractor 
>< General contractor 
>< Consumer

    The MHGF new construction distribution channel is characterized as 
follows:

Manufacturer >< Mobile Home 
Manufacturer >< Mobile Home 
Dealer >< Consumer

    In the third distribution channel, the manufacturer sells the 
product to a wholesaler and then to the NWGF commercial consumer 
through a national account:

Manufacturer >< Wholesaler 
>< Consumer (National 
Account)

    To estimate average baseline and incremental markups, DOE relied on 
several sources, including: (1) The HARDI 2013 Profit Report \41\ (for 
wholesalers); (1) U.S. Census Bureau 2012 Economic Census data \42\ on 
the residential and commercial building construction industry (for 
general contractors, mechanical contractors, and mobile home 
manufacturers). In addition, DOE used the 2005 Air Conditioning 
Contractors of America's (ACCA) Financial Analysis on the Heating, 
Ventilation, Air-Conditioning, and Refrigeration (HVACR) contracting 
industry \43\ to disaggregate the mechanical contractor markups into 
replacement and new construction markets. DOE also used various sources 
for the derivation of the mobile home dealer markup (see chapter 6 of 
the SNOPR TSD).
---------------------------------------------------------------------------

    \41\ Heating, Air Conditioning & Refrigeration Distributors 
International (HARDI). 2013 HARDI Profit Report, available at http://hardinet.org/ (last accessed April 19, 2016).
    \42\ U.S. Census Bureau, 2012 Economic Census Data, available 
at: www.census.gov/econ/ (last accessed Dec. 3, 2015).
    \43\ Air Conditioning Contractors of America (ACCA), Financial 
Analysis for the HVACR Contracting Industry (2005), available at 
www.acca.org/store/ (last accessed Apr. 19, 2016).
---------------------------------------------------------------------------

    In addition to the markups, DOE obtained state and local taxes from 
data provided by the Sales Tax Clearinghouse.\44\ 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.
---------------------------------------------------------------------------

    \44\ Sales Tax Clearinghouse Inc., State Sales Tax Rates Along 
with Combined Average City and County Rates (2016), available at 
http://thestc.com/STrates.stm (last accessed April 18, 2016).
---------------------------------------------------------------------------

    Chapter 6 of the SNOPR TSD provides details on DOE's development of 
markups for NWGFs and MHGFs.
E. Energy Use Analysis
    The purpose of the energy use analysis is to determine the annual 
energy consumption of NWGFs and MHGFs at different efficiencies in 
representative U.S. single-family homes, multi-family residences, and 
commercial buildings, and to assess the energy savings potential of 
increased furnace efficiency. The energy use analysis estimates the 
range of energy use of NWGFs and MHGFs in the field (i.e., as they are 
actually used by consumers). The energy use analysis provides the basis 
for other analyses DOE performed, particularly assessments of the 
energy savings and the savings in consumer operating costs that could 
result from adoption of amended or new standards.
    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.
    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).\45\DOE assumed that furnaces in

[[Page 65770]]

residential buildings smaller than 10,000 sq. ft. are residential 
furnaces. 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 2022, the 
first year of compliance with any amended or new energy conservation 
standards for NWGFs and MHGFs. To characterize future new homes, DOE 
used a subset of homes in RECS 2009 that were built after 1990.
---------------------------------------------------------------------------

    \45\ 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),\46\ 
which is the most recent such survey that is currently available.\47\ 
DOE assumed that 80 percent of furnaces in commercial buildings smaller 
than 10,000 sq. ft. are residential NWGFs.\48\ DOE assumed that each 
commercial building has one or more NWGFs.
---------------------------------------------------------------------------

    \46\ 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).
    \47\ DOE recognizes that summary energy consumption estimates 
have been released for 2012 CBECS. For consideration of a final 
rule, DOE will rely on the most recent, complete version of CBECS.
    \48\ The remaining 20 percent are assumed to be weatherized gas 
furnaces.
---------------------------------------------------------------------------

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 using the RECS 2009 estimates of household 
furnace annual energy consumption,\49\ the existing furnace's estimated 
capacity and efficiency (AFUE), and the heat generated from the 
electrical components. The analysis assumes that some homes have two 
furnaces, with the heating load split evenly between them. The 
estimation of furnace capacity is discussed further below. The AFUE of 
the existing furnaces was determined using the furnace vintage (the 
year of installation of the product) provided by RECS and historical 
data on the market share of furnaces by AFUE by region (see section 
IV.E). DOE then used the house heating load to calculate the burner 
operating hours at each considered efficiency level, which allowed 
calculation of the fuel consumption and electricity consumption based 
on the DOE residential furnace test procedure. DOE assumed in this 
analysis that furnaces will be installed using instructions in the 
manufacturer's installation manual in order to ensure proper operation. 
DOE is not aware of any data reporting on deficiencies that will 
undermine the rated performance.
---------------------------------------------------------------------------

    \49\ EIA estimated the equipment's annual energy consumption 
from the household's utility bills using conditional demand 
analysis.
---------------------------------------------------------------------------

a. Furnace Capacity
    In the March 2015 NOPR, DOE assigned a input capacity for the 
existing furnace of each housing unit based on an algorithm that 
correlates the heating square footage provide by RECS 2009 and the 
outdoor design temperature for heating (i.e., the temperature that is 
exceeded by the 30-year minimum average temperature one percent of the 
time), based on the estimated location of the RECS 2009 household, with 
the distribution of input capacities of furnaces based on a reduced set 
of models from the 2013 AHRI residential furnace certification 
directory.\50\ DOE assumed that for the new furnace installation, the 
input capacity would remain the same as the input capacity for the 
existing furnace. Id. However, in the September 2015 NODA, DOE 
distributed the input capacity based on shipments data by input 
capacity bins for the year 2000 provided by AHRI.\51\ 80 FR 55038, 
55041 (Sept. 14, 2015). The AHRI data was further disaggregated into 5-
kBtu/h bins using the reduced models dataset from the September 2015 
NODA analysis.
---------------------------------------------------------------------------

    \50\ AHRI. Directory of Certified Product Performance: 
Residential Furnaces. Available at: https://www.ahridirectory.org/ahridirectory/pages/rfr/defaultSearch.aspx (last visited May 30, 
2016).
    \51\ AHRI (formerly GAMA). Furnace and Boiler Shipments data 
provided to DOE for Furnace and Boiler ANOPR. (January 23, 2002).
---------------------------------------------------------------------------

    In response to the September 2015 NODA, AGA and APGA stated that 
GTI's report found that RECS lacks the data needed to perform furnace 
capacity assignments, and additional market information is needed to 
appropriately perform this analysis. (AGA, No. 0175-2 at p. 2; AGA, No. 
0175-2 at p. 3; AGA, No. 0175-3 at p. 8; APGA, No. 0180 at p. 6; APGA, 
No. 0180 (attachment) at p. 8)
    DOE acknowledges that RECS does not directly report the input 
capacity of the furnace, but, as described above, it provides data that 
allows for a reasonable estimation of the capacity when combined with 
shipments data disaggregated by capacity. In addition, DOE reviewed 
average shipments data by capacity provided by AHRI over 1995-2014, as 
well as 2014 HARDI shipments data by capacity and AFUE bins for three 
regions.52 53 These two data sources are not consistent and 
DOE needs further information to be able to utilize this data. For this 
SNOPR, DOE kept the approach used in the September 2015 NODA and used 
the AHRI 2000 shipments data. See chapter 7 and appendix 7B of the 
SNOPR TSD for more detail.
---------------------------------------------------------------------------

    \52\ D+R International, 2014 Natural Gas Furnace Market Report 
(2014), available at www.regulations.gov/#!documentDetail;D=EERE-
2014-BT-STD-0031-0118 (Last accessed May 5, 2016).
    \53\ The AFUE bins were: <80-percent AFUE, 80 to 85 percent 
AFUE, 85 to 90 percent AFUE, 90 to 92 percent AFUE, 92 to 94 percent 
AFUE, 96 to 98 percent AFUE, and 98 percent AFUE and above.
---------------------------------------------------------------------------

    In addition, the GTI report submitted by AGA and APGA in response 
to the September 2015 NODA stated that correct furnace fan sizing would 
be important for DOE to ensure that a furnace/air conditioner system 
will provide adequate cooling, especially in warmer climates dominated 
by cooling demand. The GTI report stated that furnace capacity in these 
cases will not be based on the peak heating load, but rather on the 
furnace fan capacity linked to the air conditioner system capacity. The 
GTI report stated that, as a result, the furnace will often be 
oversized for heating. The GTI report stated that the best fit line for 
heating load vs. furnace size is consistent with the idea that furnaces 
are generally oversized for the heating load. (AGA, No. 0175-3 at p. 4; 
APGA, No. 0180 at p. 6; APGA, No. 0180 (attachment) at p. 4)
    DOE acknowledges that it is common practice is to install a 
sufficiently large furnace to provide the furnace fan that is required 
to meet the cooling requirements. However, the furnace fan standards 
that will take effect in July 2019 require fan motor designs that can 
modulate the amount of air depending on both heating and cooling 
requirements. Thus, the size of the furnace fan (and the furnace 
capacity) will be able to better match the heating requirements of the 
house. DOE notes that this will primarily affect furnaces located in 
warmer areas of the country (with higher cooling loads), which 
potentially lead to higher amount of oversizing than is assumed in the 
analysis for these households. DOE performed a sensitivity analysis to 
assess the impact of furnace fan cooling requirements and the pending 
changes in furnace fan design as part of its furnace sizing methodology 
by using primarily 2014 HARDI regional

[[Page 65771]]

shipments data by capacity. See chapter 7 of the SNOPR TSD for further 
detail.
    In response to the March 2015 NOPR, Allied Air stated that the 
furnace sizing analysis should be based on output capacity, not input 
capacity. (Allied Air, No. 0044 at p. 216) Although sizing based on 
output capacity more accurately matches the heating load, sizing the 
furnace by input capacity slightly increases electricity use, which is 
offset by slight decrease in fuel use and decrease in total installed 
cost differential. Therefore, for this SNOPR, DOE did not change the 
analysis approach.
    Under a separate standard for small furnaces that does not require 
a condensing furnace, DOE expects that some consumers who would 
otherwise install a typically-oversized furnace \54\ would choose to 
downsize in order to be able to purchase a non-condensing furnace. For 
the September 2015 NODA analysis, DOE identified a sample of households 
that would choose to downsize to a non-condensing furnace at each of 
the considered small furnace capacities. In identifying these 
households, DOE first determined whether a household would install a 
non-condensing furnace with an input capacity greater than the small 
furnace size limit in the no-new-standards case, based on the assigned 
input capacity and efficiency, determined as described above. In each 
standards case, DOE applied a smaller-than-typical oversizing factor 
(1.35 vs 1.7) to estimate the number of consumers who would downsize to 
the input capacity limit for small furnaces.
---------------------------------------------------------------------------

    \54\ By typical oversizing, DOE refers to a value of 1.7 as 
specified in the DOE residential furnace and boiler test procedure.
---------------------------------------------------------------------------

    Several stakeholders commented on the downsizing methodology used 
in the September 2015 NODA. AHRI and Rheem stated that the percentage 
of households assumed to install a small furnace is generally too high 
for each input rate definition, and significantly overestimated at 60 
and 65 kBtu/h. AHRI and Rheem stated that data over the last 20 years 
indicates that only 10 percent of consumers install furnaces with an 
input rate under 60 kBtu/h, while DOE assumed 15 percent install such 
units. AHRI noted what it believed to be similar inconsistencies at 70 
kBtu/h and 80 kBtu/h. (AHRI, No. 0181 at pp. 2-3, 5; Rheem, No. 0184 at 
p. 3; Rheem, No. 0199 at p. 3) Lennox stated that DOE's downsizing 
assumptions shift significantly from established historical trends. 
(Lennox, No. 0201 at p. 5) Ingersoll Rand commented that it would be 
unusual for a newly installed furnace to have a significantly lower 
input than the one it has replaced, as would happen with DOE's 
downsizing methodology. (Ingersoll Rand, No. 0203 at p. 2) In contrast, 
the Efficiency Advocates stated that although oversizing has been 
standard practice in the past, under the small furnace scenario, 
significant up-front cost can be avoided by installing a smaller non-
condensing furnace. The Efficiency Advocates stated that downsizing is 
particularly likely in warm climates where furnaces are commonly 
oversized to have a large blower for the cooling season. (Efficiency 
Advocates, No. 0196 at p. 2)
    In response, the comments by AHRI, Rheem and Ingersoll Rand reflect 
market conditions in recent years, where oversizing of furnaces has 
been a common installation practice. DOE agrees with the Efficiency 
Advocates that in the case of a standard that allows small furnaces to 
use non-condensing technology, many consumers would have a financial 
incentive to downsize their furnace. In such a case, changes from the 
past practice could be expected.
    Ingersoll Rand and the GTI report submitted by AGA and APGA stated 
that the ``small fraction'' used to determine the use of a small, non-
condensing NWGF was not provided. Ingersoll Rand requested that the 
``small fraction'' used in the analysis be provided along with the 
reasoning for selecting that level. (Ingersoll Rand, No. 00203 at p. 2; 
AGA, No. 0175-3 at p. 3; APGA, No. 0180 (attachment) at p. 3) The 
Efficiency Advocates recommended that DOE prepare several downsizing 
scenarios in addition to the September 2015 NODA assumption of 35 
percent. (Efficiency Advocates, No. 0196 at p. 2)
    DOE did not assume that a specific fraction of consumers would 
downsize. For the September 2015 NODA, for households assigned a non-
condensing furnace in the no-new-standards case, DOE determined a 
downsized input capacity using a reduced oversize factor of 35 percent 
(instead of the typical 70 percent).\55\ If the downsized input 
capacity was below a given small furnace threshold, DOE assumed that 
the household would downsize to that capacity. The fractions of 
consumers purchasing a small furnace under the considered definitions 
are shown in Table IV.12. Further details about the downsizing 
methodology, including a sensitivity analysis, are presented in 
appendix 8J of the SNOPR TSD.
---------------------------------------------------------------------------

    \55\ ACCA recommends oversizing by maximum of 40 percent. ACCA. 
Manual S--Residential Equipment Selection (2nd Edition). Available 
at: https://www.acca.org/.

Table IV.12--Share of Sample Households Meeting Small Furnace Definition
                                [Percent]
------------------------------------------------------------------------
                                                           With separate
                                              Without      small furnace
        Small furnace definition              amended      standard and
                                             standards      downsizing
------------------------------------------------------------------------
<=40 kBtu/h.............................               1               6
<=45 kBtu/h.............................               3               8
<=50 kBtu/h.............................               8              14
<=55 kBtu/h.............................              10              15
<=60 kBtu/h.............................              19              31
<=65 kBtu/h.............................              19              38
<=70 kBtu/h.............................              30              43
<=75 kBtu/h.............................              42              53
<=80 kBtu/h.............................              56              65
<=85 kBtu/h.............................              56              65
<=90 kBtu/h.............................              65              71
<=95 kBtu/h.............................              67              73
<=100 kBtu/h............................              79              84
------------------------------------------------------------------------


[[Page 65772]]

b. Adjustments to Energy Use Estimated for 2009
    DOE adjusted the energy use estimated for 2009 to ``normal'' 
weather by using long-term heating degree-day (HDD) data for each 
geographical region.\56\ For the SNOPR, DOE accounted for changes in 
the geographic distribution of homes based on AEO2015 projections of 
HDD.\57\
---------------------------------------------------------------------------

    \56\ 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).
    \57\ U.S. Department of Energy, Energy Information 
Administration, Annual Energy Outlook 2015, available at 
www.eia.gov/forecasts/aeo/pdf/0383(2015).pdf (last accessed July 29, 
2015).
---------------------------------------------------------------------------

    DOE accounted for change in building shell characteristics and 
building size (square footage) between 2009 and the compliance year by 
applying the building shell indexes in the National Energy Modeling 
System (NEMS) associated with the Annual Energy Outlook. 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. In the March 2015 
NOPR, application of the index resulted in nine-percent lower building 
heating load from 2009 to 2021. 80 FR 13120, 13147 (March 12, 2015). 
EIA provides separate indexes for new buildings and existing buildings.
    In developing the building shell index for new construction, 
building shell efficiency is determined by the relative costs and 
energy bill savings for several levels of heating and cooling 
equipment, in conjunction with the building shell attributes. In this 
SNOPR, DOE used building shell indexes based on AEO2015, which did not 
incorporate the 2015 IECC. However, the 2015 IECC has to be adopted by 
state or local jurisdictions before it takes effect. As of April 2016, 
more than half of the country was still under the 2009 IECC or older 
codes instead of the 2012 IECC or 2015 IECC.\58\ Given that the extent 
of adoption of the 2015 IECC across the United States is uncertain, DOE 
believes that use of building shell indexes based on AEO2015 is 
reasonable. For the final rule, DOE plans to use AEO2016, which will 
include updated building shell efficiency factors that reflect the most 
current building codes.
---------------------------------------------------------------------------

    \58\ DOE Building Energy Codes Program. Status of State Energy 
Code Adoption. (Available at: https://www.energycodes.gov/status-state-energy-code-adoption).
---------------------------------------------------------------------------

c. Furnace Electricity Use
    In the March 2015 NOPR, DOE calculated furnace fan electricity 
consumption using field data on static pressures of duct systems, as 
well as airflow curves for furnace blowers from manufacturer 
literature. 80 FR 13120, 13150 (March 12, 2015). As noted in section 
IV.C, the furnace designs used in DOE's analysis incorporate furnace 
fans that meet the standards that will take effect in 2019.\59\ 
Condensing furnaces tend to have a more restricted airflow path than 
non-condensing furnaces because of the presence of a secondary heat 
exchanger, so the furnace fan generally requires more energy to produce 
the equivalent airflow output for a condensing furnace compared to a 
similar non-condensing furnace.
---------------------------------------------------------------------------

    \59\ See Table 1 at: http://www1.eere.energy.gov/buildings/appliance_standards/product.aspx/productid/42.
---------------------------------------------------------------------------

    In response to the March 2015 NOPR, Ingersoll Rand asked why DOE's 
analysis assumed condensing furnaces used 5 percent more electricity 
compared to non-condensing furnaces in, while the July 2014 furnace fan 
final rule used a difference of 7 or 8 percent. (Ingersoll Rand, No. 
0044 at p. 205) In response, the March 2015 NOPR analysis applied on 
average a 10-percent power consumption increase for condensing furnaces 
based on the 2014 furnace fan efficiency standards final rule (5 
percent was reported incorrectly in appendix 7B of the NOPR TSD).
    DOE accounted for furnace fan use during heating mode and the 
difference in electricity use between the baseline efficiency level 
(80-percent AFUE) and the higher efficiency levels for furnace fan use 
during cooling mode, not the total furnace fan use during cooling mode. 
DOE accounted for a 10 percent increase in electricity use for the 
furnace fan in condensing furnaces during the cooling season due to the 
increase in static pressure from the secondary heat exchanger. To 
calculate electricity consumption for the inducer fan, ignition device, 
gas valve and controls, DOE used the calculation described in DOE's 
test procedure \60\ as well as 2013 AHRI Directory of Certified Furnace 
Equipment and manufacturer product literature.\61\ Electricity 
consumption of condensing furnaces reflects use of a condensate pumps 
and heat tape.
---------------------------------------------------------------------------

    \60\ Found in 10 CFR part 430, subpart B, appendix N.
    \61\ AHRI Directory of Certified Furnace Equipment, February 
2013 (Available at: www.ahridirectory.org/ahridirectory/pages/home.aspx).
---------------------------------------------------------------------------

    Goodman stated that given that auxiliary components such as 
condensate pumps and heat tape are unique to condensing furnaces, it is 
impossible for the annual electricity consumption of auxiliary 
components to be lower for condensing furnaces than for non-condensing 
furnaces. (Goodman, No. 0135 at p. 7) DOE agrees that a condensate pump 
and heat tape add to the electricity use of a condensing furnace, but 
because DOE assumed that the input capacity of a condensing furnace is 
the same as the non-condensing furnace it is replacing, the condensing 
furnace would operate less than would a non-condensing furnace due to 
its higher efficiency. Thus, the electricity use of auxiliary 
components may be lower than for a non-condensing furnace despite the 
additional electricity use of the condensate pump and heat tape.
    As stated above, a condensing furnace uses more electricity than an 
equivalent non-condensing furnace. DOE accounted for the additional 
heat released by the furnace fan motor that needs to be compensated by 
the central air conditioner during the cooling season based on the 2014 
furnace fan final rule. DOE also accounted for additional electricity 
use by the furnace fan during continuous fan operation throughout the 
year.
d. Rebound Effect
    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 product that is made more efficient is 
used more intensively, such that the expected energy savings from the 
efficiency improvement may not fully materialize. In the March 2015 
NOPR analysis, DOE examined a 2009 review of empirical estimates of the 
rebound effect for various energy-using products.\62\ 80 FR 13120, 
13148. 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 examined a 2012 
ACEEE paper \63\ and a 2013 paper by Thomas and Azevedo.\64\ Both of 
these publications examined the same studies that were reviewed by 
Sorrell, as well as Greening et al,\65\ and identified

[[Page 65773]]

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 SNOPR TSD), DOE used a 15 percent rebound effect for 
NWGFs and MHGFs in the March 2015 NOPR and September 2015 NODA.
---------------------------------------------------------------------------

    \62\ Steven Sorrell, et. al, Empirical Estimates of the Direct 
Rebound Effect: A Review, 37 Energy Pol'y 1356-71 (2009).
    \63\ Steven Nadel, ``The Rebound Effect: Large or Small?'' ACEEE 
White Paper (August 2012) (Available at: www.aceee.org/white-paper/rebound-effect-large-or-small).
    \64\ 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 www.sciencedirect.com/science/article/pii/S0921800912004764.
    \65\ Lorna A. Greening, et. al., Energy Efficiency and 
Consumption--The Rebound Effect--A Survey, 28 Energy Policy 389-401 
(2002).
---------------------------------------------------------------------------

    ASAP stated that the 15 percent rebound value would be too high. 
(ASAP, No. 0050 at p. 101) Although a lower value might be warranted, 
DOE prefers to be conservative and not risk understating the rebound 
effect; therefore, DOE continued to use a 15 percent rebound effect for 
this SNOPR when accounting for national energy savings.
2. Standby Mode and Off Mode
    DOE calculated furnace standby 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 hours. DOE assumed that furnaces are not usually 
equipped with an off mode, so only the standby electricity consumption 
was considered. To calculate the annual number of standby 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 are the sum of the furnace fan operating 
hours during heating, cooling and continuous fan modes.
    Goodman stated that DOE should take into account that manufacturers 
will almost completely transition to brushless permanent magnet (BPM) 
motors in 2019 due to the furnace fan rule, which will increase the 
standby mode electricity consumption of the furnace. (Goodman, No. 0135 
at p. 5) DOE accounted for the additional electricity use of BPM motors 
in standby mode. Chapter 7 of the SNOPR TSD describes the methodology 
in more detail.
3. Comments on Energy Use Results
    In its comments on the March 2015 NOPR, AHRI stated that the 
analysis unrealistically estimates zero or negative fuel use for some 
households with 90-percent AFUE furnaces. (AHRI, No. 0159 at p. 56) The 
households with zero use are households that switch from an 80-percent 
AFUE NWGF to either an electric furnace or heat pump. DOE accounts for 
the fuel switching from a gas water heater to an electrical water as a 
differential in energy use. Therefore for cases with water heater fuel 
switching, a negative fuel can occur when: (1) The heating energy use 
in standards cases is less than the gas water heater energy use; (2) 
when the household also switches to either an electric furnace or heat 
pump.
    ASAP stated that a 2015 evaluation of furnace incentive programs in 
Massachusetts \66\ suggests that DOE underestimated per-unit energy 
savings for a 95-percent AFUE furnace compared to an 80-percent AFUE 
furnace in the North by 31 percent. ASAP stated that Massachusetts is 
generally representative of average climate conditions in the North. 
(ASAP, No. 0154-1 at pp. 3, 5) The report cited by ASAP presents the 
results of a limited case study. DOE agrees that some households may 
experience greater energy savings from installing a condensing NWGF 
than others, as is reflected in the distribution of energy savings 
results. However, the energy savings depend not only on climate 
conditions, but other factors as well, such as physical building 
characteristics and household energy consumption behaviors, which may 
be different in other parts of the North.
---------------------------------------------------------------------------

    \66\ The Cadmus Group, 2015. High Efficiency Heating Equipment 
Impact Evaluation. Available at http://www.neep.org/sites/default/files/resources/High-Efficiency-Heating-Equipment-Impact-Evaluation-Final-Report.pdf.
---------------------------------------------------------------------------

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 energy 
conservation standards on individual consumers usually involves a 
reduction in operating cost and an increase in purchase cost. DOE used 
the following two metrics to measure consumer impacts:

     The LCC (life-cycle cost) is the total consumer expense 
of an appliance or product over the life of that product, consisting 
of total installed cost (manufacturer selling price, distribution 
chain markups, sales tax, and installation costs) plus operating 
costs (expenses for energy use, maintenance, and repair). To compute 
the operating costs, DOE discounts future operating costs to the 
time of purchase and sums them over the lifetime of the product.
     The PBP (payback period) 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 at higher efficiency levels by the change in annual 
operating cost for the year that amended or new standards are 
assumed to take effect.

    For any given efficiency level, DOE measures the change in LCC 
relative to the LCC in the no-new-standards case, which reflects the 
estimated efficiency distribution of NWGFs and MHGFs in the absence of 
new or amended energy conservation standards. In contrast, the PBP for 
a given efficiency level is measured relative to the baseline product.
    For each considered efficiency level in each product class, DOE 
calculated the LCC and PBP for a nationally representative set of 
housing units and, for NWGFs, commercial buildings. As stated 
previously, DOE developed household samples from the 2009 RECS and 2003 
CBECS. For each sample household or building, DOE determined the energy 
consumption for the furnace and the appropriate electricity price. By 
developing a representative sample of households, the analysis captured 
the variability in energy consumption and energy prices associated with 
the use of NWGFs and MHGFs.
    Inputs to the LCC calculation include the installed cost to the 
consumer, operating expenses, the lifetime of the product, and a 
discount rate. Inputs to the calculation of total installed cost 
include the cost of the product--which includes MPCs, manufacturer 
markups, wholesaler and contractor markups, and sales taxes (where 
appropriate)--and installation costs. Inputs to the calculation of 
operating expenses include annual energy consumption, energy prices and 
price projections, repair and maintenance costs, product lifetimes, and 
discount rates. Inputs to the payback period calculation include the 
installed cost to the consumer and first year operating expenses. DOE 
created distributions of values for aspects of installation cost, 
repair and maintenance, product lifetime, discount rates, and sales 
taxes, with probabilities attached to each value, to account for their 
uncertainty and variability.
    The computer model DOE uses to calculate the LCC and PBP, which 
incorporates Crystal Ball\TM\ (a commercially-available software 
program), relies on a Monte Carlo simulation to incorporate uncertainty 
and variability into the analysis. The Monte Carlo simulations randomly 
sample several input values from the probability distributions and NGWF 
and MHGF user samples. The model calculated the LCC and PBP for

[[Page 65774]]

products at each efficiency level for 10,000 consumers per simulation 
run. 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 no-new-standards case efficiency distribution. 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.
    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.
    DOE calculated the LCC and PBP for all consumers of NWGFs and MHGFs 
as if the consumers were to purchase a new product in the expected year 
of required compliance with amended or new standards. Any amended or 
new standards would apply to NWGFs and MHGFs manufactured 5 years after 
the date on which any amended or new standard is published. (42 U.S.C. 
6295(f)(4)(C)) At this time, DOE estimates publication of a final rule 
in early 2017. Therefore, for purposes of this SNOPR analysis, DOE used 
2022 as the first year of compliance with any amended or new standards 
for NWGFs and MHGFs.
    SoCalGas stated that considering that furnace replacement may not 
be done at move-in, but at a point later during homeownership, in most 
cases, a condensing furnace will rarely pay for itself from the 
homeowner's perspective. (SoCalGas, No. 0132-2 at p. 4; SoCalGas, No. 
0132-6 at p. 8) AHRI stated that if the purchaser moves before the end 
of the furnace lifetime, then the consumer does not receive the 
projected benefits. AHRI stated that analyses by NAHB show that the 
typical homeowner stays in a home for approximately 13 years, well 
below the average lifetime assumed by DOE of 22 years. (AHRI, No. 0159 
at pp. 15, 52-53)
    DOE notes that it modeled the expected product lifetime, and not 
the expected period of homeownership. DOE recognizes that the lifetime 
of a gas furnace and the residence time of the purchaser may not always 
overlap. However, EPCA requires DOE to consider the savings in 
operating costs throughout the estimated average life of the covered 
product 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)) In 
the context of this requirement, DOE believes that the expected product 
lifetime, not the expected period of homeownership is the appropriate 
modeling period for the LCC, as energy cost savings will continue to 
accrue to the new owner/occupant of a home after its sale. If some of 
the price premium for a more-efficient furnace is passed on in the 
price of the home, there would be a reasonable matching of costs and 
benefits between the original purchaser and the home buyer. To the 
extent this does not occur, the home buyer would gain at the expense of 
the original purchaser.
    As discussed in section IV.F.9, in its LCC analysis DOE considered 
the possibility that some consumers may switch to alternative heating 
systems in the case of a standard that requires condensing technology. 
The LCC analysis showed that some consumers who switch end up with a 
reduction in the LCC relative to their projected purchase in the no-
new-standards case.
    AGA commented that that DOE's rationale considering avoiding a cost 
imposed by the proposed standard to be a benefit to the consumer does 
not make sense. (AGA, No. 0050 at p. 121) Ingersoll Rand stated that 
consumers who are forced to switch from gas to electric heating should 
be considered to be experiencing a net cost. (Ingersoll Rand, No. 0182 
at p. 3) In response, DOE clarifies that no consumers would be forced 
to switch under any standards case. DOE estimated that some consumers 
would switch to electric heating if the economics are very favorable 
compared to installing a condensing furnace. In some cases, the 
alternative product has a lower LCC than the furnace purchased in the 
no-new-standards case, which means that the consumer benefits. Although 
this outcome might suggest that the consumer would switch in the no-
new-standards case, reluctance to change and various transaction costs 
would tend to limit such behavior.
    Referring to the situation with households who rent, AHRI expressed 
concern that analyzing the cost to the purchaser of the product who 
receives no benefit and the benefit to tenants who do not purchase the 
product distorts the meaning of the LCC analysis. (AHRI, No. 0050 at p. 
27) Because landlords generally seek to recoup their expenses in the 
rent, DOE's LCC analysis implicitly assumes that the cost of a product 
incurred by a landlord is passed on to the tenant who pays the utility 
bills. DOE acknowledges that this assumption is a simplification of the 
actual division of costs and benefits. DOE welcomes information that 
would provide more insight on actual landlord practices associated with 
furnace replacement.
    Table IV.13 summarizes the approach and data DOE used to derive 
inputs to the LCC and PBP calculations. The subsections that follow 
provide further discussion. Details of the spreadsheet model, and of 
all the inputs to the LCC and PBP analyses, are contained in chapter 8 
of the SNOPR TSD and its appendices.

 Table IV.13--Summary of Inputs and Methods for the LCC and PBP Analysis
                                    *
------------------------------------------------------------------------
              Inputs                            Source/method
------------------------------------------------------------------------
Product Cost......................  Derived by multiplying MPCs by
                                     manufacturer, wholesaler, and
                                     contractor markups and sales tax,
                                     as appropriate. Used historical
                                     data to derive a price scaling
                                     index to forecast product costs.
Installation Costs................  Baseline installation cost
                                     determined with data from 2015 RS
                                     Means. Assumed no change with
                                     efficiency level.

[[Page 65775]]

 
Annual Energy Use.................  The total annual energy use
                                     multiplied by the hours per year.
                                     Average number of hours based on
                                     field data.
                                    Variability: Based on the RECS 2009
                                     and CBECS 2003.
Energy Prices.....................  Natural Gas: Based on EIA's Natural
                                     Gas Navigator data for 2014.
                                    Propane: Based on EIA's SEDS for
                                     2014.
                                    Electricity: Based on EIA's Form 861
                                     data for 2014.
                                    Variability: Regional energy prices
                                     determined for 30 regions.
                                    Marginal prices used for both
                                     natural gas and propane.
Energy Price Trends...............  Based on AEO2015 price forecasts.
Repair and Maintenance Costs......  Based on 2015 RS Means data and
                                     other sources. Assumed variation in
                                     cost by efficiency.
Product Lifetime..................  Based on shipments data, multi-year
                                     RECS and American Housing Survey
                                     data. Mean lifetime of 21.5 years.
Discount Rates....................  Residential: Approach involves
                                     identifying all possible debt or
                                     asset classes that might be used to
                                     purchase the considered appliances,
                                     or might be affected indirectly.
                                     Primary data source was the Federal
                                     Reserve Board's Survey of Consumer
                                     Finances.
                                    Commercial: Calculated as the
                                     weighted average cost of capital
                                     for businesses purchasing NWGFs.
                                     Primary data source was Damodaran
                                     Online.
Compliance Date...................  2022.
------------------------------------------------------------------------
* References for the data sources mentioned in this table are provided
  in the sections following the table or in chapter 8 of the SNOPR TSD.

1. Product Cost
    To calculate consumer product costs, DOE multiplied the MPCs 
developed in the engineering analysis with the manufacturer, 
wholesaler, and contractor markups and sales taxes, as appropriate. DOE 
used baseline markups for baseline consumer products and it applies an 
incremental markup to the increase in MSP associated with higher-
efficiency products.
    Based on the updated engineering analysis and markups, for the 
SNOPR, the product price was estimated to be $208 to $522 more for a 
condensing NWGF than a non-condensing one.
    For the default price trend for residential furnaces, DOE derived 
an experience rate based on an analysis of long-term historical data. 
In the March 2015 NOPR, as a proxy for manufacturer price, DOE used 
Producer Price Index (PPI) data for warm-air furnace equipment from the 
Bureau of Labor Statistics from 1990 through 2013.\67\ In this SNOPR, 
DOE used PPI data from the BLS from 1990 through 2015.\68\ 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 notice for discussion of shipments data). DOE then 
derived a price factor index, with the price in 2015 equal to 1, to 
forecast prices in 2022 for the LCC and PBP analysis, and, for the NIA, 
for each subsequent year through 2051. 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 no-new-case projection made for 
the NIA (see section IV.H of this notice). Application of the index 
results in prices that decline 5 percent from 2015 to 2022.
---------------------------------------------------------------------------

    \67\ U.S. Department of Labor, Bureau of Labor Statistics, 
Produce Price Indices Series ID PCU333415333415C, available at 
www.bls.gov/ppi/ (last accessed April 18, 2016).
    \68\ Id.
---------------------------------------------------------------------------

    DOE emphasizes that its learning curve methodology was developed by 
examining the literature on both economic theory and empirical studies 
of energy technology learning rates. DOE believes that its current 
learning curve methodology is consistent with economic theory, and 
utilizes the most extensive time series data available specific to this 
product.
    In response to the March 2015 NOPR, some stakeholders suggested 
that non-condensing and condensing furnaces may have different learning 
curves. SoCalGas stated that non-condensing furnaces are mature so 
their learning rate should be near zero; the rate should be different 
for condensing furnaces. (SoCalGas, No. 0132-2 at p. 6) ASAP stated 
that it would be expected for the prices of technologies used in high-
efficiency products to decline much faster than the total price of the 
product. ASAP stated that the use of historic price trends of heating 
products to estimate learning rates for furnaces implicitly assumes 
that the prices of non-condensing and condensing furnaces will change 
at the same rate, and will likely significantly underestimate future 
declines in the cost of condensing furnaces. ASAP recommended that DOE 
use the high decreasing price trend scenario for its main analysis 
because the trend captures the market during the period when condensing 
products grew to significant market share, and is more representative 
of the expected trends under a condensing standard. (ASAP, No. 0154-1 
at pp. 3-5) Fletcher, CEC, and the Joint Consumer Commenters stated 
that the product price of condensing furnaces will decrease with an 
increase in production and innovation due to the proposed standards. 
(Fletcher, No. 0064 at p. 1; CEC, No. 0120 at p. 5; Joint Consumer 
Commenters, No. 0123 at pp. 18-21) In contrast, AHRI stated that as 
condensing furnaces have been produced since at least 1984, most of the 
learning for these products has already been captured in current 
designs. AHRI stated that it is not likely that there are major future 
reductions in production cost from learning. (AHRI, No. 0159 at p. 49)
    DOE acknowledges that the prices of non-condensing and condensing 
furnaces may not change at the same rate, and using a trend for all 
NWGFs to represent the price trend of condensing furnaces may 
underestimate the future decline in the cost of condensing furnaces. It 
also acknowledges that an increase in production and innovation due to 
a condensing standard could result in decline in the cost of condensing 
furnaces. However, DOE could not find data that would allow a 
projection of how the price trend for condensing furnaces may differ 
from the trend for all NWGFs. Thus, for the SNOPR, it used the same 
price trend projection for condensing and non-condensing furnaces. 
Although

[[Page 65776]]

information about price trends related to different furnace 
technologies is not available, DOE is exploring ways to estimate 
learning rates for different technologies.\69\ DOE welcomes comments on 
ways to derive learning rates for different types of technologies. This 
is identified as issue 14 in section VII.E, ``Issues on Which DOE Seeks 
Comment.''
---------------------------------------------------------------------------

    \69\ Taylor, M. and K. S. Fujita, Accounting for Technological 
Change in Regulatory Impact Analyses: The Learning Curve Technique, 
Lawrence Berkeley National Laboratory, Report No. LBNL-6195E (2013) 
(Available at: http://efficiency.lbl.gov/sites/all/files/accounting_for_technological_change_in_regulatory_impact_analyses_the_learning_curve_technique_lbnl-6195e.pdf).
---------------------------------------------------------------------------

    A detailed discussion of DOE's derivation of the experience rate is 
provided in appendix 8C of the SNOPR TSD.
2. Installation Cost
    Installation cost includes labor, overhead, and any miscellaneous 
materials and parts needed to install the product. 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. For the March 2015 
NOPR and September 2015 NODA, the installation cost estimates, 
including labor costs, were based on 2013 RS Means data.\70\
---------------------------------------------------------------------------

    \70\ RS Means Company Inc., RS Means Residential Cost Data. 
Kingston, MA (2013).
---------------------------------------------------------------------------

    In its comments on the March 2015 NOPR, Ingersoll Rand stated that 
a small survey of dealers around the country showed that homeowners are 
actually charged an average rate of $100/hour for labor, compared to 
DOE's estimates of $52/hour to $71/hour from RS Means. (Ingersoll Rand, 
No. 0156 at p. 8)
    In this SNOPR, DOE updated its data to 2015 RS Means.\71\ In 
addition, DOE contacted RS Means to verify what labor costs and 
associated markups are more appropriate for installation of NWGFs and 
MHGFs in residential market. Based on RS Means input, DOE has revised 
its labor costs from residential labor costs to repair/remodeling labor 
costs, which are about 40 percent higher than previously applied in the 
NOPR. In addition, based on interactions with RS Means and from the 
Ingersoll Rand input, DOE modified its labor costs to better reflect 
actual installation costs applied in the field. See chapter 8 of the 
SNOPR TSD for additional details about the determination of 
installation costs.
---------------------------------------------------------------------------

    \71\ RS Means Company Inc., RS Means Residential Repair & 
Remodeling Cost Data. Kingston, MA (2015).
---------------------------------------------------------------------------

    DOE conducted a detailed analysis of installation costs for all 
potential installation cases. When a non-condensing is replaced with a 
non-condensing gas furnaces, the additional costs could include 
updating flue vent connectors, vent resizing, and chimney relining. 
When a non-condensing gas furnace is replaced with a condensing gas 
furnace, particular attention paid to venting issues in replacement 
applications, including adding a new 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), as well as condensate removal. 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, the adders include a new flue vent, combustion air venting 
for direct vent installations, accounting for a commonly vented water 
heater, and condensate removal. DOE gave separate consideration to the 
cost of installing a non-condensing gas furnace and condensing gas 
furnace in new homes and in mobile homes.
a. Basic Installation Cost
    DOE's analysis in the March 2015 NOPR and September 2015 NODA, as 
well as this SNOPR, 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 
furnace setup and transportation, gas piping, ductwork, electrical 
hookup, permit and removal/disposal fees, and where applicable, 
additional labor hours for an attic installation.
    SoCalGas stated that DOE's analysis in the March 2015 NOPR did not 
consider the cost of asbestos removal in retrofitted homes. SoCalGas 
stated that asbestos abatement services in Southern California 
typically cost from $250 to $3,000 depending on site conditions. 
(SoCalGas, No. 0132-2 at p. 4) DOE agrees that asbestos presents a 
safety hazard that should be removed for all retrofit installations 
where it is present. However, DOE understands that the cost would be 
the same regardless of the furnace efficiency level, so it is not 
necessary to include this cost for the analysis of NWGF standards.
b. Additional Installation Costs for Non-Weatherized Gas Furnaces
    For replacement applications, DOE 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. DOE also updated its 
analysis in this SNOPR in response to some comments it received as a 
result of the March 2015 NOPR and the September 2015 NODA, which are 
outlined below.
    AHRI commented that because most furnace installations in existing 
buildings are emergency replacements during the heating season, there 
is a high premium on the ability to install a furnace quickly to 
prevent a house from freezing, so there is rarely time for a major 
reconstruction to accommodate a condensing furnace. (AHRI, No. 0159 at 
p. 59) While DOE understands that most homeowners can make 
accommodations to allow for proper installation of a condensing furnace 
in unusual cases where major reconstruction might be required, DOE 
agrees that some emergency situations will generate a higher 
installation cost. However, DOE understands that emergency situations 
may arise for both non-condensing and condensing installations, so it 
did not include the related costs in its analysis.
    AGL Resources commented that DOE did not include certain materials 
and installation charges, like costs associated with ductwork 
modification and material cost for electrical work, in the non-
condensing to condensing NWGF installation scenario. (AGL Resources, 
No. 0039 at p. 3; AGL Resources, No. 0112 at p. 3) In the March 2015 
NOPR and the September 2015 NODA, DOE included the cost of electrical 
work required to add a condensate pump or heat tape outlet near the 
NWGF location, but did not include additional ductwork costs. These 
ductwork costs would impact all efficiency levels equally and DOE 
therefore did not add them for this analysis. DOE tentatively 
determined that this approach adequately reflects the electrical work 
and ductwork cost differential between the efficiency levels, so it did 
not make any additional changes for this SNOPR.
Venting Requirements of Condensing Non-Weatherized Gas Furnaces
    In response to DOE's approach in the March 2015 NOPR and the 
September 2015 NODA, many stakeholders commented specifically on the 
venting requirements of condensing NWGFs compared to those of non-
condensing NWGFs, which are outlined below.
    Ingersoll Rand commented that DOE should use the NFGC venting 
guide,

[[Page 65777]]

which has been thoroughly developed and is widely used, to determine 
vent sizing. (Ingersoll Rand, No. 0044 at p. 159) In response, DOE used 
the NFGC guidelines in the March 2015 NOPR and this SNOPR to determine 
vent resizing and chimney relining requirements as described further in 
appendix 8D.
    SoCalGas stated that DOE appears to assume in its analysis that 
condensing furnaces can be vented horizontally. SoCalGas stated that in 
its experience in California, flues are typically built vertically, 
regardless of the type of furnace or installed location. (SoCalGas, No. 
0132-2 at p. 7; SoCalGas, No. 0132-6 at pp. 10-11) In the March 2015 
NOPR and this SNOPR, DOE determined whether a condensing furnace is 
horizontally or vertically vented based on the shortest vent length. 
DOE's analysis assumes that 70 percent of condensing furnaces will be 
installed with a horizontal vent.
    Metal-Fab commented that DOE did not consider the additional cost 
to properly vent condensing NWGFs, which can cost several hundred to a 
few thousand dollars in an existing home. (Metal-Fab, No. 0192 at p. 1) 
In the March 2015 NOPR and this SNOPR, DOE included the venting 
installation costs to replace a non-condensing NWGF with a condensing 
NWGF, including possible chimney relining, vent resizing, and orphaned 
water heater costs. In this SNOPR, DOE updated the vent costs using the 
latest RS Means 2015 data to predict for a retrofit installation range 
from $66 to $6,075 (with an average of $584).
    NPGA commented that relevant gas codes, in particular the NFGC and 
International Fuel Gas Code, prohibit condensing furnaces from being 
directly vented into chimneys because the condensate can freeze and 
expand, damaging the chimney or chimney liner. (NPGA, No. 0130 at p. 2) 
PGW stated that venting through a chimney would require major 
modification of the flue in the chimney, particularly when the water 
heater currently shares a flue with the furnace. (PGW, No. 0122 at pp. 
1-2) In response, DOE maintains its assumption in the March 2015 NOPR 
and the September 2015 NODA that condensing furnaces are not vented 
through an existing chimney but rather would require a new plastic 
vent. This plastic vent is assumed to go through the vent chimney only 
if it meets all applicable code requirements and is not being vented 
together with another appliance (such as a non-condensing water 
heater).
    NiSource and Vectren commented that replacing a non-condensing 
furnace with a condensing one will require a new venting system or 
substantial modifications to the existing system may be necessary. 
NiSource and PGW stated that meeting the venting specifications of 
condensing furnaces may require structural changes to the building to 
accommodate a new venting system and relocation of the furnace to meet 
the code and installation requirements of the new condensing furnace 
system. (NiSource, No. 0127 at p. 3; Vectren, No. 0111 at p. 7; PGW, 
No. 0122 at pp. 1-2) PGW stated that common walls, which are 
characteristic of row housing, make side venting of a condensing 
furnace difficult and expensive. (PGW, No. 0122 at pp. 1-2) AGL 
Resources stated that longer-than-average vent runs, gas line 
extensions, ductwork modifications, and ``snorkel'' vent terminations 
to accommodate minimum clearances from these design factors will 
increase the average price of a condensing furnace installation. (AGL 
Resources, No. 0112 at pp. 3-4) Nortek, AHRI, AGL Resources, Carrier, 
and NMHC, NAA, and NLHA stated that manufacturers' requirements, local 
ordinances, and industry codes determine the minimum clearances to 
sidewalks, average snow accumulation level, overhangs, and air intake 
sources, including operable doors and windows, building corners, and 
gas meter vents. (Nortek, No. 0137 at p. 2; AHRI, No. 0159 at pp. 59, 
61; AGL Resources, No. 0039 at p. 3; AGL Resources, No. 0112 at pp. 3-
4; Carrier, No. 0116 at p. 16; NMHC, NAA, and NLHA, No. 0117 at p. 3) 
Nortek and AHRI stated that in most cases, access to an outside wall 
with sufficient clearance from operable windows and doors will be a 
practical necessity to vent a condensing furnace. (Nortek, No. 0137 at 
p. 2; AHRI, No. 0159 at pp. 59, 61-62)
    In the March 2015 NOPR and the September 2015 NODA, DOE assumed 
that condensing furnaces do not utilize the existing venting system but 
instead require new dedicated plastic venting that meets all applicable 
building codes and manufacturer instructions. DOE understood that vent 
length varies depending on where a suitable wall is located relative to 
the furnace. In addition, when applicable, a snorkel termination is 
accounted for to meet minimum clearances to sidewalks, average snow 
accumulation level, overhangs, and air intake sources, including 
operable doors and windows, building corners, and gas meter vents. DOE 
assumed that the replacement furnace would remain in the same location 
as the existing furnace and accounted for the new vent length and 
structural changes such as wall knockouts, to install new venting. In 
some installations, it could be easier and cheaper to change the 
furnace location, but this would require gas line extensions and 
ductwork modifications. DOE accounted for additional vent length for 
housing units with shared walls. DOE also accounted for the cost of 
vent resizing in the case of an orphaned water heater.
    Nortek and AHRI stated that to properly vent a condensing furnace, 
there needs to be the ability to run a vent pipe to the outside within 
the pressure drop limitations of the combustion fan. (Nortek, No. 0137 
at p. 2; AHRI, No. 0159 at pp. 59, 61) The vent pipe length limitations 
depend on a number of factors including number of elbows, vent 
diameter, horizontal vs. vertical length, as well as combustion fan 
size. A review of several manufacturer installation manuals shows that 
the maximum vent lengths range from 30 to 130 feet depending primarily 
on the vent diameter. DOE used this information for the March 2015 NOPR 
and this SNOPR. See Chapter 8 in the SNOPR TSD for more details.
    Some condensing NWGF installations require an additional cost to 
conceal the PVC vent pipes that pass through the living space. NMHC, 
NAA, and NLHA stated that building construction will determine whether 
the vent pipe can be recessed or must be included in a soffit. (NMHC, 
NAA, and NLHA, No. 0117 at p. 3) For the March 2015 NOPR and this 
SNOPR, DOE assumed that a fraction of condensing furnace installations 
in replacement and new owner applications will require concealing vent 
pipes. Appendix 8D in the SNOPR TSD describes the methodology used to 
determine the households that would require concealing vents and the 
associated costs.
    NAHB stated that the additional installation cost for concealing 
vent pipes in replacement applications reported in the NOPR appears to 
be very low. NAHB stated that this presumably includes drywall work as 
well as painting, which would require at least one separate visit from 
a contractor for each step. NAHB stated that the RS Means labor and 
materials costs would not account for the multiple set-up, breakdown, 
and trip charges. (NAHB, No. 0124 at p. 2) For the March 2015 NOPR, DOE 
accounted for the work required to penetrate walls and conceal vent 
pipes when required for installation of a new condensing furnace. DOE 
has tentatively determined that the range of costs applied in this 
SNOPR analysis sufficiently accounts

[[Page 65778]]

for the costs required to conceal vent pipes.
Common Venting
    Common venting provides a single exhaust flue for multiple gas 
appliances. In some cases, a non-condensing NWGF is commonly vented 
with a gas-fired water heater. When the non-condensing NWGF is replaced 
with a condensing NWGF, the new condensing furnace and the existing 
water heater can no longer be commonly vented due to different venting 
requirements,\72\ and the water heater becomes ``orphaned.'' The 
existing vent may need to be modified to safely vent the orphaned water 
heater. DOE accounted for a fraction of installations that would 
require chimney relining or vent resizing for the orphaned water 
heater, including updating flue vent connectors, resizing vents, or 
relining chimneys when applicable based upon the age of the furnace and 
the home.
---------------------------------------------------------------------------

    \72\ The NFGC venting requirements refer to Category I, II, III, 
and IV gas appliances. Category I gas appliances, such as natural 
draft gas water heaters, exhaust high-temperature flue gases and are 
vented using negative static pressure vents designed to avoid 
excessive condensate production in the vent. Category IV gas 
appliances, such as condensing furnaces, exhaust low temperature 
flue gases and are vented using positive static pressure corrosion-
resistant vents. Due to the different venting requirements, the NFGC 
does not allow common venting of condensing and non-condensing 
appliances.
---------------------------------------------------------------------------

    Commenting on the March 2015 NOPR, MHI stated that 92 percent AFUE 
furnaces require a dedicated venting system to meet positive vent 
pressures, which is particularly problematic for the replacement market 
because it alters the performance characteristics of existing common 
venting. MHI stated that the proposed standard would require consumers 
to take additional steps to comply with proper venting requirements in 
existing homes, which in many cases would be impractical, if not 
impossible. (MHI, No. 0129 at p. 1) NPGA expressed concern that a 92 
percent AFUE standard could cause various venting issues during furnace 
replacement, which could add cost to reconfigure the venting system and 
raise potential safety concerns in venting an orphaned water heater if 
the water heater vent is not properly sized. (NPGA, No. 0044 at pp. 18-
19). NMHC, NAA, and NLHA stated that replacing both the commonly-vented 
gas furnace and gas water heater while maintaining the vertical vent is 
so costly as to be impractical in most situations. (NMHC, NAA, and 
NLHA, No. 0117 at p. 4) MUD stated that orphaned water heaters would 
not properly vent or satisfy the installation requirements of NFPA 54 
if Category I furnaces are removed from the common stacks. (MUD, No. 
0144 at p. 2) CenterPoint Energy, Vectren, and Carrier stated that 
replacing a non-condensing furnace with a condensing one may require 
significant and expensive modifications to the existing vent system, 
such as installing a chimney liner to maintain safe venting of the 
orphaned natural gas water heater, or replacement of the existing water 
heater with a new power-vented water heater. (CenterPoint Energy, No. 
0083 at p. 2; Vectren, No. 0111 at p. 7; Carrier, No. 0116 at p. 19) 
AHRI stated that in many new homes, it would be possible to install a 
condensing gas furnace and a power-vented gas water heater and avoid 
the cost of installing a chimney. (AHRI, No. 0159 at p. 59)
    DOE has tentatively determined that the assumptions it made and 
costs it included for the March 2015 NOPR and September 2015 NODA 
adequately address the concerns raised in the above comments. DOE's 
analysis reflects the likelihood that in some cases, replacing a non-
condensing furnace with a condensing one may require significant 
modifications to the existing vent system for the commonly-vented gas 
water heater. It accounted for costs for updating the vent connector, 
relining the chimney, and resizing the vent, which would satisfy the 
installation requirements of NFPA 54. In the March 2015 NOPR and 
September 2015 NODA, DOE acknowledged that a potential option is to 
install either a storage or tankless power-vented water heater to avoid 
the cost of a chimney or metal flue vent just for the gas water heater 
or avoid switching to an electric storage water heater. For the SNOPR 
(similar to the March 2015 NOPR and September 2015 NODA), DOE did not 
consider the power-vented water heater option but instead added 
additional installation costs associated with venting of the Category I 
water heater, so that the orphaned water heater could be vented through 
the chimney or considered an electric storage water heater as an 
alternative.
    PG&E stated that to accommodate higher-efficiency water heaters, 
newly constructed homes and many existing homes will need to upgrade 
their water heater vents, thereby greatly reducing the number of 
commonly-vented NWGFs and gas water heaters. PG&E expects that the 
frequency of vent resizing will decrease due to the increase in use of 
high-efficiency water heaters expected to occur before 2021. (PG&E, No. 
0153 at pp. 4-5) ASAP agreed with PG&E that DOE's estimate of commonly-
vented appliances is outdated and does not account for water heater 
market trends. (ASAP, No. 0154-1 at p. 2) PG&E also stated that DOE 
should eliminate added costs for new owner installations that are 
assumed to be common-vented with non-condensing water heaters, as homes 
in this category did not previously have a furnace and, therefore, do 
not have an existing common vent. (PG&E, No. 0153 at pp. 5-6)
    DOE acknowledges that the frequency of chimney relining and vent 
resizing may decrease somewhat due to increase in use of high-
efficiency water heaters. However, DOE did not find any information to 
predict the market share of high-efficiency water heaters in 2022 or 
the decrease in the fraction of installations with common vents. For 
new owner and new construction installations, DOE applied a venting 
cost differential if the owner/builder was planning to install a 
commonly-vented non-condensing furnace and water heater. For the SNOPR, 
DOE prefers to be conservative and not understate the impact of common 
venting, and consequently, DOE did not change the approach in this 
SNOPR that it used for the March 2015 NOPR and September 2015 NODA.
    NMHC, NAA, and NLHA stated that in many multi-family properties, 
furnaces and gas water heaters from several units may share a chimney 
vent, or a furnace and a water heater within one apartment may be 
commonly vented. NMHC, NAA, and NLHA stated that eliminating a non-
condensing furnace from a venting stack may initiate a cascade of 
equipment replacements due to venting requirements. (NMHC, NAA, and 
NLHA, No. 0117 at pp. 3-4) Carrier stated that each time a Category I 
furnace is replaced with a Category IV furnace in a multi-family 
building, the Category I common-vent system will require resizing. 
Carrier stated that labor costs for reconfiguration of existing 
Category I vents for installation of new Category IV vents could be 
higher than average due to space constraints. (Carrier, No. 0116 at p. 
19)
    DOE acknowledges that multi-family buildings may require additional 
measures to replace non-condensing furnaces with condensing furnaces. 
However, DOE did not find data that would allow a reliable estimation 
of the associated costs. DOE welcomes data on the costs associated with 
modifying the existing vent systems for non-condensing gas furnaces in 
multi-family buildings. This is identified as issue 11 in section 
VII.E, ``Issues on Which DOE Seeks Comment.''
    CEC expects that retrofit installation costs will decrease as the 
industry

[[Page 65779]]

provides innovative solutions to address the orphaned water heater 
issue for some retrofits. (CEC, No. 0120 at p. 5) Although DOE agrees 
that installation costs may decrease over time, DOE does not have 
enough data at this time to project such cost trends in its analysis. 
See discussion under New Venting Technologies.
Difficult Installations
    The March 2015 NOPR analysis accounted for additional vent length 
to reach a suitable location on an outside wall where the vent 
termination could be located, as well as for wall penetrations and 
concealing flue vents in conditioned spaces.
    In response to the March 2015 NOPR, several stakeholders commented 
that there are situations where venting a condensing furnace through an 
outside wall is impractical or impossible and would require moving 
walls, ceilings or other construction, especially in multi-family 
buildings, older homes, homes with shared walls, and homes with 
completely finished basements. (Nortek, No. 0137 at pp. 2-34; MUD, No. 
0144 at p. 1; Questar Gas, No. 0151 at p. 1; AHRI, No. 0159 at p. 59; 
PGW, No. 0003-1 at pp. 1-3; PHCC, No. 0136 at p. 121; ACCA, No. 0158-2 
at p. 121; Southside Heating and Air Conditioning, No. 0044 at pp. 306-
307; NMHC, NAA, and NLHA, No. 0117 at pp. 2-3; Nayes, No. 0055 at p. 1; 
Meeks, No. 0140 at p. 1) AHRI and Nortek stated that in approximately 
15-20 percent of buildings that currently have NWGFs, installing a 
condensing NWGF is impractical or impossible due to physical 
constraints of the existing buildings. (AHRI, No. 0159 at pp. 58-59; 
Nortek, No. 0137 at pp. 2-34)
    In contrast, ACEEE stated that the number of installations that 
would entail high costs to retrofit condensing furnaces are small in 
number. The commenter stated that in Canada, national standards require 
condensing furnaces, and neither Natural Resources Canada nor its 
mortgage agency has found any significant implementation problems with 
that standard. ACEEE also checked with the U.S. furnace OEM who might 
have the largest market share in Canada, and that company reported 
essentially no pushback. ACEEE also contacted a major weatherization 
program about the costs to retrofit condensing furnaces in Philadelphia 
row houses. ACEEE stated that according to that source, the program has 
installed many condensing furnaces in Philadelphia row houses, and 
while they have found some challenges, they have also developed 
moderate-cost solutions to these problems. (ACEEE, No. 0113 at p. 7) 
The Efficiency Advocates stated that if small furnaces are allowed to 
remain non-condensing, the already small number of difficult-to-
retrofit homes will decrease. (Efficiency Advocates, No. 0196 at p. 3)
    Because the stock of buildings using NWGFs in Canada has many 
similarities to the stock using NWGFs in northern parts of the U.S., 
DOE investigated ACEEE's reference to the lack of issues related to the 
implementation of the Canadian standards. Before the 2012 Canadian 
condensing furnace standard, the Heating, Refrigeration and Air 
Conditioning Institute of Canada (HRAI) and other stakeholders raised 
similar concerns to those presented in the current rulemaking. HRAI 
afterwards put together a Q&A for installers highlighting the issues 
and possible solutions related to the standard.\73\ Based on consultant 
research, the number of consumers and other stakeholders that have 
contacted NRCan about issues related to the condensing furnace standard 
has been extremely small.\74\ The consultant information suggested that 
the potential problems that were identified with the requirement to 
retrofit condensing furnaces were either overstated, or that the 
installing contractors found ways to resolve the issues. In regards to 
row house installations, DOE believes that its current analysis 
includes costs comparable to the methods that were identified in the 
Philadelphia weatherization program to address venting difficulties in 
condensing NWGF installations. In addition, as suggested by the 
Efficiency Advocates, DOE's proposed separate standards for small and 
large NWGFs would significantly reduce the number of installations 
described as difficult.
---------------------------------------------------------------------------

    \73\ Heating, Refrigeration and Air Conditioning Institute of 
Canada, Q&A for Installers: Venting Solutions for Upcoming Changes 
to Furnace Standard (Available at: www.hrai.ca/PDFs/factsheets/
PlasticVentingSystemAlternatives.pdf).
    \74\ Edwards, P., Impact of Condensing Standard on Consumers 
(2016).
---------------------------------------------------------------------------

    NMHC, NAA, and NLHA stated that the location of the furnace 
determines how extensive the new horizontal venting must be to reach an 
exterior wall. NMHC, NAA, and NLHA stated that building code 
requirements present additional challenges for multi-family properties 
that have few open areas on the exterior of the building to accommodate 
furnace vents. (NMHC, NAA, and NLHA, No. 0117 at p. 3) Carrier stated 
that 92-percent AFUE Category IV furnaces require dedicated vent 
systems and terminations for multi-family installations. Carrier stated 
that for these installations, as the number of terminations increases, 
it becomes increasingly difficult or impossible to safely and reliably 
locate vent terminations on the outside of the structure. (Carrier, No. 
0116 at p. 16) Carrier stated that if 80-percent AFUE Category I 
furnaces in a multi-unit common vent system must be replaced with 
condensing Category IV furnaces, each new furnace will require its own 
plastic venting system next to the metal vent for the remaining 
Category I furnaces. Carrier stated that the dedicated piping for each 
condensing furnace may lead to an impossible situation as more common-
vented non-condensing furnaces are replaced with individually-vented 
condensing furnaces and room for venting is exhausted. PHCC stated that 
mechanical codes prohibit mixing return air from sleeping quarters from 
different units in a multi-family building, so a common non-condensing 
furnace used for multiple apartments would have to be replaced with 
separate condensing furnaces and separate venting systems. (PHCC, No. 
0044 at p. 197) Southside Heating and Air Conditioning agreed with 
PHCC. (Southside Heating and Air Conditioning, No. 0044 at p. 201)
    MUD commented that a majority of apartment buildings in its service 
territory utilize interior common vent stacks. MUD and Carrier stated 
that space constraints would prohibit the installation of new PVC 
venting in the existing chases. Carrier and MUD commented that sidewall 
venting may not be an option due to firewalls, sidewalks adjacent to 
building, or other local codes. Carrier stated that the situation may 
be exacerbated if it is desired to provide two-pipe or direct venting 
for the condensing furnace to provide cleaner outdoor combustion air 
for better reliability. MUD stated that building owners will face not 
only the high costs to replace furnaces, but will also need to modify 
vent stacks to comply with current codes. (MUD, No. 0144 at p. 2; 
Carrier, No. 0116 at pp. 13-14)
    DOE recognizes the unique requirements for installing condensing 
furnaces in multi-family buildings. The analysis for the March 2015 
NOPR and this SNOPR accounts for the cost of measures to address the 
constraints mentioned by the comments. Such measures include the vent 
length, existing common vents, and horizontal venting. Moreover, 
because many multi-family NWGF installations would utilize a relatively 
small furnace, DOE's proposed standard for NWGFs with a certified input 
capacity of 55 kBtu/h would greatly reduce the number of multi-family 
installations where a

[[Page 65780]]

condensing furnace would be necessary. DOE's analysis estimates that 
more than 60 percent of replacement multi-family NWGF installations 
would not be impacted by the proposed standard.
Condensate Withdrawal
    DOE accounted for the cost of condensate removal for condensing 
NWGF installations, including, when applicable, a condensate drain, 
condensate pump, freeze protection (heat tape), drain pan, condensate 
neutralizer, and additional electric outlet for the condensate pump.
    Carrier stated that code requirements may prevent condensate 
drainage to wastewater management utilities. (Carrier, No. 0116 at p. 
34) AGL Resources stated that the fraction of furnaces requiring 
condensate neutralizers estimated by DOE is extremely low and does not 
take into account codes that require condensate neutralization and the 
high likelihood of encountering cast iron drain lines in older homes 
that require condensing furnace retrofits. AGL Resources also commented 
that the International Plumbing Code, the most widely adopted plumbing 
code in the U.S., requires neutralizers. (AGL Resources, No. 0112 at p. 
4) Rheem stated that safe operation of the furnace prohibits a common 
condensate drain with an air conditioner condensate drain. (Rheem, No. 
0142 at p. 8)
    In response, DOE notes that although neutralization is included in 
the International Plumbing Code, it is not mandatory in most U.S. 
municipalities. To address situations where condensate must be treated 
before disposal, DOE assumed that a fraction of installations require 
condensate neutralizer for condensate withdrawal. As discussed in 
appendix 8D of the SNOPR TSD, DOE determined that the fraction of 
installations that require condensate neutralizer used in the NOPR 
analysis (12.5 percent) is representative of the current use. DOE notes 
that while Rheem does not allow a common condensate drain with an air 
conditioner condensate drain, other manufacturers allow a common 
drain.75 76 77
---------------------------------------------------------------------------

    \75\ Carrier, Single-Stage 4-Way Multipoise Condensing Gas 
Furnace Series A and B: Installation, Start-up, Operating and 
Service and Maintenance Instructions (IM-PG95SAS-07) (2015).
    \76\ Goodman Manufacturing Company, L.P., GMH95/GCH95/GME95/GCH9 
Gas-Fired Warm Air Furnace Installation Instructions, Houston, TX.
    \77\ Rheem Manufacturing Company, Installation Instructions For 
Upflow, Downflow/Horizontal High Efficiency Condensing two-Stage Gas 
Furnaces RGRM, RGTM Series.
---------------------------------------------------------------------------

    Questar Gas argued that with multi-family units, the condensate 
disposal requirements would be cost prohibitive and, in some cases, 
impossible. (Questar Gas, No. 0151 at p. 1) Rheem stated that multi-
family homes pose the most serious challenges to providing proper 
condensate management without extensive structural modification to the 
home. (Rheem, No. 0142 at pp. 8-9) DOE acknowledges that condensate 
management can be costly for some multi-family units and very difficult 
in rare cases. DOE notes the proposed standard in this SNOPR would 
reduce the number of cases where condensate disposal costs would be 
extremely high.
    Darling stated that mobile homes have no provision for disposing of 
condensate produced by a condensing furnace, leading to either costly 
plumbing additions to legally accommodate the condensate or the 
condensate drain dumping onto the ground under the home. (Darling, No. 
0065 at p. 1) DOE understands that most mobile homes have air 
conditioning that has provisions for withdrawing condensate. In the 
March 2015 NOPR and this SNOPR, DOE included condensate piping for all 
MHGFs and condensate pump, heat tape, and electrical outlet for 
condensate pump and heat tape for a fraction of MHGF installations 
without air conditioning.
    Goodman commented that condensate freeze protection is an added 
installation concern that must be addressed when installing condensing 
furnaces. (Goodman, No. 0135 at p. 3) Carrier and many contractors who 
responded to PHCC's and ACCA's survey stated that in some regions, 
condensate located in an unheated space (e.g., attics, ventilated 
crawlspaces) could freeze in the condensate line. (Carrier, No. 0116 at 
p. 34; PHCC, No. 0136 at p. 11; ACCA, No. 0158-2 at p. 11) Darling and 
AGL Resources stated that replacing a non-condensing furnace located in 
an attic or crawlspace, which are typically unconditioned, with a 
condensing furnace may require heat tape to prevent freezing. (Darling, 
No. 0065 at p. 1; AGL Resources, No. 0112 at p. 4) AHRI stated that a 
significant number of contractors believe that heat tape is not 
sufficiently reliable to prevent condensate from freezing. (AHRI, No. 
0159 at p. 62) In response, DOE notes that the use of heat tape to 
prevent condensate pipes from freezing is standard installation 
practice. DOE assumed that condensing furnaces installed in non-
conditioned spaces would require heat tape to prevent condensate from 
freezing. DOE also accounted for the additional installation cost and 
energy use of the heat tape. In addition, DOE believes that as 
condensing furnaces become more common, contractors will become better 
trained and more aware of potential issues, thus increasing the 
reliability of heat tape or using other options that do not expose the 
condensate pipe to freezing environment.
New Venting Technologies
    To address certain difficult installation situations, a new venting 
technology was recently developed to vent a condensing residential 
furnace and atmospheric combustion water heater through the same vent 
by reusing of the existing metal vent or masonry chimney with a new 
vent cap and appropriate liner(s). In the March 2015 NOPR, DOE 
conducted a sensitivity analysis to estimate the impact of such a 
technology on the installation cost of a condensing NWGF, but did not 
include the technology in the primary analysis.
    ASAP stated that DOE's main analysis does not account for the 
latest venting technologies that can significantly reduce installation 
costs, such as that developed by M&G DuraVent. (ASAP, No. 0154-1 at p. 
2) NRDC stated that the analysis shows that the DuraVent technology 
would deliver large average consumer savings for row homes and 
condominiums. (NRDC, No. 0134 at p. 6) ACEEE and ASE stated that DOE 
should consider DuraVent more fully in its main analysis as a venting 
alternative for orphaned water heaters. ACEEE understands that other 
manufacturers have developed their own products and are getting UL 
certification, and that many products will be widely available long 
before a new furnace standard takes effect. (ACEEE, No. 0113 at pp. 1-
2; ASE, No. 0115 at p. 21) The Joint Congress Members and PG&E stated 
that new venting technologies are reducing the cost of venting 
condensing furnaces in even the most difficult circumstances, such as 
row houses. The Joint Congress Members stated that it is reasonable to 
expect that costs would be lower than estimated. (Joint Congress 
Members, No. 0161 at p. 3; PG&E, No. 0153 at p. 6) On the other hand, 
AGL Resources argued that DOE overestimated the capabilities of the 
DuraVent technology, and noted that per the manufacturer's guidelines, 
the Category IV liner portion of the product must always maintain at 
least a 45-degree angle. AGL Resources stated that DuraVent can only be 
used in very limited applications where the existing common vent has no 
horizontal sections, and where the furnace and water heater are side by 
side. AGL Resources stated that because of these limitations, DuraVent 
cannot be used in masonry chimneys. It added that

[[Page 65781]]

DuraVent also requires annual maintenance. (AGL Resources, No. 0039 at 
pp. 8-9; AGL Resources, No. 0112 at pp. 13-15)
    According to the available information, DuraVent is UL-approved for 
use with metal vents,\78\ but data on the performance in the field are 
lacking. In addition, DOE recognizes that there are currently 
limitations of the DuraVent technology related to venting in masonry 
chimneys. Because of the uncertainty regarding applicability of 
DuraVent technology, DOE maintained its approach of conducting 
sensitivity analyses for this SNOPR. For these analyses, DOE only 
applied the DuraVent option to installations that could meet the 
DuraVent installation requirements, as it did in the March 2015 NOPR. 
DOE notes that while venting technology could lower installation costs, 
DOE must base its approach on currently available data and cannot 
speculate as to future developments in advanced venting technologies, 
but welcomes any available data.
---------------------------------------------------------------------------

    \78\ M&G DuraVent's FNS 80/90 Combination Cat I and Cat IV gas 
vent system is UL listed to applicable portions of ULC S636/UL1738, 
UL1777, and UL441. (See www.duravent.com/Product.aspx?hProduct=49.)
---------------------------------------------------------------------------

Learning in Installation Costs
    NRDC and ASAP commented that DOE should apply a learning curve to 
installation costs that are likely to decline, particularly for homes 
with challenging installation conditions for which there has been 
relatively little market experience. NRDC stated that keeping 
installation costs constant over time implicitly assumes that 
manufacturers and installers would not deliver any new venting 
technologies that can significantly reduce installation costs. (NRDC, 
No. 0134 at pp. 2, 6; ASAP, No. 0154-1 at p. 2) CEC expects that 
retrofit installation costs would decrease as the industry provides 
innovative solutions to address venting in all retrofits. (CEC, No. 
0120 at p. 5) NRDC suggested including ``learning curve'' measures, and 
in particular, lower-cost installation measures that will likely emerge 
for homes with relatively challenging installation conditions for 
condensing furnaces. (NRDC, No. 0134 at p. 2; NRDC, No. 0186 at p. 2)
    DOE acknowledges the potential for the cost of installing a 
condensing furnace to decline with experience, but it did not have 
information that would be required to quantify a learning curve for 
installation costs.
c. Comments on Installation Cost Results for Non-Weatherized Gas 
Furnaces
    Goodman urged DOE to update its installation cost estimates based 
on the results presented in the AHRI-ACCA-PHCC contractor survey report 
to ensure that the installation costs are representative of real world 
issues faced by contractors and consumers in the field. (Goodman, No. 
0135 at p. 2) AHRI also stated that installation costs for NWGFs are 
significantly underestimated. (AHRI, No. 0181 at p. 3) AHRI stated that 
according to its survey results, the average installation costs for all 
furnaces in all regions are over $1,000 more than what DOE estimated, 
and the distribution of installation costs is higher than DOE's 
distribution in both the North and the South. (AHRI, No. 0159 at pp. 
44-46)
    Goodman, PHCC, and ACCA stated that average installation costs from 
the AHRI-ACCA-PHCC survey range from $1,908 for new installations in 
the South to $2,730 for replacement installations in the North. 
(Goodman, No. 0135 at p. 2; PHCC, No. 0136 at p. 6; ACCA, No. 0158-2 at 
p. 6) Rheem and AHRI stated that survey data of actual contractors show 
replacement installation costs of two or more times DOE's estimates, 
depending on the type of furnace. (Rheem, No. 0142 at p. 4; AHRI, No. 
0159 at p. 68) AHRI stated that the difference between DOE's 
installation cost estimates and survey results is unlikely to be due to 
the RS Means data that DOE used. Rather, AHRI stated that there is no 
evidence that DOE calibrated its installation cost estimates with 
market data. (AHRI, No. 0159 at p. 46) Southside Heating and Air 
Conditioning stated that its installation cost in Minnesota ranges from 
two to six times as much as DOE's estimate for non-condensing NWGFs. 
Southside Heating and Air Conditioning stated that its installation 
cost in Minnesota is triple DOE's installation cost for condensing 
NWGFs. (Southside Heating and Air Conditioning, No. 0044 at p. 139)
    In response, the differences between total installation cost from 
available survey data and the costs provided in the March 2015 NOPR and 
September 2015 NODA could be due to various issues affecting both non-
condensing and condensing NWGFs, such as: The cost of ductwork 
upgrades; baseline electrical installation costs; additional labor 
required in the baseline; underestimation of relining, resizing, or 
other adjustments of metal venting in the baseline; premium for 
emergency replacements; and premium installations that include other 
comfort-related features (e.g., advanced thermostats, zoning, 
hypoallergenic filters, humidity controls). Also, the installation 
price varies widely by different contractors and areas of the country/
region. For the SNOPR, DOE compared its estimates to the AHRI-ACCA-PHCC 
contractor survey report and other sources such as Home Advisor,\79\ 
ImproveNet,\80\ Angie's List,\81\ HomeWyse,\82\ Cost Helper,\83\ 
Fixr,\84\ CostOwl,\85\ and Gas Furnace Guide,\86\ and also consulted 
with RS Means staff to make its baseline installation cost estimates 
more comparable. It appears that much of the additional cost not 
included in the March 2015 NOPR is the same for a non-condensing and 
condensing furnace (such as ductwork, emergency replacement, etc.). The 
LCC impacts are driven by the differential between the non-condensing 
and condensing designs, so for the SNOPR did not add these additional 
costs.
---------------------------------------------------------------------------

    \79\ Home Advisor, How Much Does a New Gas Furnace Cost? 
(Available at: http://www.homeadvisor.com/cost/heating-and-cooling/gas-furnace-prices/) (Last accessed April 26, 2016).
    \80\ Improvenet, Furnace Installation Cost Guide (Available at: 
http://www.improvenet.com/r/costs-and-prices/furnace-installation-cost-estimator) (Last accessed April 26, 2016).
    \81\ Angie's List, How Much Does it Cost to Install a New 
Furnace (Available at: https://www.angieslist.com/articles/how-much-does-it-cost-install-new-furnace.htm) (Last accessed April 26, 
2016).
    \82\ HomeWyse, Cost to Install a Furnace (Available at: http://www.homewyse.com/services/cost_to_install_furnace.html) (Last 
accessed April 26, 2016).
    \83\ Cost Helper, How Much Does a Furnace Cost? (Available at: 
http://home.costhelper.com/furnace.html) (Last accessed April 26, 
2016).
    \84\ FIXr, Gas Central Heating Installation Cost (Available at: 
http://www.fixr.com/costs/gas-central-heating-installation) (Last 
accessed April 26, 2016).
    \85\ CostOwl.com, How much Does a New Furnace Cost? (Available 
at: http://www.costowl.com/home-improvement/hvac-furnace-replacement-cost.html) (Last accessed April 26, 2016).
    \86\ Gas Furnace Guide, Gas Furnace Prices and Installation Cost 
Comparison (Available at: http://gasfurnaceguide.com/compare/) (Last 
accessed April 26, 2016).
---------------------------------------------------------------------------

    Many stakeholders commented on the installation cost when replacing 
a non-condensing NWGF with a condensing NWGF. NiSource, Meeks, AAEA, 
Ubuntu, DC Jobs or Else, CA, Payne, Bishop, Indiana, Nayes, and A Ware 
stated that the installation cost of a condensing furnace is $1,500 to 
$2,500, which is higher than DOE's estimate. (NiSource, No. 0127 at p. 
3; Meeks, No. 0140 at p. 1; AAEA, No. 0056 at p. 1; Ubuntu, No. 0057 at 
p. 1; Ubuntu, No. 0191 at p. 1; DC Jobs or Else, No. 0059 at p. 1; CA, 
No. 0061 at p. 1; Payne, No. 0075 at p. 1; Bishop, No. 0076 at p. 1;

[[Page 65782]]

Indiana, No. 0094 at p. 1; Nayes, No. 0055 at p. 1; A Ware, No. 0204 at 
p. 1)
    Laclede stated that DOE significantly understated the incremental 
costs to install a condensing furnace compared to a non-condensing 
furnace. (Laclede, No. 0141 at p. 5) Washington Gas stated that 
according to contractors in its service territory, a replacement 
condensing furnace could be as much as 50 percent higher than the 
installation cost of a replacement non-condensing furnace. (Washington 
Gas, No. 0133 at p. 2) SoCalGas stated that data for production housing 
in California demonstrates that the installed cost for a 92-percent 
furnace is higher than that of an 82-percent furnace by $385, $495, and 
$551 for 40, 60, and 80 kBtu/h, respectively. (SoCalGas, No. 0132-2 at 
p. 7; SoCalGas, No. 0132-6 at pp. 10-11) Goodman, PHCC, and ACCA stated 
that the installation costs for condensing furnaces from their survey 
is between $500 and $600 more than for non-condensing furnaces. 
(Goodman, No. 0135 at p. 2; PHCC, No. 0136 at p. 6; ACCA, No. 0158-2 at 
p. 6) PHCC and ACCA stated that because contractors almost always 
install condensing furnaces where the economic returns are acceptable 
to consumers, the results of their survey represent a lower bound on 
the costs that might be incurred under a national condensing NWGF 
standard. (PHCC, No. 0136 at p. 11; ACCA, No. 0158-2 at p. 11) AHRI 
stated that the survey responses do not include costs for replacement 
installations that are expensive, difficult, and require added system 
or site work. (AHRI, No. 0159 at p. 68)
    As noted previously, installation cost varies widely for different 
contractors and areas of the country. For both the March 2015 NOPR and 
September 2015 NODA, the average incremental installation cost for a 
condensing NWGF was $564 (in 2014$) for a retrofit installation, which 
matches the contractor survey and data provided by SoCalGas. For the 
SNOPR, revised its estimates using RS Means 2015 data such that the 
average cost incremental is $528 in 2015$ for a retrofit installation.
    Table IV.15 shows the fraction of installations impacted and the 
average cost for each of the installation cost adders in replacement 
applications. The estimates of the fraction of installations impacted 
were 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 SNOPR TSD.

     Table IV.14--Additional Installation Costs for Non-Weatherized Gas Furnaces in Replacement Applications
----------------------------------------------------------------------------------------------------------------
                                                                               Replacement
                                                                              installations       Average cost
                          Installation cost adder                                impacted           (2015$)
                                                                                (percent)
----------------------------------------------------------------------------------------------------------------
                                             Non-Condensing Furnaces
----------------------------------------------------------------------------------------------------------------
Updating Flue Vent *......................................................                  2               $612
----------------------------------------------------------------------------------------------------------------
                                               Condensing Furnaces
----------------------------------------------------------------------------------------------------------------
New Flue Venting (PVC)....................................................                100                263
Combustion Air Venting (PVC)..............................................                 59                263
Concealing Vent Pipes.....................................................                  9                379
Orphaned Water Heater.....................................................                 19                702
Condensate Removal........................................................                100                 47
----------------------------------------------------------------------------------------------------------------
* For a fraction of installations, this cost includes the commonly-vented water heater vent connector, chimney
  relining, and vent resizing.

    Table IV.15 shows the estimated fraction of new home installations 
impacted and the average cost for each of the adders.

      Table IV.15--Additional Installation Costs for Non-Weatherized Gas Furnaces in New Home Applications
----------------------------------------------------------------------------------------------------------------
                                                                             New construction
                                                                              installations       Average cost
                          Installation cost adder                                impacted           (2015$)
                                                                                (percent)
----------------------------------------------------------------------------------------------------------------
                                             Non-Condensing Furnaces
----------------------------------------------------------------------------------------------------------------
New Flue Vent (Metal) *...................................................                100             $1,364
----------------------------------------------------------------------------------------------------------------
                                               Condensing Furnaces
----------------------------------------------------------------------------------------------------------------
New Flue Venting (PVC)....................................................                100                178
Combustion Air Venting (PVC)..............................................                 60                176
Concealing Vent Pipes.....................................................                  3                113
Orphaned Water Heater.....................................................                 45              1,061
Condensate Removal........................................................                100                 35
----------------------------------------------------------------------------------------------------------------
* For a fraction of installations, this cost includes the commonly-vented water heater vent connector.

d. Installation Cost for Mobile Home Gas Furnaces
    For the March 2015 NOPR, DOE included basic installation costs for 
MHGFs described above for NWGFs. DOE also included costs for venting 
and condensate removal. Freeze protection, a condensate pipe, 
condensate neutralizer, and an additional electricity connection are 
accounted for in the cost of condensate removal when where applicable.

[[Page 65783]]

    JCI stated that for replacement installations in mobile homes, 
significant rebuilding of closets and/or alcoves may be required to 
accommodate a standard residential furnace design. JCI also stated that 
the design of venting systems, return air connections, and supply air 
ductwork are all different for standard residential furnace designs, 
which increase the complexity and cost for a retrofit application. JCI 
stated that these additional costs are not included in DOE's analysis 
to their full extent. (JCI, No. 0148 at p. 6)
    In response, DOE notes that MHGFs are usually installed in tight 
spaces and often require space modifications if the replacement furnace 
dimensions are different from those of the existing furnace. 
Manufacturer literature shows that some condensing furnaces are wider 
and shorter than existing non-condensing furnaces. DOE notes that most 
of models at the proposed standard at 92 percent AFUE are similar in 
size to the existing non-condensing furnaces. DOE performed a 
sensitivity analysis to assess the impact of adding the costs of 
dealing with space constraints that could be encountered when a 
standard condensing MHGF replaces an older mobile home-specific 
furnace.
    MHI stated that the dedicated vent system required for 92percent 
AFUE MHGFs, which alters the performance characteristics of common 
venting, is especially problematic because these furnaces are only 
produced for the mobile home market. (MHI, No. 0129 at p. 1) DOE 
disagrees that a dedicated vent system would be problematic because 
furnaces installed in mobile homes must be approved by the U.S. 
Department of Housing and Urban Development, which requires special 
sealed combustion venting that cannot be commonly vented.
    For further details on the installation cost methodology, see 
chapter 8 of the SNOPR TSD.
3. Annual Energy Consumption
    For each sampled household or building, DOE determined the energy 
consumption for a NWGF or MHGF at different efficiency levels using the 
approach described in section IV.E of this notice.
    For the LCC analysis, DOE does not include the increase in energy 
use associated with the rebound effect discussed in section IV.E.1.d 
because the increased furnace usage associated with the rebound effect 
provides consumers with increased value (e.g., a more comfortable 
indoor temperature). DOE believes that, if it were able to monetize the 
increased value to consumers of the rebound effect, this value would be 
similar in monetary value to the foregone energy savings. Therefore, 
the economic impacts on consumers, with or without including the 
rebound effect in the analysis, are the same.
    Several stakeholders believe that the cost of increased energy use 
due to the rebound effect should be accounted for in the LCC analysis. 
AGA stated that exclusion of direct rebound effect energy costs from 
the LCC analysis is inconsistent with DOE's definition of LCC analysis 
as a cost metric. AGA stated that the definition of life-cycle cost 
demonstrates that LCC is a cost metric that does not encompass non-
financial consumer benefits. (AGA, No. 0118 at p. 32) Ingersoll Rand 
and Laclede commented that DOE underestimated the economic impacts of 
standards by not accounting for the reduction in energy savings due to 
the rebound effect. Laclede stated that the rebound effect is a cost 
with no associated monetary offsets. (Ingersoll Rand, No. 0156 at pp. 
6, 9; Laclede, No. 0141 at pp. 36-37) NPGA, Ingersoll Rand, and Laclede 
stated that DOE should consider the direct rebound effect in total 
operating costs. (NPGA, No. 0130 at p. 3; Ingersoll Rand, No. 0156 at 
p. 26; Laclede, No. 0141 at p. 37) AHRI stated that DOE provides no 
reasoned basis for not applying the rebound effect in the LCC analysis 
as it does in the NIA. AHRI stated that although comfort is real, it 
has no real monetary value. AHRI stated that the cost of the new 
higher-efficiency furnace must be compared against the actual monthly 
energy bill paid to operate the furnace. (AHRI, No. 0159 at pp. 21, 68) 
Ingersoll Rand stated that including fuel switching but not the rebound 
effect in the LCC analysis arbitrarily lowers the LCC of the space 
heating options in the standards case. (Ingersoll Rand, No. 0156 at p. 
9)
    The approach suggested by the comments would place no value on the 
increased comfort associated with the rebound effect, yet clearly 
consumers are paying for that service in their energy bill. 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. For these reasons, DOE is 
retaining its current approach to rebound effect.
4. Energy Prices
    For the September 2015 NODA, DOE derived average annual residential 
and commercial electricity, natural gas, and LPG prices for States and 
various regions using data from the Energy Information Administration 
(EIA).87 88 89 DOE calculated an average annual regional 
residential energy prices by: (1) Estimating an average residential 
price for each utility in the region (by dividing the residential 
revenues by residential sales); and (2) weighting each utility by the 
number of residential consumers it served in that region. DOE used the 
same methodology for average annual regional commercial energy prices. 
Further details may be found in chapter 8 of the SNOPR TSD.
---------------------------------------------------------------------------

    \87\ U.S. Department of Energy--Energy Information 
Administration, Form EIA-826 Database Monthly Electric Utility Sales 
and Revenue Data (2014) available at: www.eia.doe.gov/cneaf/electricity/page/eia826.html.
    \88\ U.S. Department of Energy--Energy Information 
Administration, Natural Gas Navigator (2014), available at: http://tonto.eia.doe.gov/dnav/ng/ng_pri_sum_dcu_nus_m.htm).
    \89\ U.S. Department of Energy--Energy Information 
Administration, 2014 State Energy Consumption, Price, and 
Expenditure Estimates (SEDS) (2014), available at: www.eia.doe.gov/emeu/states/_seds.html.
---------------------------------------------------------------------------

    SoCalGas stated that DOE used questionable values for marginal 
electricity prices in California in its LCC analysis. 3 (SoCalGas, No. 
0132-2 at p. 5) MUD stated that its average residential natural gas 
rate has averaged $5.41/MMBtu during the past 48 months, whereas the 
forecasted prices in AEO2014 for Census Division 4 are $10/MMBtu in 
2015. MUD stated that AEO2015 provides a lower estimate. (MUD, No. 0144 
at pp. 2-3) In response, DOE calculated average annual energy prices 
based on historical data from EIA. DOE only used AEO forecasts to 
project future energy price trends. For this SNOPR analysis, DOE 
included the most recent EIA energy price data.
    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.
    Several stakeholders criticized DOE's methodology to determine 
marginal energy prices. AGA stated that a comparison of AGA's tariff-
based marginal gas price factors, which are based on a dataset of about 
200 tariffs, and DOE's EIA-based marginal gas price factors shows that 
DOE's factors

[[Page 65784]]

significantly overestimate marginal prices. AGA stated that the AGA 
tariff-based marginal price methodology uses a conservative approach to 
calculate marginal prices because merely subtracting fixed customer 
charges from the customer bill does not account for all fixed charges 
found in some utility rate structures that could decrease marginal 
rates further. AGA further stated that DOE should revise its economic 
analysis to incorporate marginal gas price factors calculated with 
tariff data provided by AGA. (AGA, No. 0118 at pp. 21-23) Vectren 
stated that AGA calculated marginal gas prices based on actual tariff 
data, and found that DOE's estimated national averages are between 6 
and 11 percent too high, depending on the season. (Vectren, No. 0111 at 
pp. 3-4) The GTI report submitted by SoCalGas stated that DOE's 
marginal gas prices differ from gas company tariff data. (SoCalGas, No. 
0132-7 at p. v)
    To evaluate AGA's tariff-based marginal gas price factors, DOE 
developed seasonal marginal price factors for 23 gas tariffs provided 
by the Gas Technology Institute for the 2016 residential boilers energy 
conservation standards rulemaking,\90\ and compared them to marginal 
price factors developed by DOE from the EIA data. The winter price 
factors used by DOE are generally comparable to those computed from the 
tariff data, indicating that DOE's marginal price estimates are 
reasonable at average usage levels. The summer price factors are also 
generally comparable. Of the 23 tariffs analyzed, eight have multiple 
tiers, and of these eight, six have ascending rates and two have 
descending rates. The tariff-based marginal factors use an average of 
the two tiers as the commodity price. A full tariff-based analysis 
would require information about the household's total baseline gas 
usage (to establish which tier the consumer is in), and a weight factor 
for each tariff that determines how many customers are served by that 
utility on that tariff. These data are generally not available in the 
public domain. DOE's use of EIA State-level data effectively averages 
overall consumer sales in each State, and so incorporates information 
about all utilities. DOE's approach is, therefore, more representative 
of a large group of consumers with diverse baseline gas usage levels 
than an approach that uses only tariffs. For more details on the 
comparative analysis, refer to appendix 8D of the SNOPR TSD.
---------------------------------------------------------------------------

    \90\ GTI provided a reference located in the docket of DOE's 
rulemaking to develop energy conservation standards for residential 
furnaces. (Docket No. EERE-2014-BT-STD-0031-0118) (Available at 
www.regulations.gov/#!documentDetail;D=EERE-2014-BT-STD-0031-0118). 
DOE is also including this information in the docket for the present 
rulemaking at www.regulations.gov/#!documentDetail;D=EERE-2012-BT-
STD-0047-0068.
---------------------------------------------------------------------------

    Laclede stated that DOE's marginal monthly natural gas prices are 
much higher than actual marginal prices because they are an average 
across multiple blocks. Laclede stated that true marginal pricing uses 
the tail block tariff rate. (Laclede, No. 0141 at pp. 18-19) Laclede 
compared actual marginal tail block tariff rates in five States and 
found DOE's prices to be two to three times higher. (Laclede, No. 0141 
at pp. 29-30) In response, DOE finds that the use of tail blocks with 
low rates for some utilities, as the commenter recommends, does not 
provide sufficient information to determine the marginal prices that 
consumers pay. The information required is: What tariff structures are 
used most commonly by utilities; how many consumers are on each tariff, 
and for those consumers, what block is relevant to their monthly 
consumption level. The EIA data that DOE used to estimate marginal gas 
prices implicitly incorporate this information. Accordingly, DOE is 
maintaining its existing methodology, because it is equivalent to a 
consumption-weighted average marginal price across all households in 
the State.
    To estimate energy prices in future years for the March 2015 NOPR, 
DOE multiplied the average regional energy prices by the forecast of 
annual change in national-average residential energy price in the 
Reference case from AEO2014, which has an end year of 2040. 80 FR 
13120, 13150 (March 12, 2015).
    AGA stated that DOE should use AEO 2015 energy price forecasts 
instead of those from AEO 2014 because of the significant impacts of 
the updated energy price data on the LCC results. (AGA, No. 0118 at pp. 
5, 23) DOE updated the energy price forecasts to AEO 2015 for the 
September 2015 NODA and the SNOPR. To estimate price trends after 2040, 
DOE used the average annual rate of change in prices from 2020 to 2040.
    Laclede stated that gas prices have remained relatively low over 
the past 3 years, and there is nothing that has occurred to indicated 
that they will be materially higher in the future. (Laclede, No. 0141 
at p. 12) Laclede commented that the AEO has overstated gas prices for 
the past 10 years and understated electricity prices for the past 16 
years. (Laclede, No. 0141 at p. 20) Laclede stated that DOE 
overestimated the incremental benefits from condensing furnaces by 
failing to use accurate estimates of how natural gas commodity, 
transportation, and delivery costs are likely to change, and how such 
cost changes are passed to consumers under existing utility rate design 
and ratemaking procedures. (Laclede, No. 0141 at p. 5)
    DOE acknowledges that the Reference case projection of natural gas 
prices in AEO 2015 may seem high in the light of recent natural gas 
market conditions. However, it is important to bear in mind that the 
AEO is focused on long-term projections. The LCC analysis requires a 
projection for a period of approximately 20 years beginning in 2022, 
and market conditions in that period may be quite different from the 
present situation. DOE acknowledges that the EIA generally 
overestimated natural gas prices in AEO 2006 through AEO 2012, but 
before that there was a tendency to underestimate.\91\ There also has 
been a tendency to underestimate electricity prices, but beginning with 
AEO 2008, the underestimates have been slight. Given the difficulty of 
projecting the two key drivers--the world oil price and the 
macroeconomic growth baseline--that are determined exogenously to the 
model used to prepare the AEO, DOE maintains that the patterns of 
difference between AEO projections and actual energy prices do not 
reflect a systematic bias in the model used to prepare the AEO or the 
assumptions. DOE expects to use energy price projections from AEO 2016, 
which will incorporate the latest available information, for the final 
rule.
---------------------------------------------------------------------------

    \91\ Each year, EIA produces an AEO Retrospective Review 
document, which presents a comparison between realized energy 
outcomes and the Reference case projections included in previous 
editions of the AEO. (Available at: https://www.eia.gov/forecasts/aeo/retrospective/).
---------------------------------------------------------------------------

    The Joint Consumer Commenters surmised that reduced demand for 
natural gas due to increased furnace efficiency would lower the price 
of the fuel. The Joint Consumer Commenters stated that given the size 
of the residential gas heating market and the magnitude of the 
reduction in demand, the reduction in price for natural gas could raise 
the consumer benefits significantly. (Joint Consumer Commenters, No. 
0123 at pp. 21-23)
    DOE acknowledges that reduced demand for natural gas due to 
increased furnace efficiency could put downward pressure on the price 
of natural gas, which could provide additional consumer benefits. 
However, the growing use of revenue decoupling, which decouples a 
utility's revenues

[[Page 65785]]

from its volume of sales,\92\ makes it difficult to predict the 
magnitude of an effect on retail natural gas prices. In addition, DOE 
has previously noted that when gas prices drop in response to lower 
demand, which in turn results in lower output of existing natural gas 
production capacity, consumers benefit but producers suffer. In 
economic terms, the situation represents a benefits transfer to 
consumers (whose expenditures fall) from producers (whose revenue falls 
equally).\93\ If the revenues and costs of producers both fall, the 
change in natural gas prices represents a net gain to society. 
Determining what takes place in the gas production sector when gas 
prices decline is complex, and at this time, DOE is not able to 
reasonably determine the extent of transfers associated with a decrease 
in gas prices that may result from appliance standards.
---------------------------------------------------------------------------

    \92\ See discussion of revenue decoupling in section IV.M.
    \93\ See discussion in the June 2011 DFR. 76 FR 37408, 37487-88 
(June 27, 2011).
---------------------------------------------------------------------------

5. Maintenance and Repair Costs
    Maintenance costs are associated with maintaining the operation of 
the product. Repair costs are associated with repairing or replacing 
product components that fail in an appliance.
    For the March 2015 NOPR and September 2015 NODA, DOE estimated 
maintenance costs for residential furnaces at each considered 
efficiency level using a variety of sources, including 2013 RS 
Means,\94\ manufacturer literature, and information from expert 
consultants. DOE estimated the frequency of annual maintenance using 
data from RECS 2009 and a 2008 consumer survey \95\ to derive the 
frequency with which furnace owners perform maintenance. DOE assumed 
that condensing furnaces require more maintenance than non-condensing 
furnaces. DOE also accounted for checking the condensate withdrawal 
system and regular replacement of the condensate neutralizer, if 
present. For the standby mode and off mode standard, DOE assumed that 
no additional maintenance is required.
---------------------------------------------------------------------------

    \94\ RS Means Company Inc., RS Means Facilities Maintenance & 
Repair Cost Data. Kingston, MA (2015).
    \95\ Decision Analysts, 2008 American Home Comfort Study: Online 
Database Tool 2009) (Available at: www.decisionanalyst.com/Syndicated/HomeComfort.dai).
---------------------------------------------------------------------------

    Laclede stated that DOE significantly understated the incremental 
costs to maintain a condensing furnace compared to a non-condensing 
furnace. (Laclede, No. 0141 at p. 5) Johnson stated that DOE failed to 
take into account the higher service costs of condensing furnaces. 
(Johnson, No. 0190 at p. 1) Carrier stated that condensing and non-
condensing furnaces have different service and maintenance requirements 
that are not accounted for in the LCC analysis. Carrier stated that 
according to contractors, condensing furnaces take 60 minutes to 
maintain, while non-condensing furnaces only require 30 minutes. 
Carrier stated that condensing furnaces are more complex than non-
condensing furnaces because of additional components like the 
condensate management system and secondary heat exchanger, which need 
to be maintained. Carrier stated that utilizing the most common 
contractor hourly rates of $70/hour, $90/hour, or $110/hour, homeowners 
will pay between $35 and $55 more annually to properly maintain a 
condensing furnace compared to a non-condensing furnace. (Carrier, No. 
0116 at pp. 31-32)
    For the March 2015 NOPR and September 2015 NODA, DOE estimated on 
average the labor hours for a non-condensing furnace maintenance to be 
1.65 hours (which includes a 0.5 hour trip charge). For condensing 
furnaces, DOE added 0.155 hours to check the secondary heat exchanger 
and condensate system (including the condensate neutralizer). Based on 
RS Means 2013, the national average labor cost used for maintenance and 
repair was $78/hour in 2013$. For the SNOPR, DOE reexamined the issue 
of maintenance costs but found little evidence that currently 
contractors are charging more for maintenance of condensing compared to 
non-condensing furnaces. Nevertheless, DOE also updated its labor costs 
to 2015 RS Means (with a national average of $82 in 2015$) and the 
overall cost estimates fall within typical $70-200 maintenance charges 
from different online sources listed in appendix 8F of the SNOPR TSD.
    Southside Heating and Air Conditioning stated that a new condensate 
neutralizer with a 1-year lifetime costs $50. (Southside Heating and 
Air Conditioning, No. 0044 at p. 244) For the March 2015 NOPR and 
September 2015 NODA, DOE applied a $56 cost of the neutralizer (which 
is also included in the installation cost) with an average 3 year 
lifetime. For the SNOPR, revised the neutralizer cost to $58, but kept 
the 3-year average lifetime based on several sources listed in appendix 
8F of the SNOPR TSD.
    For the March 2015 NOPR and September 2015 NODA, DOE estimated 
repair costs for residential furnaces at each considered efficiency 
level using a variety of sources, including 2013 RS Means,\96\ 
manufacturer literature, and information from expert consultants. For 
repair costs, DOE accounted for repair of the ignition, gas valve, 
controls, and inducer fan, as well as the furnace fan blower. To 
determine components' service lifetime, DOE used a Gas Research 
Institute (GRI) study.\97\ For standby mode and off mode standard, DOE 
assumed that no additional repair is required.
---------------------------------------------------------------------------

    \96\ RS Means Company Inc., RS Means Facilities Maintenance & 
Repair Cost Data. Kingston, MA (2013).
    \97\ Jakob, F.E., J.J. Crisafulli, J.R. Menkedick, R.D. Fischer, 
D.B. Philips, R.L. Osbone, J.C. Cross, G.R. Whitacre, J.G. Murray, 
W.J. Sheppard, D.W. DeWirth, and W.H. Thrasher, Assessment of 
Technology for Improving the Efficiency of Residential Gas Furnaces 
and Boilers, Volume I and II--Appendices (September 1994) Gas 
Research Institute, Report No. GRI-94/0175 (Available at 
www.gastechnology.org/reports_software/Pages/default.aspx).
---------------------------------------------------------------------------

    Darling stated that inadequate ductwork is likely to be present in 
most households and may restrict the airflow, thereby causing the main 
blower motor to fail after only a few years of operation. Darling 
commented that the cost of these high-efficiency motors is much greater 
than the difference in cost between a non-condensing furnace and a 
condensing furnace. (Darling, No. 0065 at p. 1) In response, DOE 
accounted for the repair of the furnace fan based on the technologies 
that are required to meet the 2019 furnace fan standard. The lifetime 
distribution accounts for a fraction of furnace fans that fail after 
only a few years. DOE notes that the 2019 furnace fan standards require 
constant-torque BPM motors (commonly referred to as X13) for both non-
condensing and condensing NWGFs, which maintain a predetermined torque 
in each airflow-control setting as operating conditions change. Thus, 
the motors are not impacted by the quality of the ductwork. For MHGFs, 
the 2019 furnace fan standard is an improved PSC design, which is the 
most common design for both non-condensing and condensing furnaces. DOE 
notes that the ductwork issues such as airflow restrictions are much 
less common for mobile homes.
    Goodman commented that because the technologies associated with the 
max-tech level for standby mode and off mode are new to the market, 
data on the failure modes and repair costs are limited. (Goodman, No. 
0135 at pp. 4-5) Goodman stated that DOE failed to account for the new 
technology associated with standby mode and off mode that entails an 
additional learning curve for contractors, which may increase 
maintenance and repair costs. (Goodman, No. 0135 at p. 4) In

[[Page 65786]]

response, DOE notes that the LL-LTX technology, which is intended to 
address standby mode and off mode energy use, is not very different 
from LTX technology that is found in most furnaces today. The primary 
difference is that LL-LTX technology is slightly larger and heavier 
than LTX. Furthermore, there are many furnace models on the market with 
standby consumption less than the proposed standard levels for standby 
mode and off mode. Therefore, DOE does not believe that the standby 
mode and off mode max-tech technology would require additional 
maintenance or repair.
    For this SNOPR, DOE updated the RS Means data to 2015.\98\ For more 
details on DOE's methodology for calculating repair costs, see appendix 
8F of the SNOPR TSD.
---------------------------------------------------------------------------

    \98\ RS Means Company Inc., RS Means Facilities Maintenance & 
Repair Cost Data. Kingston, MA (2015) (available at http://www.rsmeans.com/).
---------------------------------------------------------------------------

6. 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 furnaces in the sampled 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 lifetime estimated for the NOPR and NODA was 21.5 years for 
NWGFs and MHGFs.
    Several stakeholders expressed concern that DOE's estimated average 
lifetime is too high. AGA, AGL Resources, Vectren, and SoCalGas stated 
that DOE overestimated the average lifetime of NWGFs compared to 
industry estimates. AGA stated that industry estimates of residential 
gas furnace lifetime are 15 or 16 years. (AGA, No. 0036 at p. 3; AGA, 
No. 0040-2 at p. 3; AGL Resources, No. 0039 at p. 2; AGL Resources, No. 
0112 at p. 3; Vectren, No. 0111 at pp. 4-5; SoCalGas, No. 0132-2 at p. 
5; SoCalGas, No. 0132-6 at p. 9) AGA stated that DOE overestimated the 
average lifetime of residential gas furnaces compared to the lifetimes 
included in DOE's literature review. (AGA, No. 0118 at pp. 5, 23-24) 
AGL Resources stated that DOE's lifetime estimate for residential gas 
furnaces is significantly higher than previous DOE values and other 
furnace lifetime estimates from Appliance Magazine and NAHB of 15-17.5 
years. (AGL Resources, No. 0039 at p. 2; AGL Resources, No. 0112 at p. 
3) NAHB stated that its lifetime estimates for furnaces are closer to 
16 or 18 years. (NAHB, No. 0044 at p. 318) Vectren stated that the bulk 
of furnace lifetime estimates from DOE's literature review are between 
15 and 18 years. (Vectren, No. 0111 at p. 5) SoCalGas stated that 
Canada used a product lifetime of 15 years in its furnace efficiency 
standard analysis in January 2014. (SoCalGas, No. 0132-2 at p. 5; 
SoCalGas, No. 0132-6 at p. 9)
    In response, DOE was unable to obtain data to substantiate the 
cited industry estimates. The furnace lifetime estimates from DOE's 
literature review, which includes Appliance Magazine, range between 15 
and 20 years,\99\ which is below the average lifetime estimated for the 
NOPR and NODA, but the basis for these estimates is often not clear. 
DOE found that the Canadian analysis used an average lifetime of 20 
years.\100\ DOE believes that its method described in a journal 
article,\101\ which uses a combination of actual shipment and survey 
data, is more reliable, and also better suited to provide a 
distribution of lifetimes that is appropriate for U.S. conditions. In 
response to AGL Resources' statement that DOE's lifetime estimate for 
residential gas furnaces is significantly higher than previous DOE 
values, the mean lifetime estimated in the March 2015 NOPR and 
September 2015 NODA (21.5 years) is lower than the mean lifetime of 
23.6 years for non-weatherized gas furnaces used in the 2011 DFR, which 
is based on more recent data.
---------------------------------------------------------------------------

    \99\ See appendix 8G of the SNOPR TSD for a listing of the 
sources.
    \100\ Rosalyn Cochrane, Team Leader Standards Development HVAC-
R, Energy Sector, Natural Resources Canada/Government of Canada. 
Personal communication, May 18, 2016.
    \101\ Lutz, J., A. Hopkins, V. Letschert, V. Franco, and A. 
Sturges, Using national survey data to estimate lifetimes of 
residential appliances. HVAC&R Research, 2011. 17(5): pp. 28 
(Available at: www.tandfonline.com/doi/abs/10.1080/10789669.2011.558166) (Last Accessed: April 26, 2016).
---------------------------------------------------------------------------

    AGL Resources criticized DOE for using a proprietary method to 
determine the lifetime and relying on what it argued were questionable 
assumptions and on incomplete AHRI unitary shipment data to arrive at 
its estimate. (AGL Resources, No. 0039 at p. 2; AGL Resources, No. 0112 
at p. 3)
    For the March 2015 NOPR and September 2015 NODA, DOE determined the 
lifetime based on the methodology described in a recent journal paper 
\102\ and using publicly-available sources from AHRI,\103\ the U.S. 
Census's American Housing Survey (AHS) from 1974-2011,\104\ and RECS 
from 1990 to 2009.\105\ The historical shipments (using AHRI data prior 
to 1996) are also provided in DOE's analytical tools for the NOPR and 
NODA. DOE also conducted a sensitivity analysis using different furnace 
lifetime scenarios (see appendix 8G in the SNOPR TSD). In addition for 
the SNOPR, to better account for differences in lifetime due to furnace 
utilization, DOE determined separate lifetimes for the North and South 
for the shipments analysis. The average lifetime used in the SNOPR is 
20.1 years in the North and 23.4 years in the South for both NWGFs and 
MHGFs, compared to 21.5 years nationally in the NOPR and NODA.
---------------------------------------------------------------------------

    \102\ Lutz, J., A. Hopkins, V. Letschert, V. Franco, and A. 
Sturges, Using national survey data to estimate lifetimes of 
residential appliances, HVAC&R Research (2011) 17(5): pp. 28 
(Available at: www.tandfonline.com/doi/abs/10.1080/10789669.2011.558166).
    \103\ Air-Conditioning Heating and Refrigeration Institute. 
Historical Shipments Data (Available at: http://www.ahrinet.org/site/497/Resources/Statistics/Historical-Data/Furnaces-Historical-Data).
    \104\ U.S. Census Bureau: Housing and Household Economic 
Statistics Division, American Housing Survey, Multiple Years (1974, 
1975, 1976, 1977, 1978, 1979, 1980, 1981, 1983, 1985, 1987, 1989, 
1991, 1993, 1995, 1997, 1999, 2001, 2003, 2005, 2007, 2009, and 
2011) (Last accessed March, 2014) (Available at: www.census.gov/programs-surveys/ahs/).
    \105\ U.S. Department of Energy: Energy Information 
Administration, Residential Energy Consumption Survey (RECS), 
Multiple Years (1990, 1993, 1997, 2001, 2005, and 2009) (Last 
accessed January 7, 2015) (Available at: www.eia.gov/consumption/residential/).
---------------------------------------------------------------------------

    AGL Resources also stated that DOE used very high present-day fuel 
switching trends to determine furnace lifespan. AGL Resources stated 
that higher rates of fuel switching lead to an overestimation of 
product lifetime in the DOE model as retired furnaces are replaced by 
heat pumps and never counted as a ``failure'' in the DOE model. (AGL 
Resources, No. 0112 at p. 3) The lifetime methodology takes into 
account indirectly the impact of product switching that has occurred in 
the past by accounting for the actual number of furnace installations 
over time from AHS and RECS (which includes early replacements, non-
replacements, product switching, demolitions, etc.).
    Rheem and AGL Resources stated that the lifetime is dependent on 
furnace usage. (Rheem, No. 0142 at p. 9; AGL Resources, No. 0112 at p. 
3) The distribution of furnace lifetimes used in the LCC analysis 
accounts for a wide range of furnace utilization.
    AGL Resources stated that historical lifetime data primarily track 
non-condensing furnaces that had little electronic control, a simple 
heat

[[Page 65787]]

exchanger design, and atmospheric venting. AGL Resources stated that 
condensing furnaces have more components that can fail, so data for 
non-condensing models cannot be used to estimate condensing furnace 
life expectancy. (AGL Resources, No. 0112 at p. 3) Laclede suggested 
that condensing furnaces have shorter lifetimes by stating that moving 
to an all-condensing furnace market would decrease furnace life. 
(Laclede, No. 0141 at p. 32)
    DOE acknowledges that the data it used to derive furnace lifetimes 
primarily refer to non-condensing furnaces. However, the one source it 
found on lifetime of condensing furnaces \106\ shows the same lifetime 
(18 years) as other sources provide for non-condensing furnaces. In 
addition, DOE reviewed warranty information primarily related to heat 
exchangers and did not find any significant differences between 
condensing and non-condensing furnaces. If manufacturers expect 
condensing furnaces to have a shorter lifetime than non-condensing 
furnaces, it seems likely that the warranty periods would be different. 
Based on the information reviewed, DOE maintained the same lifetime for 
condensing and non-condensing furnaces in the SNOPR.
---------------------------------------------------------------------------

    \106\ http://www.neep.org/sites/default/files/resources/A5_Mid_Atlantic_TRM_V2_FINAL_0.pdf.
---------------------------------------------------------------------------

    Chapter 8 of the SNOPR TSD provides further details on the 
methodology and sources DOE used to develop furnace lifetimes.
7. Discount Rates
    In the calculation of LCC, DOE applies discount rates appropriate 
to households to estimate the present value of future operating costs. 
The discount rate used in the LCC analysis represents the rate from an 
individual consumer's perspective. DOE estimated a distribution of 
residential discount rates for NWGFs and MHGFs based on the opportunity 
cost of funds related to appliance energy cost savings and maintenance 
costs.
    To establish residential discount rates for the LCC analysis, 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. For the NOPR, 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 \107\ (SCF) for 1995, 1998, 2001, 2004, 
2007, and 2010. Using the SCF and other sources, DOE developed a 
distribution of rates for each type of debt and asset by income group 
to represent the rates that may apply in the year in which amended or 
new standards would take effect. DOE assigned each sample household a 
specific discount rate drawn from one of the distributions. For the 
March 2015 NOPR, DOE tentatively determined that 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. 80 FR 13120, 13151 (March 12, 2015).
---------------------------------------------------------------------------

    \107\ The Federal Reserve Board, Survey of Consumer Finances 
(1995, 1998, 2001, 2004, 2007 and 2010) (Available at: 
www.federalreserve.gov/pubs/oss/oss2/scfindex.html) (Last accessed 
March 15, 2016).
---------------------------------------------------------------------------

    AHRI stated that DOE inappropriately uses average, not marginal, 
sources of funds to calculate discount rates. AHRI commented that there 
is no evidence that consumers draw from or add to their collection of 
debt and asset holdings approximately in proportion to their current 
holdings, as DOE claims; rather, consumers have very limited options to 
raise funds, particularly in the magnitude of $3,000-$54,000 for a new 
furnace. AHRI argued that only a minority of consumers will be able to 
use cash or other savings to pay for a furnace replacement. AHRI stated 
that except for minor purchases, most households access additional 
funds from credit card debt. AHRI stated that refinancing a mortgage is 
impractical to purchase a new appliance, and other equity types are not 
liquid, so other forms of consumer debt are the only marginal source of 
funds available. AHRI stated that surveys demonstrate that consumers 
have little savings to finance a furnace purchase, and that 55 percent 
of consumers use some sort of financing to purchase HVAC equipment. 
AHRI stated that the true marginal discount rates for consumers are 
much more likely to cluster around 8-9 percent than around 3-5 percent, 
as DOE assumed in the NOPR. (AHRI, No. 0159 at pp. 38-43) Rheem stated 
that the LCC analysis uses unrealistically low consumer discount rates 
when consumers are known to be unable to meet emergencies from cash or 
savings, and the actual marginal source of funds is high interest debt. 
(Rheem, No. 0142 at p. 4)
    In response, DOE maintains that the interest rate associated with 
the specific source of funds used to purchase a furnace (i.e., the 
marginal rate) is not the appropriate metric to measure the discount 
rate as defined for the LCC analysis. The marginal interest rate alone 
would only be the relevant discount rate if the consumer were 
restricted from re-balancing their debt and asset holdings (by 
redistributing debt and assets based on the relative interest rates 
available) over the entire time period modeled in the LCC analysis. The 
LCC is not analyzing a marginal decision; rather, it estimates net 
present value over the lifetime of the product, so the discount rate 
needs to reflect the opportunity cost of both the money flowing in 
(through operating cost savings) and out (through upfront cost 
expenditures) of the net present value calculation. In the context of 
the LCC analysis, the consumer is not only discounting based on their 
opportunity cost of money spent today, but instead, they are also 
discounting the stream of future benefits. On the one hand, a consumer 
could pay for an appliance with cash, thereby forgoing putting that 
same amount of money into one of the interest earning assets to which 
they might have access. On the other hand, a consumer could pay for the 
initial purchase by going into debt. If they do this, they will face 
the cost of capital at the interest relevant for that purchase; 
however, they will receive a stream of future benefits in terms of 
energy savings that they could either put towards paying off that or 
other debts, or towards assets, depending on the restrictions they face 
in their debt payment requirements and the relative size of the 
interest rates on their debts and assets. All those interest rates are 
relevant, as they all reflect direct costs of borrowing, or opportunity 
costs of money either now or in the future. DOE maintains that the best 
proxy for this re-optimization of debt and asset holdings over the 
lifetime of the LCC analysis is to assume that the distribution of 
debts and assets in the future will be proportional to the distribution 
of debts and assets historically. Given the long time horizon modeling 
in the LCC, the application of a marginal rate alone would be 
inaccurate. DOE's methodology for deriving residential discount rates 
is in line with the weighted-average cost of capital used to estimate 
commercial discount rates. For these reasons, DOE is maintaining its 
existing approach to discount rates, but it included data from the 2013 
SCF and updated several other data sources. The average rate in the 
SNOPR analysis across all types of household debt and equity and income 
groups, weighted by the shares of each type, is 4.3 percent for NWGFs 
and 4.7 percent for MHGFs.
    NAHB stated that a mortgage rate does not capture a market 
participant's time value of money, as mortgage rates are determined by 
institutional factors.

[[Page 65788]]

NAHB also commented that rates on liquid assets or assets that trade 
frequently and easily in well-established secondary markets are equally 
inappropriate for housing. NAHB argued that once installed, it is 
difficult and costly to disconnect and sell a furnace like one could 
sell a mutual fund or withdraw funds from a money market account. NAHB 
stated that for owner-occupied housing, a reasonable choice for a 
nominal rate would be the rate households pay on credit card debt. 
(NAHB, No. 0124 at p. 3)
    The time value of money (particularly for the LCC) is the 
opportunity cost of that money: The value it would have had, had it 
been applied to another investment or used to pay off another debt. DOE 
agrees that a mortgage rate by itself does not capture a market 
participant's time value of money, but a consumer's choice of 
composition of their debt and asset portfolio provides insight into a 
consumer's time value of money. Also, while a furnace itself is not a 
readily tradable commodity, the money used to purchase it and the 
energy cost savings accruing to it over time flow from and to a 
household's pool of debt and assets, including mortgages, mutual funds, 
money market accounts, etc. Thus, the weighted-average interest rate on 
debts and assets provides a reasonable proxy for a household's 
opportunity cost (and discount rate) relevant to future energy savings.
    Laclede stated that DOE's discount rates are very low. Laclede 
cited Ruderman et al.\108\ for what it argues are a range of more 
realistic discount rates for different residential appliances from 1972 
to 1980. Laclede stated that DOE should use discount rates ranging from 
25 percent to 100 percent in increments of 25 percent. (Laclede, No. 
0141 at pp. 16-18)
---------------------------------------------------------------------------

    \108\ Ruderman, Henry, Mark D. Levine and James E. McMahon 
(1987), ``The Behavior of the Market for Energy Efficiency in 
Residential Appliances Including Heating and Cooling Equipment,'' 
The Energy Journal, 8(1): 101-124 (Available at: www.jstor.org/stable/pdf/41322248.pdf?_=1461360117831).
---------------------------------------------------------------------------

    In response, DOE notes that Ruderman et al. and its citations 
(e.g., Hausman) \109\ address implicit discount rates, which are not 
appropriate in the framework of the LCC analysis. The implicit discount 
rate is inferred from consumer purchase data and generally incorporates 
many influences on consumer decision-making (e.g., rates of return, 
uncertainty, and transaction costs). The implicit discount rate such as 
those estimated in the cited literature is appropriate for use when 
modeling a consumer's purchase decision (as in the shipments model). 
However, in the context of the LCC analysis, many contributing 
components of the implicit discount rate are not relevant. Factors such 
as transaction costs are likely to influence a consumer's decision 
about whether or not to purchase an appliance, but in the LCC, these 
factors are sunk costs (meaning they are costs that have already been 
incurred and can no longer be changed within the context of the 
analysis), which are rationally excluded from calculations valuing 
future costs and benefits associated with the appliance.\110\
---------------------------------------------------------------------------

    \109\ Hausman, J.A. (1979), Individual Discount Rates and the 
Purchase and Utilization of Energy-Using Durables, The Bell Journal 
of Economics, 10(1), 33-54 (Available at: www.jstor.org/stable/3003318?seq=1#page_scan_tab_contents).
    \110\ For example, since the LCC analysis starts from the moment 
of installation, transaction costs related to researching furnace 
models have no bearing on the future stream of energy cost savings, 
and ought not to be incorporated into the discount rate.
---------------------------------------------------------------------------

    To establish commercial discount rates for the small fraction where 
businesses are using residential furnaces, DOE estimated the weighted-
average cost of capital using data from Damodaran Online.\111\ The 
weighted-average cost of capital is commonly used to estimate the 
present value of cash flows to be derived 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 
cost of equity using the capital asset pricing model, which assumes 
that the cost of equity for a particular company is proportional to the 
systematic risk faced by that company.
---------------------------------------------------------------------------

    \111\ Damodaran Online, Data Page: Costs of Capital by Industry 
Sector (2016) (Available at: http://pages.stern.nyu.edu/~adamodar/) 
(Last accessed April, 2016).
---------------------------------------------------------------------------

    See chapter 8 of the SNOPR TSD for further details on the 
development of consumer discount rates.
8. Efficiency Distribution in the No-New-Standards Case
    To accurately estimate the share of consumers that would be 
affected by a potential energy conservation standard at a particular 
efficiency level, DOE's LCC analysis considered the projected 
distribution (i.e., market shares) of product efficiencies under the 
no-new-standards case (i.e., the case without amended or new energy 
conservation standards).
    For the March 2015 NOPR and September 2015 NODA, to estimate the 
efficiency distribution of NWGFs and MHGFs in 2021, 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. DOE reviewed AHRI data 
from 1992 to 2009 (which includes both NWGF and MHGF shipments data), 
detailing the market shares of non-condensing (80-percent AFUE) and 
condensing (90-percent AFUE and greater) furnaces by region.\112\ 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.\113\ With these data, DOE derived historic trends for 30 RECS 
regions and 9 CBECS Census Divisions, by using the 1992-2003 non-
condensing and condensing shipments by State provided by AHRI. For the 
September 2015 NODA, DOE extended its historical data to be include 
shipments data for non-condensing and condensing shipments data provide 
by AHRI for 2010-2014.\114\
---------------------------------------------------------------------------

    \112\ 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. The data prior to 1992 were not 
disaggregated by region.
    \113\ ENERGY STAR Unit Shipment Data (2012) (Available at: 
https://www.energystar.gov/index.cfm?c=partners.unit_shipment_data).
    \114\ For the March 2015 NOPR, the AHRI shipments data were not 
available, and DOE instead relied on shipments data from the ENERGY 
STAR program to derive its estimates. Based on the AHRI shipments 
data, DOE's estimate of the condensing furnace market share in 2021 
increased from 47 percent in the March 2015 NOPR to 53 percent in 
the September 2015 NODA.
---------------------------------------------------------------------------

    To project trends from 2011 to 2021 for the March 2015 NOPR, 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. For the September 2015 NODA, DOE used the data from 2012 to 
2014 to project the trends from 2014 to 2021, which excludes the 
Federal tax incentive years. 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. 
The condensing market share for MHGFs was estimated to be half the 
fraction estimated for NWGFs.
    DOE used data on the distribution of models in AHRI's Directory of 
Certified

[[Page 65789]]

Product Performance \115\ 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 AFUE in 
the South. The resulting distributions by 30 RECS regions and 9 CBECS 
Census Divisions divided by replacement and new construction in 2021 
was then used to assign the AFUE of each sampled household or building 
in the no-new-standards case.
---------------------------------------------------------------------------

    \115\ Air Conditioning, Heating, and Refrigeration Institute, 
Directory of Certified Performance: Furnaces (2013), (Available at: 
www.ahridirectory.org/).
---------------------------------------------------------------------------

    Commenting on the NOPR, a number of parties stated that based on 
new AHRI shipments data, the projected shipments of condensing furnaces 
in the absence of any revised standard is significantly underestimated. 
(AHRI, No. 0159 at pp. 67-68; AGA, No. 0118 at p. 20; AGL Resources, 
No. 0112 at p. 5; Vectren, No. 0111 at p. 4; Ingersoll Rand, No. 0156 
at p. 67; Laclede, No. 0141 at p. 32)
    The September 2015 NODA analysis incorporated the new AHRI 
shipments data.\116\ The update resulted in an increase in the fraction 
of consumers already purchasing a condensing furnaces in the no-new-
standards case.
---------------------------------------------------------------------------

    \116\ For the March 2015 NOPR, the AHRI shipments data were not 
available, and DOE instead relied on shipments data from the ENERGY 
STAR program to derive its estimates. Based on the AHRI shipments 
data, DOE's estimate of the condensing furnace market share in 2021 
increased from 47 percent in the March 2015 NOPR to 53 percent in 
the September 2015 NODA.
---------------------------------------------------------------------------

    Several stakeholders commented on the methodology DOE used to 
assign efficiencies to sample households in the no-new-standards case.
    AHRI stated that the use of a randomized Monte Carlo analysis that 
does not account for consumer preferences based on climate, income 
levels, and physical constraints of existing buildings, does not 
analyze the real-world market for these products. (AHRI, No. 0159 at p. 
13) AHRI suggested that DOE should assign furnace efficiency by ranking 
households based on the benefit from purchasing a condensing furnace as 
shown by the LCC savings calculation. (AHRI, No. 0159 at pp. 30-31) 
AHRI stated that relying on the current LCC model is inappropriate 
because it uses a random assignment of furnace choice to model a non-
random environment. (AHRI, No. 0159 at p. 35)
    AGA, Vectren, SoCalGas, Rheem, and the GTI report submitted by 
SoCalGas similarly criticized DOE's LCC model for randomly assigning 
furnace efficiency in the absence of standards without any regard to 
consumer costs and benefits. (AGA, No. 0118 at p. 4; Vectren, No. 0111 
at p. 3; SoCalGas, No. 0132-2 at p. 5; SoCalGas, No. 0132-7 at p. v, 
10; Rheem, No. 0142 at p. 4; SoCalGas, No. 0132-7 at p. 10; SoCalGas, 
No. 0177-1 at p. 2) AGA, Vectren, and the GTI report submitted by 
SoCalGas stated that the random assignment methodology misallocates the 
fraction of consumers who use economic criteria for their decisions, 
resulting in higher LCC savings compared to use of rational economic 
decision making criteria. (AGA, No. 0036 at pp. 3-4; AGA, No. 0040-2 at 
p. 3; Vectren, No. 0111 at pp. 3-4; SoCalGas, No. 0132-7 at p. 10) 
Lennox and the GTI report submitted by AGA and APGA stated that the 
September 2015 NODA LCC model did not address the random no-new-
standards case furnace efficiency assignment methodology used in the 
March 2015 NOPR. (AGA, No. 0175-3 at p. 11; APGA, No. 0180 (attachment) 
at p. 11; Lennox, No. 0201 at p. 2)
    ACEEE and the Efficiency Advocates stated that site-specific 
economics should enter into the determination of the base-case furnace 
efficiency, but economics is only one of the factors influencing the 
choice of furnace. ACEEE stated that only using economics to assign 
efficiency in the no-new-standards case ignores consumers who upgrade 
for environmental reasons despite poor economics or because of utility 
incentives. ACEEE recommended including site-specific economics as well 
as non-economic decision making criteria in the Monte Carlo simulation. 
(ACEEE, No. 0113 at pp. 5-6; Efficiency Advocates, No. 0196 at p. 3)
    NRDC stated that the GTI Report on the March 2015 NOPR appears to 
suggest that DOE should have assumed a greater level of optimal 
economic decision making by customers. However, NRDC stated that the 
real world data and literature on which DOE based the NOPR shows that 
many purchasers do not make the most economic decision because of 
market barriers like split incentives and bounded rationality. NRDC 
stated that GTI provided no basis on which to assume that future 
consumers will be different. (NRDC, No. 0134 at p. 1)
    The Joint Consumer Commenters stated that a well-designed 
performance standard that raises the efficiency of gas furnaces can 
address important market imperfections that are difficult to correct 
with other policies. (Joint Consumer Commenters, No. 0123 at pp. 25-26)
    In response, DOE notes that the assignment of furnace efficiency in 
the no-new-standards case is not entirely random. Assignment of furnace 
efficiency is done in two steps, first at the regional level, then the 
building specific level. Furnace efficiencies are first assigned for 
the 30 RECS and 9 CBECS regions. The market share of each efficiency 
level at the regional level is based on historical shipments data and 
an estimation of trends between 2014 and the compliance year. The 
historic market shares are influenced by factors that affect the cost-
effectiveness of condensing furnaces, including climate, the 
characteristics of the housing stock, natural gas prices, and the 
presence of incentives to purchase a condensing furnace.
    Furnace efficiency is then allocated to specific RECS households or 
CBECS buildings located within each of the 30 RECS or 9 CBECS regions. 
The building-specific assignment is not entirely random either. If a 
household's existing furnace is estimated to be a condensing gas 
furnace, the replacement furnace is assumed to be condensing as well. 
(The assignment of condensing furnace efficiency--92-, 95-, or 98-
percent AFUE--was random, adding up to the market share of these types 
of furnaces for that region.)
    DOE acknowledges that furnace efficiency choice is affected by 
economic factors. However, it is DOE's position that the method of 
assignment, which is in part random, may simulate actual behavior as 
well as assigning furnace efficiency based solely on imputed cost-
effectiveness. This is because there are a variety of aspects of 
consumer preference, as well as documented and relevant market 
failures, which complicate the relevant process of consumer choice.
    First, consumers are motivated by more than simple financial trade-
offs. There are consumers who are willing to pay a premium for more 
energy-efficient products because they are environmentally 
conscious.\117\ Additionally, there are systematic market failures that 
are likely to contribute further complexity to the way

[[Page 65790]]

products are chosen by consumers, as explained in the following 
paragraphs.
---------------------------------------------------------------------------

    \117\ Ward, D.O., Clark, C.D., Jensen, K.L., Yen, S.T., & 
Russell, C.S. (2011): ``Factors influencing willingness-to pay for 
the ENERGY STAR[supreg] label,'' Energy Policy, 39(3), 1450-1458.
---------------------------------------------------------------------------

    The first of these market failures--the split incentive, or 
principal-agent, problem--is likely to affect furnaces even more than 
many other types of appliances. The principal-agent problem is a market 
failure that results when the consumer that purchases the equipment 
does not internalize all of the costs associated with operating the 
equipment. Instead, the user of the product, who has no control over 
the purchase decision, pays the operating costs. There is a high 
likelihood of split incentive problems in the case of rental properties 
where the landlord makes the choice of furnace to install, but the 
renter is responsible for paying energy bills. In addition, given that 
the type of furnace that can be installed in a home is often dependent 
on structural and design decisions made when the building was 
constructed, builders end up influencing the type of furnace used in 
many homes. Finally, contractors install a large share of furnaces in 
replacement situations, and they can exert a high degree of influence 
over the type of furnace purchased.
    In addition to the split-incentive problem, there are other market 
failures that are likely to affect the choice of furnace energy 
efficiency level made by consumers. Davis and Metcalf \118\ conducted 
an experiment demonstrating that the nature of the information 
available to consumers from the EnergyGuide labels posted on air 
conditioning equipment results in an inefficient allocation of energy 
efficiency across households with different usage levels. Their 
findings indicate that households are likely to make decisions about 
the efficiency of the climate control equipment of their homes that do 
not result in the highest net present value for their specific usage 
pattern (i.e., their decision is based on imperfect information, and 
therefore is not necessarily optimal).
---------------------------------------------------------------------------

    \118\ Davis, L.W., and G.E. Metcalf (2014): ``Does better 
information lead to better choices? Evidence from energy-efficiency 
labels,'' National Bureau of Economic Research Working Paper No. 
20720.
---------------------------------------------------------------------------

    In part because of the way information is presented, and in part 
because of the way people process information, there is also a market 
failure consisting of a systematic bias in the perception of equipment 
energy usage, which can affect consumer choices. Attari, Krantz, and 
Weber \119\ show that consumers tend to underestimate the energy use of 
large energy-intensive appliances, but overestimate the energy use of 
small appliances. This means that it is likely consumers systematically 
underestimate the energy use associated with furnaces, resulting in 
less cost-effective furnace purchases.
---------------------------------------------------------------------------

    \119\ Attari, S.Z., M.L. DeKay, C.I. Davidson, and W. Bruine de 
Bruin (2010): ``Public perceptions of energy consumption and 
savings.'' Proceedings of the National Academy of Sciences 107(37), 
16054-16059.
---------------------------------------------------------------------------

    These market failures affect a sizeable share of the consumer 
population. A study by Houde \120\ indicates that there is a 
significant subset of consumers that appear to purchase appliances 
without taking into account their energy efficiency and operating costs 
at all.
---------------------------------------------------------------------------

    \120\ Houde, S. (2014): ``How Consumers Respond to Environmental 
Certification and the Value of Energy Information,'' National Bureau 
of Economic Research Working Paper No. 20019.
---------------------------------------------------------------------------

    DOE recognizes that its approach to allocating the efficiency level 
of a new gas furnace across RECS households within States may not fully 
reflect actual consumer behavior. However, it is far from clear that 
allocating the efficiency of furnaces based solely on estimated cost-
effectiveness is likely to be any more accurate than the method 
currently used by DOE. An attempt to more explicitly model consumer 
choices across furnace efficiency would have to take into account the 
non-monetary preferences and market failures outlined above, in 
addition to the economic tradeoffs. At the present time, DOE does not 
have a method to include site-specific economics as well as non-
economic decision making criteria in the Monte Carlo simulation, as 
suggested by ACEEE. However, this is an issue that DOE intends to 
investigate, and it welcomes suggestions as to how it might incorporate 
economic and other relevant factors in its assignment of furnace 
efficiency in its analyses.
    The estimated market shares for the no-new-standards case for NWGFs 
and MHGFs in 2022 are shown in Table IV.16 and Table IV.17. See chapter 
8 of the SNOPR TSD for further information on the derivation of the 
efficiency distributions.

          Table IV.16--AFUE Distribution in the No-New-Standards Case for Non-Weatherized Gas Furnaces
----------------------------------------------------------------------------------------------------------------
                                                           2022 Market share in percent
        Efficiency, AFUE         -------------------------------------------------------------------------------
                                     National       North, repl     North, new      South, repl     South, new
----------------------------------------------------------------------------------------------------------------
80..............................            46.5            25.6            30.2            70.0            64.5
90..............................             5.9             5.6            10.0             4.6             6.5
92..............................            21.2            18.4            33.5            18.4            24.4
95..............................            25.4            48.7            25.7             6.6             4.4
98..............................             0.9             1.7             0.7             0.4             0.2
----------------------------------------------------------------------------------------------------------------
``Repl'' means ``replacement.''


            Table IV.17--AFUE Distribution in the No-New-Standards Case for Mobile Home Gas Furnaces
----------------------------------------------------------------------------------------------------------------
                                                           2022 Market share in percent
        Efficiency, AFUE         -------------------------------------------------------------------------------
                                     National       North, repl     North, new      South, repl     South, new
----------------------------------------------------------------------------------------------------------------
80..............................            71.4            62.8            60.9            85.9            87.4
92..............................            13.4             6.6            23.3            10.5            11.3
95..............................            15.0            30.2            15.6             3.6             1.3
97..............................             0.2             0.4             0.2             0.0             0.0
----------------------------------------------------------------------------------------------------------------
``Repl'' means ``replacement.''


[[Page 65791]]

    DOE also estimated no-new-standards case efficiency distributions 
for furnace standby mode and off mode power. As shown in Table IV.18, 
DOE estimated that 61 percent of the affected market would be at the 
baseline level in 2022, according to data from 18 furnace models from a 
field study conducted in Wisconsin \121\ and data from DOE laboratory 
tests (see appendix 8I of the SNOPR TSD). In addition, for MHGFs, DOE 
assigned all PSC furnace fan motor models to the max-tech efficiency 
level. DOE received no comments about these fractions or assumptions 
and, therefore, for the SNOPR, kept the same values as used in the 
March 2015 NOPR and the September 2015 NODA.
---------------------------------------------------------------------------

    \121\ Scott Pigg, Electricity Use by New Furnaces: A Wisconsin 
Field Study, Energy Center of Wisconsin (2003) (Available at: 
www.ecw.org/publications/electricity-use-new-furnaces-wisconsin-field-study).

    Table IV.18--Standby Mode and Off Mode Base-Case Efficiency Distribution in 2022 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
----------------------------------------------------------------------------------------------------------------

9. Accounting for Product Switching Under Potential Standards
    DOE considered the potential for a standard level to impact the 
choice between types of heating products, both for new construction and 
the replacement of existing products. 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 product than they would have otherwise 
installed (i.e., in the no-new-standards 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.
    Some stakeholders questioned the appropriateness of incorporating a 
product switching model in the LCC analysis. Ingersoll Rand, Prime 
Energy Partners, APPA, and EEI stated that the LCC calculation in the 
March 2015 NOPR goes beyond that performed by the Department in 
previous rulemakings by including the first cost and operating costs of 
products purchased in lieu of the covered classes. Ingersoll Rand, 
Prime Energy Partners, and CGS believe that the LCC calculation in the 
March 2015 NOPR is inconsistent with the requirement in section 
325(o)(2)(B)(i)(II) of EPCA that DOE should 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 products which are likely to result from the imposition of the 
standard.'' Prime Energy Partners stated that DOE's approach would bias 
the average LCCs and PBPs favorably toward the analyzed standard level 
by replacing the costs of covered products with lower-cost 
alternatives. Prime Energy Partners stated that DOE should remove the 
cost of electric heating products from the LCC and PBP analysis. 
(Ingersoll Rand, No. 0156 at pp. 8-9; Ingersoll Rand, No. 0182 at p. 2; 
Prime Energy Partners, No. 0143 at pp. 2-3; APPA, No. 0149 at pp. 2-3; 
EEI, No. 0160 at p. 103; CGS, No. 0098 at pp. 3-4)
    According to DOE's reading, the language in section 
325(o)(2)(B)(i)(II) does not specify what the savings in operating 
costs and increase in price of a standards-compliant product should be 
measured against. DOE reasons that the most compelling reference point 
is the product that a consumer would purchase in the absence of amended 
standards. In most cases, this product would be of the same type as a 
standards-compliant product, though possibly with different efficiency. 
In the case of NWGFs, however, switching to alternative heating 
products is a realistic possibility. Accounting for potential switching 
provides a more realistic characterization of the no-new-standards case 
and is not inconsistent with the requirement in section 
325(o)(2)(B)(i)(II) of EPCA.
a. Consumer Choice Model
    For the March 2015 NOPR, DOE developed a consumer choice model to 
estimate the response of builders and home owners to potential amended 
AFUE standards for NWGFs. The model considers three options available 
to each sample household, which are to purchase and install: (1) A NWGF 
that meets a particular standard level, (2) a heat pump, or (3) an 
electric furnace. In addition, for situations in which installation of 
a condensing furnace would leave an ``orphaned'' gas water heater 
requiring costly re-venting, the model allows for the option to 
purchase an electric water heater as an alternative. For option 2, 
purchase a heat pump, DOE took 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, which also provides cooling. 80 FR 13120, 13152 
(March 12, 2015).
    The consumer choice model uses the installed cost of each option, 
as estimated 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 lifetime of the 
available product options.\122\ DOE accounted for any additional costs 
to accommodate a new product. DOE also accounted for the cooling load 
of each relevant household that might switch from a NWGF and CAC to a 
heat pump. The GTI report submitted by SoCalGas, PGW, and Laclede 
stated that fuel switching from gas to electricity is expected to occur 
in water heating systems if a gas-fired water heater is orphaned. 
(SoCalGas, No. 0132-7 at p. 2; PGW, No. 0003-2 at p. 3; Laclede, No. 
0141 at p. 23) As noted previously, DOE accounted for potential 
switching from gas-fired water heaters to electric water heaters if the 
existing water heater is orphaned.
---------------------------------------------------------------------------

    \122\ Electric furnaces are estimated to have the same lifetime 
as NWGFs (21.5 years), but heat pumps have an estimated average 
lifetime of 19 years, which is 2.5 years less than the estimated 
average lifetime of NWGFs. To ensure comparable accounting, DOE 
annualized the installed cost of a second heat pump and multiplied 
the annualized cost by the difference in lifetime between the heat 
pump and a NWGF in a particular switching situation.

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[[Page 65792]]

    Other stakeholders pointed out limitations to the opportunity for 
fuel switching due to local codes and regulations. For example, PG&E 
commented that fuel switching is unlikely in California, given the 
requirements of the State's building energy efficiency standards. 
(PG&E, No. 0153 at p. 3) Von Harz stated that Iowa's HVAC System 
Adjusted and Verified Efficiency program, despite requiring high-
efficiency furnaces, did not experience significant levels of fuel 
switching. (von Harz, No. 0080 at p. 1) Southern Company stated that 
the estimated level of switching to electric furnaces is unreasonably 
high, even in the South. Southern Company stated that contrary to DOE's 
results, it would expect much less switching to electric furnaces over 
heat pumps in the South and minimal switching to electric furnaces over 
heat pumps in the North. (Southern Company, No. 0044 at pp. 290-291) In 
response, DOE recognizes that in some areas switching to electric 
heating, and electric furnaces in particular, may be minimal. The SNOPR 
analysis projects only a small amount of switching to electric furnaces 
(1.1 percent of all NWGF consumers) for the standards proposed in this 
SNOPR.
    As noted previously, the consumer choice model considered the total 
installed costs associated with the different product options. For the 
March 2015 NOPR and September 2015 NODA, DOE used efficiencies and 
consumer prices for heat pumps and CACs that meet the energy 
conservation standards that took effect on January 1, 2015 (10 CFR 
430.32(c)(3)). For electric furnaces, DOE used an efficiency of 98-
percent and a consumer price based on 2013 RS Means. For water heaters, 
it used efficiency and consumer prices for models that meet the 
standards that took effect on April 16, 2015. (10 CFR 430.32(d)) For 
situations where a household with a NWGF might switch to an electric 
space heating appliance, DOE determined the total 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 2015 
data.\123\
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    \123\ RS Means Company, Inc., RS Means Residential Cost Data 
2015 (2014).
---------------------------------------------------------------------------

    Some stakeholders commented on the product prices used in the March 
2015 NOPR for alternative space heating products. ASAP stated that it 
is unclear whether DOE accounted for the impact of new efficiency 
standards that took effect in 2015 on heat pump prices. ASAP further 
argued that heat pump prices will be affected by the next revision to 
the DOE heat pump standard, which could take effect as soon as 2021, 
and also by refrigerant phase outs mandated by EPA. (ASAP, No. 0154-1 
at p. 4) APPA and EEI stated that the analysis should account for 
increases in heat pump efficiency standards in 2006 and 2015. (APPA, 
No. 0149 at pp. 2-3; EEI, No. 0179 at pp. 4-5) EEI stated that it is 
very likely that new energy efficiency standards for residential heat 
pumps will be effective in 2021 at the latest. (EEI, No. 0160, pp. 10-
11; EEI, No. 0179 at p. 5) EEI stated that the analysis does not take 
into account the new water heater standards that took effect in 2015 
and the associated cost increases of heat pump and condensing water 
heaters above 55 gallons. (EEI, No. 0160, pp. 11-12)
    For the SNOPR, DOE used updated CAC and heat pump prices from the 
current rulemaking for CACs and heat pumps.\124\ These prices account 
for refrigerant phase outs mandated by EPA. DOE estimated the price of 
electric furnaces in the engineering analysis. DOE used the same data 
for water heaters as for the March 2015 NOPR and the September 2015 
NODA, which accounted for the standards that took effect in 2015.
---------------------------------------------------------------------------

    \124\ U.S. Department of Energy--Office of Energy Efficiency and 
Renewable Energy, Residential Central Air Conditioners and Heat 
Pumps (Available at: https://www1.eere.energy.gov/buildings/appliance_standards/standards.aspx?productid=48&action=viewlive) 
(Last accessed May 2, 2016).
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b. Product Switching Decision Criteria
    The decision criteria in the model were based on proprietary data 
from Decision Analysts,\125\ which identified for a representative 
sample of consumers their willingness to purchase more-efficient space-
conditioning systems (non-proprietary data of a similar nature were not 
available). Each of the four surveys that DOE used, 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 and RECS billing data, DOE deduced that 
consumers on average would require a payback period of 3.5 years or 
less for a more-expensive but more-efficient product.
---------------------------------------------------------------------------

    \125\ Decision Analysts, 2006, 2008, 2010, and 2013 American 
Home Comfort Studies (Available at www.decisionanalyst.com/Syndicated/HomeComfort.dai).
---------------------------------------------------------------------------

    The consumer choice model calculates 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 must be less 
than the NWGF standards case option. The model assumes that a consumer 
will switch to an electric heating option if the PBP of the condensing 
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.
    Several stakeholders commented on the criteria used to determine 
whether a household would switch space heating products. AGA stated 
that the product switching methodology assumes switching will not take 
place in cases where the payback period is less than 3.5 years; 
however, in the LCC model, if the payback for the specified efficiency 
level is less than 3.5 years, switching does take place if switching 
options with paybacks over 3.5 years are present. (AGA, No. 0040-2 at 
p. 4) To clarify, DOE notes that if the PBP of a specific condensing 
NWGF efficiency level relative to a specific electric heating option is 
less than 3.5 years, switching does not take place.
    AGA and NPGA stated that it is unrealistic to use the same criteria 
for every consumer to determine fuel switching. (AGA, No. 0118 at p. 
13; NPGA, No. 0130 at p. 4) NPGA stated that the factors considered by 
consumers are multiple and varying according to the consumer's 
rationale, personal finances, home construction, region, etc. (NPGA, 
No. 0130 at p. 4) DOE acknowledges that different consumers are likely 
to use different criteria when considering fuel switching, but the 
survey used by DOE does not provide sufficient information to derive a 
distribution of required payback periods that is transferable to DOE's 
methodology. Commenters did not provide any additional data on this 
point, nor did they suggest a more suitable source. As DOE is not aware 
of any better data source, it maintained its existing approach for this 
SNOPR.

[[Page 65793]]

    EEI, ACEEE, ASAP, and the Efficiency Advocates stated that DOE 
overestimated the amount of fuel switching likely to occur as a result 
of increased furnace efficiency standards. ACEEE stated that many 
decision makers will not make an investment at the 3.5-year payback 
threshold. Furthermore, ACEEE, ASAP, and Rheem would expect consumers, 
particularly in the North, to be reluctant to switch to electricity, 
which has a reputation for high bills, less reliability, less comfort, 
and, in some areas, greater risk of outages. (EEI, No. 0160 at p. 3; 
EEI, No. 0050 at pp. 56-59; ACEEE, No. 0113 at pp. 2-3; ASAP, No. 0154-
1 at pp. 3-4; Rheem, No. 0142 at p. 12; EEI, No. 0179 at p. 4; 
Efficiency Advocates, No. 0196 at p. 3) ASAP stated that the changes 
required to switch to an electric space heating appliance are complex, 
and consumers may face considerable cost and uncertainty about the 
impacts of changing gas and electric utility services. ASAP stated that 
the consumer survey data used to determine the switching criterion do 
not directly address the consumer choice to switch heating fuels, as 
the decision to buy a more expensive but more efficient product is very 
different than the decision to switch from one heating fuel to another. 
(ASAP, No. 0154-1 at pp. 3-4)
    DOE acknowledges that the consumer survey data it used to determine 
the switching criterion do not directly address the consumer choice to 
switch heating fuels, but in the absence of any data directly 
associated with fuel switching, DOE believes that the payback criterion 
is broadly reflective of the potential consumer response. In addition 
to the primary estimate, DOE conducted sensitivity analyses using 
higher and lower levels of switching. Whereas the primary 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).
    ASAP stated that no fuel switching is a more realistic assumption, 
but at a minimum, DOE should use the low-switching scenario described 
in the switching appendix, which is based on what ASAP stated is a 
slightly more realistic payback threshold. (ASAP, No. 0154-1 at pp. 3-
4) ACEEE also recommended using the low-switching scenario. (ACEEE, No. 
0113 at pp. 2-3) Given the concerns about switching raised by many 
stakeholders, DOE is reluctant to rely on the low-switching scenario 
for its primary estimate.
    See appendix 8J of the SNOPR for more details on the decision 
criteria used in the product switching model.
c. Summary of Product Switching Model
    The key parameters of the product switching model includes product 
switching options, payback criteria, installation cost, and operating 
costs. DOE analyzed product switching scenarios that represent the most 
common combinations of space conditioning and water heating products 
that could be used in the case of a condensing NWGF energy efficiency 
standard. The consumer choice model calculates 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 must be less 
than the NWGF standards case option.
    The product switching model is based on the payback of a higher 
efficiency furnace in comparison to the heat pump and electric furnace 
alternatives. Based on data from consumer surveys, DOE applied payback 
criteria of 3.5 years for all consumers. In order to characterize the 
uncertainty associated with the payback criteria value, DOE conducted 
sensitivity analyses using higher and lower payback criteria. Whereas 
the primary 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). The results of the sensitivity analyses on 
the estimated extent of product switching and on the LCC and PBP 
results are given in section V.B.1.a, and the results on the national 
energy savings and NPV are given in section V.B.3.
d. Switching Resulting from Standards for Mobile Home Gas Furnaces
    For the March 2015 NOPR, DOE concluded that fuel switching would be 
unlikely for MHGFs. 80 FR 13120, 13164 (March 12, 2015). Nortek and 
Mortex responded that the higher total installed cost of a condensing 
MHGF would likely force consumers to switch to a less-efficient 
electric furnace, resulting in higher monthly utility bills. (Nortek, 
No. 0137 at p. 4; Mortex, No. 0157 at p. 3) AHRI also stated that DOE 
should consider product switching from MHGFs to other space heating 
products. (AHRI, No. 0050 at pp. 67-68) JCI commented that the mobile 
home market is particularly price sensitive, so the higher initial cost 
of a condensing furnace will drive many builders from natural gas to 
electric heating products. (JCI, No. 0148 at pp. 6-7)
    For replacement MHGFs, DOE has tentatively concluded that the 
installation costs of switching to electric heating (which include 
increasing the electrical requirements) and high electricity prices in 
some regions would tend to discourage owners of MHGFs from switching. 
For MHGFs in the new construction market, the estimated average 
incremental cost of a 92-percent AFUE condensing furnace is $150. 
According to the recently issued Notice of Proposed Rulemaking \126\ 
for manufactured housing, DOE estimates that a baseline single section 
manufactured home costs $45,000 and a baseline double section 
manufactured home costs $82,000. Based on this, DOE has tentatively 
concluded that a cost of this magnitude would be unlikely to cause 
producers of manufactured homes to make furnace-related design changes.
---------------------------------------------------------------------------

    \126\ See: http://energy.gov/sites/prod/files/2016/05/f31/Manufactured%20Housing%20NOPR_1.pdf.
---------------------------------------------------------------------------

10. Payback Period
    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. Payback 
periods are expressed in years. Payback periods that exceed the life of 
the product mean that the increased total installed cost is not 
recovered in reduced operating expenses.
    The inputs to the PBP calculation for each efficiency level are the 
change in total installed cost of the product and the change in the 
first-year annual operating expenditures relative to the baseline. The 
PBP calculation uses the same inputs as the LCC analysis, except that 
discount rates are not needed.
    As noted above in section III.E.2, EPCA, as amended, 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 first year's energy savings 
resulting from the standard, as calculated under the applicable test 
procedure. (42 U.S.C. 6295(o)(2)(B)(iii)) For each considered 
efficiency level, DOE determined the value of the first year's energy 
savings by calculating the energy savings in accordance with the 
applicable DOE test procedure, and multiplying those savings by the 
average

[[Page 65794]]

energy price forecast for the year in which compliance with the amended 
or new standards would be required.
G. Shipments Analysis
1. Shipments Model and Inputs
    DOE uses forecasts of annual product shipments to calculate the 
national impacts of potential amended or new energy conservation 
standards on energy use, NPV, and future manufacturer cash flows.\127\ 
The shipments model takes an accounting approach, tracking market 
shares of each product class and the vintage of units in the stock. 
Stock accounting uses product shipments as inputs to estimate the age 
distribution of in-service product stocks for all years. The age 
distribution of in-service product stocks is a key input to 
calculations of both the NES and NPV, because operating costs for any 
year depend on the age distribution of the stock.
---------------------------------------------------------------------------

    \127\ DOE uses data on manufacturer shipments as a proxy for 
national sales, as aggregate data on sales are lacking. In general 
one would expect a close correspondence between shipments and sales.
---------------------------------------------------------------------------

    DOE developed shipment projections based on historical data and an 
analysis of key market drivers for each product. DOE estimated gas 
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.
    For the March 2015 NOPR, DOE assembled historic shipments data for 
NWGFs and MHGFs from Appliance Magazine,\128\ AHRI,\129\ and Census 
Mobile Home.\130\ For the September 2015 NODA, DOE added the 2014 
shipments from AHRI.\131\
---------------------------------------------------------------------------

    \128\ Appliance Historical Statistical Review: 1954-2012, 
Appliance Magazine (2014).
    \129\ Air-Conditioning, Heating, & Refrigeration Institute, 
Furnace Historical Shipments Data. (1994-2013) (Available at: http://www.ahrinet.org/site/497/Resources/Statistics/Historical-Data/Furnaces-Historical-Data) (Last accessed October 15, 2014).
    \130\ U.S. Census. Manufactured Homes Survey: Historical Data. 
(Available at: http://www.census.gov/construction/mhs/mhsindex.html 
(Last accessed April 26, 2016.).
    \131\ Air-Conditioning, Heating, and Refrigeration Institute, 
Non-Condensing and Condensing Regional Gas Furnace Shipments for 
2010-2014 (2015), Air-Conditioning, Heating, and Refrigeration 
Institute: Arlington, VA. (Available at: www.regulations.gov/#!documentDetail;D=EERE-2014-BT-STD-0031-0052) (Last accessed 
January 6, 2016.).
---------------------------------------------------------------------------

    The GTI report submitted by SoCalGas stated that DOE's condensing 
furnace shipment forecasts are based on assumed current market 
conditions that differ from AHRI condensing furnace shipment data. 
(SoCalGas, No. 0132-7 at p. v) DOE disagrees with this comment, because 
DOE did use the latest-available shipments data from AHRI in its 
analysis. For the September 2015 NODA and this SNOPR, DOE used the 
2010-2014 shipments data provided by AHRI, with disaggregated non-
condensing and condensing shipments.\132\ For the SNOPR, DOE used 
updated total 2015 shipments data from AHRI,\133\ but disaggregated 
data by non-condensing and condensing shipments for 2015 was not 
available for the SNOPR analysis.
---------------------------------------------------------------------------

    \132\ Air-Conditioning, Heating, and Refrigeration Institute, 
Non-Condensing and Condensing Regional Gas Furnace Shipments for 
2010-2014 (2015), Air-Conditioning, Heating, and Refrigeration 
Institute: Arlington, VA. (Available at: www.regulations.gov/#!documentDetail;D=EERE-2014-BT-STD-0031-0052) (Last accessed 
January 6, 2016).
    \133\ Air-Conditioning, Heating, & Refrigeration Institute, 
Furnace Historical Shipments Data. (1996-2015) (Available at: http://www.ahrinet.org/site/497/Resources/Statistics/Historical-Data/Furnaces-Historical-Data) (Last accessed April 26, 2016).
---------------------------------------------------------------------------

    For the March 2015 NOPR and September 2015 NODA, DOE disaggregated 
MHGF shipments from the gas furnace total by using a combination of 
data from the U.S. Census \134\ and American Housing Survey (AHS).\135\ 
Disaggregated condensing and non-condensing gas furnace shipments by 
region from 1992 to 2009 were used to estimate shipments by region 
before 1992 and after 2009. For the SNOPR, DOE updated to the latest 
U.S. Census \136\ and AHS data.\137\
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    \134\ U.S. Census Bureau, Manufactured Homes Survey (June 1, 
2013) (Available at: https://www.census.gov/construction/mhs/mhsindex.html) (Last accessed July 9, 2015).
    \135\ U.S. Census Bureau--Housing and Household Economic 
Statistics Division, 2011 American Housing Survey (2011) (Available: 
www.census.gov/programs-surveys/ahs/data.2011.html) (Last accessed 
June 30, 2015).
    \136\ U.S. Census Bureau, Manufactured Homes Survey (Available 
at: https://www.census.gov/construction/mhs/mhsindex.html) (Last 
accessed August 26 2015).
    \137\ U.S. Census Bureau--Housing and Household Economic 
Statistics Division, 2013 American Housing Survey (2013) (Available 
at: www.census.gov/programs-surveys/ahs/data.2013.html) (Last 
accessed June 30, 2015).
---------------------------------------------------------------------------

    Mortex stated that the number of MHGFs manufactured in 2014 was 
estimated to be about 54,000, and about two-thirds were sold to the 
replacement market. Mortex stated that MHGF sales have not been 
growing. (Mortex, No. 0157 at p. 3) For the SNOPR, DOE revised its data 
for current MHGF shipments to align with the estimate from Mortex.
    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.
    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 for the March 2015 NOPR.\138\ DOE estimated future 
furnace saturation rates in new housing based on a weighted-average of 
U.S. Census Bureau's Characteristics of New Housing \139\ values from 
1990 through 2013. For the September 2015 NODA and this SNOPR, DOE used 
AEO 2015 for forecasts of new housing from the NOPR \140\ and added the 
U.S. Census Bureau's Characteristics of New Housing \141\ values from 
2014 to 2015.
---------------------------------------------------------------------------

    \138\ U.S. Department of Energy, Energy Information 
Administration, Annual Energy Outlook 2014, Table 20 (Available at: 
www.eia.gov/forecasts/aeo/data.cfm?filter=macroeconomic#macroeconomic) (Last accessed July 29, 
2014).
    \139\ U.S. Census Bureau, Characteristics of New Housing 
(Available at: www.census.gov/const/www/charindex.html) (Last 
accessed Aug. 19, 2014).
    \140\ U.S. Department of Energy, Energy Information 
Administration, Annual Energy Outlook 2015, Table 20 (Available at: 
www.eia.gov/forecasts/aeo/data.cfm?filter=macroeconomic#macroeconomic) (Last accessed July 29, 
2015).
    \141\ U.S. Census Bureau, Characteristics of New Housing 
(Available at: www.census.gov/const/www/charindex.html) (Last 
accessed April 26, 2016).
---------------------------------------------------------------------------

    For the March 2015 NOPR and the September 2015 NODA, to project 
shipments to new owners of NWGFs, DOE used the shipments model together 
with data in the American Home Comfort Survey \142\ to estimate that 
the annual total amounts to ten percent of NWGF replacement shipments 
in 2021.
---------------------------------------------------------------------------

    \142\ Decision Analysts, 2008 American Home Comfort Study: 
Online Database Tool (Available at: www.decisionanalyst.com/Syndicated/HomeComfort.dai) (Last accessed April 26, 2016).
---------------------------------------------------------------------------

    AHRI stated that the population of new owners is by definition an 
ever decreasing base and should not have constant shipments. (AHRI, No. 
0050 at pp. 54-55) In response, DOE notes that new houses are 
continually being built, some without NWGFs. Some of these homeowners 
could potentially install a NWGF at a later point, so the new owner 
market may not necessarily decrease.
    For shipments of NWGFs to commercial applications, DOE developed 
no-new-standards 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

[[Page 65795]]

shipped to the commercial sector is approximately three percent.\143\
---------------------------------------------------------------------------

    \143\ 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.
---------------------------------------------------------------------------

    Mortex questioned if DOE's forecast of declining MHGF shipments 
means that consumers are not replacing their MHGFs, given that there 
are a lot of older MHGFs, and DOE assumes that there is no switching to 
other products. (Mortex, No. 0157 at p. 3) As mentioned before, DOE 
revised its data for current MHGF shipments to align with the estimate 
from Mortex. These revised shipments show a slight increase. DOE's 
analysis assumes that some MHGFs are not replaced because the lifetime 
of a mobile home is often similar to that of a MHGF.
2. Impact of Potential Standards on Shipments
    For the March 2015 NOPR, to estimate the impact on NWGF shipments 
of product switching that may be incentivized by potential standards, 
DOE applied the consumer choice model described in section IV.F.9. The 
options available to each sample household or building are to purchase 
and install: (1) The NWGF that meets a particular standard level, (2) a 
heat pump, or (3) an electric furnace.\144\
---------------------------------------------------------------------------

    \144\ 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 product 
prices in the compliance year and energy prices over the lifetime of 
products installed in that year. The shipments model considers the 
switching that might occur in each year of the analysis period (2022-
2051). To do so, DOE estimated the switching in the final year of the 
analysis period (2051) and derived trends from 2022 to 2051. First, DOE 
applied the NWGF product price trend described above to project prices 
in 2051. DOE used the appropriate energy prices over the lifetime of 
products installed in each year. Although the inputs vary, the decision 
criteria, as described in section IV.F.9, were the same in each year. 
For each considered standard level, the number of NWGFs shipped in each 
year is equal to the base shipments in the no-new-standards case minus 
the number of NWGF buyers who switch 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.
    AHRI stated that in the shipments analysis, DOE concluded that 
higher prices for condensing furnaces would not significantly affect 
shipments, but at the same time, DOE concluded that higher NWGF prices 
would lead consumers to switch products to avoid the LCC and PBP cost 
impacts from a higher-efficiency furnace. (AHRI, No. 0159 at p. 22) DOE 
clarifies that the estimated degree of switching away from NWGFs under 
each TSL is reflected in a decrease in shipments.
    AHRI stated that increasing the installed cost would impact the 
projected shipments due to price elasticity. (AHRI, No. 0159 at p. 48) 
Goodman expects that a standard would decrease shipments. (Goodman, No. 
0135 at p. 8) For NWGFs, DOE maintains that the response to an increase 
in installed cost would primarily be in the form of product switching. 
Therefore, rather than applying a price elasticity parameter to relate 
increase in installed cost to the demand for furnaces, DOE accounted 
for the impact of such increase by incorporating product switching in 
the shipments model. This approach captures not only the decrease in 
NWGF shipments, but also the increase in shipments (and use) of heat 
pumps and electric furnaces resulting from switching. For MHGFs, DOE 
has tentatively concluded that either the impact of price elasticity or 
product switching in response to amended standards would be minimal, 
since the installation cost differential is small between non-
condensing and condensing MHGFs.
    Many stakeholders stated that due to the high cost of condensing 
furnaces, consumers (particularly low- and moderate-income consumers) 
may choose to repair existing non-condensing furnaces instead of 
replacing them with a condensing furnace. (Carrier, No. 0116 at pp. 9, 
11; PGW, No. 0003-2 at pp. 5-6; PGW, No. 0122 at p. 3; AGL Resources, 
No. 0112 at p. 7; Gas Authority, No. 0086 at pp. 4-5; Laclede, No. 0141 
at p. 37; Questar Gas, No. 0151 at p. 1; Allied Air, No. 0044 at p. 
267; Nayes, No. 0055 at p. 1; AHRI, No. 0159 at pp. 15, 23) DOE notes 
that replacement of a furnace in the shipments model is generally 
associated with failure of major components such as the heat exchanger. 
Because such repair is a large expense, DOE believes that relatively 
few consumers would choose to undertake such a repair, given concerns 
that other major repairs may soon follow. In addition, under the 
currently-proposed standards, many low-income consumers or owners of 
multi-family homes could use a small furnace and, thus, could install a 
new non-condensing furnace.
    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 NWGF shipments in the no-new-
standards case would be unaffected by new standby mode and off mode 
standards.
    For details on DOE's shipments analysis of product and fuel 
switching, see chapter 9 of the SNOPR TSD.
H. National Impact Analysis
    The NIA assesses the national energy savings (NES) and the national 
net present value (NPV) from a national perspective of total consumer 
costs and savings that would be expected to result from new or amended 
standards at specific efficiency levels.\145\ (``Consumer'' in this 
context refers to consumers of the product being regulated.) DOE 
calculates the NES and NPV for the potential standard levels considered 
based on projections of annual product shipments, along with the annual 
energy consumption and total installed cost data from the energy use 
and LCC analyses.\146\ For the present NIA analysis, DOE forecasted the 
energy savings, operating cost savings, product costs, and NPV of 
consumer benefits over the lifetime of NWGFs and MHGFs sold from 2022 
through 2051.
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    \145\ The NIA accounts for impacts in the 50 states and U.S. 
territories.
    \146\ For the NIA, DOE adjusts the installed cost data from the 
LCC analysis to exclude sales tax, which is a transfer.
---------------------------------------------------------------------------

    DOE evaluates the impacts of amended or new standards by comparing 
a case without such standards with standards-case projections. The no-
new-standards case characterizes energy use and consumer costs for each 
product class in the absence of new or amended energy conservation 
standards. For this projection, DOE considers historical trends in 
efficiency and various forces that are likely to affect the mix of 
efficiencies over time. DOE compares the no-new-standards case with 
projections characterizing the market for each product class if DOE 
adopted new or amended standards at specific energy efficiency levels 
(i.e., the TSLs or standards cases) for that class. For the standards 
cases, DOE considers how a given standard would likely affect the 
market shares of products with efficiencies greater than the standard.

[[Page 65796]]

    DOE uses a spreadsheet model to calculate the energy savings and 
the national consumer costs and savings from each TSL. Interested 
parties can review DOE's analyses by changing various input quantities 
within the spreadsheet. The NIA spreadsheet model uses typical values 
(as opposed to probability distributions) as inputs.
    Table IV.19 summarizes the inputs and methods DOE used for the NIA 
analysis for the SNOPR. Discussion of these inputs and methods follows 
the table. See chapter 10 of the SNOPR TSD for further details.

   Table IV.19--Summary of Inputs and Methods for the National Impact
                         Analysis for the SNOPR
------------------------------------------------------------------------
              Inputs                               Method
------------------------------------------------------------------------
Shipments.........................  Annual shipments from shipments
                                     model.
Compliance Date of Standard.......  2022.
Efficiency Trends.................  No-new-standards case: Based on
                                     historical data.
                                    Standards cases: Roll-up in the
                                     compliance year and then DOE
                                     estimated growth in shipment-
                                     weighted efficiency in all the
                                     standards cases, except max-tech.
Annual Energy Consumption per Unit  Annual weighted-average values are a
                                     function of energy use at each TSL.
Total Installed Cost per Unit.....  Annual weighted-average values are a
                                     function of cost at each TSL.
                                    Incorporates projection of future
                                     product prices based on historical
                                     data.
Annual Energy Cost per Unit.......  Annual weighted-average values as a
                                     function of the annual energy
                                     consumption per unit and energy
                                     prices.
Repair and Maintenance Cost per     Annual values do not change with
 Unit.                               efficiency level.
Energy Prices.....................  AEO2015 forecasts (to 2040) and
                                     extrapolation through 2051.
Energy Site-to-Primary and FFC      A time-series conversion factor
 Conversion.                         based on AEO2015.
Discount Rate.....................  Three and seven percent.
Present Year......................  2016.
------------------------------------------------------------------------

1. Product Efficiency Trends
    A key component of the NIA is the trend in energy efficiency 
projected for the no-new-standards case and each of the standards 
cases. Section IV.F.8 of this notice describes how DOE developed an 
energy efficiency distribution for the no-new-standards case (which 
yields a shipment-weighted average efficiency) for the considered 
product classes in the year of anticipated compliance with an amended 
or new standard (2022). To project the trend in efficiency absent 
amended standards for NWGFs and MHGFs over the entire 30-year shipments 
projection period, DOE extrapolated the historical trends in efficiency 
that were described in section IV.F.8. DOE estimated that the national 
market share of condensing products would grow from 53 percent in 2022 
to 65 percent by 2051 for NWGFs, and from 26 percent to 32 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 2022.
    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.
    For the standards cases, DOE used a ``roll-up'' scenario to 
establish the shipment-weighted efficiency for the year that standards 
are assumed to become effective (2022). In this scenario, the market 
shares of products in the no-new-standards case that do not meet the 
standard under consideration would ``roll up'' to meet the new standard 
level, and the market share of products above the standard would remain 
unchanged. For the March 2015 NOPR, in 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, and the market has 
already moved significantly toward the 92-percent level.
    ACEEE and ASAP commented that a ``roll up'' scenario is overly 
conservative and stated that DOE should use a ``shift'' scenario for 
all TSLs. (A ``shift'' scenario assumes increases in the market share 
of products at efficiencies above the standard level following an 
increase in the standard level.) DOE acknowledges that there could be 
some increase in the market share of products at efficiencies above the 
standard level in the compliance year, but DOE has found the roll-up 
approach to provide a conservative estimate of the potential energy 
savings in the standards case. As described below, DOE did project 
increase in the market share of products at efficiencies above the 
standard level after the compliance year.
    ACEEE and ASAP stated that there are many market forces and public 
policies that will foster market share growth for condensing furnaces 
exceeding any new standard. (ACEEE, No. 0113 at p. 2; ASAP, No. 0154-1 
at pp. 3, 5-6) To develop standards case efficiency trends after 2022, 
DOE estimated growth in shipment-weighted 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.
    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 year 
of compliance.
    The efficiency trends are further described in chapter 10 of the 
SNOPR TSD.
2. National Energy Savings
    The national energy savings analysis involves a comparison of 
national energy consumption of the considered products between each 
potential standards case (TSL) and the case with no new or amended 
energy conservation standards. DOE calculated the national energy 
consumption by multiplying the number of units (stock) of each product 
(by vintage or age) by the unit energy consumption (also by vintage). 
DOE calculated annual NES based on the difference in national energy 
consumption for the no-new standards case and for each higher-
efficiency

[[Page 65797]]

standard case. DOE estimated energy consumption and savings based on 
site energy and converted any electricity consumption or savings to 
primary energy (i.e., the energy consumed by power plants to generate 
site electricity) using annual conversion factors derived from the AEO. 
For natural gas and LPG, DOE assumed that site energy consumption is 
the same as primary energy consumption.
    The per-unit annual energy use is adjusted with the building shell 
improvement index, which results in a decline of 8 percent in the 
heating load from 2022 to 2051, and the climate index, which results in 
a decline of 7 percent in the heating load. Cumulative energy savings 
are the sum of the NES for each year over the timeframe of the 
analysis.
    Commenting on the energy consumption for each efficiency level in 
the NIA, AHRI stated that the average energy demand in buildings with 
condensing NWGFs in the absence of standards is almost certainly higher 
than the average energy use of the buildings with non-condensing NWGFs 
absent standards.\147\ AHRI stated that using average energy 
consumption of all buildings for each efficiency level in the NIA 
substantially overestimates the energy savings. (AHRI, No. 0159 at pp. 
64-65) In response, DOE's approach for the modeling of unit energy 
consumption (UEC) in the no-new-standards case reflects a matching 
between the UEC for each efficiency level and the subset of homes that 
are estimated to install furnaces at each AFUE level. See chapter 10 of 
the SNOPR TSD for details.
---------------------------------------------------------------------------

    \147\ DOE's understanding of AHRI's reasoning is that homes 
purchasing a condensing furnace in the no-new-standards case would 
tend to have a higher heating load because a condensing furnace 
would tend to be more cost-effective in such cases.
---------------------------------------------------------------------------

    In the standards cases, there are fewer shipments of NWGFs or MHGFs 
compared to the no-new-standards case because of product switching, but 
there are additional shipments of heat pumps, electric furnaces, and 
electric water heaters. DOE incorporated the per-unit 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.
    AHRI stated that the increased cost of a furnace as a result of 
this rulemaking would mean that the replacement of furnaces with PSC 
motors by furnaces with higher-efficiency motors would be lower than 
projected in the furnace fan rulemaking. AHRI argued that DOE must 
recalculate the projected savings from the furnace fan standards and 
account for those reduced savings in this rulemaking. (AHRI, No. 0159 
at p. 65) DOE does not agree with AHRI's reasoning or its 
recommendation. DOE acknowledges that the standards proposed for NWGFs 
in this document may result in slightly lower replacement of furnaces 
with PSC motors by furnaces with higher efficiency motors than 
projected in the furnace fan rulemaking. However, the purpose of DOE's 
analysis is to accurately estimate the impacts of the proposed 
standards, and not to incorporate any adjustments associated with past 
rulemakings for a different product (i.e., furnace fans).\148\
---------------------------------------------------------------------------

    \148\ DOE's analysis of potential standards for NWGFs and MHGFs 
fully accounts for the standards for furnace fans that take effect 
in 2019.
---------------------------------------------------------------------------

    DOE incorporated a rebound effect for NWGFs and MHGFs by reducing 
the site energy savings in each year by 15 percent.
    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 2015.\149\ 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. Because AEO 
projections end in 2040, DOE maintained the 2040 value for years after 
2040.
---------------------------------------------------------------------------

    \149\ U.S. Department of Energy, Energy Information 
Administration, Annual Energy Outlook 2015 (Available at: 
www.eia.gov/forecasts/aeo/data.cfm) (Last accessed July 29, 2015).
---------------------------------------------------------------------------

    NRDC stated that the source energy factor for electricity from AEO 
2014 does not accurately account for marginal, rather than average, 
generation source energy. NRDC argued that a marginal factor is much 
more appropriate measure because fuel switching happens at the margin 
of electricity generation. (NRDC, No. 0134 at pp. 2, 7-8) For the 
SNOPR, DOE uses marginal factors to convert site electricity 
consumption into primary energy consumption.
    EEI pointed out that the conversion factor increases slightly from 
2035 to 2040 without explanation but shows no improvement from 2040 on. 
EEI stated that this post-2035 increase does not comport with the 
expected fuel mix that will be generating electricity after 2030. (EEI, 
No. 0179 at p. 10) In response, the site-to-primary energy factors that 
DOE derived based on AEO 2015 show a relatively flat trend between 2030 
and 2040, so it is reasonable to use the 2040 value for years after 
2040. DOE interprets EEI's comment as suggesting that expected growth 
in renewable energy would result in a fuel mix to generate electricity 
that would affect the site-to-primary energy factors. However, the 
growing penetration of renewable electricity generation has little 
effect on the trend in site-to-primary energy factors because EIA uses 
an average fossil fuel heat to characterize the primary energy 
associated with renewable generation. DOE has recently issued a Request 
for Information (RFI) \150\ regarding site-to-primary energy factors 
and may revisit these factors in the future based on responses to the 
RFI.
---------------------------------------------------------------------------

    \150\ See: https://www.regulations.gov/#!docketDetail;D=EERE-
2016-OT-0010.
---------------------------------------------------------------------------

    AGA, Vectren, and NPGA stated that after correcting for DOE's 
analytical errors, fuel switching to electricity will increase primary 
energy consumption because increased electricity demand outweighs the 
reduced natural gas use. (AGA, No. 0118 at pp. 3, 5-6; Vectren, No. 
0111 at p. 2; NPGA, No. 0171 at pp. 2-3) Indiana and Carrier stated 
that the proposed standard may increase energy usage due to fuel 
switching by consumers who choose lower-cost, less-efficient space 
heating products. (Indiana, No. 0094 at p. 1; Carrier, No. 0116 at p. 
10) On this point, DOE would first note that switching to electric 
heating products was significantly higher under the standards proposed 
in the March 2015 NOPR than it is under the standards proposed in this 
SNOPR.\151\ Even so, these comments lost sight of the overall landscape 
of energy savings associated with amended standards by focusing solely 
on the differences in primary energy use between gas and electric home 
heating products for that small portion of consumers who would engage 
in fuel switching. Although switching to electric heating products does 
increase primary energy consumption relative to use of NWGFs, the 
savings in primary natural gas resulting from the currently-proposed 
standards far outweigh the increase in energy use due to switching.
---------------------------------------------------------------------------

    \151\ The main reason why the estimated switching is lower under 
the standards proposed in this SNOPR is because of the creation of a 
product class for small furnaces for which a non-condensing furnace 
would meet the standard. In this case, there is less incentive for 
switching.
---------------------------------------------------------------------------

    In 2011, in response to the recommendations of a committee on

[[Page 65798]]

``Point-of-Use and Full-Fuel-Cycle Measurement Approaches to Energy 
Efficiency Standards'' appointed by the National Academy of Sciences, 
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 its determination that EIA's National 
Energy Modeling System (NEMS) is the most appropriate tool for its FFC 
analysis and its intention to use NEMS for that purpose. 77 FR 49701 
(August 17, 2012). NEMS is a public domain, multi-sector, partial-
equilibrium model of the U.S. energy sector \152\ that EIA uses to 
prepare its Annual Energy Outlook. The FFC factors incorporate 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 deriving 
FFC measures of energy use and emissions is described in appendix 10B 
of the SNOPR TSD.\153\
---------------------------------------------------------------------------

    \152\ For more information on NEMS, refer to The National Energy 
Modeling System: An Overview, DOE/EIA-0581 (98) (Feb.1998) 
(Available at: www.eia.gov/oiaf/aeo/overview/).
    \153\ DOE generally does not include possible indirect impacts 
of standards on energy use outside of the full-fuel-cycle. Such 
indirect impacts could include changes in the energy used to 
manufacture and transport covered products, or in the energy used to 
process material inputs to covered products. DOE maintains that such 
indirect impacts fall outside of the EPCA mandate for DOE to 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))
---------------------------------------------------------------------------

    NPGA commented that there is no indication that DOE applied FFC 
analysis to the electric alternatives that are likely to increase as 
consumers switch fuels due to the retrofit and redesign costs of 
propane-powered furnaces. (NPGA, No. 0130 at p. 5) In response, DOE did 
determine the FFC energy use associated with the projected increase in 
electricity use resulting from fuel switching.
3. Net Present Value Analysis
    The inputs for determining the NPV of the total costs and benefits 
experienced by consumers are: (1) Total annual installed cost; (2) 
total annual operating costs (energy costs and repair and maintenance 
costs); and (3) a discount factor to calculate the present value of 
costs and savings. DOE calculates net savings each year as the 
difference between the no-new-standards case and each standards case in 
terms of total savings in operating costs versus total increases in 
installed costs. DOE calculates operating cost savings over the 
lifetime of each product shipped during the forecast period.
    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 17 percent in furnace prices from 2022 to 2051. 
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 analytical 
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 SNOPR TSD.
    The operating cost savings are energy cost savings, which are 
calculated using the estimated energy savings in each year and the 
projected price of the appropriate form of energy. To estimate energy 
prices in future years, DOE multiplied the average regional energy 
prices by the forecast of annual national-average residential energy 
price changes in the Reference case from AEO 2015, which has an end 
year of 2040. To estimate price trends after 2040, DOE used the average 
annual rate of change in prices from 2020 to 2040. As part of the NIA, 
DOE also analyzed scenarios that used inputs from the AEO 2015 Low 
Economic Growth and High Economic Growth cases. Those cases have higher 
and lower energy price trends compared to the Reference case. NIA 
results based on these cases are presented in appendix 10C of the SNOPR 
TSD.
    As mentioned previously, 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.
    In calculating the NPV, 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.
    AHRI stated that the 3-percent and 7-percent discount rates used in 
the NIA are too low because the 3-percent rate is lower than the 
consumer rate actually used in the LCC and the 7-percent rate is lower 
than the rate that DOE should use in the LCC. (AHRI, No. 0159 at p. 64) 
Regarding this point, DOE notes that the discount rates used in the NIA 
reflect a national perspective, which is distinct from the consumer 
perspective used in the LCC analysis. DOE uses 3-percent and 7-percent 
discount rates in accordance with guidance provided by the Office of 
Management and Budget (OMB) to Federal agencies on the development of 
regulatory analysis.\154\ 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 ``social rate of time 
preference,'' which is the rate at which society discounts future 
consumption flows to their present value.
---------------------------------------------------------------------------

    \154\ United States Office of Management and Budget. Circular A-
4: Regulatory Analysis (Sept. 17, 2003), section E. (Available at 
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.\155\ 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.
---------------------------------------------------------------------------

    \155\ As previously discussed in section IV.E.1, the rebound 
effect provides consumers with increased utility (e.g., a more 
comfortable indoor environment).
---------------------------------------------------------------------------

I. Consumer Subgroup Analysis

    In analyzing the potential impact of new or amended energy 
conservation standards on consumers, DOE evaluates the impact on 
identifiable subgroups of consumers that may be disproportionately 
affected by a new or amended national standard. The purpose of a 
subgroup analysis is to determine the extent of any such 
disproportional impacts. DOE evaluates impacts on particular subgroups 
of consumers by analyzing the LCC impacts and PBP for those particular 
consumers from alternative standard levels. DOE analyzed the impacts of 
the considered standard levels on two subgroups: (1) Low-income 
households and (2) senior-only households. The analysis used subsets of 
the RECS 2009 sample comprised of households that

[[Page 65799]]

meet the criteria for the two subgroups for both NWGFs and MHGFs. DOE 
used the LCC and PBP spreadsheet model to estimate the impacts of the 
considered efficiency levels on these subgroups.
    Some stakeholders questioned the discount rates that DOE used for 
low-income households and senior-only households.
    AHRI stated that DOE did not address the higher cost of capital for 
the subgroups relative to the average residential discount rate. (AHRI, 
No. 0159 at pp. 13-14) As described in section IV.F.7, DOE developed a 
distribution of discount rates by income group. The low-income 
households and senior-only households in the subgroup samples are 
identified by income, and they are assigned a discount rate from the 
appropriate income category. The average rate is higher for the low-
income subgroup compared to the overall average.
    AGA stated that DOE's discount rate underweights low-income 
consumer reliance on credit cards and other high-interest forms of 
financing. (AGA, No. 0118 at p. 28) AGL Resources stated that in order 
to purchase and install furnaces that comply with the standards 
proposed in the NOPR, many low-income and fixed-income homeowners would 
borrow money at high interest rates due to sub-par credit, further 
diminishing any benefits derived from lower utility bills. (AGL 
Resources, No. 0112 at p. 8) DOE uses a weighted-average cost of 
capital that is distinct from the financing that may be used to 
directly purchase a furnace. As discussed in the response to comments 
in section IV.F.7, DOE maintains that the interest rate associated with 
the specific source of funds used to purchase a furnace (i.e., the 
marginal rate) is not the appropriate metric to measure the discount 
rate as defined for the LCC analysis. See section IV.F.7 for 
elaboration of DOE's reasoning.
    NRDC stated that if a significant fraction of low-income households 
are renters rather than owners, the NOPR may overestimate consumer 
costs, as renters have limited and indirect exposure to installed 
costs, although they are often responsible for paying utility bills. 
(NRDC, No. 0134 at pp. 2, 8) DOE acknowledges that it assumed that the 
cost of a product incurred by a landlord is passed on to the tenant who 
pays the utility bills may overestimate the costs actually incurred by 
renters. Although economic theory would suggest that landlords do pass 
on their costs through increased rent, the extent and timing of such 
pass-through is not well understood, given that rental markets can be 
either rent controlled or very competitive in terms of rental rates. To 
the extent that such transfer does not occur, low-income renters would 
benefit more than is shown by DOE's analysis.
    Chapter 11 in the SNOPR 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 
manufacturers of NWGFs and MHGFs and to estimate the potential impacts 
of such standards on domestic employment, manufacturing capacity, and 
cumulative regulatory burden for those manufacturers. The MIA has both 
quantitative and qualitative aspects. The quantitative part of the MIA 
includes analyses of forecasted industry cash flows to calculate the 
INPV, additional investments in research and development (R&D) and 
manufacturing capital necessary to comply with amended standards, and 
the potential impact on domestic manufacturing employment. 
Additionally, the MIA seeks to qualitatively determine how amended 
energy conservation standards might affect manufacturers' capacity and 
competition, as well as how standards contribute to manufacturers' 
overall regulatory burden. Finally, the MIA serves to identify any 
disproportionate impacts on manufacturer subgroups, including small 
business manufacturers.
    The quantitative part of the MIA primarily relies on the GRIM, an 
industry cash flow model with inputs specific to this rulemaking. The 
key GRIM inputs include data on the industry cost structure, unit 
production costs, product shipments, manufacturer markups, and 
investments in R&D and manufacturing capital required to produce 
compliant products. The key GRIM outputs are INPV, which is the sum of 
industry annual cash flows throughout the analysis period discounted 
using the industry-weighted average cost of capital, and the impact on 
domestic manufacturing employment. The model uses standard accounting 
principles to estimate the impacts of amended energy conservation 
standards on the NWGF and MHGF manufacturing industry by comparing 
changes in INPV and domestic production employment between the no-new-
standards case and each of the standard levels. To capture the 
uncertainty relating to manufacturer pricing strategy following amended 
standards, the GRIM estimates a range of possible impacts under 
different manufacturer markup scenarios.
    The qualitative part of the MIA addresses manufacturer 
characteristics and market trends. Specifically, the MIA considers such 
factors as manufacturing capacity, competition within the industry, the 
cumulative regulatory burden of other DOE and non-DOE regulations, and 
impacts on manufacturer subgroups. The complete MIA is outlined in 
chapter 12 of the SNOPR TSD.
    DOE conducted the MIA for this rulemaking in three phases. In the 
first phase of the MIA, DOE prepared a profile of the NWGF and MHGF 
manufacturer industry based on the market and technology assessment and 
publicly available information. This included a top-down cost analysis 
of NWGF and MHGF manufacturers in order to derive preliminary financial 
inputs for the GRIM (e.g., selling, 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,\156\ corporate annual reports, the U.S. Census Bureau's 
Economic Census,\157\ and Hoover's reports \158\ to conduct this 
analysis.
---------------------------------------------------------------------------

    \156\ U.S. Securities and Exchange Commission, Annual 10-K 
Reports (Various Years), available at: http://www.sec.gov/edgar/searchedgar/companysearch.htm (last accessed August 1, 2014)l.
    \157\ U.S. Census Bureau, Annual Survey of Manufacturers: 
General Statistics: Statistics for Industry Groups and Industries 
(2014), available at: http://factfinder.census.gov/faces/nav/jsf/pages/searchresults.xhtml?refresh=t.
    \158\ Hoovers Inc. Company Profiles, Various Companies, 
available at: http://www.hoovers.com.
---------------------------------------------------------------------------

    In the second phase of the MIA, DOE prepared a framework industry 
cash-flow analysis to quantify the potential impacts of new energy 
conservation standards. The GRIM uses several factors to determine a 
series of annual cash flows starting with the announcement of the 
standards and extending over a 30-year period following the compliance 
date of the standards. These factors include annual expected revenues, 
costs of sales, SG&A and R&D expenses, taxes, and capital expenditures. 
In general, energy conservation standards can affect manufacturer cash 
flow in three distinct ways: (1) Create a need for increased 
investment; (2) raise production costs per unit; and (3) alter revenue 
due to higher per-unit prices and changes in sales volumes.
    In addition, during the second phase, DOE developed an interview 
guide to distribute to NWGF and MHGF manufacturers in order to develop 
other key GRIM inputs, including product and

[[Page 65800]]

capital conversion costs, and to gather additional information on the 
potential impacts of amended energy conservation standards on revenue, 
direct employment, capital assets, industry competitiveness, and 
manufacturer subgroup impacts.
    In the third phase of the MIA, DOE conducted structured, detailed 
interviews with NWGF and MHGF manufacturers. 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.
    Additionally, in the third phase, DOE 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. The small business subgroup is discussed in 
section VI.B, ``Review under the Regulatory Flexibility Act'' and in 
chapter 12 of the SNOPR TSD.
    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. The size standards are 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 NWGF and or MHGF manufacturer and its 
affiliates may employ a maximum of 1,250 employees. The 1,250 employee 
threshold includes all employees in a business' parent company and any 
subsidiaries. Based on this classification, DOE identified three NWGF 
and or MHGF companies that qualify as domestic small businesses. The 
NWGF and MHGF small manufacturer subgroup is discussed in section VI.B 
of this document and in chapter 12 of the SNOPR TSD.
2. Government Regulatory Impact Model Analysis and Key Inputs
    DOE uses the GRIM to quantify the changes in cash flows over time 
due to amended energy conservation standards. These changes in cash 
flows result in either a higher or lower INPV for the standards cases 
compared to the no-new-standards case. The GRIM analysis uses a 
standard annual cash flow analysis that incorporates manufacturer 
costs, manufacturer markups, shipments, and industry financial 
information as inputs. It then models changes in costs, investments, 
and manufacturer margins that result from new energy conservation 
standards. The GRIM uses these inputs to calculate a series of annual 
cash flows beginning with the reference year of the analysis, 2016, and 
continuing to the terminal year of the analysis, 2051. DOE calculates 
INPV by summing the stream of annual discounted cash flows throughout 
the analysis period.
    DOE used a real discount rate of 6.4 percent for NWGF and MHGF 
manufacturers. The discount rate estimate was derived from industry 
corporate annual reports to the Securities and Exchange Commission (SEC 
10-Ks) and then modified according to feedback received during 
manufacturer interviews. More information on the derivation of the 
manufacturers' discount rate can be found in chapter 12 of the TSD.
    DOE seeks comment on its use of 6.4 percent as a discount rate for 
NWGF and MHGF manufacturers (see section VII.E).
    Many GRIM inputs came from the engineering analysis, the NIA, 
manufacturer interviews, and other research conducted during the MIA. 
The major GRIM inputs are described in detail in the following 
sections.
    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 MPCs and changes in markups 
into 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 NWGF or MHGF, DOE assumed that standby mode and 
off mode standards alone would not significantly impact product 
shipment numbers. DOE determined that the impacts of the standby and 
off mode standard are substantially smaller than the impacts of the 
AFUE standard. Therefore, DOE's analysis focused primarily on impacts 
of the AFUE standard.
    The GRIM results for both the AFUE standards and the standby mode 
and off mode standards are discussed in section V.B.2. Additional 
details about the GRIM, discount rate, and other financial parameters 
can be found in chapter 12 of the SNOPR TSD.
a. Capital and Product Conversion Costs
    Amended energy conservation standards could 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 required to comply with 
each analyzed 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 could 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 this manufacturer feedback, DOE 
developed a market-share weighted average capital expenditure per 
manufacturer. DOE then scaled the number to estimate total industry 
capital conversion costs. 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 SNOPR 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. Manufacturer data was aggregated to 
better reflect the industry as a whole and to protect confidential 
information.
    DOE calculated the conversion costs for the standby mode and off 
mode standards separately from the AFUE conversion costs. DOE 
anticipated that manufacturers would incur minimal capital conversion 
costs to comply with standby and off mode standards, as the engineering 
analysis indicates that all

[[Page 65801]]

the design options that improve standby and off mode performance are 
component swaps which would not require new investments in production 
lines. However, the standby and off mode standards may require product 
conversion costs related to testing new components and component 
configurations as well as one-time updates to marketing materials. DOE 
estimated these product conversion costs based on the engineering 
analysis and feedback collected during manufacturer interviews. In 
general, DOE assumed that all conversion-related investments occur 
between the year of publication of the final rule and the compliance 
year. The conversion cost estimates used in the GRIM can be found in 
section V.B.2.
    DOE seeks comment on its methodology used to calculate capital and 
product conversion costs (see section VII.E).
    For additional information on how DOE estimated product and capital 
conversion costs, see chapter 12 of the SNOPR TSD.
b. 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 expensive than baseline 
components. The higher MPCs of more efficient products can affect 
revenue and gross margin, which will then affect the total volume of 
future shipments, and cash flows of NWGF and MHGF manufacturers. To 
calculate the MPCs for NWGFs and MHGFs at and above the baseline, DOE 
performed teardowns for representative units. The data generated from 
these analyses were then used to estimate the incremental materials, 
labor, depreciation, and overhead costs for products at each efficiency 
level. These cost breakdowns and product markups were validated and 
revised with input from manufacturers during manufacturer interviews 
and with input from NOPR and NODA written comments. For a complete 
description of the MPCs, see chapter 5 of the SNOPR TSD.
c. Shipment Scenarios
    DOE used the GRIM to estimate industry revenues based on total unit 
shipment forecasts and the distribution of these values by efficiency 
level. Changes in sales volumes and efficiency distribution can 
significantly affect manufacturer finances over the course of the 
analysis period. For this analysis, DOE used the NIA's annual shipment 
forecasts derived from the shipments analysis from 2016 (the reference 
year) to 2051 (the terminal year of the analysis period). In the 
shipments analysis, DOE estimates the distribution of efficiencies in 
the no-new-standards case and standards cases for all product classes. 
To account for a regional standard at TSL 3, shipment values in the 
GRIM are broken down by region, ``north'' and ``rest of country,'' for 
the NWGF product classes.
    The NIA assumes that product efficiencies in the no-new-standards 
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. For a 
complete description of the shipments analysis see section IV.G.
d. Manufacturer Markup Scenarios
    As discussed in section IV.J.2.b, 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. For 
the MIA, DOE modeled three 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 
markup scenario; (2) a preservation of per-unit operating profit markup 
scenario; and (3) a tiered markup. These scenarios lead to different 
markup values that, when applied to the MPCs, result in varying revenue 
and cash-flow impacts. The industry cash flow analysis results in 
section V.B.2.a present the impacts of the upper and lower bound markup 
scenarios on INPV. For the AFUE standards, the preservation of gross 
margin markup scenario represents the upper bound markup scenario and 
the tiered markup scenario represents the lower bound markup scenario. 
For the standby and off mode standards, preservation of gross margin 
markup scenario represents the upper bound markup scenario and the per-
unit preservation of operating profit markup scenario represents the 
lower bound.
    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 NWGF and MHGF 
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 NWGFs and 
1.27 for MHGFs. DOE assumes that this markup scenario represents the 
upper bound of the NWGF and MHGF industry's profitability in the 
standards case because manufacturers are able to fully pass on 
additional costs due to standards to consumers.
    In the per-unit preservation-of-operating-profit markup scenario, 
as the cost of production increases in the standards case, 
manufacturers reduce their markups to a level that maintains no-new-
standards case operating profit. In this scenario, the industry 
maintains 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 in the standards case is the same as in the no-new-standards 
case one year after the compliance date of the amended energy 
conservation standards. As a result, manufacturers are not able to earn 
additional operating profit from the increased production costs and the 
investments that are required to comply with amended standards. 
However, manufacturers are able to maintain the same operating profit 
in the standards case that was earned in the no-new-standards case. 
Therefore, in percentage terms, the operating margin is reduced between 
the no-new-standards case and the standards cases.
    DOE also modeled a tiered markup scenario, which reflects the 
industry's ``good, better, best'' pricing structure. DOE implemented 
the tiered markup scenario because multiple manufacturers stated in 
interviews that they offer multiple tiers of product lines that are 
differentiated, in part, by

[[Page 65802]]

efficiency level. Higher efficiency is one differentiator of premium 
products over the baseline product. As a result, higher efficiency 
products generally command a higher markup than lower efficiency 
products. Several manufacturers suggested that amended standards would 
lead to a reduction in premium markups and reduce the profitability of 
higher efficiency products. During interviews, manufacturers provided 
information on the range of typical efficiency levels in the ``good, 
better, best'' tiers. DOE used this information to estimate markups for 
NWGFs and MHGFs under a tiered pricing strategy in the no-new-standards 
case. In the standards cases, DOE modeled the situation in which 
amended standards result in a reduction of product differentiation, 
compression of the markup tiers, and an overall reduction in 
profitability.
3. Discussion of Comments
    During the NOPR public meeting, interested parties commented on the 
assumptions and results of the NOPR analysis. Interested parties also 
submitted written comments addressing several topics including markup 
scenarios, alternative heating products, direct employment impacts, 
lessening of competition, cumulative regulatory burden, compliance date 
of amended standards, regulatory flexibility analysis, and the impacts 
of the 2014 furnace fan final rule on the GRIM.
a. Direct Employment Impacts
    Lennox and Metal-Fab commented that DOE should factor the lower 
bound of employment impacts into the economic justification of the 
standard (Lennox, No. 0125 at p. 11; Metal-Fab, No. 0192 at pp. 1-2). 
DOE considered the entire range of potential employment impacts, 
including the lower bound, for this SNOPR. The Department analyzed 
direct employment impacts in section V.B.2.b of both the 2015 March 
NOPR and this SNOPR.
b. Cumulative Regulatory Burden
    Lennox, Goodman, and Rheem provided a list of rulemakings that they 
requested be incorporated into DOE's cumulative regulatory burden 
analysis. (Lennox, No. 125 at p. 5, 13-14) (Goodman, No. 0135 at pp. 8-
9) (Rheem, No. 142 at p. 13).
    Of the rulemakings these manufacturers requested DOE include in the 
cumulative regulatory burden analysis, the energy conservation 
standards for commercial warm-air furnaces, furnace fans, commercial 
air conditioners and heat pumps, and single package vertical air 
conditioners and heat pumps were already included in the March 2015 
NOPR. 80 FR 13172. Other energy conservation standards requested by 
manufacturers were intentionally excluded from the cumulative 
regulatory burden analysis. As outlined in appendix A to 10 CFR part 
430, subpart C, DOE considers ``other significant product-specific 
regulations that will take effect within three years of the effective 
date of the standard under consideration and will affect significantly 
the same manufacturers.'' (Section 10(g)(2), 10 CFR part 430, subpart 
C, appendix A.)
    At the time of the residential furnaces NOPR publication, the 
compliance years of energy conservation standards for package terminal 
air conditioners and heat pumps (2017), commercial refrigeration 
equipment (2017), electric motors (2016), and walk-in coolers and 
freezers (2017) fell outside of the 2018 to 2024 cumulative regulatory 
burden window, based on the proposed rule's 2021 compliance year. For 
the SNOPR, the cumulative regulatory burden window has changed, now 
ranging from 2019 to 2025 based on this SNOPR's proposed 2022 
compliance year. As a result, compliance with regulations for 
residential air conditioners and heat pumps has been added to the 
cumulative regulatory burden list for this SNOPR. The compliance dates 
for package terminal air conditioners and heat pumps, commercial 
refrigeration equipment, electric motors, and walk-in coolers and 
freezers still fall outside of the 2019 to 2025 cumulative regulatory 
burden window and are not included in this cumulative regulatory burden 
analysis. Similarly, the regional standards enforcement rulemaking has 
a 2016 compliance year and falls outside of the scope of this rule's 
cumulative regulatory burden time frame.
    Additionally, the rulemakings for commercial and industrial fans 
and blowers and regional standards enforcement were in preliminary 
stages at the time of the residential furnaces NOPR publication. There 
was insufficient information to determine the effective dates and 
potential cumulative regulatory impact of these rules. For this SNOPR, 
DOE has included the commercial and industrial fans and blowers 
rulemaking in the list of regulations that could present cumulative 
regulatory burden in section V.B.2.e.
    DOE recognizes that changes to test procedures can result in 
increases in certification costs above typical annual spending due to 
the need to re-certify large numbers of basic models within a limited 
period of time. When appropriate, these testing costs are accounted for 
as one-time expenses or as conversion costs in the analysis of the 
energy conservation standard. Thus, the costs of test procedure 
rulemakings were captured in this SNOPR.
    Manufacturers also expressed concern that DOE did not quantify the 
cumulative negative INPV impacts of rulemakings considered in the 
cumulative regulatory burden analysis in the March 2015 NOPR. (Goodman, 
No. 0135 at p. 9; Ingersoll Rand, No. 0156 at pp. 9-10). Goodman 
provided a specific list--citing the Small, Large, and Very Large 
Commercial Package Air Conditioners and Heating Equipment,\159\ Furnace 
Fans,\160\ Packaged Terminal Air Conditioners and Heat Pumps,\161\ and 
Commercial Warm Air Furnaces \162\ energy conservation standards as 
examples of rulemakings that have significant projected changes in 
INPV. For this SNOPR, DOE estimates that the potential net INPV impacts 
of these rules range from a decrease of $530.2 million to an increase 
of $38.6 million, or a decrease of 24.7 percent to an increase of 1.8 
percent. DOE notes that these manufacturer impacts are balanced by net 
consumer benefit projections of $25 billion using a 7-percent discount 
rate and $78 billion using a 3-percent discount rate as well as net 
projected carbon dioxide emission reductions of 1,075.6 million metric 
tons.
---------------------------------------------------------------------------

    \159\ 81 FR 2420 (Jan. 15, 2016).
    \160\ 79 FR 38129 (July 3, 2014).
    \161\ 80 FR 43162 (July 21, 2015).
    \162\ 81 FR 2420 (Jan. 15, 2016).
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c. Impacts of the July 2014 Furnace Fan Final Rule on GRIM
    In its comments, AHRI asserted that DOE underestimated in the March 
2015 NOPR the adverse impact on manufacturers in its modeling of the 
GRIM. AHRI suggested DOE was not fully recognizing the impacts of the 
overlap between the furnace fan and NWGF and MHGF rules. In particular, 
AHRI expressed concern about the decline in free cash flow due to the 
successive redesigns associated with the 2014 furnace fan final rule 
and NWGF and MHGF rule. (AHRI, No. 0159 at pp. 66-67)
    For this SNOPR, DOE considered the July 2014 furnace fan final rule 
in its NWGF and MHGF analysis. It was explicitly noted in the 
conclusion section of V.C of the March 2015 NOPR that DOE factored the 
cumulative impacts of the furnace fan final rule in its selection of a 
proposed standard level. 80 FR 13119, 13176 (March 12, 2015).

[[Page 65803]]

    In the March 2015 NOPR, the modeling of the GRIM incorporated 
changes in variable costs for the furnace fan. Changes to the variable 
costs from the furnace fan standard are reflected as changes to 
manufacturer production cost in the NWGF and MHGF GRIM. Manufacturer 
production costs in the GRIM increase in 2019 to reflect the 
implementation of the 2014 furnace fan final rule. Changes to the fixed 
costs from the 2014 furnace fan final rule were found in the CRB 
review, in section V.B.2 of the NOPR. In this SNOPR, DOE integrated 
both the variable cost impacts and fixed cost impacts of the 2014 
furnace fan final rule into the GRIM. The SNOPR GRIM incorporates an 
adjustment to the MPCs (variable cost impacts) in the standard year of 
the 2014 furnace fan final rule, 2019, to reflect the changes in 
furnace fan selection. The SNOPR GRIM also includes the conversion 
costs from the non-weatherized, non-condensing gas furnace fans; non-
weatherized, condensing gas furnace fans; manufactured home non-
weatherized, non-condensing gas furnace fans; and manufactured home 
non-weatherized, condensing gas furnace product classes from the 2014 
furnace fan final rule. Those conversion costs (fixed cost impacts) 
total $24.4 million between the years 2016 and 2019. Those furnace fan 
conversion costs are in addition the today's proposed rule's conversion 
costs, which total $54.7 million between the years 2018 and 2022. By 
incorporating the variable and fixed cost impacts of the 2014 furnace 
fan final rule, the SNOPR GRIM models the impact of amended MWGF and 
MHGF standards while taking into account the cash flow impacts of the 
2014 furnace fan final rule on the NWGF and MHGF industry.
d. Regulatory Flexibility Analysis
    In its comments on the March 2015 NOPR, Mortex stated that DOE did 
not prepare a regulatory flexibility analysis (Mortex, No. 0157 at p. 
4). AHRI and HARDI both were critical of the discussion of the 
regulatory flexibility analysis provided in the March 2015 NOPR (AHRI, 
No. 0159 at p. 8; HARDI, No. 0131 at p. 2). HARDI's comments were 
generic in nature and characterized the NOPR Regulatory Flexibility 
Analysis as ``very brief'' but offered no additional data for analysis. 
AHRI cited select requirements of the Regulatory Flexibility Act, 
including the requirements for DOE to describe the small entities to 
which the proposed rule will apply; describe the projected reporting, 
recordkeeping and other compliance requirements of the proposed rule; 
and provide an analysis of alternatives that would reduce the burden of 
regulation on small entities.
    In this SNOPR, DOE also presents a revised IRFA to reflect the 
standards proposed in this SNOPR with additional discussion of 
significant alternatives and includes discussion of possible exclusion 
criteria for certain small businesses. The complete IRFA discussion is 
provided in section VI.B of this notice.
    AHRI also noted an inconsistency in the number of small businesses 
identified by DOE in the March 2015 NOPR. 80 FR 13119, 13172 (March 12, 
2015). AHRI went on to comment that small businesses may account for 
more than 30-percent of the market if the number of small businesses 
identified is actually five instead of four (AHRI, No. 0159 at p. 7). 
DOE acknowledges the inconsistency in the NOPR notice and has corrected 
the inconsistency in this SNOPR. DOE confirms that it has identified 
five small NWGF and or MHGF manufacturers, three of which are domestic 
manufacturers.

K. Emissions Analysis

    The emissions analysis consists of two components. The first 
component estimates the effect of potential energy conservation 
standards on power sector and site (where applicable) combustion 
emissions of CO2, NOX, SO2, and Hg. 
The second component estimates the impacts of potential standards on 
emissions of two additional greenhouse gases, CH4 and 
N2O, as well as the reductions to emissions of all species 
due to ``upstream'' activities in the fuel production chain. These 
upstream activities comprise extraction, processing, and transporting 
fuels to the site of combustion. The associated emissions are referred 
to as upstream emissions.
    For this SNOPR, the analysis of power sector emissions uses 
marginal emissions factors that were derived from data in AEO 2015. The 
methodology is described in chapter 13 and chapter 15 of the SNOPR TSD.
    Combustion emissions of CH4 and N2O are 
estimated using emissions intensity factors published by the EPA: GHG 
Emissions Factors Hub.\163\ The FFC upstream emissions are estimated 
based on the methodology described in chapter 13 of the SNOPR TSD. The 
upstream emissions include both emissions from fuel combustion during 
extraction, processing, and transportation of fuel, and ``fugitive'' 
emissions (direct leakage to the atmosphere) of CH4 and 
CO2.
---------------------------------------------------------------------------

    \163\ Available at www.epa.gov/climateleadership/center-corporate-climate-leadership-ghg-emission-factors-hub.
---------------------------------------------------------------------------

    AGL Resources stated that DOE overestimated the upstream benefits 
of the proposed rule by using much higher fugitive methane emissions 
values than are typically used in Federal estimates. AGL Resources 
stated that EPA's 2013 U.S. Greenhouse Gas Inventory and recent 
research by NOAA and the University of Colorado Boulder report methane 
leakage rates of around 1 percent. (AGL Resources, No. 0039 at p. 3; 
AGL Resources, No. 0112 at p. 6) In response, DOE uses an estimate of 
upstream emissions of methane based on Burnham et al. (2012) \164\ 
which, if it were translated to a leakage rate, would be equivalent to 
1.3 percent, close to the value cited by AGL Resources. Actual leakage 
rates of methane at various stages of the production process are highly 
variable and the subject of ongoing research. DOE reviews and updates 
the FFC factors annually, and as part of this review, data such as 
methane leakage rates are updated according to the current scientific 
consensus.
---------------------------------------------------------------------------

    \164\ Burnham, A., J. Han, C.E. Clark, M. Wang, J.B. Dunn, and 
I. Palou-Rivera. 2012. ``Life-Cycle Greenhouse Gas Emissions of 
Shale Gas, Natural Gas, Coal, and Petroleum.'' Environmental Science 
& Technology 46 (2): 619-27.
---------------------------------------------------------------------------

    APPA and EEI stated that DOE only considered the upstream emissions 
due to electricity generation, ignoring the upstream emissions due to 
the production of natural gas, propane, or fuel oil. (APPA, No. 0149 at 
p. 4; EEI, No. 0160 at pp. 8-9; EEI, No. 0179 at pp. 2-3) Contrary to 
what these commenters contend, DOE did calculate the upstream emissions 
for natural gas, LPG, and fuel oil, which includes the upstream 
emissions from fuel production. The methodology is further explained in 
chapter 13 of the SNOPR TSD.
    The emissions intensity factors are expressed in terms of physical 
units per MWh or MMBtu of site energy savings. Total emissions 
reductions (or increases) are estimated using the energy savings (or 
the increase in electricity use) calculated in the national impact 
analysis. Because product switching is accounted for in the NIA, the 
emissions analysis accounts for the impacts of product switching on 
emissions.
    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 gas by the gas's global warming potential 
(GWP) over a 100-year time horizon. Based on the Fifth Assessment 
Report of

[[Page 65804]]

the Intergovernmental Panel on Climate Change,\165\ DOE used GWP values 
of 28 for CH4 and 265 for N2O.
---------------------------------------------------------------------------

    \165\ IPCC (2013), Climate Change 2013: The Physical Science 
Basis. Contribution of Working Group I to the Fifth Assessment 
Report of the Intergovernmental Panel on Climate Change, Stocker, 
T.F., D. Qin, G.-K. Plattner, M. Tignor, S.K. Allen, J. Boschung, A. 
Nauels, Y. Xia, V. Bex and P.M. Midgley (eds.), Cambridge University 
Press, Cambridge, United Kingdom and New York, NY, USA. Chapter 8.
---------------------------------------------------------------------------

    Because the on-site operation of NWGFs and MHGFs requires 
combustion of fossil fuels and results in emissions of CO2, 
NOX, and SO2 at the sites where these appliances 
are used, DOE also accounted for the reduction in these site emissions 
and the associated upstream emissions due to potential standards. Site 
emissions of these gases were estimated using emissions intensity 
factors from an EPA publication.\166\
---------------------------------------------------------------------------

    \166\ U.S. Environmental Protection Agency, Compilation of Air 
Pollutant Emission Factors, AP-42, Fifth Edition, Volume I: 
Stationary Point and Area Sources (Chapter 1) (Available at 
www.epa.gov/ttn/chief/ap42/index.html).
---------------------------------------------------------------------------

    Rheem commented that low-NOX furnace designs have been 
available for more than 25 years. As a result, Rheem argued that DOE 
should include the sales of low-NOX furnaces in the 
emissions analysis, and emission savings should be reduced 
proportionally. (Rheem, No. 0142 at p. 13) For the SNOPR, DOE accounted 
for low-NOX furnaces. For the fraction of the market 
projected to install residential furnaces with low-NOX 
burners, DOE used a lower, technology specific emission factor.\167\
---------------------------------------------------------------------------

    \167\ Environmental Protection Agency, Emission Factor Details 
(Available at: https://cfpub.epa.gov/webfire/index.cfm?action=fire.showfactor&factorid=25416) (Last accessed 
April 10, 2016).
---------------------------------------------------------------------------

    The AEO incorporates the projected impacts of existing air quality 
regulations on emissions. AEO 2015 generally represents current 
legislation and environmental regulations, including recent government 
actions, for which implementing regulations were available as of 
October 31, 2014. DOE's estimation of impacts accounts for the presence 
of the emissions control programs discussed in the following 
paragraphs.
    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). CAIR 
created an allowance-based trading program that operates along with the 
Title IV program. In 2008, CAIR was remanded to EPA by the U.S. Court 
of Appeals for the District of Columbia Circuit, but it remained in 
effect.\168\ 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,\169\ and the court ordered EPA to continue administering CAIR. 
On April 29, 2014, the U.S. Supreme Court reversed the judgment of the 
D.C. Circuit and remanded the case for further proceedings consistent 
with the Supreme Court's opinion.\170\ On July 28, 2015, the D.C. 
Circuit issued its opinion regarding CSAPR on remand from the Supreme 
Court. The court largely upheld CSAPR, but remanded to EPA without 
vacatur certain States' emission budgets for reconsideration.\171\ On 
October 23, 2014, the D.C. Circuit lifted the stay of CSAPR.\172\ 
Pursuant to this action, CSAPR went into effect (and CAIR ceased to be 
in effect) as of January 1, 2015.
---------------------------------------------------------------------------

    \168\ 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).
    \169\ 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 (U.S. June 24, 2013) (No. 12-1182).
    \170\ See EPA v. EME Homer City Generation, 134 S. Ct. 1584, 
1610 (U.S. 2014). 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.
    \171\ EME Homer City Generation, LP v. EPA, 795 F.3d 118 (D.C. 
Cir. 2015).
    \172\ See EME Homer City Generation, LP v. EPA, Order (D.C. Cir. 
filed October 23, 2014) (No. 11-1302).
---------------------------------------------------------------------------

    EIA was not able to incorporate CSAPR into AEO 2015, so it assumes 
implementation of CAIR. Although DOE's analysis used emissions factors 
that assume that CAIR, not CSAPR, is the regulation in force, the 
difference between CAIR and CSAPR is not significant for the purpose of 
DOE's analysis of emissions impacts from energy conservation standards 
and does not affect the outcome of the cost-benefit analysis. The 
attainment of emissions caps is typically flexible among EGUs and is 
enforced through the use of emissions allowances and tradable permits. 
Under existing EPA regulations, any excess SO2 emissions 
allowances resulting from the lower electricity demand caused by the 
adoption of an efficiency standard could be used to permit offsetting 
increases in SO2 emissions by any regulated EGU. In past 
rulemakings, DOE recognized that there was uncertainty about the 
effects of efficiency standards on SO2 emissions covered by 
the existing cap-and-trade system, but it concluded that negligible 
reductions in power sector SO2 emissions would occur as a 
result of standards.
    Beginning in 2016, however, SO2 emissions will fall as a 
result of the Mercury and Air Toxics Standards (MATS) for power 
plants.\173\ 77 FR 9304 (Feb. 16, 2012). In the MATS final 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 
2015 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 
unlikely that excess SO2 emissions allowances resulting from 
the lower electricity demand would be needed or used to permit 
offsetting increases in SO2 emissions by any regulated EGU. 
Therefore, DOE believes that energy conservation standards that 
decrease electricity generation will generally reduce SO2 
emissions in 2016 and beyond.
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    \173\ DOE notes that on June 29, 2015, the U.S. Supreme Court 
ruled that the EPA erred when the agency concluded that cost did not 
need to be considered in the finding that regulation of hazardous 
air pollutants from coal- and oil-fired electric utility steam 
generating units (EGUs) is appropriate and necessary under section 
112 of the Clean Air Act (CAA). Michigan v. EPA, 135 S. Ct. 2699 
(2015). The Supreme Court did not vacate the MATS rule, and DOE has 
tentatively determined that the Court's decision on the MATS rule 
does not change the assumptions regarding the impact of energy 
conservation standards on SO2 emissions. Further, the 
Court's decision does not change the impact of the energy 
conservation standards on mercury emissions. The EPA, in response to 
the U.S. Supreme Court's direction, has now considered cost in 
evaluating whether it is appropriate and necessary to regulate coal- 
and oil-fired EGUs under the CAA. EPA concluded that a consideration 
of cost does not alter the EPA's previous determination that 
regulation of hazardous air pollutants, including mercury, from 
coal- and oil-fired EGUs is appropriate and necessary. 79 FR 24420 
(April 25, 2016).
---------------------------------------------------------------------------

    CAIR established a cap on NOX emissions in 28 eastern 
States and the

[[Page 65805]]

District of Columbia.\174\ Energy conservation standards are expected 
to have little effect on NOX emissions in those States 
covered by CAIR because excess NOX emissions allowances 
resulting from the lower electricity demand could be used to permit 
offsetting increases in NOX emissions from other facilities. 
However, standards would be expected to impact NOX emissions 
in the States not affected by the caps, so DOE estimated NOX 
emissions impacts from the standards considered in this SNOPR for these 
States.
---------------------------------------------------------------------------

    \174\ CSAPR also applies to NOX and it supersedes 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 emissions is slight.
---------------------------------------------------------------------------

    The MATS limit mercury emissions from power plants, but they do not 
include emissions caps, and as such, DOE's energy conservation 
standards would likely impact Hg emissions. DOE estimated mercury 
emissions impacts using emissions factors based on AEO 2015, which 
incorporates the MATS.
    EEI stated that because the AEO only addresses final environmental 
standards, it often makes predictions about the future composition of 
the electric generating fleet and the related emissions that are 
unlikely to be borne out by actual experience. EEI commented that the 
EPA MATS rule and the Clean Power Plan are estimated to significantly 
reduce coal-based electricity generation, thus reducing emissions from 
the power sector after 2020. (EEI, No. 0160, pp. 4-5, 8; EEI, No. 0179 
at pp. 2-3) EEI stated that because of the Clean Power Plan, there will 
be no physical reduction of greenhouse gas emissions from electric 
generation as a result of energy conservation standards, as DOE has 
stated with other emissions that have upstream mass-based caps or cap-
and-trade systems. (EEI, No. 0189-1 at p. 1) Because AEO 2015 does not 
account for the Clean Power Plan, EEI requested that DOE consider 
information found in a recent EPRI/NRDC report that provides updated 
modeling information reflecting the current and future electric grid, 
which incorporates the rapid decreases in CO2, 
SO2, and NOX emissions occurring as a result of 
various Federal and State policies.\175\ (EEI, No. 0179 at pp. 2-3)
---------------------------------------------------------------------------

    \175\ EPRI/NRDC, Environmental Assessment of a Full Electric 
Transportation Portfolio, Volume 1: Background, Methodology, and 
Best Practices (Sept. 17, 2015) (EPRI/NRDC Vol. 1) (Available at: 
www.epri.com/abstracts/Pages/ProductAbstract.aspx?productId=00000000302006875); see also, EPRI/
NRDC, Environmental Assessment of a Full Electric Transportation 
Portfolio, Volume 2: Greenhouse Gas Emissions (Sept. 17, 2015) 
(EPRI/NRDC Vol. 2) (Available at: www.epri.com/abstracts/Pages/ProductAbstract.aspx?productId=00000000302006876); see also, EPRI/
NRDC, Environmental Assessment of a Full Electric Transportation 
Portfolio, Volume 3: Air Quality Impacts (Sept. 17, 2015) (EPRI/NRDC 
Vol. 3) (Available at: www.epri.com/abstracts/Pages/ProductAbstract.aspx?productId=00000000302006880).
---------------------------------------------------------------------------

    In response, DOE notes that AEO 2015 incorporates the MATS rule, 
but not the Clean Power Plan, which was issued well after AEO 2015 was 
finalized. At the time the SNOPR analysis was conducted, AEO 2015 was 
the only source that provides a comprehensive projection of emissions 
that allows derivation of marginal emissions factors. DOE acknowledges 
that if the Clean Power Plan is fully implemented following the court 
challenges, projected emissions of CO2 would be below those 
projected in AEO 2015. In the context of the current rulemaking, 
however, accounting for the Clean Power Plan is of only slight 
relevance because DOE is not projecting any reduction in electricity 
generation to result from the proposed standards. DOE intends to use 
AEO 2016, which is expected to incorporate the Clean Power Plan, for 
the final rule.
    EEI questioned DOE's conclusion that some emissions will increase 
due to higher electricity use. EEI stated that based on current trends 
in power plant retirements, additions of new zero-emission electricity 
generation, and reductions in the use of electricity in nearly all end-
use applications, emissions from electric generation will decrease, not 
increase. (EEI, No. 0160 at pp. 8-9; EEI, No. 0179 at pp. 2-3) In 
response, it may be true that on a national level, emissions from 
electricity generation will decrease. The AEO 2015 projections include 
changes in the composition and emissions intensity of power plants 
across the Nation. The analysis for this rulemaking considers only the 
change in emissions due to amended or new furnace energy conservation 
standards, as compared to the AEO 2015 projections.\176\
---------------------------------------------------------------------------

    \176\ Under the Clean Power Plan, emissions of CO2 
electricity generation would be significantly reduced. If the Clean 
Power Plan is accounted for, DOE expects that the increase in 
emissions from electricity generation that is projected to result 
from the proposed standards (due to fuel switching) would be less 
than projected for this SNOPR. DOE intends to use AEO 2016, which is 
expected to incorporate the Clean Power Plan, for the final rule.
---------------------------------------------------------------------------

L. Monetizing Carbon Dioxide and Other Emissions Impacts

    As part of the development of this supplemental 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. To make this calculation analogous to the 
calculation of the NPV of consumer benefit, DOE considered the reduced 
emissions expected to result over the lifetime of products shipped in 
the forecast period for each TSL. This section summarizes the basis for 
the monetary values used for CO2 and NOX 
emissions and presents the values considered in this SNOPR.
    For this SNOPR, DOE is relying on a set of values for the social 
cost of carbon (SCC) that was developed by an interagency process. A 
summary of the basis for those values is provided in the following 
subsection, and a more detailed description of the methodologies used 
is provided in appendices 14A and 14B of the SNOPR 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) climate-change-related 
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 
CO2. A domestic SCC value is meant to reflect the value of 
damages in the United States resulting from a unit change in 
CO2 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 the many uncertainties involved 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 these SCC 
estimates, technical experts from numerous agencies met on a regular 
basis to consider public comments, explore the

[[Page 65806]]

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 
CO2 emissions, the analyst faces a number of challenges. A 
report from the National Research Council points out that any 
assessment will suffer from uncertainty, speculation, and lack of 
information about: (1) Future emissions of GHGs; (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.\177\ 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.
---------------------------------------------------------------------------

    \177\ National Research Council, Hidden Costs of Energy: 
Unpriced Consequences of Energy Production and Use, National 
Academies Press: Washington, DC (2009).
---------------------------------------------------------------------------

    Despite the limits of both quantification and monetization, SCC 
estimates can be useful in estimating the social benefits of reducing 
CO2 emissions. Although any numerical estimate of the 
benefits of reducing carbon dioxide emissions is subject to some 
uncertainty, that does not relieve DOE of its obligation to attempt to 
factor those benefits into its cost-benefit analysis. Moreover, the 
interagency group's SCC estimates are well supported by the existing 
scientific and economic literature. As a result, DOE has relied on the 
interagency group's SCC estimates in quantifying the social benefits of 
reducing CO2 emissions. Specifically, DOE estimated 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 
values appropriate for that year. The NPV 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 current SCC values reflect 
the interagency group's best assessment, based on current data, of the 
societal effect of CO2 emissions. 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 from 
reducing carbon dioxide emissions. To ensure consistency in how 
benefits are evaluated across Federal 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 values: Global SCC estimates for 2007 (in 2006$) 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 estimate for use in regulatory analysis. 
The results of this preliminary effort were presented in several 
proposed and final rules issued by DOE and other agencies.
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. 
Specially, 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 the 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, was 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 7 percent to 23 percent should be used to adjust the global SCC to 
calculate domestic effects,\178\ although preference is given to 
consideration of the global benefits of reducing CO2 
emissions. Table IV.20 presents the values in the 2010 interagency 
group report,\179\ which is reproduced in appendix 14A of the SNOPR 
TSD.
---------------------------------------------------------------------------

    \178\ 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.
    \179\ Social Cost of Carbon for Regulatory Impact Analysis Under 
Executive Order 12866, Interagency Working Group on Social Cost of 
Carbon, United States Government (February 2010) (Available at: 
www.whitehouse.gov/sites/default/files/omb/inforeg/for-agencies/Social-Cost-of-Carbon-for-RIA.pdf).

[[Page 65807]]



                     Table IV.20--Annual SCC Values From 2010 Interagency Report, 2010-2050
                                           [2007$ 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 this SNOPR were generated using the most 
recent versions of the three integrated assessment models that have 
been published in the peer-reviewed literature, as described in the 
2013 update from the interagency working group (revised July 
2015).\180\ Table IV.21 shows the updated sets of SCC estimates from 
the latest interagency update (i.e., the 2013 update, as revised in 
July 2015) in 5-year increments from 2010 to 2050. The full set of 
annual SCC values between 2010 and 2050 is reported in the 2013 
interagency update (as revised in July 2015), which is reproduced in 
appendix 14B of the SNOPR TSD. The central value that emerges is the 
average SCC across models at the 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.
---------------------------------------------------------------------------

    \180\ 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 July 2015) (Available at: www.whitehouse.gov/sites/default/files/omb/inforeg/scc-tsd-final-july-2015.pdf).

            Table IV.21--Annual SCC Values From 2013 Interagency Update (Revised July 2015), 2010-2050
                                           [2007$ per metric ton CO2]
----------------------------------------------------------------------------------------------------------------
                                                                           Discount rate
                                                 ---------------------------------------------------------------
                                                        5%              3%             2.5%             3%
                      Year                       ---------------------------------------------------------------
                                                                                                       95th
                                                      Average         Average         Average       percentile
----------------------------------------------------------------------------------------------------------------
2010............................................              10              31              50              86
2015............................................              11              36              56             105
2020............................................              12              42              62             123
2025............................................              14              46              68             138
2030............................................              16              50              73             152
2035............................................              18              55              78             168
2040............................................              21              60              84             183
2045............................................              23              64              89             197
2050............................................              26              69              95             212
----------------------------------------------------------------------------------------------------------------

    It is important to recognize that a number of key uncertainties 
remain, and that current SCC estimates should be treated as provisional 
and revisable because 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 mentioned previously points out that there is 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.\181\
---------------------------------------------------------------------------

    \181\ Although uncertainties remain, the revised estimates used 
for this SNOPR are based on the best available scientific 
information on the impacts of climate change. The current estimates 
of the SCC have been developed over many years, and with input from 
the public. In November 2013, OMB announced a new opportunity for 
public comment on the interagency technical support document 
underlying the revised SCC estimates. 78 FR 70586 (Nov. 26, 2013).
---------------------------------------------------------------------------

    In summary, in considering the potential global benefits resulting 
from reduced CO2 emissions, DOE used the values from the 
2013 interagency report (revised July 2015), adjusted to 2015$ using 
the implicit price deflator for gross domestic product (GDP) from the 
Bureau of Economic Analysis. For each of the four sets of SCC cases 
specified, the values for emissions in 2015 were $12.4, $40.6, $63.2, 
and $118 per metric ton avoided (values expressed in 2015$). DOE 
derived values after 2050 based on the trend in 2010-2050 in each of 
the four cases in the interagency update.
    DOE multiplied the CO2 emissions reduction estimated for 
each year by the

[[Page 65808]]

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.
    DOE received several comments on the development of and the use of 
the SCC values in the March 2015 NOPR and the September 2015 NODA 
analyses. A group of trade associations led by the U.S. Chamber of 
Commerce objected to DOE's continued use of the SCC in the cost-benefit 
analysis and stated that the SCC calculation should not be used in any 
rulemaking until it undergoes a more rigorous notice, review, and 
comment process. (U.S. Chamber of Commerce, No. 0078 at p. 41) AHRI 
stated that the interagency process was not transparent and that the 
estimates were not subjected to peer review. (AHRI, No. 0159 at p. 24) 
AHRI and the Cato Institute criticized DOE's use of SCC estimates on 
the basis that they are subject to considerable uncertainty. AHRI also 
stated that the interagency SCC analysis relied on arbitrary damages 
functions. The Cato Institute criticized several aspects of the 
determination of the SCC values by the IWG as being discordant with the 
best climate science, highly sensitive to input parameters and scope of 
the models, and not reflective of climate change impacts. The Cato 
Institute stated that until the integrated assessment models (IAMs) are 
made consistent with mainstream climate science, the SCC should be 
barred from use in this and all other Federal rulemakings. (AHRI, No. 
0159 at p. 24; Cato Institute, No. 0081 at pp. 1-4, 15-16) HARDI 
questioned the use of the SCC as part of the economic analysis, stating 
that the science and rationale behind this metric have been questioned 
at length in this and previous rulemakings. (HARDI, No. 0131 at p. 2)
    In contrast, the Joint Advocates stated that only a partial 
accounting of the costs of climate change (those most easily monetized) 
can be provided, which inevitably involves incorporating elements of 
uncertainty. The Joint Advocates commented that accounting for the 
economic harms caused by climate change is a critical component of 
sound benefit-cost analyses of regulations that directly or indirectly 
limit greenhouse gases. The Joint Advocates stated that several 
Executive Orders direct Federal agencies to consider non-economic costs 
and benefits, such as environmental and public health impacts. (Joint 
Advocates, No. 0126 at pp. 2-3) Furthermore, the Joint Advocates argued 
that without an SCC estimate, regulators would by default be using a 
value of zero for the benefits of reducing carbon pollution, thereby 
implying that carbon pollution has no costs. The Joint Advocates stated 
that it would be arbitrary for a Federal agency to weigh the societal 
benefits and costs of a rule with significant carbon pollution effects 
but to assign no value at all to the considerable benefits of reducing 
carbon pollution. (Joint Advocates, No. 0126 at p. 3)
    The Joint Advocates stated that assessment and use of the IAMs in 
developing the SCC values has been transparent. The Joint Advocates 
further noted that the Government Accountability Office (GAO) found 
that the IWG's processes and methods used consensus-based decision 
making, relied on existing academic literature and models, and took 
steps to disclose limitations and incorporate new information. The 
Joint Advocates stated that repeated opportunities for public comment 
demonstrate that the IWG's SCC estimates were developed and are being 
used transparently. (Joint Advocates, No. 0126 at p. 4) The Joint 
Advocates stated that (1) the IAMs used reflect the best available, 
peer-reviewed science to quantify the benefits of carbon emission 
reductions; (2) uncertainty is not a valid reason for rejecting the SCC 
analysis, and (3) the IWG was rigorous in addressing uncertainty 
inherent in estimating the economic cost of pollution. (Joint 
Advocates, No. 0126 at pp. 5, 17-18, 18-19) The Joint Advocates added 
that the increase in the SCC estimate in the 2013 update reflects the 
growing scientific and economic research on the risks and costs of 
climate change, but is still very likely an underestimate of the SCC. 
(Joint Advocates, No. 0126 at p. 4) The Joint Advocates stated that 
recent research suggests that CO2 fertilization is 
overestimated and may be cancelled out by negative impacts on 
agriculture. (Joint Advocates, No. 0126 at p. 16)
    In response to the comments on the SCC, in conducting the 
interagency process that developed the SCC values, 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. Key uncertainties and model 
differences transparently and consistently inform the range of SCC 
estimates. These uncertainties and model differences are discussed in 
the IWG's reports, which are reproduced in appendices 14A and 14B of 
the SNOPR TSD, as are the major assumptions. Specifically, 
uncertainties in the assumptions regarding climate sensitivity, as well 
as other model inputs such as economic growth and emissions 
trajectories, are discussed and the reasons for the specific input 
assumptions chosen are explained. However, the three integrated 
assessment models used to estimate the SCC are frequently cited in the 
peer-reviewed literature and were used in the last assessment of the 
IPCC. In addition, new versions of the models that were used in 2013 to 
estimate revised SCC values were published in the peer-reviewed 
literature (see appendix 14B of the SNOPR TSD for discussion). Although 
uncertainties remain, the revised estimates that were issued in 
November 2013 are based on the best available scientific information on 
the impacts of climate change. The current estimates of the SCC have 
been developed over many years, using the best science available, and 
with input from the public. DOE notes that not using SCC estimates 
because of uncertainty would be tantamount to assuming that the 
benefits of reduced carbon emissions are zero, which is inappropriate. 
Furthermore, the commenters have not offered alternative estimates of 
the SCC that they believe are more accurate.
    As noted previously, in November 2013, OMB announced a new 
opportunity for public comment on the interagency technical support 
document underlying the revised SCC estimates. 78 FR 70586 (Nov. 26, 
2013). In July 2015, OMB published a detailed summary and formal 
response to the many comments that were received. DOE stands ready to 
work with OMB and the other members of the IWG on further review and 
revision of the SCC estimates as appropriate.\182\
---------------------------------------------------------------------------

    \182\ See https://www.whitehouse.gov/blog/2015/07/02/estimating-benefits-carbon-dioxide-emissions-reductions. OMB also stated its 
intention to seek independent expert advice on opportunities to 
improve the estimates, including many of the approaches suggested by 
commenters.
---------------------------------------------------------------------------

    AGA stated that DOE overstated the benefit of CO2 
reductions by reporting estimates from a global, not national, 
perspective. AGA and Laclede argued that national benefits from 
reducing CO2 would be a fraction of the global SCC value. In 
addition, AGA and AHRI stated that while global benefits may be 
informative, they should be excluded from DOE's calculation of net 
benefits. (AGA, No. 0118 at pp. 31-32; AHRI, No. 0159 at p. 176; 
Laclede, No. 0141 at p. 22) NPGA commented that the value of 
CO2 emission reductions is based on a global value, whereas 
estimated operating savings of the proposed standards are calculated in 
terms of U.S. domestic consumer savings. NPGA

[[Page 65809]]

expressed concern that this unequal comparison overestimates the 
economic value of potential CO2 emission reductions. (NPGA, 
No. 0130 at p. 6) On the other hand, the Joint Advocates stated that a 
global SCC value must be used to design the economically efficient 
policies necessary to address climate change. The Joint Advocates 
stated that because greenhouse gases do not stay within geographic 
borders, CO2 emitted by the United States not only creates 
domestic harms, but also imposes additional and large externalities on 
the rest of the world, including disproportionate harms to some of the 
least-developed nations. The Joint Advocates stated that if all 
countries set their greenhouse gas emission levels based on only their 
domestic costs and benefits, ignoring the large global externalities, 
the collective result would be substantially sub-optimal climate 
protections and significantly increased risks of severe harms to all 
nations, including to the United States. (Joint Advocates, No. 0126 at 
pp. 6-7)
    In response, DOE's analysis estimates both global and domestic 
benefits of CO2 emissions reductions. Following the 
recommendation of the IWG, DOE places more focus on a global measure of 
SCC. As discussed in appendix 14A of the SNOPR TSD, the climate change 
problem is highly unusual in at least two respects. First, it involves 
a global externality: Emissions of most greenhouse gases contribute to 
damages around the world even when they are emitted in the United 
States. Consequently, to address the global nature of the problem, the 
SCC must incorporate the full (global) damages caused by GHG emissions. 
The other factors DOE considers (such as operating savings) do not have 
such a global externality, and thus it is not necessary or appropriate 
to consider those factors globally. Second, climate change presents a 
problem that the United States alone cannot solve. Even if the United 
States were to reduce its greenhouse gas emissions to zero, that step 
would be far from enough to avoid substantial climate change. Other 
countries would also need to take action to reduce emissions if 
significant changes in the global climate are to be avoided. 
Emphasizing the need for a global solution to a global problem, the 
United States has been actively involved in seeking international 
agreements to reduce emissions and in encouraging other nations, 
including emerging major economies, to take significant steps to reduce 
emissions. When these considerations are taken as a whole, the 
interagency group concluded that a global measure of the benefits from 
reducing U.S. emissions is preferable. DOE's approach is not in 
contradiction of the requirement to weigh the need for national energy 
conservation, as one of the main reasons for national energy 
conservation is to contribute to efforts to mitigate the effects of 
global climate change. DOE notes that the use of domestic rather than 
global SCC estimates would not affect DOE's selection of proposed 
standards for NWGFs and MHGFs.
    AHRI criticized DOE's inclusion of CO2 emissions impacts 
over a time period that it asserts greatly exceeds that used to measure 
the economic costs of the proposed standards. (AHRI, No. 0159 at pp. 
16-18) DOE disagrees. For the analysis of all national costs and 
benefits of standards, DOE considers the lifetime impacts of products 
shipped in the period 2022-2051. With respect to energy cost savings, 
impacts continue until all of the equipment shipped in the analysis 
period is retired, which could occur well after 2051. With respect to 
the benefits of CO2 emissions reductions, DOE likewise 
evaluates the impacts for products shipped during the analysis period 
and used until they are retired. Because CO2 emissions in a 
given year (e.g., 2050) have a long residence time in the atmosphere, 
they contribute to radiative forcing, which affects global climate, for 
a long time. Accordingly, emissions reductions occurring in a given 
year in which products are operated (e.g., 2050), will have 
environmental benefits not only in that year, but also in many years to 
come. The SCC estimates developed by the IWG are meant to capture these 
benefits extending over many years by representing the full discounted 
value (using an appropriate range of discount rates) of emissions 
reductions occurring in a given year. Thus, in the case of both 
consumer economic costs and benefits and the value of CO2 
emissions reductions, DOE is accounting for the lifetime impacts of 
products shipped in the same analysis period.
    Laclede stated that market prices best reflect the cost of 
CO2 reduction benefits to U.S. residents, which are around 
or lower than DOE's lowest SCC value. (Laclede, No. 0141 at p. 22) In 
response, DOE notes that market prices are simply a reflection of the 
conditions in specific emissions markets in which emissions caps have 
been set. Neither the caps nor the resulting prices of traded emissions 
are intended to reflect the full range of domestic and global impacts 
from anthropogenic climate change over the appropriate time scales. 
Consequently, DOE is maintaining its current approach.
2. Social Cost of Other Air Pollutants
    As noted previously, DOE has estimated how the considered energy 
conservation standards would reduce site NOX emissions 
nationwide and decrease power sector NOX emissions in those 
22 States not affected by the CAIR.
    DOE estimated the monetized value of NOX emissions 
reductions from electricity generation using benefit per ton estimates 
from the Regulatory Impact Analysis for the Clean Power Plan Final 
Rule, published in August 2015 by EPA's Office of Air Quality Planning 
and Standards.\183\ The report includes high and low values for 
NOX (as PM2.5) for 2020, 2025, and 2030 using 
discount rates of 3 percent and 7 percent; these values are presented 
in appendix 14C of the SNOPR TSD. DOE primarily relied on the low 
estimates to be conservative.\184\ The national average low values for 
2020 (in 2015$) are $3,187/ton at a 3-percent discount rate and $2,869/
ton at a 7-percent discount rate. DOE developed values specific to the 
end-use category for NWGFs and MHGFs using a method described in 
appendix 14C of the SNOPR TSD. For this analysis DOE used linear 
interpolation to define values for the years between 2020 and 2025 and 
between 2025 and 2030; for years beyond 2030 the value is held 
constant.
---------------------------------------------------------------------------

    \183\ Available at www.epa.gov/cleanpowerplan/clean-power-plan-final-rule-regulatory-impact-analysis. See Tables 4A-3, 4A-4, and 
4A-5 in the report.
    \184\ For the monetized NOX benefits associated with 
PM2.5, the related benefits are primarily based on an 
estimate of premature mortality derived from the ACS study (Krewski 
et al. 2009), which is the lower of the two EPA central tendencies. 
Using the lower value is more conservative when making the policy 
decision concerning whether a particular standard level is 
economically justified. If the benefit-per-ton estimates were based 
on the Six Cities study (Lepuele et al. 2012), the values would be 
nearly two-and-a-half times larger. (See chapter 14 of the SNOPR TSD 
for citations for the studies mentioned above.)
---------------------------------------------------------------------------

    DOE estimated the monetized value of NOX emissions 
reductions from gas furnaces using benefit-per-ton estimates from the 
EPA's ``Technical Support Document Estimating the Benefit per Ton of 
Reducing PM-2.5 Precursors from 17 Sectors.'' \185\ Although none of 
the sectors refers specifically to residential and commercial 
buildings, DOE believes that the sector called ``Area sources'' would 
be a reasonable proxy for residential and commercial buildings. ``Area 
sources'' represents all emission sources for which States do not have 
exact (point) locations in their

[[Page 65810]]

emissions inventories. Since exact locations would tend to be 
associated with larger sources, ``area sources'' would be fairly 
representative of small dispersed sources like homes and businesses. 
The EPA Technical Support Document provides high and low estimates for 
2016, 2020, 2025, and 2030 at 3-percent and 7-percent discount rates. 
As with the benefit-per-ton estimates for NOX emissions 
reductions from electricity generation, DOE primarily relied on the low 
estimates to be conservative.
---------------------------------------------------------------------------

    \185\ www.epa.gov/sites/production/files/2014-10/documents/sourceapportionmentbpttsd.pdf.
---------------------------------------------------------------------------

    DOE multiplied the emissions reduction (metric tons) in each year 
by the associated $/metric ton values, and then discounted each series 
using discount rates of 3 percent and 7 percent as appropriate. DOE 
will continue to evaluate the monetization of avoided NOX 
emissions and will make any appropriate updates for the final rule.
    AGA and AGL Resources stated that DOE failed to monetize the 
impacts of increased Hg, SO2, and N2O emissions 
as it did for the reductions in CO2 and NOX 
emissions. (AGA, No. 0118 at p. 30; AGL Resources, No. 0112 at p. 6) 
DOE is still evaluating the appropriate monetization of SO2, 
N2O, and Hg emissions in energy conservation standards 
rulemakings. DOE notes that it has also not monetized the impacts of 
the projected decrease in methane emissions, but this benefit would far 
outweigh the costs of increased SO2, N2O, and Hg 
emissions.\186\
---------------------------------------------------------------------------

    \186\ The total estimated reduction in methane emissions from 
the proposed AFUE standards is 2.8 billion tons, while the total 
estimated increase is 77 thousand tons for SO2 emissions, 
1.07 thousand tons for N2O emissions, and 0.3 tons for Hg 
emissions (see Table V.30).
---------------------------------------------------------------------------

M. Utility Impact Analysis

    The utility impact analysis estimates several effects on the 
electric power generation industry that would result from the adoption 
of new or amended energy conservation standards. The utility impact 
analysis estimates the changes in installed electrical capacity and 
generation that would result for each TSL. The analysis is based on 
published output from the NEMS associated with AEO 2015. NEMS, which is 
a public domain, multi-sectored, partial equilibrium model of the U.S. 
energy sector, produces 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 published side cases to estimate the 
marginal impacts of reduced energy demand on the utility sector. These 
marginal factors are estimated based on the changes to electricity 
sector generation, installed capacity, fuel consumption, and emissions 
in the AEO Reference case and various side cases. Details of the 
methodology are provided in the appendices to chapters 13 and 15 of the 
SNOPR TSD.
    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.
    EEI stated that DOE should consider the impacts of the Clean Power 
Plan when assessing impacts on the utility sector. (EEI, No. 0160 at 
pp. 4-5) As discussed above, AEO 2015 does not incorporate the Clean 
Power Plan, and at the time the SNOPR analysis was conducted, AEO 2015 
was the only source that provides data that allows derivation of 
coefficients that DOE uses in the utility impact analysis. DOE intends 
to use AEO 2016, which will incorporate the Clean Power Plan, for the 
final rule.
    Several gas utilities and gas utility associations stated that DOE 
should analyze the impact of the proposed rule on natural gas 
utilities, especially because of the potential for switching away from 
natural gas to other energy sources. (AGL Resources, No. 0112 at pp. 7-
8; AGA, No. 0118 at pp. 6, 42; APGA, No. 0106 at p. 12; CGS, No. 0098 
at p. 1; Vectren, No. 0111 at p. 1, 6; Laclede, No. 0141 at p. 36) AGA 
stated that the Process Rule requires DOE to analyze the impact of 
standards on gas utilities. (AGA, No. 0118 at pp. 41-42) AGA, APGA, 
CGS, and Vectren stated that DOE should also consider the impact on 
natural gas local distribution companies and retail natural gas 
customers, who may see increased natural gas prices due to fuel 
switching. (AGA, No. 0118 at pp. 6, 42; APGA, No. 0106 at p. 16; CGS, 
No. 0098 at p. 1; Vectren, No. 0111 at p. 1, 6)
    In response to the comments, DOE conducted a preliminary evaluation 
of the potential impact of the currently-proposed standards on gas 
utilities. DOE found that such evaluation is complicated by the upward 
trend in the use of natural gas revenue decoupling.\187\ With revenue 
decoupling regulation, the revenues of regulated natural gas utilities 
are essentially fixed by the public utility commission. If a utility's 
actual revenues are above the fixed level due to a larger volume of 
sales than expected, customers receive a credit from the utility for 
the difference; if actual revenues are below the fixed level due to a 
smaller volume of sales than expected, the utility issues a customer 
surcharge for the difference. To this end, a utility's revenues are 
decoupled from its volume of sales because its revenues are fixed as 
sales fluctuate. With revenue decoupling, a decrease in gas sales due 
to energy conservation standards would not necessarily have a negative 
impact on gas utilities. DOE welcomes comments on how energy 
conservation standards may affect gas utilities in the context of 
growing use of revenue decoupling.
---------------------------------------------------------------------------

    \187\ Natural Gas Revenue Decoupling Regulation: Impacts on 
Industry (July 2010) (Available at: http://www1.eere.energy.gov/manufacturing/states/pdfs/nat-gas-revenue-decoupling-final.pdf).
---------------------------------------------------------------------------

    With respect to retail natural gas prices, DOE finds it implausible 
that a decrease in gas consumption (from use of more-efficient furnaces 
and switching away from gas furnaces) would increase gas prices. As 
discussed in section IV.F.4 of this SNOPR, the more likely effect would 
be a decrease in prices. DOE recognizes that switching away from gas on 
a very large scale would mean that fixed costs would be distributed 
among a smaller customer base, thereby putting upward pressure on 
prices, but with the modest degree of switching projected to result 
from the currently-proposed standards, such an outcome is highly 
unlikely.
    NPGA stated that mass switching away from propane would severely 
impact many retail propane marketers, over 95 percent of whom are small 
businesses. (NPGA, No. 0130 at p. 5) In response, the extent of 
switching from LPG-fired furnaces projected to result from the 
currently-proposed standards is significantly less than was the case 
with the standards proposed in the March 2015 NOPR. Although DOE 
expects that the impact on retail propane marketers would be small, DOE 
does not have sufficient information to reliably estimate the potential 
impact. If stakeholders are able to provide relevant data, including 
annual propane sales (in gallons and dollars) for a representative 
sample of retail propane marketers, DOE will undertake an evaluation as 
it prepares the final rule.
    AGL Resources and Camilla stated that by disproportionally raising 
the minimum efficiency of NWGFs relative to electric heat pumps and 
electric furnaces, and by causing a significant amount of fuel 
switching, DOE has put natural gas utilities in a position of 
competitive disadvantage. (AGL Resources, No. 0039 at pp. 1, 3-4 ; AGL

[[Page 65811]]

Resources, No. 0112 at pp. 7-8; Camilla, No. 0092 at p. 1) In response, 
DOE disagrees that the proposed standards would be disproportionally 
raised for NWGFs. On the contrary, the efficiency standards for CACs 
and heat pumps have been raised several times over the past two 
decades, while standards for NWGFs did not change during the same 
period. Furthermore, DOE is currently undertaking a rulemaking to 
consider amended energy conservation standards for residential central 
air conditioners and heat pumps. See, 80 FR 81785 (December 31, 2015).

N. Employment Impact Analysis

    DOE considers employment impacts in the domestic economy as one 
factor in selecting a proposed standard. Employment impacts from new or 
amended energy conservation standards include both direct and indirect 
impacts. Direct employment impacts are any changes in the number of 
employees of manufacturers of the products subject to standards, their 
suppliers, and related service firms. 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 net jobs created or 
eliminated in the national economy, other than in the manufacturing 
sector being regulated, caused by: (1) Reduced spending by consumers on 
energy; (2) reduced spending on new energy supply by the utility 
industry; (3) increased consumer spending on the products to which the 
new standards apply and other goods and services; 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).\188\ 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.\189\ 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, the BLS 
data suggest that net national employment may increase due to shifts in 
economic activity resulting from amended energy conservation standards 
for NWGFs and MHGFs.
---------------------------------------------------------------------------

    \188\ Data on industry employment, hours, labor compensation, 
value of production, and the implicit price deflator for output for 
these industries are available upon request by calling the Division 
of Industry Productivity Studies (202-691-5618) or by sending a 
request by email to [email protected].
    \189\ See Bureau of Economic Analysis, Regional Multipliers: A 
User Handbook for the Regional Input-Output Modeling System (RIMS 
II), U.S. Department of Commerce (1992).
---------------------------------------------------------------------------

    DOE estimated indirect national employment impacts for the amended 
NWGFs and MHGFs standard levels considered in this NOPR using an input/
output model of the U.S. economy called Impact of Sector Energy 
Technologies version 4 (ImSET).\190\ 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 187 sectors most relevant to industrial, 
commercial, and residential building energy use.
---------------------------------------------------------------------------

    \190\ Livingston, OV, SR Bender, MJ Scott, and RW Schultz 
(2015). ImSET 4.0: Impact of Sector Energy Technologies Model 
Description and User's Guide. Pacific Northwest National Laboratory. 
PNNL-24563.
---------------------------------------------------------------------------

    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 this rule. Therefore, for the SNOPR, DOE 
used ImSET only to generated results for a near-term timeframe (2022-
2027), where these uncertainties are reduced.
    The Joint Consumer Commenters stated that DOE did not account for 
the macroeconomic benefit of stimulating the economy by reducing the 
cost of energy and diverting spending to other things that tend to have 
higher economic multipliers, thus accelerating economic growth. The 
Joint Consumer Commenters stated that greater economic activity from 
the increase in consumer disposable income raises employment levels in 
other sectors. (Joint Consumer Commenters, No. 0123 at pp. 23-24) In 
response, increasing consumer disposable income does not necessarily 
result in greater economic activity. To the extent that the economy 
approaches full employment, additional stimulus from a shift in 
spending toward more labor-intensive sectors is not likely to 
significantly add to economic growth. In the context of the total 
economy, the long-run potential stimulus from an energy conservation 
standard would be extremely difficult to measure.
    AHRI stated that DOE provides no reason for its selection of a 
short-run model to evaluate the indirect employment impact analysis. 
AHRI stated that qualitatively discussing the long-run impacts means 
that the cost are not adequately considered in the quantitative 
analysis and are consequently underestimated. (AHRI, No. 0159 at p. 18)
    In response, DOE has tentatively concluded that the primary options 
available to estimate employment impacts of energy efficiency policies 
are sectoral multipliers, input-output models, and macroeconomic (i.e., 
general equilibrium) simulation models. Macroeconomic simulation models 
allow for the most flexibility of the three options, particularly in 
portraying differential impacts over time, but this temporal detail 
comes at the cost of sectoral detail. The developers of ImSET evaluated 
several macroeconomic simulation models used by other Federal agencies 
and found none well-suited to the kinds of sectoral relationships and 
impacts following the adoption of an energy efficiency standard. 
Although it is a static model, ImSET captures the complexities of 
intersectoral buying-selling relationships. Additionally, by 
streamlining the temporal aspects of the model, it is possible to track 
the differential impacts of changes in energy cost as compared to 
changes in capital or maintenance cost, each of which can impact 
sectoral multipliers in different ways. DOE is reluctant to use ImSET 
to quantify long-run impacts, because ImSET relies on fixed sectoral 
capital-labor coefficients, while in practice these coefficients may 
shift in the long run in response to price effects following energy 
efficiency standards. Since input/output models are fundamentally 
short-run disequilibrium models, DOE provides quantitative

[[Page 65812]]

results only for the first and fifth year of the standards.
    AGL Resources stated that DOE's model did not account for fuel 
switching in the employment impact analysis. (AGL Resources, No. 0112 
at p. 7) In response, DOE notes that because the employment impact 
analysis uses the results of the NIA, it accounts for product switching 
that is captured in the NIA.
    For more details on the employment impact analysis, see chapter 16 
of the SNOPR TSD.

V. Analytical Results and Conclusions

    The following section addresses the results from DOE's analyses 
with respect to the considered energy conservation standards for NWGFs 
and MHGFs. It addresses the TSLs examined by DOE, the projected impacts 
of each of these levels if adopted as energy conservation standards for 
NWGFs and MHGFs, and the standards levels that DOE is proposing to 
adopt in this SNOPR. Additional details regarding DOE's analyses are 
contained in the SNOPR TSD supporting this notice.

A. Trial Standard Levels

    DOE analyzed the benefits and burdens of nine AFUE TSLs and three 
separate standby mode and off mode TSLs for NWGFs and MHGFs. These TSLs 
were developed by combining specific efficiency levels for each of the 
product classes analyzed by DOE. TSLs are numbered in order of 
ascending national energy savings. DOE presents the results for the 
TSLs in this document, while the results for all efficiency levels that 
DOE analyzed are in the SNOPR TSD.
    Table V.1 presents the AFUE TSLs and the corresponding efficiency 
levels for NWGFs and MHGFs that DOE has identified for potential 
amended energy conservation standards for these products. TSL 9 
represents the maximum technologically feasible (``max-tech'') energy 
efficiency for both product classes and therefore maximum potential 
national energy savings. TSL 8 consists of an efficiency level at 80-
percent AFUE for small NWGFs at or below an input capacity of 55 kBtu/h 
and an efficiency level at 95-percent AFUE for large NWGFs. For all 
MHGFs, TSL 8 consists of the efficiency level that represents 95-
percent AFUE. TSL 7 consists of intermediate efficiency levels at 95-
percent AFUE for both product classes. For NWGFs, TSL 6 consists of an 
efficiency level at 80-percent AFUE for small NWGFs at or below an 
input capacity of 55 kBtu/h and an efficiency level at 92-percent AFUE 
for large NWGFs. For all MHGFs, TSL 6 is 92-percent AFUE. TSL 5 
consists of intermediate efficiency levels at 92-percent AFUE for both 
product classes. For NWGFs, TSL 4 consists of the efficiency level that 
represents 80-percent AFUE for small NWGFs at or below an input 
capacity of 60 kBtu/h and the efficiency level that represents 92-
percent AFUE for large NWGFs. For all MHGFs, TSL 4 consists of the 
efficiency level that represents 92-percent AFUE. TSL 3 consists of the 
efficiency levels that represent 95-percent AFUE for the Northern 
region for both product classes, and the baseline efficiency level (80-
percent AFUE) for the Rest of Country. For NWGFs, TSL 2 consists of the 
efficiency level that represents 80-percent AFUE for small NWGFs at or 
below an input capacity of 70 kBtu/h and the efficiency level that 
represents 92-percent AFUE for large NWGF. For all MHGFs, TSL 2 
consists of the efficiency level that represents 92-percent AFUE. For 
NWGFs, TSL 1 consists of the efficiency level that represents 80-
percent AFUE for small NWGFs at or below an input capacity of 80 kBtu/h 
and the efficiency level that represents 92-percent AFUE for large 
NWGFs. For all MHGFs, TSL 1 consists of the efficiency level that 
represents 92-percent AFUE standard.

  Table V.1--Trial Standard Levels for Non-Weatherized Gas Furnace and
                 Mobile Home Gas Furnace AFUE Standards
------------------------------------------------------------------------
                                            AFUE
                  ------------------------------------------------------
       TSL             Non-weatherized gas
                             furnace            Mobile home gas furnace
------------------------------------------------------------------------
1................  92% (>80 kBtu/h)..........  92%.
                   80% (<=80 kBtu/h).........
2................  92% (>70 kBtu/h)..........  92%.
                   80% (<=70 kBtu/h).........
3................  95% (North)...............  95% (North).
                   80% (Rest of Country).....  80% (Rest of Country).
4................  92% (>60 kBtu/h)..........  92%.
                   80% (<=60 kBtu/h).........
5................  92%.......................  92%.
6................  92% (>55kBtu/h)...........  92%.
                   80% (<=55 kBtu/h).........
7................  95%.......................  95%.
8................  95% (>55 kBtu/h)..........  95%.
                   80% (<= 55 kBtu/h)........
9................  98%.......................  96%.
------------------------------------------------------------------------

    Table V.2 presents the standby mode and off mode TSLs and the 
corresponding efficiency levels (values expressed in watts) that DOE 
considered for NWGFs and MHGFs. DOE considered three efficiency levels. 
TSL 3 represents the maximum technologically feasible (``max-tech'') 
energy efficiency for both product classes, TSL 2 represents efficiency 
level 2 for both product classes, and TSL 1 represents efficiency level 
1 for both product classes.

  Table V.2--Trial Standard Levels for Non-Weatherized Gas Furnace and
       Mobile Home Gas Furnace Standby Mode and Off Mode Standards
------------------------------------------------------------------------
                                                   Standby and off mode
                                                     electrical power
                                                    consumption (watts)
                       TSL                       -----------------------
                                                      Non-       Mobile
                                                  weatherized   home gas
                                                  gas furnace   furnace
------------------------------------------------------------------------
1...............................................         9.5         9.5
2...............................................         9.2         9.2
3...............................................         8.5         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 potential standards at each TSL 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
    In general, higher-efficiency products affect consumers in two 
ways: (1) Purchase price increases, and (2) annual operating costs 
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.9.
    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 use, energy prices, energy price trends, 
repair costs, and maintenance costs). The LCC calculation also uses 
product lifetime and a discount rate. 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. 
Chapter 8 of the SNOPR TSD provides detailed information on the LCC and 
PBP analyses.
    Key outputs of the LCC analysis are the average LCC savings (or 
cost) relative to the no-new-standards case efficiency distribution for 
each product

[[Page 65813]]

class of residential NWGFs and MHGFs, and the percentage of consumers 
for whom the LCC under an amended standard would increase (net cost).
    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 a higher-efficiency product as a 
result of energy savings. The PBP is an economic benefit-cost measure 
that uses benefits and costs without discounting.
    The simple payback is measured relative to the baseline product. In 
contrast, the LCC savings are measured relative to the no-new-standards 
case efficiency distribution in the compliance year. No impacts occur 
when the no-new-standards 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 an alternative heating 
product rather than purchase and install a NWGF at that level.\191\ 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 no-new-standards case. The extent of projected product/
fuel switching (in 2022) is shown in Table V.3 for each TSL for NWGFs. 
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.9, 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). Table V.4 
presents the projected amount of switching in 2022 for the high and low 
switching scenarios, as well as the no switching and default switching 
scenarios. For the proposed standards (TSL 6), the total switching is 
6.0% in the low case and 7.9% in the high case; the total switching in 
the default case in 6.9%. See appendix 8J of the SNOPR TSD for more 
details.
---------------------------------------------------------------------------

    \191\ DOE did not analyze switching for MHGFs because the 
installed cost differential is relatively small between condensing 
and non-condensing furnaces, so the incentive for switching is 
limited.

                                 Table V.3--Results of Fuel Switching Analysis for Non-Weatherized Gas Furnaces in 2022
                                                                    [% of consumers]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                              Trial standard level
                   Consumer option                    --------------------------------------------------------------------------------------------------
                                                         1 (%)      2 (%)      3 (%)      4 (%)      5 (%)      6 (%)      7 (%)      8 (%)      9 (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Purchase NWGF at Standard Level......................       98.5       96.6       98.0       95.9       88.5       93.2       86.5       91.6       84.1
Switch to Heat Pump *................................        1.2        2.9        1.6        3.4        9.7        5.8       11.6        7.2       13.6
Switch to Electric Furnace *.........................        0.3        0.5        0.5        0.7        1.8        1.1        2.0        1.2        2.4
                                                      --------------------------------------------------------------------------------------------------
    Total............................................        100        100        100        100        100        100        100        100        100
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Includes switching from a gas water heater to an electric water heater.
Note: Components may not sum due to rounding.


                         Table V.4--Comparison of Results for Fuel Switching Scenarios for Non-Weatherized Gas Furnaces in 2022
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      Fraction of consumers switching to          Fraction of consumers switching to
                                                                 ---------------------------------------------------------------------------------------
                               TSL                                              Heat pump, % *                           Electric furnace, % *
                                                                 ---------------------------------------------------------------------------------------
                                                                      No        Low        High       Ref.        No        Low        High       Ref.
--------------------------------------------------------------------------------------------------------------------------------------------------------
1...............................................................        0.0        0.9        1.5        1.2        0.0        0.3        0.3        0.3
2...............................................................        0.0        2.4        3.4        2.9        0.0        0.5        0.5        0.5
3...............................................................        0.0        1.3        2.0        1.6        0.0        0.5        0.5        0.5
4...............................................................        0.0        2.8        4.0        3.4        0.0        0.7        0.8        0.7
5...............................................................        0.0        8.6       10.9        9.7        0.0        1.5        2.2        1.8
6...............................................................        0.0        5.0        6.7        5.8        0.0        1.0        1.2        1.1
7...............................................................        0.0       10.5       12.9       11.6        0.0        1.7        2.5        2.0
8...............................................................        0.0        6.5        8.4        7.2        0.0        1.1        1.4        1.2
9 [dagger]......................................................        0.0       12.4       15.2       13.6        0.0        2.0        3.0        2.4
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Includes switching from a gas water heater to an electric water heater.
Note: ``No'' means no switching scenario; Low means low switching scenario (2.5 year payback); High means high switching scenario (4.5 year payback);
  and Ref. means DOE's default switching case (3.5 year payback).

    Table V.5 through Table V.8 show the LCC and PBP results for the 
TSL levels considered for each product class for AFUE standards. Table 
V.9 compares the average LCC savings, simple PBP, and percentage of 
consumers experiencing net cost at each AFUE efficiency level for the 
alternative product switching scenarios, as well as the no switching 
and DOE's default switching scenario. Table V.10 through Table V.13 
show the LCC and PBP results for the TSLs considered for each product 
class for standby mode and off mode standards. The LCC and PBP results 
for NWGFs include both residential and commercial users. Results for 
all efficiency levels are reported in chapter 8 of the SNOPR TSD.

[[Page 65814]]

    In the first of each pair of tables, the simple payback is measured 
relative to the baseline product. In the second table, impacts are 
measured relative to the efficiency distribution in the no-new-
standards case in the compliance year (see section IV.F.8 of this 
notice). The savings refer only to consumers who are affected by a 
standard at a given TSL. Those who already purchase a product with 
efficiency at or above a given TSL are not affected. Consumers for whom 
the LCC increases at a given TSL experience a net cost.

                                  Table V.5--Average LCC and PBP Results for Non-Weatherized Gas Furnace AFUE Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                               Average costs (2015$)
                                                         ----------------------------------------------------------------     Simple          Average
              TSL                       AFUE (%)                           First year's      Lifetime                         payback        lifetime
                                                          Installed cost  operating cost  operating cost        LCC           (years)         (years)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.............................  92/80 *.................           2,375             652          10,512          12,887             6.1            21.5
2.............................  92/80 *.................           2,469             635          10,244          12,714             6.0            21.5
3.............................  95/80 **................           2,552             625          10,108          12,661             6.4            21.5
4.............................  92/80 *.................           2,512             628          10,126          12,638             5.9            21.5
5.............................  92 [dagger].............           2,635             612           9,859          12,493             6.4            21.5
6.............................  92/80 *.................           2,576             618           9,971          12,547             6.1            21.5
7.............................  95 [dagger].............           2,742             597           9,608          12,350             6.5            21.5
8.............................  95/80 *.................           2,672             604           9,737          12,410             6.2            21.5
9.............................  98 (Max-Tech) [dagger]..           2,858             586           9,403          12,261             6.9            21.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
* The first number refers to the standard for large NWGFs; the second refers to the standard for small NWGFs. The input capacity threshold definitions
  for small NWGFs are as follows: TSL 1: 80 kBtu/h; TSL 2: 70 kBtu/h; TSL 4: 60 kBtu/h; TSL 6: 55 kBtu/h; TSL 8: 55 kBtu/h.
** The first number refers to the efficiency level for the North; the second number refers to the efficiency level for the Rest of Country.
[dagger] Refers to national standards.
Note: The results for each TSL are calculated assuming that all consumers use products at that efficiency level. The PBP is measured relative to the
  baseline product.


Table V.6--Average LCC Savings Relative to the No-New-Standards Case for
               Non-Weatherized Gas Furnace AFUE Standards
------------------------------------------------------------------------
                                              Life-cycle cost savings
                                         -------------------------------
                                                           Percentage of
      TSL                 AFUE %            Average LCC   consumers that
                                              savings        experience
                                              (2015$)      net cost  (%)
------------------------------------------------------------------------
1..............  92/80 *................             676             2.1
2..............  92/80 *................             730             4.7
3..............  95/80 **...............             597             6.7
4..............  92/80 *................             741             6.6
5..............  92 [dagger]............             617            17.1
6..............  92/80 *................             692            11.1
7..............  95 [dagger]............             561            22.2
8..............  95/80 *................             609            15.2
9..............  Max Tech [dagger]......             506            34.2
------------------------------------------------------------------------
* The first number refers to the standard for large NWGFs; the second
  refers to the standard for small NWGFs. The input capacity threshold
  definitions for small NWGFs are as follows: TSL 1: 80 kBtu/h; TSL 2:
  70 kBtu/h; TSL 4: 60 kBtu/h; TSL 6: 55 kBtu/h; TSL 8: 55 kBtu/h.
** The first number refers to the efficiency level for the North; the
  second number refers to the efficiency level for the Rest of Country.
[dagger] Refers to national standards.
Note: The savings represent the average LCC for affected consumers.


                                    Table V.7--Average LCC and PBP Results for Mobile Home Gas Furnace AFUE Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                               Average costs (2015$)
                                                         ----------------------------------------------------------------     Simple          Average
              TSL                       AFUE (%)                           First year's      Lifetime                         payback        lifetime
                                                          Installed cost  operating cost  operating cost        LCC           (years)         (years)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1, 2, 4, 5, 6.................  92......................           1,667             698          10,924          12,591             1.7            21.5
3.............................  95/80 *.................           1,691             707          11,062          12,752             2.3            21.5
7, 8..........................  95......................           1,800             680          10,643          12,443             2.7            21.5
9.............................  96 (Max Tech)...........           1,846             677          10,599          12,445             3.1            21.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
* The first number refers to the efficiency level for the North; the second number refers to the efficiency level for the Rest of Country.
Note: The results for each TSL are calculated assuming that all consumers use products at that efficiency level. The PBP is measured relative to the
  baseline product.


[[Page 65815]]


Table V.8--Average LCC Savings Relative to the No-New-Standards Case for
                 Mobile Home Gas Furnace AFUE Standards
------------------------------------------------------------------------
                                              Life-cycle cost savings
                                         -------------------------------
                                                           Percentage of
       TSL                 AFUE %           Average LCC   consumers that
                                              savings     experience net
                                              (2015$)          cost
------------------------------------------------------------------------
1, 2, 4, 5, 6....  92...................           1,049             8.2
3................  95/80*...............           1,275             5.0
7, 8.............  95...................           1,020            13.8
9................  96 (Max Tech)........             864            25.2
------------------------------------------------------------------------
* The first number refers to the efficiency level for the North; the
  second number refers to the efficiency level for the Rest of Country.
Note: The savings represent the average LCC for affected consumers.


               Table V.9--Comparison of LCC Savings and PBP for Product Switching Scenarios for Non-Weatherized Gas Furnace AFUE Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                      Average LCC savings                Simple payback period          % of Consumers experiencing net
                                             ------------------------------------------------------------------------                cost
                                                             2015$                               Years               -----------------------------------
                     TSL                     ------------------------------------------------------------------------                  %
                                                                                                                     -----------------------------------
                                                 No      Low      High     Ref.      No      Low      High     Ref.      No      Low      High     Ref.
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 *.........................................      554      769      534      676     6.32     6.08     6.28     6.15      2.2      2.0      2.3      2.1
2 *.........................................      561      801      610      730     6.28     5.91     6.16     5.99      5.2      4.5      5.0      4.7
3 **........................................      523      548      512      597     6.52     6.34     6.55     6.42      6.6      6.5      7.0      6.7
4 *.........................................      575      794      649      741     6.27     5.87     6.09     5.93      7.2      6.4      6.9      6.6
5[dagger]...................................      363      657      542      617     7.17     6.27     6.59     6.37     19.7     16.8     17.6     17.1
6 *.........................................      476      730      620      692     6.60     6.00     6.23     6.07     12.7     10.9     11.5     11.1
7[dagger]...................................      367      595      500      561     7.26     6.40     6.68     6.49     25.0     21.8     22.8     22.2
8 *.........................................      451      641      550      609     6.70     6.11     6.33     6.18     16.9     14.9     15.8     15.2
9[dagger]...................................      354      539      452      506     7.70     6.80     7.14     6.91     37.4     33.6     34.9     34.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Refers to TSLs with separate standards for small and large NWGFs. The input capacity threshold definitions for small NWGFs are as follows: TSL 1: 80
  kBtu/h; TSL 2: 70 kBtu/h; TSL 4: 60 kBtu/h; TSL 6: 55 kBtu/h; TSL 8: 55 kBtu/h.
** Regional standards.
[dagger] Refers to national standards.
Note: The savings represent the average LCC for affected consumers. The PBP is measured relative to the baseline product. No means no switching
  scenario; Low means low switching scenario (2.5 year payback); High means high switching scenario (4.5 year payback); and Ref. means DOE's default
  switching case (3.5 year payback).


                       Table V.10--Average LCC and PBP Results for Non-Weatherized Gas Furnace Standby Mode and Off Mode Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                               Average costs (2015$)
                                                         ---------------------------------------------------------------- Simple payback      Average
              TSL                         Watts                            First year's      Lifetime                         (years)        lifetime
                                                          Installed cost  operating cost  operating cost        LCC                           (years)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.............................  9.5.....................               2              10             152             153             1.2            21.5
2.............................  9.2.....................              17              10             147             164             9.1            21.5
3.............................  8.5 (Max Tech)..........              18               9             135             154             7.0            21.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: The results for each TSL are calculated assuming that all consumers use products at that efficiency level. The PBP is measured relative to the
  baseline product.


 Table V.11--Average LCC Savings Relative to the No-New-Standards Case for Mobile Home Gas Furnace Standby Mode
                                             and Off Mode Standards
----------------------------------------------------------------------------------------------------------------
                                                                                      Life-cycle cost savings
                                                                                 -------------------------------
                                                                                                   Percentage of
                    TSL                                     Watts                   Average LCC   consumers that
                                                                                     savings *      experience
                                                                                      (2015$)        net cost
----------------------------------------------------------------------------------------------------------------
1.........................................  9.5.................................              22             2.4
2.........................................  9.2.................................              12            13.0

[[Page 65816]]

 
3.........................................  8.5 (Max Tech)......................              19             8.1
----------------------------------------------------------------------------------------------------------------
* The savings represent the average LCC for affected consumers.


                         Table V.12--Average LCC and PBP Results for Mobile Home Gas Furnace Standby Mode and Off Mode Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                               Average costs (2013$)
                                                         ---------------------------------------------------------------- Simple payback      Average
              TSL                         Watts                            First year's      Lifetime                         (years)        lifetime
                                                          Installed cost  operating cost  operating cost        LCC                           (years)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.............................  9.5.....................               2              10             145             146             1.2            21.5
2.............................  9.2.....................              16               9             140             156             8.9            21.5
3.............................  8.5 (Max Tech)..........              17               9             129             147             6.9            21.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: The results for each TSL are calculated assuming that all consumers use products at that efficiency level. The PBP is measured relative to the
  baseline product.


 Table V.13--Average LCC Savings Relative to the No-New-Standards Case for Mobile Home Gas Furnace Standby Mode
                                             and Off Mode Standards
----------------------------------------------------------------------------------------------------------------
                                                                                      Life-cycle cost savings
                                                                                 -------------------------------
                                                                                                   Percentage of
                    TSL                                     Watts                   Average LCC   consumers that
                                                                                     savings *      experience
                                                                                      (2015$)        net cost
----------------------------------------------------------------------------------------------------------------
1.........................................  9.5.................................              21             0.4
2.........................................  9.2.................................              12             1.0
3.........................................  8.5 (Max Tech)......................              19             0.8
----------------------------------------------------------------------------------------------------------------
* The savings represent the average LCC for affected consumers.

b. Consumer Subgroup Analysis
    In the consumer subgroup analysis, DOE estimated the impact of the 
considered AFUE TSLs on low-income households and senior-only 
households.\192\ Table V.14 through Table V.15 compare the average LCC 
savings and simple PBP at each AFUE efficiency level for the two 
consumer subgroups, along with the average LCC savings for the entire 
consumer sample. Because the small furnace efficiency levels at TSLs 1, 
2, 4, 6, and 8 and the Rest of Country efficiency level at TSL 3 are at 
the baseline, these tables only include results for large furnaces or 
the Northern region for these TSLs. In most cases, the average LCC 
savings and PBP for low-income households and senior-only households at 
the considered efficiency levels are not substantially different from 
the average for all households. Chapter 11 of the SNOPR TSD presents 
the complete LCC and PBP results for the subgroups.
---------------------------------------------------------------------------

    \192\ 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.

         Table V.14--Comparison of LCC Savings and PBP for Consumer Subgroups and All Households for Non-Weatherized Gas Furnace AFUE Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              Average life-cycle cost savings (2015$)              Simple payback period (years)
                                                         -----------------------------------------------------------------------------------------------
                           TSL                              Low-income      Senior-only                     Low-income      Senior-only
                                                            households      households    All households    households      households    All households
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 *.....................................................             505             793             676             6.8             6.8             6.1
2 *.....................................................             572             750             730             5.7             5.7             6.0
3 **....................................................             458             657             597             7.4             5.9             6.4

[[Page 65817]]

 
4 *.....................................................             647             905             741             5.7             5.7             5.9
5 [dagger]..............................................             476             775             617             6.0             6.0             6.4
6 *.....................................................             611             890             692             5.7             5.7             6.1
7 [dagger]..............................................             482             692             561             6.0             6.0             6.5
8 *.....................................................             592             770             609             5.7             5.7             6.2
9 [dagger]..............................................             554             662             506             6.1             6.1             6.9
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Refers to TSLs with separate standards for small and large NWGFs. The input capacity threshold definitions for small NWGFs are as follows:
TSL 1: 80 kBtu/h; TSL 2: 70 kBtu/h; TSL 4: 60 kBtu/h; TSL 6: 55 kBtu/h; TSL 8: 55 kBtu/h.
** Regional standards.
[dagger] Refers to national standards.
Note: The savings represent the average LCC for affected consumers. The PBP is measured relative to the baseline product.


           Table V.15--Comparison of LCC Savings and PBP for Consumer Subgroups and All Households for Mobile Home Gas Furnace AFUE Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              Average life-cycle cost savings (2015$)              Simple payback period (years)
                                                         -----------------------------------------------------------------------------------------------
                           TSL                              Low-income      Senior-only                     Low-income      Senior-only
                                                            households      households    All households    households      households    All households
--------------------------------------------------------------------------------------------------------------------------------------------------------
1, 2, 4, 5, 6...........................................             771             642           1,049             3.0             3.3             1.7
3.......................................................           1,344           1,040           1,275             3.3             3.4             2.3
3, 7, 8.................................................             782             609           1,020             4.0             4.5             2.7
9.......................................................             649             486             864             4.4             5.0             3.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: The savings represent the average LCC for affected consumers. The PBP is measured relative to the baseline product.

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. (42 U.S.C. 6295(o)(2)(B)(iii)) In 
calculating a rebuttable presumption payback period for each of the 
considered TSLs for NWGFs and MHGFs, DOE used discrete values, and, as 
required by EPCA, based the energy use calculation on the DOE test 
procedure for residential furnaces and boilers. Id. In contrast, the 
PBPs presented in section V.B.1.a of this SNOPR were calculated using 
distributions that reflect the range of energy use in the field.
    Table V.16 and Table V.17 present the rebuttable-presumption 
payback periods for the considered AFUE and standby mode/off mode TSLs 
for NWGFs and MHGFs, respectively. The payback periods for all MHGF 
AFUE TSLs meet the rebuttable-presumption criterion, but the NWGF AFUE 
TSLs do not. While DOE examined the rebuttable-presumption criterion, 
DOE routinely conducts an economic analysis that considers the full 
range of impacts to the consumer, manufacturer, Nation, and environment 
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.16--Rebuttable-Presumption Payback Periods (Years) for NWGF and
                           MHGF AFUE Standards
------------------------------------------------------------------------
                                               Non-
                   TSL                      weatherized     Mobile home
                                           gas furnaces    gas furnaces
------------------------------------------------------------------------
1.......................................            3.28            0.91
2.......................................            3.56            0.91
3.......................................            3.08            1.50
4.......................................            3.65            0.91
5.......................................            3.88            0.91
6.......................................            3.74            0.91
7.......................................            4.03            1.43
8.......................................            3.89            1.43
9.......................................            4.45            1.50
------------------------------------------------------------------------


[[Page 65818]]


Table V.17--Rebuttable-Presumption Payback Periods (Years) for NWGF and MHGF Standby Mode and Off Mode Standards
----------------------------------------------------------------------------------------------------------------
                                                                    Standby and
                                                                     off mode
                                                                    electrical         Non-         Mobile home
                               TSL                                     power        weatherized    gas furnaces
                                                                    consumption    gas furnaces
                                                                      (Watts)
----------------------------------------------------------------------------------------------------------------
1...............................................................             9.5            1.33            1.20
2...............................................................             9.2            9.99            9.01
3...............................................................             8.5            7.71            6.95
----------------------------------------------------------------------------------------------------------------

2. Economic Impacts on Manufacturers
    DOE performed a manufacturer impact analysis to estimate the impact 
of an amended energy conservation standard on manufacturers of NWGFs 
and MHGFs. The following section describes the expected impacts on 
manufacturers at each analyzed TSL. DOE discusses the potential impacts 
of AFUE and standby mode/off mode standards independently. Chapter 12 
of the SNOPR TSD explains the analysis in further detail.
a. Industry Cash Flow Analysis Results
    In this section, DOE provides GRIM results from the analysis, which 
examines changes in the industry that would result from a standard. 
Table V.18 through Table V.21 present the financial impacts of analyzed 
standards on NWGF and MHGF manufacturers represented by changes in INPV 
and free cash flow in the year before the standard takes effect as well 
by the conversion costs that DOE estimates NWGF and MHGF manufacturers 
would incur at each TSL. To evaluate the range of cash-flow impacts on 
the NWGF and MHGF industry, DOE modeled three markup scenarios that 
correspond to the range of anticipated market responses to amended 
standards. For AFUE standards, DOE modeled a preservation of gross 
margin markup scenario and a tiered markup scenario. For standby mode 
and off mode standards, DOE modeled a preservation of gross margin 
markup scenario and a per-unit preservation of operating profit markup 
scenario. Each scenario results in a unique set of cash flows and 
corresponding industry values at each TSL.
    In the following discussion, the INPV results refer to the 
difference in INPV between the no-new-standards case and the standards 
cases, calculated by summing discounted cash flows from the reference 
year (2016) through the end of the analysis period (2051). Changes in 
INPV reflect the potential impacts on the value of the industry over 
the course of the analysis period as a result of implementing a 
particular TSL. The results also discuss the difference in cash flows 
between the no-new-standards case and the standards cases in the year 
before the compliance date for analyzed standards (2021). This 
difference in cash flow represents the size of the required conversion 
costs relative to the cash flow generated by the NWGF and MHGF industry 
in the absence of amended energy conservation standards.
    To assess the upper (less severe) bound of the range of potential 
impacts on NWGF and MHGF manufacturers, DOE modeled a preservation of 
gross margin markup scenario. This scenario assumes that in the 
standards cases, manufacturers would be able to fully pass on higher 
production costs required to produce more-efficient products to their 
consumers (i.e., absolute dollar markup would increase). Specifically, 
the industry would be able to maintain its average no-new-standards 
case gross margin (as a percentage of revenue) despite the higher 
product costs in the standards cases and upfront investments to bring 
products into compliance. DOE assumed the nonproduction cost markup--
which includes SG&A expenses, research and development expenses, 
interest, and profit--to be 1.34 for NWGFs and 1.27 for MHGFs. These 
markups are consistent with the markups used in the engineering 
analysis. Typically, as product's price increases as a result of a 
standard, the less likely manufacturers are to maintain their gross 
margin percentage. It is unlikely to maintain the gross margin 
percentage because manufacturers would be fully marking up more 
expensive products, resulting in significantly higher consumer prices. 
Therefore, DOE assumes that this scenario represents the upper bound of 
industry profitability under an amended energy conservation standard.
    To assess the lower (more severe) bound of the range of potential 
impacts of AFUE standards on NWGF and MHGF manufacturers, DOE modeled 
the tiered markup scenario. DOE implemented the tiered markup scenario 
because multiple manufacturers stated in interviews that they offer 
multiple tiers of product 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 would reduce the profitability of 
higher efficiency products. During the MIA interviews, manufacturers 
provided information on the range of typical ELs in those tiers and the 
change in profitability at each level. DOE used this information to 
estimate markups for NWGFs and MHGFs under a tiered pricing strategy in 
the no-standards case. In the standards cases, DOE modeled the 
situation in which standards result in less product differentiation, 
compression of the markup tiers, and an overall reduction in 
profitability.
    To assess the lower (more severe) bound of the range of potential 
impacts of standby mode and off mode standards on NWGF and MHGF 
manufacturers, DOE modeled a per-unit preservation of operating profit 
markup scenario. In this scenario, manufacturer markups are set so that 
operating profit one year after the compliance date of amended energy 
conservation standards (2022) is the same as in the no-new-standards 
case on a per-unit basis. Under this scenario, manufactures do not earn 
additional operating profit from increased manufacturer production 
costs and conversion costs incurred as a result of standards but are 
able to maintain the same operating profit that was earned in the no-
new-standards case.
Cash-Flow Analysis Results for Non-Weatherized Gas Furnaces and Mobile 
Home Gas Furnaces AFUE Standards
    Table V.18 and Table V.19 present the financial impacts of the 
analyzed AFUE standards on NWGF and MHGF manufacturers. These impacts 
are represented by changes in INPV and free cash flow (FCF) in the year 
before the standard (2021) as well as by the

[[Page 65819]]

conversion costs that DOE estimates NWGF and MHGF manufacturers would 
incur at each TSL.

  Table V.18--Manufacturer Impact Analysis: AFUE Standards Results for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces--Preservation of Gross
                                                            Margin Percentage Markup Scenario
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                               Trial standard level
                                                     Units                    No-new-    ---------------------------------------------------------------
                                                                          standards case         1               2               3               4
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV................................  2015$ millions....................         1,104.3         1,097.0         1,101.7         1,104.6         1,119.2
Change in INPV......................  2015$ millions....................  ..............           (7.3)           (2.7)             0.3            14.8
                                      %.................................  ..............           (0.7)           (0.2)             0.0             1.3
FCF (2021)..........................  2015$ millions....................            69.3            56.8            52.8            43.4            50.7
Change in FCF.......................  %.................................  ..............          (18.0)          (23.8)          (37.4)          (26.9)
Product Conversion Costs............  2015$ millions....................  ..............            18.2            18.2            26.9            18.2
Capital Conversion Costs............  2015$ millions....................  ..............            15.9            24.8            40.1            29.5
Total Conversion Costs..............  2015$ millions....................  ..............            34.1            43.0            67.0            47.8


--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                       Trial standard level
                                                     Units               -------------------------------------------------------------------------------
                                                                                 5               6               7               8               9
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV................................  2015$ millions....................         1,118.0         1,142.8         1,126.8         1,147.1         1,100.0
Change in INPV......................  2015$ millions....................            13.7            38.5            22.5            42.8           (4.3)
                                      %.................................             1.2             3.5             2.0             3.9           (0.4)
FCF (2021)..........................  2015$ millions....................            44.3            47.6            25.1            31.2          (66.0)
Change in FCF.......................  %.................................          (36.0)          (31.4)          (63.7)          (55.0)         (195.2)
Product Conversion Costs............  2015$ millions....................            18.2            18.2            26.9            26.9            77.4
Capital Conversion Costs............  2015$ millions....................            43.7            36.5            80.7            67.3           250.4
Total Conversion Costs..............  2015$ millions....................            61.9            54.7           107.6            94.2           327.9
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Parentheses indicate negative values.


    Table V.19--Manufacturer Impact Analysis: AFUE Standards Results for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces--Three-Tier Markup
                                                                        Scenario
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                               Trial standard level
                                                     Units                    No-new-    ---------------------------------------------------------------
                                                                          standards case         1               2               3               4
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV................................  2015$ millions....................         1,104.3         1,031.6         1,005.8           846.8         1,007.0
Change in INPV......................  2015$ millions....................  ..............          (72.8)          (98.5)         (257.6)          (97.4)
                                      %.................................  ..............           (6.6)           (8.9)          (23.3)           (8.8)
FCF (2021)..........................  2015$ millions....................            69.3            56.8            52.8            43.4            50.7
Change in FCF.......................  %.................................  ..............          (18.0)          (23.8)          (37.4)          (26.9)
Product Conversion Costs............  2015$ millions....................  ..............            18.2            18.2            26.9            18.2
Capital Conversion Costs............  2015$ millions....................  ..............            15.9            24.8            40.1            29.5
Total Conversion Costs..............  2015$ millions....................  ..............            34.1            43.0            67.0            47.8


--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                       Trial standard level
                                                     Units               -------------------------------------------------------------------------------
                                                                                 5               6               7               8               9
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV................................  2015$ millions....................           985.2         1,016.4           729.2           771.6           526.5
Change in INPV......................  2015$ millions....................         (119.2)          (88.0)         (375.2)         (332.8)         (577.9)
                                      %.................................          (10.8)           (8.0)          (34.0)          (30.1)          (52.3)
FCF (2021)..........................  2015$ millions....................            44.3            47.6            25.1            31.2          (66.0)
Change in FCF.......................  %.................................          (36.0)          (31.4)          (63.7)          (55.0)         (195.2)
Product Conversion Costs............  2015$ millions....................            18.2            18.2            26.9            26.9            77.4
Capital Conversion Costs............  2015$ millions....................            43.7            36.5            80.7            67.3           250.4
Total Conversion Costs..............  2015$ millions....................            61.9            54.7           107.6            94.2           327.9
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Parentheses indicate negative values.

    At TSL 1, DOE estimates the change in INPV to range from -$72.8 
million to -7.3 million, or a change of -6.6 percent to -0.7 percent. 
At this level, industry free cash flow in 2021 (the year before the 
compliance date) is estimated to decrease to $56.8 million, or a 
decrease of 18.0 percent compared to the no-new-standards case value of 
$69.3 million.
    TSL 1 represents a national standard set at 92-percent AFUE for 
large NWGFs and all MHGFs, while small NWGFs remain at the current 
Federal minimum of 80-percent AFUE. At TSL 1, small NWGFs are defined 
as NWGFs with input capacities of 80 kBtu/hr or lower, which accounts 
for approximately 58 percent of NWGF shipments. Before the standard 
year, approximately 52 percent of NWGF shipments and ten percent of 
MHGF shipments are expected to be sold at condensing levels. At TSL 1, 
an additional 16 percent of NWGF shipments and 90 percent of MHGF 
shipments will be sold at condensing

[[Page 65820]]

levels, requiring the industry to expand its production of secondary 
heat exchanger. In total, 19 percent of NWGF shipments and 90 percent 
of MHGF shipments would need to add a secondary heat exchanger or an 
increase in overall heat exchanger surface area in order to meet 
standards at TSL 1. Manufacturers will incur $15.9 million in capital 
conversion costs as manufacturers increase secondary heat exchanger 
production line capacity. Total conversion costs are expected to be 
$34.1 million for the industry.
    TSLs 1, 2, 4, and 6 represent national standards set at 92-percent 
AFUE for large NWGFs and all MHGFs, while small NWGFs remain at the 
current Federal minimum of 80-percent AFUE. However, the capacity 
threshold used to classify small NWGFs changes at each TSL. Small NWGF 
furnaces are defined as units having an input capacity of 70 kBtu/hr or 
greater at TSL 2, 60 kBtu/hr or greater at TSL 4, and 55 kBtu/hr or 
greater at TSL 6. As the capacity threshold decreases from 80 kBtu/hr 
at TSL 1 down to 55 kBtu/hr at TSL 6, the number of NWGF shipments 
classified as large NWGFs, and subsequently the portion of shipments 
that must be condensing after the standard year, increases. Capital 
conversion costs increase as manufacturers add additional capacity to 
their secondary heat exchanger production lines. Capital conversion 
costs scale with the increased volume of shipments that require 
additional heat exchanger surface area. Manufacturers would also incur 
product conversion costs as they invest resources to develop cost-
optimized 92-percent AFUE models that are competitive at lower price 
points. Manufacturers are expected to incur $18.2 million in product 
conversion costs at TSLs 1, 2, 4 and 6.
    Furthermore, with a national standard of 92-percent AFUE for large 
NWGFs and all MHGFs, the industry would face some compression of 
markups. However, DOE believes industry would still able to maintain 
three tiers of markups, with efficiency as one differentiating 
attribute, in a market where the national standard is 92-percent AFUE. 
DOE characterizes these markups as ``good,'' ``better,'' and ``best,'' 
which correspond to 92-percent AFUE, 95-percent AFUE, and 98-percent 
AFUE, respectively.
    At TSL 2, DOE estimates the change in INPV to range from -$98.5 
million to -$2.7 million, or a change in INPV of -8.9 percent to -0.2 
percent. At this level, free cash flow in 2021 is estimated to decrease 
to $52.8 million, or a decrease of 23.8 percent compared to the no-new-
standards-case value of $69.3 million in the year 2021.
    TSL 2 represents a national standard at 92-percent AFUE for large 
NWGFs and all MHGFs, while small NWGFs remain at the current federal 
minimum of 80-percent AFUE. Small NWGFs are defined as NWGFs with input 
capacities of 70 kBTU/hr or less and make up 31 percent of NWGF 
shipments. At TSL 2, an additional 29 percent of the NWGF market and an 
additional 90 percent of MHGF market moves from non-condensing to 
condensing efficiencies. In total, 33 percent of NWGF shipments and 90 
percent of MHGF shipments would need to include secondary heat 
exchangers or increased overall heat exchanger surface area. Capital 
conversion costs increase from $15.9 million at TSL 1 to $24.8 million 
at TSL 2, as manufacturers increase secondary heat exchanger production 
line capacity. Total conversion costs are expected to be $43.0 million 
at TSL 2.
    At TSL 3, DOE estimates the change in INPV to range from -$257.6 
million to $0.3 million, or a change in INPV of -23.3 percent to an 
increase of less than one percent. At this level, free cash flow is 
estimated to decrease to $43.4 million, or a decrease of 37.4 percent 
compared to the no-new-standards case value of $69.3 million in the 
year 2021.
    TSL 3 represents a regional standard set at 95-percent AFUE for 
products sold in the North and 80-percent AFUE for products sold in the 
Rest of the Country. TSL 3 does not have a small furnace capacity 
threshold. At TSL 3, relative to the no-new-standards case, an 
additional 48 percent of NWGF shipments and 90 percent of MHGF 
shipments would shift to condensing levels and need a secondary heat 
exchanger. In total at TSL 3, 74 percent of NWGF shipments and 45 
percent of MHGF shipments would need to include a secondary heat 
exchanger or increased overall heat exchanger surface area. Capital 
conversion costs are modeled to escalate from $24.8 million at TSL 2 to 
$40.1 million at TSL 3. Product conversion costs increase significantly 
from $18.2 million at TSLs 1 and 2 to $26.9 million at TSL 3, as 
manufacturers develop cost-optimized 95-percent AFUE large NWGF and 
MHGF models that are competitive at reduced markups. Total industry 
conversion costs would be expected to reach $67.0 million at TSL 3.
    For products sold in the North that must achieve 95-percent AFUE, 
the industry faces a compression of markups that is particularly acute. 
Today, 95-percent AFUE products are premium offerings that can garner a 
significantly higher markup than baseline products. At TSL 3, 95-
percent AFUE products become the minimum efficiency offering and would 
no longer command the same premium markups in the North. Furthermore, 
there is limited opportunity to differentiate product offerings based 
on efficiency. DOE models the industry as compressing from three tiers 
today (good, better, and best) to only having two tiers (good and 
better) of markups for products sold in the North at TSL 3.
    At TSL 4, DOE estimates the change in INPV to range from -$97.4 
million to $14.8 million, or a change in INPV of -8.8 percent to 1.3 
percent. At this level, free cash flow is estimated to decrease to 
$50.7 million, or a decrease of 26.9 percent compared to the no-new-
standards case value of $69.3 million in the year 2021.
    TSL 4 represents a national standard at 92-percent AFUE for large 
NWGFs and all MHGFs, while small NWGFs remain at the current Federal 
minimum of 80-percent AFUE. Small NWGFs are defined as NWGFs with input 
capacities of 60 kBTU/hr or less and make up 20 percent of NWGF 
shipments. At TSL 4, 40 percent of NWGF shipments and 90 percent of 
MHGF shipments would need to include a secondary heat exchanger or 
increased overall heat exchanger surface area. Capital conversion costs 
would increase from $24.8 million at TSL 2, the previous TSL with a 
national 92-percent AFUE standard and a capacity threshold for small 
furnaces, to $29.5 million at TSL 4 as manufacturers increase secondary 
heat exchanger production line capacity. Manufacturers would also incur 
product conversion costs driven by the development necessary to create 
compliant, cost-competitive products. Total industry conversion costs 
would be expected to reach $47.8 million at TSL 4. At 92-percent AFUE, 
DOE models the industry as maintaining three tiers of product in the 
tiered markup scenario.
    At TSL 5, DOE estimates the change in INPV to range from -$119.2 
million to $13.7 million, or a change in INPV of -10.8 percent to 1.2 
percent. At this level, free cash flow is estimated to decrease to 
$44.3 million, or a decrease of 36.0 percent compared to the no-new-
standards case value of $69.3 million in the year 2021.
    TSL 5 represents a national 92-percent AFUE standard where all 
covered NWGFs and all MHGFs are required to achieve 92-percent AFUE. 
TSL 5 does not have a small furnace capacity threshold. At TSL 5, 54 
percent of NWGF shipments and 90 percent of MHGF shipments would need 
to include a secondary heat exchanger or

[[Page 65821]]

increased overall heat exchanger surface area. Markups at TSL 5 are 
reduced, but the industry is still able to maintain three tiers of 
markups. Manufacturers would incur product conversion costs of $18.2 
million at TSL 5, as manufacturers develop cost-optimized 92-percent 
AFUE large NWGF and MHGF models that are competitive at reduced 
markups. Capital conversion costs would total $43.7 million at TSL 5, 
as manufacturers add production capacity to have secondary heat 
exchangers for all NWGF and MHGF shipments sold into the domestic 
market.
    TSLs 5, 7, and 9 represent national standards for all covered NWGFs 
and all MHGFs. In these TSLs, there is no separate standard level based 
on furnace input capacity. As the TSL increases from 5 to 9, the 
national standard increases, and DOE models a compression of markups in 
the tiered markup scenario. Compressed markups are significant driver 
of negative impacts to INPV in the tiered markup scenario.
    At TSL 6, DOE estimates the change in INPV to range from -$88.0 
million to $38.5 million, or a change in INPV of -8.0 percent to 3.5 
percent. At this level, free cash flow is estimated to decrease to 
$47.6 million, or a decrease of 31.4 percent compared to the no-new-
standards case value of $69.3 million in the year 2021.
    TSL 6 represents a national standard set at 92-percent AFUE for 
large NWGFs and all MHGFs, while small NWGFs remain at the current 
Federal minimum of 80-percent AFUE. Small NWGFs are defined as units 
with input capacities of 55 kBTU/hr or less and make up ten percent of 
NWGF shipments. At this level, 52 percent of NWGF shipments and 90 
percent of MHGF shipments would need to include a secondary heat 
exchanger or increased overall heat exchanger surface area. Capital 
conversion costs would increase from $29.5 million at TSL 4, the 
previous TSL with a national 92-percent AFUE standard and a capacity 
threshold for small furnaces, to $36.5 million at TSL 6 as 
manufacturers increase secondary heat exchanger production line 
capacity. Manufacturers will also incur product conversion costs driven 
by the development necessary to create compliant, cost-competitive 
products. DOE estimates total industry conversion costs could reach 
$54.7 million at TSL 6. DOE expects the industry to be able to maintain 
three tiers of markups with efficiency as a differentiator at TSL 6.
    At TSL 7, DOE estimates the change in INPV to range from -$375.2 
million to $22.5 million, or a change in INPV of -34.0 percent to 2.0 
percent. At this level, free cash flow is estimated to decrease to 
$25.1 million, or a decrease of 63.7 percent compared to the no-new-
standards case value of $69.3 million in the year 2021.
    TSL 7 represents a national 95 percent AFUE standard for all 
covered NWGFs and all MHGFs. TSL 7 does not have a small capacity 
threshold. At TSL 7, 74 percent of NWGF shipments and 96 percent of 
MHGF shipments would need to include a secondary heat exchanger or 
increased overall heat exchanger surface area. Capital conversion costs 
would increase to $80.7 million at TSL 7. Total industry conversion 
costs could reach $107.6 million.
    As 95 percent AFUE would become the baseline product efficiency, 
98-percent AFUE products would become the only higher-efficiency 
products available on the market and manufacturers are unable to 
maintain three tiers of markups differentiated by efficiency. DOE 
models the industry as compressing from 3 tiers today (good, better, 
and best) to only having two tiers (good and better) at this level. 
Deterioration of premium markups and loss of product differentiation 
would have significant effects on industry profitability, and increases 
in industry conversion costs would be expected to result in a 
significant jump in INPV losses at TSL 7. Product conversion costs 
would total $26.9 million at TSL 7, as manufacturers develop cost-
optimized 95-percent AFUE large NWGF and MHGF models that are 
competitive at reduced markups.
    At TSL 8, DOE estimates the change in INPV to range from -$332.8 
million to $42.8 million, or a change in INPV of -30.1 percent to 3.9 
percent. At this level, free cash flow is estimated to decrease to 
$31.2 million, or a decrease of 55.0 percent compared to the no-new-
standards case value of $69.3 million in the year 2021.
    TSL 8 represents a national 95-percent AFUE standard for large 
NWGFs and all MHGFs, while small NWGFs remain at the current Federal 
minimum of 80-percent AFUE. At TSL 8, small NWGFs are defined as NWGFs 
with input capacities of 55 kBTU/hr or less and make up ten percent of 
NWGF shipments. At this level, 65 percent of NWGF shipments and 96 
percent of MHGF shipments would need to include a secondary heat 
exchanger or increased overall heat exchanger surface area. Capital 
conversion costs would be expected to increase significantly to $67.3 
million at TSL 8. Manufacturers would also incur product conversion 
costs, driven by the development necessary to create compliant, cost-
competitive products. Total conversion costs could reach $94.2 million.
    For large NWGFs, 98-percent AFUE products would become the only 
higher-efficiency products available on the market, and manufacturers 
would be unable to maintain three tiers of markups differentiated by 
efficiency. While manufacturers would still able to maintain three 
tiers of markups in the small capacity NWGF product classes, the vast 
majority of shipments would be sold at a reduced markup. For large 
NWGFs and MHGFs, DOE models the industry as compressing from 3 tiers 
today (good, better, and best) to two tiers (good and best). The 
reduction in premium product offerings and deterioration of markups 
coupled with increased conversion costs would be expected to result in 
a significant negative change in INPV at TSL 8.
    At TSL 9, DOE estimates the change in INPV to range from -$577.9 
million to -$4.3 million, or a change in INPV of -52.3 percent to -0.4 
percent. At this level, free cash flow is estimated to decrease to -
$66.0 million, or a decrease of 195.2 percent compared to the no-new-
standards case value of $69.3 million in the year 2021. TSL 9 
represents the max-tech standard level.
    TSL 9 represents a national max-tech standard, where all product 
classes must achieve 98-percent AFUE. Less than 1 percent of NWGFs and 
MHGFs are sold at this level today. With a 98-percent AFUE standard, 
nearly all models must be redesigned. Manufacturers would incur $77.4 
million in product conversion costs as they develop cost-optimized 98-
percent AFUE large NWGF and MHGF models that are competitive with 
significantly reduced markups at this TSL. Manufacturers would also 
incur capital conversion costs of $250.4 million as manufacturers add 
the production capacity necessary to produce all NWGFs and MHGFs sold 
into the domestic market with 98-percent AFUE. Total conversion costs 
would be expected to reach $327.9 million for the industry.
    Some manufacturers expressed great concern about the state of 
technology at max-tech. Specifically, those manufacturers 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 products at 
this level. Furthermore, manufacturers would lose efficiency as a 
differentiator between baseline and premium product offerings.
    DOE seeks comments, information, and data on the capital conversion 
costs

[[Page 65822]]

and product conversion costs estimated for each AFUE standard TSL.

Cash-Flow Analysis Results for Non-Weatherized Gas Furnaces and Mobile 
Home Gas Furnaces Standby Mode and Off Mode Standards

    Table V.20 and Table V.21 present the financial impacts of standby 
mode and off mode standards on NWGF and MHGF manufacturers. These 
impacts are represented by changes in INPV and free cash flow (FCF) in 
the year before the standard (2021) as well as by the conversion costs 
that DOE estimates NWGF and MHGF manufacturers would incur at each TSL. 
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) a per-unit preservation of operating profit scenario. 
The preservation of gross margin percentage scenario 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.20--Manufacturer Impact Analysis: Standby Mode and Off Mode Standards Results for Non-Weatherized Gas
     Furnace and Mobile Home Gas Furnace Standards--Preservation of Gross Margin Percentage Markup Scenario
----------------------------------------------------------------------------------------------------------------
                                                                    No-new-          Trial standard level
                                                Units              standards -----------------------------------
                                                                     case          1           2           3
----------------------------------------------------------------------------------------------------------------
INPV...............................  2015$ millions.............     1,104.3     1,104.1     1,108.5     1,110.1
Change in INPV.....................  2015$ millions.............  ..........       (0.2)         4.1         5.7
                                     %..........................  ..........       (0.0)         0.4         0.5
Product Conversion Costs...........  2015$ millions.............  ..........         1.5         1.6         2.1
FCF (2021).........................  2015$ millions.............        69.3        68.9        68.8        68.7
Change in FCF......................  %..........................  ..........       (0.6)       (0.7)       (0.9)
Capital Conversion Costs...........  2015$ millions.............  ..........  ..........  ..........  ..........
                                                                 -----------------------------------------------
    Total Conversion Costs.........  2015$ millions.............  ..........         1.5         1.6         2.1
----------------------------------------------------------------------------------------------------------------
Note: Parentheses indicate negative values.


  Table V.21--Manufacturer Impact Analysis: Standby Mode and Off Mode Standards Results for Non-Weatherized Gas
        Furnace and Mobile Home Gas Furnace Standards--Per-Unit Preservation of Operating Profit Scenario
----------------------------------------------------------------------------------------------------------------
                                                                    No-new-          Trial standard level
                                                Units              standards -----------------------------------
                                                                     case          1           2           3
----------------------------------------------------------------------------------------------------------------
INPV...............................  2015$ millions.............     1,104.3     1,104.1     1,101.8     1,100.9
Change in INPV.....................  2015$ millions.............  ..........       (0.2)       (2.5)       (3.4)
                                     %..........................  ..........       (0.0)       (0.2)       (0.3)
FCF (2021).........................  2015$ millions.............        69.3        68.9        68.8        68.7
Change in FCF......................  %..........................           -       (0.6)       (0.7)       (0.9)
Product Conversion Costs...........  2015$ millions.............                     1.5         1.6         2.1
Capital Conversion Costs...........  2015$ millions.............  ..........  ..........  ..........  ..........
                                                                 -----------------------------------------------
    Total Conversion Costs.........  2015$ millions.............  ..........         1.5         1.6         2.1
----------------------------------------------------------------------------------------------------------------
Note: Parentheses indicate negative values.

    At TSL 1, DOE estimates impacts on INPV for NWGF and MHGF 
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 one percent compared to the 
no-new-standards case value of $69.3 million in 2021. DOE expects 
conversion costs for standby mode and off mode to be $1.5 million.
    At TSL 2, DOE estimates impacts on INPV for NWGF and MHGF 
manufacturers to range from a decrease of less than one percent to an 
increase of less than one percent. At this potential standard level, 
industry free cash flow is estimated to decrease by less than one 
percent compared to the no-new-standards case value of $69.3 million in 
2021. DOE expects conversion costs for standby mode and off mode to be 
$1.6 million.
    At TSL 3, DOE estimates impacts on INPV for NWGF and MHGF 
manufacturers to range from a decrease of less than one percent to an 
increase of less than one percent. At this potential standard level, 
industry free cash flow is estimated to decrease by less than one 
percent compared to the no-new-standards case value of $69.3 million in 
2021. DOE expects conversion costs for standby mode and off mode to be 
$2.1 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 NWGF and MHGF

[[Page 65823]]

industry, DOE used the GRIM to estimate the domestic labor expenditures 
and number of direct employees in the no-new-standards case and in each 
of the standards cases during the analysis period. DOE used statistical 
data from the U.S. Census Bureau's 2014 Annual Survey of 
Manufacturers,\193\ 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 
throughout the analysis period. The total labor expenditures in each 
year are calculated by multiplying the MPCs by the labor percentage of 
MPCs.
---------------------------------------------------------------------------

    \193\ U.S. Census Bureau, Annual Survey of Manufacturers: 
General Statistics: Statistics for Industry Groups and Industries 
(2014) (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 
2014 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 represented 
by changes in the total number of production workers between the no-
new-standards case and the standards cases for NWGFs and MHGFs. Table 
V.22 shows the range of potential impacts of potential amended energy 
conservation standards on U.S. production workers involved in the 
manufacturing of NWGFs and MHGFs.

         Table V.22--Potential Changes in the Total Number of Non-Weatherized Gas Furnace and Mobile Home Gas Furnace Production Workers in 2022
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                   Trial standard level
                                ------------------------------------------------------------------------------------------------------------------------
                                  No-New-Standards case              1                       2                       3                       4
--------------------------------------------------------------------------------------------------------------------------------------------------------
Potential Domestic Production    1,709..................  1,709 to 1,770........  1,709 to 1,799........  1,709 to 1,825........  1,709 to 1,867.
 Workers in 2022.
Potential Change in Domestic     .......................  (1,709) to 61.........  (1,709) to 90.........  (1,709) to 116........  (1,709) to 158.
 Production Workers in 2022 *.


--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                   Trial standard level
                                ------------------------------------------------------------------------------------------------------------------------
                                            5                        6                       7                       8                       9
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total Number of Domestic         1,709 to 1,936.........  1,709 to 1,952........  1,709 to 1,918........  1,709 to 1,942........  1,709 to 2,654.
 Production Workers in 2022
 (without changes in production
 locations).
Potential Changes in Domestic    (1,709) to 227.........  (1,709) to 243........  (1,709) to 209........  (1,709) to 233........  (1,709) to 945.
 Production Workers in 2022 *.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Numbers in parentheses indicate negative values.

    In the absence of amended energy conservation standards, DOE 
estimates that the residential furnace industry would employ 1,709 
domestic production workers in 2022. The upper end of the range 
estimates an increase in the number of domestic workers producing NWGF 
and MHGF after implementation of an amended 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 are currently producing covered products in countries 
with lower labor costs, and an amended standard that necessitates large 
increases in labor content or 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 conservation 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 
significantly affect the amount of labor required in production. 
Therefore, DOE did not conduct a quantitative domestic manufacturing 
employment impact analysis for the proposed standby mode and off mode 
standards.
    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 SNOPR TSD.
c. Impacts on Manufacturing Capacity
    According to manufacturer feedback, current production facilities 
may not be able to accommodate a large shift to condensing NWGFs, if 
such shift were required by an amended energy conservation standard. 
However, manufacturers would be able to add capacity and adjust product 
designs in the five year period 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 increase the capacity of production lines that meet required 
efficiency levels at TSLs 1 through 8 to meet consumer demand. At TSL 
9, technical uncertainty was expressed by manufacturers that do not 
offer 98-percent AFUE products today, as they were unsure of what 
production lines changes would be needed to meet an amended standard 
set at max-tech.

[[Page 65824]]

d. Impacts on Subgroups of Manufacturers
    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 businesses as a manufacturer subgroup that it believes 
could be disproportionally impacted by energy conservation standards 
and would require a separate analysis in the MIA. DOE did not identify 
any other adversely impacted manufacturer subgroups for this rulemaking 
based on the results of the industry characterization.
    DOE analyzes the impacts on small businesses in a separate analysis 
in section VI.B of this SNOPR as part of the Regulatory Flexibility 
Analysis. In summary, the Small Business Administration (SBA) defines a 
``small business'' as having 1,250 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 found three domestic manufacturers in the industry 
that qualify as a small business. For a discussion of the impacts on 
the small business manufacturer subgroup, see the Regulatory 
Flexibility Analysis in section VI.B of this SNOPR and chapter 12 of 
the SNOPR 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 examines other 
regulations that could affect NWGF and MHGF manufacturers that will 
take effect approximately three years before or after the 2022 
compliance date or during the period between publication of the amended 
energy conservation standards for NWGF and MHGF and when compliance 
with such standards is required. 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 energy conservation 
standards are presented in Table V.23.

  Table V.23--Compliance Dates and Expected Conversion Costs of Federal Energy Conservation Standards Affecting Non-Weatherized Gas Furnace and Mobile
                                                             Home Gas Furnace Manufacturers
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           Number of
                                                         manufacturers
   Federal energy conservation          Number of        from today's   Approximate standards year  Industry conversion costs     Industry  conversion
            standards                manufacturers *     rule affected                                                             costs/revenue ***
                                                              **
--------------------------------------------------------------------------------------------------------------------------------------------------------
Commercial Packaged Boilers                         45               2  2019......................  $27.5M (2014$)...........  2.3%
 [dagger] 81 FR 15835 (March 24,
 2016).
Commercial Water Heaters                            25               2  2019......................  $29.8M (2014$)...........  3.0%
 [dagger] 81 FR 34440 (May 31,
 2016).
Furnace Fans 79 FR 38129 (July                      38              13  2019......................  $40.6M (2013$)...........  1.6%
 3, 2014).
Residential Boilers 81 FR 2320                      27               2  2021......................  $2.5M (2014$)............  <1%
 (January 15, 2016).
Central Air Conditioners and                        30              10  2023......................  342.6 (2015$)............  <1%
 Heat Pumps [dagger] 80 FR 52206
 (August 25, 2015).
Commercial Warm Air Furnaces 81                     16               8  2023......................  $7.5M to $22.2M (2014$)..  1.7% to 5.1%
 FR 2420 (January 15, 2016).                                                                                                    [dagger][dagger]
Small, Large, and Very Large                        29               9  2018 and 2023 [Dagger]....  $520.8M (2014$)..........  4.9%
 Commercial Package Air
 Conditioning and Heating
 Equipment 81 FR 2420 (January
 15, 2016).
--------------------------------------------------------------------------------------------------------------------------------------------------------
* This column presents the total number of manufacturers identified in the energy conservation standard rule contributing to cumulative regulatory
  burden.
** This column presents the number of manufacturers producing NWGF and MHGF that are also listed as manufacturers in the energy conservation standard
  contributing to cumulative regulatory burden.
*** This column presents conversion costs as a percentage of cumulative revenue for the industry during the conversion period. The conversion period is
  the timeframe over which manufacturers must make conversion cost investments and lasts from the announcement year of the final rule to the year before
  the standards year of the final rule. This period typically ranges from 3 to 5 years, depending on the energy conservation standard.
[dagger] The final rule for this energy conservation standard has not been published. The compliance date and analysis of conversion costs have not been
  finalized at this time. Listed values are based on the proposed rule.
[dagger][dagger] Low and high conversion cost scenarios were analyzed as part of this Direct Final Rule. The range of estimated conversion expenses
  presented here reflects those two scenarios.
[Dagger] The direct final rule for Small, Large, and Very Large Commercial Package Air Conditioning and Heating Equipment adopts an amended standard in
  2018 and a higher amended standard in 2023. The conversion costs are spread over an eight-year conversion period ending in 2022, with over eighty
  percent of the conversion costs occurring between 2019 and 2022.


[[Page 65825]]

    In addition to the Federal energy conservation standards listed in 
Table V.23, there are multiple appliance standards in progress that do 
not yet have a proposed rule or final rule. The compliance date, 
manufacturer lists, and analysis of conversion costs are not available 
at this time. These appliance standards include: Commercial Industrial 
Fans and Blowers, Residential Clothes Dryers, Residential Water 
Heaters, and Room Air Conditioners.
    As noted in Table V.23, DOE published a final rule for energy 
conservation standards for furnace fans. 79 FR 38130 (July 3, 2014). 
For several reasons, the furnace fan rule creates a unique cumulative 
regulatory burden for manufacturers of NWGFs and MHGs. First, both 
today's SNOPR and the energy conservation standards furnace fan final 
rule both directly impact the design and manufacture of NWGFs and 
MHGFs. The two rulemakings affect products that share a common revenue 
stream. Second, all NWGF and MHGF manufacturers are affected by the 
July 2014 furnace fan final rule. Third, these requirements have 
effective dates within a short period of time, 2019 for furnace fans 
and 2022 for NWGFs and MHGFs. Fourth, the design changes resulting from 
this SNOPR are additive to the design changes needed to meet the 
furnace fan standard. In 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 believes that manufacturers will likely redesign NWGFs to 
incorporate BPM motors and multi-staging technology, and redesign MHGFs 
to incorporate improved PSC motors. The furnace fan rule will lead to 
higher production costs and may require upfront investment by NWGF and 
MHGF manufacturers. The production cost and conversion cost impacts 
from the furnace fan rule and from today's rule are cumulative. To 
account for this in the GRIM, DOE incorporated relevant conversion 
costs from the furnace fan rule that occur between 2015 and 2019. 
Additionally, DOE accounts for the increase in MPCs and changes in 
working capital when the furnace fan standards goes into effect in 
2019. Additional detail is provided in chapter 12 of the TSD.
    DOE requests comments on the identified regulations and their 
contribution to cumulative regulatory burden. Additionally, DOE 
requests feedback on product-specific Federal regulations that take 
effect between 2017 and 2025 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 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
    To estimate the energy savings attributable to potential amended 
standards for NWGFs and MHGFs, DOE compared their energy consumption 
under the no-new-standards case to their anticipated energy consumption 
under each TSL. The savings are measured over the entire lifetime of 
products purchased in the 30-year period that begins in the year of 
anticipated compliance with amended or new standards (2022-2051). Table 
V.24 presents DOE's projections of the primary and FFC national energy 
savings for each AFUE TSL considered for NWGFs and MHGFs. National 
energy savings were calculated using the approach described in section 
IV.H of this notice.

 Table V.24--Potential AFUE Standards: Cumulative National Energy Savings for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces Shipped in 2022-
                                                                          2051
                                                                         [Quads]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                              Trial standard level
                    Energy savings                    --------------------------------------------------------------------------------------------------
                                                           1          2          3          4          5          6          7          8          9
--------------------------------------------------------------------------------------------------------------------------------------------------------
Primary energy.......................................       0.77       1.51       1.53       1.95       2.17       2.40       3.37       3.52       4.66
FFC energy...........................................       0.88       1.75       1.81       2.27       2.78       2.86       4.17       4.15       5.72
--------------------------------------------------------------------------------------------------------------------------------------------------------

    For the proposed standards (TSL 6), the FFC energy savings of 2.86 
quads is the the FFC natural gas savings (5.10 quads) minus the 
increase in FFC energy use associated with higher electricity use due 
to switching to electric heating (2.24 quads).
    The above results reflect the use of the default product switching 
trend for NWGFs (as described in section IV.F.9). DOE also conducted a 
sensitivity analysis that considered scenarios with lower and higher 
rates of product switching, as compared to the default case. The 
results of these alternative cases are presented in Table V.25. In the 
low-product-switching case, the NES for the proposed standards (TSL 6) 
are 4 percent higher than in the default case. In the high-product-
switching case, the NES is 9 percent lower than in the default case.

 Table V.25--Potential AFUE Standards: Cumulative Full-Fuel-Cycle National Energy Savings for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces
                                              Shipped in 2022-2051); Product Switching Sensitivity Analysis
                                                                         [Quads]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                              Trial standard level
                    Switching case                    --------------------------------------------------------------------------------------------------
                                                           1          2          3          4          5          6          7          8          9
--------------------------------------------------------------------------------------------------------------------------------------------------------
Default..............................................       0.88       1.75       1.81       2.27       2.78       2.86       4.17       4.15       5.72
No Switching.........................................       0.99       2.12       2.35       2.78       4.89       3.95       6.65       5.49       8.59
High.................................................       0.84       1.66       1.70       2.15       2.44       2.60       3.81       3.81       5.29

[[Page 65826]]

 
Low..................................................       0.89       1.79       1.86       2.32       3.05       2.98       4.43       4.28       6.01
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Table V.26 presents DOE's projections of the primary and FFC 
national energy savings for each standby mode and off mode TSL 
considered for NWGFs and MHGFs. National energy savings were calculated 
using the approach described in section IV.H of this notice.

     Table V.26--Potential Standby Mode and Off Mode Standards: Cumulative National Energy Savings for Non-
                   Weatherized Gas Furnaces and Mobile Home Gas Furnaces Shipped in 2022-2051
                                                     [Quads]
----------------------------------------------------------------------------------------------------------------
                                                                               Trial standard level
                         Energy savings                          -----------------------------------------------
                                                                       TSL 1           TSL 2           TSL 3
----------------------------------------------------------------------------------------------------------------
Primary energy..................................................            0.15            0.18            0.27
FFC energy......................................................            0.16            0.19            0.28
----------------------------------------------------------------------------------------------------------------

    OMB Circular A-4 \194\ 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.\195\ 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 NES 
sensitivity analysis results based on a 9-year analytical period for 
the AFUE TSLs are presented in Table V.27.\196\ The impacts are counted 
over the lifetime of NWGFs and MHGFs purchased in 2022-2030.
---------------------------------------------------------------------------

    \194\ U.S. Office of Management and Budget, ``Circular A-4: 
Regulatory Analysis'' (Sept. 17, 2003) (Available at 
www.whitehouse.gov/omb/circulars_a004_a-4/).
    \195\ 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.
    \196\ 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.27--Potential AFUE Standards: Cumulative National Energy Savings for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces; Nine Years of
                                                                  Shipments (2022-2030)
                                                                         [Quads]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                              Trial standard level
                    Energy savings                    --------------------------------------------------------------------------------------------------
                                                           1          2          3          4          5          6          7          8          9
--------------------------------------------------------------------------------------------------------------------------------------------------------
Primary energy.......................................       0.23       0.45       0.46       0.57       0.57       0.69       0.93       1.02       1.35
FFC energy...........................................       0.27       0.52       0.56       0.68       0.77       0.83       1.18       1.22       1.69
--------------------------------------------------------------------------------------------------------------------------------------------------------

b. Net Present Value of Consumer Costs and Benefits
    DOE estimated the cumulative NPV of the total costs and savings for 
consumers that would result from the TSLs considered for NWGFs and 
MHGFs. In accordance with OMB's guidelines on regulatory analysis,\197\ 
DOE calculated NPV using both a 7-percent and a 3-percent real discount 
rate. Table V.28 shows the consumer NPV results for AFUE standards with 
impacts counted over the lifetime of products purchased in 2022-2051.
---------------------------------------------------------------------------

    \197\ U.S. Office of Management and Budget, ``Circular A-4: 
Regulatory Analysis,'' section E, (Sept. 17, 2003) (Available at 
www.whitehouse.gov/omb/circulars_a004_a-4/).

[[Page 65827]]



  Table V.28--Potential AFUE Standards: Cumulative Net Present Value of Consumer Benefits for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces
                                                                  Shipped in 2022-2051
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                              Trial standard level
                    Discount rate                     --------------------------------------------------------------------------------------------------
                                                           1          2          3          4          5          6          7          8          9
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                (Billion 2015$)
--------------------------------------------------------------------------------------------------------------------------------------------------------
3 percent............................................        6.3       12.9       15.7       17.0       23.8       21.7       31.8       29.0       39.5
7 percent............................................        1.8        3.7        4.5        4.8        5.6        5.6        7.5        7.4        9.0
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The above results reflect the use of the default product switching 
trend for NWGFs (as described in section IV.F.9). As previously 
discussed, DOE conducted a sensitivity analysis assuming higher and 
lower levels of product switching for NWGFs. The results of these 
alternative cases are presented in Table V.29Table V.25. In the low-
product-switching case, the NPV for the proposed standards (TSL 6) are 
5 percent higher than in the default case. In the high-product-
switching case, the NPV is 9 percent lower than in the default case.

  Table V.29--Potential AFUE Standards: Cumulative Net Present Value of Consumer Benefits for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces
                                          Shipped in 2022-2051); Product Switching Sensitivity Analysis (2015$)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                             Trial standard levels
                    Switching case                    --------------------------------------------------------------------------------------------------
                                                           1          2          3          4          5          6          7          8          9
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 3-percent Discount Rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
Default..............................................        6.3       12.9       15.7       17.0       23.8       21.7       31.8       29.0       39.5
No Switching.........................................        6.1       12.5       13.8       16.1       24.7       21.7       34.0       30.3       43.2
High.................................................        6.3       12.7       14.9       16.5       20.8       20.4       28.9       27.8       35.7
Low..................................................        6.4       13.0       16.1       17.3       26.2       22.2       34.0       29.6       41.7
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 7-percent Discount Rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
Default..............................................        1.8        3.7        4.5        4.8        5.6        5.6        7.5        7.4        9.0
No Switching.........................................        1.8        3.5        4.0        4.5        6.0        5.8        8.3        8.0       10.1
High.................................................        1.8        3.5        4.2        4.5        4.5        5.1        6.4        6.9        7.6
Low..................................................        1.9        3.7        4.7        4.9        6.5        5.9        8.3        7.7        9.8
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Table V.30--Potential Standby Mode and Off Mode Standards: 
Cumulative Net Present Value of Consumer Benefits for Non-Weatherized 
Gas Furnaces and Mobile Home Gas Furnaces Shipped in 2022-2051 shows 
the consumer NPV results for standby mode and off mode standards with 
impacts counted over the lifetime of products purchased in 2022-2051.

Table V.30--Potential Standby Mode and Off Mode Standards: Cumulative Net Present Value of Consumer Benefits for
                 Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces Shipped in 2022-2051
----------------------------------------------------------------------------------------------------------------
                                                                               Trial standard level
                          Discount rate                          -----------------------------------------------
                                                                         1               2               3
----------------------------------------------------------------------------------------------------------------
                                                                                  (billion 2015$)
----------------------------------------------------------------------------------------------------------------
3 percent.......................................................             2.5             2.5             4.0
7 percent.......................................................             0.9             0.8             1.3
----------------------------------------------------------------------------------------------------------------

    The NPV results for AFUE standards based on the aforementioned 9-
year analytical period are presented in Table V.31.\198\ The impacts 
are counted over the lifetime of products purchased in 2022-2030. As 
mentioned previously, such results are presented for informational 
purposes only and are not indicative of any change in DOE's analytical 
methodology or decision criteria.
---------------------------------------------------------------------------

    \198\ 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.

[[Page 65828]]



 Table V.31--Potential AFUE Standards: Cumulative Net Present Value of Consumer Benefits for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces;
                                                           Nine Years of Shipments (2022-2030)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                             Trial standard levels
                    Discount rate                     --------------------------------------------------------------------------------------------------
                                                           1          2          3          4          5          6          7          8          9
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                (billion 2015$)
--------------------------------------------------------------------------------------------------------------------------------------------------------
3 percent............................................        2.1        4.2        5.2        5.5        6.9        6.7        9.3        8.9       11.4
7 percent............................................        0.8        1.6        2.0        2.1        2.2        2.4        2.9        3.1        3.4
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The above results reflect the use of the default, moderately 
decreasing price trend to estimate the change in product price for 
NWGFs and MHGFs over the analysis period (see section IV.F.1 of this 
document). DOE also conducted a sensitivity analysis that considered 
one scenario with a constant 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 SNOPR TSD. 
In the high-price-decline case, the NPV of consumer benefits is higher 
than in the default case. In the constant price trend case, the NPV of 
consumer benefits is lower than in the default case.
c. Indirect Impacts on Employment
    DOE expects that amended energy conservation standards for NWGFs 
and MHGFs would reduce energy bills for consumers of those products, 
with the resulting net savings being redirected to other forms of 
economic activity. These expected shifts in spending and economic 
activity could affect the demand for labor. As described in section 
IV.N of this document, 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 timeframes (2022-2027), 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 SNOPR TSD presents detailed 
results regarding anticipated indirect employment impacts.
4. Impact on Utility or Performance of Products
    As discussed in sections III.A and IV.B of this notice, DOE has 
tentatively concluded that the standards proposed in this SNOPR would 
not lessen the utility or performance of the NWGFs and MHGFs under 
consideration in this rulemaking. Manufacturers of these products 
currently offer units that meet or exceed the proposed standards.
5. Impact of Any Lessening of Competition
    DOE considered any lessening of competition that would be likely to 
result from new or amended standards. As discussed in section 
III.E.1.e, 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 this determination, DOE has provided DOJ 
with copies of this SNOPR and the accompanying TSD for review. DOE will 
consider DOJ's comments on the proposed rule in determining whether to 
proceed to a final rule, and if so, DOE will publish and respond to 
DOJ's comments in that document. DOE invites comment from the public 
regarding the competitive impacts that are likely to result from this 
proposed rule. In addition, stakeholders may also provide comments 
separately to DOJ regarding these potential impacts. See the ADDRESSES 
section for information to send comments to DOJ.
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 (costs) of energy production. Chapter 15 in the 
SNOPR TSD presents the estimated impacts on electricity generating 
capacity, relative to the no-new-standards case, for the TSLs that DOE 
considered in this rulemaking.
    Energy conservation resulting from potential standards for NWGFs 
and MHGFs is expected to yield environmental benefits in the form of 
reduced emissions of certain air pollutants and greenhouse gases. Table 
V.32 provides DOE's estimate of cumulative emissions reductions 
expected to result from the AFUE TSLs considered in this rulemaking. 
Table V.32 includes site and power sector emissions and upstream 
emissions. 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 in response to the potential standards. Table V.33 
provides DOE's estimate of cumulative emissions reductions expected to 
result from the standby mode and off mode TSLs considered in this 
rulemaking. Table V.33 includes both power sector emissions and 
upstream emissions. All of the emissions were calculated using the 
multipliers discussed in section IV.K. DOE reports annual emissions 
reductions for each TSL in chapter 13 of the SNOPR TSD.

[[Page 65829]]



 Table V.32--Potential AFUE Standards: Cumulative Emissions Reduction for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces Shipped in 2022-2051
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                              Trial standard level
                                                      --------------------------------------------------------------------------------------------------
                                                           1          2          3          4          5          6          7          8          9
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             Site and Power Sector Emissions
--------------------------------------------------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)............................       39.3       75.8       74.3       97.5       90.5        115        151        173        212
SO2 (thousand tons)..................................     (7.74)     (25.2)     (41.1)     (37.1)      (155)     (75.7)      (176)     (86.7)      (221)
NOX (thousand tons)..................................       66.9        136        144        177        251        232        359        329        486
Hg (tons)............................................      (0.0)      (0.1)      (0.2)      (0.1)      (0.6)      (0.3)      (0.7)      (0.3)      (0.8)
CH4 (thousand tons)..................................      (0.1)     (1.25)     (3.04)     (2.13)     (15.3)     (6.04)     (16.4)     (6.09)     (20.1)
N2O (thousand tons)..................................      (0.1)      (0.3)      (0.6)      (0.4)     (2.46)     (1.06)     (2.70)     (1.14)     (3.36)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   Upstream Emissions
--------------------------------------------------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)............................       6.84       14.7       16.8       19.6       35.6       27.7       47.5       37.7       63.0
SO2 (thousand tons)..................................      (0.1)      (0.4)      (0.6)      (0.5)     (2.43)     (1.14)     (2.73)     (1.29)     (3.43)
NOX (thousand tons)..................................        111        239        275        319        595        455        788        618      1,042
Hg (tons)............................................      (0.0)      (0.0)      (0.0)      (0.0)      (0.0)      (0.0)     (0.01)      (0.0)      (0.0)
CH4 (thousand tons)..................................        669      1,451      1,678      1,939      3,668      2,783      4,841      3,764      6,400
N2O (thousand tons)..................................       0.01       0.01      0.001       0.01     (0.04)     (0.00)     (0.04)       0.01     (0.04)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   Total FFC Emissions
--------------------------------------------------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)............................       46.1       90.5       91.1        117        126        143        198        211        275
SO2 (thousand tons)..................................     (7.84)     (25.6)     (41.7)     (37.6)      (157)     (76.8)      (179)     (88.0)      (225)
NOX (thousand tons)..................................        178        375        419        496        846        687      1,147        947      1,528
Hg (tons)............................................     (0.03)      (0.1)      (0.2)      (0.1)      (0.6)      (0.3)      (0.7)      (0.3)      (0.8)
CH4 (thousand tons)..................................        669      1,450      1,675      1,937      3,653      2,777      4,825      3,758      6,380
CH4 (million tons CO2eq) *...........................       18.7       40.6       46.9       54.2      102.3       77.7      135.1      105.2      178.6
N2O (thousand tons)..................................     (0.05)      (0.3)      (0.6)      (0.4)     (2.50)     (1.07)     (2.74)     (1.13)     (3.40)
N2O (thousand tons CO2eq) *..........................     (12.6)     (71.9)      (147)      (114)      (664)      (283)      (727)      (300)      (900)
--------------------------------------------------------------------------------------------------------------------------------------------------------
* CO2eq is the quantity of CO2 that would have the same global warming potential (GWP).
Note: Parentheses indicate negative values (an increase in emissions).


  Table V.33--Potential Standby Mode and Off Mode Standards: Cumulative Emissions Reduction for Non-Weatherized
                         Gas Furnaces and Mobile Home Gas Furnaces Shipped in 2022-2051
----------------------------------------------------------------------------------------------------------------
                                                                               Trial standard level
                                                                 -----------------------------------------------
                                                                         1               2               3
----------------------------------------------------------------------------------------------------------------
                                             Power Sector Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons).......................................            8.58            10.3            15.4
SO2 (thousand tons).............................................            5.01            6.01            9.01
NOX (thousand tons).............................................            9.52            11.4            17.1
Hg (tons).......................................................            0.02            0.02            0.03
CH4 (thousand tons).............................................             0.7             0.9            1.30
N2O (thousand tons).............................................             0.1             0.1             0.2
----------------------------------------------------------------------------------------------------------------
                                               Upstream Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons).......................................             0.5             0.6             0.9
SO2 (thousand tons).............................................             0.1             0.1             0.2
NOX (thousand tons).............................................            7.14            8.57            12.8
Hg (tons).......................................................          0.0002          0.0002          0.0004
CH4 (thousand tons).............................................            39.5            47.4            71.0
N2O (thousand tons).............................................             0.0             0.0             0.0
----------------------------------------------------------------------------------------------------------------
                                               Total FFC Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons).......................................            9.07            10.9            16.3
SO2 (thousand tons).............................................            5.10            6.12            9.17
NOX (thousand tons).............................................            16.7            20.0            30.0
Hg (tons).......................................................            0.02            0.02            0.03
CH4 (thousand tons).............................................            40.2            48.2            72.3
CH4 (thousand tons CO2eq) *.....................................           1,126           1,351           2,025
N2O (thousand tons).............................................             0.1             0.1             0.2
N2O (thousand tons CO2eq) *.....................................            28.3            33.9            50.9
----------------------------------------------------------------------------------------------------------------
* CO2eq is the quantity of CO2 that would have the same global warming potential (GWP).


[[Page 65830]]

    As part of the analysis for this supplemental proposed rule, DOE 
estimated monetary benefits likely to result from the reduced emissions 
of CO2 and NOX that DOE estimated for each of the 
considered TSLs for NWGFs and MHGFs. As discussed in section IV.L of 
this document, 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 2015$) are represented by $12.4/metric ton 
(the average value from a distribution that uses a 5-percent discount 
rate), $40.6/metric ton (the average value from a distribution that 
uses a 3-percent discount rate), $63.2/metric ton (the average value 
from a distribution that uses a 2.5-percent discount rate), and $118/
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 (public health, economic, and environmental) as the 
projected magnitude of climate change increases.
    Table V.34 presents the global value of CO2 emissions 
reductions at each AFUE TSL. Table V.35 presents the global value of 
CO2 emissions reductions at each standby mode and off mode 
TSL. 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; these results are presented in chapter 14 of the SNOPR TSD.

 Table V.34--Potential AFUE Standards: Estimates of Global Present Value of CO2 Emissions Reduction for Non-Weatherized Gas Furnaces and Mobile Home Gas
                                                              Furnaces Shipped in 2022-2051
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                  SCC case *
                                                     ---------------------------------------------------------------------------------------------------
                         TSL                             5% Discount rate,        3% Discount rate,       2.5% Discount rate,    3% Discount rate,  95th
                                                              average                  average                  average                 percentile
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                (million 2015$)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             Site and Power Sector Emissions
--------------------------------------------------------------------------------------------------------------------------------------------------------
1...................................................                      239                    1,156                    1,862                    3,524
2...................................................                      453                    2,208                    3,564                    6,734
3...................................................                      464                    2,229                    3,582                    6,806
4...................................................                      580                    2,831                    4,572                    8,634
5...................................................                      497                    2,514                    4,092                    7,678
6...................................................                      671                    3,302                    5,342                   10,071
7...................................................                      856                    4,264                    6,918                   13,014
8...................................................                    1,019                    4,994                    8,072                   15,232
9...................................................                    1,226                    6,062                    9,816                   18,499
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   Upstream Emissions
--------------------------------------------------------------------------------------------------------------------------------------------------------
1...................................................                     42.0                      202                      325                      616
2...................................................                     89.4                      432                      696                    1,317
3...................................................                      105                      503                      808                    1,535
4...................................................                      119                      575                      927                    1,752
5...................................................                      218                    1,049                    1,690                    3,198
6...................................................                      168                      814                    1,312                    2,480
7...................................................                      289                    1,397                    2,251                    4,258
8...................................................                      229                    1,109                    1,786                    3,378
9...................................................                      386                    1,858                    2,992                    5,663
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   Total FFC Emissions
--------------------------------------------------------------------------------------------------------------------------------------------------------
1...................................................                      281                    1,358                    2,188                    4,140
2...................................................                      542                    2,640                    4,260                    8,050
3...................................................                      569                    2,733                    4,391                    8,341
4...................................................                      699                    3,406                    5,499                   10,387
5...................................................                      715                    3,564                    5,783                   10,875
6...................................................                      839                    4,116                    6,653                   12,551
7...................................................                    1,145                    5,662                    9,169                   17,272
8...................................................                    1,248                    6,103                    9,858                   18,610
9...................................................                    1,612                    7,920                   12,808                   24,162
--------------------------------------------------------------------------------------------------------------------------------------------------------
* For each of the four cases, the corresponding SCC value for emissions in 2015 is $12.4, $40.6, $63.2, and $118 per metric ton (2015$). The values are
  for CO2 only (i.e., not CO2eq of other greenhouse gases).


[[Page 65831]]


Table V.35--Potential Standby Mode and Off Mode Standards: Estimates of Global Present Value of CO2 Emissions Reduction for Non-Weatherized Gas Furnaces
                                                    and Mobile Home Gas Furnaces Shipped in 2022-2051
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                  SCC Case *
                                                     ---------------------------------------------------------------------------------------------------
                         TSL                             5% Discount rate,        3% Discount rate,       2.5% Discount rate,     3% Discount rate, 95th
                                                              average                  average                  average                 percentile
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                (million 2015$)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 Power Sector Emissions
--------------------------------------------------------------------------------------------------------------------------------------------------------
1...................................................                     51.8                      251                      404                      764
2...................................................                     62.1                      301                      485                      917
3...................................................                     93.1                      451                      728                    1,375
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   Upstream Emissions
--------------------------------------------------------------------------------------------------------------------------------------------------------
1...................................................                     2.96                     14.4                     23.3                     44.0
2...................................................                     3.56                     17.3                     28.0                     52.8
3...................................................                     5.33                     26.0                     42.0                     79.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   Total FFC Emissions
--------------------------------------------------------------------------------------------------------------------------------------------------------
1...................................................                     54.7                      265                      428                      808
2...................................................                     65.7                      318                      513                      970
3...................................................                     98.4                      477                      770                    1,454
--------------------------------------------------------------------------------------------------------------------------------------------------------
* For each of the four cases, the corresponding SCC value for emissions in 2015 is $12.4, $40.6, $63.2, and $118 per metric ton (2015$). 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 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 
reduced 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. 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 SCC values resulting from the interagency review process. DOE 
notes, however, that the proposed standards would be economically 
justified even without inclusion of monetized benefits of reduced 
CO2 and NOX emissions.
    DOE also estimated the cumulative monetary value of the economic 
benefits associated with NOX emissions reductions 
anticipated to result from the considered TSLs for NWGFs and MHGFs. The 
dollar-per-ton values that DOE used are discussed in section IV.L of 
this document. Table V.36 presents the cumulative present values for 
NOX emissions reductions for each AFUE TSL calculated using 
7-percent and 3-percent discount rates. Table V.37 presents the 
cumulative present values for NOX emissions for each standby 
mode and off mode TSL calculated using 7-percent and 3-percent discount 
rates. These tables present values that use the low dollar-per-ton 
values, which reflect DOE's primary estimate. Results that reflect the 
range of NOX dollar-per-ton values are presented in Table 
V.40.

 Table V.36--Potential AFUE Standards: Estimates of Present Value of NOX Emissions Reduction for Non-Weatherized
                        Gas Furnaces and Mobile Home Gas Furnaces Shipped in 2022-2051 *
----------------------------------------------------------------------------------------------------------------
                              TSL                                   3% Discount rate         7% Discount rate
----------------------------------------------------------------------------------------------------------------
                                                                                 (million 2015$)
----------------------------------------------------------------------------------------------------------------
                                         Site and Power Sector Emissions
----------------------------------------------------------------------------------------------------------------
1.............................................................                   (24.5)                   (9.29)
2.............................................................                   (78.7)                   (29.6)
3.............................................................                    (126)                   (46.8)
4.............................................................                    (116)                   (43.3)
5.............................................................                    (479)                    (179)
6.............................................................                    (235)                   (87.7)
7.............................................................                    (545)                    (203)
8.............................................................                    (269)                  (100.5)
9.............................................................                    (684)                    (254)
----------------------------------------------------------------------------------------------------------------
                                               Upstream Emissions
----------------------------------------------------------------------------------------------------------------
1.............................................................                      179                     62.3
2.............................................................                      384                      133
3.............................................................                      456                      163

[[Page 65832]]

 
4.............................................................                      511                      177
5.............................................................                      958                      334
6.............................................................                      730                      252
7.............................................................                    1,267                      440
8.............................................................                      990                      341
9.............................................................                    1,685                      587
----------------------------------------------------------------------------------------------------------------
                                               Total FFC Emissions
----------------------------------------------------------------------------------------------------------------
1.............................................................                      155                     53.1
2.............................................................                      305                      103
3.............................................................                      330                      116
4.............................................................                      396                      133
5.............................................................                      480                      155
6.............................................................                      495                      165
7.............................................................                      722                      237
8.............................................................                      720                      241
9.............................................................                    1,000                      333
----------------------------------------------------------------------------------------------------------------
* Results are based on the low benefit-per-ton values.
Note: Parentheses indicate negative values (an increase in emissions).


Table V.37--Potential Standby Mode and Off Mode Standards: Estimates of Present Value of NOX Emissions Reduction
              for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces Shipped in 2022-2051 *
----------------------------------------------------------------------------------------------------------------
                              TSL                                   3% Discount rate         7% Discount rate
----------------------------------------------------------------------------------------------------------------
                                                                                 (million 2015$)
----------------------------------------------------------------------------------------------------------------
                                             Power Sector Emissions
----------------------------------------------------------------------------------------------------------------
1.............................................................                     14.9                      5.1
2.............................................................                     17.9                      6.1
3.............................................................                     26.8                      9.1
----------------------------------------------------------------------------------------------------------------
                                               Upstream Emissions
----------------------------------------------------------------------------------------------------------------
1.............................................................                     11.2                      3.7
2.............................................................                     13.4                      4.5
3.............................................................                     20.1                      6.7
----------------------------------------------------------------------------------------------------------------
                                               Total FFC Emissions
----------------------------------------------------------------------------------------------------------------
1.............................................................                     26.0                      8.8
2.............................................................                     31.2                     10.6
3.............................................................                     46.8                     15.8
----------------------------------------------------------------------------------------------------------------
* Results are based on the low benefit-per-ton values.

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)(VII)) 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.38 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 7-percent and 3-percent 
discount rate. Table V.39 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 7-percent and 3-percent discount rate. The 
CO2 values used in the columns of each table correspond to 
the four sets of SCC values discussed above.

[[Page 65833]]



Table V.38--Potential AFUE Standards: Net Present Value of Consumer Savings Combined With Present Value of Monetized Benefits from CO2 and NOX Emissions
                                                                      Reductions *
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                 Consumer NPV at 3% discount rate added with:
                                                     ---------------------------------------------------------------------------------------------------
                         TSL                            SCC case $12.4/t ton   SCC case $40.6/t and 3%  SCC case $63.2/t and 3%   SCC case $118/t and 3%
                                                       and 3% low NOX values        low NOX values           low NOX values           low NOX values
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                (billion 2015$)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1...................................................                     6.78                     7.86                     8.69                     10.6
2...................................................                     13.8                     15.9                     17.5                     21.3
3...................................................                     16.6                     18.7                     20.4                     24.4
4...................................................                     18.1                     20.8                     22.9                     27.8
5...................................................                     25.0                     27.8                     30.1                     35.1
6...................................................                     23.0                     26.3                     28.8                     34.7
7...................................................                     33.7                     38.2                     41.7                     49.8
8...................................................                     30.9                     35.8                     39.6                     48.3
9...................................................                     42.1                     48.4                     53.3                     64.6
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                 Consumer NPV at 7% Discount Rate added with:
                                                     ---------------------------------------------------------------------------------------------------
                         TSL                          SCC case $12.4/t and 7%  SCC case $40.6/t and 7%  SCC case $63.2/t and 7%   SCC case $118/t and 7%
                                                           low NOX values           low NOX values           low NOX values           low NOX values
                                                     ---------------------------------------------------------------------------------------------------
                                                                                                (billion 2015$)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1...................................................                     2.17                     3.25                     4.08                     6.03
2...................................................                     4.31                     6.41                     8.03                     11.8
3...................................................                     5.20                     7.36                     9.02                     13.0
4...................................................                     5.60                     8.30                     10.4                     15.3
5...................................................                     6.51                     9.36                     11.6                     16.7
6...................................................                     6.65                     9.92                     12.5                     18.4
7...................................................                     8.90                     13.4                     16.9                     25.0
8...................................................                     8.91                     13.8                     17.5                     26.3
9...................................................                     10.9                     17.2                     22.1                     33.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
* The SCC case values represent the global SCC in 2015, in 2015$, for each case. The low NOX value in 2022, in 2015$, is $3,814/ton in the 3-percent
  discount rate case and $3,476/ton in the 7-percent discount rate case. The high NOX value in 2022, in 2015$, is $8695/ton in the 3-percent discount
  rate case and $7,837/ton in the 7-percent discount rate case.


 Table V.39--Potential Standby Mode and Off Mode Standards: Net Present Value of Consumer Savings Combined With Present Value of Monetized Benefits From
                                                            CO2 and NOX Emissions Reductions
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                 Consumer NPV at 3% discount rate added with:
                                                     ---------------------------------------------------------------------------------------------------
                         TSL                            SCC case $12.4/t ton   SCC case $40.6/t and 3%  SCC case $63.2/t and 3%   SCC case $118/t and 3%
                                                       and 3% low NOX values        low NOX values           low NOX values           low NOX values
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                (Billion 2015$)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1...................................................                     2.60                     2.81                     2.97                     3.35
2...................................................                     2.57                     2.82                     3.01                     3.47
3...................................................                     4.11                     4.49                     4.78                     5.46
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                 Consumer NPV at 7% Discount Rate added with:
                                                     ---------------------------------------------------------------------------------------------------
                         TSL                          SCC case $12.4/t and 7%  SCC case $40.6/t and 7%  SCC case $63.2/t and 7%   SCC case $118/t and 7%
                                                           Low NOX values           Low NOX values           Low NOX values           Low NOX values
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                (billion 2015$)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1...................................................                      1.0                     1.16                     1.33                     1.71
2...................................................                      0.9                     1.11                     1.30                     1.76
3...................................................                     1.42                     1.80                     2.09                     2.77
--------------------------------------------------------------------------------------------------------------------------------------------------------
* The SCC case values represent the global SCC in 2015, in 2015$, for each case. The low NOX value in 2022, in 2015$, is $3,814/ton in the 3-percent
  discount rate case and $3,476/ton in the 7-percent discount rate case. The high NOX value in 2022, in 2015$, is $8,695/ton in the 3-percent discount
  rate case and $7,837/ton in the 7-percent discount rate case.

    The national operating cost savings are domestic private U.S. 
consumer monetary savings that occur as a result of purchasing the 
covered products. The national operating cost savings are measured for 
the lifetime of NWGFs and MHGFs shipped in 2022-2051 and include 
savings that accrue from such products after 2051. The benefits 
associated with reduced carbon emissions achieved as a result of the 
proposed standards are also calculated based on the lifetime of NWGFs 
and MHGFs shipped between 2022 and 2051. Because CO2 
emissions have a very long residence time in the atmosphere, the SCC 
values for emissions in future years reflect future

[[Page 65834]]

CO2-emissions impacts that continue through 2300. In 
addition, the CO2 reduction is a benefit that accrues 
globally.

C. Conclusion

    When considering new or amended energy conservation standards, the 
standards that DOE adopts for any type (or class) of covered product 
must be designed to achieve the maximum improvement in energy 
efficiency that the Secretary determines is technologically feasible 
and economically justified. (42 U.S.C. 6295(o)(2)(A)) 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 SNOPR, DOE considered the impacts of new and 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 as DOE discusses the benefits and/or burdens of 
each TSL, tables in this section present a summary of the results of 
DOE's quantitative analysis for each TSL. In addition to the 
quantitative results presented in the tables, DOE also considers other 
burdens and benefits that affect economic justification. These include 
the impacts on identifiable subgroups of consumers who may be 
disproportionately affected by a national standard and impacts on 
employment.
    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, between 
renters and owners, or builders and purchasers). Having less than 
perfect foresight and a high degree of uncertainty about the future, 
consumers may trade off these types of investments at a higher than 
expected rate between current consumption and uncertain future energy 
cost savings.
    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 forgo the 
purchase of a product in the standards case, this decreases sales for 
product manufacturers, and the impact on manufacturers attributed to 
lost revenue 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 
shipments and changes in the volume of product purchases in chapter 9 
of the SNOPR TSD. However, 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.\199\
---------------------------------------------------------------------------

    \199\ 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 energy conservation 
standards, and potential enhancements to the methodology by which these 
impacts are defined and estimated in the regulatory process.\200\ 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 in future rulemakings.
---------------------------------------------------------------------------

    \200\ 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.)
---------------------------------------------------------------------------

1. Benefits and Burdens of TSLs Considered for Non-Weatherized Gas 
Furnace and Mobile Home Gas Furnace AFUE Standards
    Table V.40 and Table V.41 summarize the quantitative impacts 
estimated for each AFUE TSL for NWGFs and MHGFs. The national impacts 
are measured over the lifetime of NWGFs and MHGFs purchased in the 30-
year period that begins in the anticipated year of compliance with 
amended standards (2022-2051). 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 section IV.F.9 and chapter 8 of the SNOPR TSD. The efficiency levels 
contained in each TSL are described in section V.A of this document.

                                Table V.40--Summary of Analytical Results for Non-Weatherized Gas Furnace and Mobile Home Gas Furnace AFUE TSLs: National Impacts
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                       Trial standard level
                                 ---------------------------------------------------------------------------------------------------------------------------------------------------------------
                                          1                 2                 3                 4                 5                 6                 7                8                9
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Cumulative FFC Energy Savings     0.9.............  1.7.............  1.8.............  2.3.............  2.8.............  2.9.............  4.2.............  4.1............  5.7.
 (quads).
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                       NPV of Consumer Costs and Benefits (2015$ billion)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
3% discount rate................  6.3.............  12.9............  15.7............  17.0............  23.8............  21.7............  31.8............  29.0...........  39.5.

[[Page 65835]]

 
7% discount rate................  1.8.............  3.7.............  4.5.............  4.8.............  5.6.............  5.6.............  7.5.............  7.4............  9.0.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                               Cumulative FFC Emissions Reduction
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
CO2 (million metric tons).......  46.1............  90.5............  91.1............  117.............  126.............  143.............  198.............  211............  275..
SO2 (thousand tons).............  (7.84)..........  (25.6)..........  (41.7)..........  (37.6)..........  (157)...........  (76.8)..........  (179)...........  (88.0).........  (225)
NOX (thousand tons).............  178.............  375.............  419.............  496.............  846.............  687.............  1,147...........  947............  1,528.
Hg (tons).......................  (0.03)..........  (0.1)...........  (0.2)...........  (0.1)...........  (0.6)...........  (0.3)...........  (0.7)...........  (0.3)..........  (0.8).
CH4 (thousand tons).............  669.............  1,450...........  1,675...........  1,937...........  3,653...........  2,777...........  4,825...........  3,758..........  6,380.
CH4 (million tons CO2eq) *......  18.7............  40.6............  46.9............  54.2............  102.3...........  77.7............  135.1...........  105.2..........  178.6.
N2O (thousand tons).............  (0.05)..........  (0.3)...........  (0.6)...........  (0.4)...........  (2.50)..........  (1.07)..........  (2.74)..........  (1.13).........  (3.40).
N2O (thousand tons CO2eq) *.....  (12.6)..........  (71.9)..........  (147)...........  (114)...........  (664)...........  (283)...........  (727)...........  (300)..........  (900).
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Value of FFC Emissions Reduction
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
CO2 (2015$ billion) **..........  0.281 to 4.140..  0.542 to 8.050..  0.569 to 8.341..  0.699 to 10.387.  0.715 to 10.875.  0.839 to 12.551.  1.145 to 17.272.  1.248 to 18.610  1.612 to 24.162
NOX-3% discount rate (2015$       154.6 to 352.5..  305.1 to 695.7..  330.4 to 753.3..  395.9 to 902.6..  479.7 to 1093.8.  495.3 to 1129.2.  722.3 to 1646.9.  720.1 to 1641.8  1000.5 to
 million).                                                                                                                                                                        2281.1.
NOX-7% discount rate (2015$       53.1 to 119.6...  103.1 to 232.5..  115.8 to 261.0..  133.2 to 300.4..  155.2 to 350.0..  164.7 to 371.3..  236.8 to 533.9..  240.9 to 543.1.  332.9 to 750.7.
 million).
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Parentheses indicate negative (-) values.
* 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: The standards for NWGFs and MHGFs for each TSL are as follows (and can also be found in Table V.1):
TSL 1: NWGF (80% AFUE at or below and 92% AFUE above 80 kBtu/h) and MHGF (92% AFUE);
TSL 2: NWGF (80% AFUE at or below and 92% AFUE above 70 kBtu/h) and MHGF (92% AFUE);
TSL 3: NWGF (80% AFUE in the South and 95% AFUE in the North) and MHGF (92% AFUE);
TSL 4: NWGF (80% AFUE at or below and 92% AFUE above 60 kBtu/h) and MHGF (92% AFUE);
TSL 5: NWGF and MHGF (92% AFUE);
TSL 6: NWGF (80% AFUE at or below and 92% AFUE above 55 kBtu/h) and MHGF (92% AFUE);
TSL 7: NWGF and MHGF (95% AFUE);
TSL 8: NWGF (80% AFUE at or below and 95% AFUE above 55 kBtu/h) and MHGF (95% AFUE);
TSL 9: NWGF (98% AFUE) and MHGF (96% AFUE).


                       Table V.41--Summary of Analytical Results for Non-Weatherized Gas Furnace and Mobile Home Gas Furnace AFUE TSLs: Manufacturer and Consumer Impacts
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                       Trial standard level
            Category             ---------------------------------------------------------------------------------------------------------------------------------------------------------------
                                          1                 2                 3                 4                 5                 6                 7                8                9
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                      Manufacturer Impacts
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Industry NPV (2015$ million) (no- 1,032 to 1,097..  1,006 to 1,102..  847 to 1,105....  1,007 to 1,119..  985 to 1,118....  1,016 to 1,143..  729 to 1,127....  772 to 1,147...  526 to 1,100.
 new-standards case INPV =
 1,104.3).
Industry NPV (% change).........  (6.6) to (0.7)..  (8.9) to (0.2)..  (23.3) to 0.0...  (8.8) to 1.3....  (10.8) to 1.2...  (8.0) to 3.5....  (34.0) to 2.0...  (30.1) to 3.9..  (52.3) to
                                                                                                                                                                                  (0.4).
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              Consumer Average LCC Savings (2015$)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Non-Weatherized Gas Furnaces....  676.............  730.............  597.............  741.............  617.............  692.............  561.............  609............  506.
Mobile Home Gas Furnaces........  1,049...........  1,049...........  1,275...........  1,049...........  1,049...........  1,049...........  1,020...........  1,020..........  864.
Shipment-Weighted Average *.....  682.............  735.............  608.............  746.............  624.............  698.............  568.............  615............  512.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                   Consumer Simple PBP (years)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Non-Weatherized Gas Furnaces....  6.1.............  6.0.............  6.4.............  5.9.............  6.4.............  6.1.............  6.5.............  6.2............  6.9.
Mobile Home Gas Furnaces........  1.7.............  1.7.............  2.3.............  1.7.............  1.7.............  1.7.............  2.7.............  2.7............  3.1.
Shipment-Weighted Average *.....  6.1.............  5.9.............  6.3.............  5.9.............  6.3.............  6.0.............  6.4.............  6.1............  6.8.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                            Consumer LCC Impacts: Percentage of Consumers That Experience a Net Cost
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Non-Weatherized Gas Furnaces....  2.1%............  4.7%............  6.7%............  6.6%............  17.1%...........  11.1%...........  22.2%...........  15.2%..........  34.2%.
Mobile Home Gas Furnaces........  8.2%............  8.2%............  5.0%............  8.2%............  8.2%............  8.2%............  13.8%...........  13.8%..........  25.2%.
Shipment-Weighted Average *.....  2.2%............  4.7%............  6.7%............  6.6%............  17.0%...........  11.1%...........  22.0%...........  15.2%..........  34.0%.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
* Weighted by shares of each product class in total projected shipments in 2022.
Note: Parentheses indicate negative (-) values.
Note: The standards for NWGFs and MHGFs for each TSL are as follows (can also be found in Table V.1):
TSL 1: NWGF (80% AFUE at or below and 92% AFUE above 80 kBtu/h) and MHGF (92% AFUE);
TSL 2: NWGF (80% AFUE at or below and 92% AFUE above 70 kBtu/h) and MHGF (92% AFUE);
TSL 3: NWGF (80% AFUE in the South and 95% AFUE in the North) and MHGF (92% AFUE);
TSL 4: NWGF (80% AFUE at or below and 92% AFUE above 60 kBtu/h) and MHGF (92% AFUE);
TSL 5: NWGF and MHGF (92% AFUE);
TSL 6: NWGF (80% AFUE at or below and 92% AFUE above 55 kBtu/h) and MHGF (92% AFUE);
TSL 7: NWGF and MHGF (95% AFUE);
TSL 8: NWGF (80% AFUE at or below and 95% AFUE above 55 kBtu/h) and MHGF (95% AFUE);
TSL 9: NWGF (98% AFUE) and MHGF (96% AFUE).


[[Page 65836]]

    DOE first considered the AFUE standards at TSL 9, which represents 
the max-tech efficiency levels. TSL 9 would save 5.7 quads of energy, 
an amount DOE considers significant. Under TSL 9, the NPV of consumer 
benefit would be $9.0 billion using a discount rate of 7 percent, and 
$39.5 billion using a discount rate of 3 percent.
    The cumulative emissions reductions at TSL 9 are 275 Mt of 
CO2, 1,528 thousand tons of NOX, and 6,380 
thousand tons of CH4. Projected emissions show an increase 
of 225 thousand tons of SO2, 3.40 thousand tons of 
N2O, and 0.8 tons of Hg. The increase is due to projected 
switching from gas furnaces to electric heat pumps and electric 
furnaces under standards at TSL 9. The estimated monetary value of the 
CO2 emissions reduction at TSL 9 ranges from $1.612 million 
to $24.162 million.
    At TSL 9, the average LCC impact on affected consumers is a savings 
of $506 for NWGFs and $864 for MHGFs. The simple payback period is 6.9 
years for NWGFs and 3.1 years for MHGFs. The fraction of consumers 
experiencing a net LCC cost is 33.3 percent for NWGFs and 25.2 percent 
for MHGFs.
    At TSL 9, the projected changes in INPV range from a decrease of 
$577.9 million to a decrease of $4.3 million. If the larger decrease is 
reached, TSL 9 could result in a net loss of 52.3 percent in INPV. 
Industry conversion costs total $327.9 million at this TSL. In the 
period from 2019 to 2021, the time period with the greatest risk for 
negative cash-flow impacts due to impacts from the furnace fan final 
rule and today's proposed standard, the industry's annual cash-flow 
drops below zero for the entire three year period. A negative industry 
cash-flow suggests that some manufacturers would need to access cash 
reserves or raise money in the capital markets to fund operations for 
the year. Manufacturers that have lower cash reserves, more difficulty 
raising capital, or a greater portion of products that require redesign 
would experience more business risk than their competitors in the 
industry.
    The Secretary tentatively concludes that at TSL 9 for NWGFs and 
MHGFs AFUE standards, the benefits of energy savings, positive NPV of 
consumer benefits at both 3-percent and 7-percent discount rates, 
emission reductions, and the estimated monetary value of the emissions 
reductions would be outweighed by the economic burden on a significant 
share of consumers, and the impacts on manufacturers, including the 
conversion costs and profit margin impacts that could result in a large 
reduction in INPV. Consequently, the Secretary has tentatively 
concluded that TSL 9 is not economically justified.
    DOE then considered the AFUE standards at TSL 8. TSL 8 would save 
4.15 quads of energy, an amount DOE considers significant. Under TSL 8, 
the NPV of consumer benefit would be $7.4 billion using a discount rate 
of 7 percent, and $29.0 billion using a discount rate of 3 percent.
    The cumulative emissions reductions at TSL 8 are 211 Mt of 
CO2, 947 thousand tons of NOX, and 3,758 thousand 
tons of CH4. Projected emissions show an increase of 88.0 
thousand tons of SO2, 1.13 thousand tons of N2O, 
and 0.3 tons of Hg. The increase is due to projected switching from gas 
furnaces to electric heat pumps and electric furnaces under standards 
at TSL 8. The estimated monetary value of the CO2 emissions 
reduction at TSL 8 ranges from $1.248 million to $18.610 million.
    At TSL 8, the average LCC impact on affected consumers is a savings 
of $609 for NWGFs and $1,020 for MHGFs.\201\ The simple payback period 
for affected consumers is 6.2 years for NWGFs and 2.7 years for MHGFs. 
The fraction of consumers experiencing a net LCC cost is 15.2 percent 
for NWGFs, and 13.8 percent for MHGFs.
---------------------------------------------------------------------------

    \201\ Because consumers using small NWGFs are not affected by 
the standard at this TSL, the results reflect only consumers using 
large NWGFs.
---------------------------------------------------------------------------

    At TSL 8, the projected changes in INPV range from a decrease of 
$332.8 million to an increase of $42.8 million. If the larger decrease 
is reached, TSL 8 could result in a net loss of 30.1 percent in INPV. 
Industry conversion costs total $94.2 million at TSL 8. In the period 
from 2019 to 2021, the time period with the greatest risk for negative 
cash-flow impacts due to impacts from the furnace fan final rule and 
this proposed standard, the industry's annual cash-flow remains 
positive.
    The Secretary tentatively concludes that at TSL 8 for NWGFs and 
MHGFs AFUE standards, the benefits of energy savings, positive NPV of 
consumer benefits at both 3-percent and 7-percent discount rates, 
emission reductions, and the estimated monetary value of the emissions 
reductions would be outweighed by the economic burden on some 
consumers, and the impacts on manufacturers, including the reduction in 
INPV. Consequently, the Secretary has tentatively concluded that TSL 8 
is not economically justified.
    DOE then considered the AFUE standards at TSL 7. TSL 7 would save 
4.1 quads of energy, an amount DOE considers significant. Under TSL 7, 
the NPV of consumer benefit would be $7.7 billion using a discount rate 
of 7 percent, and $32.5 billion using a discount rate of 3 percent.
    The cumulative emissions reductions at TSL 7 are 198 Mt of 
CO2, 1,147 thousand tons of NOX, and 4,825 
thousand tons of CH4. Projected emissions show an increase 
of 179 thousand tons of SO2, 2.74 thousand tons of 
N2O, and 0.7 tons of Hg. The increase is due to projected 
switching from gas furnaces to electric heat pumps and electric 
furnaces under standards at TSL 7. The estimated monetary value of the 
CO2 emissions reduction at TSL 7 ranges from $1.145 million 
to $17.272 million.
    At TSL 7, the average LCC impact on affected consumers is a savings 
of $561 for NWGFs, and $1,020 for MHGFs. The simple payback period for 
affected consumers is 6.5 years for NWGFs and 2.7 years for MHGFs. The 
fraction of consumers experiencing a net LCC cost is 22.2 percent for 
NWGFs and 13.8 percent for MHGFs.
    At TSL 7, the projected changes in INPV range from a decrease of 
$375.2 million to an increase of $22.5 million. If the larger decrease 
is reached, TSL 7 could result in a net loss of 34.0 percent in INPV. 
Industry conversion costs total $107.6 million at this TSL. In the 
period from 2019 to 2021, the time period with the greatest risk for 
negative cash-flow impacts due to impacts from the furnace fan final 
rule and this proposed standard, the industry's annual cash-flow 
remains positive.
    The Secretary tentatively concludes that at TSL 7 for NWGFs and 
MHGFs AFUE standards, the benefits of energy savings, positive NPV of 
consumer benefits at both 3-percent and 7-percent discount rates, 
emission reductions, and the estimated monetary value of the emissions 
reductions would be outweighed by the economic burden on some 
consumers, and the impacts on manufacturers, including the reduction in 
INPV. Consequently, the Secretary has tentatively concluded that TSL 7 
is not economically justified.
    DOE then considered the AFUE standards at TSL 6. TSL 6 would save 
2.8 quads of energy, an amount DOE considers significant. Under TSL 6, 
the NPV of consumer benefit would be $5.6 billion using a discount rate 
of 7 percent, and $21.6 billion using a discount rate of 3 percent.
    The cumulative emissions reductions at TSL 6 are 143 Mt of 
CO2, 687 thousand tons of NOX, and 2,777 thousand 
tons of CH4. Projected emissions show an increase of 76.8 thousand tons 
of SO2, 1.07 thousand tons of N2O, and 0.3 tons 
of Hg. The

[[Page 65837]]

increase is due to projected switching from gas furnaces to electric 
heat pumps and electric furnaces under standards at TSL 6. The 
estimated monetary value of the CO2 emissions reduction at 
TSL 6 ranges from $0.839 million to $12.551 million.
    At TSL 6, the average LCC impact on affected consumers is a savings 
of $692 for NWGFs and $1,049 for MHGFs.\202\ The simple payback period 
for affected consumers is 6.1 years for NWGFs, and 1.7 years for MHGFs. 
The fraction of consumers experiencing a net LCC cost is 11.1 percent 
for NWGFs and 8.2 percent for MHGFs.
---------------------------------------------------------------------------

    \202\ Because consumers using small NWGFs are not affected by 
the standard at this TSL, the results reflect only consumers using 
large NWGFs.
---------------------------------------------------------------------------

    At TSL 6, the projected changes in INPV ranges from a decrease of 
$88.0 million to an increase of $38.5 million. If the larger decrease 
is reached, TSL 6 could result in a net loss of 8.0 percent of INPV. 
Industry conversion costs total $54.7 million at this TSL. In the 
period from 2019 to 2021, the time period with the greatest risk for 
negative cash-flow impacts due to impacts from the furnace fan final 
rule and this proposed standard, the industry's annual cash-flow 
remains positive. DOE notes that there is a significant reduction in 
potential negative impacts to industry at TSL 6 relative to TSLs 7 
through 9.
    After considering the analysis and weighing the benefits and 
burdens, the Secretary has tentatively concluded that at TSL 6 for 
NWGFs and MHGFs AFUE standards, the benefits of energy savings, 
positive NPV of consumer benefits at both 3-percent and 7-percent 
discount rates, emission reductions, the estimated monetary value of 
the emissions reductions, positive average LCC savings, and favorable 
PBPs would outweigh the negative impacts on some consumers and on 
manufacturers. Accordingly, the Secretary has tentatively concluded 
that TSL 6 would offer the maximum improvement in efficiency that is 
technologically feasible and economically justified, and would result 
in the significant conservation of energy. DOE notes that this 
tentative conclusion holds regardless of whether DOE considers the 
environmental benefits expected to result from the proposed standards.
    Therefore, based on the above considerations, DOE proposes to adopt 
the AFUE energy conservation standards for NWGFs and MHGFs at TSL 6. 
The proposed amended AFUE energy conservation standards for NWGFs and 
MHGFs are presented in Table V.42. However, DOE notes that TSL 4, which 
is the same as TSL 6 except that the small furnace threshold is at 60 
kBtu/hr instead of 55 kBtu/hr, reduces the fuel switching impacts 
considerably relative to TSL 6 (see Table V.3), and has a significantly 
lower fraction of consumers who would be negatively impacted than at 
TSL 6 (see Table V.41). For this reason, DOE is also seriously 
considering TSL 4 and requests additional data and comment on the 
merits of adopting TSL 4 in place of TSL 6. (DOE is considering TSL 4 
rather than TSL 5 because TSL 5 is the approach outlined in the March 
2015 NOPR, which DOE is no longer considering for the reasons described 
above.)
    If DOE were to conclude that the costs of TSL 6 outweighed the 
benefits of TSL 6, then DOE could consider factors in TSL 4 such as the 
national energy savings of 2.3 quads, the NPV of $4.8 to $17.0 billion, 
and CO2 emission reductions of 117 million metric tons over 
the analysis period. Under TSL 4, NWGF consumers would experience an 
average life-cycle cost savings of $741, with 6.6 percent of consumers 
negatively impacted (3.1 percent of low-income consumers), and 4.1 
percent of shipments would be impacted by product switching.

 Table V.42--Proposed Amended AFUE Energy Conservation Standards for Non-
          Weatherized Gas Furnaces and Mobile Home Gas Furnaces
------------------------------------------------------------------------
               Product class                            AFUE
------------------------------------------------------------------------
Non-Weatherized Gas Furnaces..............  92% (<=55 kBtu/h).
                                            80% (<=55 kBtu/h).
Mobile Home Gas Furnaces..................  92%.
------------------------------------------------------------------------

2. Benefits and Burdens of TSLs Considered for Non-Weatherized Gas 
Furnace and Mobile Home Gas Furnace Standby Mode and Off Mode Standards
    Table V.43 and Table V.44 summarize the quantitative impacts 
estimated for each standby mode and off mode TSL for NWGFs and MHGFs. 
The national impacts are measured over the lifetime of NWGFs and MHGFs 
purchased in the 30-year period that begins in the anticipated year of 
compliance with new standards (2022-2051). The energy savings, 
emissions reductions, and value of emissions reductions refer to full-
fuel-cycle results. The efficiency levels contained in each TSL are 
described in section V.A of this document.

  Table V.43--Summary of Analytical Results for Non-Weatherized Gas Furnace and Mobile Home Gas Furnace Standby
                                    Mode and Off Mode TSLs: National Impacts
----------------------------------------------------------------------------------------------------------------
                                                               Trial standard level
                                 -------------------------------------------------------------------------------
                                              1                          2                          3
----------------------------------------------------------------------------------------------------------------
Cumulative FFC Energy Savings     0.16.....................  0.19.....................  0.28.
 (quads).
----------------------------------------------------------------------------------------------------------------
                               NPV of Consumer Costs and Benefits (2015$ billion)
----------------------------------------------------------------------------------------------------------------
3% discount rate................  2.52.....................  2.47.....................  3.96.
7% discount rate................  0.89.....................  0.78.....................  1.31.
----------------------------------------------------------------------------------------------------------------
                                       Cumulative FFC Emissions Reduction
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons).......  9.07.....................  10.9.....................  16.3.
SO2 (thousand tons).............  5.10.....................  6.12.....................  9.17.
NOX (thousand tons).............  16.7.....................  20.0.....................  30.0.
Hg (tons).......................  0.019....................  0.023....................  0.034.
CH4 (thousand tons).............  40.2.....................  48.2.....................  72.3.
CH4(thousand tons CO2eq) *......  1,126....................  1,351....................  2,025.
N2O (thousand tons).............  0.107....................  0.128....................  0.192.

[[Page 65838]]

 
N2O (thousand tons CO2eq) *.....  28.3.....................  33.9.....................  50.9.
----------------------------------------------------------------------------------------------------------------
                                        Value of FFC Emissions Reduction
----------------------------------------------------------------------------------------------------------------
CO2 (2015$ million) **..........  0.055 to 0.808...........  0.066 to 0.970...........  0.098 to 1.454.
NOX--3% discount rate (2015$      26.0 to 59.4.............  31.2 to 71.2.............  46.8 to 106.8.
 million).
NOX--7% discount rate (2015$      8.8 to 19.8..............  10.6 to 23.8.............  15.8 to 35.7.
 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.


  Table V.44--Summary of Analytical Results for Non-Weatherized Gas Furnace and Mobile Home Gas Furnace Standby
                            Mode and Off Mode TSLs: Manufacturer and Consumer Impacts
----------------------------------------------------------------------------------------------------------------
                                                                  Trial standard level
               Category               --------------------------------------------------------------------------
                                                  1                        2                        3
----------------------------------------------------------------------------------------------------------------
                                              Manufacturer Impacts
----------------------------------------------------------------------------------------------------------------
Industry NPV (2015$ million) (no-new   1,104.1................  1,101.8 to 1,108.5.....  1,100.9 to 1,110.1
 stds case INPV = 1,104.3).
Industry NPV (% change)..............  (0.0)..................  (0.3) to 0.4...........  (0.3) to 0.5
----------------------------------------------------------------------------------------------------------------
                                      Consumer Average LCC Savings (2015$)
----------------------------------------------------------------------------------------------------------------
Non-Weatherized Gas Furnaces.........  22.....................  12.....................  19
Mobile Home Gas Furnaces.............  21.....................  12.....................  19
Shipment-Weighted Average *..........  22.....................  12.....................  19
----------------------------------------------------------------------------------------------------------------
                                           Consumer Simple PBP (years)
----------------------------------------------------------------------------------------------------------------
Non-Weatherized Gas Furnaces.........  1.2....................  9.1....................  7.0
Mobile Home Gas Furnaces.............  1.2....................  8.9....................  6.9
Shipment-Weighted Average *..........  1.2....................  9.1....................  7.0
----------------------------------------------------------------------------------------------------------------
                    Consumer LCC Impacts: Percentage of Consumers that Experience a Net Cost
----------------------------------------------------------------------------------------------------------------
Non-Weatherized Gas Furnaces.........  2.4....................  13.0...................  8.1%
Mobile Home Gas Furnaces.............  0.4....................  1.0....................  0.8%
Shipment-Weighted Average *..........  2.4....................  12.8...................  8.0%
----------------------------------------------------------------------------------------------------------------
* Weighted by shares of each product class in total projected shipments in 2022.
Note: Parentheses indicate negative values.

    DOE first considered TSL 3, which represents the max-tech 
efficiency levels. TSL 3 would save 0.28 quads of energy, an amount DOE 
considers significant. Under TSL 3, the NPV of consumer benefit would 
be $1.31 billion using a discount rate of 7 percent, and $3.96 billion 
using a discount rate of 3 percent.
    The cumulative emissions reductions at TSL 3 are 16.3 Mt of 
CO2, 9.17 thousand tons of SO2, 30.0 thousand 
tons of NOX, 0.034 tons of Hg, 72.3 thousand tons of 
CH4, and 0.192 thousand tons of N2O. The 
estimated monetary value of the CO2 emissions reduction at 
TSL 3 ranges from $0.098 million to $1.454 million.
    At TSL 3, the average LCC impact on affected consumers is a savings 
of $19 for NWGFs and $19 for MHGFs. The simple payback period is 7.0 
years for NWGFs and 6.9 years for MHGFs. The fraction of consumers 
experiencing a net LCC cost is 8.1 percent for NWGFs and 0.8 percent 
for MHGFs.
    At TSL 3, INPV is projected to decrease by $0.2 million, which 
corresponds to a decrease of less than one percent, in both markup 
scenarios.
    After considering the analysis and weighing the benefits and 
burdens, the Secretary has tentatively concluded that at TSL 3 for 
NWGFs and MHGFs standby mode and off mode standards, the benefits of 
energy savings, positive NPV of consumer benefits at both 3-percent and 
7-percent discount rates, emission reductions, the estimated monetary 
value of the emissions reductions, positive average LCC savings, and 
favorable PBPs would outweigh the negative impacts on some consumers 
and on manufacturers. Accordingly, the Secretary has tentatively 
concluded that TSL 3 would offer the maximum improvement in efficiency 
that is technologically feasible and economically justified, and would 
result in the significant conservation of energy. DOE notes that this 
tentative conclusion holds regardless of whether DOE considers the 
environmental benefits expected to result from the proposed standards.
    Therefore, based on the above considerations, DOE proposes to adopt 
the standby mode and off mode energy conservation standards for NWGFs 
and MHGFs at TSL 3. The proposed new standby mode and off mode energy 
conservation standards for NWGFs and MHGFs are presented in Table V.45.

[[Page 65839]]



   Table V.45--Proposed Standby Mode and Off Mode Energy Conservation
 Standards for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces
------------------------------------------------------------------------
                                                      PS,WB      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 Annualized Benefits and Costs of the Proposed Standards
    The benefits and costs of the proposed standards can also be 
expressed in terms of annualized values. The annualized net benefit is 
the sum of: (1) The annualized national economic value (expressed in 
2015$) of the benefits from operating 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 CO2 and NOX 
emission reductions.\203\
---------------------------------------------------------------------------

    \203\ To convert the time-series of costs and benefits into 
annualized values, DOE calculated a present value in 2016, 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 
(2020, 2030, etc.), and then discounted the present value from each 
year to 2016. 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. 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.
---------------------------------------------------------------------------

    The national operating cost savings are domestic private U.S. 
consumer monetary savings that occur as a result of purchasing the 
covered products. The national operating cost savings are measured for 
the lifetime of NWGFs and MHGFs shipped in 2022-2051, and include 
savings that accrue from such products after 2051. The benefits 
associated with reduced carbon emissions achieved as a result of the 
proposed standards are also calculated based on the lifetime of NWGFs 
and MHGFs shipped in 2022-2051. Because CO2 emissions have a 
very long residence time in the atmosphere, the SCC values for 
emissions in future years reflect future CO2-emissions 
impacts that continue through 2300. The CO2 reduction is a 
benefit that accrues globally.
    Table V.46 shows the annualized values for NWGF and MHGF AFUE 
standards under TSL 6, expressed in 2015$. The results under the 
primary estimate are as follows.
    Using a 7-percent discount rate for benefits and costs other than 
CO2 reductions (for which DOE used a 3-percent discount rate 
along with the average SCC series corresponding to a value of $40.6/
metric ton in 2015 (2015$)), the estimated cost of the proposed AFUE 
standards for NWGFs and MHGFs is $500 million per year in increased 
equipment costs, while the estimated benefits are $1,138 million per 
year in reduced equipment operating costs, $243 million per year in 
CO2 reductions, and $18.6 million per year in reduced 
NOX emissions. In this case, the net benefit would amount to 
$900 million per year.
    Using a 3-percent discount rate for all benefits and costs and the 
average SCC series corresponding to a value of $40.6/metric ton in 2015 
(2015$), the estimated cost of the proposed AFUE standards for NWGFs 
and MHGFs is $504 million per year in increased equipment costs, while 
the estimated annual benefits are $1,785 million per year in reduced 
operating costs, $243 million per year in CO2 reductions, 
and $29.3 million per year in reduced NOX emissions. In this 
case, the net benefit would amount to $1,553 million per year.

            Table V.46--Annualized Benefits and Costs of Proposed AFUE Standards for Non-Weatherized Gas Furnace and Mobile Home Gas Furnace
                                                                         [TSL 6]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                       Primary estimate (million   Low-net-benefits estimate  High-net-benefits estimate
                                            Discount rate (%)                2015$/year) *          (million 2015$/year) *      (million 2015$/year) *
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings...  7...............................  1,138.....................  1,007.....................  1,353.
                                    3...............................  1,785.....................  1,548.....................  2,157.
CO2 Reduction (using mean SCC at    5...............................  69.7......................  62.2......................  80.8.
 5% discount rate) **.
CO2 Reduction (using mean SCC at    3...............................  243.......................  217.......................  283.
 3% discount rate) **.
CO2 Reduction (using mean SCC at    2.5.............................  360.......................  320.......................  418.
 2.5% discount rate) **.
CO2 Reduction (using 95th           3...............................  742.......................  661.......................  862.
 percentile SCC at 3% discount
 rate) **.
NOX Reduction [dagger]............  7...............................  18.6......................  16.8......................  47.9.
                                    3...............................  29.3......................  26.3......................  76.8.
--------------------------------------------------------------------------------------------------------------------------------------------------------
    Total Benefits [dagger].......  7 plus CO2 range................  1,226 to 1,899............  1,086 to 1,684............  1,482 to 2,263.
                                    7...............................  1,400.....................  1,240.....................  1,684.
                                    3 plus CO2 range................  1,884 to 2,557............  1,636 to 2,235............  2,315 to 3,096.
                                    3...............................  2,058.....................  1,791.....................  2,517.
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Consumer Incremental Installed      7...............................  500.......................  554.......................  452.
 Costs.
                                    3...............................  504.......................  559.......................  460.
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      Net Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
    Total [dagger]................  7 plus CO2 range................  726 to 1,399..............  531 to 1,130..............  1,030 to 1,811.
                                    7...............................  900.......................  686.......................  1,232.
                                    3 plus CO2 range................  1,380 to 2,052............  1,077 to 1,676............  1,855 to 2,637.

[[Page 65840]]

 
                                    3...............................  1,553.....................  1,231.....................  2,057.
--------------------------------------------------------------------------------------------------------------------------------------------------------
* This table presents the annualized costs and benefits associated with NWGFs and MHGFs shipped in 2022-2051. These results include benefits to
  consumers which accrue after 2051 from the products shipped in 2022-2051.The incremental installed costs include incremental equipment cost as well as
  installation costs. 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 reduction benefits are global benefits due to actions that occur domestically. The Primary, Low-Net-
  Benefits, and High-Net-Benefits Estimates utilize projections of energy prices from the AEO 2015 Reference case, Low-Economic-Growth case, and High-
  Economic-Growth case, respectively. In addition, incremental product costs reflect a medium decline rate for projected product price trends in the
  Primary Estimate, a constant price trend in the Low-Net-Benefits Estimate, and a high decline rate for projected product price trends in the High-Net-
  Benefits Estimate. The methods used to derive projected price trends are explained in section IV.F.1. Note that the Benefits and Costs may not sum to
  the Net Benefits due to rounding.
** The CO2 reduction benefits are calculated using four different sets of SCC values. The first three use the average SCC calculated using 5-percent, 3-
  percent, and 2.5-percent discount rates, respectively. The fourth represents the 95th percentile of the SCC distribution calculated using a 3-percent
  discount rate. The SCC values are emission year specific. See section IV.L.1 for more details.
[dagger] DOE estimated the monetized value of NOX emissions reductions associated with electricity savings using benefit per ton estimates from the
  Regulatory Impact Analysis for the Clean Power Plan Final Rule, published in August 2015 by EPA's Office of Air Quality Planning and Standards.
  (Available at www.epa.gov/cleanpowerplan/clean-power-plan-final-rule-regulatory-impact-analysis.) See section IV.L.2 for further discussion. For the
  Primary Estimate and Low-Net-Benefits Estimate, DOE used national benefit-per-ton estimates for NOX emitted from the Electric Generating Unit sector
  based on an estimate of premature mortality derived from the ACS study (Krewski et al. 2009). For the High-Net-Benefits Estimate, the benefit-per-ton
  estimates were based on the Six Cities study (Lepuele et al. 2011); these are nearly two-and-a-half times larger than those from the ACS study.
[dagger][dagger] Total Benefits for both the 3-percent and 7-percent cases are presented using only the average SCC with a 3-percent discount rate. In
  the rows labeled ``7 percent plus CO2 range'' and ``3 percent 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.47 presents the annualized values for NWGF and MHGF standby 
mode and off mode standards under TSL 3, expressed in 2015$. The 
results under the primary estimate are as follows.
    Using a 7-percent discount rate for benefits and costs other than 
CO2 reductions (for which DOE used a 3-percent discount rate 
along with the average SCC series corresponding to a value of $40.6/
metric ton in 2015 (2015$)), the estimated cost of the proposed standby 
mode and off mode standards for NWGFs and MHGFs is $40.7 million per 
year in increased equipment costs, while the estimated benefits are 
$188 million per year in reduced equipment operating costs, $28.2 
million per year in CO2 reductions, and $1.79 million per 
year in reduced NOX emissions. In this case, the net benefit 
would amount to $178 million per year.
    Using a 3-percent discount rate for all benefits and costs and the 
average SCC series corresponding to a value of $40.6/metric ton in 2015 
(2015$), the estimated cost of the proposed standby mode and off mode 
standards for NWGFs and MHGFs is $41.4 million per year in increased 
equipment costs, while the estimated annual benefits are $276 million 
per year in reduced operating costs, $28.2 million per year in 
CO2 reductions, and $2.77 million per year in reduced 
NOX emissions. In this case, the net benefit would amount to 
$265 million per year.

  Table V.47--Annualized Benefits and Costs of Proposed Standby Mode and Off Mode Standards for Non-Weatherized Gas Furnace and Mobile Home Gas Furnace
                                                                         (TSL 3)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                    Primary estimate (million    Low-net-benefits estimate    High-net-benefits estimate
                                            Discount rate %               2015$/year) *            (million 2015$/year) *       (million 2015$/year) *
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings....  7...........................  188........................  169........................  219.
                                     3...........................  276........................  246........................  329.
CO2 Reduction (using mean SCC at 5%  5...........................  8.2........................  7.4........................  9.2.
 discount rate) **.
CO2 Reduction (using mean SCC at 3%  3...........................  28.2.......................  25.5.......................  31.8.
 discount rate) **.
CO2 Reduction (using mean SCC at     2.5.........................  41.6.......................  37.6.......................  46.9.
 2.5% discount rate) **.
CO2 Reduction (using 95th            3...........................  86.0.......................  77.8.......................  96.9.
 percentile SCC at 3% discount
 rate) **.
NOX Reduction[dagger]..............  7...........................  1.8........................  1.6........................  4.5.
                                     3...........................  2.8........................  2.5........................  7.1.
Total Benefits [dagger]............  7 plus CO2 range............  198 to 276.................  178 to 249.................  233 to 321.
                                     7...........................  218........................  197........................  255.
                                     3 plus CO2 range............  287 to 365.................  256 to 326.................  345 to 433.
                                     3...........................  307........................  274........................  368.
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Consumer Incremental Installed       7...........................  40.7.......................  37.2.......................  45.4.
 Costs.
                                     3...........................  41.4.......................  37.5.......................  46.5.
--------------------------------------------------------------------------------------------------------------------------------------------------------

[[Page 65841]]

 
                                                                      Net Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
    Total [dagger].................  7 plus CO2 range............  157 to 235.................  141 to 212.................  187 to 275.
                                     7...........................  178........................  159........................  210.
                                     3 plus......................  245 to 323.................  218 to 288.................  298 to 386.
                                     CO2 range...................
                                     3...........................  265........................  236........................  321.
--------------------------------------------------------------------------------------------------------------------------------------------------------
* This table presents the annualized costs and benefits associated with NWGFs and MHGFs shipped in 2022-2051. These results include benefits to
  consumers which accrue after 2051 from the products shipped in 2022-2051.The incremental installed costs include incremental equipment cost as well as
  installation costs. 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 reduction benefits are global benefits due to actions that occur domestically. The Primary, Low-Net-
  Benefits, and High-Net-Benefits Estimates utilize projections of energy prices from the AEO 2015 Reference case, Low-Economic-Growth case, and High-
  Economic-Growth case, respectively. In addition, incremental product costs reflect a medium decline rate for projected product price trends in the
  Primary Estimate, a constant price trend in the Low-Net-Benefits Estimate, and a high decline rate for projected product price trends in the High-Net-
  Benefits Estimate. The methods used to derive projected price trends are explained in section IV.F.1. Note that the Benefits and Costs may not sum to
  the Net Benefits due to rounding.
** The CO2 reduction benefits are calculated using four different sets of SCC values. The first three use the average SCC calculated using 5-percent, 3-
  percent, and 2.5-percent discount rates, respectively. The fourth represents the 95th percentile of the SCC distribution calculated using a 3-percent
  discount rate. The SCC values are emission year specific. See section IV.L.1 for more details.
[dagger] DOE estimated the monetized value of NOX emissions reductions associated with electricity savings using benefit per ton estimates from the
  Regulatory Impact Analysis for the Clean Power Plan Final Rule, published in August 2015 by EPA's Office of Air Quality Planning and Standards.
  (Available at www.epa.gov/cleanpowerplan/clean-power-plan-final-rule-regulatory-impact-analysis.) See section IV.L.2 for further discussion. For the
  Primary Estimate and Low-Net-Benefits Estimate, DOE used national benefit-per-ton estimates for NOX emitted from the Electric Generating Unit sector
  based on an estimate of premature mortality derived from the ACS study (Krewski et al. 2009). For the High-Net-Benefits Estimate, the benefit-per-ton
  estimates were based on the Six Cities study (Lepuele et al. 2011); these are nearly two-and-a-half times larger than those from the ACS study.
[dagger][dagger] Total Benefits for both the 3-percent and 7-percent cases are presented using only the average SCC with a 3-percent discount rate. In
  the rows labeled ``7 percent plus CO2 range'' and ``3 percent 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.

    To provide a complete picture of the overall impacts of this SNOPR, 
the following combines and summarizes the benefits and costs for both 
the amended AFUE standards and the new standby mode and off mode 
standards for NWGFs and MHGFs. Table V.48 shows the combined annualized 
benefit and cost values for the proposed AFUE standards and the standby 
mode and off mode standards for NWGFs and MHGFs.\204\ The results under 
the primary estimate are as follows.
---------------------------------------------------------------------------

    \204\ To obtain the combined results, DOE added the results for 
the AFUE standards in Table V.46 with the results for the standby 
mode and off mode standards in Table V.47.
---------------------------------------------------------------------------

    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 has a value of $40.6/metric ton 
in 2015 (2015$)), the estimated cost of the NWGFs and MHGFs standards 
proposed in this rule is $541 million per year in increased equipment 
costs, while the estimated benefits are $1,326 million per year in 
reduced equipment operating costs, $272 million per year in 
CO2 reductions, and $20 million per year in reduced 
NOX emissions. In this case, the net benefit would amount to 
$1,077 million per year.
    Using a 3-percent discount rate for all benefits and costs and the 
average SCC series corresponding to a value of $40.6/metric ton in 2015 
(2015$), the estimated cost of the proposed NWGFs and MHGFs standards 
is $546 million per year in increased equipment costs, while the 
estimated benefits are $2,061 million per year in reduced operating 
costs, $272 million per year in CO2 reductions, and $32 
million per year in reduced NOX emissions. In this case, the 
net benefit would amount to $1,819 million per year.

     Table V.48--Annualized Benefits and Costs of Proposed AFUE (TSL 6) and Standby Mode and Off Mode (TSL 3) Energy Conservation Standards for Non-
                                                 Weatherized Gas Furnaces and Mobile Home Gas Furnaces *
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                       Primary estimate (million   Low-net-benefits estimate  High-net-benefits estimate
                                            Discount rate (%)                 2015$/year)            (million 2015$/year)        (million 2015$/year)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings...  7...............................  1326......................  1176......................  1572.
                                    3...............................  2061......................  1794......................  2486.
CO2 Reduction (using mean SCC at    5...............................  78........................  70........................  90.
 5% discount rate) **.
CO2 Reduction (using mean SCC at    3...............................  272.......................  242.......................  315.
 3% discount rate) **.
CO2 Reduction (using mean SCC at    2.5.............................  401.......................  358.......................  465.
 2.5% discount rate) **.
CO2 Reduction (using 95th           3...............................  828.......................  739.......................  959.
 percentile SCC at 3% discount
 rate ) **.
NOX Reduction [dagger]............  7...............................  20........................  18........................  52.

[[Page 65842]]

 
                                    3...............................  32........................  29........................  84.
                                   ---------------------------------------------------------------------------------------------------------------------
    Total Benefits \[dagger]\.....  7 plus CO2 range................  1424 to 2175..............  1264 to 1933..............  1715 to 2584.
                                    7...............................  1618......................  1437......................  1939.
                                    3 plus CO2 range................  2171 to 2921..............  1892 to 2561..............  2660 to 3529.
                                    3...............................  2364......................  2065......................  2884.
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Consumer Incremental Product Costs  7...............................  541.......................  592.......................  497.
                                    3...............................  546.......................  597.......................  506.
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      Net Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
    Total [dagger]................  7 plus CO2 range................  884 to 1634...............  673 to 1342...............  1217 to 2086.
                                    7...............................  1077......................  845.......................  1442.
                                    3 plus CO2 range................  1625 to 2375..............  1295 to 1964..............  2154 to 3023.
                                    3...............................  1819......................  1468......................  2378
--------------------------------------------------------------------------------------------------------------------------------------------------------
* This table presents the annualized costs and benefits associated with NWGFs and MHGFs shipped in 2022-2051. These results include benefits to
  consumers which accrue after 2051 from the products shipped in 2022-2051. The incremental installed costs include incremental equipment cost as well
  as installation costs. 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 reduction benefits are global benefits due to actions that occur domestically. The Primary, Low-
  Net-Benefits, and High-Net-Benefits Estimates utilize projections of energy prices from the AEO 2015 Reference case, Low-Economic-Growth case, and
  High-Economic-Growth case, respectively. In addition, incremental product costs reflect a medium decline rate for projected product price trends in
  the Primary Estimate, a constant price trend in the Low-Net-Benefits Estimate, and a high decline rate for projected product price trends in the High-
  Net-Benefits Estimate. The methods used to derive projected price trends are explained in section IV.F.1. Note that the Benefits and Costs may not sum
  to the Net Benefits due to rounding.
** The CO2 reduction benefits are calculated using four different sets of SCC values. The first three use the average SCC calculated using 5-percent, 3-
  percent, and 2.5-percent discount rates, respectively. The fourth represents the 95th percentile of the SCC distribution calculated using a 3-percent
  discount rate. The SCC values are emission year specific. See section IV.L.1 for more details.
[dagger] DOE estimated the monetized value of NOX emissions reductions associated with electricity savings using benefit per ton estimates from the
  Regulatory Impact Analysis for the Clean Power Plan Final Rule, published in August 2015 by EPA's Office of Air Quality Planning and Standards.
  (Available at www.epa.gov/cleanpowerplan/clean-power-plan-final-rule-regulatory-impact-analysis.) See section IV.L.2 for further discussion. For the
  Primary Estimate and Low-Net-Benefits Estimate, DOE used national benefit-per-ton estimates for NOX emitted from the Electric Generating Unit sector
  based on an estimate of premature mortality derived from the ACS study (Krewski et al. 2009). For the High-Net-Benefits Estimate, the benefit-per-ton
  estimates were based on the Six Cities study (Lepuele et al. 2011); these are nearly two-and-a-half times larger than those from the ACS study.
[dagger][dagger] Total Benefits for both the 3-percent and 7-percent cases are presented using only the average SCC with a 3-percent discount rate. In
  the rows labeled ``7 percent plus CO2 range'' and ``3 percent 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 that the proposed standards set forth in this SNOPR are 
intended to address are as follows:

    (1) Insufficient information and the high costs of gathering and 
analyzing relevant information leads some consumers to miss 
opportunities to make cost-effective investments in energy 
efficiency.
    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.
    There are external benefits resulting from improved energy 
efficiency of appliances and equipment that are not captured by the 
users of such products. These benefits include externalities related 
to public health, environmental protection, and national energy 
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. DOE attempts to quantify some of the 
external benefits through use of social cost of carbon values.

    The Administrator of the Office of Information and Regulatory 
Affairs (OIRA) in the OMB has determined that the proposed regulatory 
action is a significant regulatory action under section (3)(f) of 
Executive Order 12866. Accordingly, pursuant to section 6(a)(3)(B) of 
the Order, DOE has provided to OIRA: (i) The text of the draft 
regulatory action, together with a reasonably detailed description of 
the need for the regulatory action and an explanation of how the 
regulatory action will meet that need; and (ii) An assessment of the 
potential costs and benefits of the regulatory action, including an 
explanation of the manner in which the regulatory action is consistent 
with a statutory mandate. DOE has included these documents in the 
rulemaking record.
    In addition, the Administrator of OIRA has determined that the 
proposed regulatory action is an ``economically'' significant 
regulatory action under section (3)(f)(1) of Executive Order 12866. 
Accordingly, pursuant to section 6(a)(3)(C) of the Order, DOE has 
provided to OIRA an assessment, including the underlying analysis, of 
benefits and costs anticipated from the regulatory action, together 
with, to the

[[Page 65843]]

extent feasible, a quantification of those costs; and an assessment, 
including the underlying analysis, of costs and benefits of potentially 
effective and reasonably feasible alternatives to the planned 
regulation, and an explanation why the planned regulatory action is 
preferable to the identified potential alternatives. These assessments 
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, OIRA has 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 SNOPR 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.\205\ 
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 1,250 employees or less for an entity to be considered as 
a small business for this category.
---------------------------------------------------------------------------

    \205\ The size standards are listed by North American Industry 
Classification System (NAICS) code and industry description and are 
available at https://www.sba.gov/sites/default/files/files/Size_Standards_Table.pdf.
---------------------------------------------------------------------------

1. Description of Reasons Why Action Is Being Considered and Legal 
Basis
    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 mobile 
home oil-fired furnaces, weatherized oil-fired furnaces, and electric 
furnaces.
    Under 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 
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). The standards amended in the November 
2007 Rule 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. As previously noted, 
based on the market analysis for the November 2007 final rule and the 
standards established under that rule, the November 2007 final rule 
eliminated the distinction between furnaces based on their certified 
input capacity, i.e., the standards applicable to ``small' furnaces 
were established at the same level as the corresponding class of 
furnace generally.
    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), seeking 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'' 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

[[Page 65844]]

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. The June 
2011 DFR amended the existing energy conservation standards for NWGFs, 
MHGFs, 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 NWGFs, 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, seeking to invalidate the 
DOE rule as it pertained to NWGFs. 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 vacated in part, DOE's rule and remanded the matter, 
consistent with a settlement agreement reached between DOE, APGA, and 
the various intervenors in the case, in which DOE agreed to a remand of 
the NWGFs and MHGFs 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 NWGFs and MHGFs) and remanded to the agency for 
further rulemaking. As part of the settlement, DOE agreed to use best 
efforts to issue a notice of proposed 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.
2. Description and Estimated Number of Small Entities Regulated
    DOE reviewed the proposed energy conservation standards for NWGFs 
and MHGFs considered in this SNOPR under the provisions of the 
Regulatory Flexibility Act and the procedures and policies published on 
February 19, 2003. 68 FR 7990. DOE conducted a market survey using 
available public information to identify potential domestic small 
manufacturers. DOE's research involved DOE's Compliance Certification 
Database,\206\ industry trade association membership directories 
(including AHRI),\207\ individual company Web sites, and market 
research tools (e.g., Hoovers reports) \208\ 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 domestic 
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 meet the 
definition of a ``small business'' or are completely foreign-owned and 
operated. DOE initially identified a total of 13 potential companies 
that sell NWGFs and MHGFs in the United States. After reviewing 
publicly available information on these potential residential furnace 
businesses, DOE determined that 10 were either large businesses or 
businesses that were completely foreign owned and operated. DOE 
determined that the remaining three companies were small businesses 
that manufacturer NWGFs or MHGFs in the United States.
---------------------------------------------------------------------------

    \206\ DOE's Compliance Certification Management System, http://www.regulations.doe.gov/certification-data/(last accessed Aug. 19, 
2014).
    \207\ AHRI Directory, https://www.ahridirectory.org/ahridirectory/pages/home.aspx (last accessed Aug. 19, 2014).
    \208\ Hoovers [verbar] Company Information [verbar] Industry 
Information [verbar] Lists, http://www.hoovers.com/) (last accessed 
Aug 26, 2014).
---------------------------------------------------------------------------

    Before issuing this SNOPR, 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.
3. Description and Estimate of Compliance Requirements
a. Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces AFUE 
Standards
    Of the three small domestic manufacturers identified, one small 
business manufactures only NWGFs, one small business only manufacturers 
MHGFs, and one small business manufactures NWGFs and MHGFs. DOE made 
several key assumptions to estimate the conversion costs for small NWGF 
and MHGF manufacturers. First, DOE assumed capital conversion costs are 
proportionate with sales volume. Using model listings as a proxy for 
market share, DOE scaled industry capital conversion costs down to a 
small manufacturer level based on percentage of industry model 
listings. Second, DOE assumed that product conversion costs are 
proportionate to the number of models requiring redesign and that 
manufacturers would redesign all failing models. DOE scaled industry 
product conversion costs down to small manufacturer level based on 
percentage of failing models. Additionally, DOE obtained company 
revenue information pulled from the business information databases 
Hoovers \209\ and Glassdoor.\210\ Relying on these assumptions and 
information, DOE estimated the conversion costs relative to small 
manufacturer revenue.
---------------------------------------------------------------------------

    \209\ www.hoovers.com.
    \210\ www.glassdoor.com.
---------------------------------------------------------------------------

    The small domestic manufacturer that manufactures both NWGFs and 
MHGFs accounts for just under one percent of all NWGF listings and 
approximately four percent of all MHGF listings in the DOE 
Certification Compliance Database. This small manufacturer has 
condensing furnace product offerings, with 93 percent of its NWGF 
models and 71 percent of its MHGF models meeting the 92-percent AFUE 
standard at TSL 6. DOE estimates that conversion costs incurred to 
comply with the AFUE standard at TSL 6 would account for 0.1 percent of 
revenues over the 5-year conversion period for this company.
    The small domestic manufacturer that only manufactures NWGFs 
accounts for five percent of the listings in the DOE Certification 
Compliance Database. This domestic small manufacturer has condensing 
NWGF offerings, with 22 percent of its models meeting the proposed 92-
percent AFUE standard for large NWGFs at TSL 6. DOE estimates that 
conversion costs incurred to comply with the AFUE standard at TSL 6 
would account for 2.8 percent of revenues over the 5-year conversion 
period for this company.
    The small domestic manufacturer that only manufactures MHGFs 
accounts for approximately 17 percent of listings in the DOE 
Certification Compliance Database. This domestic small manufacturer 
does not offer condensing MHGFs, and none of their products would meet 
the proposed standard. DOE estimates that conversion costs incurred

[[Page 65845]]

to comply with the AFUE standard at TSL 6 would account for 0.5 percent 
of revenues over the 5-year conversion period for this company.
b. Weatherized Gas Furnaces and Mobile Home Gas Furnaces Standby Mode 
and Off Mode Standards
    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 market shares by product class. DOE also requests comment on its 
assumptions that capital conversion costs for small businesses scale 
with shipment volumes, the assumption that product conversion costs 
scale with models that require redesign, and the assumption that small 
manufacturers would redesign all failing models to meet the new 
standard. Lastly, DOE requests comment on the potential impacts of the 
proposed AFUE standards and standby mode and off mode standards on 
small manufacturers.
4. Identification of 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 proposed rule.
5. A Description of Significant Alternatives to the Rule
    The discussion in section Table VI.1 analyzes impacts on small 
businesses that would result from DOE's proposed rule. In reviewing 
alternatives to the proposed rule, DOE examined energy conservation 
standards set at higher and lower efficiency levels; TSL 9, TSL 8, TSL 
7, TSL 5, TSL 4, TSL 3, TSL 2 and TSL 1. Table V.14 presents a 
comparison of the net present value (NPV) of consumer benefits, energy 
savings, carbon dioxide emissions, and small business conversion costs 
between the proposed standard, TSL 6, and each of the analyzed TSLs. 
The differences between the analyzed TSL and the proposed TSL are 
characterized as percentages.

                                                      Table VI.1--Significant Alternatives to TSL 6
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                   Trial standard level
                                 -----------------------------------------------------------------------------------------------------------------------
                                                           1          2          3          4          5          6          7          8          9
--------------------------------------------------------------------------------------------------------------------------------------------------------
NPV of Consumer Costs and         3% discount rate           6.3       12.9       16.1         17       23.8       21.6       32.5       28.9       39.5
 Benefits.                         (2015$ billion).
                                  difference from TSL     (15.3)      (8.7)      (5.5)      (4.6)        2.2  .........       10.9        7.3       17.9
                                   6.
                                  7% discount rate           1.8        3.7        4.6        4.8        5.6        5.6        7.7        7.4          9
                                   (2015$ billion).
                                  difference from TSL      (3.8)      (1.9)      (1.0)      (0.8)        0.0  .........        2.1        1.8        3.4
                                   6.
Cumulative FFC Energy Savings...  Quads..............        0.9        1.7        1.7        2.3        2.8        2.9          4        4.2        5.7
                                  difference from TSL      (2.0)      (1.2)      (1.2)      (0.6)      (0.1)                   1.1        1.3        2.8
                                   6.
Carbon Dioxide Emissions Savings  million metric tons       46.1       90.5       86.1        117        126        143        187        211        275
                                  % change from TSL 6     (96.9)     (52.5)     (56.9)     (26.0)     (17.0)                  44.0       68.0      132.0
Average Small business            (2015$ millions)...        0.6        0.6          1        0.6        0.6        0.6          1          1          3
 Conversion Costs.                difference from TSL  .........  .........  .........  .........  .........             .........  .........  .........
                                   6.                        0.0        0.0        0.4        0.0        0.0                   0.4        0.4        2.4
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Parentheses indicate negative values.

    DOE considered TSL 7 through 9. The manufacturer impact analysis 
for the rule showed significantly higher burden for industry at these 
levels than at the proposed level. Furthermore, these levels would have 
required a greater upfront investment from small manufacturers to 
update product designs and production lines to comply with an amended 
standard.
    DOE also considered TSLs 1 through 4. However, each of these 
standard levels would have resulted in lower energy savings, fewer 
consumer benefits, or high upfront investments from manufacturers. DOE 
believes that establishing standards at TSL 6 balances the benefits of 
the energy savings created at TSL 6 with the potential burdens placed 
on NWGF and MHGF manufacturers, including small businesses. 
Accordingly, DOE is declining to adopt one of the other TSLs, or the 
other policy alternatives detailed as part of the regulatory impacts 
analysis included in chapter 17 of the SNOPR TSD.
    Additional compliance flexibilities may be available through other 
means. For example, EPCA provides that a manufacturer whose annual 
gross revenue from all of its operations does not exceed $8 million may 
apply for an exemption from all or part of an energy conservation 
standard for a period not longer than 24 months after the effective 
date of a final rule establishing the standards. (42 U.S.C. 6295(t)) 
Additionally, Section 504 of the Department of Energy Organization Act, 
42 U.S.C. 7194, provides authority for the Secretary to adjust a rule 
issued under EPCA in order to prevent ``special hardship, inequity, or 
unfair distribution of burdens'' that may be

[[Page 65846]]

imposed on that manufacturer as a result of such rule. Manufacturers 
should refer to 10 CFR part 430, subpart E, and part 1003 for 
additional details.

C. Review Under the Paperwork Reduction Act of 1995

    Manufacturers of NWGFs and MHGFs 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 NWGFs and MHGFs, 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 NWGFs 
and MHGFs. 76 FR 12422 (March 7, 2011); 80 FR 5099 (Jan. 30, 2015). 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 30 hours per response, including 
the time for reviewing instructions, searching existing data sources, 
gathering and maintaining the data needed, and completing and reviewing 
the collection of information.
    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 App. B, B(1)-(5). The proposed rule fits 
within this 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://energy.gov/nepa/categorical-exclusion-cx-determinations-cx/.

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 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/sites/prod/files/gcprod/documents/umra_97.pdf.
    Although this supplemental 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 in any one year by the private

[[Page 65847]]

sector. Such expenditures may include: (1) Investment in research and 
development and in capital expenditures by NWGF and MHGF 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 NWGFs and MHGFs, 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 this SNOPR and the TSD for this 
supplementary 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(d), 
(f), and (o), 6313(e), and 6316(a), this proposed rule would establish 
amended AFUE energy conservation standards and new standby mode and off 
mode energy conservation standards for NWGFs and MHGFs 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 chapter 17 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 FR 62446 
(Oct. 7, 2002). DOE has reviewed this SNOPR 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 
proposes amended AFUE energy conservation standards and new standby 
mode and off mode energy conservation standards for NWGFs and MHGFs, 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. Information Quality

    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 
analyses underlying the energy conservation standards rulemaking 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 FR 2667.
    In response to OMB's Bulletin, DOE conducted formal peer reviews of 
the energy conservation standards development process and the analyses 
that are typically used and prepared a Peer Review Report that 
describes that peer review.\211\ 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. DOE has determined that the peer-reviewed analytical process 
continues to reflect current practice, and the Department followed that 
process for developing energy conservation standards in the case of the 
present NWGFs and MHGFs rulemaking.
---------------------------------------------------------------------------

    \211\ The 2007 ``Energy Conservation Standards Rulemaking Peer 
Review Report'' is available at the following Web site: http://energy.gov/eere/buildings/downloads/energy-conservation-standards-rulemaking-peer-review-report-0.
---------------------------------------------------------------------------

    This peer review covered the basic analytical methods and models 
that DOE has used in the present NWGFs and MHGFs rulemaking. In 
addition, prior to the publication of the March 2015 NOPR, DOE provided 
a number of opportunities for stakeholders to

[[Page 65848]]

understand and review the analytical tools used in the NWGFs and MHGFs 
rulemaking. Table VI.2 provides a complete listing of interactions with 
stakeholders related to DOE's analysis in the present rulemaking. The 
paragraphs below describe several key opportunities for discussion and 
review of DOE's analysis.
    On November 13-14, 2012, DOE had interactions with representatives 
of the Gas Technology Institute (GTI) to describe and discuss the LCC 
and PBP analysis methodology and the details of implementation of the 
method in the LCC and PBP analysis spreadsheet. The meeting focused on 
key parts of the analysis, including the furnace installation model, 
energy prices, furnace lifetime, and product switching in response to 
standards, and also on the need for data to improve these aspects of 
the analysis. GTI subsequently developed and conducted a survey of 
furnace contractors and homebuilders to gain insight into product 
switching. The results of this survey were used by DOE in its analysis 
for the March 2015 NOPR (see appendix 8J of the NOPR TSD). GTI also 
provided energy price data, which DOE subsequently used to validate its 
marginal price methodology (see appendix 8C of the NOPR TSD).
    On November 7, 2014, DOE held a public meeting and webinar to 
discuss the analytical tools and the data gathered and analyzed by the 
agency in support of the proposed rule. The meeting covered the LCC and 
PBP analysis spreadsheet, the NIA spreadsheet, and the MIA spreadsheet 
(described in section IV of this preamble). The information presented 
at the meeting, which included explanations in response to questions, 
facilitated subsequent detailed review of the analytical tools and data 
by several stakeholders. Based on their reviews of and comments on the 
analytical tools and input assumptions that formed the basis of the the 
March 2015 NOPR, DOE refined its analyses and included these updates in 
the September 2015 NODA, which evaluated the potential impacts of 
creating a separate product class for furnaces based on input capacity 
and setting lower standards for the ``small furnaces'' product class. 
AHRI also provided updated shipments data for non-condensing and 
condensing furnaces, which were used by DOE in the analysis supporting 
the NODA and also the current SNOPR (see appendix 8J of the SNOPR TSD).
    Finally, stakeholders provided further review of the analysis tools 
and data through comments on the September 2015 NODA. Among other 
topics, the comments covered the methodology for furnace sizing and the 
potential for downsizing of new furnaces in response to a small furnace 
standard. DOE considered these comments, along with the comments on the 
March 2015 NOPR, in preparation of this SNOPR (see chapter 8 of the 
SNOPR TSD).
    As such, DOE's analysis, including the product switching analysis 
that is central to this rulemaking and was not included in the 2007 
Peer Review Report, is not entirely inconsistent with the transparency 
and reproducibility requirements of OMB's government-wide Information 
Quality Guidelines, including pre-dissemination review requirements. 
Specifically, we encourage readers to look at section IV.F.9 of this 
preamble for a discussion of the key assumptions underlying the product 
switching model and the sensitivity analyses undertaken in order to 
characterize the uncertainty inherent in the product switching 
analysis, and at section V.B.1.a, V.B.3.a, and V.B.3.b for discussion 
of the sensitivity of the results to assumptions about product 
switching behavior.

             Table VI.2--Record of Interactions With Stakeholders in Residential Furnaces Rulemaking
----------------------------------------------------------------------------------------------------------------
             Document name                   Date                Notes                         Link
----------------------------------------------------------------------------------------------------------------
Ex Parte Meeting Record................     09/12/14  Meeting between AGA and     https://www.regulations.gov/
                                                       DOE to discuss fuel         document?D=EERE-2014-BT-STD-
                                                       switching impact model.     0031-0004.
Preliminary Spreadsheets...............     09/22/14  Various preliminary         LCC: https://
                                                       spreadsheets DOE put out    www.regulations.gov/
                                                       for stakeholders prior to   document?D=EERE-2014-BT-STD-
                                                       issuance of the NOPR.       0031-0002.
                                                                                  GRIM: https://www.regulations.gov/document?D=EERE-2014-BT-STD-0031-0006.
                                                                                  NIA: https://www.regulations.gov/document?D=EERE-2014-BT-STD-0031-0005.
AGA Workshop on Condensing v.                10/9/14  AGA workshop held for       https://www.regulations.gov/
 Noncondensing Appliances.                             stakeholders to discuss     document?D=EERE-2014-BT-STD-
                                                       DOE's furnace rule.         0031-0010.
AGA Marginal Cost & Fuel Switching          10/21/14  Posted after AGA workshop;  Marginal Cost Analysis: https:/
 Analysis.                                             independent AGA analysis.   /www.regulations.gov/
                                                                                   document?D=EERE-2014-BT-STD-
                                                                                   0031-0012.
                                                                                  Fuel Switching Analysis:
                                                                                   https://www.regulations.gov/document?D=EERE-2014-BT-STD-0031-0013.
GTI Fuel Switching Analysis............     10/21/14  Independent GTI analysis..  https://www.regulations.gov/document?D=EERE-2014-BT-STD-0031-0011.
Ex Parte Meeting Record................     10/23/14  Meeting between AGA, APGA,  https://www.regulations.gov/
                                                       GTI, and DOE to discuss     document?D=EERE-2014-BT-STD-
                                                       fuel switching.             0031-0014.
Notice of Public Meeting...............     10/30/14  Notice for meeting to       https://www.regulations.gov/
                                                       discuss DOE's analytical    document?D=EERE-2014-BT-STD-
                                                       tools.                      0031-0015.
Public Meeting.........................     11/07/14  Public meeting where DOE    Presentation Slides: https://
                                                       discussed analytical        www.regulations.gov/
                                                       tools.                      document?D=EERE-2014-BT-STD-
                                                                                   0031-0016.
                                                                                  Attendance List: https://www.regulations.gov/document?D=EERE-2014-BT-STD-0031-0139.
                                                                                  Transcript: https://www.regulations.gov/document?D=EERE-2014-BT-STD-0031-0017.
Correspondence between APGA and DOE         11/14/14  DOE answers to APGA follow- APGA Request: https://
 Counsel.                                              up questions from the       www.regulations.gov/
                                                       Nov. 7, 2014 public         document?D=EERE-2014-BT-STD-
                                                       meeting.                    0031-0029.
                                                                                  DOE Response: https://www.regulations.gov/document?D=EERE-2014-BT-STD-0031-0030.

[[Page 65849]]

 
NOPR Spreadsheets......................    02/05/15,  DOE spreadsheets revised    NIA+Standby: https://
                                            02/11/15   for NOPR; put out ahead     www.regulations.gov/
                                                       of NOPR issuance.           document?D=EERE-2014-BT-STD-
                                                                                   0031-0024.
                                                                                  Inputs: https://www.regulations.gov/document?D=EERE-2014-BT-STD-0031-0020.
                                                                                  NIA: https://www.regulations.gov/document?D=EERE-2014-BT-STD-0031-0022.
                                                                                  NIA+Standby (revised 2/10):
                                                                                   https://www.regulations.gov/document?D=EERE-2014-BT-STD-0031-0023.
                                                                                  GRIM: https://www.regulations.gov/document?D=EERE-2014-BT-STD-0031-0019.
                                                                                  LCC & PBP: https://www.regulations.gov/document?D=EERE-2014-BT-STD-0031-0021.
Summary of Changes to Analytical Tools.     02/12/15  Summarizes changes DOE      February 12: https://
                                          & 02/24/15   made to analytical tools    www.regulations.gov/
                                                       in light of meetings.       document?D=EERE-2014-BT-STD-
                                                                                   0031-0025.
                                                                                  February 24: https://www.regulations.gov/document?D=EERE-2014-BT-STD-0031-0026.
NOPR Public Meeting....................     03/27/15  Public meeting to discuss   Slides: https://
                                                       March 2015 NOPR.            www.regulations.gov/
                                                                                   document?D=EERE-2014-BT-STD-
                                                                                   0031-0042.
                                                                                  Attendance record: https://www.regulations.gov/document?D=EERE-2014-BT-STD-0031-0048.
                                                                                  Transcript: https://www.regulations.gov/document?D=EERE-2014-BT-STD-0031-0044.
Correspondence between DOE and APGA/AGA     04/23/15  DOE answers to questions    https://www.regulations.gov/
                                                       from APGA/AGA on            document?D=EERE-2014-BT-STD-
                                                       shipments data presented    0031-0046.
                                                       at the NOPR public
                                                       meeting.
----------------------------------------------------------------------------------------------------------------

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 document. If 
you plan to attend the public meeting, please notify the Appliance and 
Equipment Standards Staff at (202) 586-6636 or by email: 
[email protected].
    Please note that foreign nationals visiting DOE Headquarters are 
subject to advance security screening procedures which require advance 
notice prior to attendance at the public meeting. If a foreign national 
wishes to participate in the public meeting, please inform DOE of this 
fact as soon as possible by contacting Ms. Regina Washington at (202) 
586-1214 or by email ([email protected]) so that the 
necessary procedures can be completed.
    DOE requires visitors to have laptops and other devices, such as 
tablets, checked upon entry into the Forrestal Building. Any person 
wishing to bring these devices into the building will be required to 
obtain a property pass. Visitors should avoid bringing these devices, 
or allow an extra 45 minutes to check in. Please report to the 
visitor's desk to have devices checked before proceeding through 
security.
    Due to the REAL ID Act implemented by the Department of Homeland 
Security (DHS), there have been recent changes regarding identification 
(ID) requirements for individuals wishing to enter Federal buildings 
from specific States and U.S. territories. As a result, driver's 
licenses from several States or territory will not be accepted for 
building entry, and instead, one of the alternate forms of ID listed 
below will be required. DHS has determined that regular driver's 
licenses (and ID cards) from the following jurisdictions are not 
acceptable for entry into DOE facilities: Alaska, American Samoa, 
Arizona, Louisiana, Maine, Massachusetts, Minnesota, New York, 
Oklahoma, and Washington. Acceptable alternate forms of Photo-ID 
include: U.S. Passport or Passport Card; an Enhanced Driver's License 
or Enhanced ID-Card issued by the States of Minnesota, New York, or 
Washington (Enhanced licenses issued by these States are clearly marked 
Enhanced or Enhanced Driver's License); a military ID or other Federal 
government-issued Photo-ID card.
    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 https://www1.eere.energy.gov/buildings/appliance_standards/standards.aspx?productid=59. Participants are 
responsible for ensuring their systems are compatible with the webinar 
software.

B. Procedure for Submitting Prepared General Statements for 
Distribution

    Any person who has plans to present a prepared general statement 
may request that copies of his or her statement be made available at 
the public meeting. Such persons may submit requests, along with an 
advance electronic copy of their statement in PDF (preferred), 
Microsoft Word or Excel, WordPerfect, or text (ASCII) file format, to 
the appropriate address shown in the ADDRESSES section at the beginning 
of this document. The request and advance copy of statements must be 
received at least one week before the public meeting and may be 
emailed, hand-delivered, or sent by mail. DOE prefers to receive 
requests and advance copies via email. Please include a telephone 
number to enable DOE staff to make follow-up contact, if needed.

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

[[Page 65850]]

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 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 document.
    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 mail. 
Comments and documents submitted via email, hand delivery/courier, or 
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 that 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

[[Page 65851]]

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. DOE's weighing of the benefits and burdens of the small NWGF 
product class approach and whether a cut-off of 60 kBtu/h (or other 
capacity) would be more appropriate than 55 kBtu/h, particularly in 
light of the consumer economic benefits of such a product class (see 
section III.A).
    2. The technological feasibility of using BPM control relays to 
reduce the energy consumption of furnaces in standby/off mode. In 
particular, DOE seeks feedback regarding the energy savings benefits 
of this technology option, as well as potential impacts on the 
reliability and lifetime of furnace components (see section IV.A.2).
    3. The appropriateness of treating standby and off mode energy 
consumption as equal (see section IV.C.1.a).
    4. Potential future furnace functions that would operate in 
standby/off mode, as well as the energy consumption level of 
furnaces incorporating such functions in relation to the baseline 
standby/off mode energy consumption level used in the analyses for 
this SNOPR (see section IV.C.1.a).
    5. Furnace design changes which may be required in order to 
accommodate the implementation of LL-LTX as a technology option for 
reducing the energy consumption of furnaces in standby/off mode (see 
section IV.C.1.b).
    6. The technological feasibility of achieving the proposed 
standby/off mode max-tech efficiency level of 8.5 watts (see section 
IV.C.1.b).
    7. The anticipated percentage of NWGF models which could achieve 
the efficiency levels promulgated by the 2014 furnace fans rule via 
implementation of a constant-torque BPM motor paired with single-
stage combustion, rather than being paired with two-stage combustion 
(see section IV.C.2.c).
    8. The MPCs and incremental MPCs developed for the AFUE 
efficiency levels analyzed in this SNOPR (see section IV.C.2.c).
    9. The electric furnace MPC estimates and methodology (see 
section IV.C.3).
    10. The 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).
    11. The costs associated with modifying the existing vent 
systems and managing condensate withdrawal to accommodate condensing 
gas furnaces in multi-family buildings (see section IV.F.2).
    12. DOE's approach for sizing furnace equipment (see section 
IV.E.1.a).
    13. DOE's approach for furnace downsizing in the standards cases 
with a small furnace standard (see section IV.E.1.a).
    14. 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).
    15. DOE's approach for determining discount rates in the LCC 
analysis (see section IV.F.7).
    16. DOE's approach for determining NWGF and MHGF lifetime 
distribution (see section IV.F.6).
    17. 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.9).
    18. The estimated market share of condensing NWGFs and MHGFs in 
2022 in the absence of amended AFUE energy conservation standards 
(see section IV.F.8).
    19. The estimated market share of NWGFs and MHGFs that are used 
at each standby efficiency level in 2022 in the absence of amended 
energy conservation standards (see section IV.F.8).
    20. 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).
    21. The potential impacts on product shipments related to fuel 
and product switching (see section IV.G.2).
    22. The reasonableness of the value that DOE used to 
characterize the rebound effect with higher-efficiency NWGFs and 
MHGFs (see section IV.E.1.d).
    23. The approach for conducting the emissions analysis for NWGFs 
and MHGFs (see section IV.K).
    24. DOE's approach for estimating monetary benefits associated 
with emissions reductions (see section IV.L).
    25. DOE seeks comments, information, and data on the capital 
conversion costs and product conversion costs estimated for each 
AFUE standard TSL. (See section V.B.2.a)
    26. DOE requests comments on the identified regulations and 
their contribution to cumulative regulatory burden. Additionally, 
DOE requests feedback on product-specific Federal regulations that 
take effect between 2017 and 2025 that were not listed, including 
identification of the specific regulations and data quantifying the 
associated burdens. (See section V.B.2.e) 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. DOE also requests data on the market share of small 
manufacturers in the NWGF and MHGF markets and information on the 
conversion costs small manufacturers expect to invest.
    27. DOE requests comment on the potential impacts of the 
proposed AFUE standards and standby mode and off mode standards on 
small manufacturers (see section VI.B).

VIII. Approval of the Office of the Secretary

    The Secretary of Energy has approved publication of this notice of 
proposed rulemaking.

List of Subjects

10 CFR Part 429

    Administrative practice and procedure, Confidential business 
information, Energy conservation, Household appliances, Reporting and 
recordkeeping requirements.

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 September 2, 2016.
David J. Friedman,
Acting Assistant Secretary, Energy Efficiency and Renewable Energy.
    For the reasons set forth in the preamble, DOE proposes to amend 
parts 429 and 430 of chapter II, subchapter D, of title 10 of the Code 
of Federal Regulations, as set forth below:

PART 429--CERTIFICATION, COMPLIANCE, AND ENFORCEMENT FOR CONSUMER 
PRODUCTS AND COMMERCIAL AND INDUSTRIAL EQUIPMENT

0
1. The authority citation for part 429 continues to read as follows:

    Authority: 42 U.S.C. 6291-6317; 28 U.S.C. 2461 note.

0
2. Section 429.18 is amended by revising paragraphs (a)(2)(vii) and 
(b)(2)(i) to read as follows:


Sec.  429.18   Residential furnaces.

    (a) * * *
    (2) * * *
    (vii) Reported Values. The represented value of annual fuel 
utilization efficiency must be truncated to the one-tenth of a 
percentage point and the representative value of standby and off mode 
electrical power consumption must be rounded up to the next tenth of 
one watt.
    (b) * * *
    (2) * * *
    (i) Residential furnaces and boilers: The annual fuel utilization 
efficiency (AFUE) in percent (%) and the input capacity (nameplate 
maximum fuel input rate) in British thermal units per hour (Btu/h). For 
non-weatherized oil-fired furnaces (including mobile home oil furnaces) 
and electric furnaces, the standby and off mode electrical power 
consumption in watts (W). On or after [date 5 years after the 
publication of the final rule], certification reports for non-
weatherized gas furnaces (including mobile home gas furnaces) must also 
include the standby and off mode

[[Page 65852]]

electrical power consumption in watts (W).
* * * * *

PART 430--ENERGY CONSERVATION PROGRAM FOR CONSUMER PRODUCTS

0
3. 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
4. Section 430.32 is amended by:
0
a. Revising paragraph (e)(1)(ii);
0
b. Redesignating paragraph (e)(1)(iii) as (e)(1)(iv);
0
c. Adding a new paragraph (e)(1)(iii); and
0
d. 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) * * *
    (ii) The AFUE for non-weatherized gas furnaces (not including 
mobile home gas furnaces) manufactured on or after November 19, 2015, 
but before [date 5 years after publication of the final rule]; mobile 
home gas furnaces manufactured on or after November 19, 2015, but 
before [date 5 years after publication of the final rule]; non-
weatherized oil-fired furnaces (not including mobile home furnaces) 
manufactured on or after May 1, 2013, mobile home oil-fired furnaces 
manufactured on or after January 1, 2015; weatherized oil-fired 
furnaces manufactured on or after January 1, 2015; weatherized oil-
fired furnaces manufactured on or after January 1, 1992; and electric 
furnaces manufactured on or after January 1, 1992; shall not be less 
than indicated in the table below:

------------------------------------------------------------------------
                        Product class                           AFUE \1\
------------------------------------------------------------------------
(A) Non-weatherized gas furnaces (not including mobile home         80.0
 furnaces)...................................................
(B) Mobile home gas furnaces.................................       80.0
(C) Non-weatherized oil-fired furnaces (not including mobile        83.0
 home furnaces)..............................................
(D) Mobile home oil-fired furnaces...........................       75.0
(E) Weatherized gas furnaces.................................       81.0
(F) Weatherized oil-fired furnaces...........................       78.0
(G) Electric furnaces........................................       78.0
------------------------------------------------------------------------
\1\ Annual Fuel Utilization Efficiency, as determined in Sec.
  430.23(n)(2) of this part.

    (iii) The AFUE for non-weatherized gas (not including mobile home 
gas furnaces) manufactured on and after [date 5 years after publication 
of the final rule]; and mobile home gas furnaces manufactured on and 
after [date 5 years after publication of the final rule], shall not be 
less than indicated in the table below:

------------------------------------------------------------------------
                        Product class                           AFUE \1\
------------------------------------------------------------------------
(A) Non-weatherized gas furnaces (not including mobile home         92.0
 gas furnaces) with a certified input capacity of greater
 than 55 kBtu/hr.............................................
(B) Non-weatherized gas furnaces (not including mobile home         80.0
 gas furnaces) with a certified input capacity of less than
 or equal to 55 kBtu/hr......................................
(C) Mobile home gas furnaces.................................       92.0
------------------------------------------------------------------------
\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 standby
                                              mode electrical    Maximum off mode
               Product class                       power         electrical power         Compliance date
                                                consumption,       consumption,
                                              (PW,SB) (watts)    (PW,OFF) (watts)
----------------------------------------------------------------------------------------------------------------
(A) Non-weatherized oil-fired furnaces                    11.0               11.0  May 1, 2013.
 (including mobile home oil-fired furnaces).
(B) Electric furnaces......................               10.0               10.0  May 1, 2013.
(C) Non-weatherized gas furnaces (including                8.5                8.5  Date 5 years after the
 mobile home gas furnaces).                                                         publication of final rule.
----------------------------------------------------------------------------------------------------------------

* * * * *
[FR Doc. 2016-22080 Filed 9-22-16; 8:45 am]
 BILLING CODE 6450-01-P